CRM IS A STRATEGY NOT A TACTIC
by Ian Gordon
Strategy |
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Almost all firms have adopted Customer Relationship Management (CRM) in their bid to build loyalty and retention. Too often, however, a CRM policy is highly ineffectual. The problem, this author and consultant says, is that a CRM program is developed as a stand-alone tactic, instead of being seen and developed as a strategy. The author itemizes and analyzes the errors companies make when developing a CRM program. He also puts forward some highly practical and valuable suggestions that will help them realize the great promise of CRM.

Customer relationship management (CRM) has yet to achieve the promise that has inspired many companies to make significant investments in new technologies and processes. A 1998 Harvard Business Review article provided a number of reasons why CRM’s promise has not been realized, from both the customer and vendor perspectives (Susan Dobscha, Susan Fournier and David Glen Mick “Preventing the Death of Relationship Marketing,” January/February 1998). The article notes that customers are being asked to enter into too many relationships, which can complicate their life (also see John Calhoun, “Driving Loyalty by Managing the Total Customer Relationship,” Ivey Business Journal, July/August 2001).

Most consumers can identify with this simply by checking the many plastic loyalty cards in their bulging wallets. On the other hand, some vendors may not always see the customer relationship as a mutually beneficial one, or one that merits a reward. It seems that some companies use the word “relationship” as a sort of code for “avoid competing on price.”

Little has changed since the article was published except that today the adoption of CRM and sophisticated technologies has become more widespread. In addition to the B2C market, B2B companies are now allocating their resources to develop CRM strategies. Yet even with the high levels of adoption, several companies report that CRM has yet to achieve the expectations executives had in mind when it was implemented.

THE CURRENT STATE OF CRM

In some ways, CRM has come a long way from the early ideas promoted so well in books such as The One to One Future (Don Peppers and Martha Rogers, Currency Doubleday, New York, 1993). Today, most managers believe that CRM is fundamentally important to the future of their business. Companies are also investing heavily in technologies to understand and touch the customer, so much so that many think that CRM is actually the implementation of technology. Yet technology investment is often fragmented, often made without the strategic integration and alignment needed to deliver superior customer value. Furthermore, most companies are not yet obtaining a good return on their CRM investment, and many customers report that they have yet to benefit from a meaningful relationship with their suppliers. Perhaps because of the tight link between CRM and technology, few companies have strategic plans for CRM.

Could it be that the absence of a strategic plan is the single most important reason that companies have yet to realize the promise of CRM? If your company is dissatisfied with the performance of its CRM investments, perhaps it is because CRM programs are independently justified in business cases without strategic integration. This seems to be one of the main reasons why companies have yet to secure sufficient yield from CRM. Lack of integration has yielded a patchwork of programs that seem to be reasonable individually, but which, together, fail to add up to a real vision. If there are differences of opinion as to whether the company’s CRM initiative is creating new, mutual, enduring and competitively superior customer value, then it is quite possible that the implementation has been tactical rather than strategic.

It is not surprising that this has occurred. After all, strategic planning for CRM is uncharted territory for many companies. What is surprising is that so few executives have moved to develop and implement a strategic plan for CRM. As the vice-president, strategy, of a major technology company said to me, “CRM for us is a program, a tactic. It is the implementation of strategy, not strategic in its own right.”

This view is by no means unique. I take the position that this is, bluntly, wrong. CRM is not a tactic. It is the business of the company as it could be. In this, CRM needs to be fuelled by a vision and a strategy. Anything less means trying to develop a CRM plan by combining the various impacts of fragmented initiatives. Such a retroactive approach to planning might provide 20/20 vision and perfect accuracy for today’s environment. But the approach is all but useless in conceiving a future for the company and its customers.

If your company is experiencing difficulty putting the CRM jigsaw puzzle together, perhaps there is no strategic plan to move the company ahead, even though each CRM investment is well justified. And if there is a plan, you might want to take a second look at the vision and the integration of objectives for the various CRM programs.

A CRM STRATEGY

CRM can be defined as the ongoing process of identifying and creating new value with individual customers, and sharing the benefits over a lifetime association. It involves the understanding and managing of ongoing collaboration between suppliers and selected customers for mutual value creation and sharing.

We can use this definition as a basis for providing some direction for a CRM strategy:

1. Identify the best customers, and the worst

A business relationship requires that we identify good customers, ones that likewise want a relationship with us—and collaborate with them to create new value that will benefit both parties over the long term. First, then, who are the customers with whom we should form a meaningful relationship? Just the biggest? Or the most profitable? Or the ones that will be most profitable tomorrow? Or those that are most amenable to a relationship with us? Or perhaps even other customers? Deciding which customers to focus on and which ones to neglect is the first and most important strategic decision.

2. Distribute value differently to different customers

A company should determine which are its best, average and worst customers and ensure that each receives appropriate value. Absurd though it sounds, most companies reward the worst customers and penalize the best by giving both groups average value. This is sometimes the result of not fully allocating all customer costs, including those that occur after gross margin, such as inventory carrying costs, late payments, customer communications and merchandise returns.

3. Compete on scope

One way of discriminating among customers is to become more relevant to each one. For many companies, this means broadening the range of products, services or solutions, whether or not the company makes them. Firms can collaborate with third parties to ensure that the customer receives the value each wants, rather than insisting that the customer buy what the company makes. This is a major strategic departure from the old belief that growing larger would give the company the economies it needed to succeed. In a world of individual customers, unique value must be created for each one. Being larger may not offer the opportunity to be more relevant. Frequently, the opposite is true. Larger companies can be less able to cater to individual needs, especially where their technologies and processes have been engineered for efficiency rather than effectiveness.

4. Focus on strategic capabilities

Managers sometimes do not want to plan because they fear that their plan will become rapidly outdated (it will), or that some of their strategies will be wrong (quite likely). Rather, in the era of CRM, strategies should be framed in terms of strategic capabilities rather than strategies per se. Base a plan on the range of capabilities that the company should have, including process, technology, people and knowledge/insight. CRM initiatives could prove difficult if technology is the only focus and people and their organizations receive insufficient attention. Stakeholders such as suppliers, employees and channel intermediaries form a chain of relationships, and the end-customer relationship can only be as strong as the weakest link. Plan to create durable bonds with these stakeholders, too. For example, when considering employees, pay attention to the link between relationship management and performance reviews, recruitment, training and compensation.

5. Win through customer-centric innovation

Creating new and mutual customer value, the core of CRM, means that companies need to have a process for customer inclusion and collaborative innovation. Most firms continue to innovate in the old style, using off-line research and product definition, rather than by involving the customer throughout the process. The challenge is to involve customers as the company works with each one of them to define and create new value.

Integrate the customer’s technology, people and business processes with those of your own company. If you can tell where your firm ends and the customer’s starts, you probably have not yet fully implemented relationship marketing. Amcan Castings makes castings for companies such as DaimlerChrysler. Their engineers work alongside those of their customers, and they would probably have difficulty saying when the sale is made. Design and development is collaborative. The purchase process is continuous; it is harder to tell when the sale starts and when it ends.

6. Measure customer performance

Focus on customer profitability with the goal of improving it, rather than the tradition of only measuring product, product line and divisional profitability, customer costs and customer value perceptions. It is quite in order to sell products at a loss if the relationship is profitable and/or strategic. Miss Mew cat food used to include the unprofitable tuna flavour, but the cats loved it and made the overall range of flavours quite profitable.

7. Unlearn and relearn

We need to unlearn the principles of “mass” everything if the company is to realize the benefits of CRM. The car industry, among the first to mass-produce, mass sell and mass market, is now among the first to go down the road to mass customization, building on the ability of the collaborative Covisint electronic marketplace to design its own approaches to mass customization. This is not a minute too soon. After a year-long examination of the Canadian automotive retailing industry, we know that the customer interface needs to be considerably improved and that the main challenge is to put the word “custom” back into “customer.” Unlearning is really needed if a company is to shed what made it successful in the past, but which now threatens its ability to adapt and rise to new heights. And unlearning may be hard to do, since it means changing entrenched attitudes throughout the chain of relationships to achieve the end result of a delighted customer.

Inside most companies, there is tension between those who “get” CRM and those who do not. If CRM is to take root and move the company into new territory, the group that doesn’t “get” CRM will need to learn or relearn what it is and the potential it has. In particular, the CFO should become involved in the visioning exercise; his or her commitment is most important if the plan is to work.

8. Redefine the focus

Many leaders encourage their firms to “focus,” by which they often mean focus on products or services. The company using CRM should instead see “focus” in terms of customers, not products or services, and should welcome the very significant changes that this redefinition will force. In particular, the CRM company will have to make significant change in its processes as it begins to supply what customers want rather than what the company makes. This disruption can undermine the initiative in the early going, unless the changes have been anticipated and presold to internal managers.

9. The new competition

The old rules of marketing are mostly broken and ineffective, providing a poor basis for making the company a winner. After all, there are only so many good customers to go round and all competitors want them. The 4Ps of marketing made little or no provision for this reality, nor did they create an opportunity for adjusting each aspect of product, price, promotion and distribution according to the unique preferences of the customer. In the era of CRM, customers target companies even more than vice versa. The 4Ps do not address this much newer reality.

In the era of CRM, competing has taken on a new meaning. Increasingly, companies will be competing for six things:

  1. Obtaining preferential access to the best customers.
  2. Becoming the “lowest-time” producer, or taking up as little as possible of the customer’s most precious resource.
  3. Winning the right new employees, especially those who “get” CRM, whatever their functional job titles.
  4. Aligning and collaborating with a selected group of companies, both competitors and non-competitors.
  5. Developing more customer data, knowledge and insight than competitors, and moving faster than them down the “customer’s knowledge curve,” to position the company and its products when and where the customer is most likely to buy.
  6. Creating the best new strategic capabilities.

CRM: YOUR BUSINESS AS IT COULD BE

Think of CRM as “your business as it could be.” If you do not yet have a comprehensive plan to take you to that destination, perhaps your company could benefit from one. And if you do have a plan but the destination remains elusive, now might be the time to review and refine your CRM strategy.

The Author:

Ian Gordon
Ian Gordon is President, Convergence Management Consultants Ltd. (http://www.converge.ca/), which helps organizations assess, address and manage strategic issues to drive breakthrough revenue performance. He is the author of 3 business books on customer relationships and competing, and has conducted landmark price competitiveness and distribution channel strategy assignments for consumer durables, semi-durables and non-durables. igordon@converge.ca.

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