Continue in 2 seconds

Best Practices in the Value Chain Improve CRM

Published
  • July 01 1999, 1:00am EDT
More in

Last month we looked at customer-oriented "value chain" relationships as integral to accelerating the customer adoption process. A new field of technology, customer relationship management (CRM), has recently and quickly grown to help companies improve customer relationships. The danger is that although these tools can facilitate relationships by improving routine communications, they can too easily replace all-important direct interaction. Customers aren't satisfied with less direct interaction. The dilemma then becomes how to use technology to increase customer interaction.

I recently heard Pete Solvik, CIO at Cisco, present Cisco's approach to their customer relationships. Cisco provides an outstanding example of a company that has used technology to increase interaction and improve customer relationships through its Internet CRM strategy. Cisco's customer-oriented approach offers an important lesson for using technology to manage the value chain and customer relationships.

As the company grew and product demand increased, so did configuration problems, product delays and customer dissatisfaction. A methodical survey of customer complaints showed that most calls were about the status of an order. "Customers were finding it hard to do business with Cisco," according to Scott McMahan, Cisco's Director Internet Business Solutions.

To solve the problem, Cisco spent five years building a Web- based enterprise information system that is used by the CEO front-line sales staff, customers, partners and suppliers. There are some key aspects to Cisco's approach that make it particularly interesting:

  • The business head for each unit ­ the person closest to the problem, not the CIO ­ makes the decision to invest in the technology, has the budget and works in partnership with IT.
  • Customers have access to the company's ERP system. Now, customers can find out the status of an order themselves.
  • The enterprise view lends a common look and feel to disparate projects and ensures that all of the applications can be understood.
  • A data warehouse maintains all customer information in one logical location, ensuring that changes and updates are reflected throughout the system.
  • Customer satisfaction ­ how to add value and improve efficiencies for the customer ­ is the core consideration of all Cisco decisions.
  • Cisco considers its "supply chain" partners an extension of the company. They are included in all applicable planning.

Cisco views its extranet as the center of its CRM strategy and maps its enterprise information system to its entire value chain. "When a customer indicates a preference, it is reflected all the way through the supply chain. No piece of the system is an island," notes McMahan.
Cisco views technology as a tool to engage partners, suppliers and customers in order to enhance relationships and help people be more productive. Some of the results achieved by Cisco's system are impressive:

Development: New product introduction time accelerated by a quarter. Annual contribution margins enhanced by $100 million.

Manufacturing: 55+% of unit volume directly shipped without Cisco's touch. One turn per month.

Purchasing: 78% of Cisco's POs handled across the Internet.

Sales: Sales doesn't have to chase down POs or calculate commissions. They can focus their efforts on the customers.

Partners: Product courses and training, including real- time distribution of audio and video, available for partners and customers.

Support: 81% of customers supported via the Web. The other 19% are supported directly by 800 engineers. Cisco attracts high-level engineers and has less than 5% turnover in customer support. "The Internet doesn't solve difficult problems. It does give those in support more time to focus on the challenging problems so their job is more interesting," according to Solvik.

HR: Five HR staff support 18,000 employees. Process 15,000 expense reports per month. Employees paid in three days.

Financial: Annual operating costs reduced by $550+ million. Average revenue per employee: $650,000. 9% SG&A advantage over competition. According to Dataquest, Cisco has generated 76.5% of the enterprise router sales worldwide ­ Nortel, its next biggest competitor, only 7.6%.

How did Cisco get its customers to adopt the system? According to McMahan, "We aggressively marketed the capabilities to customers in terms meaningful to them." We supported them in using it with training and service." Cisco's largest customers say they save between 10 to 20 percent per year. Since the technology handles the tedious, repetitive tasks, Cisco employees have more time to interact with customers about more strategic issues and focus on high-value/high-impact activities.

Next month's column will address the importance of segmentation in a customer-oriented solutions approach, including how to identify what is meaningful to the customer.

Register or login for access to this item and much more

All Information Management content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access