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CRM at No Charge

  • June 01 2001, 1:00am EDT
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2001 is shaping up to be a difficult year for business. Every day, new companies announce layoffs due to budgetary pressures as a result of the slowdown in the economy. Consumer confidence indexes continue to provide evidence that consumers are postponing purchases. Inventories are too high; hence purchasing is decreasing across the board, creating downward pressure on the price of numerous goods. At the same time, every business magazine and most market analysts are telling companies to make investments in the latest customer relationship management (CRM) technology. The typical senior executive is trying to decide if now is the best time to focus more on customers or if it is necessary to scale down CRM budgets and wait until markets improve.

Waiting until markets improve is just what market leaders are hoping their competitors decide to do. Cus-tomers are looking to see who services them the best when the times are bad and will remember those companies as the economy improves. CRM is not about implementing the latest technology; it is about servicing customers better across the entire enterprise. Consequently, those who allocate funds for enterprise-wide CRM capabilities will be best positioned to take advantage of future opportunities. However, because enterprise-wide projects require huge investments in both people and in technology, how can CRM be implemented during this period of reduced budgets? The answer is by executing a "CRM at No Charge" strategy.

A "CRM at No Charge" strategy requires you to think of CRM as a holistic business strategy and not as an isolated technology project. If your company believes CRM is critical but if the funds are not available to implement a quality capability, this is one way to move forward.

Most companies are currently facing fiscal constraints that prevent new investments from impacting the quarterly income statement. Most CEOs today say, "Whatever we do, we are not allowed to decrease our quarterly margins." This reality is beginning to cause a change in information technology (IT) project funding. Many CIOs believe now is not the time for new projects that have expensive funding requirements. In fact, every company is probably hoping the competition's leadership is thinking this way as they want the opportunity to get their CRM strategies implemented in anticipation of a turnaround in the market. Those who can provide the best customer service options will benefit the most when the economy improves. The challenge is to allocate funds to the best strategic opportunities for growth. Those who view CRM as a growth strategy that needs to be funded with non- strategic assets will be ahead of those who don't take this approach.

As a holistic business strategy, numerous companies are doing what they must to allocate sufficient funds for CRM. One way to fund a holistic CRM strategy is to create operational efficiencies in another part of the business such as the back office. Most companies have invested huge quantities of capital in their back-office environments. In order to move forward in today's economic reality, companies have to free investment dollars in one area of the business to fund more important business strategies such as CRM.

This requires companies to view IT assets in two categories: strategic and non-strategic. Strategic IT assets are those that are viewed as vital to the future growth and success of the business. These include anything that increases top-line growth such as CRM, sales force automation (SFA), marketing automation (MA) and customer interaction centers (CICs). Non-strategic assets are viewed as critical to the business, but they can be leveraged for other purposes. Non-strategic assets include enterprise resource planning (ERP), data warehouses, desktop maintenance and legacy systems. Everything should be considered to reduce costs in these areas in order to free capital for strategic IT investments. This does not mean that non-strategic investments are not key to corporate success. It means they represent an opportunity to gain access to locked-up capital.

CFOs have long viewed most IT investments this way, and now most CIOs are beginning to look at the IT business with the same financial lens. Why postpone something that is viewed as strategic when capital can be made available by decapitalizing or outsourcing non-strategic assets?

CRM is strategic because it focuses on what is most important to the business: the care of customers. There is nothing more important than the customer; thus nothing is more important to fund than CRM. The obvious questions are: How does this work, and who is doing it?

From an IT point of view, the 1990s were about creating efficiencies and improving productivity. Dell and Wal-Mart capitalized on their back-end efficiencies to dominate their markets by reducing costs. Implementing ERP systems promised to isolate inefficiencies, and many companies invested huge amounts of capital in these systems searching for the promised returns. Regardless of the popular press at the time, most companies were still running their legacy production systems and continued to plow available funds into those systems. The entire Y2K phenomenon clearly showed that corporate America was going to continue to fund legacy systems well into the future. Finally, Compaq, Dell and HP all benefited from buying trends in PCs and related capabilities which promised huge productivity savings in the years ahead. What all of this 1990's investment means to today's corporate leaders is they have huge capital investments locked within yesterday's strategic assets. However, that investment is not going to service the customer better during the next economic surge in the market.

The 1990s were also about growing larger. The U.S. economy just experienced one of the largest merger and acquisition (M&A) periods in its history. The biggest financial and telecommunications players got bigger. The aerospace and automobile industries experienced major consolidations. Companies such as GE took the initiative to snap up as many companies as possible. Market leaders such as Cisco bought their way to growth through numerous acquisitions. What this all means to today's CFOs and CIOs is that most industries have numerous IT systems that need to be integrated. Customer data is everywhere, and it is going to require a huge investment to achieve the holistic CRM vision.

The 2000s are beginning with a renewed focus on the customer. However, two major problems have to be considered. First, the 1990s M&A activity created the largest customer integration messes of all time. Most companies have more than one customer system and are challenged with the reality that they don't know which customers are buying from more than one business unit. As a result, companies are not achieving the cross-selling they need to have in order to deliver the promised returns on their M&A investments. Second, with the economy slipping into recession, IT budgets are being frozen or even cut, forcing CIOs to reevaluate their priorities. Companies are being backed into the difficult position of postponing the very investment they need most in order to be ready for the upturn in the market. In many cases, the IT efficiency and productivity promised did not materialize, and the 1990's capital investments appear locked within non-strategic assets.

However, the downturn in the economy is the opportunity of a lifetime for those corporations that view CRM as an offensive strategy. Once the market turns around, a company with an integrated holistic business strategy will be able to take advantage of the upturn in customer buying. They will be able to service the customer better than the competition. That could mean the difference between stock growth and reduced valuation.

With the market realities in mind, "CRM at No Charge" becomes a strategic initiative. Let's assume a company wants to fund a $10 million enterprise-level CRM project. The goal is to release $10 million of capital from their non-strategic IT asset base. This can be accomplished by decapitalizing or outsourcing $100 million worth of value to someone who can squeeze at least 10 percent of efficiency gains out of the decapitalized assets. As a result, the outsourced assets serve as the funding vehicle for the $10 million CRM project.

There are two business models to pursue with the outsourcer. The first option is to have the outsourcer put up the capital to fund the CRM project. This is the best short-term option because there is no impact to the income statement. The problem with this approach is the outsourcer will charge an interest rate on the up-front capital, which could inflate the overall costs of the CRM project. However, if the goal is to fund the CRM project with no impact to the income statement, this is a great alternative.

The other business model is to fund a portion of the CRM project using available cash and postpone major costly portions of the CRM project until the savings from the outsourced services are realized. The advantage of this approach is it reduces the total cost of the CRM project. It also enables the organization to realize its CRM vision one step at a time. This is the more conservative method of the two, and most CFOs prefer this approach. The only downside of this approach is it postpones the majority of the CRM value until the outsourced value is created. One way to minimize even this downside is to select an outsourcing value that can be quickly realized. This alternative creates operational efficiencies simultaneously with the CRM capabilities.

The "CRM at No Charge" strategy is enabling companies to realize their CRM vision sooner rather than later. Most companies are struggling to justify their CRM investments. There are numerous promises being made for CRM ROI, but there is still no agreed-upon method to measure the return on CRM investments. The "CRM at No Charge" strategy enables companies to justify their CRM investments with verifiable financials.

CRM is one of the most popular strategic investments for companies today. With the downturn in the market, it has never been more vital to implement a robust capability to support customers. This investment can position a company to take advantage of increased customer spending when the market rebounds. With all of these potential gains, what is holding some companies back? The market leaders are moving forward with their CRM projects. Those companies that are first to install enterprise-wide CRM capabilities will be the ones who benefit the most. The "CRM at No Charge" strategy is certainly one way to obtain a robust CRM capability focusing on the top line while creating operational efficiencies targeting the bottom line.

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