McKinsey on Marketing

An in-depth look at the challenges facing senior managers Published by The McKinsey Quarterly July 2004

Organizing for CRM
Companies should treat a customer-relationship-management solution as a product or service and its users as internal customers—by making it valuable, pricing appropriately, advertising, and providing after-sales support.

Article at a glance: Most large companies have some form of customer-relationship-management (CRM) software, but more than half of them are disappointed with it. Critics blame the software, but the real problem could be a failure to address the organizational challenges posed by any new initiative. Top management often assigns executives with other primary responsibilities to take charge of the CRM effort on a temporary basis, and they may resort to heavy-handed mandates to get frontline staff to use the new tools. Instead, CRM should be treated as a product or service targeted at internal customers. The take-away: CRM initiatives have a better chance of succeeding when accountability is clear and frontline users get adequate training and incentives.

Glenn Mitsui


Organizing for CRM

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Anupam Agarwal, David P Harding, . and Jeffrey R. Schumacher


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What’s left to say about customer-relationshipmanagement (CRM) solutions?1 Business commentators have spilled oceans of ink describing the gut-wrenching rise and fall of these programs’ reputations. Most large companies have implemented some form of CRM, and many have followed their early disappointments with fullscale CRM remediation efforts.2 Indeed, more than half of all companies investing in CRM consider it a disappointment, according to several recent surveys. What’s wrong? It’s not that companies are spending wildly; many of them build robust business cases before making their investments, which at this point are likely to be incremental. Nor does the fault lie with the technology itself—most systems provide the required features. Companies have lavished attention on business and technology issues because both were glaring early impediments to CRM’s effectiveness. The core of the problem now is that too few companies are paying enough attention to the organizational challenges inherent in any CRM initiative, whether it involves delivering a new solution, fixing a foundering application, or tweaking a functioning CRM capability. These challenges stem from the wide variety of people— frontline sales and service providers, business analysts, IT professionals, and a broad array of managers, to name just a few—who must collaborate to ensure that a CRM program is defined, delivered, and deployed. This diversity creates accountability issues and complicates the challenge of persuading employees—particularly the sales force—to embrace CRM. Solving these organizational problems requires a company to go beyond the vigorous exhortations and heavy-handed rollouts that many have relied on—understandably, in view





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of the money invested and the opportunity costs of failure. Instead, companies should view CRM as a product or service targeted at internal customers. Like any product or service, it must be infused with clearly defined value, priced appropriately, advertised, and provided with aftersales support. In our experience, no temporary centralized team, however competent and well-intentioned, gets everything right. What is needed to achieve long-term business results is an infrastructure grounded in accountability, as well as supporting initiatives to motivate, train, and track the many employees in diverse positions throughout the organization who make or break the CRM program. Attention to these perennial organizational challenges, which are easy to overlook in the rush to fix the technology and business-alignment issues, correlates strongly with success in CRM (Exhibit 1).3 Finally, CRM’s impact on frontline employees is so significant and potentially jarring that clear, forceful messages from senior executives are critical to enforcing accountability and motivating change.

CRM helps companies to plan and analyze their marketing campaigns, to identify sales leads, and to manage their customer contacts and call centers. 2 Turning around a CRM program (or, for the lucky few, getting it right the first time) typically involves focusing on a few clear business objectives, building or reconstructing the technology to meet them, and realigning the organization to help it embrace new tools and processes. See Manuel Ebner, Arthur Hu, Daniel Levitt, and Jim McCrory, “How to rescue CRM, The McKinsey Quarterly, 2002 special edition: Technology ” after the bubble, pp. 48–57 ( 3 The authors heard this message, loud and clear, from executives and middle managers in the insurance industry, whom we recently interviewed and surveyed about the factors influencing the successes and failures of their CRM programs. Similarly, a recent Forrester Research study found that resistance to process change was the leading obstacle to CRM’s success at 111 large North American companies.


Organizing for CRM

The organizational challenge
Building, modifying, or running a CRM solution involves a large cast of characters. It can include systems experts; business analysts; backroom operations specialists; managers who use customized reports to fine-tune sales, marketing, and customer service strategies; and frontline sales and service people, who are responsible for inputting much of the data the CRM initiative needs to yield rich insights and for acting on them. The breadth and scope of these constituencies create two organizational problems: identifying who is accountable for which results and truly achieving the broad behavioral change that success requires (Exhibit 2).

Excessive reliance on technology specialists helped sink some early CRM initiatives. In the past few years, some organizations have overcompensated—so much so that many capabilities are now defined by the business side, without enough participation from IT. Too often, the results resemble those experienced by one large media company that developed a strong business case with limited participation by its IT organization, took several months to realize that achieving its goals with the chosen technology would take more than a year, and ultimately abandoned its original plans and began redefining the program.

Resistance to change Fuzzy accountability
When the responsibility for different aspects of the solution rests in different places, it’s often hard to muster the organizational resolve to bring in the right people, unclog bottlenecks, and make effective decisions. At worst, companies wind up with the kinds of problems The large number of stakeholders involved with CRM doesn’t just complicate accountability; it also magnifies the difficulty of effecting behavioral change, particularly in salespeople but also among managers and business analysts—all groups whose recalcitrance can cripple an initiative. Consider the problem of managing the sales pipeline. CRM helps managers to see quickly when salespeople are not hitting their targets and remedial action is necessary. But management can act only when

Q3 2004 that plagued Soviet-style planned economies: a lack of
ownership, a CRM to choose the right features, and an failure

Exhibit 2 of 4 inability to meet performance goals.

exhibit 2

Who’s accountable?
Location of primary organizational obstacles associated with CRM activities1 Executives CEO COO CIO CMO2 Business-unit heads Head of sales

Region C Region B Region A Frontline users Sales Marketing Service Operations Sales Marketing Service

Worldwide/corporate operations IT Development Architecture Infrastructure Quality assurance Operations Sales Marketing Service

Business unit 3 Business unit 2 Business unit 1 Frontline users Sales Marketing Service

Regional IT
Organizational obstacles to implementing CRM Lack of commitment, communication Confusion about roles, responsibilities, accountability Lack of motivation, participation

1 Actual functions and organization vary by individual company. 2 Head of CRM program often reports to chief marketing officer.


Organizing for CRM

salespeople input timely, accurate data and analysts generate the right reports. If management doesn’t augment the underlying performance metrics, frontline employees are likely to go on behaving in the old way. Yet it’s easy to see why salespeople and managers might drag their feet:

Sending and receiving
Instead of holding businesspeople accountable for determining the requirements of a CRM solution and IT personnel for developing it, companies should make both parties responsible for all of its aspects, from designing process shifts to managing change to implementing technology. At the same time, companies must carefully delineate the responsibility for sending and receiving the solution as a whole (Exhibit 3). The sending team’s function is to define a solution that meets the objectives specified in the business case, to estimate the level of effort required to implement the solution, and then to deliver it. “Delivery” includes establishing the architecture of the system, building and testing it, and supporting its deployment, particularly the systems-training programs that help launch it in the field. When all the elements of this broad mandate show up in a sending team’s cost assessments, executives get fewer surprises later on. As for the receiving team, it provides the business case and the usability requirements. Then it leads the rollout by communicating to internal customers the goals and likely implications of the program, assessing how the behavior of end users must change to take advantage of the proposed solution (and therefore what behavioral training is necessary), and implementing the sending team’s systems-training plans. When an initiative involves placing new technology in the field, the receiving team also ensures that the infrastructure is ready for use, that support is available for customizing software to local needs, and that data can be moved to the new system. All of these actions have a cost, and the receiving team, like the sending team, should estimate the effort required to carry out its work before getting started. The sending-and-receiving infrastructure addresses accountability issues in two critical ways:

Salespeople are inherently skeptical because they think that information flows in one direction only (which it often does) and is therefore unlikely to benefit them, even if it helps the company.

Salespeople also fear that new systems and bureaucracies will bog them down.

Managers, on the other hand, often recognize the potential long-term benefits of a successful CRM program but worry that they will be penalized if short-term results suffer during implementation.

The predictable result is that CRM systems are used little or not at all. In the insurance industry, for example, more than a third of the CRM modules developed during the past three years in areas such as marketingcampaign management, data analysis, and opportunity management lie dormant. Many companies have responded by punishing salespeople who don’t “get with the program. Heavy-handed approaches such as ” docking commissions or circulating internal blacklists of nonadopters may bump up compliance, but only in a grudging and mechanical way that isn’t likely to exploit the initiative’s full potential. Training—another typical response—often overwhelms users because it involves just a day or two of classroom immersion in the new features.

Frontline solutions
Overcoming organizational roadblocks requires a more elegant approach than pressuring uncooperative business and IT personnel into building a solution and then forcing skeptical employees to use it. A better way is to establish an organizational structure that mimics a market in which constituencies alternately take on the role of buyer and seller or, in this case, “sender” (delivering the solution) and “receiver” (implementing it). This approach creates accountability and motivates employees to embrace the initiative.

Each team’s cost estimates make clear to the sponsoring business executive what he or she is signing up for while also clarifying the teams’ responsibilities. If the estimated benefits of the business case appear too small or squishy to justify the cost, executives have a solid reason for backing off from weak initiatives.


Organizing for CRM CRM
Exhibit 3 of 4

Q3 2004

exhibit 3

Mixing business with technology
Region C Region B Region A

Worldwide/corporate operations Business IT

Business-unit/regional operations

Business Key functions • Define business needs, usability requirements • Document business processes • Conduct user-acceptance testing • Develop communications and behavioral-training programs for users • Execute changemanagement process (organizational, behavioral change) • Deploy system

IT Key functions • Prepare infrastructure1 • Ensure localization support for software • Install software • Manage regional IT development • Ensure smooth migration of data

Key functions Key functions • Define solutions • Create functional/ • Consolidate requirements technical design • Verify/accept developed • Build solution solution architecture • Develop communi• Develop system • Test system cations and systems• Manage software training programs • Manage organizational, versions behavioral change • Coordinate deployment • Ensure readiness for launch in field


1 Includes

determining hardware requirements and consolidation, if necessary.

Since each team includes both IT and businesspeople, it becomes harder for either side to define its scope of accountability too narrowly. Finger-pointing by senders or receivers is of course possible, but when problems arise, executives should hold teams accountable by checking whether the receivers were unprepared, the senders failed to deliver, or both.

Responsibility for systems training—which includes developing training material, running the sessions, and providing follow-up support—should be owned by the sending team.

Members of the receiving team should take the lead in behavioral training, which encompasses issues such as changing job responsibilities, new incentive plans and reporting relationships, and procedural changes, including new processes for signing off on decisions.

When a large global technology company whose executives coined the sending-and-receiving terminology adopted this structure in its CRM program, it overcame the weak accountability that had engendered budget overruns, slipping delivery dates, “scope creep, and, ” ultimately, disappointment. Because accountability and ownership were clear, often-overlooked issues such as organizational implications and the communication of the program’s goals to internal customers stayed front and center. The sending-and-receiving structure also helps bring order to CRM’s training challenges, which frequently arise because most CRM solutions create a need for both systems and behavioral training:

Behavioral training is the more difficult to accomplish—and deserves twice as much attention—because it addresses deeply ingrained habits affecting all aspects of a worker’s job. A major pharmaceutical company’s training efforts illustrate effective behavioral training. The company asked its sales reps to move from a uniform selling approach to one that was tailored to doctors’ attitudes. It chose three key areas for the pilot effort and sent teams of people from headquarters to ride with the sales reps during the first few days. In this way, it got the sales reps up to speed quickly while allowing the management to see the program in action and to make real-time adjustments. Targeted follow-up visits tracked progress and provided


Organizing for CRM

remedial support. In many cases, the pilots yielded sales increases of more than 50 percent.

metrics such as revenue, lead-conversion rates, system usage, customer and user satisfaction, and margins. Dashboard metrics that reflect the sources of value propelling the initiative roll up into a high-level view for executives.4 Often, results vary by region (Exhibit 4). Comparisons promote the sharing of best practices and the fine-tuning of goals and rewards for specific regions and personnel. A retail bank seeking to expand its business in credit cards, for example, set and tracked ambitious weekly cross-selling targets down to the individual branch and call-center employee and rewarded those who met them. This highly focused effort yielded a 15 percent sales jump for the targeted products in just eight weeks. Not every initiative yields immediate gratification. A company planning such a program should take into account the potential for productivity to drop during the deployment period, which often lasts as long as three months. Indeed, without some leeway, the motivation to give the new system a real shot at success may fall because frontline employees feel that they can’t risk becoming less productive. In extreme cases, when a big productivity drop seems likely, it’s vital to involve the CEO and CFO early so that they can help manage external expectations.

Helping CRM sell itself
The work of the sending and receiving teams should go on enticing internal customers to buy into the CRM solution long after the teams have ceased to operate. Research into organizational behavior suggests that frontline employees will change only if they know why an effort is important and what’s in it for them:
• Show

salespeople how a CRM initiative could

reduce the number of processes they deal with or of systems they use to enter data, improve their collaboration with other sales reps, skim off customer data that would help them develop better leads, and reduce the time needed to generate quotations or obtain information about products and competitors.
• Target

successful, influential salespeople as

early adopters. Their success gives the CRM effort the credibility that drives widespread adoption. Consider the experience of a department store retailer that identified “aspirational” shoppers—those who shop infrequently but aspire to do so more often when their incomes grow—as key sources of revenue growth. This retailer also observed that while loyalty programs and periodic promotions helped pull in such customers, they reacted particularly well to personalized service. A CRM initiative provided sales associates in stores with lists of target customers they could personally call and offer to assist with new merchandise, styles, colors, sizes, and the like. For sales associates, the message was, “We have given you tools that will help you follow the lead of your most successful colleagues and build long-term relationships with customers who will earn you bigger commissions. The program yielded a 10 percent increase ” in revenue from these target customers.

The senior executive’s role
Although many organizational challenges impeding CRM require solutions from the front lines, senior executives also have important responsibilities. For starters, only the CEO and the business-unit heads (or their chief lieutenants) have the authority to establish a sending-andreceiving infrastructure that cuts across organizations. Moreover, like marathoners running a difficult course, CRM teams require cheerleading for motivation, fuel to keep going, and clear direction to stay on course. Senior executives are uniquely positioned to provide this assistance by:

Articulating a specific business rationale— improving customer satisfaction to boost retention and keep competitors from stealing market share, for example, or improving cross-selling rates to achieve annual revenue targets.

Incentives provide important reinforcement, and we’ve found that quite specific goals are the most likely to inspire the desired behavior. The best CRM initiatives thus employ detailed “dashboards” that track changes in

Of course, metrics are most helpful for companies that have already undertaken due diligence to determine which business levers are most important to them and how much value each can create.


Q3 2004 CRM Organizing for CRM Exhibit 4 of 4

exhibit 4

Rules of the road
Disguised example of ‘dashboard metrics’ for diversified technology company 20 Change in net revenue over previous year, % 15 10 5 0 0 20 40 60 80 100 Region 4 Region 2 Region 1 Region 3 20 Change in net revenue over previous year, % 15 10 5 0 0 20 40 60 Region 4 Region 2 Region 1 Region 3

Conversion rate of leads into opportunities, %

Conversion rate of opportunities into orders, %

Through analysis of selected metrics,1 company discovered that effectiveness earlier in the sales process predicted success better than conversion rates did, as previously believed.
1 Exhibit

depicts selected metrics analyzed by company for this particular business initiative; importance of specific metrics (and combinations thereof) varies widely by industry, organizational makeup, goals of CRM initiative. Determining appropriate metrics requires due diligence to determine beforehand which business levers are most important and how much value each can create.

Demanding regular status updates, which keep the heat turned up and let them cut through the political tussles that invariably arise during large cross-organizational initiatives like CRM.

the management team went to great lengths, such as refocusing sales and marketing efforts on the goals of growth and customer retention and eliminating IT projects that didn’t promote them. In the end, the company benefited rapidly by implementing a CRM project it had abandoned on several previous occasions.

Enforcing accountability. Executives need to treat important CRM milestones and performance goals just as seriously as they do quarterly businessunit profit targets.

CRM and the forces impeding its success are both The senior executives of one North American insurance company played all of these roles. At the beginning of the fiscal year, its management team articulated a simple goal: utilizing technology to achieve aggressive growth and to improve customer retention substantially. In management meetings across the company, executives relentlessly emphasized the importance—and monitored the status—of projects linked to growth and customer retention, particularly the retooling of a major customerinformation-management system. To break barriers and free up resources needed for mission-critical tasks, growing up. Companies are increasingly getting the business-alignment and technology issues right, but many must still tackle the hardest challenge of all: motivating organizations and making them accountable for results. Q
Anupam Agarwal is a consultant and Jeff Schumacher is an associate principal in McKinsey’s San Francisco office, and David Harding is a principal in the Boston office. This article was first published in The McKinsey Quarterly, 2004 Number 3 ( Copyright © 2004 McKinsey & Company. All rights reserved.

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