Saturday, May 29, 2010

CRM for Topline Growth or Cost Optimization

The profitability equation states, P = S x Q – C x Q, i.e. Total Costs (Unit Cost X Quantity) when deducted from Revenues (Unit Selling Price X Quantity) equals Profit. Organizations create value by either increasing revenues or reducing costs and sometimes by doing both. As per Gartner’s Run Grow Transform Model, every IT initiative should be accompanied with a value proposition which indicates clearly whether the initiative falls under the Run, Grow or Transform category. Run indicates Cost Optimizations, Grow indicates Revenue or Profit impact and Transform maps to new business undertakings. What should be the value proposition for taking up a CRM initiative?  
Implementing CRM can help reduce costs e.g. Customer Service Agents can resolve customer queries within shorter timelines thereby reducing AHT (Average Handling Time). While there are cost advantages to a CRM initiative, CRM itself is a costly undertaking. Apart from cost of software licenses; implementation and customization costs can be sizable. Additionally, budget needs to be set aside towards change management and training of users because without users championing the cause of CRM, the initiative cannot succeed. Thus, investments required to successfully implement CRM will normally outweigh the cost benefits of such an initiative.
CRM can impact revenues in a much greater way. Going back to the equation on top, revenue growth comes from selling more products and services per customer or through enhanced pricing of existing services. Data gathered through CRM can be used to segment customers based on demographics, psychographics etc. Lifetime Values (LTV) calculated for each segment indicates relative profitability and different treatments can then be designed for different segments. These treatments may include up-selling and cross-selling propositions through Email, SMS, Web or Phone. Responses to such campaigns can be tracked and tagged to customers instantaneously. While on a call with a CSR or while browsing the company’s site, CRM can be used to dynamically calculate the churn score based on customer’s actions and pop up relevant campaigns to the customer/CSR. This is done based on the collective history of interactions by customers belonging to the same segment. Thus, only relevant deals are proposed to the customer thereby increasing the probability of a sale in an efficient manner, saving time, money and enhancing satisfaction.
Revenue is also impacted by the ability to sell products at an enhanced price. When a customer has bought multiple products and services from the company, the costs associated with churn are high for both the company and the customer. Depending on the segment and willingness to pay, the company can charge a premium for services which loyal customers will be willing to pay.
Going back to the Gartner Model, the value proposition for a CRM initiative is overwhelmingly towards Grow. CRM helps grow revenues by targeting the right customers, enhancing their LTV by increasing the number of products and services per customer through targeted up-sell and cross-sell opportunities. It also reduces churn by creating a loyal customer base through timely and personalized customer service.

Friday, May 21, 2010

Culture Change to enhance CRM Acceptance

Success of a CRM venture requires acceptance of CRM at an Organizational Level. A CRM enabled organization is tuned completely towards its customers and listens to them through all available channels, then acts to fulfill customer needs. To enable this, processes across the organization need to be aligned towards achieving this goal. If the thought process is that CRM is only going to impact the customer facing processes and not others, then the Organization may not have thought through the initiative. The next important step is to identify the processes and people who will be impacted. A big risk to any change management program is that there is not sufficient buy-in from people who are responsible for implementing it. People who are actually going to execute the CRM initiative need to know how things will change. It is important that some key people are identified as champions of the initiative and initial successes are celebrated. The more the number of users who understand, accept and then actively promote the CRM initiative, better are the chances of its success.
In most Organizations which do not involve employees in decision making process, employees develop a confirmatory response model. This model is performance orientated while an exploratory response model gives more stress on learning. For a change initiative of the scale of CRM to be successful, unfreezing of the existing ways of doing things is essential. Employees with exploratory response are more tuned accepting such changes and championing them. Organizations may want to understand the response model of employees and help move towards the exploratory model. Change becomes easy when the combination of the following happen:
  1. there is sufficient dissatisfaction with the existing environment (D)
  2. there is a clear vision of the future which is superior to the current situation (V)
  3. people commit to taking first steps towards the goal (F)
When the combination of these is greater than the resistance (R) to change, change happens.
D x V x F > R
To create such an environment in the organization should be the goal of the top management. One of the critical points to note is the first steps towards the goal need to be positive and encouraging. For CRM implementations, usability of the CRM system play a crucial role in forming opinions about the system and whether it will be able to deliver the vision. While most CRM providers are aware of this and some have invested heavily on usability related research, I have seen multiple issues with the usability of CRM systems. CRM vendors as well as System Integrators need to understand their direct and end customers better in terms of demographics, psychographics etc to make systems that are in tune with their individual needs and backgrounds.

1. Gleicher’s Formula: D x V x F > R