Unveiling the Success of CRM: A Transformation from Pessimism to Optimism
Explore the unexpected resurgence of CRM investments as we delve into the reasons behind this shift from disappointment to satisfaction among senior executives.
During the late 1990s and into the early 2000s, substantial investments poured into information systems designed to manage and enhance customer relationships. These systems, often built around complex software solutions, held the promise of enabling companies to quickly adapt to evolving customer preferences. This adaptation was expected to boost revenues, enhance customer retention, and reduce marketing expenditures. However, the majority of companies failed to realize the anticipated benefits, leading to a sharp decline in CRM sales. Executives slashed IT budgets in the following years, and after surging by 28% between 1999 and 2000, CRM sales saw a decline of 5% in 2001, 25% in 2002, and 17% in 2003, as reported by technology market research firm Gartner. Many experts began to liken CRM to enterprise resource planning (ERP), considering it yet another overhyped IT investment with unmet promises, teetering on the brink of obsolescence.
The CRM Dilemma of the Late 1990s and Early 2000s
But the landscape took an unexpected turn: Senior executives started showing renewed enthusiasm for CRM. In 2003, Bain & Company's annual Management Tools Survey, encompassing 708 global executives, revealed that companies began to express heightened satisfaction with their CRM investments. Back in 2001, CRM had languished near the bottom of a list of 25 potential tools for global executives. Just two years later, it had ascended into the top half of the rankings. In fact, a staggering 82% of surveyed executives announced plans to implement CRM within their organizations in 2003—a substantial leap from the 35% adoption rate in 2000. Today, there are clear signs of an upswing in CRM expenditures. Gartner anticipates an additional 10% increase in overall CRM sales by the close of 2005. What accounts for this remarkable shift? Why has disillusionment given way to satisfaction, pessimism to optimism, and budget cuts to fresh investments?
To unravel the secrets behind this paradigm shift, we embarked on an extensive study of companies that have recently achieved remarkable success with CRM implementations. What emerged were discernible patterns shared by these trailblazers. The pivotal commonality among them was their adoption of a pragmatic, disciplined approach to CRM. They chose to launch tightly focused projects with defined boundaries, rather than embarking on grand transformations of their entire enterprises. These projects set modest goals, concentrating on solving specific issues within the customer relationship cycle—the sequence of activities that commences with customer segmentation and targeting and culminates in rekindling customer interest.
The Pragmatic Approach to CRM
Furthermore, these triumphant CRM users demonstrated a healthy dose of skepticism, eschewing extravagant claims that CRM could instantly forge a “real-time enterprise.” Recognizing that not every aspect of their business required hyper-accurate, up-to-the-minute data, they tailored their real-time CRM initiatives to the facets of customer relationships that genuinely depended on such precision. Once these more focused CRM projects achieved success, they leveraged their initial investments as stepping stones to address additional challenges and expand their CRM capabilities.
Navigating the CRM Landscape: Four Critical Questions
As companies embark on their CRM journeys, the experiences of CRM leaders have distilled into four fundamental questions that should guide their initiatives:
Is it strategic?
Where does it hurt?
Do we need perfect data?
Where do we go from here?
These questions underscore a new sense of realism concerning when and how to deploy CRM for optimal outcomes. Almost three years ago, Darrell Rigby, Fred Reichheld, and Phil Schefter examined CRM's effectiveness and warned of its perils in “Avoid the Four Perils of CRM” (February 2002). At that time, numerous companies were making substantial wagers on CRM technology, hoping for a vague payoff. However, lacking clear customer strategies and the organizational framework to support them, many found themselves disillusioned with CRM. These hard-earned lessons spurred a transformation, compelling organizations to refine their customer strategies and pave the way for more focused and fruitful CRM applications.
Within this article, we will showcase the success stories of several companies that have effectively implemented CRM initiatives. These companies include Aviall, a leading aircraft parts distributor; Kimberly-Clark, a global consumer product giant; Ingersoll-Rand, a diversified equipment manufacturer; Brother International, a provider of home and office machines; and Molex, an electronic connector manufacturer. Additionally, we will provide essential considerations to help companies identify CRM projects likely to deliver the most significant value.
The Strategic Imperative
Let's address the first question: Is it strategic? When embarking on a CRM initiative, there's no denying the complexity of the endeavor, both in terms of business intricacies and technological considerations. It entails substantial investments of both time and financial resources. CRM is not a mere accessory for enhancing marginal aspects of a company's performance; rather, it should be reserved for processes that hold paramount importance to a company's competitive edge. These processes can either set a company apart from its rivals or ensure that it remains on par with industry standards, especially in areas where parity is crucial, such as call center response times. If the target of a CRM initiative lacks true strategic significance, the organization will likely struggle to muster the necessary energy to revamp entrenched business processes or restructure its organizational framework to realize the anticipated benefits. Hence, before committing any resources to CRM, executives must ensure they are aiming at the right strategic targets.
A vivid illustration of this strategic imperative is found in the journey of Paul Fulchino, who assumed the role of CEO at Aviall in 2000. With a grand vision in mind, Fulchino aimed to transform the Dallas-based aircraft parts distributor into the preeminent provider of supply chain management services within the aviation industry. His strategy involved establishing Aviall as the preferred partner for major original equipment manufacturers (OEMs) and commercial and military fleet operators. This would enable Aviall to consolidate customer demand and expand its global reach, thereby rejuvenating sales and fortifying profit margins.
However, Fulchino faced a formidable hurdle in realizing his vision: The company grappled with inadequate information and convoluted processes that hindered its sales and service operations. An existing IT system exacerbated sales representatives' workloads, often confining them to local branches, where they were burdened with order input tasks instead of engaging in sales calls. Furthermore, the absence of proper training in time and territory management for sales reps led to inefficient phone call routing and erratic calling schedules. Customer inquiries frequently ended up at distant call centers devoid of up-to-date information on orders, products, and pricing.
The deficiency in customer service exposed Aviall's key accounts to the vulnerability of competitors' encroachments, while also undermining the company's ability to command premium prices typically associated with impeccable product delivery. To fulfill CEO Paul Fulchino's ambitious plans for the company, a better-trained and more proactive sales force became an imperative strategic requirement. Without one, his vision for Aviall would remain unfulfilled. Collaborating closely with Jim Quinn, the head of sales and marketing, and Joe Lacik, the technology chief, Fulchino allocated Aviall's initial CRM investments to address this pivotal challenge.
Rather than embarking on a comprehensive implementation of an expansive CRM program, the leadership team adopted a more focused approach. They initially deployed CRM applications specifically for the sales force, order entry, and call center operations. Their objective was to seamlessly coordinate customer information, flowing from external sales agents to inside sales support staff and ultimately to customer service representatives stationed across the company's 36 regional call centers. This narrowed scope allowed the sales force to acclimatize to the system without feeling overwhelmed and yielded swift victories, garnering broader support from management and the front lines and propelling the project forward.
The results were nothing short of remarkable. Prior to implementing the CRM system, the sales force relied on an antiquated database for managing client information. The system's inflexibility made it arduous for sales and service personnel to access even fundamental details about a customer's order history and credit status. Joe Lacik highlighted the frustration, stating, “There's nothing more frustrating than having a customer spend 15 minutes on an order and then realizing at the very end that there's a credit issue. In the old system, credit problems didn't get flagged until you tried to place the order. Then the credit group would be called in, and you either had to have the customer on hold for a long time or call them back. In our business, there's a moment of truth: You have to have the right product, the right information, and the right price. If you don't have those three things put together, you lose the call—and if you lose the call, 90% of the time you lose the sale.” With the new CRM system, a customer's credit history instantly appeared on the order screen.
The wealth of information provided by the new system empowered Jim Quinn to trigger a transformative shift in the sales force's approach. It encouraged agents to become more organized and proactive in making customer calls, as they could now promptly provide precise quotes tailored to customers' needs. Previously, placing an order entailed navigating through 11 screens and nearly 50 steps; now, it could be accomplished with a single screen and just ten steps. Mere four months into the CRM system rollout, the number of daily sales calls tripled, and the customer base expanded by 33%. The entire sales and service operation experienced a surge in productivity, enabling Aviall to regain market share and secure substantial orders for new product lines. Daily order processing rates soared from 1,000 to 2,500, all while error rates decreased, and staffing levels remained unchanged.
While it's feasible to employ CRM systems for managing the entirety of the customer relationship cycle, it's often an ill-advised approach. A more judicious strategy involves focusing CRM efforts on specific, mission-critical aspects of the cycle.
In Aviall's case, the expanded capacity and the accompanying service enhancements have laid the groundwork for the company's transformation into a comprehensive provider of aviation logistics support. This evolution has been accompanied by rapid growth in sales and profits, coupled with a consistent usurping of market share from competitors. A striking testament to Aviall's triumph is the recent award of a ten-year, $3 billion supply contract from engine manufacturer Rolls-Royce—the largest such deal ever secured in the industry.
According to CIO Joe Lacik, the key to this success lay in Aviall's ability to showcase its unparalleled visibility into the customer base. This visibility allowed them to offer Rolls-Royce an
Identifying the Pain Points
While it's technically possible to implement a comprehensive CRM system that manages the entire customer relationship cycle in one fell swoop—encompassing initial purchases, after-sales service, subsequent purchases, and customer recommendations—aggressive early adopters have learned that this approach is often counterproductive. It tends to lead to the creation of unused technological capacity, unwarranted business disruptions, and ultimately falls short in delivering a satisfactory return on investment. Companies that delve deeper into their customer relationship cycles typically discover entrenched and detrimental problems in select areas that detrimentally impact overall performance. These pain points should be the prime focus of any CRM endeavor.
Take, for instance, Kimberly-Clark, a globally renowned consumer packaged-goods company. The crux of their challenge resided in their extensive retailer promotions operation. The company executed thousands of promotions annually, offering discounts on specific products to particular retailers. However, the inability to accurately measure the success of these promotions posed a substantial predicament. While Kimberly-Clark possessed aggregated data on its trade promotions, the lack of granularity hindered their ability to break down the information by individual customer, product, or shipment. Consequently, the company found itself expending significant marketing resources without a clear understanding of which promotions fostered retailer loyalty, secured shelf space, and drove sales, and which were essentially fruitless. Recognizing this conundrum, Kimberly-Clark's executives opted to initiate their CRM journey with a tailored system designed to gather and scrutinize promotion data. This strategic move was poised to significantly enhance the overall effectiveness of their customer relationship cycle.
Kimberly-Clark's journey to alleviate its promotion management challenges commenced by enhancing an existing software tool known as Profit Calculator, initially developed by the sales department to monitor investments in individual promotion endeavors. Through seamless integration with shipment data, this enhanced system transcended its role as a mere barometer of general return on investment (ROI). Instead, it evolved into a sophisticated tool capable of meticulously assessing the impact of specific promotions on sales and profits for both Kimberly-Clark and its retailer partners. Bruce Paynter, Kimberly-Clark's Vice President for Customer Development, emphasizes the transformation: “Now we can see what the real-time impact on our sales and profit is when running promotions. Moreover, we can integrate this information into our sales and planning process with our customer.” This software, subsequently renamed Business Planner, assumed a central role in the company's sales and marketing operations. Sales teams employed it in the field to craft tailored promotional packages for individual retailers, while the marketing department utilized it to formulate comprehensive promotion strategies.
The rollout of Business Planner to all of Kimberly-Clark's business units in 2000, complemented by rigorous training programs led by top executives, swiftly validated its success. In its inaugural year, the system managed over 2,300 promotional events spanning all of the company's U.S. consumer product lines. Bruce Paynter elaborates on their approach: “We applied real-time promotional-lift models [models quantifying the impact of promotions on sales] at the market, customer, and category level to aid our planning efforts with customers. Using the knowledge gained through the Business Planner, we have been able to redirect $30 million in marketing spending across all our U.S. consumer businesses to drive incremental sales and profit and further build brand for our customers and Kimberly-Clark.”
Business Planner also played a pivotal role in expanding the horizons of Kimberly-Clark's customer representatives. It equipped them with consistent data and established business rules, prompting a shift from merely managing sales to managing the business as a whole. Key-account representatives now possess the capability to assess likely financial outcomes and engage in collaborative scenario planning with retailers.
Furthermore, the remarkable efficacy of Business Planner in alleviating trade promotion challenges has unveiled new prospects. Building upon its success, Kimberly-Clark is currently in the process of implementing a more ambitious system, known as Brand Builder. This advanced suite extends its reach beyond retailer customers to encompass a wide array of consumer-focused advertising and promotional activities. Brand Builder enables the company to plan and assess the success of individual activities, such as standalone coupons inserted into Sunday papers, and evaluate the collective impact of multiple integrated initiatives.
The Brand Builder suite comprises three interconnected components:
A cutting-edge collaborative tool that empowers sales agents, designers, vendors, and retailers to plan promotions collaboratively online.
Real-time integration of marketing research and consumer insights, providing instant access to valuable consumer information.
An analytical powerhouse that merges promotional spending data with scanner and financial information to offer
in-depth insights.
With this advanced analysis tool, Kimberly-Clark has shifted from merely addressing pain points for its retailer customers to transforming marketing into a science. The company can now discern that the return on investment for some consumer promotion programs is twice as high as others aiming for similar outcomes. Equipped with this knowledge, Kimberly-Clark can pinpoint which marketing elements, such as coupon value or creative impact, yield superior returns.
Focusing on pain points not only serves as an effective approach to constructing a successful CRM program but also has the potential to revive a faltering CRM initiative, as demonstrated by Ingersoll-Rand, the diversified manufacturer with $10 billion in annual revenue.
In 2001, Ingersoll-Rand's division, Club Car, which manufactures motorized golf carts, encountered difficulties as revenues began to decline amid an economic downturn affecting the golf industry. However, the management lacked the critical information required to diagnose the underlying reasons for the sales downturn. Individual representatives and order managers followed their distinct, uncoordinated processes for customer interaction. Sales forecasts relied on informal guesswork and rudimentary spreadsheets, while the sales force had limited influence over product customization.
Recognizing the need for more comprehensive data, Ingersoll-Rand hastily launched an expansive CRM system meant to encompass everything from lead evaluation and proposal generation to product configuration and order entry. Yet, the enormity of the endeavor overwhelmed the organization. Club Car's managers remained skeptical about the ultimate benefits. After investing over $2 million and completing an initial round of user testing, the company realized that the system failed to deliver the expected productivity improvements and reporting capabilities. Instead, it threatened to significantly increase the administrative burden on field sales representatives, counter to the original intention of freeing up more time for customer interactions. Displaying foresight, the unit's president halted the initiative and initiated a reevaluation of goals. Club Car's management team scrutinized the key processes within the customer relationship cycle and redirected their CRM efforts to address the two most pressing pain points: sales forecasting and order processing.
Just two years after relaunching its CRM initiative, Club Car has successfully automated its sales operations, resulting in significant enhancements to both customer service and decision-making processes. The company achieved this by actively involving the sales force in revamping the system, streamlining data and processes, and upgrading the underlying technology. These efforts effectively addressed many of the initial drawbacks of the CRM system.
Sales representatives now use the new system while interacting with customers, enabling them to customize golf carts
The Quest for Perfect Data: Is it Necessary?
In the early stages, CRM systems were alluring due to their promise of delivering real-time information, providing marketers, salespeople, and managers with immediate insights into market dynamics. However, achieving perfect real-time information entails substantial costs. Not only are the systems themselves expensive, but the processes required to swiftly respond to this information also demand considerable resources. Despite the hype surrounding real-time enterprises, the reality is that not all companies require constant access to perfect data throughout their customer relationship cycles.
The question arises: Why invest in real-time information for aspects of business processes that customers don't highly value or that managers can't promptly adjust? For instance, a hotel manager needs real-time data on room availability but not necessarily on guests' opinions about carpets and drapes. Similarly, a cable company should prioritize real-time figures on service outages requiring immediate repairs rather than the profitability of pay-per-view programs. Real-time information needs should be tailored to each business, driven by real-time business opportunities. (For more on this, see the sidebar titled “Calculating the Cost of CRM.”)
Companies must distinguish between activities that genuinely require perfect data and those that can function adequately with “good enough” information. The criteria for each differ significantly. An illustrative case is the approach undertaken by Brother International in implementing its CRM system. Brother International, the
As office products evolved, end-users increasingly demanded more assistance. However, Brother's call centers were only addressing 46% of queries from new purchasers, and the quality of assistance was inconsistent. Service representatives struggled to address the inquiries and grievances of recent buyers. Crucially, the call center staff lacked access to accurate customer information and prompt solutions to callers' problems. To troubleshoot technical issues, representatives often had to sift through product information binders. This frustration led consumers to return their products to retailers.
Brother's executives recognized that this pain point could only be alleviated by providing “perfect” information and thus turned to CRM to enhance their call centers. The implementation was phased, commencing with the printer call center in September 2001 and subsequently incorporating additional centers every two to four weeks. This incremental approach allowed Brother to fine-tune the system during implementation and adjust the training program as needed.
The outcomes have been remarkable. The system can now identify customers as they call in, swiftly retrieve their purchase records, and furnish call center employees with standardized responses to common queries. This has led to a
The benefits extend well beyond the call centers. With the capability to capture data regarding incoming calls, Brother has gained valuable insights into customer needs and behavior. This newfound understanding has enhanced Brother's ability to tailor outreach campaigns, including surveys and newsletters, to specific buyer segments. Armed with better information about the most frequently asked questions regarding its products, the company can proactively provide answers through its campaigns, resulting in a reduced influx of inquiries into the call centers.
On a daily basis, Brother transmits data on inquiry types and customer issues from the call centers to its corporate parent in Japan. This data aids the company's product planning, design, and customer satisfaction teams in evaluating both product performance and customer preferences and experiences. Brother anticipates that this exchange will ultimately enhance customer satisfaction and product performance.
When leveraged effectively, real-time information can empower companies to navigate the complexities of their customer relationship cycle, clarifying priorities. Molex, a global manufacturer of electronic and fiber-optic interconnection systems based in Illinois, boasts a substantial customer base and a considerable pipeline of potential orders. At any given moment, the company is actively pursuing nearly 15,000 distinct sales opportunities worldwide. For years, Molex relied on email and spreadsheets to manage its pipeline, resulting in data that were often several weeks outdated. This hindered the company's ability to consistently prioritize sales efforts toward leads with the highest potential. Additionally, the lack of updated information made it challenging to coordinate Molex's global initiatives. Given the numerous major customers with global operations, several Molex locations could be concurrently working on similar or related projects for the same customer without awareness.
In 2002, Molex made a pivotal move by implementing a CRM system to oversee its order pipeline. This introduced real-time visibility of the full spectrum of sales opportunities to executives, from the CEO downward. It enabled the measurement of the true value of these opportunities and provided updated information 24 hours a day, rather than just a few times a year.
The benefits were immediate, resulting in enhanced order management, more precise sales targets, and improved global coordination of inventory and pricing across regions. Since the CRM system's implementation, both the number and the value of potential sales in the pipeline have experienced significant growth, thanks to the sales staff's ability to identify opportunities earlier through shared information. Molex's management is confident that they are meeting the project's original goal, which aimed for a 5% increase in revenues.
Furthermore, following the initial implementation, management recognized that the captured data could also be leveraged to enhance budget planning. The pipeline data now serve as the cornerstone of the revenue component in the budgeting process. The company intends to utilize this information for parts forecasting and supply chain management as well.
Subheading: What Lies Ahead?
As demonstrated by Kimberly-Clark, Brother, and Molex, the data generated by a focused CRM system often unveil additional opportunities for significant business improvements. These refinements, when combined, can evolve into a comprehensive CRM application that permeates the entire organization. The key distinction between this expansive CRM implementation and the CRM applications of the past is that each step in building the system represents a well-thought-out advancement in strategic thinking. Kimberly-Clark initiated with trade promotion management, subsequently expanding its tool set to encompass total retailer customer management and, more recently, consumer management. Brother's call centers have not only improved its U.S. marketing and outreach efforts but have also contributed to product development and quality control processes worldwide. Molex's transparent view of its order pipeline has led to enhancements in budgeting, procurement, and supply chain management.
Astute CRM adopters do not become complacent; they diligently analyze the data produced by their systems to identify new, well-defined opportunities for expanding the technology's capabilities. In most instances, these opportunities align with activities that are closely related to the customer relationship cycle, as evident in the natural progression of these companies' CRM expansions.
Aviall has ambitious plans to expand its CRM system in two strategic directions: upstream connections with its suppliers and downstream links with its customers. This expansion will provide Aviall with a comprehensive view of the aviation supply chain, starting with insights into suppliers' inventory statuses and extending all the way to customers' needs for parts and maintenance. By enabling more precise matching of supply and demand, Aviall anticipates that the extended system will become a significant source of competitive advantage.
Moreover, the benefits of CRM can often be extended to affiliated business units. In the case of Ingersoll-Rand, the company recognized that the customers of its Club Car division, primarily golf courses, could also potentially be interested in purchasing products from its other divisions, such as Bobcat mini-excavators and loaders. Extending its CRM system to encompass these divisions opened up new opportunities for cross-selling. Beginning in late 2002, the company embarked on this path, and the results have been substantial, generating an additional $6.2 million worth of leads for other Ingersoll-Rand products in the first year alone. This success has paved the way for even more extensive plans.
In the present day, Ingersoll-Rand aspires to employ CRM as the unifying force to connect all four of its operating sectors, comprising over 100 manufacturing facilities worldwide. The objective is to operate as one integrated enterprise in the eyes of its customers. Similar to Aviall, Ingersoll-Rand may undergo a profound transformation in its business through its investments in CRM. However, these changes will be methodically implemented, with each success serving as a foundation for the next stage of development.
In this article, we have deliberately focused more on the business aspects of CRM rather than delving into the technical details. This emphasis reflects the fundamental principle that, in the evaluation and design of CRM systems, business needs should always take precedence over technological capabilities. Managers should not be swayed by what CRM software can do; their primary focus should be on what it should do, both for their companies and their customers (as illustrated in the sidebar, “McDonald's Tech Turnaround”). Fortunately, as competition among CRM vendors intensifies, CRM software is evolving to become more adaptable. While installing a CRM system may not be entirely straightforward, the technology is growing more reliable, the implementation process is becoming more streamlined, and the failure rate is decreasing.
This evolving landscape provides companies with the flexibility to apply CRM more precisely, targeting critical gaps in their customer relationship cycles where performance is lacking. By carefully prioritizing their information requirements, guided by an overarching customer strategy, companies can initiate highly disciplined CRM initiatives that yield greater impact with lower investments and reduced risks. In essence, CRM is evolving into a standard management tool, and the keys to successful implementation are becoming increasingly familiar: robust executive and business-unit leadership, meticulous strategic planning, clear performance metrics, and a well-coordinated program that blends organizational and process adjustments with the integration of new technology. CRM is no longer an enigmatic concept; it is emerging as a fundamental building block of corporate success.
Oliver Grand
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