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ROI for a Customer Relationship Management Initiative at GST
Professor Robert J. Sweeney, Wright State University Professor Mark Jeffery, Kellogg School of Management
Johnson suddenly looked perplexed. Davis of this case study in Overview Robert Davis of Teradata entered the management conference room at GST Inc. and to maximize return from their marketing investments. arrived at the meeting a few minutes later. Through the years. She joined the GST management team with an impressive background in marketing and over 15 years of experience in the telecommunications industry. Johnson remarked that Davis had some ideas on how GST might maximize marketing State University and Teradata prepared collaboration with investments and improve sales revenues. Vice President of Marketing. Davis explained that the natural next step for GST was to leverage their new enterprise data warehouse for top-line growth with Customer Relationship Management (CRM) solutions. Vice President of Sales Region #2 and Dominique Arnold. but I have no idea what return we are getting on the $3 million I dump into it every year. and was greeted by Mark Johnson. and had saved GST $27 million in just one year. especially in the growing wireless market. Region #3 convinced Johnson that GST needed CRM. The documented ROI prompted GST to consolidate the remaining 45 data marts into an enterprise data warehouse (EDW). Jill Newberg. She needed to identify which customers to best target for new service offerings. That resulted in an updated call center and a new sales force automation tool. Sweeney of Wright Robert J. The now complete EDW had a documented return on investment of 65%. in spite of the fact that Newberg and Arnold were convinced Professor Mark Jeffery from Northwestern University’s Kellogg School of Management as the basis for class discussion rather than to illustrate effectiveness of management. good to see you.” Professor Robert J. it was not what marketing needed.’ It was three years since the original data mart consolidation pilot program was initiated. Erica Kolks. The results of the pilot study originally proposed by Davis exceeded even the most optimistic forecast. Johnson had a big smile and gave an enthusiastic: ‘Hi Bob. Kolks came to GST ten years ago shortly after obtaining her MBA from the Kellogg School of Management. Some have been altered for reasons of confidentiality.” Kolks explained that four years ago. Kolks had made several recommendations that helped GST better compete. Kolks added that although the CRM investments seemed to be worthwhile. It was not exactly what he had anticipated hearing. facts within the case EB-3104 PAGE 2 OF 13 . Kolks clearly wanted to analyze customer behavior over time and more quickly act on detailed customer information for enhanced decision making.“We already have CRM—the sales team sold me on funding CRM some time ago. Johnson did not want to acknowledge the CRM investments had any payback. Johnson was eager to learn from Davis how GST might further leverage the $32 million infrastructure investment to help grow top-line revenue. GST CFO. Vice President of Sales.Case Study ROI for a Customer Relationship Management Initiative at GST “Your new enterprise data warehouse combined with analytical CRM solutions could signiﬁcantly contribute to top line growth. cross sell/up sell the most profitable mix of product offerings.
April 23. June 20. .1 The telecommunications industry crisis was reminiscent of the real estate debacle that befell the savings and loan industry in the 1980s. It was obvious that this was not the first time that the ROI of GST CRM initiative was discussed. would either default on. According to industry analysts: “The up-tick in wireless will also come in spite of rapidly slowing spending on next-generation (also known as 3G) designed to dramatically increase the speed of moving wireless data.” Johnson was skeptical. deregulation. Tailwinds in the Telecom Tempest. burdened with about $700 billion in debt. In addition. Bankruptcies have been filed and many more were expected. Davis was excited with this response and started to map out the next steps.” 2 With technologies coming and going. EB-3104 PAGE 3 OF 13 1 2 Telecom Meltdown. but he knew that Davis had not disappointed him with the data mart consolidation program. GST would be very interested. over $100 billion of this debt. According to Lehman Brothers. The industry found itself in the unenviable position of scrambling to keep up with a technological explosion while margins evaporated and the regulatory landscape changed.8% figure achieved in 1996. BusinessWeek. He wanted to focus on discussing new possibilities. In 2001. mergers and acquisitions that blurred the boundaries between service providers.. the calculation of ROI at this point is pure speculation. Peter Elstrom and Heather Timmons. However. and an ever-growing Internet market characterized the telecommunications industry as the millennium came to a close. He believed that the first step was to propose a detailed business discovery. Experts believed the U.. Consolidation within the industry. This combination results in modest revenue growth and a declining return on equity. It was also apparent that CRM was a topic of confusion. Inc. consolidation had replaced expansion as the industry practice.” said Davis. once attractive profit margins were shrinking or disappearing altogether. and fickle customers that had a countless array of choices (both wireless and long distance). or force lenders to restructure.Case Study ROI for a Customer Relationship Management Initiative at GST that they recognized return. Wireless continued to be a high demand item and revenue growth was expected in metropolitan markets. but he felt confident that this new project would be a success. “Actually. provided that he could convince Johnson and Kolks it was worth the investment. They’ll also spend to expand current-generation wireless infrastructure and upgrade their networks to accommodate increased customer demand. Although the number of telephone calls and the amount of data transmitted were both rising.Your new enterprise data warehouse combined with analytical CRM solutions could improve the take rate of your important marketing programs and the retention of your most profitable customers. the communications environment had never been more challenging. Johnson and Kolks concurred that if Davis could demonstrate a believable ROI. Telco’s faced these conditions in the midst of the worst economic recession in a decade that had lessened Wall Street’s willingness to pump funding into the industry. significantly contributing to top-line growth. the ultimate question was “what was the ROI and payback for the Teradata CRM solution?” Davis knew his team had a lot of work to do. wireless carriers will be spending on hybrid wireless local area networks. a more economical way to offer high-bandwidth wireless data coverage in key areas. many viewed the telecom industry as ‘melting down’.” Davis could sense the tension. Once the business discovery was complete.1 Analysts were not expecting the industry to return to the earlier level of profitability for several years. Rather. and the trend of almost unlimited spending for new infrastructure had been reversed..“I was thinking about analytical CRM. coupled with a dampened enthusiasm by Wall Street limiting available capital for new entrants. TELECOMMUNICATIONS INDUSTRY The explosion in the demand for wireless services.“Since performance metrics to determine the ROI were not established during the adoption phase and have not been monitored throughout the implementation. . The promise of heightened competition following deregulation was proving illusory. 2001. BusinessWeek. companies had found customers demanding lower prices.S. He declared. there were bright spots in an otherwise bleak picture. 2001. the 5. was negatively affecting everything from customer service to spending on new technologies. However. Johnson looked at Davis. Kolks liked what she heard and wanted to learn more.9% return on equity in 2000 was down from the 13. Olga Kharif. the elimination of barriers in the European markets. and European telecom companies.
and is enhanced with Customer Relationship Management (CRM) solutions. BusinessWeek. Olga Kharif. Exhibit 1 is a schematic of the CRM and E-business market. For example. Fred Harris. enterprise resource management. at the right time. technology-enabled solutions and associated skills that support the organizational strategy of being customer centric. services supply chain management — as well as the management of the financial aspects of the operations. June 20. EB-3104 PAGE 4 OF 13 In addition. This integrated view is made possible with enterprise data warehousing (EDW) technology. all resources of the firm must be managed optimally to maximize value. 2001. eCRM. customer retention.Case Study ROI for a Customer Relationship Management Initiative at GST As the telecommunications challenges had evolved. Teradata Team Analysis Customer Service E-Commerce Back-Office Analytical Front-Office Analytical 1 2 Tailwinds in the Telecom Tempest. and design at Sprint succinctly described the situation for the entire industry when he said: “We are in the business to make money. so our investments follow where our customer demand is. CRM should therefore not be considered “product point solutions” but rather. . and customer profitability. eBusiness Revenue ($B) Compound Annual Growth Rate for 2003 ERM/SCM ($22B/34%) E-Business ($25B/34%) Analytical Back-Office Operational Enterprise Resource Management CRM ($3.A successful communications service provider must analyze detailed customer data to better understand ‘why’ it happened and proactively manage to better forecast ‘what will’ happen—and then ensure that it takes place.”2 SURVIVING THE STORM To win in these new conditions businesses must understand what their customers’ demand is today and what that demand will become tomorrow. architecture. CRM should be viewed first and foremost as an organizational strategy to understand and influence customer behavior through continuous communication to improve customer acquisition. In 2002. so had their strategies for survival.6B/37%) Front-Office Operational Marketing Product Supply Chain Management Sales Services Supply Chain Management Source: IDC. Another commonly used definition places the focus of the strategy on identifying the right customer with the right offer. managers should ask: how do you analyze a customer’s propensity to buy new or additional bundles of services? How do you predict and respond to events that may lure away current customers to the competition? How do you satisfy the customer and maintain double-digit growth while controlling costs? How do you communicate with your most valuable customers to increase the depth of the relationship and important wallet share of that customer? In order to answer these questions. the market for CRM oriented solutions has been estimated to be $3. vice-president for research. a corporate commitment must be taken to shift the entire organization from a product centric focus to a customer centric focus. Armed with this perspective. AMR. using the right channel. Decision-makers need a single view of the enterprise in order to get the most out of the resources of the firm. These resources include the operational aspects of the firm—product supply chain management.6 billion dollars with a compound annual growth rate of 37% per recent analysis compiled from IDC and AMR data. not only from the need to clearly understand the potential return on investment but also with basic definitions and the competitive landscape of technology vendors that sell in this market space. CUSTOMER RELATIONSHIP MANAGEMENT Confusion in the marketplace seems to abound about CRM. It is not enough to understand what has happened. Estimated CRM.
6B/37%) Analytical Front-Office Operational Communications/ Queuing Product Supply Chain Management Sales Shift to Demand Chain to Align Suppliers and Partners Around the Customer E-Commerce Supply Chain Management Marketing Manage Integrated Communications Across All Channels Back-Office Analytical Front-Office Analytical Customer Service & Support Services Supply Chain Management Source: IDC. This exhibit was developed based on perceived vendor activity at a point in time. KD1. Vantive. ATMs. Alcatel.6B/37%) Analytical Front-Office Operational Communications/ Queuing Nortel. For example. E. Closed-loop Customer Understanding Analytics Own Customer Understanding & Support All Operational CRM Applications Personalization Manage Personalization Rules Across All Channels CRM Segment Definitions & the Competitive Landscape in January 2002 Enterpise Portals Provide Enterprise View at Interface Marketing Automation NCR. Cognos. i2. Net Perceptions Hyperion. service and support. As a framework for how technology enabled solutions and vendors fit. Oracle. Silknet. customer service and support solutions provide realtime customer understanding via the inbound interactions. Octoane. AMR. BEA. sales force automation and customer service/support. Clarify. the web. Unica Analytics Personalization Quadstone. Xchange. Ariba. CommerceOne E-Commerce Supply Chain Management Marketing Back-Office Analytical Front-Office Analytical Customer Service & Support Siebel. Analytical CRM Analytic CRM solutions enable companies to derive greater knowledge of their customers through analysis and modeling of detailed data collected from various customer interactions throughout the organization. Siebel is the most widely recognized vendor of operational CRM systems. Lucent. piphany. atg. Operational CRM Operational CRM Solutions are focused on collecting and managing the interaction with the customer through the variety of touch points where a firm provides sales. Unica E-Business ($28B/34%) ERM/SCM ($22B/34%) Back-Office Operational Enterprise Resource Management Sales Force Automation Siebel. Accrue. Teradata Team Analysis Customer Service Provide Real-time Customer Understanding Via Inbound Interaction OLAP Own Reporting and Analysis Infrastructure Modeling Intelligent. analytical CRM solutions provide clear customer insight enabling an organization to take action to strengthen their customer relationships and enhance profitability. In essence. AMR. Epicor. retail outlets. i2. marketing automation solutions form the hub of all customer understanding and communications planning. etc. the players and the solutions would most likely be dramatically different. Vendors within each of these spaces are identified in the bottom half of the exhibit. Similarly. CRM Segment Definitions and Business Objectives Enterprise Portals Provide Enterprise View at Interface Marketing Automation Form Hub of All Customer Understanding and Communications Planning E-Business ($28B/34%) ERM/SCM ($22B/34%) Back-Office Operational Enterprise Resource Management Sales Force Automation Own Front-office Channels and Customer Understanding Enterprise Resource Planning Align Organization Around the Customer CRM ($3. Pivotal. Actionable. January 2002. IBM Product Supply Chain Management Sales Manugistics. Broadbase. Clarify. Broadvision. MarketSwitch. Lawson CRM ($3. Chordian. Baan. call centers. email. fax. CRM Solutions can be separated into two segments: Operational CRM and Analytical CRM. direct mail. Vignette. Vantive. These touch points include direct sales. Teradata Team Analysis Customer Service OLAP Microstrategy. Focus is given to leveraging detailed data via analytical modeling—this enables an organization to be proactive in serving their customers by adapting to change as well as improving the effectiveness and efficiency of operational CRM solutions. within the front-office operational segment. Peoplesoft. Onyx Enterpise Resource Planning SAP. Note that if this exhibit were recreated 3 months or one year in the future. Operational CRM solutions are generally categorized to address marketing automation. Business Objects Modeling SAS. SPSS. Brio. It is important to note here that the solutions and the vendors are fluid. in the top half of the exhibit. Quintus Services Supply Chain Management Source: IDC. Cisco.Case Study ROI for a Customer Relationship Management Initiative at GST Exhibit 2 provides more detailed insight into what issues each of the available solutions address and where specific vendors are positioned.Ithena 2 EB-3104 PAGE 5 OF 13 .
Personalization Business Intelligence Analysis Modeling Personalization Optimization Interaction CRM Front-Office Operational Reporting OLAP Sales Customer Service Data Mining Enterprise Active Data Warehouse This Exhibit shows schematically the linkages between an Enterprise Data Warehouse (EDW) and a fully integrated CRM strategy. complementary operational and analytical CRM solutions are required. resulting in enhanced customer knowledge and increased bottom-line profit. to optimizing the deployment of personalized offers resulting in more timely interactions with customers with managed feedback. The strength of the EDW is that a single view of the enterprise allows a company to better integrate analytical CRM and operational CRM. According to Ruth Fornell.Case Study ROI for a Customer Relationship Management Initiative at GST Position of Teradata's Solution within CRM Space ERM/SCM Back-Office Operational Enterprise Resource Management E-Business Analytical invoked or “triggered” as a result of a significant customer event or entry into a new segmentation threshold. The EDW is essential to executing the CRM strategy E-Commerce Communication Marketing 4 EB-3104 PAGE 6 OF 13 1 Note that in some cases. Exhibit 4 describes the linkages between the critical steps in an effective CRM program: From analyzing customer profiles. through to developing a communication plan. Teradata Chief Marketing Officer. to building predictive models. Teradata’s CRM value proposition is in providing: “Breakthrough CRM solutions that drive intelligent. The Critical Steps in a Fully Integrated CRM Strategy Analytical CRM Analysis Communication. you may want to use the next 30% or 40% as the “Migration” segment. Companies whose strengths had been in offering operational CRM solutions are attempting to address analytic solutions and vice versa. This integrated strategy is more effective than if either CRM strategy were initiated alone.” In order to implement effective solutions that support an organization’s CRM strategy. it is difficult to find a single vendor that addresses the full spectrum of operational and analytical solutions. This CRM solution is positioned in the analytical space and also touches upon marketing automation in the operational segment. CRM Front-Office Operational Marketing Communications Management Communications Management Sales Services Supply Chain Management Customer Service The red line denotes the Teradata Analytical CRM solution E-Commerce Product Supply Chain Management Back-Office Analytical Front-Office Analytical 3 Exhibit 3 shows the proposed Teradata CRM solution for GST. cross-channel personalization based upon a common understanding of all customer interactions. Note that the competitive landscape of CRM solution providers is ever changing. Teradata had therefore uniquely positioned their analytical application to address event driven marketing by integrating with leading operational CRM solutions. Event driven marketing enables pre-determined action to be taken.As of January 2002. .
and detail customer data. this exhibit highlights that the EDW helps to improve the operations of the firm. churn rate represents the percentage of active customers that voluntarily choose to discontinue use of your service or product.000 new customers. Lift Lift is viewed to be the percentage improvement for a given metric. For example. Churn Churn is synonymous with customer attrition.Case Study ROI for a Customer Relationship Management Initiative at GST Note that an effective CRM program will result in maximum ROI only with “better data. Faster Customer Communications Enterprise Resource Management CRM Front-Office Operational Marketing Product Supply Chain Management Services Supply Chain Management Sales Customer Service • Single view of the business • Detail-level data • Unlimited growth • Strategic. if you EB-3104 PAGE 7 OF 13 Evolving the Decision-making Environment to Achieve Greater ROI Enterprise Data Warehouse Environment ERP/SCM Back-Office Operational Better. the more complete the analysis. More specifically. As Exhibit 4 shows. and the more profitable the strategy. For example. Faster Operational Actions • Customer Relationships • Demand Chain • Supply Chain • Financial Operations • Business Process Management • E-commerce • Industryspecific operations Better. network optimization. you will have added 3. Best practice indicates that multiple acquisition campaigns are run daily. you would lose 500. and data warehousing. the take rate averages 6.5% and utilizing analytical modeling improves the lift by more than 400%. customer acquisition programs occur monthly. revenue assurance. This complete set of data is obtained via the EDW. the resulting take rate would be 4%. the EDW supports the entire CRM initiative.000. Lift could also be viewed as a percentage increase in monthly spending. and you realized a 3% take rate.000 subscribers a year. if you had a customer base of 2.000 subscribers with an annual churn rate of 25%. if through advanced analytical modeling. have approximately a 3% take rate and very little is currently being done with analytical modeling. Following are definitions of important terms: Take Rate Within the context of marketing campaigns. Within the industry. tactical and event driven decision making • Significant cost savings E-Commerce 5 target 100. you anticipated a 100% lift or improvement to an existing baseline of a 2% take rate. Best practices result in an attrition rate approxi- . TELECOMMUNICATIONS INDUSTRY CUSTOMER RELATIONSHIP BEST PRACTICES Exhibit 6 contains industry averages and industry best practices for some communication service providers on several elements within the CRM space .” The more complete the data. customer churn. For example. take rate is defined as the percentage of the total recipients who accept or “do business with you” as a result the targeted offer. Not only does the EDW facilitate better. The average customer churn for wireless customers in the industry is 29%. With a single view of the enterprise. These areas include customer acquisition. faster communication between the firm and the customer. This is a key metric for measuring an organization’s effectiveness at customer retention. best practices experience customer churn of only 16%. Exhibit 5 reinforces the importance of the EDW. the firm can create strategic and tactical plans to more profitably utilize the assets of the firm and to create ever-increasing ROIs.000 individuals as a part of an acquisition campaign.
1–10 Industry Best Practices a. 16% b. Lift with analytical modeling Customer Churn a. 1% b. Customer complaints Data Warehousing a. The management of operational assets is also compared for the industry and best practice. Entire enterprise b > 10. but they lacked the right analytical tools to improve take rates. 90–120 days c. 25% c. Quantity of Campaigns b. 7. Average number of end users Average number of applications Business Driver Industry Averages and Industry Best Practices Telecommunications Industry Industry Averages a.Case Study ROI for a Customer Relationship Management Initiative at GST mately one-half the industry average. Every 30 days b. Teradata their customers. Best practice. detects and removes fraud in fewer than 3 days—this reduces the percent of bad debts associated with fraud to 2% and the percent of revenue lost to fraud to 1%. Davis also wanted to position the value of GST’s existing Teradata data warehouse as the foundation to store all customer information (transactional. 5 – 8% c. On average. Exhibit 1 and Exhibit 3 illustrate the CRM landscape and an enterprise view of CRM using the Teradata data warehouse. End users and decision-makers no longer had to search for information about its business. Fraud % of bad debt Network Optimization a.” Several marketing mangers wanted to understand how to take more complete advantage of the customer information in the Teradata data warehouse. . Davis knew that the Teradata CRM solution could assist in this and other areas. Wireless b. One marketing manager commented: “With the new enterprise data warehouse I no longer have to wait weeks before getting important information on my largest corporate accounts. 442% a. takes 90-120 days to detect and remove fraud. the industry average is 25% annually while best practice only loses 20% per year. He knew that GST’s EDW combined with Teradata CRM solutions would enhance decision-making. Days: fraud detect-to-remove c. 29% b. _ – 5% c. Data trending b. they only lose 7. the industry loses over 5% of revenue to fraud. considering the industry’s use of data warehouses. customers and competitors in multiple data silos. 1–2 operations are supported. With the EDW they could access customer information quickly. Director of Marketing. is 28%. on the other hand. for firms demonstrating best practice.000 c.3% to attrition. Operational CRM is typically only effective when combined with robust analysis and planning tools. Marketing Specialist. > 100 6 Adapted from: “Communications Strategies and Best Practices” by Jack Knapp. Every 30 days c. daily engineering reports. 2% a. on average. 1–2 b. generates engineering reports monthly and receives 50–100 customer complaints per day. Firms that fully exploit their warehouse typically handle more than 10. patterns and trends in their behavior. A Single Integrated View of the Customer As a result of the data mart consolidation project. n/a a. Cable Revenue Assurance a. Customer churn for cable. Monthly (12/year) b. 15% a. 20–50 per day b. For long distance. Engineering reports c. Teradata. Organizations supported b. The data warehouse would therefore enable the development of new creative approaches to better understand and predict customer behavior. GST had made significant progress in bringing together a wide variety of processes and systems to achieve an integrated view of EB-3104 PAGE 8 OF 13 Customer Acquisition Campaigns a. daily c. external and/or purchased data). The Power of Analytics Davis wanted to clearly position the Teradata CRM solution. especially given the dynamic environment that GST was forced to compete in.000 end users and run more than 100 applications. and receives fewer than 2 customer complaints per day for a comparable company. 28% a. fewer than 20 end users. Lost revenue to fraud b. Take rates c. 2–3 days c. 20% c. 50-100 per day a. Best practice in the same industry produces daily data trends. 1–2 per day a. Long Distance c. Finally. and fraud constitutes about 15% of bad debts. and Carol Martin. A CRM STRATEGY FOR GST INC. on average. Revenue assurance statistics contained in Exhibit 6 refers to fraud management. 5–20 c. and to craft communications tailored to individual customer needs. daily b. The EDW would act as a bridge between operational CRM (such as sales force automation tools) and analytical CRM (predictive capabilities) for improved business insights.3% a. and fewer than 10 applications. The industry examines monthly data trends. 5–6% b. These tools enable managers to understand who the customers are.
TERADATA will interview a number of GST employees to collect current financial and operational information and develop a projection of the return on investment (ROI) associated with the proposed solution. incomplete. This is where some thought will have to be given as to what marketing actions will be taken. Findings The business discovery process uncovered many facts. Project DURATION 3. Teradata’s business discovery was appealing to GST senior management. summarized in Exhibit 8. When these delays result in an increase in Service cost. is included in Exhibit 7. The report may cover areas such as: Business Impact Assessment • An Executive Summary • Recap of Business/Operational Impact Findings • Financial Impact Report Business Impact Model • Development of a GST specific business impact model based on TERADATA’s impact model(s) • Restricted access to customer specific Business Impact Model (Microsoft Excel Version with access to formulas locked) 3. or Deliverables. GST will grant this extension with no penalty to TERADATA. the project’s duration and the responsibilities of the parties to the agreement are detailed. TERADATA will provide a presentation of the anticipated financial results and overview of the business impact model. 2. Should the Start Date be postponed due to a delay in the execution of this SOW. in turn. described below. TERADATA will leverage the knowledge gained from the Business Impact Assessment task to develop and deliver a detailed Business Impact Report and a GST specific Business Impact Model for further analysis and use. data.2 Business Impact Assessment. services. TERADATA will provide the following: • Business Impact Assessment • Development and Delivery of Business Impact Model 1. and/or different from specified requirements may generate similar delays. She also knew that she would need assistance in defining metrics for the ROI. The business discovery was an important starting point for GST’s analytic CRM initiative. This Statement of Work (“SOW”) between Teradata. (“GST”) is for services to be provided to GST by TERADATA in connection with Business Impact Consulting. the End Date may be extended. was that GST needed to embark on a targeted acquisition campaign. In addition.000. Project Deliverables TERADATA will provide a written report covering its findings and recommendations from the assessment services. Furthermore. TERADATA will provide a presentation of business impact assessment findings to GST. A review of GST’s 5-year strategic plan by the Teradata team discovered a growth target for a portion of their customer base. TERADATA will interface with a person appointed by GST to sponsor the work (“Business Impact Assessment Sponsor”). since it would assess GST’s standing within the industry and propose a solution to help GST move towards best practices. or non-availability of GST personnel.000 wireless accounts should grow by 5% per year.Case Study ROI for a Customer Relationship Management Initiative at GST Davis planned to focus his recommendation on the business benefits of CRM. schedule. 1. The main finding. a division of NCR Corporation (“TERADATA”) and GST Inc. Kolks liked that the business discovery would help enable buy-in across multiple business units on the most critical 2 business issues. Statement of Work Between Teradata and GST Inc. generate a delay in TERADATA’s provision of services. The proposal defined a business discovery as a statement of work between Teradata and GST to identify the “pain points” most critical to senior management and to suggest a specific solution based on the findings.TERADATA will have its consultant(s) review and analyse GST’s current financial and operational results and will facilitate a meeting to discuss TERADATA’s findings and make recommendations.2 GST recognises that any delay that GST may incur in providing to TERADATA the technological and human resources. 3. The exhibit describes the business impact assessment as well as the development and delivery of the business impact model. GST management believed the 13. 3 . Project SCOPE/Services 1. TERADATA will inform GST of any impact to cost. Kolks was successful in selling the business discovery to her peers. 1. BUSINESS DISCOVERY Statement of Work The Statement of Work (SOW) between Teradata and GST.3 Development and Delivery of Business Impact Model.1 Scope. During the business discovery.1 The parties anticipate that TERADATA service delivery will begin on 7th January 2002 (“Start Date”) and be completed within approximately 4 weeks from the Start Date (“End Date”). With appreciation for the internal battles that Kolks might face. Teradata professional services would also collect current financial and operational information and develop a projection of the return on investment (ROI) associated with the proposed Teradata CRM solution. Davis prepared a business discovery proposal (see Exhibit 7). The SOW details. and necessary information for the execution of the objectives of this Service may. Specifically. which Davis would present to Kolks and Johnson in his final recommendation. Continued next page 7 EB-3104 PAGE 9 OF 13 Note that marketing research studies may provide additional insights into what constitutes a reasonable percentage increase in value. GST currently ran monthly campaigns to acquire new customers. GST also recognizes that the provision of information that is inexact. step by step the process Teradata would follow when developing a specific solution.
The customer would then have the option of prepaying ongoing required increments of time with options available for $30.3 GST is responsible for the identification and interpretation of any applicable laws. $50 or $100 with cost per minute being lower as you buy larger “blocks” of airtime. 5.2 GST will provide TERADATA personnel and third-party vendors with safe and reasonable access. independent of the details of the offer.2 If GST requires rework or modifications beyond the scope of the Deliverable as provided in this SOW. Third-Party Deliverables. GST is responsible to provide all the necessary data elements (customer specific responses) required to adequately assess the impact of the solution on their business.5 The services to be provided by TERADATA include only what is expressly described in the SOW.000 minutes of use. Such personnel will constitute the Project Team. Payment 6. In addition. 6. Such rework or modifications may not be limited to the affected Deliverable and may include items such as regression testing or integrating the affected Deliverable into the overall solution.4 GST is responsible for the articulation and approval of the business requirements driving the definition of this phase of the service. GST agrees to not employ. regulations. or enter into a consulting relationship with any employee of. Actual individuals assigned to the Project may fill different combinations of roles. 8. will be made in a written document signed by both parties. 4. Personnel 5. The process began with analysis and segmentation of targeted prospects for increased probability of acceptance. made up of 15 days professional services at $2. 4. The value of the offer stressed a “manageable plan” from a cost standpoint that provides the added security of being in touch with your ever more mobile children. including travel time to and from GST locations for TERADATA and its subcontractors. local telephone extensions (including outgoing analogue telephone lines for modems). the solution of any problem originating from the quality of the data used to develop the Business Impact Model. light. Change Control Process Any changes to this SOW. 7 . and outlets). The process for designing and executing other campaigns was the same. TERADATA who is directly involved with the delivery of services under this SOW.000 per day. for both services and expenses will not exceed $50. and for a period of one year thereafter. one targeted acquisition campaign started with GST’s analysis of their customer base and prospect list (augmented by external information on the household) for children between the ages of 15 – 17 who were celebrating a birthday. working space and facilities (including heat. 5.1 TERADATA will perform the services specified in this SOW for $30. 6. A personalized offer was then extended through single or multi channels (direct mail. TERADATA will be entitled to an adjustment in price equal to TERADATA’s standard price for the additional work and a corresponding adjustment in the Project schedule. TERADATA and GST will make available additional personnel as needed. 8. The Change Control Process will be followed to determine the impact of additional work required and both TERADATA and GST will agree to this work before it begins. but are not limited to. GST’s latest experience shows that the cost to contact a single potential new customer is $5. as reasonably requested. Additionally. convenient fax access.2 This price does not include travel and living expenses or the price for products. Approximately 3% of the potential customers contacted recently became new customers (3% take rate). It is the responsibility of GST to assure that the systems and processes meet the requirements of those laws. and email) — the results were tracked for continued knowledge of customers and prospects.5 The total amount billed to GST against this SOW.1 TERADATA and GST will assign personnel to execute the roles required for this Project. RESPONSIBILITIES 4. The services and deliverables excluded from the present contract include. The offer was made through direct mail to the parent(s) with a special package on a prepaid wireless phone. services. except upon the prior written consent of TERADATA. GST Program Sponsor will complete a “Deliverable Completion Sign-Off Form” for each Deliverable or billing milestone.1 Deliverables will be considered accepted upon delivery. 6. as stated in the Addendum. etc. or maintenance. DELIVERABLE COMPLETION SIGN-OFF 8. will be invoiced on a monthly basis. are GST’s responsibility.000. including scope.3 Travel and living expenses. GST will work with the TERADATA to provide the services called for in this SOW and.2 Roles required for this SOW are as follows: TERADATA Roles: • Business Impact Modelling Analyst • Professional Services Consultant GST Roles • Business Impact Assessment Sponsor • Departmental Level Executives • Business Users 5. except for income taxes levied against TERADATA.1 TERADATA will provide the resource described in this SOW. GST will be billed on a monthly basis. 6.000. or subcontractor of. 4. the parent could buy the phone and the initial 1.Any information provided regarding the return on investment of the Project is a non-binding estimate only. and other necessary physical facilities for TERADATA and third-party personnel. computer space. make an offer of employment to. ventilation. will provide the required personnel to complete the services. and statutes that affect the existing GST application system or programs that TERADATA will have access to under this SOW.Case Study ROI for a Customer Relationship Management Initiative at GST As an example. 4. the average monthly spending by a customer in the EB-3104 PAGE 10 OF 13 Continued from previous page 4. software..4 All taxes incurred and all duties assessed on the products and services. electric current. fees. 6.2 During the performance of this SOW. 7. For $99. telemarketers. GST will pay all invoices in accordance with the Master Agreement.
what is the current average campaign take rate for acquisition campaigns by GST customers? Monthly 3% 5% $42 20% 40% 38% 16% What does Teradata suggest as the anticipated improvement in the acquisition campaign take rate? Currently. The average improvement was 8%. the average number of customers leaving each year is 29%. what does it cost GST to contact one customer? Historically. firms could target customers likely to spend more per month than the average customer. For the metric “Customer Churn. GST must acquire approximately 23% new customers each year. the competition for these customers is intense so that when GST signs a customer.” GST is considered one of the best in the industry losing approximately 18% per year. In order for GST to grow by 5% per year. or company executives. the data might indicate married couples with two phones and children spend 20% more per month on average than does the typical customer. As a result of the work with Teradata’s Professional Services associates.0% $5 What is the annual growth target for the relevant customer base embedded in the strategic plan? How frequently does GST run acquisition campaigns? On average. Finding How many customers are considered relevant for the proposed CRM program? Values 13. it must replace any customers lost to churn throughout the year.000 5. in part. For example. A targeted campaign would be designed to attract more married couples with children. The original Teradata contract was for $120. it was determined that GST was in the early phases of CRM development. better data makes that possible. retired people. During the data mart consolidation pilot program GST had contracted with Teradata. the report indicated that with better data. Within the industry. Davis estimates that one-fourth of the contract cost was linked to the CRM study and the remaining 75% tied to collapsing the remaining 45 data marts into a data warehouse. Teradata’s experience with acquisition programs in the communications industry had produced an improvement in the underlying firm’s take rate in the range of 3% to 15%. While smaller improvements and much larger improvements had been achieved. The business discovery cautioned GST that while they might attract customers with increased spending habits. Similar campaigns can be designed around single parents. these same couples exhibit an attrition 8 rate one-half the typical customer. it should highly discount projected revenue beyond one year. Davis suggested the observations outside the range be tied to unique circumstances within those firms and should be In addition. In addition. in order to increase the customer base by 5%. Teradata suggested GST could expect an increase in average customer spending by the new group in the range of 10% to 32%. . and propose a solution where appropriate.Case Study ROI for a Customer Relationship Management Initiative at GST Summary Findings from the GST Business Discovery Relevant to the Proposed CRM Acquisition Campaign ignored in this analysis. Typically. what is the average monthly revenue per GST customer for the relevant customer base? What is GST’s average incremental gross margin percentage on the goods and services offered through the campaign? What is GST’s appropriate required return for the analysis? What is the appropriate tax rate for the analysis? What does Teradata propose as the anticipated increase in average monthly revenue per customer? targeted group is $42 for the goods and services included in the proposed campaign offer. couples without children. to study the characteristics of a subset of GST’s customer base and to compare those characteristics with other companies with EB-3104 PAGE 11 OF 13 whom Teradata has worked. If the buying experience of a cohort of current customers is something the firm would like to replicate. Therefore.000 per year for the second and third years of the pilot program.000. firms initiating CRM activities for the first time tend to experience a larger than average improvement while firms further along the CRM journey receive a less than average improvement.
Standard with any offer were call forwarding.500. The contract calls for an additional 20% of the original charge per year for Professional Services.000. it was safe to assume the up-front implementation costs occurred at time zero. Software Cancellation/Extension Fees 1. GST FINANCIAL DATA & THE CRM PROJECT IMPLEMENTATION COSTS The Teradata Professional Services team suggested which items to include in the product service offer. Cancellation Fee 2. Hardware (Nodes and Disk Array) 1. worldwide calling and 1000 peak-time monthly minutes of Internet access through the handset. Davis realized that for Johnson and Kolks to accept the ROI analysis. The immediate payment (T=0) for hardware sulting. software and Professional Services are contained in Exhibit 9 for the CRM proposal implementation. Hardware 1.000 3. hardware and software charges 2. hardware maintenance and software maintenance. laptop or television. Software and Professional Services One-time Costs – Payable at T=0 and Depreciated Using Straight-line Depreciation 1. determined the gross margin on those items would be 40%.Annual maintenance and upgrades would be 12% of the list price for hardware and 18% of the list price for software. Extension Fee 1.000. from past experience GST could assume the initial contract between GST and the new customer would be for one year. The weighted average cost of capital for GST was 14%.500. GST could shorten or lengthen the contract at their discretion. Ongoing Charges and Cancellation/Extension Fee for Hardware. $1. 24/7. Billing for consulting would be monthly. The penalty for shortening the contract was a payment equal to The process for planning. call waiting. Dan Wymer.500.000. and software for the Teradata CRM solution was $1.000 Ongoing Maintenance/Upgrade Fees – Billed at the End of the Monthly 1. even though in reality these costs would be spread over a few months. however. Professional Services (Consulting) Ongoing Maintenance/Upgrade Fees – Billed at the End of the Quarter 1. Professional Services (Consulting) 3. For example. billed at current rates – maximum one year extension 9 EB-3104 PAGE 12 OF 13 . a campaign run in January would produce a new customer in February and this new customer could be expected to maintain his/her level of spending through the following January. 20%/yr of one-time cost.Case Study ROI for a Customer Relationship Management Initiative at GST Given the nature of the products and services being offered (telecommunications) GST should expect to begin receiving revenue from any new customers in the month following the The one-time and ongoing charges for hardware. payment at time of cancellation totaling three months of ongoing PS. respectively. The contract between GST and Teradata called for an initial commitment of three years for conone-quarter’s worth of the ongoing costs for hardware.000. CAO. The first acquisition campaign would be initiated one month after the Teradata proposal was adopted.00 and $2. $1. These items included: 500 monthly minutes of from anywhere to anywhere.000 2. 12%/yr of one-time cost. For the business discovery ROI analysis. and voice mail. In addition. paid quarterly 2. for projects determined to One-time Costs. The contract could be extended for a maximum of one year at the same rate quoted in the original contract. instant paging/instant messaging. software and consulting. Software 2. campaign.500. delivering and measuring ROI is a science that requires discipline and consistency. 18%/yr of one-time cost. a detailed breakdown of the implementation project was not necessary. paid quarterly 2. $2. Professional Services’ immediate charge (T=0) for the implementation is $1. paid monthly 1. These charges would be billed at the end of each quarter.
Ideally. THE PROFESSIONAL SERVICES TEAM MEETING Davis convened the Professional Services team meeting on Thursday morning with a rather startling announcement: “Well folks. “And by ready. fraud detection.S.com www. Davis asked the Teradata Business Impact Modeling team for their suggestions when evaluating these real options. The team agreed that it would take several months for the hardware and software to be in place so clearly a one-year time Davis needed his team to make a decision and be prepared to defend their position in the meeting on Thursday. He wondered aloud to the team: “Should the financial analysis account for valuable cross sell/up sell opportunities facilitated by the investment in the infrastructure for the proposed acquisition program?” Davis recognized that this was only one of many additional benefits that the analytical CRM investment could enable.nwu. You have the results in front of you. the team also knew that if the analysis continued far enough into the future. I have committed our team to present the Business Impact Assessment to Mark Johnson and Erica Kolks next Thursday at 11AM . OH U. used in a spreadsheet. etc.Additional benefits could include better evaluation of GST’s network capacity. GST would have access to the demographic data of its existing customers. functions and operations described herein may not be marketed in all parts of the world. Now all that is left is to resolve the remaining issues.teradata.edu Dayton.kellogg.” A second issue Davis highlighted for the team’s discussion concerned the leads for the acquisition campaigns. stored in a retrieval system. All rights reserved. I know we will be ready. improved retention programs. For projects determined to be less risky than average. Davis needed his team to make a decision and be prepared to defend their position in the meeting on Thursday. We should be answering Mark Johnson’s questions long before he has had a chance to even think them up. a 12% return was required. Davis wanted to know: “What safe guards should be in place prior to initiating a targeted campaign? How should this knowledge of ‘data reliability’ affect GST’s required return?” The final issue that needed to be resolved by the team was the appropriate time period for the analysis. © 2002 – 2008 Teradata Corporation www. Teradata continually improves products as new technologies and components become available. The business discovery process has been completed. Developing the profile of an ideal new customer utilizing current customer data was fraught with risk.A. cleaned. © 2003 by Mark Jeffery.S. All features. However. reserves the right to change speciﬁcations without prior notice. and write the report. I mean I expect our analysis to be thorough. The appropriate tax rate was 38%. EB-3104 PAGE 13 OF 13 . On the other hand. We’ll be ready or we’ll lose the opportunity!” After a brief pause to make eye contact with the team. This information provided a sense of the kinds of new customers the firm would like to attract. “Where does GST find the names and addresses of potential new customers?” At this point. They could never expect such a quick payback. Teradata therefore. photocopying. a 16% required return was used. the mathematics alone would probably produce an acceptable ROI.A. Consult your Teradata representative for more information.. he continued: Davis went on to explain that he would like to position the proposed acquisition campaign within the context of an overall CRM solution strategy that would include other key business benefits. calculate the ROI.. Produced in U. the data had been screened. and the appropriate information obtained.Case Study ROI for a Customer Relationship Management Initiative at GST be riskier than average. No part of this publication may be reproduced. or otherwise .without the permission of Mark Jeffery. a big question was: horizon from today was unreasonably short. WorldMark is a trademark and Teradata is a registered trademark of Teradata Corporation. or transmitted by any means electronic. mechanical. we have a week. GST was most likely relying on the data reliability of a third party supplier of mailing lists—sophisticated analytics are worth nothing if the database employed is incorrect.