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CRM Project Justification and Measures – Are These Oxymorons?

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  • December 01 2003, 1:00am EST
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For most corporate initiatives to be approved, the sponsor must provide a business case demonstrating the business need, including parameters such as feasibility, costs and schedule. In addition, the sponsor must usually provide a justification, sometimes in the form of a projected return on investment (ROI). Customer relationship management (CRM) projects are no different.

As with other projects, CRM project benefits usually include both tangibles and intangibles. As with other projects, even when the intangibles are obvious and probable, they are often difficult to quantify. Unfortunately, CRM projects are often more challenging to justify simply because a large number of their benefits are intangible. Following are some suggestions for handling CRM project justifications.

Consider smaller, incremental, highly focused projects. Size matters. Many companies look at their CRM initiatives as far-reaching and all-encompassing efforts requiring years and massive amounts of money before the very first benefit is felt in the organization. Undoubtedly, this is a common cause of failure in CRM projects. You will be much better positioned if you look for strategic, incremental CRM investments with shorter return cycles. They will have a far better chance of gaining and sustaining support. They're also easier to justify because there is less overall risk and more promise of short-term gains.

Don't abandon the need for justification and replace it with an edict solicited from a sympathetic executive. If the project fails, the executive will have no defense for his or her edict and will probably blame you. In addition, it will be much more difficult for you to rally support from the project team if your justification is "because it's an edict from [the executive]."

Don't use groundless dollar guess-timates for the benefits. If you do, then you've made it your edict, and, unlike the executive, you won't have someone else to blame if things go wrong.

Don't project the benefits to come primarily from cost reduction. CRM savings from reduced cost of customer service, more efficient or effective campaigns, lowered inventory costs or decreased customer churn may be realistic; however, experience has shown that these benefits are only half of the cost story. The savings and efficiencies upon which CRM ROI is based are offset mostly, if not completely, by new costs –­ new technologies, new training and new positions within the new organization structure.

What is a good justification for your CRM project, tangible or otherwise? Customer satisfaction, of course.

Suppose you measured the ROI from your CRM initiative less on extracting value from its technological components and more on customer satisfaction. Perhaps the whole ROI process would be better served if it were governed by a customer- centric business strategy ­– one in which the goals of the CRM initiative, and therefore the real return from the investment, are described in terms of their impact on customer value and satisfaction. Even though intangible, touchy-feely assets such as customer satisfaction and word-of-mouth references cannot be quantified and are not found within the corporation's balance sheet, most executives intuitively know there is a direct relationship between customer satisfaction and the bottom line. It's the way our economy works – sellers compete for customer dollars and a satisfied customer rewards the successfully competing company with repeat business, up-sell opportunities and word-of-mouth references.

However, the ability to show this association in terms of real dollars is often difficult, but not impossible. There is evidence to support this form of calculated return. An article in the Harvard Business Review found that there is indeed a direct correlation between customer satisfaction and shareholder value.1 Not surprisingly, the article states that those companies with the highest customer satisfaction scores also have high scores in such financial metrics as market value added, stock price and return on investment. The article also indicates that the converse is true –­ companies struggling with their customer satisfaction levels are also seeing their stock prices decline significantly.

Why should we rely on the link between customer satisfaction and economic performance? It has been well established that the profit in most organizations is usually generated by less than 10 to 20 percent of the customer base. Through a CRM initiative, the enterprise has a much better means of identifying these profitable customers (e.g., through lifetime value and customer scoring analyses). This certainly gives the company a much better perspective on who these customers are, which ones are consuming large amounts of the corporation's resources and, finally, whether that consumption is cost-justified.

Even with customer satisfaction as justification, it's astonishing how many CRM projects are started without specific criteria in place to measure CRM problems and their resolution. To justify your CRM project on the basis of customer satisfaction, you need ways to obtain, document and measure it. Before you draft your CRM project request, you ought to have a good understanding of what your customers would most like to see improved and how you're going to make those improvements. Therefore, if you lack ways of obtaining, measuring and documenting customer satisfaction, you need a prerequisite CRM project that delivers those capabilities.

Don't forget that customer satisfaction has different meanings. For example, a well-known heuristic is that the least profitable customers will inevitably use the most expensive sales channels, such as call centers and face-to-face sales calls. However, keep in mind that there is no such thing as a "bad" customer ­ only those customers that need to be understood and migrated to a level of greater value to the organization. Therefore, a tangible measurement of customer satisfaction might be the number of customers you convert from one profitability level to the next higher level.

Business intelligence analytics and personalization solutions are powerful tools to understand and enhance customer value ­– improving your initiative's ROI. These components identify which aspects of your sales processes best serve customer segments and which ones don't. You then know how and where to adjust your processes to reach each customer and improve his or her relationship with your organization. Another useful measurement is whether or not the sales cycle time has been reduced due to the usage of the new CRM components.

Measures of customer satisfaction are key motivators of employee behavior as well. Organizations that are product-focused typically have success measures that are also product-focused. Changing activity and behavior to focus on the customer requires that objectives and performance measures for employees be changed accordingly. Following are some examples of customer-focused performance metrics that coordinate service measurements and incentives across multiple service centers.

  • Customer satisfaction is included as a service objective and is actively measured.
  • The ability for service representative to handle all customer issues in one call is included in performance measures.
  • Cross sales, share- of-wallet and retention saves are included in performance measures for sales, marketing and customer service departments.
  • Traditional performance measures are adjusted to accommodate customer-oriented measures (e.g., acceptable call-handle time is increased, acceptable number of rings is increased if required).
  • Marketing is measured on how well it prompts the service channels for cross- sale activity. Measurements include number of prompts delivered, customer reaction to the prompts and number of cross-sells or retention saves the prompts achieve.
  • Questions about marketing solicitations are included in customer satisfaction surveys and results are included in measurements.
  • Increases in the value of targeted customers or movement of customers into targeted segments should be included in measurements. Customer value should be measured across all the products customers own or have influence over. Movement of a customer from a low value segment into a more profitable segment should be recognized and rewarded.

CRM project justification is challenging for most organizations. A successful CRM justification demands a certain amount of tactical finesse from upper executive levels. It also requires a willingness to adopt a variety of new customer satisfaction measures.
Formal ROI calculations involving intangible benefits are difficult to defend and may never truly reflect the value brought to the organization. In the face of demands for firm ROI estimates, one can easily forget that customer satisfaction is the goal. In the absence of customer satisfaction measures, CRM project sponsors risk failure when they rely solely on their intuition and abandon real ROI justifications.

Reference:
1. Fornell, Claes. "The Science of Satisfaction." Harvard Business Review March 2001: pp. 120-121.

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