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The McKinsey Quarterly 2004 Number 3

Glenn Mitsui

pricing appropriately. Daniel Levitt. advertising. 81 . and Jeffrey R. which at this point are likely to be incremental. getting it right the first time) typically involves focusing on a few clear business objectives. and providing after-sales support. 1 2 CRM helps companies to plan and analyze their marketing campaigns.” The McKinsey Quarterly.mckinseyquarterly. and many have followed their early disappointments with full-scale CRM remediation efforts. whether it involves delivering a new solution. Schumacher What’s left to say about customer-relationship-management (CRM ) solutions?1 Business commentators have spilled oceans of ink describing the gut-wrenching rise and fall of these programs’ reputations. “How to rescue CRM . to identify sales leads. Anupam Agarwal. Nor does the fault lie with the technology itself—most systems provide the required features. and realigning the organization to help it embrace new tools and processes. for the lucky few. Harding.Organizing for CRM 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. Turning around a CRM program (or. David P. See Manuel Ebner. Most large companies have implemented some form of CRM . pp. Arthur Hu. What’s wrong? It’s not that companies are spending wildly. many of them build robust business cases before making their investments. fixing a foundering application. Companies have lavished attention on business and technology issues because both were glaring early impediments to CRM’s Indeed. and Jim McCrory. according to several recent surveys. building or reconstructing the technology to meet them. and to manage their customer contacts and call centers. 2002 special edition: Technology after the bubble. 48–57 (www. The core of the problem now is that too few companies are paying enough attention to the organizational challenges inherent in any CRM initiative. more than half of all companies investing in CRM consider it a disappointment.

and a broad array of managers. Like any product or service.3 The role of senior executives is vital. and provided with after-sales support. and complicates the challenge of persuading employees to embrace CRM . from executives and middle managers in the insurance industry. correlates strongly with success in CRM (Exhibit 1). Senior executives can dramatically improve the likelihood of success by explaining in detail what a CRM initiative will accomplish and when. Exhibit 1 of 4 and deployed. This diversity creates accountability issues delivered. forceful messages from the top are critical to enforcing accountability and motivating change. business Q3 2004 analysts. priced appropriately. who will be involved. it must be infused with clearly defined value. Similarly. loud and clear. advertised. to name just CRMa few—who must collaborate to ensure that a CRM program is defined.The McKinsey Quarterly 2004 Number 3 82 or tweaking a functioning CRM capability. . and senior executives. 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. Attention to these perennial organizational challenges. exhibit 1 Success—more than software % of respondents Users appropriately trained when/how to use new system 30 All affected business units provided input during planning 32 Modules launched at intervals that promoted adoption by users 33 Cultural shift required by adoption of new system addressed 33 Companies reporting successful CRM implementation 67 69 79 59 Companies reporting failed CRM implementation Source: 2003 McKinsey survey of 60 insurance agency directors. and track the many employees in diverse positions throughout the organization who make or break the CRM program. which are easy to overlook in the rush to fix the technology and business-alignment issues. no temporary centralized team. train. CRM’s impact on frontline employees is so significant and potentially jarring that clear. In our experience. gets everything right. McKinsey analysis Solving these organizational problems requires a company to go beyond the vigorous exhortations and heavy-handed rollouts that many have relied on—understandably. These challenges stem from the wide variety of people—frontline sales and service providers. however competent and well intentioned. as well as supporting initiatives to motivate. managers. What’s needed to achieve longterm business results is an infrastructure grounded in accountability. 3 The authors heard this message. Instead companies should view CRM as a product or service targeted at internal customers. and which trade-offs will be necessary—and by taking tough corrective action against pockets of resistance. whom we recently interviewed and surveyed about the factors influencing the successes and failures of their CRM programs. IT professionals. in view of the money invested and the opportunity costs of failure.

who are responsible for inputting much of the data the CRM initiative needs to yield rich insights and for acting on them. you will be judged a success. If you’re an IT manager. backroom operations specialists. responsibilities. if you’re a business leader. Confusion about roles. communication 1 Actual functions and organization vary by individual company. participation 83 .Organizing for CRM The organizational challenge Building. even if it doesn’t deliver actually CRM all of the promised results. managers who use customized reports to fine-tune sales. Fuzzy accountability Put yourself in the shoes of the typical IT or business manager who is involved with a CRM initiative. you also recognize that as long as the project comes in on time and on budget and the software Q3 2004 works. that’s an IT problem. You know that your long-term career advancement has less to do with its success than with your performance in your ongoing role. business analysts. or running a CRM solution involves a large cast of characters. 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). and frontline sales and service people. and customer service strategies. It can include systems experts. 2 Head of CRM program often reports to chief marketing officer. Equally. marketing. accountable exhibit 2 Who’s accountable? Location of primary organizational obstacles associated with CRM activities1 Executives CEO COO Region C Region B Region A CMO2 CIO Business-unit heads Worldwide/corporate operations IT Frontline users Operations Operations Development Sales Head of sales Business unit 3 Business unit 2 Business unit 1 Frontline users Sales Sales Architecture Marketing Sales Marketing Marketing Infrastructure Service Marketing Service Service Quality assurance Service Regional IT Organizational obstacles to implementing CRM Lack of commitment. modifying. accountability Lack of motivation. you are not Exhibit 2 of 4 for delivering the required features.

without enough participation from IT. it also magnifies the difficulty of effecting behavioral change in managers. At worst. unclog bottlenecks.84 The McKinsey Quarterly 2004 Number 3 When the responsibility for different aspects of the solution rests in different places. accurate information and analysts generate the right reports. frontline employees are likely to go on behaving in the old way. As a result. CRM helps managers to see quickly when salespeople are not hitting their targets and remedial action is necessary. If management doesn’t augment the underlying performance metrics. by contrast. Yet it’s easy to see why salespeople and managers might drag their feet. for instance. Business operations personnel who served as the end users’ proxy lacked the right kind of frontline expertise. Managers. . and make effective decisions. salespeople. even if it helps the company. a failure to choose the right features. and ultimately abandoned its original plans and began redefining the program. Resistance to change The large number of stakeholders involved with CRM doesn’t just complicate accountability. One large computer manufacturer’s CRM program. Too often. it’s often hard to muster the organizational resolve to pull in the right people. Unfortunately. the solution didn’t meet the needs of the business. took several months to realize that achieving its goals with the chosen technology would take more than a year. In the past few years. But management can act only when salespeople input timely. companies wind up with the kinds of problems that plagued Sovietstyle planned economies: a lack of ownership. Excessive reliance on technology specialists who didn’t really know what would make CRM solutions valuable to businesses helped sink many early CRM initiatives. foundered because no one could free up the time of the end users who were needed to help define the solution’s requirements. some organizations have overcompensated so much that many capabilities are now defined by the business side. Salespeople also fear that new systems and bureaucracies will bog them down. Consider the problem of sales-pipeline management. The computer manufacturer’s experience probably sounds familiar. the results resemble those experienced by one large media company that developed a strong business case with limited participation by its IT organization. The former are inherently skeptical because they think that information flows only in one direction (which it often does) and is therefore unlikely to benefit them. and an inability to meet performance goals. and business analysts—all groups whose recalcitrance can cripple an initiative. the fuzziness of organizational accountability for CRM means that such frustrating experiences are common.

Training—another typical response. often involving just a day or two of classroom immersion in the new features—overwhelms users and they often complain that their training is too abstract. 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. “sender” (delivering the solution) and “receiver” (implementing it). and opportunity management lie dormant. they aren’t likely to infuse the deployment with energy or to modify the metrics for evaluating frontline employees. data analysis. in this case.Organizing for CRM 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. Many companies have responded by punishing salespeople who don’t “get with the program. Many become discouraged after valiant attempts to use the new system and revert to their old ways despite management’s exhortations. companies should make both parties responsible for all of its aspects. more than a third of the CRM modules developed during the past three years in areas such as marketing-campaign management. but few operating plans take this reality into account. Instead of holding businesspeople accountable for determining the requirements of a CRM solution and IT personnel for developing it. In the insurance industry. who up compliance. but only in a complain that it is too abstract grudging and mechanical way that isn’t likely to exploit the initiative’s full potential. This approach creates accountability and lays the groundwork for later efforts to motivate employees to embrace the initiative.” Heavy-handed approaches such as docking comTraining—often involving just a missions or circulating internal day or two of classroom immersion— blacklists of nonadopters may bump overwhelms users. Sending and receiving In our experience. for example. these problems can be solved. The predictable result is that CRM systems are used little or not at all. a simple but powerful structural solution can help organizations overcome the accountability issues that bedevil CRM efforts.) When midlevel managers hedge their bets. from 85 . (Productivity often drops during deployment periods. Fortunately. 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.

versions behavioral change • Coordinate deployment • Ensure readiness for launch in field Business IT Key functions • Define business needs. particularly the systems-training programs that help launch it in the field.86 Q3 2004 The McKinsey Quarterly 2004 Number 3 CRM Exhibit 3 of 4 exhibit 3 Mixing business with technology Region C Region B Region A Business-unit/regional operations Sending Worldwide/corporate operations Business IT Key functions Key functions • Define solutions • Create functional/ • Consolidate requirements technical design • Verify/accept developed • Build solution solution architecture • Develop communi• Develop system • cations and systemsTest system • Manage software training programs • Manage organizational. assessing how the behavior of end users must change to take advantage of the proposed solution (and therefore what behavioral training is necessary). usability requirements • Document business processes • Conduct user-acceptance testing • Develop communications and behavioral-training programs for users • Execute changemanagement process (organizational. At the same time. the receiving team also . The sending team’s function is to define a solution that meets the objectives specified in the business case. designing process shifts to managing change to implementing technology. companies must carefully delineate the responsibility for sending and receiving the solution as a whole (Exhibit 3). and implementing the sending team’s systems-training plans. executives get fewer surprises later on. and supporting its deployment. As for the receiving team. it provides the business case and the usability requirements. and then to deliver it. if necessary. to estimate the level of effort required to implement the solution. Then it leads the rollout by communicating to internal customers the goals and likely implications of the program. “Delivery” includes establishing the architecture of the system. behavioral change) • Deploy system Key functions • Prepare infrastructure1 • Ensure localization support for software • Install software • Manage regional IT development • Ensure smooth migration of data Receiving 1 Includes determining hardware requirements and consolidation. building and testing it. When an initiative involves placing new technology in the field. When all the elements of this broad mandate show up in a sending team’s cost assessments.

ultimately. Because accountability and ownership were clear. if the estimated benefits of the business case appear too small or squishy to justify the cost. slipping delivery dates. The sending-and-receiving structure also helps bring order to CRM’s training challenges. 87 . Second. Employees sending new features know that the program’s success depends on their usefulness to the receiving team. design. nobody can ensure that they really are useful better than a member of the receiving team who has local-deployment responsibilities. Moreover. First. should estimate the effort required to carry out its work before getting started. it becomes harder for either side to define its scope of accountability too narrowly. since each team includes both IT and businesspeople. which often arise because most CRM solutions create a need for both systems and behavioral training. it is always possible to hold teams accountable for them by checking whether the receivers were unprepared. Of course. and the receiving team. the senders failed to deliver. with the former monopolizing training resources. The sending-and-receiving infrastructure addresses accountability issues in two critical ways. and deliver each piece of the initiative. Its teams—which included members from the Americas. like the sending team. disappointment. that support is available for customizing software to local needs. And when problems arise. and Asia—began by clarifying who would define. it overcame the weak accountability that had engendered budget overruns. Finger-pointing by senders or receivers is of course possible. “scope creep. develop. In fact. The twoday classroom cram sessions typical of systems training aren’t enough to change these habits. 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. When a large global technology company whose executives coined the sending-and-receiving terminology adopted this structure in its CRM program. and the communication of the program’s goals to internal customers stayed front and center. All this has a cost. behavioral training. executives have a solid reason for backing off from weak initiatives. individuals on each team have a powerful incentive to coordinate their activities.” and. and that data can be moved to the new system. but the likelihood of it is diminished by the two teams’ dovetailing responsibilities. 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.Organizing for CRM ensures that the infrastructure is ready for use. or both. Europe. As a result. often-overlooked issues such as organizational implications.

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 case. Targeted follow-up visits tracked progress and provided remedial support. The kind of behavioral training that often falls through the cracks when responsibility for implementation isn’t divided between sending and receiving teams is typified by a major pharmaceutical company’s training efforts. the receiving team employs “live-fire” and “dayin-the-life” approaches that integrate new work procedures with systems training. It’s important to show salespeople. Ideally. which encompasses issues such as changing job responsibilities. Their success gives the CRM effort the credibility that drives widespread adoption. In this way. improve their collaboration with other sales reps (thus closing deals more quickly). . 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. 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. and procedural changes. the pilots yielded sales increases of more than 50 percent. for example.88 The McKinsey Quarterly 2004 Number 3 Responsibility for systems training—which includes developing training material. skim off customer data that would help them develop better leads. Another helpful step is targeting successful. running the sessions. how a CRM initiative could reduce the number of processes they deal with or of systems they use to enter data. they weren’t launched by an explicit receiving team. Members of the receiving team should take the lead in behavioral training.) The company asked its sales reps to move from a uniform selling approach to one that was tailored to doctors’ attitudes. and providing follow-up support— should be owned by the sending team. In many cases. and reduce the time needed to generate quotations or obtain information about products and competitors. however. new incentive plans and reporting relationships. including new processes for signing off on decisions and for making them on a higher level when appropriate. influential salespeople as early adopters. it got the sales reps up to speed quickly while allowing the headquarters staff to see the program in action and to make real-time adjustments.

styles. Comparisons are executives. This retailer also observed that while loyalty programs and periodic promotions helped pull in such customers. A CRM initiative provided sales associates in stores with lists of target customers they could personally call and offer to assist with new merchandise. For sales associates.Organizing for CRM Consider the experience of a department store retailer that identified “aspirational” shoppers.” The program yielded 10 percent growth in revenue from target customers. results vary by region (Exhibit 4). “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. customer Q3 and2004 user satisfaction. sizes. and margins. importance of specific metrics (and combinations thereof) varies widely by industry. organizational makeup. goals of CRM initiative. as key sources of revenue growth. exhibit 4 Rules of the road Disguised example of ‘dashboard metrics’ for diversified technology company 20 Region 4 Change in net revenue over previous year. the message was. as previously believed. colors. Dashboard metrics that reflect the CRM sources of value propelling the initiative roll up into a high-level view for Exhibit 4 of 44 Often. % Change in net revenue over previous year.1 company discovered that effectiveness earlier in the sales process predicted success better than conversion rates did. Incentives provide important reinforcement. and we’ve found that quite specific goals are the most likely to inspire the desired behavior. 4 Of course. and the like. who shop infrequently but aspire to do so more often when their incomes grow. Determining appropriate metrics requires due diligence to determine beforehand which business levers are most important and how much value each can create. % Through analysis of selected metrics. system usage. % 100 Region 4 Region 2 15 Region 1 Region 3 10 5 0 0 20 40 60 Conversion rate of opportunities into orders. 1 Exhibit depicts selected metrics analyzed by company for this particular business initiative. The best CRM initiatives thus employ detailed “dashboards” that track changes in metrics such as revenue. 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. % 20 Region 2 15 Region 1 Region 3 10 5 0 0 20 40 60 80 Conversion rate of leads into opportunities. 89 . they reacted particularly well to personalized service. lead-conversion rates.

The right answer depends on what benefits the organization expects. CRM teams require cheerleading for motivation. Moreover. for example. Clear messages like these help keep the effort focused and are far preferable to vague platitudes about the importance of customer satisfaction. The senior executive’s role Although many organizational challenges impeding CRM require solutions from the front lines. senior executives too have important responsibilities. A retail bank seeking to expand its business in credit cards. like marathoners running a difficult course. Senior executives are uniquely positioned to provide this assistance. or improving cross-selling rates to achieve annual revenue targets. when a big productivity drop seems likely. Indeed. Executives need to treat important CRM milestones and performance goals just as seriously as they do quarterly business-unit profit targets. This highly focused effort yielded a 15 percent sales jump for the targeted products in just eight weeks. for example. it’s vital to involve the CEO and CFO early so that they can help manage external expectations. Not every initiative yields immediate gratification. only the CEO and the business-unit heads (or their chief Top executives ought to treat lieutenants) have the authority important CRM milestones just to establish a sending-and-receiving as seriously as they do quarterly infrastructure that cuts across business-unit profit targets organizations. And clearly. set and tracked ambitious weekly cross-selling targets down to the individual branch and call-center employee and rewarded those who met them. fuel to keep going. the senior team has a critical role to play in enforcing accountability. But too much slack is also risky. which keep the heat turned up and let them cut through the political tussles that invariably arise during large cross-organizational initiatives like CRM. One key to success is articulating a specific business rationale—improving customer satisfaction to boost retention and keep competitors from stealing market share. 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. A company planning such a program should take into account the potential for productivity to drop during the deployment period. In extreme cases. which often lasts as long as three months. For starters.90 The McKinsey Quarterly 2004 Number 3 important because they promote the sharing of best practices and the finetuning of goals and rewards for specific regions and personnel. and clear direction to stay on course. . without some leeway. Senior executives should also demand regular status updates.

In management meetings across the company. Q Anupam Agarwal is a consultant and Jeff Schumacher is an associate principal in McKinsey’s San Francisco office. its management team articulated a simple goal: utilizing technology to achieve aggressive growth and to improve customer retention substantially. but many must still tackle the hardest challenge of all: motivating organizations and making them accountable for results. the management team went to great lengths. CRM and the forces impeding its success are both growing up: early problems that mostly concerned technology and the misaligned goals of different organizations within the same company are giving way to perennial organizational challenges. In the end. such as refocusing sales and marketing efforts on the goals of growth and customer retention and eliminating IT projects that didn’t promote them.Organizing for CRM The senior executives of one North American insurance company played all of these roles. particularly the retooling of a major customer-information-management system. and David Harding is a principal in the Boston office. the company benefited rapidly by implementing a CRM project it had abandoned on several previous occasions. All rights reserved. Copyright © 2004 McKinsey & Company. executives relentlessly emphasized the importance—and monitored the status—of projects linked to growth and customer retention. At the beginning of the fiscal year. To break barriers and free up resources needed for mission-critical tasks. 91 . Companies are increasingly getting the businessalignment and technology issues right.