7.4 - How Much Are CRM Capabilities Really Worth - Accenture Report

How Much Are
Customer Relationship Management

Capabilities Really Worth?
What Every CEO Should Know
In-Depth Report
Table of Contents
Executive Overview
Looking Through the Customer's Lens
Key Findings
Detailed Findings
41
Introduction
10
About the Research
12
Deepening Customer Insight
17
Customer Offers: Giving Customers What They Want
22
eCRM Moves at Speed Up the Profit Ladder
24
Shaping Customer Interactions
30
The Impact of Technology
31
People Make All the Difference
36
Extending the Enterprise
40
Conclusion
Appendix
Accentures research shows that

companies that have not invested
in developing specific CRM
capabilities are leaving millions
of dollars in profit on the table.
Accenture quantified the value of CRMnot the

costs, which many executives know, but the
financial payback, which very few know.
Executive Overview
It was the legendary Philadelphia retailer John Wanamaker who uttered that now famous management
complaint: I know half the money I spend on advertising is wasted; the trouble is I dont know which
half. The problem, extended to the broader marketing environment, is as old as commerce itself: Theres
never been an objective, reliable way to predict howand how muchproposed investments in attracting
and retaining customers will affect profit.
Until now, that is. An ambitious study completed by Accenture establishes for the first time the strong
link between excellence in a companys overall interaction with customerswhat we call customer
relationship management, or CRMand financial performance (see sidebar on page 5, Looking Through
the Customers Lens).
Our research shows that companies that have not invested in developing specific CRM capabilities are
leaving millions of dollars in profit on the table.
In fact, differences in performance in executing CRM capabilities account for roughly half the difference
in financial performance between top and average performers. Our research shows that companies
which enjoy the highest profitability in their industries are those that have invested in developing a
very specific set of CRM capabilitiesrevealing for the first time, the capabilities that contribute the
most to the bottom line.
Looking Through the Customers Lens

What Accenture calls customer relationship management can be defined as the holistic and methodical approach to identifying,
attracting and retaining a companys most valuable customers through a set of integrated capabilities.
The concept has evolved considerably over time. Today, in truly customer-driven enterprises, it would be more accurate to
say that the approach is about customer-managed relationships.
Customer-driven enterprises look through the lens of the customer, taking an outside-in perspective to ensure that their
best customers receive consistently differentiated, and wherever possible, personalized service. This, in turn, increases market
share, the share of the customers business and the total value derived from those customers over their lifetime. This all adds
up to considerable customer equity, the new measure of value that places emphasis on the relationships companies build
with their customers.
We have identified more than 50 marketing, sales and service capabilities that contribute to this relationship building,
grouping them into 5 major areas: Customer Insight, Customer Offers, Customer Interactions, High Performing Organization
and Enterprise Integration.
The challenge of customer relationship management begins with gaining deep insight into customers, then drawing on that
insight to strengthen customer offersthat is, to create more appealing value propositions, products and services. It also
involves enhancing customer interactions through superior sales and service as well as strong personal relationships.
These core capabilities rely on equally important underlying strengths: A high performing organization with personnel skilled in
customer care and the wise use of relevant technology, and enterprise integration (the ability to operate in new ways through
partnerships, alliances and eCommerce initiatives).
Key Findings
1. Companies can significantly improve financial performance by improving specific CRM capabilities.1
21 different CRM capabilities were identified that could each add more than $1 million per year to
return on sales2 (see Figure 1 on page 9).
The 5 capabilities that have the greatest potential impact on financial return are motivating and
rewarding people; customer service (tied for first); turning customer information into insight;
attracting and retaining people; and building selling and service skills.
Improvements add up. By making a 10 percent improvement in the top 21 CRM capabilities identified
in the study, a $1 billion business unit can boost pre-tax profit by $40 to $50 million (see Figure 2
on page 9).
More aggressive improvements (i.e. moving from average to high performance3) could triple this
amount ($120 to $150 million).
A sound strategy matters but execution is key. Profitability hinges on how many capabilities a
company executes and with what degree of excellence.
1Analysis
2Return
on sales is defined as earnings before interest, depreciation, taxes, and amortization, divided by sales.
3Moving
and findings are based on a typical $1 billion business unit.

from average to high performance is based on a 30 percent performance improvement.
2. CRM capabilities are interrelated; how well a company performs in one area impacts the others.
The interrelationship of the capabilities can be seen by looking at 5 key areas. All capabilities can
be mapped into, creating customer insight, building unique customer offers, personalizing
customer interactions, creating a high performing organization, and integrating across the
enterprise (see Figure 3 on page 11).
Within the specific capabilities, moving from average to high performance can yield big dividends:
Customer Insight: $25 million
Customer Offers: $19 million
Customer Interactions: $40 million
High Performing Organization: $40 million
Enterprise Integration: $17 million
3. The most profitable companies are excellent at leveraging both technology and people.
Technology influences 40 percent of CRM impact across all capabilities. Put another way, technology
may accelerate the impact of CRM by as much as two-thirds.
The rapid growth of eCommerce is making a major impact on managing customer relationships,
with the profit-adding potential of eCRM in the top-third, ahead of traditional drivers of value such
as segmentation and channel management.
People are critical and account for nearly one-third of the total impact across capabilities.
4. Gaining deep insight regarding customers is a fundamental driver and big lever for long-term CRM performance.
High performing companies glean information from every customer interaction and turn that information into insight that is leveraged across the enterprise.
Leveraging customer insight is critical in the eEconomy where companies are shaping 1:1 customer
relationships online. Internet companies try to narrow their field by focusing on customers
who desire the services offered and are willing to take advantage of those services in an online environment.
Insight helps to shape product and service offers, while fulfilling the promise of the brand.
Customer service is a key indicator of how well insight is applied to enhance customer interactions.
We believe CRM is key to our future and we won't be able to

deliver to our shareholders if we don't focus on it. This
[research] is interesting to me because it shows a big chunk of
value that we haven't seen yet."
Ian El-Mokadem, director of marketing and strategy,
British Gas Trading, Ltd.
Detailed Findings
Introduction
Customer relationship management is a misnomer. It implies that companies have significant control
over customersover what they buy, from whom, when and how. However, customers increasingly are in
chargeespecially in the emerging e-world. Customers have an enormous amount of information at
their pointing-and-clicking fingertips and they use it to make purchasing decisions. They have many
more options and they take advantage of those options to get the best products, services, prices and
performance. In the business-to-business arena, the e-explosion is expected to be more than 5 to 10
times the size of that in the consumer market.
Perhaps this power shift to customers is why CRM looms so large on the CEO agenda. An obscure
acronym less than a decade ago, CRM now ranks among the top issues preoccupying CEOs. While
cost reduction will remain critically important, senior executives realize the folly of ignoring mounting
customer expectations and the necessity to find new sources of real, top-line growth.
Believing that CEOs would not pay so much attention to CRM unless it had significant potential to attract
and retain customers and, in the process, fuel company growth, Accenture launched a study of CRM
practices, surveying nearly 500 executives in more than 250 companies across six industries. We wanted
to see who is profiting from CRM, how much value they are creating and how. Answering these questions
required breaking new ground: We quantified the value of CRMnot the costs, which many executives
know, but the financial payback, which very few know. The goal was to help companies simplify the
process of deciding how much to invest in which CRM capabilitiesa process greatly in need of
simplification given the scope and complexity of CRM (see sidebar on page 10, About the Research).
The study underscores the power of CRM in creating value. Within each industry studied, differences in
CRM skills explained between 28 and 64 percent of the variation in business unit return on sales (ROS).
In addition, our research found 21 capabilities that, regardless of industry, each could add more than
$1 million per year to pre-tax profit, given appropriate performance improvements. For 70 percent of
those capabilities, the benefit exceeds $5 million per year (see Figure 1, opposite page).
Figure 1: Top Capabilities

There are 21 capabilities that can have a significant impact on return on sales when a company improves them. For example, if a
$1 billion company improves its CRM performance from average to high in either customer service or motivating and rewarding
people, its return on sales could improve by as much as $13 million.
Impact of Moving from Average to High Performance ($M for a $1B company)
Motivating and Rewarding People
Customer Service
Turning Customer Information into Insight
Attracting and Retaining People
Building Selling and Service Skills
Strong Value Propositions
Partner and Alliance Management
eCRM
Sales Planning
Key Account Management
Advertising
Customer Retention and Acquisition
Managing Product and Service Mix
Promotion
Ability to Change the Organization
Measuring Profitability
New Products and Services
Channel Management
Segmentation
Building Service Culture
Brand Management
13
13
12
10
9.5
9
9
8
7.5
6
5.5
5.5
5
5
5
4.5
3.5
3
2.5
2
1.5
Some executives will read this list and smile knowingly, as many of the capabilities look all too familiar.
Hiring and retaining the right people. Customer service. Key account management. Segmentation.
Advertising. Arent these, and other capabilities on the list, basics done by every customer-attentive
company? Maybe, but probably not.
Figure 2: Skill Improvements Yield Large Returns

While the terms are familiar, the
capabilities they describe are growing
more complex, and are largely interrelated. Creating the most value and
impact to financial performance
depends on how many capabilities a
company executes, and how well
they execute them.
Improving performance can have a
significant financial impact: A 10 percent
improvement across all CRM capabilities
can improve returns by approximately
$40 to $50 million per year for a typical
$1 billion company. Greater returns up
to $120 to $150 million are likely for
more aggressive efforts (a 30 percent
improvement), and there is always room
to improveeven for high performers.
By improving all 21 CRM capabilities, companies can yield

significant pre-tax profit.
($M for a $1B company)
$120-$150
$40-$50
10% improvement
(moderate
improvement,
for any level
of performance)
30% improvement
(move from
average to high
performance)
About the Research

The study described in this publication was the first to quantify the value and impact of CRM capabilities on financial
performance and further isolate specific capabilities that generate the highest return. It began with an extensive survey of
close to 500 executives, representing over 250 companies across 6 industries (chemicals, communications, forest products,
electronics and high tech, retail and pharmaceuticals).
The survey included separate sections on marketing, sales and service. Executives completed those sections most relevant to
their area of responsibility; those who had responsibility for multiple areas completed several sections. The 430 questions in
the survey covered a range of strategy, process, technology and human performance issues, and were designed to score how
well the responding business unit performs on various CRM capabilities.
The survey questions were correlated to the business units self-reported return on sales. To
translate industry-specific results into cross-industry findings, the research team:
Scored respondents, industry by industry, on each capability using a weighted average of the
individual capability scores. Results were analyzed to identify how much return on sales variation
across survey respondents was attributable to the CRM capability scores of business units.
Grouped the significant capabilities from each industry into 21 cross-industry capabilities
based on the average impact of that capability across industries.
Calculated how improving the execution of specific CRM capabilities would affect return on sales. Interviews with
executives in the six focal industries, as well as outside the industries studied (including financial services, automotive,
utilities, and dot-com) validated the survey data, explored how CRM capabilities are developed and used, and probed the
impact of CRM capabilities on business performance.
The team then provided a framework for the financial improvement a typical $1 billion business unit could reap by making
either a modest improvement (10 percent) in its CRM capabilities or a more significant improvement (30 percent), such as
moving from average to high performance.
10
To help companies make the decisions required to invest their CRM dollars wisely, Accenture mapped the
21 most profit-adding capabilities identified in the research to our framework for the Customer-Driven
Enterprise. Made up of 5 key areas, this model shows the relative impact of specific capabilities and
capability areas on pre-tax profit (see Figure 3). For example, if a $1 billion business unit moves from
average to high performance in Customer Interaction capabilities, they could impact pre-tax profit by
up to $40 million per year.
Figure 3: Building a Customer-Driven Enterprise

Improving capabilities from average to high in each area can improve return on sales for a $1 billion company by the amount indicated.
$ millions
Customer Insight
rforming Organiza
tion
h Pe
g
i
H

Customer Retention and Acquisition
Segmentation
Customer Offers
Brand Management
Custom
er
I
Cu
Cu
st
ffers
er O
om
ht
sig
Customer
Equity
sto
Ent
m e r I e r a c ti o n
nt
e r p ris e
I n t e g r a ti
25
12.0
5.5
4.5
2.5
19
9.0
5.0
3.5
1.5
Customer Interactions
40
Customer Service
Sales Planning
Advertising
Promotion
Channel Management
13.0
7.5
6.0
5.5
5.0
3.0
High Performing Organization
40

13.0
10.0
9.5
5.0
2.0
on
Enterprise Integration
eCRM
17
9.0
8.0
11
Deepening Customer Insight

Customer Insight is an ongoing process that applies a fact-based understanding of customer
needs, expectations and value potential to tailor customer offers and interactions.
In the CRM Capabilities Research Study, executives were asked questions relating to customer
segmentation; measuring profitability; the costs of customer acquisition and retention; how
technology is used to gather information about customers, including data mining and data
warehousing; how companies analyze customer behavior; and how information is shared across
different parts of the company, including the development of processes to do so.
Many companies collect vast amounts of information about customersfunction by function. The sales
department knows customers buying history, characterized in terms of volume, pricing and purchases.
Distribution knows their delivery needs and fulfillment history. The marketing and service organizations
know their product needs and past service issues.
However, this fragmented pile of information cannot build real customer insight. Weve gathered a
tremendous amount of information on our customers. Our challenge is to capture all relevant information
into a central source or data warehouse, and have the skill to mine the information in such a way as to
provide additional value to our customers and our business, said J. Kevin Fletcher, vice president of retail
sales and service for Georgia Power Company.
Insight springs from the answers to several key questions:
Who are our customers, what are their needs and how do we meet those needs?
What is customer purchasing behaviorwhat, how much, when?
What is the cost of meeting customer requirements?
Therefore, just gathering customer information within the company functions will provide a limited
view of the customer relationship potential. At best, it is a point in time understanding of that
customer. New technologies today allow the creation of a total view of the customer which combines
data about the customer from external sources and delivers it on a continuous real-time basis. This
customer insight, which helps identify patterns of customer behavior, is needed to develop attractive
12
products and services and woo the customer to purchase them, again and again. Deep customer insight
can inform a host of marketing, selling, and service decisions that, in turn, shape resource commitments
and day-to-day operations in the marketing, sales and service organizations.
Recognizing the competitive advantage represented by customer insight, the most profitable companies
studied, across industries, are already using technology to gather the right information about customers
and turn it into true customer insight (see Figure 4).
Figure 4: Customer Insight Capabilities

Impact of Performance Improvement ($M for a $1B company)
25.0
Customer Insight
8.5
12.0
4.0
5.5
Customer Acquisition and Retention
2.0
4.5
1.5
2.5
Segmentation
1.0
30% improvement (move from average to high performance):
10% improvement (moderate improvement, for any level of performance):
The research showed that the secret of success lies in technologyits ever increasing power to collect
data, analyze it to synthesize insights and then share those insights with everyone in the organization
whose work touches customers.
Transforming Customer Information into Insight

A key challenge is collecting, accessing and integrating customer data, no matter where and how it is
collected and where it is stored, then making this information useful to the organization. We can use
tools to slice and dice the data, yet until we take this information down to the branches and make it
actionableturning insight into actionable datawere not getting very far, said Tal Bratton, senior
vice president of product and business development at American General Finance.
While a few visionary companies have been building customer data warehouses for almost two decades,
only recently have these warehouses become prominent features of the data landscape. Early adopters
included many credit card companies that had very large customer databases and required vast amounts
of billing and service data, and direct marketing companies that needed data to identify their customers
and ways to reach them.
Today the declining costs of collecting, storing, manipulating and distributing customer data are
encouraging companies of all types to follow their lead. Some are compiling any number of data
records for a single customer to understand product history, likelihood of the customer buying multiple
products and most promising promotional opportunities.
13
Despite declining costs, effective use of data is neither common nor easy. Linking the data back
to customer touch points is whats really difficult, commented one automotive executive. As one
communications executive admitted: We have remarkable information on our customers that our
customer service folks are clueless about.
Whats wrong with this picture?
The available information may not be the right information, unless the companys knowledge
management is state-of-the-art.
The company may not have the capabilities to act on the information they generate; that is, they
cannot use the information so it is meaningful for the customer and adds value to the company.
Information management processes may be inadequatedata not kept long enough or inconsistent
data-mining tools used across the organization.
Information sharing can rapidly turn into information overloadtoo much data, not enough
information.
People may not be up to the taskthey may have deficient analytical skills or show-stopping
skepticism about data integrity.
Many companies do overcome these obstacles. They give front-line employees quick, easy access to
critical datapurchases, contact history and product inquiries, as well as demographic and lifestyle data.
For example, Mercedes-Benz has built a sophisticated database of 10 million customers across Europe
to support dealer activities, customer assistance, marketing analysis and pre-launch targeting. Telenor
Mobile, Norways leading telecom, IT and media company, has armed every member of its sales
organization with all the information needed to manage a customers complete sales life cycle.
Some of the top performing companies in the study even share information with channel partners
outside the organization. This practice has become a primary way to differentiate companies within
the communications industry, to the benefit of market leaders like U.S. Cellular. The common basis of
understanding helps everyone work together to better serve the needs of individual customers.
14
Measuring Customer Acquisition and Retention

The ease of accumulating, accessing and analyzing data invites companies to ask themselves, how are
we doing? But by what means do companies measure success? One large telecommunications
company celebrated its success at unloading unprofitable retail customers based on six months of
data. Unfortunately, this company realized too late that it had misjudged long-term changes in usage.
They discovered that, at another point in time, these same customers could have been the companys
geese laying golden eggs.
Best practice companies look at the lifetime value of individual customers and the potential value of
under-spending segments. Accordingly, such companies take a multidimensional view of success.
They look not only at customer attraction, but also at retention and defection. While most companies
devote significant budget to tracking acquisitions, few measure retention or defection.
Ironically, the research finds that some companies squander precious time and resources assessing how
they are doing. These companies repeatedly invent administrative measures and checks, but never act
on the results. The moral of the story: Measure judiciously and act quickly on the results.
The research revealed that one of the hallmarks of highly skilled CRM leaders is that they have an
excellent grasp of just where and how they make money. CRM leaders have rich, reliable and easy access
to profitability by product, customer, geography and channel, enabled by modern information systems.
They can more easily get a detailed handle on revenue and costs at even the transaction level.
Moreover, CRM leaders also use their technology to integrate information on purchase patterns, product
usage, customer needs and other data. Armed with this integrated view, leaders make better-informed
decisions to balance customer preference and profit.
Laggards are those whose often outdated systems produce limited data that few trust, and only after
great manual intervention or massaging of the data. Because they are so difficult and time consuming,
such efforts tend to be episodic at best. Thus, the organization doesnt develop the skills of adequate
analysis or informed decision making that their more strongly equipped peers are honing.
Simply put, the availability or lack thereof, drives the use of profitability data. The study explored
the use of many types of data, but profitability data was the only type that consistently showed up as
having strong value in all of the industries studied. In fact, moving from average to high performance
in measuring profitability is worth $4 to $5 million in added returns for a $1 billion business unit.
Seems obvious? Perhaps. But most executives understand the difficulty of getting
from where they are to anywhere close to top performance. Often, new systems
require significant investment, not just to plug in, but to get an organization
up to speed and to change all the processes that depend on the systems. Now,
however, the added benefit can at least be quantified when these systems are part
of an integrated CRM skill-building agenda, and can provide added impetus to
the debate over whether to invest.
15
Seeing the Forest for the Trees: Customer Segmentation

The research showed that understanding customer segments, as well as individual customers, is
important. Leading companies across industries not only understand segment profitability and the
economics of acquiring, retaining and losing attractive segmentsthey have perfected this art. Further,
they make disciplined decisions on which customers to serve more, less, or not at all, and how to
personalize service effectively, yet cost efficiently.
British Gas Trading has invested significantly in customer segmentation. Ian El-Mokadem, director of
marketing and strategy explained that the company has already been able to target receptive customers
by looking at customer information and relationships.
A pharmaceutical executive noted, Underlying everything is the ability to undertake good customer
segmentation. The pharmaceutical and medical products selling model is very expensive, relying heavily
on one-to-one selling. This means that you have to be very picky in who you target with the most
frequency of contact.
Many companies collect the data needed to support segmentation, but fail to analyze or act on it.
Those that do so, however, will be positioned to deliver the kind of personalized targeted service that
keeps customers satisfied and loyal, which in turn helps build profitability. What separates average
companies from the highest performers is not the segmentation itself, but the actions that are taken as
a result. High performers use segmentation to make deliberate choices about which customers they will
and will not serve, and the level of service they will offer each group. Those choices often are based on
a careful assessment of customer acquisition and retention costs.
Having well-defined customer segments also helps companies identify more desirable prospective
customers. By identifying the attributes of best customers, companies can proactively seek these
attributes in prospects.
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Customer Offers: Giving Customers What They Want

The Customer Offers capability area is all about providing the most appealing products and
services to customers. Leading companies draw on customer insight to shape and refine offers
and, thus, enhance the customers interactions with the company.
In the CRM Capabilities Research Study, executives were asked questions relating to developing new
products and services, managing product/service mix, value propositions and brand management.
Companies that do not apply customer insight to the design of products and services have missed the
boat. From the customers perspective, products and services are at the core of the customer interaction.
Therefore, smart companies take a disciplined approach to developing products and services, predicated
on two fundamental beliefs:
A customer makes purchasing decisions based on perceptions of valueand often the degree to
which the fundamental product and service is tailored to the needs of the individual customer, which
creates the foundation of loyalty.
A customers total experience with the company, not with a single product or service, ultimately
determines loyalty. Thus, everything that touches the customer must work together to produce
customer value.
These beliefs lead more profitable companies to focus on four key capabilities (see Figure 5
on page 18).
17
Figure 5: Customer Offers Capabilities

19.0
Customer Offers
6.5
9.0
3.0
5.0
2.0
3.5
1.0
Brand Management
1.5
0.5
Together, these practices generate significant value for a typical $1 billion business unitover
$6 million by enhancing capabilities a modest 10 percent. By moving from average to high
performance, a business unit can add as much as $19 million to pre-tax profit.
Creating Compelling Value Propositions

Value proposition has become one of the most popular phrases in the business lexicon. For many
companies, a value proposition is nothing more than the slogan that flashes across its Web site or
the tagline that adorns every TV and print ad.
But a real value proposition is much more than a clever phrase. Best practice companies realize that
a value proposition is a promiseone the company makes to customers about which benefits it will
deliver for a given price. These companies further realize that the real power of a value proposition lies
in using it to guide the short- and long-term actions of employees as they go about serving customers.
Unleashing that power requires:
At the strategic level, clarifying the promised benefits and the customers experience to inform
decisions regarding quality, product lines, distribution, pricing and the like.
At the tactical level, giving front-line employees the understanding of the companys promise, which
equips them to respond consistently and to make decisions quickly. Technology increasingly puts key
customer information at employees fingertips, but the value proposition guides its interpretation.
A strong value proposition is an informed value proposition. It rests on:
Clear facts about how to balance customer needs with profit needs.
Deliberate choices of how to compete, where to excel and where to match competitors.
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An exclusive focus on customer needs usually is a formula

for making no money. You cant optimize everything for
customer satisfaction; there would be unaffordable 300,000
mile warranties, remarked James C. Schroer, vice president
of global marketing for Ford Motor Company. Securing
customers profitably is the winning formula, and everyone
in the company must understand that value proposition.
Sales and marketing typically do, but if operations,
service and tech support are not equally informed, they are
unlikely to deliver as expected. If you cant differentiate
on product attributes, then you are forced to focus on
service and execution, explained one chemicals executive.
Execution is the key word hereas recognized by the forest
products company that convened a large cross-functional
team to develop its value propositions and trained more
than 1,000 managers in their intricacies.
A winning value proposition need not beat the competition
on every count. In fact, parity claims can be as important as
superiority claims, even for a segment of one, which is typically the key account. For a given customer,
parity performance on a wide range of basic needs is the price of admission (literally in industries like
chemicals and high tech, where companies must pre-qualify to compete for business).
Failure to be at least at parity can be dangerous. It complicates customer trade-offs. A company may
deliver superior service, but if quality is less consistent than that of competitors, many customers
may see no reason to buy and the business likely will not be as large or as profitable. High performers
understand and apply the discipline of setting explicit goals for parity and superior performance.
This discipline pays off in financial and market performance. Poor performers across industries tend to
operate with a cynical, commodity mindsetcertain that differentiation is impossible, that competitors
enjoy insurmountable advantages (like low-cost operations or a global supply network), that basic fixes
cannot work or that the magic bullet awaits discovery somewhere else.
High performing companies look at the world through a different lens. Their execution of very basic
marketing, sales and service activities is meticulous. Even in cutthroat industries battered by oversupply,
they discount a little less steeply and a little less frequently. Their margins show the impact.
Managing Product/Service Mix

High performers maximize margins by continuously managing their product/service mix. Low performers
typically have not done detailed cost to serve analysis nor integrated it into actions that enrich mix.
Information technology provides powerful supportmaking it easy to track and measure profitability
at the product/service level, customer level and even transaction level. Such easy access to data looms
especially large in mix management, which requires hundreds of small decisionsfor example, aiding
the up-selling or cross-selling initiative of a customer service agent. Individually it may not add much
per transaction, but in aggregate, marginally profitable customers can become more attractive.
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Developing the Right Products and Services

Here is one myth that seemingly will not die: Excellent new products
and services require exceptional creativity, daring and huge investments.
The research says otherwise. It identifies the following capabilities as the
most important:
Taking new product and service concepts to market quickly.
Rigorously selecting new product ideas for development and
commercialization.
Winning strong channel acceptance of new products.
Of these, speed-to-market has the greatest impact on value. However, speed-to-market is not the same as
being first. Why? Conventional wisdom would cite the strategic value of being the first to grab customer
attention and loyalty. But while being first does have value, experience illustrates there is something
more. Dell Computer Corporation, far from the first to market, now leads PC sales in the United States.
Lexus dominates luxury cars, but they were not first.
The answer is more prosaic. Speed in introducing products and services often lowers costs and accelerates
cash flow, as long as enough customers value the new idea for it to quickly generate significant
demand and margins greater than the cost of capital required to develop and commercialize the actual
product or service.
A key success factor here is a disciplined approach to selecting the most promising ideas and prioritizing
development and commercialization efforts. Many companies are loath to kill development efforts, and
they pay a steep price for that reluctance. Failure to kill bad ideas soon enough is often the singlelargest cost reduction opportunity.
Of course, greater rigor in selecting ideas can help avoid the problem. Most companies consult their
sales, marketing and research and development people, as well as customers, in search of ideas. The
strongest idea generators do more. They consult their market research, customer service and technical
support staff, as well as channel partners. They evaluate ideas against criteria supported by fact-based
analysis of several kinds:
Testing new ideas with current or potential new customers and comparing these results with results
from tests of other ideas.
Measuring economic value to the end-user by weighing how the new idea affects their economics.
Understanding the trade-offs between end-user value and end-user costs.
As these analyses suggest, strong performers collect much more specific facts about the impact of new
ideas than do weak or average performers. Lesser performers typically theorize about benefits and invite
customer response to lists of benefits expressed in purely qualitative terms.
Once developed, new products need channel support to ensure their distribution. High performers work
hard to secure that support.
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The impact we could get from our CRM initiatives

could be in the 50 percent rangerevenue,
market share and cost-effective spending.
James C. Schroer, vice president
of global marketing for
Ford Motor Company
Building Strong Brands

Strong brands spring from strong value propositions. Brand, after all, reflects a customers total experience
with the companyand this depends greatly on a well-conceived and well-delivered value proposition.
Interestingly, brand is almost as widely misunderstood as value proposition. Many companies confuse
brand with its communicationfor example, having a consistent look and feel. One paper company
struggling to make its brands more visible to consumers and small businesses in the burgeoning office
supply market, brags about the consistent bright color of all their packaging.
These companies are ignoring a key finding of the research: Communicating brand messages is not a
one-size-fits-all media proposition. Winning communicators tailor messages to various media, specific
customers, particular occasions and highlighted benefits.
As Georgia Powers Fletcher explained, Our brand is extremely important to us. Every customer touch is
an opportunity for us to add-to or take-away from our brand image. What people think and feel about
Georgia Power is important to us. Another executive noted, Our brand is critical. It allows us to
charge a price premium of up to 10 percent.
Strong brands, both consumer and business-to-business, almost always exhibit three characteristics:
They outshine the competition on at least one benefit that matters to customers.
Their execution is more consistent than that of their competitors.
They communicate their distinctive value to customers.
In the eWorld, brand takes on even greater significance. One dot-com executive explained, Building
the brand is critical to building trust with customers in an online environment. Dealing with a
company online is like dealing with a black hole. Who are you really talking to? When our customers
call our service number, it is the one way to talk to someone. We want to make sure our people know
exactly who the customer is, so they can tailor service to them and meet the promise of our brand.
The single bright color packaging scheme used by the company mentioned before can provide a benefit
to customers who want that brand or who want to match products within that brand. The odds are
however, that the customer will not buy again if the paper jams.
21
eCRM Moves at Speed Up the

Profit Ladder
The rapid growth of eCommerce has accelerated the
importance of technology as a key to success in
managing customer relationships. Our research highlights
that, despite its infancy, eCRMwhat we describe as
using electronic channels to market, sell and serve customers, both directly and
with channel partnersis in the top third of the most profit-adding capabilities
identified in the research. eCRM came out ahead of more traditional drivers of
value such as segmentation and channel management.
However, eCRM is not adding the same value in all industries today. Our research shows the early adopters far ahead of the
pack in creating the most value from eCRM. Communications and high tech companies appear to be the leaders, with forest
products last. For example, of the 25 eCRM skills that we found to be positively correlated with profit, 15 of them have a
measurable impact in the communications industry. In slower adopting industries, only a few capabilities shine through.
What is adding the most value today consistently across industries is the ability to transact business over the Internet:
The ability to share product and other information with customers and channel partners via the Internet is a foundation
eCRM skill that has a high correlation with profit.
The basic ability to take an order also adds to profit.
In the early adopting industries, leveraging advanced eCRM technologies that make information-intense and complex
purchase decisions easier, faster and more tailored to customer needs has strong payback.
High tech is also realizing the first real payoff on eCRM selling tools, like configurators, which provide inexpensive, tailored
selling expertise to help customers configure products online and dramatically reduce return rates and invalid sales orders.
The ability to finalize transactions through electronic bill payment contributes to additional value.
22
One major caveat: While completing transactions over the Internet is highly correlated with richer
profit, more isnt necessarily better. In high tech and chemicals, for example, there is a negative
correlation with higher Internet sales and profitability. We believe this reflects two phenomena
we are observing in the market today. First, the current limitations of the type of products and
services that can be sold over the Internet. Second, the concerns about the extent to which the Internet might contribute
to the commodotization of the sale. As a result, companies have tended primarily to move less complex products and
commodities over the Internet. This does not mean that Internet transactions are less profitable, however. These products,
by definition, typically have a lower margin.
A chemical company illustrates this point. Having struggled with the issue of which products to sell over the Internet, it
has decided to offer only commodity products through auctions and price-focused e-tailers as a specific strategy to ensure
its other products are not commodotized via the Internet. Prices for long-term contracts with existing companies are
typically negotiated in person and fixed over a longer term, like a year.
One PC company has responded to these market conditions in part by focusing on improving the customer buying and
ownership experience, proving that basic marketing skills are even more critical in the eEconomy. They have found that
buyers over the Internet tend to buy more products when configuring their own PC online than they do when purchasing
in a bricks-and-mortar facility.
Overall, the message is clear: Early adopters are winning customers, sales and increasing profit by steadily building their
eCRM capabilities. Laggards are threatened not just by the direct competition of better e-nabled competitors, but by the
increasing profit margins these leaders will be able to leverage in the future. We believe the early adopters have a lead in
terms of building deeper relationships with their customers and profiting from this advantage. These e-interactions provide
them with an opportunity to get more insight about their customers needs, and set up stronger barriers against competition
and new entrants. We fully expect the overall measured impact of eCRM on profit to grow to the top of the list as one of
the most differentiating and value-adding CRM capabilities in the marketplace.
23
Shaping Customer Interactions

Leading companies seamlessly integrate
all Customer Interactions across multiple
channels to offer anytime, anywhere
access for customers.
In the CRM Capabilities Research Study, executives were asked questions regarding sales
planning, key account management, campaign management, advertising and promotion;
managing channels, channel profitability and channel conflict; and customer service.
Customer interaction capabilities are critical to delivering value to customers. The winning combination
includes all the fundamental capabilities that shape a customers experience with a companysales and
service, key account management and advertising and promoting a companys offerings (see Figure 6).
Figure 6: Customer Interactions Capabilities

40.0
Customer Interactions
14.0
13.0
Customer Service
4.5
7.5
Sales Planning
2.5
6.0
2.0
5.5
Advertising
2.0
5.0
Promotion
2.0
Channel Management
3.0
1.0
Many would expect that companies who can derive value from interaction capabilities would cite a
superior customer strategy as key to their success. Quite the contrary is true. The greatest impact lies in excellent
execution of the basic capabilities. Why dont more companies recognize this game-winning formula?
24
Enhancing Customer Service

For John Kline, group vice president, Polystyrene and Plastic Foam, of BASF, the acid test is Can a
global customer call from anywhere in the world and get the same response?
While CRM without a sharp focus on the customer is unthinkable, that focus does not always result
in a significant role for customer service. Yet, perhaps it shouldthe study identified customer service
as one of the most impactful capabilities on return on sales. As companies appreciate this potential,
attention to excellent execution of this basic capability is likely to increase.
In the industries where customer service looms large, two practices are common:
Tailoring service to customer segments.
Notifying customers of potential problems.
Both can have a notable impact on the bottom line, ensuring the most effective allocation of
scarce dollars.
Not surprisingly, successful companies invest in and deliver higher levels of customer service to the
customer segments most likely to value, and pay for, those service levels. As one executive put it,
I dont care what 70 percent of the customers want. I only care what 5 percent will pay for. Thus,
computer manufacturers have dedicated Web sites for high-volume users. Chemicals and forest products
companies are following their lead. Airlines provide special phone numbers, check-in services and
responsiveness for their most frequent fliers.
One dot-com company is working towards its vision to have customer information and insight drive
every aspect of customer service. Our measurements will be different: The potential value created
for the customer, how the service call contributed to building the relationship, and the customers
contribution to company value, explained a company executive.
Taking a cue from preventive medicine, more profitable companies alert customers to potential problems
while those problems are comparatively small, contained and manageable. Providing computer customers
with a diskette to fix a potential problem in advance of it occurring can win big points. Notifying
communications customers that a line is down can short-circuit a dearth of frustrated callers into
the service center. Good customer service is also about not letting people get into trouble or calling
before it gets worse, noted American General Finances Bratton.
While managing the cost to serve, such practices pay the dividend of building customer trust, and
hence, loyalty. A case in point: A French bottled gas company has seen customer intent to renew
contracts double after the 6-month pilot of a program anticipating and addressing service delivery
problems (plus, net profit is projected to increase $30 million over 5 years).
Across industries, leading companies are realizing that effective customer service cannot be fully
automated. Thus, BOC Gases built a state-of-the-art customer service center to house its sales, service
and collections staff. Continental Airlines replaced many automated attendants with live operators.
Even telephone directory assistance has acknowledged the human factor, advertising operators who
can answer questions real-time.
In addition, many executives realize customer service provides a golden opportunity to strengthen
customer relationships and sell more products and services. In fact, many companies no longer view
their call centers as cost centers, rather profit centers. Consequently, measurements and incentives are
25
changing. Rather than measuring customer service representatives on how many calls are answered per
hour and deriving a cost component, companies are now asking them to stay on the phone as long as
possible to meet customers needs. Not only are we seeing happier customersweve actually had
phone calls from customers thanking us for good serviceit is having a positive impact on employee
morale, noted British Gas Tradings El-Mokadem. Georgia Powers Fletcher added, We must strike an
appropriate balance in incenting our customer service representatives to handle calls efficiently while
gathering additional useful information. They must then have the ability, with the technology tools in
hand, to evaluate the customers situation and offer the products/services to meet their needs.
While executives anticipate call center costs to increase, they believe this increase will be more than
offset by the value secured through increased customer satisfaction. As one dot-com executive illustrated,
If a valued customer wants to do a crossword puzzle with us on the phone and it will add to the
relationship, well do it!
The research also raises a cautionary flag about outsourcing customer service. The more customer
service activities that are outsourced, the poorer a companys financial performance. This does not
mean outsourcing shouldnt be considered, but it does suggest that too many companies look too
quickly to outsourcing as a way to fix a problem and lower costs. In contrast, the research suggests
that it is an opportunity to create stronger customer relationships and real value, whether in-house or
outsourced.
As one pharmaceutical executive summarized, Customer focus and customer service is part of the
company culture and is part of everything that we do. Wise words to live by.
Spotlighting Sales Planning

Companies from industries with large sales forces to managecommunications, high tech, and
pharmaceuticalsindicated in the study that they devote considerable attention to sales planning
issues and have imposed discipline on sales planning. However, the research revealed that many of
these companies actually focus on the execution of sales versus sales planning.
Those who have achieved high performance in planning offer the following insights:
Know your customers performance objectives. In the words of one AT&T executive, Know how the
customer makes money. Then use the sales plan to prioritize activities that can help the customer
create value. Very few executives in any industry know how their customers make money.
Use sales forecasting techniques to understand customer demand, set appropriate sales targets and
modify production requirements and operations accordingly.
Use a wide variety of inputs, everything from forecasting models to account profiles to detailed field
reports. Dont develop plans in a vacuum.
26
Many companies also lack the information needed to develop good sales plans. While they may gather
vast amounts of data, it is largely unintegrated. The result: They have a difficult time creating one
view of the customer to enable effective sales planning. One communications company has had major
success in this area. Part of their success is assigning each customer a single code number to facilitate
tracking all current and historical data. While difficult to do technically, this holistic view of the
customer positions the company to develop targeted sales plans firmly grounded in reality.
The research also revealed that manufacturing industries are still wrestling with an issue that impedes
effective sales planning: Producing to demand. Overproduction puts intense pressure on price and
on sales people to find homes for all the product produced. The problem is seldom apparent until
the inventory piles up in the plant or at the distribution center, and by then its too late. The most
innovative manufacturers are now exploring how the Internet can improve information flow to reduce
inventory system-wide.
Managing Key Accounts

For many companies, key account management amounts to an administrative black holewriting plans
and recording calls in reports that no one reads and documenting account needs that no one translates
into action. It is not surprising so many companies dismiss key account management as a non-value
adding effort.
Best practice companies know better. They realize that their ability to deliver superior value to their
largest customers requires delivering value on each customers termsperhaps in certain geographies or
with a certain degree of consistency. As James McFadden, director of strategic accounts at Air Products
and Chemicals, put it: We follow the 80-20 rule, and focus extra effort on the few customers that
account for most of our business. Also, we dont treat all accounts the same. You cant afford to.
Such customization requires detailed knowledge of key customers needs and relentless attention to
performance against objectives. A lot of discipline is required to stay the course. Best performers often
assemble cross-functional teams to manage key accounts. While time- and resource-intensive, this
approach ensures the requisite thoroughness.
At one high tech company, large account management emphasizes executive-to-executive access, so
executives can understand how their large accounts are leveraging products to reach business goals.
This strategic insight can then be fed into the new product development arena, which allows the
company to develop products that support customer applications still on the drawing board.
Some companies favor sophisticated practices, yet some have found that simple works best. Both a
global specialty chemicals company and a large commodity chemicals company are using advanced
market research techniques to understand how to make tradeoffs between profit and key customer
needs. Others prefer to keep it simple, like the company that shares its key account plans with
customers and asks, Are we working on what you want us to?
Advertising
While the complexity and artistry of advertising defy simple analysis, the most profitable companies in
the study are forcing their advertising dollars to earn a return. They are setting advertising objectives
tied both to communicating their value proposition and to achieving business results.
Leaders use market research to set advertising objectives and tailor messages to specific customer
segments. They also ensure that their messages are consistent through all communication channels
(that is, news media, collateral, Web, events, trade shows and face-to-face meetings with customers),
and that their messages reinforce one another to build long-term brand equity. Advertising is critical
in the dot-com world, where the race to awareness and permission to serve customers is essential.
27
High performers are taking advantage of recent advances in data availability and data analysis to
understand what benefits customers really want and then use that information to determine how to
allocate the advertising budget, measure success and reallocate dollars, when indicated.
One pharmaceutical executive noted, The key is knowing the effectiveness of the advertising channels
available. Which are the most impactful channels for the product?
Promotion
Even in commodity industries, like chemicals and forest products, companies are spending more and
more money on promotionsNASCAR sponsorships, trade shows and hot-ticket entertainment. But
promotion management goes largely ignored. Few companies invest much time or effort in developing
a promotional strategy that targets segments or channels. Exceptions are retailers tailoring promotions
to catalogue, store and Web shoppers and high tech companies bundling software, peripherals and
services by channel.
Companies that realize the potential value of effective promotions invest in market research before setting
promotion objectives. For one leading software developer, that means holding many focus groups to
explore the appeal of alternative promotions to target segments. For a best practice catalogue retailer, that
means focusing catalogue content on ever narrower and more precise definitions of customer segments.
These companies also measure and understand the effectiveness of every promotion they conduct. This
is not easy given the time that elapses between setting and executing promotional strategy; the lack of
detailed, timely and accurate information on performance and cost; and the difficulty of the analysis
required.
Entering New Channels

Partnerships and eCRM provide new channel opportunities for companies. However, in addition to
the challenges inherent in developing and managing these new channels, they can also pose other
challenges. New channels can position products and services to compete with each other, even
cannibalizing sales or margins elsewhere in the business. While sometimes an effective offensive
business strategy, this tactic is not always desirable. New channels can also create disintermediation
plays in an industry infrastructure. A clear example of this is the opening of previously closed
utilities markets.
28
In the forest products, steel and chemicals industries, technology is giving

rise to Web-based electronic intermediaries and aggregators that insert
themselves between producers and customers. But the effects are not
limited to commodities. One executive describes a potential scenario in
the pharmaceutical industry:
Imagine the impact on our business when every physician has a computer
terminal in his or her office linked to very powerful prescription intermediaries.
When a patient is treated, the physician enters the prescription online.
The intermediary, in real time, informs the physician on the Rx guidelines
of the patients health plan and recommends alternative options that could
save the patient money. In this scene, how we influence the prescription
writing process and how we deal with this new intermediary will be very
challenging. In addition, the intermediary now has vast amounts of real time
data that it can leveragethis will provide both opportunities and threats to
pharmaceutical companies.
The research found three key capabilities in companies that are effective in building new channels.
They:
Use a variety of channels.
Manage profit in each channel.
Understand the value proposition of each channel for each customer group.
Effectively managing the profitability of each channel hinges on a clear understanding of the respective
value proposition and likely customers. What channel attributes does each customer segment prefer?
Which channels are best able to meet those needs? The answers to these questions create a basis for
tailoring product offerings to different channels, thereby accommodating customer preferences and
reducing the potential for channel conflict.
Taming the conflicts inherent in using multiple channels requires an approach to managing the
profitability of each channel, including the profit margins of partners. Pricing represents a huge source
of potential channel conflict that is very difficult to control unless a company is willing and able to
manage partners profit margins.
Turning to multiple channels can expand the potential customer set, but can easily disrupt the success
of current channels. Each new channel needs careful management to maintain competitive balance.
Best companies understand how their channel partners make money and strive to help them make more.
29
The Internet makes it feasible

to reshape the whole customer
interaction."
James C. Schroer, vice president
of global marketing for
Ford Motor Company
The Impact of Technology

The media hype around the new economy is relentless. Even Alan Greenspan, chairman of the Federal Reserve Board for the
United States of America, admits theres something to the concepta concept that would be unthinkable without technology.
But does technology really strengthen the bottom line performance of CRM? Yes, significantly.
Across the industries and capabilities studied, technology influences some 40 percent of CRM impact. In other words,
technology may accelerate the impact of CRM as much as two-thirds. This impact appears pervasiveranging from 25 percent
of the benefit gained by improving people and culture to over 50 percent of the value derived from strengthening customer
insight. You cant do this without technology, commented American General Finances Bratton.
Technology-related skills rank among or near the top value-adding skills in every industry studied. Witness: The skill with
the greatest potential to add value in any industry was technology-enabled customer contact in the chemicals industry.
At least one of the highest potential skills in each of the other industries likewise depends heavily on powerful systems and
high-quality data:
Pricing and billing-related skills in communications.
Proactively identifying customer problems and communicating resolution options in electronics and high tech.
Measuring and analyzing customer acquisition, retention and switching
costs in pharmaceuticals.
Managing the details of product and customer profitability in retail.
Influencing industry price levels in forest products.
The impact is that a billion-dollar company could add $20 to $60 million
in profit by investing wisely in CRM technology.
30
People Make All the Difference

Leading organizations attract and retain the right people, providing them with roles that
are aligned to customer needs, and empowering them to do what it takes with quick
decision-making and risk taking, to create value for the customer.
In the CRM Capabilities Research Study, executives were asked questions relating to attracting
and retaining people; motivating and rewarding people, including recognition, rewards and
compensation; building skills, training, mentoring and coaching; implementing organizational
change, sponsoring change, performance measurements, company culture and values.
To succeed in a highly competitive world, we must, of course, have distinctive assets, the best
technology, the right organization and good relationships. But it is people who make the difference,
noted one executive (see Figure 7).
Figure 7: High Performing Organization

42.0
High Performing Organization
14.0
13.0
4.5
10.0
3.5
9.5
3.0
5.0
2.0
2.0
1.0
31
Three human performance capabilities emerge as the top contributors to financial performance:
Motivating and rewarding people, attracting and retaining people, and building selling and service
skills (see Figure 8). Not surprisingly, the success of using customer insight to develop offerings and
enhance direct customer interactions with sales and service organizations hangs completely on having
the right peoplepeople who can build rock-solid customer relationships and can adapt to rapidly
changing conditions.
Figure 8: Three out of the Top 5 CRM Capabilities Across Industries Relate to People
Top Five CRM Capabilities
Impact of Moving from Average to High Performance ($M for a $1B company)
13.0
Customer Service
13.0
12.0

10.0
9.5
Historically, organizations were built around distinct functions and tasks. Objectives were easy to define
and success relatively easy to measure. Each department was measured on meeting department goals
often success in one area might actually adversely affect another departments goals.
Today, the objectives and the organizational model have changed. Teams and reduced hierarchy are
the rule. Success depends less on many individuals completing their own specific goals, than on many
individuals contributing to the completion of a single objective. Increasingly, people are charged with
capturing the greatest amount of a customers lifetime value. This requires insight into and teamwork
with many parts of ones own company and the customer organization. Everyone serving the customer
must pull together, which places high demands on individuals and on the organization.
Companies that rise to the challenge model their business around understanding and meeting customer
needs. They give people the motivation, skills and cultural construct for making the quick decisions and
taking risks that meet organizational and customer needs.
Such a culture empowers individuals and produces customer service success stories. As Jeff Bezos, CEO
of Amazon.com put it, The most important thing we have that is hard to duplicate is our culture of
customer obsession. It pervades customer service, logistics, software and marketing. Companies cultures
are impossible to copy. Theyre like little starter pieces of sourdough. Either youve got them or you
dont. Once a company has a culture, its like quick drying cement. You cant just send someone to a
customer focus class for six weeks and expect results.
32
Offering Appropriate Incentives and Rewards

In the world of CRM, recognition and rewards must do three critical things: Encourage and reward a
job well done, reflect performance and promote information sharing.
How much money is needed to get and keep the right people? To answer this question, every
organization needs a clear understanding of how its compensation measures up to the industry
benchmark. What elements are above average? Below average? What impact might they have on
attracting and retaining the most desired employees?
Even the best-run companies find compensation a highly charged and expensive issue, with sales
compensation one of the most important and common issues across industries. The evidence is
inescapable: Above-average sales and marketing compensation is highly correlated with higher profit
in every industry. Translation: Paying more for the best talent pays off.
Many companies seeking superior talent are taking an even broader viewlooking at compensation
beyond the boundaries of their own industry. Communications executives, for example, express concern
that the generous options typical in high tech firms may raise the expectations of sales personnel elsewhere.
The compensation system should reflect an individuals contribution and should reward both individual
and organizational success. Performance above objectives deserves recognition. For example, Charles
Schwab pays teams salaries plus bonuses, not commissions; bonuses are based on customers service
experience and overall asset growth.
Not all rewards are monetary. Just as important are the respect and management access that the top
performing sales people get, according to Air Products and Chemicals James McFadden. Sprint PCS
rewards strong sales performance with rotating assignments to special projects. Intel augments its stock
options, profit sharing, and performance bonuses with a host of achievement awards and eight-week
paid sabbaticals for employees who spend seven years with the company.
Rewarding information sharing is just as important. Otherwise, the company will never get a consistent,
robust view of customers. Information hoarding by marketing, sales or customer service translates to the
rest of an organization as an inability to serve the customer as effectively as possible.

Everyone knows that attracting and retaining the best talent is key, yet what are the secrets to doing
so? Why do some companies excel where others fail? One high tech company believes, attracting and
retaining employees is an art, and you have to do it one person at a time.
In Fortune magazines 1998, 1999 and 2000 listings of The 100 Best Companies to Work For,
Southwest Airlines ranked in the top four, an admirable achievement that translates into easier
employee recruitment and very low turnoverand great performance in customer relationship management.
Best practice companies attract and retain people that would be a good fit by targeting specific traits,
often including passion for the product or service. To Southwest Airlines Herb Kelleher that means,
We would rather have somebody with less education and experience but with a great attitude.
Although leading companies recruit continuously, they appear to resist pressure to fill positions with
candidates who are less than the best. Sprint PCS spent 12 months finding the right sales manager to
launch its Chicago office, for example.
Successful companies also focus on keeping their people longer. It makes sense. Having the same
employees work with a customer or group of customers gives them an opportunity to develop deep
insights and cultivate long-term relationships, which tend to bring more value for both parties. But
longevity must not be allowed to translate into stagnation. Those same companies who are successful
in retaining long-term employees must also work at adding new skills and upgrading capabilities for
those same employees.
High performing companies view lost customer knowledge and revenue as the real issue with turnover,
not replacement costs. Successful companies focus on building organizations and rewards to keep
people longer. Among other things, these companies make every effort to ensure steady career
progression over the long-term, not a fast start followed by a mid-career snooze.
These companies also take pains to move feedback upas well as downthe organization. Cascading
information in both directions communicates that every person in the organization is a key member of
the team. At the same time, two-way feedback makes managers more responsive to the needs of the
broader organization, not just the people above them.
Of course, it goes without saying that these basic people management tenets will serve to make employees happier, and in turn, will translate into more business success. As American General Finances Bratton
said, Attracting and retaining people is absolutely key to us. Its one of our four key corporate values. If
we get the people thing right, our customers are happy. One of the studys major findings was just how
crucial this is in the sales function. In fact, while this finding is consistent across the industries studied, it
is most critical in high tech and communications, where turnover is generally higher.
34

Two practices characterize the most profitable organizations:
Training. Profit winners train people on a broad set of skillsnot only basics like using the PC,
writing a persuasive letter or delivering a compelling presentation, but also less obvious skills like
listening empathetically, handling tough questions and complaints or negotiating successfully.
Selling-specific PC skills are part of the curriculumentering and accessing customer information
and applying complex sets of solutions to problems. Winners invest heavily in all these training
programs. Just as important, high performers conduct training in more effective ways. Rather than
traditional classroom settings, they tend to favor action learning techniques, which immerse learners
in simulations of customer situations and give them the opportunity to apply new techniques in a
safe but realistic environment.
Coaching. Winners supplement training with on-the-job coaching. Recognizing the truth behind
the old joke, How do you get to Carnegie Hall? Practice, practice, practice, winners send strong
coaches out to observe recruits presentations and provide immediate feedback.
In industries where large sales forces and complex selling situations are common (communications and
high tech, for example), winners formally track and measure sales performance to gauge the impact of
their training efforts.
Across industries, most profitable companies are leveraging technology to enhance skills, such as using
simulation technologies as a bridge from the classroom to on-the-job learning. This gives employees a
means of practicing skills at point of need.
While the automation of mundane tasks frees sales people to develop more value-adding selling skills,
the pace of technological change makes it virtually impossible for a company to keep its knowledge
requirements and curriculum current. For AT&T this means replacing much traditional training with
guidelines, coaching and self-development time. Sales people must be more proactive in self-learning
and self-education, reading everything and talking to as many people as possible to stay on par with
what their customers and competitors are learning, said Bob Wolters, former sales vice president.
Changing the Organization

Companies aspiring to CRM success face two organizational challenges:
Transforming the organization into a truly customer-driven enterprise.
Making fast and frequent changes to the organization as customer demands shift.
The research highlights key success factors in changing the organization:
A deliberate effort to manage change, with attention to impact on jobs and employee satisfaction,
and clear communication to everyone in the organization.
Organizational willingness to change, manifested in aggressive executive sponsorship.
Change-savvy companies share a certain profile. Executives and managers are eager to learn and
experiment with ideas from competitors or other industries. They are flexible and adaptable, and dont
jockey over competitive turf. Further, they develop an atmosphere that inspires ideas and innovation.
35
Extending the Enterprise

Leading companies extend beyond the boundaries of their own enterprise to enrich and create
new offerings, enhance value propositions and interface with customers.
In the CRM Capabilities Research Study, executives were asked questions relating to developing
and managing alliances and partnerships, and about their use of eCRM to acquire new leads,
interact with customers and transact business.
Several new business models and channels are emerging that companies are embracing for business
advantage (see Figure 9). High performing companies are forging alliances and partnerships to provide
more powerful offerings and gain access to new customers, while also sharing risk and reducing their
financial exposure. The Internetand the opportunities it providesis forcing companies to reevaluate
all of their touch points with customers and change how they do business to stay competitive.
Figure 9: Enterprise Integration Capabilities

17.0
Enterprise Integration
5.5
9.0
3.0
eCRM
8.0
2.5
36
Managing Partnerships and Alliances

Partnerships and alliances have become standard operating procedure for companies of all flavors as the
competitive environment and speed of change force them to share business risk and reduce financial
exposure. Many companies find that alliances and partnerships also increase speed to market and
broaden the range of product offerings because they broaden access to new core competencies. One
high tech executive explained that, In this business, nobody has the solution for everything; you have
to have the right relationships. However, he added that, I see a wide variation in companies ability to
make partnerships and alliances work.
Technology innovators such as Texas Instruments and EMC Corporation view alliances as a critical way
to share perspectives on business and technical directions and, thus, move development efforts ahead
more quickly and accurately. Ventures and strategic alliances have proven to be very important for
proactively identifying where future opportunities are, said one high tech executive.
Strategies for winning alliances and partnerships vary widely, but the study finds four capabilities
common among those who are successful. They:
Make partnerships and alliances a significant part of the business.
Apply an organized, strategic perspective to making alliances work.
Share information with partners.
Expand the number of partners.
Alliances and partnerships have a significant impact on business performance. Deutsche Telekom has
experienced tremendous success with partnership arrangements. In just over a year, they realized more
than $7 billion in economic value, created through relationships with companies such as Microsoft,
DEBIS, ACC Telekom and Sprint, among others. The One Star alliance has reshaped almost every aspect
of the airline business, from improving customer satisfaction with frequent flyer programs to reducing
operating costs through shared buying power and service capabilities.
However, partnership success does not come easily. It takes a well-thought-out strategy, a teaming
spirit, time and real commitment. Companies that choose to dabble in partnerships will leave money
on the table.
According to prior Accenture research,4 30 percent of alliances fail outright and another 49 percent
drift into some fog of under-performance. Two lessons reported by survivors:
Choose partners carefully.
Share information and, in the process, build trust among partners.
As alliances and partnerships loom larger in a business, aggressive oversight and management is critical,
with special attention paid to the cultural fit of the partnering organizations.
Companies should also think out of the box in terms of building partnerships. Thus, eCustomers,
suppliers, channel partners and even competitors deserve consideration as potential partners.
4Accentures
Mergers, Acquisitions and Alliances Center of Excellence
37
Jumping Into eCRM

As the digital age redefines the competitive landscape, high
performing companies are finding that eCRM capabilities
can differentiate them from the competition (eCRM is
defined as using electronic channels to market, sell and
serve customers, both directly and with channel partners).
These companies are investing to make eCRM a cornerstone
of their operations, to identify new leads, interact with customers, selectively transact business over the
Web and support channel partners (see sidebar on page 22, eCRM Moves at Speed Up the Profit Ladder).
Out of the six industries we studied (communications, chemicals, electronics and high tech, forest
products, pharmaceucticals and retail), the eCRM pioneers are most often seen in the communications
and high tech industries, where companies have leveraged information technology to make informationintense and complex decisions easier, faster and more fitting to customer needs. The leading companies
are distinguishing themselves and making money both by reducing costs and increasing close rates,
average purchase and repeat purchases.
Sharp Electronics, a global electronics manufacturer that has used the Web to build its digital products
business, uses new eCRM capabilities to effectively market to, sell to and serve thousands of new
channel partners and end customers. Sharp is now able to reach and support customers in previously
under-served geographic areas. The solution made it easier for customers to do business with Sharp by
providing them with a single point of contact. Sharp is gaining a better understanding of customers
and can target programs to customer needs, thereby improving customer satisfaction. Finally, higher
revenues are expected from the broader reach, and lower costs are expected due to reduced support
and transaction costs.
Internet savvy also will be key to achieving the economies needed to remain competitive. High
performing companies will leverage the Internet to provide them with value in non-transactional
ways by helping them ferret out new markets, acquire greater customer knowledge, discover
better tools and process methodologies, and identify new sales and sourcing opportunities. One
pharmaceuticals executive noted that, "Over the coming years we are likely to see whole new
channels of promotion and distribution opening up as a result of eCommerce." The study also provided
compelling evidence that high performing companies are benefiting from shifting key account
transactions to the Internet.
Providers of eCRM software include a variety of tools and vendors loosely called personalization tools,
because they personalize the online experience. Despite how new these products are, they show up as
contributing to profit in the industry that largely pioneered their use: high tech. Other industries have
yet to apply, adapt and adopt these personalization tools as extensively; the evidence emerging from
38
high tech suggests that early adopters will reap strong positive returns from their investments in these
online selling tools.
Further, the research showed that capabilities that involved the use of the Internet appear to be most
effective when they supplement, rather than replace, the proven approaches that companies already
have in place. For example, the research found a strong positive impact from supplementing sales
and phone contact in service with e-mail and the Internet. In fact, the single most value-adding skill
measured in chemicals was more effective customer service aided by Internet optionssometimes as
basic as the ability to send e-mail. Early adopters, such as Air Products and Chemicals have moved even
further, being one of the first companies to employ web telephonylinking customers who are using
their Web site directly to a customer service rep on the phone.
So, what should companies be doing in the eCRM area? Following are two guiding principles
that are critical:
First and foremost, think like a customer. How can eCRM make it easier to do business with you
and improve your customers experience (or operations, in the case of B2B companies)? There is no
value unless the customer uses your eCRM capability.
Second, link your eCRM capability with all other customer touchpoints. Dont offer eCRM services by
function or departmentthis is irrational to the customer. Customers desire, and soon will expect, to
be served consistently and personally no matter which channel they choose to interact with you.
While still very new, it is clear that the channels opened up by the Internet are providing huge
opportunities for companies. Those who are embracing eCRM are learning quickly, maintaining a
competitive edge and profiting handsomely.
39
Getting buy-in to start with from management

has been a leap of faith. You need enough
people to be brought in at the outsetso the
more objective measures you can have of the
potential value, the better.
Ian El-Mokadem, director of marketing and strategy,
British Gas Trading, Ltd.
Conclusion
It is clear that CRM has tremendous potential to add value to companies. Implementing CRM is a
complex undertaking, however, with success predicated on excellent execution of many capabilities
some old, some new. Advises British Gas Tradings El-Mokadem, One of the biggest challenges is
changing the mindset of an organisation. We have learned that the real opportunity lies in differentiated
customer managementproviding customers with a service which best meets their needs, rather than
treating them all the same anonymous way. This is big mind set change for our people. You have to
re-train management, re-gear the planning process and re-tool your operations.
To help companies identify those CRM capabilities that will provide them with the biggest payoffs,
Accenture has constructed a straightforward self-assessment tool that allows a company to find where
its CRM gaps are biggest, and therefore where its priorities for new efforts should be placed. With
better insight into probably returns, management teams can proceed with confidence.
Every company needs to start by knowing itself:
First, take the test. Use the Accenture research to conduct a self-assessment. How well is your
organization executing CRM? How could you boost return on sales by doing better in certain areas?
Which areas?
Confirm the greatest opportunities with additional analysis. What will it take to realize those return
on sales improvements? What are the barriers to success? What are ways over or around them?
Set priorities. Where to begin? How soon? Where to go from there?
These questions need not be as daunting as they may seem. The study shows that almost every company
can enhance its CRM capabilities and, thus, its financial performance, even by making incremental
improvements in the key capabilities. That means rethinking CRM investmentsan exercise best started
sooner rather than later. The CRM Capabilities Research Study found many companies in diverse industries
investing in building their CRM capabilities and profiting from the effort.
The profile of the customer-driven enterprise is becoming clear and those who invest wisely in
customer relationship management are poised for succcess.
To request a copy of an industry-specific CRM report on communications, chemicals, electronics and high tech, forest products
or pharmaceuticals, please call 1 (312) 737-7777.
40
Appendix of CRM Capability Definitions

The research identified 21 capabilities that were common and important across the 6 industries studied
(see sidebar, About the Research, page 10). These capabilities naturally grouped into 5 key areas.
Following is a list of the specific subject areas studied:
I. Customer Insight
1. Turning Customer Information into Insight
Customer data
Analytic tools
Information technology systems
Integration with billing, customer service, etc.
Quality of process
Ease of use
2. Customer Acquisition and Retention
Measuring costs of acquisition, retention, switching
Lifetime value
Process quality
3. Measuring Profitability
Level of available detail
Ease of access
Information technology systems
Accuracy and reliability
Use in decision making
4. Customer and Market Segmentation
Choosing which customers to serve
Segment profitability
Segmentation process
II. Customer Offers

5. Developing Strong Value Propositions
Tailoring value propositions to segments
Ensuring competitive superiority
Incorporating customer service
Communication
Driving internal execution
6. Managing Product and Service Mix
Using mix to drive profit
Process for managing mix
Analyzing breakpoints in cost and customer benefits
7. Developing New Products and Services
New product development processes
Speed and quality of process
Generating ideas
Selecting ideas
Channel acceptance
8. Brand Management
Brand strategy process
Brand measurement
Leveraging brands into new channels, products
41
III. Customer Interactions

9. Customer Service
Number and quality of contact points
Quality of voice recognition systems, support technology
Proactive problem identification and notification
Up-selling and cross-selling
Customer education role
Accuracy, responsiveness, quality of response
10. Sales Planning
Setting sales targets; accurate forecasting
Data used in planning
Process quality
Using technology (e.g. managing leads, forecasting, call reporting)
Using profitability information
11. Key Account Management
Ensuring competitively superior value
Consistency of execution across customer locations
Process quality
Primary supplier status
Influencing complex purchase decisions
12. Advertising
Advertising strategy
Using market research
Measuring impact and return
Using multiple media (e.g. mass, electronic, direct mail, etc.)
Process quality
13. Promotion
Promotion strategy
Measurement of impact and value
Using market research
Process quality
14. Channel Management
Measuring channel conflict
Influencing channel partner's profit
Channel strategy
42
IV. High Performing Organization

15. Motivating and Rewarding People
Compensation level
Pay for performance
Alternative measures and rewards
Information sharing
Incentives, rewards and recognition
External benchmarking
16. Attracting and Retaining People
Turnover rates
Tenure in sales, marketing and service
Attraction and retention incentives
17. Building Selling and Service Skills
Training
Coaching
Performance measurement (skills, development progress)
Required skills
18. Ability to Change the Organization
Change communication
Integration of change efforts
Incorporating job satisfaction in change
Executive sponsors
Willingness and experience at change
19. Building Service Culture
Defining service culture
Communicating culture
V. Enterprise Integration
20. Partner and Alliance Management
Partnering with companies other than suppliers
Internal coordination
Partnering results
Use of outsourcing
21. eCRM
Percent of sales
eService
eSelling
ePromotion and advertising
eBilling and transactions
Acknowledgements
43
Acknowledgements
Authors:
Stephen F. Dull, Partner, Accenture
Timothy Stephens, Senior Manager, Accenture
Mark T. Wolfe, Partner, Accenture
The authors wish to thank the 500 executives who shared their valuable perspectives to make this research possible.
We would also like to extend our gratitude to the following individuals for providing additional insight and contributions:
Tal Bratton, American General Finance; Ian El-Mokadem, British Gas Trading, Ltd.; J. Kevin Fletcher, Georgia Power
Company; Marnie Quinn, Ford Motor Company; Mike Ryhorski, Ford Motor Company; and James C. Schroer, Ford
Motor Company
In addition, the authors wish to acknowledge the following individuals for their important contributions to the
development of this research report: Susan Gurewitsch, Amanda K. Hayes, Leon Lowman, Michael K. Ostergard and
Karen M. Snow.
2001 Accenture
All rights reserved.

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7.4 - How Much Are CRM Capabilities Really Worth - Accenture Report

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How Much Are

Customer Relationship Management

Looking Through the Customer's Lens

About the Research

Deepening Customer Insight

Customer Offers: Giving Customers What They Want

eCRM Moves at Speed Up the Profit Ladder

Shaping Customer Interactions

The Impact of Technology

People Make All the Difference

Extending the Enterprise

Accentures research shows that

Accenture quantified the value of CRMnot the

Looking Through the Customers Lens

and findings are based on a typical $1 billion business unit.

We believe CRM is key to our future and we won't be able to

Figure 1: Top Capabilities

Figure 2: Skill Improvements Yield Large Returns

By improving all 21 CRM capabilities, companies can yield

About the Research

Figure 3: Building a Customer-Driven Enterprise

Turning Customer Information into Insight

High Performing Organization

Motivating and Rewarding People

Deepening Customer Insight

Figure 4: Customer Insight Capabilities

Turning Customer Information into Insight

Customer Acquisition and Retention

Transforming Customer Information into Insight

Measuring Customer Acquisition and Retention

Seeing the Forest for the Trees: Customer Segmentation

Customer Offers: Giving Customers What They Want

Figure 5: Customer Offers Capabilities

Impact of Performance Improvement ($M for a $1B company)

Strong Value Propositions

Managing Product and Service Mix

New Products and Services

Creating Compelling Value Propositions

An exclusive focus on customer needs usually is a formula

Managing Product/Service Mix

Developing the Right Products and Services

The impact we could get from our CRM initiatives

Building Strong Brands

eCRM Moves at Speed Up the

The basic ability to take an order also adds to profit.

Shaping Customer Interactions

Figure 6: Customer Interactions Capabilities

Key Account Management

Enhancing Customer Service

Spotlighting Sales Planning

Managing Key Accounts

Entering New Channels

In the forest products, steel and chemicals industries, technology is giving

The Internet makes it feasible

The Impact of Technology

People Make All the Difference

Figure 7: High Performing Organization

High Performing Organization

Motivating and Rewarding People

Attracting and Retaining People

Building Selling and Service Skills

Ability to Change the Organization

Turning Customer Information into Insight