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The McKinsey Quarterly 2004 Number 3

Glenn Mitsui

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, pricing appropriately, advertising, and providing
after-sales support.

Anupam Agarwal, David P. Harding,

and Jeffrey R. Schumacher

Whats 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. Most large
companies have implemented some form of CRM , and many have followed
their early disappointments with full-scale CRM remediation efforts.2
Indeed, more than half of all companies investing in CRM consider it a
disappointment, according to several recent surveys. Whats wrong? Its 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 itselfmost
systems provide the required features. Companies have lavished attention
on business and technology issues because both were glaring early
impediments to CRMs 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,
1
2

CRM helps companies to plan and analyze their marketing campaigns, to identify sales leads, and to manage

their customer contacts and call centers.

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. 4857 (www.mckinseyquarterly.com/links/13061).

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or tweaking a functioning CRM capability. These challenges stem from

the wide variety of peoplefrontline sales and service providers, business
Q3 2004
analysts, IT professionals, and a broad array of managers, to name just
CRMa fewwho must collaborate to ensure that a CRM program is defined,
Exhibit
1 of 4 and deployed. This diversity creates accountability issues
delivered,
and complicates the challenge of persuading employees to embrace CRM .
exhibit 1

Successmore 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,

managers, and senior executives; McKinsey analysis

Solving these organizational

problems requires a company
to go beyond the vigorous
exhortations and heavy-handed
rollouts that many have relied
onunderstandably, in view
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 after-sales support.

In our experience, no temporary centralized team, however competent

and well intentioned, gets everything right. Whats needed to achieve longterm 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
The role of senior executives is vital. CRMs impact on frontline employees
is so significant and potentially jarring that clear, forceful messages
from the top are critical to enforcing accountability and motivating change.
Senior executives can dramatically improve the likelihood of success by
explaining in detail what a CRM initiative will accomplish and when, who
will be involved, and which trade-offs will be necessaryand by taking
tough corrective action against pockets of resistance.
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).
Fuzzy accountability
Put yourself in the shoes of the typical IT or business manager who is
involved with a CRM initiative. You know that your long-term career
advancement has less to do with its success than with your performance
in your ongoing role. If youre an IT manager, you also recognize that
as long as the project comes in on time and on budget and the software
Q3 2004 works, you will be judged a success, even if it doesnt deliver
actually
CRM
all
of the promised results. Equally, if youre a business leader, you are not
Exhibit 2 of 4 for delivering the required features; thats an IT problem.
accountable
exhibit 2

Whos 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,
communication

1 Actual functions and organization vary by individual company.

2 Head of CRM program often reports to chief marketing officer.

Confusion about
roles, responsibilities,
accountability

Lack of motivation,
participation

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When the responsibility for different aspects of the solution rests in different
places, its often hard to muster the organizational resolve to pull in
the right people, unclog bottlenecks, and make effective decisions. At worst,
companies wind up with the kinds of problems that plagued Sovietstyle planned economies: a lack of ownership, a failure to choose the right
features, and an inability to meet performance goals. One large computer manufacturers CRM program, for instance, foundered because no
one could free up the time of the end users who were needed to help
define the solutions requirements. Business operations personnel who served
as the end users proxy lacked the right kind of frontline expertise. As a
result, the solution didnt meet the needs of the business.
The computer manufacturers experience probably sounds familiar. Excessive
reliance on technology specialists who didnt really know what would make
CRM solutions valuable to businesses helped sink many early CRM initiatives.
In the past few years, some organizations have overcompensated so much
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. Unfortunately, the fuzziness of organizational accountability
for CRM means that such frustrating experiences are common.
Resistance to change
The large number of stakeholders involved with CRM doesnt just complicate accountability; it also magnifies the difficulty of effecting behavioral
change in managers, salespeople, and business analystsall groups whose
recalcitrance can cripple an initiative. Consider the problem of sales-pipeline
management. CRM helps managers to see quickly when salespeople are
not hitting their targets and remedial action is necessary. But management
can act only when salespeople input timely, accurate information and
analysts generate the right reports. If management doesnt augment the
underlying performance metrics, frontline employees are likely to go
on behaving in the old way.
Yet its easy to see why salespeople and managers might drag their feet.
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, even if it helps the company. Salespeople also fear that new
systems and bureaucracies will bog them down. Managers, by contrast,

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. (Productivity often drops during deployment periods, but
few operating plans take this reality into account.) When midlevel managers
hedge their bets, they arent likely to infuse the deployment with energy or
to modify the metrics for evaluating frontline employees.
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 marketing-campaign
management, data analysis, and opportunity management lie dormant.
Many companies have responded by punishing salespeople who dont get
with the program. Heavy-handed
approaches such as docking comTrainingoften involving just a
missions or circulating internal
day or two of classroom immersion
blacklists of nonadopters may bump
overwhelms users, who
up compliance, but only in a
complain that it is too abstract
grudging and mechanical way that
isnt likely to exploit the initiatives
full potential. Traininganother typical response, often involving just a
day or two of classroom immersion in the new featuresoverwhelms users
and they often complain that their training is too abstract. Many become
discouraged after valiant attempts to use the new system and revert to their
old ways despite managements exhortations. Fortunately, these problems
can be solved.
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 lays the groundwork for later efforts to motivate
employees to embrace the initiative.
Sending and receiving
In our experience, a simple but powerful structural solution can help
organizations overcome the accountability issues that bedevil CRM efforts.
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

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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,
versions
behavioral change
Coordinate deployment
Ensure readiness for
launch in field

Business

IT

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

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, if necessary.

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 teams 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 teams 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 teams systems-training plans. When an initiative
involves placing new technology in the field, the receiving team also

Organizing for CRM

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 this has 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. First, each teams cost estimates make clear to the
sponsoring business executive what he or she is signing up for while also
clarifying the teams responsibilities. Of course, 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.
Second, 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 the likelihood of it is diminished by the two teams dovetailing responsibilities.
Employees sending new features know that the programs success depends
on their usefulness to the receiving team. Moreover, nobody can ensure
that they really are useful better than a member of the receiving team who
has local-deployment responsibilities. As a result, individuals on each team
have a powerful incentive to coordinate their activities. And when problems
arise, it is always possible to hold teams accountable for them by checking
whether the receivers were unprepared, the senders failed to deliver, or both.
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. Its teamswhich included members from the Americas, Europe,
and Asiabegan by clarifying who would define, design, develop, and
deliver each piece of the initiative. Because accountability and ownership
were clear, often-overlooked issues such as organizational implications,
behavioral training, and the communication of the programs goals to
internal customers stayed front and center.
The sending-and-receiving structure also helps bring order to CRMs training
challenges, which often arise because most CRM solutions create a need
for both systems and behavioral training, with the former monopolizing
training resources. In fact, behavioral training is the more difficult to
accomplishand deserves twice as much attentionbecause it addresses
deeply ingrained habits affecting all aspects of a workers job. The twoday classroom cram sessions typical of systems training arent enough to
change these habits.

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Responsibility for systems trainingwhich

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 and for making them
on a higher level when appropriate. Ideally,
the receiving team employs live-fire and dayin-the-life approaches that integrate new work
procedures with systems training.
The kind of behavioral training that often falls through the cracks when
responsibility for implementation isnt divided between sending and receiving teams is typified by a major pharmaceutical companys training efforts.
(In this case, however, they werent launched by an explicit receiving team.)
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 headquarters staff to see the program
in action and to make real-time adjustments. Targeted follow-up visits
tracked progress and provided remedial support. In many cases, the pilots
yielded sales increases of more than 50 percent.
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
whats in it for them. Its important to show salespeople, for example, 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 (thus closing deals more quickly), 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.
Another helpful step is targeting successful, influential salespeople as early
adopters. Their success gives the CRM effort the credibility that drives
widespread adoption.

Organizing for CRM

Consider the experience of a department store retailer that identified

aspirational shoppers, 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
10 percent growth in revenue from target customers.
Incentives provide important reinforcement, and weve 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 metrics such as revenue, lead-conversion rates, system usage, customer
Q3
and2004
user satisfaction, and margins. 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, results vary by region (Exhibit 4). Comparisons are
executives.
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, %

Change in net revenue

over previous year, %

20

Region 2

15

Region 1
Region 3

10
5
0

20

40

60

80

Conversion rate of
leads into opportunities, %

100

Region 4
Region 2

15

Region 1
Region 3

10
5
0

20

40

60

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.

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.

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important because they promote the sharing of best practices and the finetuning 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 cant risk becoming less productive. But too much slack is also risky.
The right answer depends on what benefits the organization expects. In
extreme cases, when a big productivity drop seems likely, its vital to involve
the CEO and CFO early so that they can help manage external expectations.
The senior executives role
Although many organizational challenges impeding CRM require solutions
from the front lines, senior executives too have important responsibilities.
For starters, 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. 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.
One key to success is articulating a specific business rationaleimproving
customer satisfaction to boost retention and keep competitors from stealing
market share, for example, or improving cross-selling rates to achieve
annual revenue targets. Clear messages like these help keep the effort focused
and are far preferable to vague platitudes about the importance of customer satisfaction. Senior executives should also demand 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. And clearly, the senior team has a critical role to
play in enforcing accountability. Executives need to treat important CRM
milestones and performance goals just as seriously as they do quarterly
business-unit profit targets.

Organizing for CRM

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 importanceand
monitored the statusof projects linked to growth and customer retention,
particularly the retooling of a major customer-information-management
system. To break barriers and free up resources needed for mission-critical
tasks, 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 didnt promote them. In the end, the company
benefited rapidly by implementing a CRM project it had abandoned on several
previous occasions.

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. Companies are increasingly getting the businessalignment and technology issues right, but many must still tackle the hardest
challenge of all: motivating organizations and making them accountable
for results.

Anupam Agarwal is a consultant and Jeff Schumacher is an associate principal

in McKinseys San Francisco office, and David Harding is a principal in the Boston office.
Copyright 2004 McKinsey & Company.
All rights reserved.

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