GENERATING SHAREHOLDER VALUE THROUGH CUSTOMER RELATIONSHIP MANAGEMENT

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1 White Paper: GENERATING SHAREHOLDER VALUE THROUGH CUSTOMER RELATIONSHIP MANAGEMENT IN THIS WHITE PAPER: With the recent shift to customer-centric competition, companies now face the challenge of how to develop new strategies that will allow them to re-engineer their business processes and operations while controlling costs all with the customer in mind. An effective customer relationship management (CRM) initiative allows a company to attract new customers and build strong, enduring relationships with all of its customers. While many factors (e.g., lack of support from the executive team, failure to communicate the importance of the initiative to all stakeholders, inability to measure results, weak business case, etc.) can undermine the success of any CRM initiative, the main problem that most companies encounter is a failure to recognize CRM s broad potential. Companies should take a results-driven approach that will allow them to balance their investment against cost, risk and overall strategic direction. For further information on this article, contact: Gerald Fox Managing Director, BearingPoint UK perspectives@bearingpoint.com

2 BearingPoint GENERATING SHAREHOLDER VALUE THROUGH CUSTOMER RELATIONSHIP MANAGEMENT INTRODUCTION The success of any organisation still depends on its competitive advantage. The difference in today s global business environment is that competitive advantage is no longer necessarily based on that company s products. Instead, it is based on attracting profitable customers through differentiated customer experiences. Successful CRM initiatives aim to improve shareholder earnings by attracting, retaining and nurturing the types of profitable customers that generate long-term business value. THE CRM LANDSCAPE TODAY The environment in which organisations create shareholder return is in constant flux. It is influenced by a wide variety of economic, political and technological factors. Over the last two decades, these factors have driven a fundamental shift from a product-centered, supply-based economy to a customer-centered, demand-based economy. Process re-engineering and total quality management have fueled shareholder value by helping companies realise economies in production. These initiatives allowed organisations to differentiate themselves by providing high-quality, readily accessible products at competitive prices. With the shift to customer-centric competition, however, product quality, availability and price soon became table stakes. For an organisation to meet the challenges posed in today s global economy, it must now: Reduce costs without negatively impacting operational capabilities or levels of service. Evaluate its information technology investment with regards to cost, risk, expected return and fit with overall business direction. Renew its focus on re-engineering business processes and operational efficiency, thus enhancing shareholder value via cost reduction and profit growth. Demand that its executives find areas for improvement and identify opportunities for process integration by increasing their visibility into internal operations. Improve integration of the demand chain (customers, marketing, sales and service) with the supply chain (purchasing, production and distribution). Base its new business strategies from concept to implementation on solid, provable business cases. What we may not have considered before is that shareholder value is determined almost entirely by the types of customers a company attracts. Meridien Research 2 BEARINGPOINT

3 Perspectives Review SEPTEMBER 2004 GENERATING SHAREHOLDER VALUE THROUGH CUSTOMER RELATIONSHIP MANAGEMENT Today, for organisations to gain competitive advantage, they must exceed customer expectations, and not just with the right products at the right prices. An organisation that consistently collects and converts customer intelligence into a differentiated, personalised and high-quality customer experience can drive more profitable customer behaviour. An organisation that consistently creates and delivers value can build customer relationship equity. This equity directly translates into sustainable revenue and improved profitability. An effective CRM implementation offers one of the best opportunities to deliver ROI of any major application investment, because of the tight connection with the business processes that drive revenue growth, customer satisfaction and costs. Analyst Rod Johnson, AMR Research report on Customer Management, February 2001 WHY CRM INITIATIVES FAIL The primary driver of ROI will be the ability to deflect customer service issues to the Web. Rich self-service environments are serving customers 10 times to 200 times cheaper. AMR Research, Making CRM Spell ROI, ROR and Beyond, December 2000 In BearingPoint s experience, there are a number of contributing factors. These include ineffectual metrics, lack of a business case, insufficient focus on customer value propositions, lack of executive support and failure to clearly articulate to all internal and external stakeholders the importance of the initiative. However, we believe that the primary reason CRM projects fail to realise their potential is that organisations take too narrow a view of CRM. This narrow approach constrains their ability to design a program that can deliver the type of return on investment that they expect and which is essential to securing consistent, ongoing executive support. Customer relationship management presents a unique and compelling business proposition. No other business practice provides CRM s unique ability to drive revenue while simultaneously reducing costs. Take, for example, one of today s most commonly implemented initiatives, Webbased customer self-service. This CRM initiative shifts customer-facing work or interactions to the Internet, a lower-cost channel. Customers experience more meaningful, accessible interactions at lower costs. Shifting workload to a more appropriate channel has the added benefit of relieving customer-facing personnel from mundane, administrative work and allows them to focus on high-value interactions that build customer equity. Yet despite the promise of greater revenue and increased customer satisfaction, many companies complain that their significant CRM investments show limited return. Why the apparent failures? CRM STRATEGY THE FOUNDATION OF VALUE CREATION Even after years of investing in CRM initiatives, many organisations still struggle to define exactly what CRM is and to identify clearly the benefits it can provide. Such companies typically focus on only a fraction of the total opportunity. Organisations are often thrust into action by market or corporate mandates. Too many times, these mandates treat CRM as a discrete project or piece of software, discounting its strategic importance, as well as the need to define the business case for it with specific return-on-investment targets and metrics. Software vendors intensify the problem by defining CRM in a way that best suits their needs and with too little regard for the needs of their customers. This creates confusion and contributes PERSPECTIVES REVIEW 3

4 BearingPoint GENERATING SHAREHOLDER VALUE THROUGH CUSTOMER RELATIONSHIP MANAGEMENT to the number of misdirected initiatives. To be effective, CRM must be an enterprisewide strategy, practice and attitude. It requires a relentless commitment to knowing the customer, creating value for the customer and flawlessly delivering that value through superior customer interactions. And while technology is a critical component of CRM, no organisation can reap dramatic rewards by simply installing an innovative software platform. CRM is not just a new technology or initiative, it is a way of doing business. and become heavily invested in those relationships. Once those relationships are established, defection is far less likely, due to the significant time and energy required for the customer to reinitiate a comparable cycle with a new provider. This is precisely why the process of establishing customer equity is so important to driving behaviour that increases shareholder value. It is not difficult to see why so many companies are disappointed with their current investments in CRM. Building customer equity through CRM involves three key disciplines, as represented by the three corners of the Customer Equity Model: Customer Intelligence The ability to collect, consolidate and centrally store valuable customer data and to effectively transform this data into accessible knowledge about customers relationships to the organisation. This is often called Analytical CRM. Customer Value Creation The ability to convert insight from the customer intelligence gathered into value propositions and interaction strategies that drive profitability. This is called Strategic CRM. Sales and Service Execution The ability to flawlessly execute on the customer value propositions and interaction strategies created through a multitude of channels. This is called Operational CRM. This approach offers a critical framework for defining CRM as a closed-loop process that binds Analytical, Strategic and Operational CRM. Customer equity is derived through successive iterations of the dynamic, closed-loop process. Each iteration represents a learning cycle, whereas multiple iterations build relationship equity. As a result of the iterative process, customers also learn to value their relationships with companies FROM RANDOM ACTS TO CONCERTED, HOLISTIC INITIATIVES Few companies view CRM holistically and apply cyclical frameworks, such as the Customer Equity Model, when implementing their initiatives. Instead, most organisations view CRM simply as a point solution, a linear initiative with a defined beginning, middle and end. Consequently, organisations now find themselves investing in and maintaining a handful of components across individual divisions, resulting in what can be characterised as random acts of CRM. Such random acts simply cannot generate the impressive rewards promised by so many CRM consultants and vendors. Such individual efforts have limited return-on-investment value. Instead, when joined together and integrated into a broader initiative with the goal of building customer equity at its core, these elements can become extremely powerful. To ensure return on investment, organisations must define a broad CRM strategy or vision that includes building the pieces that make sense for their unique environment. They must then knit those pieces together in a way that can incrementally develop customer equity. Many organisations already have components of successful CRM in place, including existing or 4 BEARINGPOINT

5 Perspectives Review SEPTEMBER 2004 GENERATING SHAREHOLDER VALUE THROUGH CUSTOMER RELATIONSHIP MANAGEMENT ongoing segmentation efforts, data warehouses, sales force automation initiatives and other software pilots. All too often, such companies are poorly positioned to benefit from these point initiatives because they are not being channelled and integrated in the context of a broader program. Consolidation of such scattered CRM spending into a single, corporate-sponsored initiative can help companies save money and leverage existing investments into a more meaningful program, one driven by return on investment. case with monetary benefits. Critical to this effort is a value-based business framework that actively helps you rapidly create enterprise value. Such a framework and its supporting tools must help you translate your company s strategic objectives into a cohesive set of performance measurements that target cost controls, optimise core business processes and keep the focus of your strategy efficiently and effectively linked to an accelerated return on investment. THE IMPORTANCE OF A RESULTS-DRIVEN APPROACH How does a company execute on a broad, integrated CRM program vision in today s business environment with its quarterly performance pressures? Many concise, thoughtful strategies exist today that can deliver the type of short-term results in terms of incremental sales increases, cost reductions and return on investment that will satisfy even the most demanding analyst or investor group. At the same time, these strategies can be designed and implemented within a broader framework that advances the organisation s more holistic, enterprisewide CRM strategy. Waiting for a 100-percent solution is almost certainly a going-out-of-business strategy in today s fast-paced environment. Strategic 80-percent or even 70-percent solutions will always surpass those who wait for the perfect strategy before implementation. DRIVING RETURN ON INVESTMENT WITH CRM You should also be able to identify and prioritise changes quickly in process and technology critical to balancing your company s CRM investment against cost and risk. The framework should include a business structure and modular component-based process that accelerates the flow of financial information directly into your decisionmaking tools and project implementation. In this way, you will continuously monitor and measure the CRM solution s effectiveness in real time against the return-on-investment model. Such a cohesive, holistic approach can help you: Realise cost savings without sacrificing operational performance or customer service levels. Balance CRM investments against cost, risk and current business direction. Initiate key business strategies from concept to reality with a road map based on a solid business case. By examining results at regular intervals, real-time learning can be leveraged through immediate and continuous program improvement. With senior executives demanding that every information technology project adds to the bottom line, those who propose CRM project implementations must be able to provide the business PERSPECTIVES REVIEW 5

6 AT A GLANCE BearingPoint, Inc. (NYSE:BE) is one of the world s largest business consulting, systems integration and managed services firms serving Global 2000 companies, mediumsized businesses, government agencies and other organisations. We provide business and technology strategy, systems design, architecture, applications implementation, network infrastructure, systems integration and managed services. Our service offerings are designed to help our clients generate revenue, reduce costs and access the information necessary to operate their business on a timely basis. STRATEGY, PROCESS & TRANSFORMATION CUSTOMER RELATIONSHIP MANAGEMENT SUPPLY CHAIN MANAGEMENT ENTERPRISE SOLUTIONS TECHNOLOGY INFRASTRUCTURE & INTEGRATION MANAGED SERVICES BearingPoint Warwick Court 5 Paternoster Square London EC4M 7BP +44 (0) BearingPoint, Inc. All rights reserved.