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It's the customer, stupid!

It's the customer, stupid!

CRM has been getting a bad rap lately, but if the fundamentals are kept in view it will deliver in spades.

Alastair Hutchens has plenty to be upbeat about as general manager of Loyalty New Zealand, the Wellington-based company that manages the Fly Buys programme. Not only has Fly Buys just achieved the highest household penetration of any loyalty programme in the world, but the leader of its 50-seat Auckland call centre has been named call centre manager of the year.

Hutchens, though, sees an even brighter future for Fly Buys, its 38 participating companies and more than one-million-member households, through a $3 million investment in IT infrastructure and software systems that will give it one of the most advanced CRM (customer relationship management) solutions in the world.

But although he foresees big advantages from the integrated solution which goes live this month, he’s under no illusions about the folly of placing too much trust in technology without first having the right business processes in place.

“Your customer relationship processes are what you should be focused on first and foremost,” he says, “and then you need some technical support to enable that to happen. Not, ‘Here’s a solution, now fit your processes around that’. I think that’s probably where organisations may have gone wrong with CRM.”

Certainly, CRM has been getting some bad press of late. Not so long ago it was the wonder acronym around top-floor executive suites, where it was seen as the technological panacea for all corporate ills, including lagging sales, poor customer loyalty and sagging bottom line. But enthusiasm has waned somewhat since some large-scale, multi-million-dollar solutions have failed to meet expectations.

In the US, where statistics for such things are readily available, independent CRM software vendors showed a 16% fall in third-quarter revenues last year, and Gartner analysts were forecasting that CRM spending would stay flat in 2002 after an 8% drop last year — that’s compared to growth of 89% in 2000.

Here in New Zealand, the first survey of CRM was published at the beginning of this year by the NZ Direct Marketing Association (DMA). The study found that there was a high degree of awareness of CRM within New Zealand business — 86% of those surveyed said their organisations were either investing in CRM or considering a future implementation. But it also found a good deal of confusion over what CRM is actually about and it highlighted the gulf between what managers hoped CRM would achieve and the kind of results being experienced by those already employing it (82%, for example, assumed CRM would improve customer loyalty and retention, while only half of those using CRM reported such improvement; 75% expected CRM to increase sales to existing customers, but only 35% said it actually did).

Said one surveyed IT manager: “CRM appears as another buzzword, with many companies able to supply a CRM solution. Could be expensive, with hidden implications for a company — without necessarily delivering.”

So what, in fact, is CRM and will it become, as the DMA and others involved in the study believe, “imperative that New Zealand companies and organisations integrate CRM strategies into their core business”?

People, people, people

“It’s all about people, that’s what it’s all about,” Hutchens says emphatically. “Technology is just the enabler.”

Auckland marketing/IT consultant and CRM specialist Andrew Segar agrees.

“The reality is, CRM solves no problems for you at all. It’s a business process, as distinct from technology. CRM is about understanding the customer and having business processes in place that allow you to live up to those customers’ expectations.

“What software does is allow companies to automate and to be more efficient in the delivery of some of the mechanisms to provide better customer service and better customer pricing and delivery, all those sorts of things.”

Marketing or IT?

Good CRM, says Segar, relies on a working relationship between IT and marketing.

More often than not, though, neither understands the other’s language: “The marketing people don’t understand IT, the IT people don’t understand the marketing and a really big problem occurs when they need to talk to each other.”

CRM often goes off the rails, he believes, because marketers expect it to provide a marketing solution, while IT folk fail to grasp the basics of customer relationship delivery and look for a technological solution. From here a simple problem can spawn an unnecessarily complex and expensive solution.

“It’s simply the expectations of marketing people not understanding their IT people, and them being sold to by a bunch of vendors — usually having some consultants in the mix to add all kinds of difficulties in there.” If these are IT consultants, as they often are, Segar adds, they probably don’t understand marketing either, “they turn it into a great big thing and then the poor marketing people get it back a year later and they’re no better off, they’ve spent a lot of money on some really nice technology.” And CRM gets a bad rap.

“I always think it’s commonsense: you provide for the customer what the customer wants when the customer wants it and you then streamline that delivery to the customer using technology, and that’s what CRM’s about.”

Small is beautiful

Bill Bostridge, of Swallow Information Systems, a US-based customer services software provider, believes CRM has come to mean so many things — from call centre software to email marketing campaigns — and that problems have arisen from trying to squeeze too many of these disparate elements into a single colossal package.

“One of the greatest stumbling blocks of most CRM packages is that they are simply too big and cumbersome by design,” he says. “By the time they are conceived, programmed, configured, installed and commissioned, the company’s needs have changed and the software is outdated.”

Segar again: “CRM’s one area where you can go and spend truckloads of money or a little bit of money and get the same result … because at the end of the day the value of CRM is data in the database and it’s measured by the accuracy of the information in that database and the delivery to the bottom line.

“Now if you’re spending $20 million delivering something that $200,000 can deliver, your ROI is not going to be looking very good.”

Buying a hat that fits

Hutchens was aware of the dangers of buying an expensive CRM mega-package instead of a bespoke solution tailored to his company’s needs and which capitalises on existing systems.

“We’re desperately trying to make sure we don’t fall into the trap of trying to buy stuff we don’t need,” he says. “And, increasingly, I’m finding companies saying, ‘Oh look, we can do all this’ — and what they’re doing is selling you something that frankly is total overkill and actually not what you need at all.”

The people who understand what drives the business, Hutchens says, are looking for technology to help them do that, rather than accepting a technical tool on which they have to model their business processes. “No, we don’t do things the way the tools tell us, we actually have the tools doing the things we want them to do.

“And that’s why this new platform is being designed to meet our needs … which is why we believe we will end up with a world-class solution at the end of this — because we’re actually designing the architecture in a way that allows us to use the systems that are available out there to deliver the culture we want to the programme.”

Modular CRM

Segar is a fan of the modular approach to CRM technology: use the least amount of technology and implement it in the simplest way possible, augmenting whatever technology is already in place.

“Using in-house technology and building bridges to the CRM is not a bad thing; you don’t have to go out and buy packages. You use software where it can add value to the business,” he says.

“The technology has changed so much in recent times that now most organisations have all the technology inside they actually need to do a CRM development. Because what CRM is about, apart from a database, is understanding the customer. So I refer to a CRM system as a large pool of data where anyone with a licence can go fishing.”

The “fishing” equipment, he suggests, might simply entail building web or email interfaces to a database, or adding grunt to the database itself.

“Today, Microsoft and Oracle and various other technology companies deliver most of the tools that are required and it’s often easier to build it and put it together with what’s already there — just bolt it together, like building some bridges across a couple of databases in Outlook or Word, for example, than it is to go out and buy an XYZ product off the street and fit it into the organisation.”

Modular CRM also allows users to prioritise their CRM expenditure, spending money as and where it’s most urgently needed, and to progressively update their system. Says Bostridge: “It is a step-by-step approach that allows customer-facing areas of the business in most dire need of attention to be seen first. Other less critical service initiatives can simply be attended to at a later date.”

Outsourcing

A recent survey among companies and organisations in the US found 50% to 75% failure rates associated with CRM implementations. For this and other reasons — the state of the US economy, for example — there has been a significant rise in the outsourcing of CRM applications (Siebel’s outsourcing business has grown by 20% to 23%), everything from sales force automation to call centres. The advantages of outsourcing include savings in heavy up-front investment, time and responsibility.

Segar thinks outsourcing can be a useful solution for companies that don’t want to use the resources in-house to get up and running in CRM. But the plan should always be to bring “mission-critical” things back in-house.

“I believe that if the function of their outsourcing is critical to that organisation’s ultimate success — that is, it’s intellectual property of the organisation; and you’ve got to argue that customers are the most valuable asset of any organisation — then they’ve got to seriously look at the long-term considerations of outsourcing.

“Short-term, I don’t have a problem with it, but it should always be the strategy to have that asset maintained internally, so that they keep their competitive advantage.

“Outsource commodity things, but things that add value to your brand or to your business and where intellectual property resides, should be held internally, otherwise you ultimately end up losing that value.”

Define your objectives

Bostridge and Segar hold similar views on the need for organisations to be specific in defining the parameters and objectives of their CRM strategies. How else can a company know what they want from CRM? Simplicity is the key, Segar says.

“I firmly believe you should only have one or two objectives. You’ve got to understand one or two things you’re going to do to make a difference to the business today, so what’s the one thing you can do that will make a difference to your bottom line — because you’ve got to do everything for your bottom line, otherwise there’s no point in doing it.”

Having set the primary objectives for CRM, Segar continues, it’s important to be able track their success or failure, so it’s necessary to define the criteria for success — and again, to keep it simple. Without such criteria, he says, a CRM initiative is likely to fail, because everyone will have a different view of success or failure.

Back at Fly Buys, Hutchens talks about the business, rather than IT, owning the company’s CRM initiative (see sidebar “Project Iceberg”). “We’re not driven by IT at all. We’re constrained by IT and that’s all. It’s a question of keeping the focus on the business drive and what the business imperatives are.”

“To be successful you’ve got to have absolute buy-in from the CEO downwards,” says Segar. “Keep it really simple, have the CEO and the senior management people involved, don’t let it end up in IT land. IT has to be involved, but you don’t want it to become a technical thing, it wants be owned by the business. And IT is there to deliver to the business.”

Bangs for bucks

CRM need not cost the earth, although the DMA survey found that the perceived cost of investment topped the list of factors preventing companies from making better use of CRM.

Segar suggests that a small budget can go a long way “if you remember that CRM is about marketing, about delivery to customers”.

A company could begin by using direct marketing campaigns, improving the efficiency of your sales force “by implementing e-marketing campaigns to augment telesales and using telesales to augment reps on the road — so using the data to better drive the business and to improve the KPIs of the business”.

From there, a CIO might go back to the CEO and present a business case for adding technology to the mix.

“But the thing about technology,” he says again, “is that you don’t have to spend a lot of money to have the best CRM system in the world; I almost think that the more you spend on it, probably the less likely it is to deliver.”

But it’s technology that will allow Fly Buys to better services its customers.

“I think Fly Buys is inherently reasonably customer-centric,” says Hutchens. “Our problem has been that our systems haven’t really helped us in that regard … we’ve been held back from being able to deliver that culture effectively into the marketplace.

“I’m pretty confident that the system we’re putting in place will give us the pay-back we want … in respect of our being able to meet your needs as a member of the programme in a much more efficient manner.”

Project Iceberg: The data's down there somewhere ...

Alastair Hutchens likes to compare the Cardlink points management system — the technical heart of the Fly Buys loyalty programme in New Zealand — to a bank.

“Really, what we’re dealing with is a currency — the points the programme operates,” he says. “It’s like you have a bank account, and when you interact with your bank they’re able to find out all the money that going into your account, coming out of your account — it’s the same thing in our context”.

But what this “banking system” has been unable to provide until now is a whole picture of the relationships Fly Buys members have with the programme and its 38 participating companies.

It’s information that is needed by call centre personnel who handle 4000-5000 member queries each day and for business intelligence purposes — “to help us better understand customers and what they’re likely to buy”. By understanding members’ shopping behaviour, participating companies can be helped to make relevant, timely and more price-competitive offers.

Hutchens sums up Loyalty New Zealand’s CRM-driven ERP solution as “getting all these databases of information into places where the information is available to people who need to be able to help customers … and to allow us to analyse information more easily”.

Hutchens says the solution — dubbed Star — was designed “to allow us to use the available systems to deliver the culture we want to have, to the programme.

“It started off as Project Iceberg,” he says with a grin, “because it’s like the analogy of the iceberg — there’s a little bit above the water you can see and this huge amount below. And that’s really what Fly Buys is about: a huge amount of data and information below the line that you can’t see that we need to get at.”

The Ernst & Young-implemented Navision Attain solution sits over the points management system and a geodata program called e-spatial, which is used to validate addresses. The umbrella architecture, designed by Gen-i, pulls together the whole solution, including Oracle data warehousing and reporting tools.

The high-level integration may represent a world-first. “The way that the whole thing’s been pulled together is quite novel and we know that we are being watched around the world,” says Hutchens. “We know that a number of other loyalty marketing programmes are looking at us to see how it goes.”

Despite the technology involved, Hutchens insists the CRM initiative is owned by the business. “IT is simply the service provider.

“The strategy and the whole driver, the project, is under my jurisdiction, not under IT, so this is very much driven by the business, and that inherently is how the programme works. It’s a question of keeping the focus on the business drive and what the business imperatives are.”

Hutchens is confident they’ll see a return on their $3 million investment “within 24 to 36 months”.

“To be quite honest, it’ll be redundant in that timeframe, the way technology’s developing. But we’ve chosen a very, very flexible framework and the type of products that we’re using are scalable and can be upgraded.

“Navision is a proven product and it suits our size of operation. We’re reasonably happy that what we’re buying is simply what we need and it’ll meet our needs for now and into the foreseeable future.”

Andrew Segar's 12 truths of CRM

1 Customer relationship management is a misnomer — you can’t manage customers. Customers manage you — just make it easy for them to do so.

2 To succeed, your CEO and all senior managers must be 100% committed to the CRM philosophy. In fact, the whole culture of an organisation must embrace CRM or you are wasting your time and money.

3 CRM is not technology. Implement a customer acquisition/retention strategy and become truly customer-focused. Only then think about technology to assist this process.

4 Choose consultants carefully. Make sure they’re truly product-independent. CRM is business and marketing strategy — IT consultants will know less about CRM than you.

5 Identify one or two objectives that technology can help you achieve. Walk before you run.

6 Define your success criteria.

7 Get a pragmatic project manager, answerable to the CIO, who can ignore internal politics.

8 Keep it simple — high-tech isn’t always better. Plan the simplest system to achieve your objectives.

9 Buy technology, don’t be sold. Choose the system closest to your business model.

10 Marketing and IT must talk.

11 In-house isn’t always bad.

12 If your CRM isn’t working, it’s probably not the technology. New CRM technology will not fix a poor CRM culture.

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