7.4 - how much are crm capabilities really worth _accenture report

7/24/2019 7.4 - How Much Are CRM Capabilities Really Worth _Accenture Report

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In-Depth Report

How Much Are

Customer Relationship Manageme

Capabilities Really Worth?

What Every CEO Should Know



Table of Contents Executive Overview

Looking Through the Customer's Lens

Key Findings

Detailed Findings

Introduction

About the Research

Deepening Customer Insight

Customer Offers: Giving Customers What They Want

eCRM Moves at Speed Up the Profit Ladder

Shaping Customer Interactions

The Impact of Technology

People Make All the Difference

Extending the Enterprise

Conclusion

Appendix

22

24

30

31

36

40

5

6

8

10

12

17



Accenture’s research shows that

companies that have not invested

in developing specific CRM

capabilities are leaving millions

of dollars in profit on the table.



Executive Overview

It was the legendary Philadelphia retailer John Wanamaker who uttered that now famous management

complaint: “I know half the money I spend on advertising is wasted; the trouble is I don’t know which

half.” The problem, extended to the broader marketing environment, is as old as commerce itself: There’s

never been an objective, reliable way to predict how—and how much—proposed investments in attracting

and retaining customers will affect profit.

Until now, that is. An ambitious study completed by Accenture establishes for the first time the strong

link between excellence in a company’s overall interaction with customers—what we call customer

relationship management, or CRM—and financial performance (see sidebar on page 5, Looking Through

the Customer’s Lens).

Our research shows that companies that have not invested in developing specific CRM capabilities are

leaving millions of dollars in profit on the table.

In fact, differences in performance in executing CRM capabilities account for roughly half the difference

in financial performance between top and average performers. Our research shows that companies

which enjoy the highest profitability in their industries are those that have invested in developing a

very specific set of CRM capabilities—revealing for the first time, the capabilities that contribute the

most to the bottom line.

“Accenture quantified the value of CRM—not the

costs, which many executives know, but the

financial payback, which very few know.”

4



Looking Through the Customer’s Lens

What Accenture calls customer relationship management can be defined as the holistic and methodical approach to identifying

attracting and retaining a company’s most valuable customers through a set of integrated capabilities.

The concept has evolved considerably over time. Today, in truly customer-driven enterprises, it would be more accurate to

say that the approach is about customer-managed relationships .

Customer-driven enterprises look through the lens of the customer, taking an outside-in perspective to ensure that their

best customers receive consistently differentiated, and wherever possible, personalized service. This, in turn, increases market

share, the share of the customer’s business and the total value derived from those customers over their lifetime. This all adds

up to considerable customer equity , the new measure of value that places emphasis on the relationships companies build

with their customers.

We have identified more than 50 marketing, sales and service capabilities that contribute to this relationship building,

grouping them into 5 major areas: Customer Insight, Customer Offers, Customer Interactions, High Performing Organization

and Enterprise Integration.

The challenge of customer relationship management begins with gaining deep insight into customers, then drawing on that

insight to strengthen customer offers —that is, to create more appealing value propositions, products and services. It also

involves enhancing customer interactions through superior sales and service as well as strong personal relationships.

These core capabilities rely on equally important underlying strengths: A high performing organization with personnel skilled i

customer care and the wise use of relevant technology, and enterprise integration (the ability to operate in new ways through

partnerships, alliances and eCommerce initiatives).

5



Key Findings

1. Companies can significantly improve financial performance by improving specific CRM capabilities. 1

• 21 different CRM capabilities were identified that could each add more than $1 million per year to

return on sales2 (see Figure 1 on page 9).

• The 5 capabilities that have the greatest potential impact on financial return are motivating and

rewarding people; customer service (tied for first); turning customer information into insight;

attracting and retaining people; and building selling and service skills.

• Improvements add up. By making a 10 percent improvement in the top 21 CRM capabilities identified

in the study, a $1 billion business unit can boost pre-tax profit by $40 to $50 million (see Figure 2

on page 9).

• More aggressive improvements (i.e. moving from average to high performance3) could triple this

amount ($120 to $150 million).

• A sound strategy matters … but execution is key. Profitability hinges on how many capabilities a

company executes and with what degree of excellence.

1Analysis and findings are based on a typical $1 billion business unit.

2 Return on sales is defined as earnings before interest, depreciation, taxes, and amortization, divided by sales.

3 Moving from average to high performance is based on a 30 percent performance improvement.

6



2. CRM capabilities are interrelated; how well a company performs in one area impacts the others.

• The interrelationship of the capabilities can be seen by looking at 5 key areas. All capabilities can

be mapped into, “creating customer insight,” “building unique customer offers,” “personalizing

customer interactions,” “creating a high performing organization,” and “integrating across the

enterprise” (see Figure 3 on page 11).

• Within the specific capabilities, moving from average to high performance can yield big dividends:

• Customer Insight: $25 million

• Customer Offers: $19 million

• Customer Interactions: $40 million

• High Performing Organization: $40 million

• Enterprise Integration: $17 million

3. The most profitable companies are excellent at leveraging both technology and people.

• Technology influences 40 percent of CRM impact across all capabilities. Put another way, technology

may accelerate the impact of CRM by as much as two-thirds.

• The rapid growth of eCommerce is making a major impact on managing customer relationships,

with the profit-adding potential of eCRM in the top-third, ahead of traditional drivers of value such

as segmentation and channel management.

• People are critical and account for nearly one-third of the total impact across capabilities.

4. Gaining deep insight regarding customers is a fundamental driver and big lever for long-term CRM performance.

• High performing companies glean information from every customer interaction and turn that informa-

tion into insight that is leveraged across the enterprise.

• Leveraging customer insight is critical in the eEconomy where companies are shaping 1:1 customer

relationships online. Internet companies try to narrow their field by focusing on customers

who desire the services offered and are willing to take advantage of those services in an online envi-

ronment.

• Insight helps to shape product and service offers, while fulfilling the promise of the brand.

• Customer service is a key indicator of how well insight is applied to enhance customer interactions.

7



“ We believe CRM is key to our future and we won't be able to

deliver to our shareholders if we don't focus on it. This

[research] is interesting to me because it shows a big chunk of

value that we haven't seen yet."

Ian El-Mokadem, director of marketing and strategy,

British Gas Trading, Ltd.

Detailed FindingsIntroduction

Customer relationship management is a misnomer. It implies that companies have significant control

over customers—over what they buy, from whom, when and how. However, customers increasingly are in

charge—especially in the emerging e-world. Customers have an enormous amount of information at

their pointing-and-clicking fingertips and they use it to make purchasing decisions. They have many

more options and they take advantage of those options to get the best products, services, prices and

performance. In the business-to-business arena, the e-explosion is expected to be more than 5 to 10

times the size of that in the consumer market.

Perhaps this power shift to customers is why CRM looms so large on the CEO agenda. An obscure

acronym less than a decade ago, CRM now ranks among the top issues preoccupying CEOs. While

cost reduction will remain critically important, senior executives realize the folly of ignoring mounting

customer expectations and the necessity to find new sources of real, top-line growth.

Believing that CEOs would not pay so much attention to CRM unless it had significant potential to attract

and retain customers and, in the process, fuel company growth, Accenture launched a study of CRM

practices, surveying nearly 500 executives in more than 250 companies across six industries. We wanted

to see who is profiting from CRM, how much value they are creating and how. Answering these questions

required breaking new ground: We quantified the value of CRM—not the costs, which many executives

know, but the financial payback, which very few know. The goal was to help companies simplify theprocess of deciding how much to invest in which CRM capabilities—a process greatly in need of

simplification given the scope and complexity of CRM (see sidebar on page 10, About the Research).

The study underscores the power of CRM in creating value. Within each industry studied, differences in

CRM skills explained between 28 and 64 percent of the variation in business unit return on sales (ROS).

In addition, our research found 21 capabilities that, regardless of industry, each could add more than

$1 million per year to pre-tax profit, given appropriate performance improvements. For 70 percent of

those capabilities, the benefit exceeds $5 million per year (see Figure 1, opposite page).

8



9

Figure 1: Top CapabilitiesThere are 21 capabilities that can have a significant impact on return on sales when a company improves them. For example, if a

$1 billion company improves its CRM performance from average to high in either customer service or motivating and rewarding

people, its return on sales could improve by as much as $13 million.

Some executives will read this list and smile knowingly, as many of the capabilities look all too familiar.

Hiring and retaining the right people. Customer service. Key account management. Segmentation.

Advertising. Aren’t these, and other capabilities on the list, basics done by every customer-attentive

company? Maybe, but probably not.

While the terms are familiar, the

capabilities they describe are growing

more complex, and are largely inter-

related. Creating the most value and

impact to financial performance

depends on how many capabilities a

company executes, and how well

they execute them.

Improving performance can have asignificant financial impact: A 10 percent

improvement across all CRM capabilities

can improve returns by approximately

$40 to $50 million per year for a typical

$1 billion company. Greater returns up

to $120 to $150 million are likely for

more aggressive efforts (a 30 percent

improvement), and there is always room

to improve—even for high performers.

13

131210

9.599

87.5

65.55.5

55

54.5

3.53

2.52

1.5

Motivating and Rewarding People

Customer ServiceTurning Customer Information into Insight

Attracting and Retaining People

Building Selling and Service Skills

Strong Value Propositions

Partner and Alliance Management

eCRM

Sales Planning

Key Account Management

Advertising

Customer Retention and Acquisition

Managing Product and Service Mix

Promotion

Ability to Change the OrganizationMeasuring Profitability

New Products and Services

Channel Management

Segmentation

Building Service Culture

Brand Management

Impact of Moving from Average to High Performance ($M for a $1B company)

($M for a $1B company)

30% improvement

(move from

average to high

performance)

10% improvement

(moderate

improvement,

for any level

of performance)

$40-$50

$120-$150

Figure 2: Skill Improvements Yield Large ReturnsBy improving all 21 CRM capabilities, companies can yield

significant pre-tax profit.



About the Research

The study described in this publication was the first to quantify the value and impact of CRM capabilities on financial

performance and further isolate specific capabilities that generate the highest return. It began with an extensive survey of

close to 500 executives, representing over 250 companies across 6 industries (chemicals, communications, forest products,

electronics and high tech, retail and pharmaceuticals).

The survey included separate sections on marketing, sales and service. Executives completed those sections most relevant to

their area of responsibility; those who had responsibility for multiple areas completed several sections. The 430 questions in

the survey covered a range of strategy, process, technology and human performance issues, and were designed to score how

well the responding business unit performs on various CRM capabilities.

The survey questions were correlated to the business unit’s self-reported return on sales. To

translate industry-specific results into cross-industry findings, the research team:

• Scored respondents, industry by industry, on each capability using a weighted average of the

individual capability scores. Results were analyzed to identify how much return on sales variation

across survey respondents was attributable to the CRM capability scores of business units.

• Grouped the significant capabilities from each industry into 21 cross-industry capabilities

based on the average impact of that capability across industries.

• Calculated how improving the execution of specific CRM capabilities would affect return on sales. Interviews with

executives in the six focal industries, as well as outside the industries studied (including financial services, automotive,

utilities, and dot-com) validated the survey data, explored how CRM capabilities are developed and used, and probed the

impact of CRM capabilities on business performance.

The team then provided a framework for the financial improvement a typical $1 billion business unit could reap by making

either a modest improvement (10 percent) in its CRM capabilities or a more significant improvement (30 percent), such as

moving from average to high performance.

10



To help companies make the decisions required to invest their CRM dollars wisely, Accenture mapped the

21 most profit-adding capabilities identified in the research to our framework for the Customer-Driven

Enterprise. Made up of 5 key areas, this model shows the relative impact of specific capabilities and

capability areas on pre-tax profit (see Figure 3). For example, if a $1 billion business unit moves from

average to high performance in Customer Interaction capabilities, they could impact pre-tax profit by

up to $40 million per year.

Figure 3: Building a Customer-Driven EnterpriseImproving capabilities from average to high in each area can improve return on sales for a $1 billion company by the amount indicated.

Customer Interactions 40

• Customer Service 13.0

• Sales Planning 7.5

• Key Account Management 6.0

• Advertising 5.5

• Promotion 5.0

• Channel Management 3.0

Customer Offers 19

• Strong Value Propositions 9.0

• Managing Product and Service Mix 5.0

• New Products and Services 3.5

• Brand Management 1.5

High Performing Organization 40

• Motivating and Rewarding People 13.0

• Attracting and Retaining People 10.0

• Building Selling and Service Skills 9.5

• Ability to Change the Organization 5.0

• Building Service Culture 2.0

Enterprise Integration 17

• Partner and Alliance Management 9.0

• eCRM 8.0

• Turning Customer Information into Insight 12.0

• Customer Retention and Acquisition 5.5

• Measuring Profitability 4.5

• Segmentation 2.5

Customer Insight 25

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11



Deepening Customer Insight

Customer Insight is an ongoing process that applies a fact-based understanding of customer

needs, expectations and value potential to tailor customer offers and interactions.

In the CRM Capabilities Research Study, executives were asked questions relating to customer

segmentation; measuring profitability; the costs of customer acquisition and retention; how

technology is used to gather information about customers, including data mining and data

warehousing; how companies analyze customer behavior; and how information is shared across

different parts of the company, including the development of processes to do so.

Many companies collect vast amounts of information about customers—function by function. The sales

department knows customers’ buying history, characterized in terms of volume, pricing and purchases.

Distribution knows their delivery needs and fulfillment history. The marketing and service organizations

know their product needs and past service issues.

However, this fragmented pile of information cannot build real customer insight. “We’ve gathered a

tremendous amount of information on our customers. Our challenge is to capture all relevant information

into a central source or data warehouse, and have the skill to mine the information in such a way as to

provide additional value to our customers and our business,” said J. Kevin Fletcher, vice president of retail

sales and service for Georgia Power Company.

Insight springs from the answers to several key questions:

• Who are our customers, what are their needs and how do we meet those needs?

• What is customer purchasing behavior—what, how much, when?

• What is the cost of meeting customer requirements?

Therefore, just gathering customer information within the company functions will provide a limited

view of the customer relationship potential. At best, it is a “point in time” understanding of that

customer. New technologies today allow the creation of a total view of the customer which combines

data about the customer from external sources and delivers it on a continuous real-time basis. This

customer insight, which helps identify patterns of customer behavior, is needed to develop attractive

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products and services and woo the customer to purchase them, again and again. Deep customer insight

can inform a host of marketing, selling, and service decisions that, in turn, shape resource commitments

and day-to-day operations in the marketing, sales and service organizations.

Recognizing the competitive advantage represented by customer insight, the most profitable companies

studied, across industries, are already using technology to gather the right information about customersand turn it into true customer insight (see Figure 4).

Figure 4: Customer Insight Capabilities

The research showed that the secret of success lies in technology—its ever increasing power to collect

data, analyze it to synthesize insights and then share those insights with everyone in the organization

whose work touches customers.

Transforming Customer Information into InsightA key challenge is collecting, accessing and integrating customer data, no matter where and how it is

collected and where it is stored, then making this information useful to the organization. “We can use

tools to slice and dice the data, yet until we take this information down to the branches and make it

actionable—turning insight into actionable data—we’re not getting very far,” said Tal Bratton, senior

vice president of product and business development at American General Finance.

While a few visionary companies have been building customer data warehouses for almost two decades,

only recently have these warehouses become prominent features of the data landscape. Early adoptersincluded many credit card companies that had very large customer databases and required vast amounts

of billing and service data, and direct marketing companies that needed data to identify their customers

and ways to reach them.

Today the declining costs of collecting, storing, manipulating and distributing customer data are

encouraging companies of all types to follow their lead. Some are compiling any number of data

records for a single customer to understand product history, likelihood of the customer buying multiple

products and most promising promotional opportunities.

13

12.04.0

5.52.0

1.5

1.0

Turning Customer Information into Insight

Customer Acquisition and Retention

Measuring Profitability

Segmentation

Impact of Performance Improvement ($M for a $1B company)

25.08.5

2.5

4.5

30% improvement (move from average to high performance):

10% improvement (moderate improvement, for any level of performance):

Customer Insight



Despite declining costs, effective use of data is neither common nor easy. “Linking the data back

to customer touch points is what’s really difficult,” commented one automotive executive. As one

communications executive admitted: “We have remarkable information on our customers that our

customer service folks are clueless about.”

What’s wrong with this picture?

• The available information may not be the right information, unless the company’s knowledge

management is state-of-the-art.

• The company may not have the capabilities to act on the information they generate; that is, they

cannot use the information so it is meaningful for the customer and adds value to the company.

• Information management processes may be inadequate—data not kept long enough or inconsistent

data-mining tools used across the organization.

• Information sharing can rapidly turn into information overload—too much data, not enough

information.

• People may not be up to the task—they may have deficient analytical skills or show-stopping

skepticism about data integrity.

Many companies do overcome these obstacles. They give front-line employees quick, easy access to

critical data—purchases, contact history and product inquiries, as well as demographic and lifestyle data.

For example, Mercedes-Benz has built a sophisticated database of 10 million customers across Europe

to support dealer activities, customer assistance, marketing analysis and pre-launch targeting. Telenor Mobile, Norway’s leading telecom, IT and media company, has armed every member of its sales

organization with all the information needed to manage a customer’s complete sales life cycle.

Some of the top performing companies in the study even share information with channel partners

outside the organization. This practice has become a primary way to differentiate companies within

the communications industry, to the benefit of market leaders like U.S. Cellular. The common basis of

understanding helps everyone work together to better serve the needs of individual customers.

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Measuring Customer Acquisition and RetentionThe ease of accumulating, accessing and analyzing data invites companies to ask themselves, “how are

we doing?” But by what means do companies measure success? One large telecommunications

company celebrated its success at unloading unprofitable retail customers based on six months ofdata. Unfortunately, this company realized too late that it had misjudged long-term changes in usage.

They discovered that, at another point in time, these same customers could have been the company’s

geese laying golden eggs.

Best practice companies look at the lifetime value of individual customers and the potential value of

under-spending segments. Accordingly, such companies take a multidimensional view of success.

They look not only at customer attraction, but also at retention and defection. While most companies

devote significant budget to tracking acquisitions, few measure retention or defection.

Ironically, the research finds that some companies squander precious time and resources assessing how

they are doing. These companies repeatedly invent administrative measures and checks, but never act

on the results. The moral of the story: Measure judiciously and act quickly on the results.

Measuring ProfitabilityThe research revealed that one of the hallmarks of highly skilled CRM leaders is that they have an

excellent grasp of just where and how they make money. CRM leaders have rich, reliable and easy access

to profitability by product, customer, geography and channel, enabled by modern information systems.

They can more easily get a detailed handle on revenue and costs at even the transaction level.

Moreover, CRM leaders also use their technology to integrate information on purchase patterns, product

usage, customer needs and other data. Armed with this integrated view, leaders make better-informed

decisions to balance customer preference and profit.

Laggards are those whose often outdated systems produce limited data that few trust, and only after

great manual intervention or “massaging” of the data. Because they are so difficult and time consuming,

such efforts tend to be episodic at best. Thus, the organization doesn’t develop the skills of adequate

analysis or informed decision making that their more strongly equipped peers are honing.

Simply put, the availability or lack thereof, drives the use of profitability data. The study explored

the use of many types of data, but profitability data was the only type that consistently showed up as

having strong value in all of the industries studied. In fact, moving from average to high performance

in measuring profitability is worth $4 to $5 million in added returns for a $1 billion business unit.

Seems obvious? Perhaps. But most executives understand the difficulty of getting

from where they are to anywhere close to top performance. Often, new systemsrequire significant investment, not just to plug in, but to get an organization

up to speed and to change all the processes that depend on the systems. Now,

however, the added benefit can at least be quantified when these systems are part

of an integrated CRM skill-building agenda, and can provide added impetus to

the debate over whether to invest.

15



Seeing the Forest for the Trees: Customer SegmentationThe research showed that understanding customer segments, as well as individual customers, is

important. Leading companies across industries not only understand segment profitability and theeconomics of acquiring, retaining and losing attractive segments—they have perfected this art. Further,

they make disciplined decisions on which customers to serve more, less, or not at all, and how to

personalize service effectively, yet cost efficiently.

British Gas Trading has invested significantly in customer segmentation. Ian El-Mokadem, director of

marketing and strategy explained that the company has already been able to target receptive customers

by looking at customer information and relationships.

A pharmaceutical executive noted, “Underlying everything is the ability to undertake good customer

segmentation. The pharmaceutical and medical products selling model is very expensive, relying heavily

on one-to-one selling. This means that you have to be very picky in who you target with the most

frequency of contact.”

Many companies collect the data needed to support segmentation, but fail to analyze or act on it.

Those that do so, however, will be positioned to deliver the kind of personalized targeted service that

keeps customers satisfied and loyal, which in turn helps build profitability. What separates average

companies from the highest performers is not the segmentation itself, but the actions that are taken as

a result. High performers use segmentation to make deliberate choices about which customers they will

and will not serve, and the level of service they will offer each group. Those choices often are based on

a careful assessment of customer acquisition and retention costs.

Having well-defined customer segments also helps companies identify more desirable prospective

customers. By identifying the attributes of “best” customers, companies can proactively seek these

attributes in prospects.

16



Customer Offers: Giving Customers What They Want

The Customer Offers capability area is all about providing the most appealing products and

services to customers. Leading companies draw on customer insight to shape and refine offers

and, thus, enhance the customer’s interactions with the company.

In the CRM Capabilities Research Study, executives were asked questions relating to developing new

products and services, managing product/service mix, value propositions and brand management.

Companies that do not apply customer insight to the design of products and services have missed the

boat. From the customer’s perspective, products and services are at the core of the customer interaction.

Therefore, smart companies take a disciplined approach to developing products and services, predicated

on two fundamental beliefs:

• A customer makes purchasing decisions based on perceptions of value—and often the degree to

which the fundamental product and service is tailored to the needs of the individual customer, which

creates the foundation of loyalty.

• A customer’s total experience with the company, not with a single product or service, ultimately

determines loyalty. Thus, everything that touches the customer must work together to produce

customer value.

These beliefs lead more profitable companies to focus on four key capabilities (see Figure 5

on page 18).

17



Figure 5: Customer Offers Capabilities

Together, these practices generate significant value for a typical $1 billion business unit—over

$6 million by enhancing capabilities a modest 10 percent. By moving from average to high

performance, a business unit can add as much as $19 million to pre-tax profit.

Creating Compelling Value Propositions Value proposition has become one of the most popular phrases in the business lexicon. For many

companies, a value proposition is nothing more than the slogan that flashes across its Web site or

the tagline that adorns every TV and print ad.

But a real value proposition is much more than a clever phrase. Best practice companies realize that

a value proposition is a promise—one the company makes to customers about which benefits it will

deliver for a given price. These companies further realize that the real power of a value proposition lies

in using it to guide the short- and long-term actions of employees as they go about serving customers.

Unleashing that power requires:

• At the strategic level, clarifying the promised benefits and the customer’s experience to inform

decisions regarding quality, product lines, distribution, pricing and the like.

• At the tactical level, giving front-line employees the understanding of the company’s promise, which

equips them to respond consistently and to make decisions quickly. Technology increasingly puts key

customer information at employees’ fingertips, but the value proposition guides its interpretation.

A strong value proposition is an informed value proposition. It rests on:

• Clear facts about how to balance customer needs with profit needs.

• Deliberate choices of how to compete, where to excel and where to match competitors.

18

9.03.0

5.02.0

1.0

0.5

Strong Value Propositions

Managing Product and Service Mix

New Products and Services

Brand Management


19.06.5

1.5

3.5



Customer Offers



An exclusive focus on customer needs usually is a formula

for making no money. “You can’t optimize everything for

customer satisfaction; there would be unaffordable 300,000

mile warranties,” remarked James C. Schroer, vice president

of global marketing for Ford Motor Company. Securing

customers profitably is the winning formula, and everyonein the company must understand that value proposition.

Sales and marketing typically do, but if operations,

service and tech support are not equally informed, they are

unlikely to deliver as expected. “If you can’t differentiate

on product attributes, then you are forced to focus on

service and execution,” explained one chemicals executive.

Execution is the key word here—as recognized by the forest

products company that convened a large cross-functional

team to develop its value propositions and trained more

than 1,000 managers in their intricacies.

A winning value proposition need not beat the competitionon every count. In fact, parity claims can be as important as

superiority claims, even for a segment of one, which is typically the key account. For a given customer,

parity performance on a wide range of basic needs is the price of admission (literally in industries like

chemicals and high tech, where companies must pre-qualify to compete for business).

Failure to be at least at parity can be dangerous. It complicates customer trade-offs. A company may

deliver superior service, but if quality is less consistent than that of competitors, many customers

may see no reason to buy and the business likely will not be as large or as profitable. High performers

understand and apply the discipline of setting explicit goals for parity and superior performance.

This discipline pays off in financial and market performance. Poor performers across industries tend to

operate with a cynical, commodity mindset—certain that differentiation is impossible, that competitors

enjoy insurmountable advantages (like low-cost operations or a global supply network), that basic fixes

cannot work or that the magic bullet awaits discovery somewhere else.

High performing companies look at the world through a different lens. Their execution of very basic

marketing, sales and service activities is meticulous. Even in cutthroat industries battered by oversupply,

they discount a little less steeply and a little less frequently. Their margins show the impact.

Managing Product/Service Mix High performers maximize margins by continuously managing their product/service mix. Low performers

typically have not done detailed cost to serve analysis nor integrated it into actions that enrich mix.

Information technology provides powerful support—making it easy to track and measure profitability

at the product/service level, customer level and even transaction level. Such easy access to data looms

especially large in mix management, which requires hundreds of small decisions—for example, aiding

the up-selling or cross-selling initiative of a customer service agent. Individually it may not add much

per transaction, but in aggregate, marginally profitable customers can become more attractive.

19



Developing the Right Products and Services Here is one myth that seemingly will not die: Excellent new products

and services require exceptional creativity, daring and huge investments.

The research says otherwise. It identifies the following capabilities as the

most important:

• Taking new product and service concepts to market quickly.

• Rigorously selecting new product ideas for development and

commercialization.

• Winning strong channel acceptance of new products.

Of these, speed-to-market has the greatest impact on value. However, speed-to-market is not the same as

being first. Why? Conventional wisdom would cite the strategic value of being the first to grab customer

attention and loyalty. But while being first does have value, experience illustrates there is something

more. Dell Computer Corporation, far from the first to market, now leads PC sales in the United States.

Lexus dominates luxury cars, but they were not first.

The answer is more prosaic. Speed in introducing products and services often lowers costs and accelerates

cash flow, as long as enough customers value the new idea for it to quickly generate significant

demand and margins greater than the cost of capital required to develop and commercialize the actual

product or service.

A key success factor here is a disciplined approach to selecting the most promising ideas and prioritizing

development and commercialization efforts. Many companies are loath to kill development efforts, and

they pay a steep price for that reluctance. Failure to kill bad ideas soon enough is often the single-

largest cost reduction opportunity.

Of course, greater rigor in selecting ideas can help avoid the problem. Most companies consult their

sales, marketing and research and development people, as well as customers, in search of ideas. The

strongest idea generators do more. They consult their market research, customer service and technical

support staff, as well as channel partners. They evaluate ideas against criteria supported by fact-based

analysis of several kinds:

• Testing new ideas with current or potential new customers and comparing these results with results

from tests of other ideas.

• Measuring economic value to the end-user by weighing how the new idea affects their economics.

• Understanding the trade-offs between end-user value and end-user costs.

As these analyses suggest, strong performers collect much more specific facts about the impact of new

ideas than do weak or average performers. Lesser performers typically theorize about benefits and invite

customer response to lists of benefits expressed in purely qualitative terms.

Once developed, new products need channel support to ensure their distribution. High performers work

hard to secure that support.

20



Building Strong BrandsStrong brands spring from strong value propositions. Brand, after all, reflects a customer’s total experience

with the company—and this depends greatly on a well-conceived and well-delivered value proposition.

Interestingly, brand is almost as widely misunderstood as value proposition. Many companies confuse

brand with its communication—for example, having a consistent look and feel. One paper companystruggling to make its brands more visible to consumers and small businesses in the burgeoning office

supply market, brags about the consistent bright color of all their packaging.

These companies are ignoring a key finding of the research: Communicating brand messages is not a

one-size-fits-all media proposition. Winning communicators tailor messages to various media, specific

customers, particular occasions and highlighted benefits.

As Georgia Power’s Fletcher explained, “Our brand is extremely important to us. Every customer touch is

an opportunity for us to add-to or take-away from our brand image. What people think and feel about

Georgia Power is important to us.” Another executive noted, “Our brand is critical. It allows us to

charge a price premium of up to 10 percent.”

Strong brands, both consumer and business-to-business, almost always exhibit three characteristics:

• They outshine the competition on at least one benefit that matters to customers.

• Their execution is more consistent than that of their competitors.

• They communicate their distinctive value to customers.

In the eWorld, brand takes on even greater significance. One dot-com executive explained, “Building

the brand is critical to building trust with customers in an online environment. Dealing with a

company online is like dealing with a black hole. Who are you really talking to? When our customerscall our service number, it is the one way to talk to someone. We want to make sure our people know

exactly who the customer is, so they can tailor service to them and meet the promise of our brand.”

The single bright color packaging scheme used by the company mentioned before can provide a benefit

to customers who want that brand or who want to match products within that brand. The odds are

however, that the customer will not buy again if the paper jams.

21

“The impact we could get from our CRM initiatives

could be in the 50 percent range—revenue,

market share and cost-effective spending.”

James C. Schroer, vice president

of global marketing for

Ford Motor Company



eCRM Moves at Speed Up the

Profit Ladder

The rapid growth of eCommerce has accelerated the

importance of technology as a key to success in

managing customer relationships. Our research highlights

that, despite its infancy, eCRM—what we describe as

using electronic channels to market, sell and serve customers, both directly and

with channel partners—is in the top third of the most profit-adding capabilities

identified in the research. eCRM came out ahead of more traditional drivers of

value such as segmentation and channel management.

However, eCRM is not adding the same value in all industries today. Our research shows the early adopters far ahead of the

pack in creating the most value from eCRM. Communications and high tech companies appear to be the leaders, with forest

products last. For example, of the 25 eCRM skills that we found to be positively correlated with profit, 15 of them have a

measurable impact in the communications industry. In slower adopting industries, only a few capabilities shine through.

What is adding the most value today consistently across industries is the ability to transact business over the Internet:

• The ability to share product and other information with customers and channel partners via the Internet is a foundation

eCRM skill that has a high correlation with profit.

• The basic ability to take an order also adds to profit.

• In the early adopting industries, leveraging advanced eCRM technologies that make information-intense and complex

purchase decisions easier, faster and more tailored to customer needs has strong payback.

• High tech is also realizing the first real payoff on eCRM selling tools, like configurators, which provide inexpensive, tailored

selling expertise to help customers configure products online and dramatically reduce return rates and invalid sales orders.

• The ability to finalize transactions through electronic bill payment contributes to additional value.

22



One major caveat: While completing transactions over the Internet is highly correlated with richer

profit, more isn’t necessarily better. In high tech and chemicals, for example, there is a negative

correlation with higher Internet sales and profitability. We believe this reflects two phenomena

we are observing in the market today. First, the current limitations of the type of products and

services that can be sold over the Internet. Second, the concerns about the extent to which the Internet might contribute

to the commodotization of the sale. As a result, companies have tended primarily to move less complex products and

commodities over the Internet. This does not mean that Internet transactions are less profitable, however. These products,

by definition, typically have a lower margin.

• A chemical company illustrates this point. Having struggled with the issue of which products to sell over the Internet, it

has decided to offer only commodity products through auctions and price-focused e-tailers as a specific strategy to ensure

its other products are not commodotized via the Internet. Prices for long-term contracts with existing companies are

typically negotiated in person and fixed over a longer term, like a year.

• One PC company has responded to these market conditions in part by focusing on improving the customer buying and

ownership experience, proving that basic marketing skills are even more critical in the eEconomy. They have found that

buyers over the Internet tend to buy more products when configuring their own PC online than they do when purchasing

in a bricks-and-mortar facility.

Overall, the message is clear: Early adopters are winning customers, sales and increasing profit by steadily building their

eCRM capabilities. Laggards are threatened not just by the direct competition of better e-nabled competitors, but by the

increasing profit margins these leaders will be able to leverage in the future. We believe the early adopters have a lead in

terms of building deeper relationships with their customers and profiting from this advantage. These e-interactions provide

them with an opportunity to get more insight about their customers’ needs, and set up stronger barriers against competition

and new entrants. We fully expect the overall measured impact of eCRM on profit to grow to the top of the list as one of

the most differentiating and value-adding CRM capabilities in the marketplace.

23



Shaping Customer Interactions

Leading companies seamlessly integrate

all Customer Interactions across multiple

channels to offer anytime, anywhere

access for customers.

In the CRM Capabilities Research Study, executives were asked questions regarding sales

planning, key account management, campaign management, advertising and promotion;

managing channels, channel profitability and channel conflict; and customer service.

Customer interaction capabilities are critical to delivering value to customers. The winning combinationincludes all the fundamental capabilities that shape a customer’s experience with a company—sales and

service, key account management and advertising and promoting a company’s offerings (see Figure 6).

Figure 6: Customer Interactions Capabilities

Many would expect that companies who can derive value from interaction capabilities would cite a

superior customer strategy as key to their success. Quite the contrary is true. The greatest impact lies in excellent

execution of the basic capabilities. Why don’t more companies recognize this game-winning formula?

24

13.04.5

7.52.5

2.0

2.0

Customer Service

Sales Planning

Key Account Management

Advertising

Promotion

Channel Management


40.014.0

5.5

6.0



Customer Interactions

2.05.0

1.03.0



Enhancing Customer Service For John Kline, group vice president, Polystyrene and Plastic Foam, of BASF, the acid test is “Can a

global customer call from anywhere in the world and get the same response?”

While CRM without a sharp focus on the customer is unthinkable, that focus does not always result

in a significant role for customer service. Yet, perhaps it should—the study identified customer service

as one of the most impactful capabilities on return on sales. As companies appreciate this potential,attention to excellent execution of this basic capability is likely to increase.

In the industries where customer service looms large, two practices are common:

• Tailoring service to customer segments.

• Notifying customers of potential problems.

Both can have a notable impact on the bottom line, ensuring the most effective allocation of

scarce dollars.

Not surprisingly, successful companies invest in and deliver higher levels of customer service to thecustomer segments most likely to value, and pay for, those service levels. As one executive put it,

“I don’t care what 70 percent of the customers want. I only care what 5 percent will pay for.” Thus,

computer manufacturers have dedicated Web sites for high-volume users. Chemicals and forest products

companies are following their lead. Airlines provide special phone numbers, check-in services and

responsiveness for their most frequent fliers.

One dot-com company is working towards its vision to have customer information and insight drive

every aspect of customer service. “Our measurements will be different: The potential value created

for the customer, how the service call contributed to building the relationship, and the customer’s

contribution to company value,” explained a company executive.

Taking a cue from preventive medicine, more profitable companies alert customers to potential problems

while those problems are comparatively small, contained and manageable. Providing computer customers

with a diskette to fix a potential problem in advance of it occurring can win big points. Notifying

communications customers that a line is down can short-circuit a dearth of frustrated callers into

the service center. “Good customer service is also about not letting people get into trouble or calling

before it gets worse,” noted American General Finance’s Bratton.

While managing the cost to serve, such practices pay the dividend of building customer trust, and

hence, loyalty. A case in point: A French bottled gas company has seen customer intent to renew

contracts double after the 6-month pilot of a program anticipating and addressing service delivery

problems (plus, net profit is projected to increase $30 million over 5 years).

Across industries, leading companies are realizing that effective customer service cannot be fully

automated. Thus, BOC Gases built a state-of-the-art customer service center to house its sales, service

and collections staff. Continental Airlines replaced many automated attendants with live operators.

Even telephone directory assistance has acknowledged the human factor, advertising operators who

can answer questions real-time.

In addition, many executives realize customer service provides a golden opportunity to strengthen

customer relationships and sell more products and services. In fact, many companies no longer view

their call centers as cost centers, rather profit centers. Consequently, measurements and incentives are

25



changing. Rather than measuring customer service representatives on how many calls are answered per

hour and deriving a cost component, companies are now asking them to stay on the phone as long as

possible to meet customers’ needs. “Not only are we seeing happier customers—we’ve actually had

phone calls from customers thanking us for good service—it is having a positive impact on employee

morale,” noted British Gas Trading’s El-Mokadem. Georgia Power’s Fletcher added, “We must strike an

appropriate balance in incenting our customer service representatives to handle calls efficiently while

gathering additional useful information. They must then have the ability, with the technology tools in

hand, to evaluate the customer’s situation and offer the products/services to meet their needs.”

While executives anticipate call center costs to increase, they believe this increase will be more than

offset by the value secured through increased customer satisfaction. As one dot-com executive illustrated,

“If a valued customer wants to do a crossword puzzle with us on the phone and it will add to the

relationship, we’ll do it!”

The research also raises a cautionary flag about outsourcing customer service. The more customer

service activities that are outsourced, the poorer a company’s financial performance. This does not

mean outsourcing shouldn’t be considered, but it does suggest that too many companies look too

quickly to outsourcing as a way to fix a problem and lower costs. In contrast, the research suggests

that it is an opportunity to create stronger customer relationships and real value, whether in-house or

outsourced.

As one pharmaceutical executive summarized, “Customer focus and customer service is part of the

company culture and is part of everything that we do.” Wise words to live by.

Spotlighting Sales PlanningCompanies from industries with large sales forces to manage—communications, high tech, and

pharmaceuticals—indicated in the study that they devote considerable attention to sales planning

issues and have imposed discipline on sales planning. However, the research revealed that many of

these companies actually focus on the execution of sales versus sales planning.

Those who have achieved high performance in planning offer the following insights:

• Know your customer’s performance objectives. In the words of one AT&T executive, “Know how the

customer makes money.” Then use the sales plan to prioritize activities that can help the customer

create value. Very few executives in any industry know how their customers make money.

• Use sales forecasting techniques to understand customer demand, set appropriate sales targets and

modify production requirements and operations accordingly.

• Use a wide variety of inputs, everything from forecasting models to account profiles to detailed field

reports. Don’t develop plans in a vacuum.

26



Many companies also lack the information needed to develop good sales plans. While they may gather

vast amounts of data, it is largely unintegrated. The result: They have a difficult time creating one

“view” of the customer to enable effective sales planning. One communications company has had major

success in this area. Part of their success is assigning each customer a single code number to facilitate

tracking all current and historical data. While difficult to do technically, this holistic view of the

customer positions the company to develop targeted sales plans firmly grounded in reality.

The research also revealed that manufacturing industries are still wrestling with an issue that impedes

effective sales planning: Producing to demand. Overproduction puts intense pressure on price and

on sales people to find homes for all the product produced. The problem is seldom apparent until

the inventory piles up in the plant or at the distribution center, and by then it’s too late. The most

innovative manufacturers are now exploring how the Internet can improve information flow to reduce

inventory system-wide.

Managing Key Accounts For many companies, key account management amounts to an administrative black hole—writing plans

and recording calls in reports that no one reads and documenting account needs that no one translates

into action. It is not surprising so many companies dismiss key account management as a non-value—

adding effort.

Best practice companies know better. They realize that their ability to deliver superior value to their

largest customers requires delivering value on each customer’s terms—perhaps in certain geographies or

with a certain degree of consistency. As James McFadden, director of strategic accounts at Air Products

and Chemicals, put it: “We follow the 80-20 rule, and focus extra effort on the few customers that

account for most of our business. Also, we don’t treat all accounts the same. You can’t afford to.”

Such customization requires detailed knowledge of key customers’ needs and relentless attention to

performance against objectives. A lot of discipline is required to stay the course. Best performers often

assemble cross-functional teams to manage key accounts. While time- and resource-intensive, this

approach ensures the requisite thoroughness.

At one high tech company, large account management emphasizes executive-to-executive access, so

executives can understand how their large accounts are leveraging products to reach business goals.

This strategic insight can then be fed into the new product development arena, which allows the

company to develop products that support customer applications still on the drawing board.

Some companies favor sophisticated practices, yet some have found that simple works best. Both a

global specialty chemicals company and a large commodity chemicals company are using advanced

market research techniques to understand how to make tradeoffs between profit and key customer

needs. Others prefer to keep it simple, like the company that shares its key account plans with

customers and asks, “Are we working on what you want us to?”

Advertising While the complexity and artistry of advertising defy simple analysis, the most profitable companies in

the study are forcing their advertising dollars to earn a return. They are setting advertising objectives

tied both to communicating their value proposition and to achieving business results.

Leaders use market research to set advertising objectives and tailor messages to specific customer

segments. They also ensure that their messages are consistent through all communication channels

(that is, news media, collateral, Web, events, trade shows and face-to-face meetings with customers),

and that their messages reinforce one another to build long-term brand equity. Advertising is critical

in the dot-com world, where the race to awareness and “permission” to serve customers is essential.

27



High performers are taking advantage of recent advances in data availability and data analysis to

understand what benefits customers really want and then use that information to determine how to

allocate the advertising budget, measure success and reallocate dollars, when indicated.

One pharmaceutical executive noted, “The key is knowing the effectiveness of the advertising channels

available. Which are the most impactful channels for the product?”

Promotion Even in commodity industries, like chemicals and forest products, companies are spending more and

more money on promotions—NASCAR sponsorships, trade shows and hot-ticket entertainment. But

promotion management goes largely ignored. Few companies invest much time or effort in developing

a promotional strategy that targets segments or channels. Exceptions are retailers tailoring promotions

to catalogue, store and Web shoppers and high tech companies bundling software, peripherals and

services by channel.

Companies that realize the potential value of effective promotions invest in market research before setting

promotion objectives. For one leading software developer, that means holding many focus groups to

explore the appeal of alternative promotions to target segments. For a best practice catalogue retailer, that

means focusing catalogue content on ever narrower and more precise definitions of customer segments.

These companies also measure and understand the effectiveness of every promotion they conduct. This

is not easy given the time that elapses between setting and executing promotional strategy; the lack of

detailed, timely and accurate information on performance and cost; and the difficulty of the analysis

required.

Entering New Channels Partnerships and eCRM provide new channel opportunities for companies. However, in addition to

the challenges inherent in developing and managing these new channels, they can also pose other

challenges. New channels can position products and services to compete with each other, even

cannibalizing sales or margins elsewhere in the business. While sometimes an effective offensive business strategy, this tactic is not always desirable. New channels can also create disintermediation

plays in an industry infrastructure. A clear example of this is the opening of previously closed

utilities markets.

28



In the forest products, steel and chemicals industries, technology is giving

rise to Web-based electronic intermediaries and aggregators that insertthemselves between producers and customers. But the effects are not

limited to commodities. One executive describes a potential scenario in

the pharmaceutical industry:

“Imagine the impact on our business when every physician has a computer

terminal in his or her office linked to very powerful prescription intermediaries.

When a patient is treated, the physician enters the prescription online.

The intermediary, in real time, informs the physician on the Rx guidelines

of the patient’s health plan and recommends alternative options that could

save the patient money. In this scene, how we influence the prescription

writing process and how we deal with this new intermediary will be very

challenging. In addition, the intermediary now has vast amounts of real timedata that it can leverage—this will provide both opportunities and threats to

pharmaceutical companies.”

The research found three key capabilities in companies that are effective in building new channels.

They:

• Use a variety of channels.

• Manage profit in each channel.

• Understand the value proposition of each channel for each customer group.

Effectively managing the profitability of each channel hinges on a clear understanding of the respective

value proposition and likely customers. What channel attributes does each customer segment prefer?

Which channels are best able to meet those needs? The answers to these questions create a basis for

tailoring product offerings to different channels, thereby accommodating customer preferences and

reducing the potential for channel conflict.

Taming the conflicts inherent in using multiple channels requires an approach to managing the

profitability of each channel, including the profit margins of partners. Pricing represents a huge source

of potential channel conflict that is very difficult to control unless a company is willing and able to

manage partners’ profit margins.

Turning to multiple channels can expand the potential customer set, but can easily disrupt the success

of current channels. Each new channel needs careful management to maintain competitive balance.

Best companies understand how their channel partners make money and strive to help them make more.

29



“The Internet makes it feasible

to reshape the whole customer

interaction."

James C. Schroer, vice president

of global marketing for

Ford Motor Company

The Impact of Technology

The media hype around the new economy is relentless. Even Alan Greenspan, chairman of the Federal Reserve Board for the

United States of America, admits there’s something to the concept—a concept that would be unthinkable without technology.

But does technology really strengthen the bottom line performance of CRM? Yes, significantly.

Across the industries and capabilities studied, technology influences some 40 percent of CRM impact. In other words,

technology may accelerate the impact of CRM as much as two-thirds. This impact appears pervasive—ranging from 25 percent

of the benefit gained by improving people and culture to over 50 percent of the value derived from strengthening customer

insight. “You can’t do this without technology,” commented American General Finance’s Bratton.

Technology-related skills rank among or near the top value-adding skills in every industry studied. Witness: The skill with

the greatest potential to add value in any industry was technology-enabled customer contact in the chemicals industry.

At least one of the highest potential skills in each of the other industries likewise depends heavily on powerful systems and

high-quality data:

• Pricing and billing-related skills in communications.

• Proactively identifying customer problems and communicating resolution options in electronics and high tech.

• Measuring and analyzing customer acquisition, retention and switchingcosts in pharmaceuticals.

• Managing the details of product and customer profitability in retail.

• Influencing industry price levels in forest products.

The impact is that a billion-dollar company could add $20 to $60 million

in profit by investing wisely in CRM technology.

30



People Make All the Difference

Leading organizations attract and retain the right people, providing them with roles that

are aligned to customer needs, and empowering them to do what it takes with quick

decision-making and risk taking, to create value for the customer.

In the CRM Capabilities Research Study, executives were asked questions relating to attracting

and retaining people; motivating and rewarding people, including recognition, rewards and

compensation; building skills, training, mentoring and coaching; implementing organizational

change, sponsoring change, performance measurements, company culture and values.

“To succeed in a highly competitive world, we must, of course, have distinctive assets, the best

technology, the right organization and good relationships. But it is people who make the difference,”

noted one executive (see Figure 7).

Figure 7: High Performing Organization

31

13.04.5

10.03.5

3.0

2.0




Ability to Change the Organization

Building Service Culture


42.014.0

5.0

9.5



High Performing Organization

1.02.0



32

Three human performance capabilities emerge as the top contributors to financial performance:

Motivating and rewarding people, attracting and retaining people, and building selling and service

skills (see Figure 8). Not surprisingly, the success of using customer insight to develop offerings and

enhance direct customer interactions with sales and service organizations hangs completely on having

the right people—people who can build rock-solid customer relationships and can adapt to rapidly

changing conditions.

Figure 8: Three out of the Top 5 CRM Capabilities Across Industries Relate to People

Historically, organizations were built around distinct functions and tasks. Objectives were easy to define

and success relatively easy to measure. Each department was measured on meeting department goals—

often success in one area might actually adversely affect another department’s goals.

Today, the objectives and the organizational model have changed. Teams and reduced hierarchy are

the rule. Success depends less on many individuals completing their own specific goals, than on many

individuals contributing to the completion of a single objective. Increasingly, people are charged with

capturing the greatest amount of a customer’s lifetime value. This requires insight into and teamwork

with many parts of one’s own company and the customer organization. Everyone serving the customer

must pull together, which places high demands on individuals and on the organization.

Companies that rise to the challenge model their business around understanding and meeting customer

needs. They give people the motivation, skills and cultural construct for making the quick decisions and

taking risks that meet organizational and customer needs.

Such a culture empowers individuals and produces customer service success stories. As Jeff Bezos, CEOof Amazon.com put it, “The most important thing we have that is hard to duplicate is our culture of

customer obsession. It pervades customer service, logistics, software and marketing. Companies’ cultures

are impossible to copy. They’re like little starter pieces of sourdough. Either you’ve got them or you

don’t. Once a company has a culture, it’s like quick drying cement. You can’t just send someone to a

customer focus class for six weeks and expect results.”

13.0

13.0


Customer Service

Turning Customer Information into Insight



Top Five CRM CapabilitiesImpact of Moving from Average to High Performance ($M for a $1B company)

10.0

12.0

9.5



Offering Appropriate Incentives and RewardsIn the world of CRM, recognition and rewards must do three critical things: Encourage and reward a

job well done, reflect performance and promote information sharing.

How much money is needed to get and keep the right people? To answer this question, every

organization needs a clear understanding of how its compensation measures up to the industry

benchmark. What elements are above average? Below average? What impact might they have on

attracting and retaining the most desired employees?

Even the best-run companies find compensation a highly charged and expensive issue, with sales

compensation one of the most important and common issues across industries. The evidence is

inescapable: Above-average sales and marketing compensation is highly correlated with higher profit

in every industry. Translation: Paying more for the best talent pays off.

Many companies seeking superior talent are taking an even broader view—looking at compensation

beyond the boundaries of their own industry. Communications executives, for example, express concern

that the generous options typical in high tech firms may raise the expectations of sales personnel elsewhere.

The compensation system should reflect an individual’s contribution and should reward both individual

and organizational success. Performance above objectives deserves recognition. For example, CharlesSchwab pays teams salaries plus bonuses, not commissions; bonuses are based on customers’ service

experience and overall asset growth.

Not all rewards are monetary. “Just as important are the respect and management access that the top

performing sales people get,” according to Air Products and Chemicals’ James McFadden. Sprint PCS

rewards strong sales performance with rotating assignments to special projects. Intel augments its stock

options, profit sharing, and performance bonuses with a host of achievement awards and eight-week

paid sabbaticals for employees who spend seven years with the company.

Rewarding information sharing is just as important. Otherwise, the company will never get a consistent,

robust view of customers. Information hoarding by marketing, sales or customer service translates to the

rest of an organization as an inability to serve the customer as effectively as possible.



Attracting and Retaining People Everyone knows that attracting and retaining the best talent is key, yet what are the secrets to doing

so? Why do some companies excel where others fail? One high tech company believes, “attracting and

retaining employees is an art, and you have to do it one person at a time.”

In Fortune magazine’s 1998, 1999 and 2000 listings of “The 100 Best Companies to Work For,”

Southwest Airlines ranked in the top four, an admirable achievement that translates into easier

employee recruitment and very low turnover—and great performance in customer relationship management.

Best practice companies attract and retain people that would be a good fit by targeting specific traits,

often including passion for the product or service. To Southwest Airlines’ Herb Kelleher that means,

“We would rather have somebody with less education and experience but with a great attitude.”

Although leading companies recruit continuously, they appear to resist pressure to fill positions with

candidates who are less than the best. Sprint PCS spent 12 months finding the right sales manager to

launch its Chicago office, for example.

Successful companies also focus on keeping their people longer. It makes sense. Having the same

employees work with a customer or group of customers gives them an opportunity to develop deep

insights and cultivate long-term relationships, which tend to bring more value for both parties. But

longevity must not be allowed to translate into stagnation. Those same companies who are successful

in retaining long-term employees must also work at adding new skills and upgrading capabilities for

those same employees.

High performing companies view lost customer knowledge and revenue as the real issue with turnover,

not replacement costs. Successful companies focus on building organizations and rewards to keep

people longer. Among other things, these companies make every effort to ensure steady career

progression over the long-term, not a fast start followed by a mid-career snooze.

These companies also take pains to move feedback up—as well as down—the organization. Cascading

information in both directions communicates that every person in the organization is a key member of the team. At the same time, two-way feedback makes managers more responsive to the needs of the

broader organization, not just the people above them.

Of course, it goes without saying that these basic people management tenets will serve to make employ-

ees happier, and in turn, will translate into more business success. As American General Finance’s Bratton

said, “Attracting and retaining people is absolutely key to us. It’s one of our four key corporate values. If

we get the people thing right, our customers are happy.” One of the study’s major findings was just how

crucial this is in the sales function. In fact, while this finding is consistent across the industries studied, it

is most critical in high tech and communications, where turnover is generally higher.

34



Building Selling and Service SkillsTwo practices characterize the most profitable organizations:

• Training. Profit winners train people on a broad set of skills—not only basics like using the PC,

writing a persuasive letter or delivering a compelling presentation, but also less obvious skills likelistening empathetically, handling tough questions and complaints or negotiating successfully.

Selling-specific PC skills are part of the curriculum—entering and accessing customer information

and applying complex sets of solutions to problems. Winners invest heavily in all these training

programs. Just as important, high performers conduct training in more effective ways. Rather than

traditional classroom settings, they tend to favor ‘action learning’ techniques, which immerse learners

in simulations of customer situations and give them the opportunity to apply new techniques in a

safe but realistic environment.

• Coaching. Winners supplement training with on-the-job coaching. Recognizing the truth behind

the old joke, “How do you get to Carnegie Hall? Practice, practice, practice,” winners send strong

coaches out to observe recruits’ presentations and provide immediate feedback.

In industries where large sales forces and complex selling situations are common (communications and

high tech, for example), winners formally track and measure sales performance to gauge the impact of

their training efforts.

Across industries, most profitable companies are leveraging technology to enhance skills, such as using

simulation technologies as a bridge from the classroom to on-the-job learning. This gives employees a

means of practicing skills at point of need.

While the automation of mundane tasks frees sales people to develop more value-adding selling skills,

the pace of technological change makes it virtually impossible for a company to keep its knowledge

requirements and curriculum current. For AT&T this means replacing much traditional training with

guidelines, coaching and self-development time. “Sales people must be more proactive in self-learning

and self-education, reading everything and talking to as many people as possible to stay on par with

what their customers and competitors are learning,” said Bob Wolters, former sales vice president.

Changing the OrganizationCompanies aspiring to CRM success face two organizational challenges:

• Transforming the organization into a truly customer-driven enterprise.

• Making fast and frequent changes to the organization as customer demands shift.

The research highlights key success factors in changing the organization:

• A deliberate effort to manage change, with attention to impact on jobs and employee satisfaction,

and clear communication to everyone in the organization.

• Organizational willingness to change, manifested in aggressive executive sponsorship.

Change-savvy companies share a certain profile. Executives and managers are eager to learn and

experiment with ideas from competitors or other industries. They are flexible and adaptable, and don’t

jockey over competitive turf. Further, they develop an atmosphere that inspires ideas and innovation.

35



Extending the Enterprise

Leading companies extend beyond the boundaries of their own enterprise to enrich and create

new offerings, enhance value propositions and interface with customers.

In the CRM Capabilities Research Study, executives were asked questions relating to developing

and managing alliances and partnerships, and about their use of eCRM to acquire new leads,

interact with customers and transact business.

Several new business models and channels are emerging that companies are embracing for business

advantage (see Figure 9). High performing companies are forging alliances and partnerships to provide

more powerful offerings and gain access to new customers, while also sharing risk and reducing their

financial exposure. The Internet—and the opportunities it provides—is forcing companies to reevaluate

all of their touch points with customers and change how they do business to stay competitive.

Figure 9: Enterprise Integration Capabilities

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9.03.0

8.02.5

Partner and Alliance Management

eCRM


17.05.5



Enterprise Integration



Managing Partnerships and Alliances Partnerships and alliances have become standard operating procedure for companies of all flavors as the

competitive environment and speed of change force them to share business risk and reduce financial

exposure. Many companies find that alliances and partnerships also increase speed to market and

broaden the range of product offerings because they broaden access to new core competencies. One

high tech executive explained that, “In this business, nobody has the solution for everything; you haveto have the right relationships.” However, he added that, “I see a wide variation in companies’ ability to

make partnerships and alliances work.”

Technology innovators such as Texas Instruments and EMC Corporation view alliances as a critical way

to share perspectives on business and technical directions and, thus, move development efforts ahead

more quickly and accurately. “Ventures and strategic alliances have proven to be very important for

proactively identifying where future opportunities are,” said one high tech executive.

Strategies for winning alliances and partnerships vary widely, but the study finds four capabilities

common among those who are successful. They:

• Make partnerships and alliances a significant part of the business.

• Apply an organized, strategic perspective to making alliances work.

• Share information with partners.

• Expand the number of partners.

Alliances and partnerships have a significant impact on business performance. Deutsche Telekom has

experienced tremendous success with partnership arrangements. In just over a year, they realized more

than $7 billion in economic value, created through relationships with companies such as Microsoft,

DEBIS, ACC Telekom and Sprint, among others. The One Star alliance has reshaped almost every aspect

of the airline business, from improving customer satisfaction with frequent flyer programs to reducing

operating costs through shared buying power and service capabilities.

However, partnership success does not come easily. It takes a well-thought-out strategy, a teaming

spirit, time and real commitment. Companies that choose to dabble in partnerships will leave money

on the table.

According to prior Accenture research,4 30 percent of alliances fail outright and another 49 percent

drift into some fog of under-performance. Two lessons reported by survivors:

• Choose partners carefully.

• Share information and, in the process, build trust among partners.

As alliances and partnerships loom larger in a business, aggressive oversight and management is critical,

with special attention paid to the cultural fit of the partnering organizations.

Companies should also “think out of the box” in terms of building partnerships. Thus, eCustomers,

suppliers, channel partners and even competitors deserve consideration as potential partners.

4Accenture’s Mergers, Acquisitions and Alliances Center of Excellence

37



Jumping Into eCRMAs the digital age redefines the competitive landscape, high

performing companies are finding that eCRM capabilities

can differentiate them from the competition (eCRM is

defined as using electronic channels to market, sell and

serve customers, both directly and with channel partners).

These companies are investing to make eCRM a cornerstone

of their operations, to identify new leads, interact with customers, selectively transact business over the

Web and support channel partners (see sidebar on page 22, eCRM Moves at Speed Up the Profit Ladder).

Out of the six industries we studied (communications, chemicals, electronics and high tech, forest

products, pharmaceucticals and retail), the eCRM pioneers are most often seen in the communications

and high tech industries, where companies have leveraged information technology to make information-

intense and complex decisions easier, faster and more fitting to customer needs. The leading companies

are distinguishing themselves and making money both by reducing costs and increasing close rates,

average purchase and repeat purchases.

Sharp Electronics, a global electronics manufacturer that has used the Web to build its digital products

business, uses new eCRM capabilities to effectively market to, sell to and serve thousands of new

channel partners and end customers. Sharp is now able to reach and support customers in previously

under-served geographic areas. The solution made it easier for customers to do business with Sharp by

providing them with a single point of contact. Sharp is gaining a better understanding of customers

and can target programs to customer needs, thereby improving customer satisfaction. Finally, higher

revenues are expected from the broader reach, and lower costs are expected due to reduced support

and transaction costs.

Internet savvy also will be key to achieving the economies needed to remain competitive. High

performing companies will leverage the Internet to provide them with value in non-transactional

ways by helping them ferret out new markets, acquire greater customer knowledge, discover

better tools and process methodologies, and identify new sales and sourcing opportunities. One

pharmaceuticals executive noted that, "Over the coming years we are likely to see whole new

channels of promotion and distribution opening up as a result of eCommerce." The study also providedcompelling evidence that high performing companies are benefiting from shifting key account

transactions to the Internet.

Providers of eCRM software include a variety of tools and vendors loosely called personalization tools,

because they personalize the online experience. Despite how new these products are, they show up as

contributing to profit in the industry that largely pioneered their use: high tech. Other industries have

yet to apply, adapt and adopt these personalization tools as extensively; the evidence emerging from

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high tech suggests that early adopters will reap strong positive returns from their investments in these

online selling tools.

Further, the research showed that capabilities that involved the use of the Internet appear to be most

effective when they supplement, rather than replace, the proven approaches that companies already

have in place. For example, the research found a strong positive impact from supplementing sales

and phone contact in service with e-mail and the Internet. In fact, the single most value-adding skill

measured in chemicals was more effective customer service aided by Internet options—sometimes as

basic as the ability to send e-mail. Early adopters, such as Air Products and Chemicals have moved even

further, being one of the first companies to employ web telephony—linking customers who are using

their Web site directly to a customer service rep on the phone.

So, what should companies be doing in the eCRM area? Following are two guiding principles

that are critical:

• First and foremost, think like a customer. How can eCRM make it easier to do business with you

and improve your customer’s experience (or operations, in the case of B2B companies)? There is no

value unless the customer uses your eCRM capability.

• Second, link your eCRM capability with all other customer touchpoints. Don’t offer eCRM services by

function or department—this is irrational to the customer. Customers desire, and soon will expect, to

be served consistently and personally no matter which channel they choose to interact with you.

While still very new, it is clear that the channels opened up by the Internet are providing huge

opportunities for companies. Those who are embracing eCRM are learning quickly, maintaining a

competitive edge and profiting handsomely.

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Conclusion

It is clear that CRM has tremendous potential to add value to companies. Implementing CRM is a

complex undertaking, however, with success predicated on excellent execution of many capabilities—

some old, some new. Advises British Gas Trading’s El-Mokadem, “One of the biggest challenges is

changing the mindset of an organisation. We have learned that the real opportunity lies in differentiatedcustomer management—providing customers with a service which best meets their needs, rather than

treating them all the same anonymous way. This is big mind set change for our people. You have to

re-train management, re-gear the planning process and re-tool your operations.”

To help companies identify those CRM capabilities that will provide them with the biggest payoffs,

Accenture has constructed a straightforward self-assessment tool that allows a company to find where

its CRM gaps are biggest, and therefore where its priorities for new efforts should be placed. With

better insight into probably returns, management teams can proceed with confidence.

Every company needs to start by knowing itself:

• First, “take the test.” Use the Accenture research to conduct a self-assessment. How well is your

organization executing CRM? How could you boost return on sales by doing better in certain areas?

Which areas?

• Confirm the greatest opportunities with additional analysis. What will it take to realize those return

on sales improvements? What are the barriers to success? What are ways over or around them?

• Set priorities. Where to begin? How soon? Where to go from there?

These questions need not be as daunting as they may seem. The study shows that almost every company

can enhance its CRM capabilities and, thus, its financial performance, even by making incremental

improvements in the key capabilities. That means rethinking CRM investments—an exercise best startedsooner rather than later. The CRM Capabilities Research Study found many companies in diverse industries

investing in building their CRM capabilities and profiting from the effort.

The profile of the customer-driven enterprise is becoming clear and those who invest wisely in

customer relationship management are poised for succcess.

To request a copy of an industry-specific CRM report on communications, chemicals, electronics and high tech, forest products

or pharmaceuticals, please call 1 (312) 737-7777.

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“Getting buy-in to start with from management

has been a leap of faith. You need enough

people to be brought in at the outset—so the

more objective measures you can have of the

potential value, the better.”

Ian El-Mokadem, director of marketing and strategy,

British Gas Trading, Ltd.



Appendix of CRM Capability Definitions

The research identified 21 capabilities that were common and important across the 6 industries studied

(see sidebar, About the Research, page 10). These capabilities naturally grouped into 5 key areas.

Following is a list of the specific subject areas studied:

I. Customer Insight1. Turning Customer Information into Insight

• Customer data

• Analytic tools

• Information technology systems

• Integration with billing, customer service, etc.

• Quality of process

• Ease of use

2. Customer Acquisition and Retention

• Measuring costs of acquisition, retention, switching

• Lifetime value

• Process quality

3. Measuring Profitability• Level of available detail

• Ease of access

• Information technology systems

• Accuracy and reliability

• Use in decision making

4. Customer and Market Segmentation

• Choosing which customers to serve

• Segment profitability

• Segmentation process

II. Customer Offers5. Developing Strong Value Propositions

• Tailoring value propositions to segments

• Ensuring competitive superiority

• Incorporating customer service

• Communication

• Driving internal execution

6. Managing Product and Service Mix

• Using mix to drive profit

• Process for managing mix

• Analyzing breakpoints in cost and customer benefits

7. Developing New Products and Services

• New product development processes• Speed and quality of process

• Generating ideas

• Selecting ideas

• Channel acceptance

8. Brand Management

• Brand strategy process

• Brand measurement

• Leveraging brands into new channels, products

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III. Customer Interactions9. Customer Service

• Number and quality of contact points

• Quality of voice recognition systems, support technology

• Proactive problem identification and notification

• Up-selling and cross-selling

• Customer education role

• Accuracy, responsiveness, quality of response

10. Sales Planning• Setting sales targets; accurate forecasting

• Data used in planning

• Process quality

• Using technology (e.g. managing leads, forecasting, call reporting)

• Using profitability information

11. Key Account Management

• Ensuring competitively superior value

• Consistency of execution across customer locations

• Process quality

• Primary supplier status

• Influencing complex purchase decisions

12. Advertising• Advertising strategy

• Using market research

• Measuring impact and return

• Using multiple media (e.g. mass, electronic, direct mail, etc.)

• Process quality

13. Promotion

• Promotion strategy

• Measurement of impact and value

• Using market research

• Process quality

14. Channel Management

• Measuring channel conflict

• Influencing channel partner's profit

• Channel strategy

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IV. High Performing Organization15. Motivating and Rewarding People

• Compensation level

• Pay for performance

• Alternative measures and rewards

• Information sharing

• Incentives, rewards and recognition

• External benchmarking

16. Attracting and Retaining People• Turnover rates

• Tenure in sales, marketing and service

• Attraction and retention incentives

17. Building Selling and Service Skills

• Training

• Coaching

• Performance measurement (skills, development progress)

• Required skills

18. Ability to Change the Organization

• Change communication

• Integration of change efforts

• Incorporating job satisfaction in change• Executive sponsors

• Willingness and experience at change

19. Building Service Culture

• Defining service culture

• Communicating culture

V. Enterprise Integration20. Partner and Alliance Management

• Partnering with companies other than suppliers

• Internal coordination

• Partnering results

• Use of outsourcing

21. eCRM

• Percent of sales

• eService

• eSelling

• ePromotion and advertising

• eBilling and transactions

Acknowledgements

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Acknowledgements

Authors:

Stephen F. Dull, Partner, Accenture

Timothy Stephens, Senior Manager, Accenture

Mark T. Wolfe, Partner, Accenture

The authors wish to thank the 500 executives who shared their valuable perspectives to make this research possible.

We would also like to extend our gratitude to the following individuals for providing additional insight and contributions:

Tal Bratton, American General Finance; Ian El-Mokadem, British Gas Trading, Ltd.; J. Kevin Fletcher, Georgia Power

Company; Marnie Quinn, Ford Motor Company; Mike Ryhorski, Ford Motor Company; and James C. Schroer, Ford

Motor Company

In addition, the authors wish to acknowledge the following individuals for their important contributions to the

development of this research report: Susan Gurewitsch, Amanda K. Hayes, Leon Lowman, Michael K. Ostergard and

Karen M. Snow.

7.4 - how much are crm capabilities really worth _accenture report

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