CHAPTER- 3 CHANLLENGES OF THE CUSTOMER RELATIONSHIP MANGEMENT (CRM)

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1 Chapter 3 62

2 CHAPTER- 3 CHANLLENGES OF THE CUSTOMER RELATIONSHIP MANGEMENT (CRM) "If I'd asked my customers what they wanted, they'd have said a faster horse." -Henry Ford The new technologies enable large companies to become more customer oriented, because they have faster access to the data of their clients. CRM is becoming more important since globalization makes the markets more competitive. However, the new CRM advance, based on this technology is not just software, that when implemented guarantees growth of sales and revenues. Instead, CRM is a comprehensive approach, which provides seamless integration of every area of business that touches the customer. It is a business philosophy focusing on the customers, backed up by people, business processes and technology (Koerner and Soong, 1999 ).89 Organizations from different fields of business are increasingly engaged in implementing CRM projects to strengthen their relations with their customers in order to create comparative advantage as a weapon against the aggressive competition. More companies are planning to implement CRM or on their way to implement it to minimize 89 Koerner, R. M. and Soong, T.-Y., 1999, Geosynthetic Reinforced Segmental Retaining Walls, Proc. 17th PennDOT/ASCE Conf. on Geotechnical Engineering, Hershey, PA, 36 pgs. 63

3 weaknesses contact with their customers (Alt and Puschmann, 2004) 90. The increasing competition and decreasing customer loyalty have shaped the need for implementing new tools to help companies to succeed the competition and win customer loyalty by providing more customized products and services. Rapid growth in information systems applications that enable business-customer interaction and the boom of internet technology have provided business organization with more capabilities to cope with increasing knowledge acquired by customers and the changing nature of their demands for goods and services. While the majority of business firms strive to implement CRM systems, they face the disappointing reality of the significant percentage of failure within their CRM projects implementations. As reported by the Gartner Group that around 50 % of all CRM projects failed to meet their expectations (Coltman, 2006) 91. What can be done to overcome this failure threat? What are the success factors that can be addressed to help business organizations to benefit from their CRM projects? Success and failure factors for the CRM projects are discussed in the following paragraphs. 90 Alt, R., Puschmann, T. (2004) Successful Practices in Customer Relationship Management, 37th Hawaii International Conference on System Science, pp Coltman, 2006 Where Are the Benefits in CRM Technology Investment, University of Wollongong. 64

4 3.1 CRM Success Factors: The definition of success varies depending on the person who is defining it. The same happens with the definition of CRM success. What is CRM success and how does a business know that they have achieved it? One of the most difficult parts of launching a CRM program is defining success metrics (Dyche, 2001). Every business faces this question at one point during its CRM implementation. However, there is no clarity on this issue. The reply is different from user to user, from vendor to vendor and from consultant to consultant. In addition, the answer differs depending on the department and the role of everybody involved. This ambiguity creates an obstacle for clear standards to define the success criteria of a CRM solution. The result is that only 16% of companies who implemented CRM can say that they succeeded and that their business performance is measurably influenced by CRM (Johnson, 2003). 65

5 Figure 3.1 shows that only 12% fail to go live but 72% go live without knowing if they will ever be successful. *Source Johnson, R When it comes to CRM: usability is a lot more valuable than functionality.usa, AMR Research. Fig 3.1: Unclear Definition of Success On the other hand, there are many proven cases of positive return on investments (ROI) with more than a 95% success rate (Meltzer, 2002). In case these facts are true where do the numbers for CRM failures come from? Could it be that the seed planted by a small inexperienced group of consultants 66

6 has created a storm or is the definition of success and failure at fault? Success factors have received increasing attention within the literature of CRM. Many publications of researchers and practitioners have addressed the area of CRM success factors (Pan et al. 2007) 92. Wilson et al. (2002) 93 described five groups of success factors: Determine the intent. Access the context. Describe content. Construct intervention process. Manage intervention process. Good hue et al. (2002) 94 provided four general success factors: Top management support. Vision. Willingness to change processes. Willingness to share data. 92 Pan, Z., Ryu, H., & Baik, J. (2007). A Case Study: CRM Adoption Success Factor Analysis and Six Sigma DMAIC Application. Fifth International conference on Software Engineering Research, Management and Application. 93 Wilson, H., Daniel, E., and McDonald, M. (2002). Factors for success in customer relationship management (CRM) systems. Journal of Marketing Management, 18, Good hue, D. L., Wixom, B. H., & Watson, H. J. (2002). Realizing business benefits through CRM: hitting the right target in the right way. MIS Quarterly Executive, 1(2),

7 Corteau and Li (2003) 95 addressed the factors of assessing technological readiness and knowledge management capabilities. In addition to mentioning the integration of back office processes and the software customization, Siebel (2004) 96 considered the clear communication of the CRM strategy as a success factor for CRM. Chen and Chen (2004) 97 agreed on top management, systems integration, and knowledge management as critical success factors for CRM in addition to the alignment of business IT. King and Burgess (2008) 98 combined all the previous studies in nine CRM success factors: Top management support. Communication of CRM strategy. KM capabilities. Willingness to share data / processes. Technological readiness. Cultural. Customer change. Process change. System integration capabilities. 95 Croteau, A. -M., & Li, P. (2003). Critical success factors for CRM technological initiatives. Canadian Journal of Administrative Sciences, 20(1), Siebel (2004). Leeds City Council increases citizen, partner and employee satisfaction. Siebel customer success story URL 97 Chen, Q., & Chen, H. -m. (2004). Exploring the success factors of ecrm strategies in practice. Database Marketing & Customer Strategy Management, 11(4), King, T.F. Burgess.2008/ Industrial Marketing Management 37 pg

8 Chalmeta (2005) 99 listed eight interrelated factors for CRM successful implementation: Management awareness. Defining mission and objectives. Creation of committee. Official appointment of coordinates. Development of the project plan. Monitoring and control prevent resistance to change. Motivate staff. Measure the degree of the participation. Rainer Alt and Puschmann (2004) 100 developed six steps for a successful implementation of CRM: Evolution path. Time frame. Organizational redesign. System architecture. Change management. Top management support. 99 Chalmeta, R. (2005). Methodology for customer relationship management. The Journal of Systems and Software, Vol. 79, pp Rainer Alt, Thomas Puschmann "Successful Practices in Customer Relationship Management". Proceedings of the 37th Hawaii International Conference on System Science

9 Table 3.1 is a summary for the previous studies on the CRM success factors. Table 3.1: Previous Studies of CRM Success Factors King and Burgess (2007) Top management support Chalmeta (2005) Awareness among management Da Silva and Rahimi (2007) CRM philosophy Pan and Baik (2007) Evolution Path Alt and Puschmann (2007) Evolution Path Saloman et al (2005) Top management commitment Mendoza et al (2006) Senior management commitment Communication of CRM strategy KM capabilities Willingness to share data Willingness to change process Technological readiness Cultural change / customer orientation Process change capabilities Defining vision and objectives Creation of committee Official appointment of coordinates Developmen t and approval of the project plan Monitoring to control time slippage Prevent resistance to change Motivate staff Project mission Top management commitment Project schedule Client consultation Connectivity Skilful personnel Technical tasks Monitoring and feedback Communication Troubleshooting BPS and software configurati on Timeframe Timeframe Change in corporate culture Reorganization Minimize customization Time and budget management Customer involvement No culture conflict Use of the CRM system managers Management involvement Organizational redesign System architecture Change management Top management support Significant customer data Clearly defined CRM processes Sufficient resources Understanding of customer behaviour Extensive IT support Creating of multidisciplinary team Objective definition Inter-departmental integration Communication the CRM strategy to the staff Staff commitment Customer information management Customer service Marketing automation Support for operational management Customer contact management Information systems integration *Source Mohammad Almotairi, CRM SUCCESS FACTORS TAXONOMY. European and Mediterranean Conference on Information Systems Pp

10 In their work Pan el al (2007) 101 added the factor of managing the budget of the project to ten success factors similar to the factors mentioned by the previous studies. The study of Mendoza et al. (2006) 102 linked the CRM success factors to it components and provided a set of metrics to measure the success of success of CRM implementation Success Factor Taxonomy: A study of Mohammad Almotairi (2008) 103 has identified the success factor taxonomy as: Top management support / commitment Define / communicate CRM strategy Inter departmental integration Skilful staff Key information on customers Manage IT structure Customer involvement Define CRM processes He assumed from the previous studies, in the field of CRM, success factors those are the common factors for CRM success which he identified in figure (3.2). 101 Pan, Z., and Baik, J. (2007). A Case study: CRM Adoption Success Factors Analysis and six sigma DMAIC Application". IEEE computer society DOI /SERA Mendoza, L., Marius, A., Maria Perez, and Griman, A. (2007). Critical success factors for a customer strategy. Information Software Technology, Vol. 49, pp Mohammad Almotairi,2008. CRM SUCCESS FACTORS TAXONOMY. European and Mediterranean Conference on Information Systems

11 Every CRM success factor by nature is directly or indirectly connected to the CRM components (Mendoza et al. (2006)) 104. Hence, the taxonomy of the identified CRM success factors will be based on linking each success factor to its dominant component. Nevertheless, one or more predominant component could influence one success factor. Table 3.2 shows the proposed taxonomy of the CRM success factors. * Source Mohammad Almotairi, CRM SUCCESS FACTORS TAXONOMY. European and Mediterranean Conference on Information Systems Pp5. Fig 3.2: CRM Success Factors 104 Mendoza, L., Marius, A., Maria Perez, and Griman, A. (2007). Critical success factors for a customer strategy. Information Software Technology, Vol

12 CRM component CRM Success factors Top management support / commitment Define/communicate CRM Table 3.2: Taxonomy of the CRM Success Factors Human(p eople) Technolo gical strategy Culture/structure change Inter-departmental integration Skilful staff Key information on customers Manage IT structure Customer involvement proc esses * Source Mohammad Almotairi, CRM SUCCESS FACTORS TAXONOMY. European and Mediterranean Conference on Information Systems Pp Top management commitment and support: Top management involvement in the CRM implementation plan has been identified in almost all success factors studies as a crucial factor that ensure the successful implementation of CRM. Considering the scope of CRM implementation as an enterprise-wide strategy requires a full support by the top level of the organizational structure. The role of board level is essential in backing the CRM implementation process and securing required amount of financing for putting CRM projects into action. 73

13 Defining and Communicating CRM strategy: A clear definition of the CRM strategy and alignment of this strategy to the company's strategy would facilitate the transition of changing work structure and environment toward customer-centric approach. The absence of a clear CRM strategy or the lack of developing such a plan could cause the failure of CRM implementation (Greenberg.2004) 105. Additionally, publishing the strategy to the staff is required to raise their awareness of the CRM objectives, implications, and benefits Culture Change: In order for CRM to succeed in realizing its objectives, organization should develop a culture where all staff are encouraged to share and learn from new work structure and information that is based on customers (Alexander, 2004) 106. Expected resistance of new ways of conducting work tasks within the organization's culture should be addressed and minimized Inter-departmental Integration: From strategic perspective CRM implementation has an organization-wide influence. Different functions and departments of the organization should be integrated and 105 Greenberg, P. (2004). CRM at the Speed of light, Third Edition: Essential Customer Strategies for the 21 st Century". California USA : McGraw-Hill. Emeryville. 106 Alexander H. Kracklauer, D. Quinn Mills and Drik Seifer " Collaborative Customer Relationship Management" Springer-Verlag Berlin Heidelberg New York 74

14 connected with a structure that supports the flow of information. Although all aspects of the organization should be integrated, a special consideration should be devoted to functions that have direct interaction with customers such marketing, sales, and services. Such integration is required to deliver a unified view of the organizations and its products to the customers Skilful Staff: Employees play a key role in the success of CRM projects. Issues of the nature of learning new work systems, training programs, change resistance, willingness to share information, and motivating staff should be taken to consideration Key Information on Customers: Acquiring and analyzing the right quantity and quality of information on customers helps to meet customer s needs. The right information is the base for designing customized products and services Manage IT Structure: Considering CRM as only a technological solution is a vital misconception that resulted in increasing failure of CRM projects. Nevertheless, IT is an enabler for acquiring and managing valuable data on customers. Technological aspects 75

15 such as data warehouse capabilities and software configuration in addition to the influence of the internet are crucial for CRM successful implementation Customer Involvement: Direct and indirect Involvement of customers in CRM designing is a tool for strengthening practical CRM. Such an involvement helps the organization to analyze the customer relationship life cycle and consequently find the areas of problems that can be managed by CRM (Rigby and Ledingham, 2004) 107. Furthermore, customers acceptance and interaction with CRM systems could be enhanced by involving those customers in building CRM systems. 3.2 Ways to measure CRM success There are different possibilities to evaluate how successful a CRM solution is. Depending on the company s preference and their internal decision making process, diverse success metrics are used. To get a better understanding of CRM success, different ways to measure it are presented Customer Success: This approach measures economic value delivered to and/or derived from a customer. The following measurement options focus directly on the customer relationship to the company: 107 Rigby, D., and Ledingham, D. (2004). CRM Done Right. Harvard Business Review. November

16 Customer Lifetime Value: Customer Lifetime Value (CLV) can be one measurement to be considered. Lifetime Value is a function of frequency of purchase multiplied by the gross margin multiplied by the duration of brand loyalty (Hackert, 1998) 108. The value is calculated as the revenues the customer will generate over the life of the relationship to the company minus the variable costs of achieving those sales. These are the costs of goods sold, and the costs to serve. Over the customer s life span, the acquisition costs decline and revenues and margins increase. CLV = Present Value of future profits from customer in N years Investing too little on customer acquisition and retention therefore could cause the company to decline in productivity and future worth. Spending too much on customer acquisition and retention wastes capital needlessly without sufficient payback (McAllister, 2004) 109. Few companies calculate lifetime value, most notably because they do not know how (Patros & McConaghy, 2002) 110. This is the point where CRM can bring a real benefit. 108 Hackert, R. E steps of lifetime value. Target Marketing. Volume 2 p USA. 109 McAllister, T. M Customer Relationship Management: a case for e-business strategy. University of Maryland. USA. 110 Partos, P. &McConaghy, S Customer lifetime value and your business. 77

17 The included database in the CRM software tracks all interactions with a customer and this can be analysed with the analytical features of a CRM solution Customer Satisfaction: Customer satisfaction rating can be another measurement. But this leads to the question: When is a customer satisfied? The following definitions show the wide range of possible outcomes (Bleuel, 2001) 111: 1. Customer satisfaction is equivalent to making sure that product and service performance meets customer expectations. 2. Customer satisfaction is the perception of the customer that the outcome of a business transaction is equal to or greater than his/her expectation. 3. Customer satisfaction occurs when the acquisition of products and/or services provides a minimum negative departure from expectations when compared with other acquisitions. 4. Customer satisfaction occurs when the marginal utility of a transaction is equal to or greater than preceding acquisitions. 111 Bleuel, W Customer satisfaction. 78

18 5. Customer satisfaction occurs when the perception of the reward from the purchase of goods or services by the customer meets or exceeds his/her perceived sacrifice. The perception is a consequence of matching past purchase and consumption experience with the current purchase. Customer satisfaction is very difficult to measure. This depends on the definition of satisfaction (Robinson, 1997) 112. Many companies capture the data by surveys and not with a CRM system Customer Loyalty: Customer loyalty means that the company understands and anticipates what customers value about their product or service. It means that the customers recognize that the company interacts with them uniquely. This measurement of loyalty is return on relationship. It reflects a company's level of preparedness to deal with the new CRM dynamics to drive mutual loyalty. Loyalty outcomes are the business practices driven by loyalty conditions, such as whether the customer acquisition costs are going down or whether the company is interacting with customers at the right time to maximize profit (Zingale, 1999) Robinson, G What is more difficult to measure than customer satisfaction. 113 Zingale, R The death of customer satisfaction-crm in the Internet age. 79

19 The first problem about this customer loyalty definition is that most loyal customers defined in the customer loyalty practice are actually not loyal at all (Eisenberg, 2002) 114. Most companies consider customers loyal as long as they do not leave the company. However, are these customers by this definition really loyal to a company? Unfortunately, most loyal customers are not loyal in the sense of the original "loyalty" definition. There are many different definitions about customer loyalty mentioned in the literature (Griffin, 1995) 115 : The customer has no other choice, because switching to another company is too costly. The customer buys from other companies at the same time. The customer makes a rational evaluation of competing companies and finally decides to stay with his current company. The customer believes his current company provides the best products or services and never considers other companies. 114 Eisenberg, B Innovative testing. 115 Griffin, J Customer loyalty. Jossey-Bass publishers. USA. 80

20 Only the last buying motivation could be called loyal because here is an emotional connection between a customer and the company. CRM can be very helpful to support this emotional connection but it is difficult to say how much loyalty is based on CRM and how much is not Customer Interactions and Dynamics: Some companies measure success metrics based on customer interactions. These can be metrics about the CRM system itself, or about specific elements of the sales, marketing and customer service process like account penetration, number of inquiries, number of qualified leads, or the percentage of completely populated profiles in the database. Consumer activities could be sales cycle time, turnaround time on reporting, or the percentage of address updates (Smith, 2001)116. Other dynamics can include customer acquisition, customer growth and development, customer retention, and customer reactivation. Most of these measures are the goals of many sales, service and marketing efforts (Nykamp, 2001) 117 : Customer acquisition improvements may relate to increasing the targeting and related response rates or conversion rates of acquisition efforts or acquiring more value or more loyal customers. 116 Smith, M. A Customer intelligence still a long way to go. 117 Nykamp, M The customer differential. AMACOM. USA. 81

21 Customer growth and development improvements may relate to increased cross sell of specific products, increased profitability of sales to existing accounts or improved up sell ratios. Customer retention improvements may relate to increased customer satisfaction. Customer reactivation improvements may relate to increased performance of any win-back marketing campaigns or direct sales efforts. All this information can be captured with a CRM system and it can be very useful to analyse the customers. However, this knowledge alone does not allow estimating the success rate of CRM Financial Success Many companies are not content with their CRM implementations. They do not have a good understanding of the true value of their CRM system. Companies often do not ask themselves whether they measure the true value of their customers and whether their systems provide them with a basis to do so. They do not know how much the CRM system exactly has cost and how profits and revenues have changed (Thomas, 2003) Thomas, D Larger companies still failing to see payback from their CRM systems. 82

22 There are different methods to measure the success of CRM financially. The most common ones are return on investment (ROI) and total cost of ownership (TCO) Return On Investment (ROI): The return-on-investment model seeks to deliver actual cash benefits to the company. This approach identifies costs savings, provable productivity improvements or well tested revenue generation opportunities. During the e-commerce excitement at the end of the last century, many companies neglected to recognize that every investment should at least break even within a calculated timeframe. The investment in new technologies was handled as a strategic expense. Every business wanted to keep the chance to enter new market segments to gain first-mover profits and to stay competitive, but this business view has changed. Today four out of five IT decision makers consider the significance of the return on investment as high or even very high (Nonnast, 2002) 119. The purpose of CRM is to increase profits by increasing sales by more than the CRM costs. 119 Nonnast, T E-Business-projekte mussen sich rechnen. Handelsblatt Handelsblatt. Germany. 83

23 The formula to calculate the return on an investment is: (Profits x 100) / (Investment in CRM) = ROI (%). (Woehe, 1993) 120. In theory, this formula seems to be very simple but in practice it is very difficult to use for many companies because it includes a lot of unknown information: 1. The company has to analyse what is considered as an investment. Most investments can be divided into one of three categories (Buttle & Ang, 2002) 121 : IT costs (infrastructure, database development, software, etc). Personnel costs (recruitment, redeployment, training, etc.). Process costs (reengineering of working practices and workflows, etc.). 2. The company has to evaluate what is the return on this investment. Compared to the cost analysis this is the difficult part to measure. The business has to identify the new profit based on CRM minus the old profit that they would have earned without the use of a CRM solution. Possible returns could be (Hughes, 2003) 122 : Increased customer retention (less defections each year). Increased visits or orders per customer per year. 120 Woehe, G Einfuhrung in die allgemeine Betrebswirschaftslehre. Verlag Vahlen. Munchen, Deutschland. 121 Buttle, F. A. & Ang, L ROI on CRM:a customer-journey approach. 122 Hughes, A. M How to measure CRM success. 84

24 Increased average spending per order or visit. Increased cross sales customers buy in more categories. Increased up sales customers buy higher priced items. Increased reactivation of previous customers. Increased referrals of new customers by existing customers. Doing all of the above while keeping increased costs (required to make them happen) from exceeding the increased sales. 3. The company has to decide what period should be measured. CRM is an investment that is expected to pay off over a period of up to 5 years. Timeframe predictions of analysts vary on a wide range depending on whom they work for. The ROI formula for CRM projects includes many uncertainties, because it depends, not just on numbers, but also on dealing with politics and people. CRM returns are difficult to quantify. ROI is an accounting concept which likes hard numbers, such as cost savings. It can be a stretch to account for the software returns, such as increased customer loyalty. A typical CRM investment will yield both types of return. For example, a project to consolidate several call centers could reduce operating costs, system support costs, and yet provide longer opening hours to customers. The consolidation could also enable customers to be served more effectively by staff who have greater knowledge of the customer's needs. While everyone can intuitively buy into 85

25 these benefits, it is difficult to get to a precise number. Only 25% of enterprises will define the benefits, develop a business case, and measure the benefits of their CRM initiatives (Picarille, 2003) 123. Figure 3.3 illustrates a possible ROI scenario of a CRM solution. *Source Bosse, A systemic perspective of a customer relationship management solution for businesses, pp 30. Fig 3.3: ROI example of CRM solution To calculate the future return on a CRM investment it is necessary to predict customer behaviour. This can be a very risky prediction because forecasting the behaviors of 123 Picarille, L Poor business decisions equal no measurable CRM ROI. 86

26 unpredictable customers is a very difficult task. Often the ROI of a CRM project pivots on the expectation that the customer will spend 5% more in future, or consume 10% less than before. Enterprises that focus on delivering functionality that increases effectiveness rather than efficiency will be more successful in business transformation and delivering longterm ROI. Many companies forget in this context that the ROI measurement procedure needs to be an ongoing process during the CRM project (Couper, 2000) Total Cost of Ownership (TCO): Another approach to ensure long-term success of a CRM solution is to monitor continuous returns based on CRM in comparison to the total cost of ownership. TCO is used to describe not only the costs of purchasing IT products and service but all the hidden costs associated with using it as well. Many businesses forget to calculate the hidden costs of a CRM project (O'Leary, 2001) 125. This includes planning, design, installation, configuration, maintenance and support from both the administrative and technical perspectives. This is important since a positive ROI can get negative after a while when the hidden costs get bigger. Therefore, a 124 Couper, M. P Web-based surveys: A review of issues and approaches. Public Opinion Quarterly 64. Pp USA. 125 O Leary, J. P Raising the bar on CRM. 87

27 constant focus on ROI and TCO is necessary to ensure longterm success. Figure 3.4 illustrates these circumstances. Until the date of going live, CRM only generates costs. After that point, costs of running the system, training new employees, adding new features, etc. have to be added. From a financial perspective CRM can be called successful, when the returns of CRM are higher than the TCO. This may sound very simple but only 35% of companies define the total cost of ownership of their CRM initiatives (Forsyth, 2002) Forsyth, R The Gartner view of delivering benefits and ROI from CRM.7 88

28 * Source Bosse, A systemic perspective of a customer relationship management solution for businesses, pp 31. Fig 3.4: Total Cost of Ownership- Success vs. Failure Only a few organisations have sufficient analytical capability to correlate project-level CRM value to overall company performance (Pal, 2002) 127. These problems measuring the financial success become very visible when understanding the following facts (Johnson, ; Stock, ): 127 Pal, A.2002.UK firms are getting CRM all wrong. 128 Johnson, R When it comes to CRM: usability is a lot more valuable than functionality.usa, AMR Research. 129 Stock, K Charts & tables. 89

29 25% of CRM projects that succeeded in adoption and systems are not able to quantify a specific numeric business benefit. 25% of financial returns from CRM programs are lost because there is no enterprise wide CRM strategic plan. 41.9% of the CRM licenses companies purchased are not being used, the major reason being confusion between calculating benefits and return on investments. 45% of enterprises will attempt CRM through technology initiatives alone and will fail to achieve measurable ROI because they fail to address metrics, behaviors and processes. 55% of CRM initiatives will fail to meet measurable benefit objectives or positively affect ROI, due to a lack of business processes for conducting ongoing measurements. 57% of businesses that have implemented a CRM system do not know whether profitability has gone up or down and 45% do not know whether cross selling has gone up or down. 70% of CRM projects will have to be re-evaluated due to project managers overlooking personnel and process issues in favors of solely technological implementations. 90

30 These results are very disappointing for any company trying to measure their success financially. As a result, many companies plan to monitor their success of a CRM system, but they are too busy implementing CRM and consequently they neglect any financial success metrics Other Success Factors In addition to customer and financial measurements, many more factors can indicate the overall success of a CRM solution. The following ones are an overview of alternative ways to capture CRM success Intangible Success: In this approach, so-called softer benefits or intangible assets are identified and quantified. For example, brand equity or knowledge capital are two forms of intangible assets that companies do try to measure and quantify and correlate to future company performance (Kellen, 2002) Competitive Success: This approach measures how competitors are interacting with customers and decisions are made to either seek parity or exceed a competitor s capabilities (Sabri, 2003) Kellen, V CRM measurement frameworks. 131 Sabri, H CRM: the power of prediction. 91

31 Instinct and Experience Success: This approach uses managers individual experiences and intuitions about what CRM solutions to execute that may or may not be supported by additional facts (Dyche, 2001) Internal Success: This approach focuses on internal diagnostics to provide an immediate and ongoing means of measuring the extent to which the organisation is changing and the internal capabilities are improving, which may be required for archiving any external measures of success (Massey, 2002) CRM Failure Factors The challenge of researching the causes of the problem of CRM failure has motivated many researchers and practitioners to contribute to the literature on CRM failure and its causes (Wisktron, ; Rigbyetal ). Different reasons cause the failure of CRM to meet its objectives. While some of these reasons are inevitable, many can be avoided (Payne, 2004). In general, CRM failure is 132 Dyche, J The CRM handbook. 133 Massey, P How customer programs can deliver better faster. 134 Wikstrom C. (2004). A Case Study of Emergent and Intentional Organizational Change: Some Implications for Customer Relationship Management Success. Proceedings of the 37th Hawaii International Conference on System Sciences, Hawaii, 5-8, Rigby, D., Reichheld, F., and Schefter, F. (2002). Avoid the Four Perils of CRM. Harvard Business Review, February,

32 caused by the complexity of technical and organisational issues that are associated with CRM implementation (Goodhue et al, 2002) 136. The field of CRM failure studies have provided a wide range for possible causes for CRM failure leading to identify some roots for the problem that prevent high number of implementations to realize their objectives. According to Nguyen et al, (2007) 137 : the lack of factors such as: Top management support. Aligning internal processes. Linking CRM project to organization s higher-level strategies. Focus on ROI (Return on Investment). Achieving success early in the project. Chalmeta (2006) 138 has supported some of the failure causes as he pointed out the following factors as causes for CRM failure: Thinking of CRM as a pure technology. Lack of management support. Lack of customer-centric culture. 136 Goodhue, D. L., Wixom, B. H., & Watson, H. J. (2002). Realizing business benefits through CRM: hitting the right target in the right way. MIS Quarterly Executive, 1(2), Nguyen, T., Sherif, J., and Newby, M. (2007). Strategies for successful CRM implementation. InformationManagement & Computer Society, Vol.15, pp Chalmeta, R. (2006). Methodology for customer relationship management. The Journal of Systems and Software, Vol. 79, pp

33 Lack of readiness process. Poor quality data. Lack of change management. Lack of vision and strategy. Lack of involving the final user in designing CRM solutions. Other evidences supporting previous factors is found in the work of Kale (2004) 139 where the author has named seven reasons (sins) for CRM failure as the following: Viewing CRM as a technology. Lack of customer-centric vision. Insufficient appreciation for customer life time value. Inadequate support by top management. Underestimating the importance of change management. Failing in re-engineering business processes. Underestimating difficulties related to data mining and data integration. In addition, lacking of creating proper CRM strategy was mentioned as main reason by Rigby (2002) 140 the researcher has highlighted four perils for CRM implementation that are to be overcame: 139 Kale, S. (2004). CRM failure and the seven deadly sins. Marketing Management, Vol. 13(5), pp Rigby, D., Reichheld, F., and Schefter, F. (2002). Avoid the Four Perils of CRM. Harvard Business Review, February,

34 1-Implementing the CRM software before defining the customer strategy. 2-Rolling out CRM before changing an organisation to match. 3-Assuming that more CRM technology is better, stalking not wooing customers. 4-lack of focus on human/social factor (employee and customers). Other studies have focused on more general factors as possible causes for the CRM failure. For example, in a study that involved 700 companies, Forsyth (2001) 141 has argued that the causes of the CRM failure are: Organizational change (29%), Company policies/inertia (22%), Little understanding of CRM (20%), Poor CRM skills (6%). Another research explained the main problem behind the failure of CRM implementations assuming that CRM is equal to customer acquisition and customer satisfaction is equal to customer loyalty or focusing only on profitable customers could contribute significantly to increasing CRM implementation failure (Verhoef and Langerak, 2002) Forsyth, R. (2001). Six Major Impediments to Change and How to Overcome Them in CRM, CRM-Forum (June 11, 2001). 142 Verhoef, P., and Langerak, F. (2002). Eleven misconceptions about customer relationship management. Business Strategy Review, Vol. 13(4), pp

35 As many as 50-70% of CRM initiatives fail to deliver as expected. Observing these situations, it's possible to discover some common reasons for failure: CRM Strategy Errors The right leadership is not in place: A business leader needs to be in charge of the CRM effort, not IT. Successful CRM is a major business initiative, not a technology initiative CRM Strategy not clear: The CRM strategy and vision need to define what customers experience at each touch point, and how will they be handled at each touch point. The vision needs to be clear to everyone. A major pitfall occurs when the business constituents have differing expectations of CRM's benefits. Sharing a common vision is the key The CRM Strategy is different from the business strategy: CRM is sometimes seen as a lower level automation step or patch, rather than a top level re-thinking of how customers are served. The CRM strategy and business strategy need complete alignment. 96

36 CRM projects are often more difficult than originally expected. And as with Enterprise Resource Planning (ERP) implementations, implementing a CRM system does not differentiate a company or make it more competitive. It is a company s CRM strategy and how this is implemented that drives a company s competitiveness (Bruyns, 2001) Processes not re-designed: CRM is an expensive way to automate inefficient or ineffective processes. Companies get better results from CRM when they begin by focusing on sales processes: how do customers need to be approached, convinced, served and satisfied? Only when these questions are answered should steps be taken to plan software or process changes. By managing and measuring the sales processes (opportunity management, the Sales methods? In CRM terms) it is possible to take full advantage of CRM's potential. The steps taken should include: Defining and developing new market segments. Cross-sell. Up-sell. Retain. Acquire. Reactivate. 143 Bruyns, T The do s and don ts of CRM. 97

37 Experience (Enhancement through better customer interaction strategies) Customers not consulted: What do the customers think of the company before, during, and after the CRM implementation? What are they happy with, and what are their complaints? How are other suppliers serving them in ways that they like? Too often, surprisingly enough, the "C" in "CRM" is not consulted in all phases of the initiative Unclear Metrics: It's critical to review the plan to measure key performance indicators, and ROI. Can the metrics truly determine the real business value of the effort? The quality of metrics has been a deciding factor in making or breaking many CRM projects Implementation Errors Inability to link channels: Have all customer touch points and processes been considered? CRM projects often have focused on some parts of the customer experience, but ran into trouble when they were unable to link with or serve well all parts of the customer experience. 98

38 Lack of preparedness for continuous improvement: The company should be ready for bumps in the road, ready to refine strategies, revise goals, re-set metrics, and learn from feedback. Successful CRM projects are rarely completely successful from the outset Missing important data: One of the risk of missing the important data when data is formatted in a way making it difficult to translate it into a clear and integrated customer view (Elmuti et al. 2009) 144. Ernst & Young s (1999) 145 Special report: Technology in financial services talks about some of these barriers. One barrier is missing or unavailable important data, this barrier occurs when the data are formatted in such a way that makes it difficult to translate them into an integrated customer view People Errors Introducing CRM to hundreds of employees at a time: It's easy to want to do too much, too fast. Get it right first with a small team of employees chosen to represent a crosssection of your company. Choose an initial project that can make a dramatic difference, with clear key performance 144 Elmuti,D,Jia, H., Gray, D.,2009. Customer Relationship management strategic application and organizational effectiveness: an empirical investigation. Journal of Strategic Marketing, 17(1), pp Cap Gemini Ernst and Young (1999). CGEY and Gartner share secrets of ROI. Crm-forum.com/library. 99

39 indicators. Strong pilot results will help you avoid the next pitfall Changing the system, but not the people: It's easy to focus too much on the new technologies and processes rather than focusing first on the people who will use them successfully. They need employee excitement about doing a better job for customers. They need employee feedback and overall buy-in. The entire company needs to own "customer-first." They need to see that the CRM vision they all hold takes them to a better place than where they are now Lack of Management & Leadership Skill: Lack of management and leadership skill is usually the most far-reaching people mistake made in any CRM project. This sets the stage for future problems in managing both people and process and is likely to be the first of many serious mistakes that lead a project down the wide and winding road of failure. Certainly all CRM project woes can be attributed to weak management or ineffective leadership, just as every death can be attributed to heart failure or respiratory failure. However, to do so is misleading if not an outright distortion of the facts. Exceptional management and leadership skills are rare, most often we make do and assign projects to managers based on whoever happens to be available rather on 100

40 prerequisite skills and experience. CRM Projects are demanding management environments challenge leaders in rare ways. People must be managed, process must be managed, clients or users must be managed, schedules and timelines must be managed, all in a coordinated and simultaneous fashion. If a project manager is a poor leader, they will not be able to effectively lead their project team. This same lack of skill will translate itself into problems leading stakeholders, users and others. The leadership vacuum will be filled in inappropriate and dangerous ways, by subordinate team members, stakeholders, or various adversaries to the project or designated project managers. The lack of strong leadership and management charges the political atmosphere and creates an unstable or volatile situation that will continue to hamper progress and eventually cause the project to fail. Daniel et al. (2002) 146 also suggest several barriers to CRM entry. If the IT system is not comprised of talented workers that are flexible and able to work with other departments, the CRM system will not work and that flexibility is the key to CRM integration because of the changing environment, IT platforms and independence of data models. He also suggests that a company must be willing to change its culture before implementing a CRM program. Without sharing information and allowing the IT department to be resourceful, CRM cannot be successful. 146 Wilson, H., Daniel, E., & McDonald, M. (2002). Factors for success in Customer Relationship Management (CRM) systems. Journal of Marketing Management, 18,

41 Poor Project Team Motivation: A great many research papers have been written on motivation in the workplace, but the dynamics and the forces at work the foster or undermine staff motivation are really quite simple. Are people happy doing what they are doing? If they are not happy then what is the reason? Do they feel they are treated unfairly? Is the work unchallenging? Are they overwhelmed? Is their friction on the team? Are they working long hours? There is a direct correlation between morale and motivation. It is rare to see one without the other. Motivation is a result of effective leadership that communicates rewards and directs the project team to achieve objectives. The motivation that is manifested by a team is a direct measurement of the effectiveness of the project manager. The team needs to be directed toward a goal. The team needs to be treated fairly. If the leadership is coercive, self-serving and manipulative, the staff will not produce at satisfactory levels or live up to their potential. They will lack motivation and produce freely. They will sabotage progress in subtle ways and exhibit passive-aggressive behavior. The team will not produce and 102

42 what is produced will be of poor or marginal quality. The schedule will fall behind and critical deliverables and dates will be missed Weak or Inappropriate Project Staff: Just as the assignment of project managers is often made based on the criteria of expediency and who is available at the time, so too many hiring and staffing decisions are based on who is available or who can be brought onboard the fastest. Decisions based on who has the best skill set or who will be the most appropriate match often do not enter into the equation. This all too common staffing method has dire implications downstream in the CRM project. Imagine an entire CRM project team assembled by this method and the problems that will arise. The quality of deliverables will suffer as well as the project schedule Relationships with the client and end users will be adversely effected A variety of other problems will plague a team of weak members that don t have the level of skill to meet the production and deliverable requirements of the project. Like any hiring decisions, projects should be staffed based on finding prerequisite skills and character combinations that will deliver success Process Errors Instead of enhancing new processes, changing the CRM system to fit old processes. To avoid the pain of revision, some companies don't take the opportunity to re-engineer and 103

43 optimize their processes. They look to CRM as a patch rather than an opportunity from the ground up to increase customer satisfaction, revenue, service and overall productivity Technology Errors Customer data is in more places than expected: As implementation gets underway, key data can turn up in salespeople's PDA's, spreadsheets, handwritten notes, and legacy systems. To avoid surprise integration nightmares, the requirements gathering stage needs to be careful and thorough Different CRM solutions are in place but do not work well together: Often marketing, sales and service departments already have different types of CRM software, from different vendors, to track the same customers. As a result, these departments can't share data, and have redundant support and administration costs Customer Management Errors Customers do not experience new benefits: The ultimate test is to be able to demonstrate increased satisfaction among customers, along with increased customer 104

44 value to the business. This goal can inform every choice they make during planning and implementation. But just like the adage "watch the ball" in sports, it's a fundamental often overlooked. The vendor's experience with CRM implementation is one of their best assets. They should see a selection of leading vendors. Analysts said it would be easy to blame the software providers for the failure rates, but there is plenty of blame to go around. Companies are spending money on CRM software without thinking about their own business processes (Dignan, 2002) 147. Another barrier is that CRM programs are very expensive to implement. Startup cost for CRM systems can range greatly, starting at roughly $3.1 million. Gartner Group estimated that an average firm will spend up to $750,000 for the technology to start up a Web based customer system with self-care capabilities. Clark (2001) 148 suggest another reason that CRM failure is very common is that companies do not embrace the customer-centric vision agree with this point by saying that companies need top down corporate change for the company to believe in a more customer-centric attitude. 147 Dignan (2002), CRM: Dream or Nightmare? (accessed on April 3,2002),available at Clark, P.B. (2001). The ROI of CRM. B to B, vol 86, June