In his parting letter to shareholders, Louis Gerstner, who as CEO led IBM to a glorious comeback in the 1990s,...
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spoke of a "massive shift" occurring in the technology industry. Technology companies, he explained, must become increasingly "customer-driven" and "service-led" if they are to address the emerging demands of the market, and find success.
As he elaborated in his recent book, "Who Says Elephants Can't Dance?," the tech industry maintains a "remarkable detachment" from its customers. It tends "to ignore human behavior, human preferences, human biases, and personal and institutional demands that emanate from the non-technical parts of people's and companies' lives." Gerstner added that if today's technologists were to truly stand in their customers' shoes they would find "the promises overblown and the returns more difficult than promised."
CRM technology vendors, consultants and buyers are now taking those comments to heart. They are being forced to rethink their relationships to each other as the preachers of the CRM gospel are now being asked to live up to their sermons. Just as in many parts of the adrenaline-driven late 90's economy it's time to examine the post-boom effect of solutions that were bought and implemented. "Return on investment" has replaced "exponential growth" as the business buzz phrase of the moment.
For customer strategy it's a positive development. CRM solution providers -- the architects of the customer economy -- are rising to the occasion. They are reaching out to their existing and prospective clients in powerful, new ways -- building high-value relationships as opposed to merely tossing licenses over the wall as many did during the boom. The new value equation, bringing innovators and implementers closer together, will revolve around trust, diligence and shared responsibility. If this trend continues, the CRM world will experience stable growth, as well as increased effectiveness and accountability in the coming years.
This drive for accountability is manifesting in the heightened demand for "ROI." In the late 1990s, there was little call for exhaustive study on enterprise software and other "e-business" investments. The driver was competition -- and time was the enemy. No one wanted to lose market share to a first mover like Amazon or Dell. CRM technology was new and unproven, but money was plentiful and ambitions were boundless. ROI projection analysis, when it was conducted, magically produced triple-digit scenarios every time. (Few even bothered to measure it retrospectively.)
Then, all of a sudden, someone took away the punch bowl and switched on the lights. It is in the cold glare of today's wary and skeptical decision-makers that technology vendors now stand. Their prospective clients now want evidence. Proof points. References. They want real numbers: ROI, TCO, Payback Periods. They expect vendors to deliver a clear and credible value proposition -- one that will enable them to present a defensible business case to their bosses and boards. Clients are validating their successes with rigorous ROI analysis.
Waters Corp., based in Milford, Mass., recently completed an expansive review of its global CRM implementation. The $890 million company is a leading supplier of high-performance instruments and consumables for life sciences, industrial and government markets. It implemented SAP's front-office suite in order to drive revenue, increase efficiency and reduce expenses. The company now reports that its $5.1 million investment in MySAP has generated a net return of $2 million above cost and a total internal rate of return (IRR) of 35% over a period of four and a half years. The ROI initiative took 10 weeks to complete. It involved interviews with the company's top officers as well as many stakeholders throughout the company. In order to reach consensus and lend credibility to the endeavor, the group agreed to settle on its most conservative assumptions and estimates. "It's quite a commitment," says Paul Newton, chief information officer of Waters. "But it's important to take a pulse, particularly when the impact [of the CRM implementation] is not intuitive. We didn't do it to justify the investment, but to give feedback to the rest of the organization. This was the only way to aggregate all the results and present them credibly to the company. The credibility factor was paramount."
Cleveland-based Keybank, which manages assets in excess of $85 billion, also has measured the impact of its CRM investments with great care and precision. Leveraging data from all customer touchpoints and data sources with Unica's Affinium software, the company reports that it has increased "marketing velocity" (an indicator of campaign development time) by 60%. It has increased campaign conversion rates by 20% and saved an average of $4,300 per campaign to date (generating savings of $1.2 million in its first year). Trish Mathe, senior VP and director of database marketing, says her group's ROI estimates are "conservative" and are derived through a "rigorous process" involving marketing, finance and other lines of business. The publicly reported case study, she adds, "required the CEO's signature."
Mathe says that Keybank has cultivated a "culture of accountability." In this case, accountability is made visible to all through an array of corporate and departmental scorecards that capture key indicators of performance. Due to her marketing group's competence in measurement, other business groups now come to marketing for an assessment of the "customer equity portion" of their technology proposals. "We have a respected view of the customer," Mathe says. "We can value the impact of their projects relative to the customer."
Given the considerable challenges associated with conducting such assessments, a growing number of companies are turning to outside parties to facilitate their ROI measurement efforts. Indeed, technology decision-makers are relying on such companies as Gartner, Meta Group, Nucleus Research, and Peppers and Rogers Group to provide "third-party" assessments of ROI-based business cases.
Third parties can help decision-makers run scenarios and conduct financial analyses in a disciplined fashion. Considering the money and careers at stake, they also can provide a much-needed reality check. "There is increasing skepticism about ROI numbers that come from vendors," says Rebecca Wettemann, chief analyst at Nucleus Research. "We want to ensure companies get value for their money. If you are spending $1 million [on an enterprise software implementation], it just makes good sense to invest $10,000 to ensure you are not getting screwed."
But as valuable as ROI assessment may be, it is a single step on the road to more successful outcomes. ROI projections are forecasts. They don't offer visibility into the future; they promise to minimize risk by accounting for the variables at play. Even retrospective analyses of existing implementations offer limited value. They generally don't match the context and circumstances that must be confronted in a new CRM initiative and implementation.
So what's next? It seems clear the current focus on ROI is a transitional period -- one in which buyers must demonstrate greater due diligence and sellers must substantiate their claims more actively. However, the new equation of CRM success will revolve around something more than spreadsheet projections and static calculations. It will demand more of us than finger-pointing, blame-shifting and holding others accountable. If this period is about accountability, the next one will be about value.
Beyond ROI: value creation
The fog and uncertainty of current CRM solutions may at last be lifting as buyers and sellers seek new ways to ensure successful outcomes. The strategies and practices beginning to emerge in the CRM solutions field suggest we will soon be focused on shared responsibility and mutually created value.
Take Siebel Systems, a CRM software company that has certainly suffered its share of blows from media and analysts in the post-boom period. The company is now mounting an ambitious effort to help clients identify, measure and create value--something Peter McCullagh, Siebel's VP of customer strategy, refers to as "the future of the enterprise software industry."
Over the past two and a half years, Siebel has built up a 40-person "customer strategy group" that is in high demand among its Fortune 500 clients. The team, which is largely composed of former management consultants and investment bankers, collaborates with clients to develop CRM strategies, build solid business cases (pre-implementation) and identify potential new benefits (post-implementation). While the group provides its consulting as a free service to select clients, McCullagh maintains that it justifies its value to Siebel by accelerating sales cycles, reducing overall sales costs and raising client satisfaction.
The team is exploring new ways to embed its expertise and insights in a Web-based environment that will scale to meet the needs of many more clients. Siebel is even pursuing a patent on its online strategy tool. It includes best practices, technology valuation capabilities and 5,000 different metrics, enabling clients to self-diagnose challenges and self-assess opportunities. "We think this is the new model," says McCullagh. "You have high-value, important skills that are wrapped around the entire service and product offering to solve the problems of the customer."
SAP is also focused on the challenge of enabling smart customer decision-making and facilitating effective change. The company has committed significant resources to building defensible business cases in collaboration with its clients. As John Grozier, SAP's VP of solution marketing explains, the business case is no longer merely a one-off cost justification process. It is a strategic roadmap for implementation, change and measurement.
"People intend to live with the results of that business case as they go all the way through their implementation," he says. "That's critically important. It's not just that you go in and build a business case about what you think you might get from the software and get signed off. It seems that now people are taking these same measurements and driving them all the way through the project--the software implementation and the change management issues as well."
SAP has developed a new group called "Value Engineering" that is focused on early business case development. "They enable us to better understand where the financial results will come by implementing a solution," says Grozier. "We have really stepped up the ability to do more analysis in the front-end of a selling opportunity."
Taken as a whole, these types of client-focused activities amount to a striking transformation. CRM solution providers are shifting their strategy from innovative software product to high-value, high-impact service. In this new world, strategic differentiation does not merely come from the tool, product or system, but rather, collaborative learning, shared responsibility and powerful results. Software and solution providers are becoming what Lou Gerstner calls "customer-driven" and "services-led."
"The CRM sector is in the midst of extraordinary and demanding change," says Tom Spitale, senior partner at Norwalk, Conn.-based Peppers and Rogers Group. "This puts a premium on forward-looking strategy, executive sponsorship, change leadership, solid communication and new measurement processes. The key challenge that companies now face -- from both the seller and buyer perspectives -- is about making this transition in a smart and successful way."
This shift will require an important change in the technology selling and buying process. Sales itself will become increasingly collaborative, facilitative and analytical -- blurring the lines between sales, marketing, professional services and other roles. It's not about harpooning whales or bagging elephants anymore. Large, intergalactic software deals are giving way to smaller, incremental deals that depend on meeting milestones of success on a long-term roadmap.
The new value equation demands that the "vendor" earn the status of "partner" in the eyes of clients. It's about being a collaborator, an advisor and a valued resource, dedicated to facilitating complex decisions and far-reaching change.
To read more articles like this one, visit Peppers and Rogers Group's Web site at www.1to1.com.
Copyright © 2004 Carlson Marketing Group, Inc. All rights reserved. Peppers & Rogers Group is a Carlson Marketing Group Company.