CUSTOMER RELATIONSHIP MANAGEMENT FINAL PROJECT

Transcription

1 INSEAD CUSTOMER RELATIONSHIP MANAGEMENT FINAL PROJECT IBM ALPER ARAS NATALIA BOKSHA TATIANA KACHALOVA EYAL KATZENSTEIN April 20 th, 2004

2 We would like to express our gratitude to Mr. Daniel Brumme, who is the Siebel Business Application Operation (BAO) Leader for EMEA CRM, Customer Information & Edge, at IBM. Our interviews with him helped us tremendously in the completion of the project. Unfortunately, we could not gain access to marketing personnel and therefore could not provide more specific numeric data regarding marketing efforts. 2

3 Table of Content: Executive Summary 4 1. IBM The Company Business Description Clients Description 7 2. Business Challenges and Competitors Response through CRM 8 3. IBM s Response to Business Challenges: The CRM Implementation Philosophy of IBM at a Glance CRM at IBM Prerequisites to Start the CRM Implementation CRM Implementation Process Objectives CRM Implementation Process Stages CRM Implementation at IBM Initial Stages Opportunity Management ( ) Motivation of Employees Siebel Implementation (2000-Today) Additional Components of the CRM Initiative at IBM: Measuring Customer Satisfaction Competitive Advantage through CRM, and Weaknesses of the CRM Implementation at IBM Competitive Advantage through CRM Weaknesses of the CRM Initiative at IBM Concept of Customer Profitability Customer Complaint Management Other Weaknesses Suggestions for Improvements Actions on Profitability Analysis Customer Complaint Management Relationships with the Dealers Effective Utilization of Financial Resources and the Balanced Scorecard Further Integration Key Lessons: Insights from IBM 25 CONCLUSION 27 3

4 Executive Summary IBM has implemented the worlds largest CRM application with 60,000 users linked with Siebel. In 2005, it is expected that more than 80,000 employees, thousands of business partners and ultimately millions of IBM customers, will use the system. The company not only implemented CRM internally, but also developed an execution methodology. In particular, IBM developed 1500 business and 1000 technical criteria, which help the company choose, propose, and execute the right software and implementation solutions for different customers requirements. IBM is the market leader in creating and implementing CRM solutions. As such, the company established universities, which are used as CRM training centers. Each year in April, IBM invites clients to Cannes, France for the Siebel User week. In this report, we would like to present a brief description of the internal CRM implementation at IBM, followed by the major strengths and weaknesses of the system. The report also includes a concise portrayal of the Siebel modules that are currently being implemented or used at IBM. The report proceeds with recommendations to IBM to further benefit from the CRM implementation, as well as to provide additional insights to consider when designing the implementation plans for additional modules of Siebel. Finally, we conclude by presenting the key lessons that the CRM implementation signifies for similar implementations at other companies. 4

5 1. IBM 1.1 The Company International Business Machines (IBM) is the world's largest information technology company, with 80 years of leadership in helping businesses innovate. Its portfolio of capabilities ranges from services that include business transformation consulting to software, hardware, fundamental research, financing and the component technologies used to build larger systems. These capabilities are combined to provide business insight and solutions allowing IBM s customers to take full advantage of the new era of e-business. Organizationally, the Company's major operations consist of the following segments: Global Services Segment; Hardware Products Segment: Systems Group, Personal Systems Group, and Technology Group; Software Segment; Global Financing Segment; Enterprise Investments Segment. Key statistical figures provide a good indication of the size of the company, as well as its influence in the contemporary business community. IBM has a market capitalization of $ billion. Its revenues in 2003 totaled $89.14 billion. Net income in the same year was $7.61 billion. The company employs approximately employees, and has operations in 160 countries Business Description 2 Starting as a manufacturer of hardware, IBM has now been transformed to the provider of innovative technological solutions matching clients needs. Over the past decade, IBM has been a leader in the IT market s shift of focus from selling hardware, software and services, to the creation of solutions to clients business problems. During the early years of Internet s entry into mainstream commerce, communications, and business operations in the mid to late 1990s, value was first created through providing widespread access, and then through the integration of business processes, suc h as supply chain, client relationships and human resources. Today, IBM 1 Information compiled from 2 Information compiled from 5

6 is once again leading the industry toward the more fundamental, industry-specific transformations of on demand business. IBM is striving to match customers demand for faster innovatio n, tools for reducing costs, and delivering predictable returns on investment, effective methods of value chain integration, and solutions for redesigning business processes as well as organizational structure. The company s business is concentrated around three broad categories: Component Value involves development and manufacturing of semiconductors for IBM s server and storage offerings. These types of products are becoming more and more commoditized. Therefore IBM is looking for every opportunity for outsourcing them and leveraging this component of business to achieve competitive advantage at the infrastructure value category. Infrastructure Value is related to hardware, software, and services integrated into a computing environment. Infrastructure Value concerns systems, such as high-volume server computers, middleware software that can interconnect disparate operating systems, as well as applications with data, storage networks, and devices. It also refers to such services as infrastructure management, whether on the client s premises or managed remotely at IBM s own facilities, and consulting about how to improve and strengthen the infrastructure and realize greater return on investment in it. Central to IBM s approach for building value in the infrastructure category is its support of open standards, and its active promotion of Linux, the open source operating system, which helps IBM s clients control costs and allows them to benefit from the latest developments created by the Linux development community around the world. To support Linux development and deployment, IBM has enabled its servers and storage products to operate with Linux, the company s leading middleware products are designed to work in a Linux environment, and Linux is a preferred cho ice for many of the company s services and consulting engagements. Business Value is related to providing services and software to improve business performance for enterprise computing clients. IBM helps its enterprise computing clients transform their business processes and gain competitive advantage by applying its skills and experience to processes specific to the client s industry or to business challenges across industries and processes. The company enters into long-term relationships and creates solutions for clients on its own or in partnership with other companies, drawing upon its broad product and 6

7 service offerings. Moreover, it relies on its Business Consulting Services (BCS) organization, the capabilities of IBM Research, its experience in chip design and application, and its own viewpoint of developing trends in business and technology. The first component of Business Value category is Business Consulting Services, which is responsible for the delivery of value to clients through consulting services for application innovation and systems integration, client relationship management, financial management, human capital, business strategy and change, supply chain management and the transformation of business processes and operations. The second component is Customer Financing, which mainly works on lease and loan financing to clients and internal clients for terms generally between two and five years. The third component, Engineering & Technology Services (E&TS) is the provider of system and component design services, strategic outsourcing of clients design teams, and technology and manufacturing consulting services. On Demand Innovation Services (ODIS) is where IBM Research scientists and experts work with BCS consultants to analyze clients business challenges and provide solutions that address these challenges. This component is where software and services to meet industry-specific needs are built on an on-demand, standards-based infrastructure to transform a process that is unique to specific industries. The primary strategy of IBM is to generate a shift in revenue and profit growth from Component Value to Infrastructure Value and into the Business Value categories, where revenue and profit potential are thought to be greatest in the decade ahead. The main reason for that is the less commoditization of services in the Business Value category rather than previous ones and the significance of entry barriers driven by the importance of expertise and long lasting business relationships with clients. 1.3 Clients Description 3 IBM s clients include many different kinds of enterprises, from sole proprietorships to the world s largest organizations, from corporations to governments, representing every major industry and endeavor. Over the last decade, IBM has exited or greatly de-emphasized its involvement in consumer markets and divested itself from other non-core businesses to concentrate on the enterprise market. In IBM s view, the enterprise market represents 3 Information compiled from 7

8 approximately two-thirds of the IT industry s revenue, as well as twice the growth and three times the profits compared to consumer areas of the industry. As a result, IBM has made acquisitions and invested in emerging business opportunities important to its enterprise clients. Many of these investments have since grown to a point where their revenue and opportunity now can be considered part of IBM s mainline businesses. 2. Business Challenges and Competitors Response through CRM 4 In 1990s, the landscape of the IT industry changed significantly. Narrow set of incumbents, particularly IBM, Hewlett Packard, and Compaq, faced fierce competition from domestic and foreign invaders combined with highly exchangeable, hard-to-differentiate products. That led to the creation of an environment with tight margins and shrinking market share. In order to survive, companies had to minimize inefficiencies in their operations and to develop an ability to deliver the highest-quality customer service. To increase customer satisfaction and loyalty along with reduction of the cost of serving customers, IT companies had to implement CRM programs, which allowed them to create more transparency between customers and partners. The result was significant enough to breakthrough the industry clutter and build positions for the future. We have found several examples of projects, which were implemented in the IT sector in 1990s. Fujitsu Siemens Computers, with the collaboration with Accenture, implemented CRM program on the basis of Siebel 7 software, which allowed the company to streamline CRM processes, i.e. sales, marketing, service and call center. Solution components included account management, opportunity management, contact management, quote, proposal, order and forecast. The new system united the information about 90,000 customers and 100,000 products It is now available for more than 3000 sales, service and partner users in all Fujitsu Siemens Computers subsidiaries. The program resulted in 60 percent increase in the speed of order processing. Microsoft, being the world largest software producer, faced a challenge to keep the pace of its growth. In order to deal with this challenge, the company decided to implement a CRM program to provide its sales force with tools to collaborate effectively with the clients across geographies, and to gain a much deeper understanding of customers needs. Today more than 4 Information compiled from 8

9 8000 Microsoft sales representatives, 1000 call center staff, and 1000 business partners can easily share and access critical data, enabling improved sales effectiveness, customer support and partner interaction. 3. IBM s Response to Business Challenges: The CRM Implementation Philosophy of IBM at a Glance 3.1 CRM at IBM Like other companies operating in the high-tech and consulting services market, IBM experienced significant challenges driven by raise of competition and customers expectations. One of the main concerns for IBM management in the early 1990 s was low customer satisfaction, accompanied with the low market share, and stock price, as illustrated by figure 1. Figure 1: Bottom Line Results at IBM 5 This was the main driver to shift focus from Component Value category to Infrastructure Value and, ultimately to Business Value category. In other words, IBM was going away from the core competency of software and hardware producer to the core competency of a global solutions developer. IBM realized that in order to succeed in this transformation, the company had to implement a CRM program to streamline all client offerings and strengthen the brand image across all lines of business. The main target was to offer full-scale solutions for the client, instead of multiple products. This meant going from sale of boxes to real solutions for the client. 5 IBM CRM Training Document 9

10 The CRM implementation started with the need to manage the increasing complexity of today s Web-based, multi-channel business environment. Most companies in the same market were faced with frustration, while trying to combine consistent, high quality customer experience with improving cost structures. For IBM, CRM was an opportunity to streamline and integrate their customer facing operations, primarily represented by sales, marketing and customer service. 3.2 Prerequisites to Start the CRM Implementation Realizing the need to commence an internal CRM implementation was not enough to start the initiative at IBM. This project would have significant impacts, both internally, and on customers, and several prerequisites had to be fulfilled before fully implementing the CRM solution. Based on its internal and external CRM implementations, IBM states the necessity for existence of the following business prerequisites to start a CRM implementation: 6 Clearly stated CRM vision and measurable objectives, Top-level executive ownership, Full alignment of senior management and project team expectations, Alignment of CRM investments with specific business objectives, Strong governance model, Companywide readiness for business process reengineering and change management. The following IT prerequisites are found to be crucial to start CRM implementations: A scalable, open-standards IT architecture, ensuring ease of integration and lower total cost of operation, Enterprise-wide integration of process, applications, data and IT infrastructure, Easy access to customer data and rich query capabilities, Rigorous controls around new application development to minimize customization. 6 CRM: Transformation for an On -Demand World, IBM CRM Executive Brief, Copyright IBM Corporation,

11 Figure 2 illustrates the aligning of every aspect of the business around the CRM concept according to IBM. Figure 2: Aspects of the CRM concept CRM Implementation Process Objectives IBM believes that CRM is truly a journey, which is comprised of series of shifts from being product and channel-focused to being customer focused. IBM s vision of CRM goes far beyond the implementation of new business applications to embrace on demand principles. It involves transforming core business processes, end-user behavior, and the underlying technology infrastructure to support customer-centric operations. The company s overall goal in its CRM implementation initiative is to ensure that each and every customer interaction is handled with the same degree of excellence using the same tools and data across all IBM geographies and sales channels. The will improve customer satisfaction, and encourage collaboration among its employees and business units. Moreover, the CRM implementation will enable the company to reduce the internally supported IT systems from about 800 in 1997 to less than 200 by 2006, through rigorous integration. 7 IBM CRM Tra ining Document 11

12 Through the implementation of CRM, IBM seeks to create a disciplined framework that enables its organization to 8 : Share information and collaborate easily internally and across the entire value chain, Focus on core capabilities while shedding less profitable or non-strategic business activities, Build a fully integrated IT infrastructure to support the business vision and reduce the total cost of operations. 3.4 CRM Implementation Process Stages IBM developed a process for CRM implementations, which consisted of the following 6 areas: 1. Establish a common CRM vision and strategy across the enterprise. This strategy should include the following key objectives: decreasing operating costs, driving incremental revenue, creating market advantage, reducing risk. At this stage, it is crucial to obtain senior management support, and to ensure that necessary trade-offs would be possible in order to achieve enterprisewide efficiency. One of the key factors at this stage is also to foresee, how these stated values would be implemented top-down within the organization. This could be achieved through carefully adjusted incentive systems, which would be linked to the balanced score card measures. 2. Identify the required capabilities to execute the vision. Here, the company needs to assess the AS-IS situation within the major blocks: organization (structure and corporate culture), business processes, IT, then identify the gaps with the desired state. 3. Develop a roadmap of prioritized initiatives. This stage foresees the detailed design of the to-be architecture, together with the master-plan on how to close the gaps. Specific initiatives would be prioritized based on their impact, constraints, risks and dependencies with the goal of creating customer value at the end. 4. Manage the end-to-end change process. This stage requires skillful change management implementation. The program must foresee the end-user support, across all phases of implementation. User involvement and training are crucial at this stage. 8 CRM: Transformation for an On -Demand World, IBM CRM Executive Brief, Copyright IBM Corporation,

13 5. Implement in phases, with a broad initial deployment of each CRM application. Phased approach would decrease the time for deployment as well as resistance and frustration within the organization. It will also allow for plan and scope revisions down the road. 6. Adopt a comprehensive, end-to end deployment methodology. This framework would ensure coordination of different project teams towards the common goal. 4. CRM Implementation at IBM Initial Stages - Opportunity management ( ) The CRM initiative at IBM started with the development of an in-house application. The initial feature on this early stage, which was implemented before 1995, was the opportunity management piece of the CRM implementation. Opportunity management is primarily designed for use by the sales organization, in the customer acquisition phase of a sales cycle. IBM selected this area as the starting point in the implementation, since the company was looking for the biggest possible initial return on the investment, as well as for the quickest way to prove the positive impacts of the initiative to senior management. This initiative had cross-organizational impact, and touched a large group of people in the organization. Since there was no application ready on the market for this purpose, so the company developed the Virtual Machine, which is a host driven IBM application. This initiative was first designed to work for the customer acquisition process within a particular geography. This initial phase was then followed by system implementation, rolled-out across all offices. The customer acquisition processes were reengineered to be consistent across all the products and geographies. Moreover, the opportunity management program included additional supporting processes for customer acquisition, which involved tools to help create solution design and delivery plans. In addition to these tools, the solution could be tested, check points could be identified, and quality assurance could be performed across all the involved individual products and services through the application. For each opportunity, a team was created to pursue it. The system allowed identification of opportunities, as well as ways of tracking them, and storing information of winning conditions. If a particular opportunity could 9 The majority of the information contained in this chapter is gathered through the interview with IBM, Siebel Business Application Operation (BAO) Group, CRM EMEA, Customer Information & Edge 13

14 not be pursued, information about the customer requirements or needs that could not be fulfilled was provided. The system allowed storage of certain pieces of data, such as pricing, inventory, customer master record (i.e. name of the company, address, key contacts, client financing options like leasing etc.). This data was provided by the marketing department. Customer segmentation in the system was performed based on two criteria. The first criteria involved two levels. In the first level, all customers were put into two major segments according to the size of the company: large and small/mid-market. In the second level, larger companies were segmented by industry. The second criteria allowed segmentation based on customers needs and their geography. The collected information was used to drive marketing campaigns. Opportunity teams tracked customer behavior, past revenues from the client, as well as identified growth rate for that business. The prospective clients were added to marketing campaigns or forwarded for telesales contact. Each client was assigned with a code linked to planned revenues. The implementation of these processes and systems continued until Motivation of Employees ( ) As indicated earlier, a CRM implementation strategy can be successfully achieved, only with the full support, participation, and commitment of employees to the program. As such, there were substantial efforts to streamline organization according to the lines of business. Selected employees were identified as change champions to drive others through the change process. Even though there was no direct link in the incentive program with the CRM initiative, people who were the best in adapting to new requirements get appreciation. An example to such a rewarding mechanism would be employees receiving better laptops as a result of their significant contributions to the CRM implementation. IBM CRM project members were encouraged for adoption by each module s implementation. Employees were enrolled in required training programs, which typically lasted for two to three days, and they received further support, as they needed during the implementations. All these measures prepared the necessary organizational background, and made possible to start, in 2000, the full-scale CRM implementation across the entire IBM organization. 14

15 4.3 Siebel Implementation (2000 Today) Siebel Systems, which is the world s leading provider of customer relationship management (CRM) solutions and a leading provider of applications for business intelligence and standards-based integration 10, was chosen as the base for the CRM implementation at IBM. Through its extensive partnership with Siebel Systems, IBM has been implementing various modules of Siebel internally. The company then uses its extensive technical and business process expertise in implementing the software for executions at its customers. The modules of Siebel CRM software that IBM has implemented and is planning to implement are Sales, Call Center, Marketing, Field Service, Service, e-channel, e-marketing, e- Service, and General e-business 11. The following figure illustrates several steps of the Siebel project at IBM, in terms of the scope of each of the different phases within the implementation ibm.com Contact Centers Service and Support Business Partners Field Sales Marketing Figure 3: The Scope and Timing of Siebel Implementation at IBM As illustrated in figure 3, Siebel was first implemented through the launching of ibm.com Call Center, which was a channel for contacting all the business partners, particularly the dealers and the solution vendors. The initial rollout of Siebel s call center package started with 26 ibm.com call centers. As of October 2003, the system has been deployed in 47 ibm.com call centers in 32 countries. This system enables a one -way communication process between the dealers and IBM, the direction of flow being mainly from IBM to the dealers. When a particular opportunity to acquire a new customer or to initiate a new sales cycle appears, IBM informs dealers about this identified Implementing Siebel e-business Applications in IBM, Internal Paper, Copyright IBM Corporation,

16 opportunity. After this notification, dealers are expected to respond within 48 hours, specifying whether they would like to pursue this opportunity or not. If the opportunity is rejected, the rejection message returns to IBM. IBM then seeks other dealers that would be suitable and interested in going after this opportunity. Even though the dealers are the main source and owner of customer data, they do not act as a reliable source of customer information to IBM. Due to their confidentiality agreements with the multiple customers that they work with, their customer records remain confidential. Although some customer data is filled out by the dealers, this information is not reliable. Since both IBM and the dealers are aware of the benefits they will get through more seamlessly integrated, twoway data flows, both parties decided to join efforts in marketing campaigns. Call Center implementation included telesales and telemarketing as well. This submodule of the Call Center initiative is mainly used for managing the simple product campaigns. For the more complex products like service-on-demand 12, they use more sophisticated channels for customer interaction. In 2001, the implementations for the Service and Support initiative started. Within this functionality, Service refers to back-office operations. More specifically, this functionality supports exchanges with other applications like pricing 13 and configuration 14. Configuration of orders, both for hardware and software solutions, is currently available only for internal use and for partners use; the functionality is not available for customer use. However, IBM foresees customer access to this functionality in the future, although it is not clear whether the customers would be sufficiently technically literate to perform configuration on their own. Moreover, the initiative would bring in challenges in terms of performing change management at each of the business customers. The implementation of the Support part for the Service and Support initiative is under progress. Please note that the involvement of business partners within the ibm.com Call Centers and Service and Support were briefly explained. As figure 3 portrays, the inclusion of business partners within these initiatives started in On-Demand services are explained further in section Pricing is done by a separate software program in the back -office. This program exchanges information with Siebel. The price is calculated and communicated back to the sales people. There is an intention to integrate this application into Siebel. 14 Configuration refers to the arrangement, customization, and preparation of a customer order based on the variation of product features within this order. 16

17 IBM is now tackling the field sales initiative within the Siebel implementation. Field sales operations mainly refer to activity management processes, which enable efficient task allocation to sales personnel. This assignment is based on a specific sales opportunity available, customer sales history data and requirements, the order specifications, etc. Currently, IBM is implementing the marketing block, which will be completed in the next few months. This will be an effective tool to facilitate IBM s interactions with its business partners, and enhancing the existing one-way communication processes to bi-directional communication. 5. Additional Components of the CRM Initiative at IBM: Measuring Customer Satisfaction and Perception 15 As outlined so far, Siebel implementation constitutes the majority of CRM activities at IBM. However, another important piece within the CRM initiative is the measurement of customer satisfaction. The company places significant emphasis on the measurement of customer satisfaction, as well as creating processes to effectively respond to the results of these measurements. The tool used for measuring customer satisfaction is surveys. There are three types of customer satisfaction surveys that IBM uses, each of which is driven by a different aspect of customer satisfaction. The first type of customer satisfaction survey is product driven. These surveys are conducted by outside professionals. The metric used within these surveys is the performance of the solution purchased by the customer. A random sample of customers (20-30%) is contacted after they use the product for a certain period of time. They then provide feedback on their satisfaction with the products and services based on what was planed before carrying the solution through. The surveys do not usually include questions on brand perception and IBM s image as a hole. Rather, they are tailored to particular business transactions, and are highly interactive. This provides IBM with actionable feedback. The results of these surve ys are communicated internally up to the executive level. Additionally, they are sent to the sellers as well, primarily for increasing sellers understanding of customer needs. Another use of these survey results is through generation of reports for sales. The instances and possible causes of dissatisfaction are 15 The majority of the information contained in this chapter is gathered through the interview conducted with IBM, Siebel Business Application Operation (BAO) Group, CRM EMEA, Customer Information & Edge 17

18 recorded on these sales reports. If similar complaints are consistently received for particular products or services, these problems are reported to product development, and to corresponding service departments for fixes. A resolution owner is assigned for each complaint, and is responsible for the ensuring that the problem is solved. This process is named as Complaint Management Process. Within this process, several targets like expected fix date, creation of a resolution plan, establishing communication with the customer at frequent intervals for updates, etc. are assigned to resolution owners. For problem resolution, there is no limit in spending. This can go to extremes where social opportunities like free weekend excursions, cash, concert tickets, etc. can be offered to customers, if their problem cannot be resolved within a certain time frame. The second type of surveys covers questions regarding customers perception of IBM s brand. These surveys are randomly run with customers who might or might not have purchased an IBM product or service recently. In other words, IBM does not necessarily want to target the current customers through this type of surveys. The only prerequisite is that IBM has the customer s contact information. Through these surveys, the company not only tries to identify its performance, but also tries to identify customers satisfaction with IBM s business partners, competitors products, etc. This enables IBM to benchmark itself with its competitors, as well as to measure customer service within its entire distribution chain. The third type of customer satisfaction analysis method, which is already a part of the Siebel system, includes techniques that proactively seek ways to improve customer satisfaction. In this process, which is conducted once a year, customers are directly asked what IBM would need to do in order to increase their satisfaction point one more level. As the customer s satisfaction reaches this new level, the process is repeated. This procedure is continuously conducted, until the customer reaches the maximum possible satisfaction level on a given scale. Moreover, the customers are asked what their hardware and software investment plans are for the following year. This gives IBM the opportunity to assess the planning for sales and production of different product mixes. Just like the first type of surveys, the execution of these surveys is outsourced. 18

19 6. Competitive Advantage through CRM, and Weaknesses of the CRM Implementation at IBM So far, we aimed to provide a brief analysis of the CRM activities in IBM. This section focuses on the key competitive advantages generated through the CRM implementation, as well as the weaknesses of the CRM initiatives within the company. 6.1 Competitive Advantage through CRM At a high level, the key strength of the CRM implementation at IBM is the large size of its scope and integration. Even though the earliest stages of the CRM initiative simply aimed to provide informational support, the Siebel CRM solution now partly provides and promises for the future a fully integrated CRM functionality across different businesses. Moreover, there is an internal implementation team, which is dedicated to working solely on the CRM initiatives in tight coordination with internal consulting, i.e. the global service organization. Generally put, IBM s assessment of sources of competitive advantages is summarized in the figure 4. Figure 4: Sources of Competitive Advantage IBM CRM Training Document 19

20 At a more specific level, those following points illustrate the key strengths of the IBM CRM initiative, which also allow the company to generate competitive advantages against its competitors: One of the competitive advantages created by the IBM CRM strategy is the On-Demand Operating Environment. The company promises to provide products, services, information on demand for its customers. This system allows customization for particular customer orders and requests. These sense-and-respond or real-time capabilities are really appreciated by customers in the rapidly changing high tech area. On-demand services are related to in-sourcing capabilities, like providing customers the access to CRM applications, without the necessity to implement the entire solution. Although some of the competitors have been implementing Siebel solutions, none of them has full scale CRM implementation, covering as many people and functions as IBM s system. Integrated process management through CRM allows instant updates about inventory levels, customer complaints, latest recommendations, etc. This in return enables sales and production strategies to be updated quickly and efficiently. The pricing and revenue data are integrated in Siebel. This provides opportunities to IBM in revenue analysis. Each customer gets a code in Siebel, which describes each customer s revenue generation potential. When IBM seeks to sell a particular hardware or software solution, these codes provide potential customers for sales in the next cycle. The above set of competitive advantages allowed IBM to achieve the following benefits: Improved sales productivity, effectiveness, and channel integration, Increased visibility to market dynamics and the sun-setting of hundreds of non-integrated legacy applications, Higher customer satisfaction through better responsiveness and ease of doing business, Improved sales management effectiveness, reflected in tighter management and controls and proactive sales coaching, Better forecast accuracy and reporting, Enhanced partnership management, 20

21 Put IBM back to number 1, according to a recent survey by Forbes magazine, in the IT area, Decreased the time to complete the sales cycle, as well as the time to serve a customer. These numbers are lower than the competitors, enabling IBM to serve its customers faster, Transformed the contract management process to a more efficient and simpler procedure. As of today, IBM estimates that its internal CRM implementation have delivered benefits of $2 billion cost reductions 17, 22% productivity improvement, significant IT cost avoidance, reduced sales staff requirements, as w ell as improved management reporting. 18 The components In comparison to Hewlett Packard s and Novell s CRM implementations, IBM has obtained much better results from the perspective of streamlining the organization, client interaction, and interaction with business partners Weaknesses of the CRM Initiative at IBM After we analyzed the weaknesses of the CRM initiative, we have categorized them into three groups, particularly, the concept of customer profitability, customer complaint management, and other weaknesses Concept of Customer Profitability Lack of profitability analysis in IBM causes the company not to be able to keep track of costs of serving the customers, as well as identifying the appropriate amount of spending that needs to be allocated to serving each customer. IBM sales group is typically revenue and market share driven. The incentives for sales people are purely revenue based. The definition of profitability of customers in marketing depends on customers buying behavior, as well as their share of wallet for IBM products and services within their total IT spending. The company does not evaluate itself based on costs. When it comes to obtaining a key customer or to retaining a major account, the company would not look for what kinds of costs are associated with achieving 17 A component of savings comes from gaining efficiencies in the sales process through CRM. These savings are measured through the hours saved resulting from the usage of the CRM system by each sales personnel. These saved hours are multiplied by the cost per hour to employ that sales person, leading to the total savings figure coming from sales efficiency improvements. 18 CRM: Transformation for an On-Demand World, IBM CRM Executive Brief, Copyright IBM Corporation,

22 this goal. As stated by our interviewee, If one of the key (by revenue) customers has a problem, than the whole support team is ready to go to the client site, regardless of whatever it takes Customer Complaint Management Even though the customer complaint management process handles customer complaints effectively, it is not necessarily efficient for IBM. There are no limits set on the types of actions that the support personnel could take to handle a customer complaint. This might not only cause tremendous cost inefficiencies in serving customers, but also lead to non-standard processes in serving them. The boundaries as to what kinds of actions will be taken at what stage, i.e. when and how does a support personnel decide to offer free tickets to a concert, what is the limit of spending they can have on their offerings, etc are not very clearly defined. As a result, cost of serving customers might go up significantly. Moreover, if this information is not combined with the revenue potential of the customer, the seemingly profitable customers might actually turn out to be unprofitable ones Other Weaknesses The following points briefly summarize other weaknesses concerning the CRM initiative at IBM. Even though the original implementation plan included creating an end-to-end solution, major components of a CRM solution are still not integrated within the existing Siebel solution. The two key components are the reporting functionality and marketing databases. The CRM implementation did not foresee any customer profitability analysis. The customers are not prioritized with respect to their profitability. For the key accounts, they do not save on costs; the key target is to simply keep these customers happy. Since there are numerous change initiatives within IBM, including acquisitions of other companies and company reorganization, it is difficult the measure the exact quantifiable benefits of CRM initiative. The current success is due to a mix of everything, the tangible benefits due to the CRM initiative cannot be precisely extracted. There are still issues with data quality. The business units must perform data analys is to improve the quality of input. 22

23 The initiative has a long adoption phase, not only delaying the observation of the benefits of the project, but also limiting the convincing power of the CRM implementation team within the organization, regarding the benefits of the system. 7. Suggestions for Improvements 7.1. Actions on Profitability Analysis Performing profitability analysis would allow IBM to determine who the profitable customers are. As a result, the most cost efficient sales and service channels suitable for that customer would be used. Moreover, the drivers of customer profitability for each individual account could be determined. Consequently, IBM could have an impact on the customers purchasing, maintenance, and implementation behavior. This would not only help IBM increase its control of customer demand, but also create a more efficient way to implement sales and support processes. The result of this exercise would be increased customer lifetime value for IBM. Technically, implementation of customer profitability analysis would be feasible. It was stated by the company that the marketing department already possesses data about revenues and costs. From IT perspective, the issue lies under integrating the marketing databases and systems with Siebel. However, we see the change management process as the main challenge in the execution of such an analysis. IBM s definition and drivers for profitability need to be adjusted to include costs, in addition to the existing drivers, which are revenue and market share. This would require major changes in the way things are done within the company. More specifically, such changes would significantly impact the pricing of solutions, since new pricing schemes would be created based on the profitability of each customer, like it is done in banking. Moreover, the motivation, incentive systems, and compensation structure of the sales and support personnel would need to go through dramatic changes as well. The main focus would be to create the maximum value considering not only the revenue coming from a customer, but also the cost of acquiring and serving it. As a result, the sales and support processes would change as well. 23

24 7.2 Customer Complaint Management The customer complaint management processes need to be defined more precisely. The appropriate action plan at each level during the process needs to be specified in a clear manner. Moreover, if this process is accompanied with the data coming from the suggested customer profitability analysis data, it would be easy to identify how much spending would be appropriate for which customer. 7.3 Relationships with the Dealers To achieve more value extraction across the entire value chain, IBM needs to better tailor its system to integrate its processes further with dealers, and other sales channels. Given the current business model of the company, it is essential that IBM works closely with the dealers to better understand the customer needs, and create better and more profitable ways to serve their customers. Both IBM and a dealer work for the same customer, and they both benefit from the satisfaction of this customer. Eliminating the unidirectional approach in their relationships with dealers and capturing as much information as possible through the value chain would be beneficial not only to IBM and to the dealers, but also to the customers. When implementing such an initiative, apart from the technical challenges that the implementation of this plan might bring, there might be several data sharing issues between IBM and the dealers. Confidentiality issues might be barriers in further integration across the entire value chain; hence, the feasibility of such an approach is constrained with the level that the data can be shared. 7.4 Effective Utilization of Financial Resources and the Balanced Scorecard IBM would benefit from allocating financial resources based on the effect they have on the three dimensions: company s profit, customer satisfaction, and employee satisfaction. These dimensions should be a part of the balanced scorecard. Under these conditions the company would easily see where the next dollar spent would have a greater impact on the bottom line. An important application of this idea is in the area of budget allocation. As explained earlier, CRM budget spending for managers is an important part of IBM s performance measurement system. One of the criteria in the determining the amount allocated to a certain sales manager s budget could be set based on the profitability of the customer(s) that the particular manager is working 24

25 with. Moreover, these amounts could be reduced, if diligent efforts to increase return on marketing could be made. Determining and applying appropriate amounts of marketing spending would be a way to increase returns on marketing. 7.5 Further Integration As stated in the prior sections, there is a lot of room for improvement within the current CRM implementation in terms of further systems integration. Siebel analytics application would be a solution to integrate current reporting functionality with Siebel. This would provide revenue forecasting for every seller, and help them evaluate progress against their targets. Since it is not run on a different server without disturbing the operations, it is not difficult to attach other non- Siebel databases through this module. This would be a big push forward for CRM implementation. 8. Key Lessons: Insights from IBM 20 IBM summarizes the lessons for the implementation of large scale CRM initiatives via the following points: Genuine top level support within the organization is essential. The lack of such support during the initial phases of the implementation caused significant bottlenecks and delays at IBM. To deliver a truly enterprise-wide CRM solution, chief information officers have to be firm, and must have the willingness, as well as the power to say no to any request for separate CRM solutions, which are not fully integrated with other supporting IT systems within the organization. CRM is not just an exercise for IT; without the cooperation of each business unit, an enterprise-wide implementation like CRM is not possible. Data integration plays an essential role. Data is typically in much worse condition that one would think. To acquire the full benefit of an investment in CRM, data cleansing at the initial stages of an implementation is crucial. 20 Some parts of the information contained in this chapter is gathered through the interview conducted with IBM, Siebel Business Application Operation (BAO) Group, CRM EMEA, Customer Information & Edge 25

26 Frontline people cannot simply be pulled off their posts and expected to be in training for several weeks at a time. Business units within the enterprise cannot afford to lose the man-hours. Hence, the CRM training time should be planned well in advance, and managed carefully. CRM implementations come with extensive business process reengineering and change management initiatives. The potential difficulties, bottlenecks, and delays that might result from these initiatives might cause much more severe impacts than initially foreseen. Moreover, for an effective CRM implementation, an organization s structure and philosophy might radically change, such as alterations in customer service values, incentive systems within the company, critical success factors, etc. 26

27 Conclusion IBM, who is the leader in implementing CRM solutions both internally within the business units and externally for its customers, provides one of the best examples of how a C RM initiative impacts the entire organization. Implementing CRM goes far beyond implementing software. Achieving complete success requires the commitment of the entire organization, from the bottom to the top level. Planning such an initiative brings in a wide range of business process reengineering and change management issues. Designing efficient processes, creating appropriate milestones, engaging the business partners and customers at the right time, and effectively managing data are some of the key points to achieving success in CRM implementations. It is vital that commitment and patience is embedded within CRM initiatives at all organizations. 27