'Can't recover money' or rapid payback? Jane Simms asks how return on investment on CRM should be evaluated.
Companies in Europe will spend pounds 5.7bn this year on CRM systems and software, according to consultants Hewson Group. But unless they take a critical look at exactly what they hope to achieve from their investment, and how they plan to measure the return, they will be pouring money into a big black hole.
In many boardrooms the acronym CRM now stands for 'Can't Recover Money' and the whole concept of technology-led customer management systems has been discredited.
But the original premise - of aligning business process with customer strategies to build loyalty and profit - still holds. In straitened economic and market circumstances, when all spend has to be carefully justified and financial returns achieved in a short period, companies are grappling with how to manage their customers better and how to measure the return on their customer management (CM) investment.
One of the biggest lessons they have learned when it comes to measurement is realising that CM is not all about technology, although technology may support it.
'Technology is probably a third of it, but people and culture, and process represent the other two-thirds,' says Howard Kendall, founding director of the Help Desk Institute. 'Companies happily signed a pounds 5m cheque for a piece of kit, but balked at the idea of committing the same amount to people or processes. IT has been an easy hit, but one of the major causes of CRM failure has been neglect of these two critical areas.'
This new understanding of what customer management actually is has significant implications for return on investment (ROI). Instead of flashy desktop IT systems that staff hated using, companies are investing selectively in marketing and customer service infrastructure where ROI is quantifiable, improvements are easy to measure and there is a significant and direct impact on the cost base.
Improving contact centre efficiency is a popular application. 'Staff overheads account for two-thirds of operating costs in call centres, so making staff 5% more efficient yields significant financial benefits,' says Evan Kirchheimer, lead analyst for CRM at Datamonitor. Campaign management and targeting systems are also popular, but the fastest growing area in CRM technology is outsourcing contact centres 'Outsourcing in itself may not save you money, but it allows you to establish how much it costs to serve your customers,' he says.
However, measuring the required people and organisational change that an effective customer management strategy requires is far more difficult.
What's more, points out Merlin Stone, IBM Professor of Business Transformation at the University of Surrey: 'It is very difficult to forecast the extent to which customers will respond to your 'improved' management of them.
As a rule, companies tend to underestimate the costs of change and over-emphasise the benefits.'
Consultants now advocate slower, phased customer management implementations.
This allows companies to assess customer reaction and fine-tune accordingly, to build in the appropriate training and cultural change for staff and to apply the learning from one project to the next. Stone advises building change into existing change programmes rather than trying to bolt it on, as a way of keeping costs down and securing buy-in.
Incremental change is not only easier to justify and measure, it may even pay for itself. Soren Pallesen, head of product marketing for CRM solutions vendor E.piphany EMEA, explains: 'You could start with a pounds 100,000 pilot project that would be completely reusable elsewhere in the business.'
QCi, a CRM consultancy owned by OgilvyOne, has shown how well-managed customer management projects can grow turnover by 50% in three years and generate a 400% ROI. …