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CRM Measurement Frameworks, Target Audience & Technology-Driven Change

Abstract

Comprised of several distinct disciplines and cutting across just about all business units within most companies, customer relationship management (CRM) measurement is complex. Companies use CRM measurements for different purposes; digital channels provide for new measurement and product/service distribution options; businesses are fractured internally with inconsistent communication and often incompatible systems. Despite this complexity, companies are adopting measurement systems, or frameworks, that have acceptance in the marketplace.

These frameworks range from the strategic to the operational. How companies build and deploy a CRM measurement framework depends on the planning horizon under consideration, the market volatility, the company’s overall strategic posture and goals, and how much of the organization and customer base is impacted by the CRM solutions considered. In addition, how customer knowledge is created and utilized for benefit is under continual debate with different points of view. This paper reviews the key issues in CRM measurement, offers some attributes for describing and evaluating CRM measurement frameworks, and suggests several implementation approaches.

Introduction

A customer relationship management (CRM) practitioner at a large consumer goods company once said many in his company have determined the three-letter acronym CRM stands for “Can’t Really Measure. That phrase stuck in my mind for some time. It seems odd in light of the fact that over time businesses have been quite clever about measuring a great many things. Why would this company, filled with some very bright people, feel measurement and CRM just don’t get along? The answer probably lies in the fact that companies have just started measuring customer activity in any real depth and breadth. Implementing CRM software can be done quickly. It takes companies time to learn how to measure properly.

Many businesses have bought technology solutions at a rate faster than those solutions can deliver real value. While the reasons for this are varied, the ability to properly measure customer-facing activity is obviously crucial for successfully managing CRM programs. To complicate matters further, measuring customer-facing activity is one of the most complex and varied measurement endeavors businesses can undertake. The area of study is relatively new and undergoing significant change as new technologies are beginning to blur the lines of distinction between information channels. Customers are interacting with businesses across far more information channels than they did 25 years ago. More and more activity is being pushed to interactive, real-time digital information channels, providing businesses with unprecedented potential for observing and measuring customers in new ways.

The way businesses have been traditionally organized, along functional and product lines, may be insufficient to take full advantage of the apparent and latent opportunities in measuring customer activity. Many companies are seeking to shift the central focus of corporate activity away from products and on to customers or at the very least to learn new ways of managing customer-facing activities. To effect this change, businesses will need to build out new, more robust measurement systems, replacing or standing alongside existing product oriented measurement systems. Designing and managing these measurement systems and the CRM technologies around them requires new combinations of skills and roles, for which many companies have not planned.

Change begins with knowing. In order to successfully build out these new customer-oriented capabilities, companies will need to build out new ways of knowing customers.

Target Audience

This paper was written with the CRM practitioner in mind. Many companies have created new staff positions to assist in building out customer-facing capabilities and skills. These positions have various titles, often with the term CRM, 1:1, interactive or integrated marketing and e-business in them. People holding these positions have varied backgrounds and come to the position with a partial view of the measurement approaches available. The purpose of this paper is to give these practitioners a starting place from a high enough level where the full CRM measurement field can be surveyed.

CRM Background

Definition

In order to understand CRM measurement, we must first define CRM. Definitions abound. Many vendors, consulting firm, and even companies, build their own definition of CRM partially mindful of how other are defining the term. Because of this, while definitions are diverse, the market seems to have coalesced along three “kinds of definitions:

  1. Technology centric
  2. Customer lifecycle centric
  3. Strategy centric

Technology centric definitions of CRM evolve out of the need for vendors to position their particular product, which often automates just a portion of the CRM problem, in the best or broadest possible light. These definitions include the use of technology within them. For some of these definitions, CRM is nearly synonymous with technology.

Customer lifecycle definitions evolve out of the need for CRM practitioners to describe a new business capability, or a new arrangement of capabilities, that focuses on the customer lifecycle, not the product lifecycle. The customer lifecycle, often described somewhat differently, has four phases:

  1. Attracting
  2. Transacting
  3. Servicing and supporting
  4. Enhancing

In the attraction phase, a customer becomes aware of the product or company, develops interest and tries to understand the product or company. In the transacting phase, the customer has moved to the next level of commitment and decided to procure a product or service. In the service and support phase, the customer requires the company’s assistance installing, using or servicing what was procured. In the enhancement phase, the customer may be thinking about purchasing additional products or services. For the majority of companies, especially larger ones, the parts of the companies that interact with the customer throughout this lifecycle are separated from each other and not optimally coordinated or integrated. The customer lifecycle definition of CRM often describes CRM as the ability to seamlessly interact with or market to the customer across this lifecycle.

Strategy centric definitions look primarily to free the term CRM from any technology underpinnings and to a lesser extent from specific customer management techniques. These definitions describe CRM as a technique to compete successfully in the market and build shareholder value.

Definition Used in the Paper

For the purposes of this paper, CRM is defined as a business strategy aimed at gaining long-term competitive advantage by optimally delivering customer value and extracting business value simultaneously. As such, this definition lands squarely in the strategy-centric camp. The reason for this is two-fold.

First, anything that measures customer-facing activity has the potential to measure those activities that create the business value in the first place. Having the best manufacturing capability is useless if customers don’t buy. Customers have differing mindsets and needs to fulfill and companies need to be able to understand that mindset, sense those needs and deliver solutions. Technological innovation and information liquidity have changed competitive landscapes. Fewer and fewer companies can exploit propriety, one-of-a-kind technology or captive and exclusive supply or distribution channels to maintain competitive advantage (Chew, 2000). For the vast majority of businesses, the ability to acquire, retain and enhance customer relationships is the last place left to find advantage. CRM and its accompanying measurement potential, is then a key technique for understanding customers and managing ongoing customer activity (and by argument, shareholder value).

Second, while technology is deployed to provide customers with a more seamless experience across channels and throughout the customer lifecycle, that capability alone may be an insufficient long-term competitive advantage. Once every company has mastered the art and science of providing a seamless customer experience, what is next? Because CRM measurement systems can be used to understand past and future customer behavior, the ability for companies to convert that knowledge into business results can be a significant form of competitive advantage (Peppers & Rogers, 1997). Knowledge about how a company interacts with its customers is specific to the company’s brand and its customers and therefore is proprietary to that company. Knowledge about this unique relationship is not easily transferred to another context (another company, brand and customer). One can argue that CRM measurement systems and CRM analytic capabilities are the last refuge for significant competitive advantage. Interestingly enough, because of the skills challenge companies face, the vast majority of companies do not fare well in this area, which also makes for a strategic opportunity for competitors (Buytendijk & Hersche 2001)

Technology-Driven Change

Technology is the primary impetus behind CRM approaches. Despite that fact that this paper uses a strategy-centric definition, most likely you would not be reading this paper had it not been for the explosion of technological capabilities. These new capabilities affect how information and products are distributed and how companies integrate and communicate across product and functional silos.

Information Channels

CRM technologies now can automate or manage how information is delivered to customers across the following channels:

  1. Face-to-face
  2. Mail
  3. Phone (wired and wireless)
  4. Fax
  5. Web and e-mail (wired and wireless)

Companies have tended to (and to a great extent still do) optimize their capabilities on a channel-by-channel basis. Companies typically build out the organizational and technology capabilities, look at benchmark data, and then working towards meeting key single-channel metrics. For example, many businesses have call centers, which over the past two decades have undergone technological and operational improvements, yielding performance improvements in that channel. Today however, the vast majority of businesses with call centers have yet to develop superior multi-channel coordination capabilities.

With the tremendous Internet build out over the past six years, history has repeated itself. Nearly all companies with web sites have focused on single-channel excellence and are just now realizing the cross-channel implications, benefits and the concomitant measurement hurdles. For web-based customer interactions, single-channel measures abound and companies struggle to relate these metrics to other channels.

Product distribution

With the Internet, companies have the ability to distribute all or portions of their product or service digitally and direct to the customer. Information-based products, such as news and research are being distributed digitally. Books are now being distributed digitally. The photography market is undergoing some major transformation as digital cameras are beginning to replace film cameras. Where digitization of the product is impossible (soup for example!), parts of the product service bundle are quickly getting digitized. When a consumer asks a soup manufacturer, via its web site, for ideas on new uses for the soup, the manufacturer can now send tips and recipes electronically. Product specifications and reviews, prior customer experiences with those products and consumer reports are all available online.

For those companies that can’t go direct to the end-user or the consumer and have channel partners to contend with, extranets and demand chain digitization are allowing electronic movement of pieces of the product/service bundle. Insurance carriers and brokers use electronic forms to communicate insurance risk, quotes and contracts between end-user and carriers. Auto dealers and manufacturers share electronic documents that manage warranty repairs and maintenance on consumers cars.

The complete or partial digitization of the product/service bundle is making new forms of customer measurement possible.

Functional Silos

Companies have long since decomposed themselves into groups that have historically been considered a set of closely related skills. Typical groupings that touch the customer include:

  1. Marketing
  2. Sales
  3. Manufacturing
  4. Logistics and distribution
  5. Field service
  6. Contact center
  7. Billing and accounting

Over the past two or three decades, technological advances have had significant impact in these functional groups. In nearly every case, the goal was excellence within the functional silo. For example, call center technology has increasingly utilized technology to accept incoming calls, route them, measure call traffic and collect and distribute customer data to call center agents significantly improving the contact center’s capabilities. However, many if not most of these contact centers have not integrated other communication channels such as fax and web interactions effectively. In the web world, brochure-ware product and service web sites went up first, since these were the easiest to build from a technology perspective, and since this represented the digitization of a single functional silo: marketing. Later, as the technology matured, the sales function followed with electronic transactions over the Internet. And today, many web sites are not well integrated with other technologies running other areas of the business such as point-of-sales, inventory and call center systems.

Again, as with single-channel focus, functional area focus created isolated technology and business process islands. Business processes and the technologies deployed did not and still do not easily accommodate cross-functional silo planning, coordination and execution. Enterprise software vendors have begun to address this cross-functional silo problem with some technology integration, but the vastness and complexity of the customer-focused part of the business has still left the customer-facing business processes fractured in several dimensions.

Product Silos

Still another key dimension involves product silos. Again companies have historically aligned themselves around the means of production, that is, around products or product groupings and either have replicated all or some portion of their customer-facing teams (sales and service) across the product silos. Many manufacturing and consumer goods firms are organized this way for good reasons. The wide range of difficult issues in managing products requires management to limit its focus and build core capabilities from the product outward. While modular manufacturing has let businesses decompose products into assemblies that are brought together later and even customized for customers, designing a modular system is much more difficult than comparable non-modular ones (Baldwin & Clark, 1997). Many managers continue to look at business through “the twin lenses of mass marketing and mass production rather than with the “twin logic of mass customization and one-to-one marketing. (Pine, et al., 1995).

The challenge for traditional, product-oriented companies is in pulling together customer measurement data from across the different product silos so that customer behavior can be researched more comprehensively. Having cross-category and cross-product sales and marketing data helps companies bundle several products into better solutions as well as identify customer needs that extend beyond one product category. Especially for consumer packaged goods firms that have dozens of different and sometimes competing brands, the real challenge is in figuring out ways of leveraging the product portfolio to sell more of their brands to their customers.

Data warehousing, data integration, data quality and data mining tools have all been brought to bear on this problem. Data warehousing and data integration tools help companies consolidate customer data. Data quality tools ensure that data is accurate, reliable and consistently presented across the company. Data mining tools have helped companies find information within data faster than would otherwise be done. These tools serve as the backbone driving CRM systems and have enabled the measurement frameworks in place today.

by Vince Kellen
March, 2002
full article : http://www.kellen.net/crmmeas.htm
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