Case Study

ROI for a Customer Relationship Management Initiative at GST

Professor Robert J. Sweeney, Wright State University Robert J. Davis, Teradata, a division of NCR Professor Mark Jeffery, Kellogg School of Management

and to maximize return from their marketing investments. arrived at the meeting a few minutes later. The documented ROI prompted GST to consolidate the remaining 45 data marts into an enterprise data warehouse (EDW). The now complete EDW had a documented return on investment of 65%. entered the management conference room at GST Inc. Kolks clearly wanted to analyze customer behavior over time and more quickly act on detailed customer information for enhanced decision making. Johnson suddenly looked perplexed.” Kolks explained that four years ago. Jill Newberg. Sweeney of Wright State University and Robert J.’ investments and improve sales revenues. Johnson was eager to learn from Davis how GST might further leverage the $32 million infrastructure investment to help grow top-line revenue. Vice President of Sales. Kolks had made several recommendations that helped GST better compete. Overview Robert Davis of Teradata. good to see you. especially in the growing wireless market. and I have no idea what return we are getting on the $3 million I dump into it every year. She needed to identify which customers to best target for new service offerings. Vice President of Sales Region #2 and Dominique Arnold. and was greeted by Mark Johnson. in spite of the fact that Newberg and Arnold were convinced EB-3104 PAGE 2 OF 14 . Johnson did not want to acknowledge the CRM investments had any payback. a division of NCR . it was not what marketing needed. cross sell/up sell the most profitable mix of product offerings. That resulted in an updated call center and a new sales force automation tool. Kolks came to GST ten years ago shortly after obtaining her MBA from the Kellogg School of Management. and had saved GST $27 million in just one year. Erica Kolks. Some facts within the case have been altered for reasons of confidentiality. It was not exactly what he had anticipated hearing. 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. Johnson remarked that Davis had some ideas on how GST might maximize marketing It was three years since the original data mart consolidation pilot program was initiated.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. Davis of Teradata. She joined the GST management team with an impressive background in marketing and over 15 years of experience in the telecommunications industry. GST CFO. Through the years. Vice President of Marketing.” Professor Robert J. Kolks added that although the CRM investments seemed to be worthwhile. Johnson had a big smile and gave an enthusiastic: ‘Hi Bob. a division of NCR prepared this case study in collaboration with Professor Mark Jeffery from Northwestern University's Kellogg School of Management as the basis for class discussion rather than to illustrate effectiveness of management.“We already have CRM—the sales team sold me on funding CRM some time ago. Region #3 convinced Johnson that GST needed CRM. The results of the pilot study originally proposed by Davis exceeded even the most optimistic forecast.

but he knew that Davis had not disappointed him with the data mart consolidation program. Although the number of telephone calls and the amount of data transmitted were both rising. 1 EB-3104 PAGE 3 OF 14 2 Telecom Meltdown.” Johnson was skeptical. GST would be very interested. 2001. 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. He wanted to focus on discussing new possibilities. Rather. and the trend of almost unlimited spending for new infrastructure had been reversed.1 Analysts were not expecting the industry to return to the earlier level of profitability for several years.” 2 With technologies coming and going.S. and European telecom companies. Davis was excited with this response and started to map out the next steps. Johnson looked at Davis. wireless carriers will be spending on hybrid wireless local area networks. there were bright spots in an otherwise bleak picture. Bankruptcies have been filed and many more were expected. provided that he could convince Johnson and Kolks it was worth the investment. In 2001. Experts believed the U. According to Lehman Brothers.9% return on equity in 2000 was down from the 13. burdened with about $700 billion in debt. It was obvious that this was not the first time that the ROI of GST CRM initiative was discussed. companies had found customers demanding lower prices. many viewed the telecom industry as ‘melting down’. was negatively affecting everything from customer service to spending on new technologies. mergers and acquisitions that blurred the boundaries between service providers. . 2001. coupled with a dampened enthusiasm by Wall Street limiting available capital for new entrants. However.“I was thinking about analytical CRM. June 20. 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.Case Study ROI for a Customer Relationship Management Initiative at GST that they recognized return. In addition. or force lenders to restructure. BusinessWeek. a more economical way to offer high-bandwidth wireless data coverage in key areas. the 5. “Actually. This combination results in modest revenue growth and a declining return on equity. the calculation of ROI at this point is pure speculation. Johnson and Kolks concurred.“Since performance metrics to determine the ROI were not established during the adoption phase and have not been monitored throughout the implementation. April 23. deregulation. Wireless continued to be a high demand item and revenue growth was expected in metropolitan markets. . 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. Olga Kharif.8% figure achieved in 1996. the elimination of barriers in the European markets.” said Davis. 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.. if Davis could demonstrate a believable ROI. Kolks liked what she heard and wanted to learn more. and fickle customers that had a countless array of choices (both wireless and long distance). Once the business discovery was complete. significantly contributing to top-line growth. He believed that the first step was to propose a detailed business discovery. He declared. but he felt confident that this new project would be a success. Consolidation within the industry. Tailwinds in the Telecom Tempest.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. Inc. once attractive profit margins were shrinking or disappearing altogether. They’ll also spend to expand current-generation wireless infrastructure and upgrade their networks to accommodate increased customer demand. the communications environment had never been more challenging. TELECOMMUNICATIONS INDUSTRY The explosion in the demand for wireless services. It was also apparent that CRM was a topic of confusion. BusinessWeek.. Consolidation had replaced expansion as the industry practice.1 The telecommunications industry crisis was reminiscent of the real estate debacle that befell the savings and loan industry in the 1980s. over $100 billion of this debt. and an ever-growing Internet market characterized the telecommunications industry as the millennium came to a close.” Davis could sense the tension.. Peter Elstrom and Heather Timmons. would either default on. The promise of heightened competition following deregulation was proving illusory. However.

so our investments follow where our customer demand is. These resources include the operational aspects of the firm—product supply chain management. and is enhanced with Customer Relationship Management (CRM) solutions. architecture. AMR. 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. the market for CRM oriented solutions has been estimated to be $3. so had their strategies for survival. vice-president for research. Marketing Specialist. June 20. For example. Decision-makers need a single view of the enterprise in order to get the most out of the resources of the firm. a division of NCR E-Commerce 1 2 Tailwinds in the Telecom Tempest. Olga Kharif. and design at Sprint succinctly described the situation for the entire industry when he said: “We are in the business to make money. services supply chain management — as well as the management of the financial aspects of the operations. . This integrated view is made possible with enterprise data warehousing (EDW) technology. BusinessWeek.6B/37%) Front-Office Operational Enterprise Resource Management Marketing Product Supply Chain Management Back-Office Analytical Front-Office Analytical Sales Services Supply Chain Management Source: IDC. not only from the need to clearly understand the potential return on investment but also with basic definitions and the competitive landscape of technology vendors that sell in this market space. customer retention. It is not enough to understand what happened. eBusiness Revenue ($B) Compound Annual Growth Rate for 2003 E-Business ($25B/34%) ERM/SCM ($22B/34%) Back-Office Operational Analytical CRM ($3. 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. all resources of the firm must be managed optimally to maximize value. CRM should therefore not be considered “product point solutions” but rather. Teradata. technology-enabled solutions and associated skills that support the organizational strategy of being customer centric. enterprise resource management. Exhibit 1 is a schematic of the CRM and E-business market. CRM should be viewed first and foremost as an organizational strategy to understand and influence customer behavior through continuous communication to improve customer acquisition. 2001. and customer profitability.6 billion dollars with a compound annual growth rate of 37% per recent analysis compiled from IDC and AMR data. In 2002.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 make it happen. Another commonly used definition places the focus of the strategy on identifying the right customer with the right offer.Case Study ROI for a Customer Relationship Management Initiative at GST As the telecommunications challenges had evolved. Teradata Team Analysis Customer Service Source: Tara Kaskocsak.”2 In addition. Armed with this perspective. CUSTOMER RELATIONSHIP MANAGEMENT Confusion in the marketplace seems to abound about CRM. using the right channel. EB-3104 PAGE 4 OF 14 Estimated CRM. a corporate commitment must be taken to shift the entire organization from a product centric focus to a customer centric focus. at the right time. Fred Harris. eCRM.

marketing automation solutions form the hub of all customer understanding and communications planning. email—fax. IBM Back-Office Operational Enterprise Resource Management Marketing Product Supply Chain Management Back-Office Analytical Front-Office Analytical Sales E-Commerce Supply Chain Management Manugistics. AMR. Business Objects Modeling SAS. Teradata Team Analysis Customer Service OLAP Microstrategy. atg. It is important to note here that the solutions and the vendors are fluid. Broadbase. ATMs. 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%) CRM ($3. service and support. BEA. Siebel is the most widely recognized vendor of operational CRM systems. Brio. call centers. These touch points include direct sales. MarketSwitch. Alcatel. Clarify. As a framework for how technology enabled solutions and vendors fit. the players and the solutions would most likely be dramatically different. Accrue. This exhibit was developed based on perceived vendor activity at a point in time. Operational CRM solutions are generally categorized to address marketing automation. E. Silknet. Vantive.6B/37%) Analytical Front-Office Operational Sales Force Automation Own Front-office Channels and Customer Understanding Enterprise Resource Planning Align Organization Around the Customer Communications/ Queuing Manage Integrated Communications Across All Channels Back-Office Operational Enterprise Resource Management Marketing Product Supply Chain Management Back-Office Analytical Front-Office Analytical Sales Shift to Demand Chain to Align Suppliers and Partners Around the Customer E-Commerce Supply Chain Management Customer Service & Support Provide Real-time Customer Understanding Via Inbound Interaction Services Supply Chain Management Source: IDC. Chordian. retail outlets. AMR. January 2002. Xchange. Clarify. Baan. Epicor. the web. Lawson Communications/ Queuing Nortel. Unica E-Business ($28B/34%) ERM/SCM ($22B/34%) CRM ($3. direct mail. Oracle. Note that if this exhibit were recreated 3 months or one year in the future.Ithena 2 EB-3104 PAGE 5 OF 14 . Cognos. 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. Actionable. Peoplesoft. 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. 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. i2.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.6B/37%) Analytical Front-Office Operational Sales Force Automation Siebel. i2. Similarly. Onyx Enterpise Resource Planning SAP. Pivotal. customer service and support solutions provide realtime customer understanding via the inbound interactions. analytical CRM solutions provide clear customer insight enabling an organization to take action to strengthen their customer relationships and enhance profitability. CommerceOne Customer Service & Support Siebel. Vendors within each of these spaces are identified in the bottom half of the exhibit. Quintus Services Supply Chain Management Source: IDC. Unica Analytics Personalization Quadstone. Ariba. Vanitive. etc. In essence. in the top half of the exhibit. piphany. KD1. Broadvision. Octoane. within the front-office operational segment. sales force automation and customer service/support. CRM Solutions can be separated into two segments: Operational CRM and Analytical CRM. Teradata Team Analysis Customer Service OLAP Own Reporting and Analysis Infrastructure Modeling Intelligent. Net Perceptions Hyperion. Lucent. For example. Cisco. SPSS. Vignette. 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.

Personalization Personalization Business Intelligence Analysis Modeling Optimization Interaction CRM Front-Office Operational Reporting Marketing E-Commerce Communication Sales OLAP Data Mining Customer Service 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. to building predictive models. it is difficult to find a single vendor that addresses the full spectrum of operational and analytical solutions. to optimizing the deployment of personalized offers resulting in more timely interactions with customers with managed feedback. you may want to use the next 30% or 40% as the “Migration” segment. Exhibit 4 describes the linkages between the critical steps in an effective CRM program: From analyzing customer profiles. cross-channel personalization based upon a common understanding of all customer interactions. Teradata Chief Marketing Officer. Teradata had therefore uniquely positioned their analytical application to address event driven marketing by integrating with leading operational CRM solutions. through to developing a communication plan. The Critical Steps in a Fully Integrated CRM Strategy Analytical CRM Analysis Communication. Note that the competitive landscape of CRM solution providers is ever changing. Teradata’s CRM value proposition is in providing: “Breakthrough CRM solutions that drive intelligent. Position of Teradata's Solution within CRM Space E-Business ERM/SCM Back-Office Operational Analytical CRM Front-Office Operational Communications Management Communications Management Enterprise Resource Management Marketing Product Supply Chain Management Back-Office Analytical Front-Office Analytical Sales Services Supply Chain Management Customer Service The red line denotes the Teradata Analytical CRM solution E-Commerce 3 Exhibit 3 shows the proposed Teradata CRM solution for GST.Case Study ROI for a Customer Relationship Management Initiative at GST invoked or “triggered” as a result of a significant customer event or entry into a new segmentation threshold.” In order to implement effective solutions that support an organization’s CRM strategy.As of January 2002. Event driven marketing enables pre-determined action to be taken. This CRM solution is positioned in the analytical space and also touches upon marketing automation in the operational segment. According to Ruth Fornell. The strength of the EDW is that a single view of the enterprise allows a company to better integrate analytical CRM and operational CRM. The EDW is essential to executing the CRM strategy 4 1 EB-3104 PAGE 6 OF 14 Note that in some cases. 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. resulting in enhanced customer knowledge and increased bottom-line profit. .

and data warehousing. Not only does the EDW facilitate better. the EDW supports the entire CRM initiative.5% and utilizing analytical modeling improves the lift by more than 400%. Evolving the Decision-making Environment to Achieve Greater ROI Enterprise Data Warehouse Environment ERP/SCM Back-Office Operational Better. Best practice indicates that multiple acquisition campaigns are run daily. 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 . Churn Churn is synonymous with customer attrition. 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. best practices experience customer churn of only 16%. More specifically. the take rate averages 6. network optimization. you would lose 500. you will have added 3.000 subscribers with an annual churn rate of 25%.” The more complete the data. As Exhibit 4 shows. This is a key metric for measuring an organization’s effectiveness at customer retention. churn rate represents the percentage of active customers that voluntarily choose to discontinue use of your service or product.000 individuals as a part of an acquisition campaign. the resulting take rate would be 4%. this exhibit highlights that the EDW helps to improve the operations of the firm. Faster Operational Actions • Customer Relationships • Demand Chain • Supply Chain • Financial Operations • Business Process Management • E-commerce • Industryspecific operations CRM Front-Office Operational Better. customer acquisition programs occur monthly. This complete set of data is obtained via the EDW. Lift could also be viewed as a percentage increase in monthly spending. the more complete the analysis. and you realized a 3% take rate. customer churn.000.000 subscribers a year. Exhibit 5 reinforces the importance of the EDW. if you had a customer base of 2. With a single view of the enterprise. take rate is defined as the percentage of the total recipients who accept or “do business with you” as a result the targeted offer. you anticipated a 100% lift or improvement to an existing baseline of a 2% take rate. if you EB-3104 PAGE 7 OF 14 . and the more profitable the strategy. For example. revenue assurance.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 communication between the firm and the customer. For example. Faster Customer Communications Enterprise Resource Management Product Supply Chain Management Services Supply Chain Management Marketing Sales Customer Service • Single view of the business • Detail-level data • Unlimited growth • Strategic. tactical and event driven decision making • Significant cost savings E-Commerce 5 target 100. These areas include customer acquisition. For example. and detail customer data. the firm can create strategic and tactical plans to more profitably utilize the assets of the firm and to create ever-increasing ROIs. Within the industry. if through advanced analytical modeling. The average customer churn for wireless customers in the industry is 29%.000 new customers. Lift Lift is viewed to be the percentage improvement for a given metric.

on average. 7. 29% b. > 100 6 Adapted from: “Communications Strategies and Best Practices” by Jack Knapp. Engineering reports c. The industry examines monthly data trends. Firms that fully exploit their warehouse typically handle more than 10. Days: fraud detect-to-remove c. Wireless b. 50-100 per day a. 5–20 c. Teradata. n/a a. Best practice in the same industry produces daily data trends. Fraud % of bad debt Network Optimization a. Cable Revenue Assurance a. Marketing Specialist. a division of NCR their customers. Operational CRM is typically only effective when combined with robust analysis and planning tools. daily b. 5 – 8% c. they only lose 7. 442% a. Lost revenue to fraud b. 1–2 b. 1–10 Industry Best Practices a. He knew that GST’s EDW combined with Teradata CRM solutions would enhance decision-making. Every 30 days b. A Single Integrated View of the Customer As a result of the data mart consolidation project.000 end users and run more than 100 applications. Davis knew that the Teradata CRM solution could assist in this and other areas. 2–3 days c. Director of Marketing. Industry Averages and Industry Best Practices Telecommunications Industry Business Driver Customer Acquisition Campaigns a. 1% b. Organizations supported b. 16% b. a division of NCR. Exhibit 1 and Exhibit 3 illustrate the CRM landscape and an enterprise view of CRM using the Teradata data warehouse. and to craft communications tailored to individual customer needs. 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%. Monthly (12/year) b. and receives fewer than 2 customer complaints per day. A CRM STRATEGY FOR GST INC. 1–2 operations are supported. 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. especially given the dynamic environment that GST was forced to compete in. Average number of end users Average number of applications Industry Averages a. for firms demonstrating best practice. external and/or purchased data). fewer than 20 end users. patterns and trends in their behavior. End users and decision-makers no longer had to search for information about its business. For long distance. The management of operational assets is also compared for the industry and best practice. Long Distance c. Data trending b. the industry loses over 5% of revenue to fraud. _ – 5% c. Customer churn for cable. 2% a.3% a.000 c. With the EDW they could access customer information quickly. Teradata. on average. On average. Davis also wanted to position the value of GST’s existing Teradata data warehouse as the foundation to store all customer information (transactional. These tools enable managers to understand who the customers are. daily c. the industry average is 25% annually while best practice only loses 20% per year. takes 90-120 days to detect and remove fraud. and Carol Martin. but they lacked the right analytical tools to improve take rates. considering the industry’s use of data warehouses. 90–120 days c. customers and competitors in multiple data silos. Finally. and fraud constitutes about 15% of bad debts. 28% a. 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. Customer complaints Data Warehousing a. Lift with analytical modeling Customer Churn a. 1–2 per day a. Revenue assurance statistics contained in Exhibit 6 refers to fraud management.3% to attrition. The data warehouse would therefore enable the development of new creative approaches to better understand and predict customer behavior. daily engineering reports. 5–6% b. The Power of Analytics Davis wanted to clearly position the Teradata CRM solution. Entire enterprise b > 10. and fewer than 10 applications. Take rates c. 25% c.” Several marketing mangers wanted to understand how to take more complete advantage of the customer information in the Teradata data warehouse. on the other hand.Case Study ROI for a Customer Relationship Management Initiative at GST mately one-half the industry average. Every 30 days c. is 28%. 20–50 per day b. 20% c. 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 14 . Quantity of Campaigns b. Best practice. 15% a. generates engineering reports monthly and receives 50–100 customer complaints per day.

was that GST needed to embark on a targeted acquisition campaign. a division of NCR Corporation (“TERADATA”) and GST Inc.Case Study ROI for a Customer Relationship Management Initiative at GST Davis planned to focus his recommendation on the business benefits of CRM. Kolks was successful in selling the business discovery to her peers. or non-availability of GST personnel. 1. Specifically. summarized in Exhibit 8. Davis prepared a business discovery proposal (see Exhibit 7). since it would assess GST’s standing within the industry and propose a solution to help GST move towards best practices. generate a delay in TERADATA’s provision of services. GST will grant this extension with no penalty to TERADATA.2 Business Impact Assessment. Kolks liked that the business discovery would help enable buy-in across multiple business units on the most critical 2 7 Note that marketing research studies may provide additional insights into what constitutes a reasonable percentage increase in value. or Deliverables. Statement of Work Between Teradata and GST Inc. 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 provide the following: • Business Impact Assessment • Development and Delivery of Business Impact Model 1. GST currently ran monthly campaigns to acquire new customers. Continued next page BUSINESS DISCOVERY Statement of Work The Statement of Work (SOW) between Teradata and GST. and/or different from specified requirements may generate similar delays. She also knew that she would need assistance in defining metrics for the ROI. schedule. The business discovery was an important starting point for GST’s analytic CRM initiative. is included in Exhibit 7. Furthermore. When these delays result in an increase in Service cost. 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. Project SCOPE/Services 1. The SOW details. described below. Findings The business discovery process uncovered many facts. This is where some thought will have to be given as to what marketing actions will be taken. in turn.2 GST recognises that any delay that GST may incur in providing to TERADATA the technological and human resources. TERADATA will provide a presentation of the anticipated financial results and overview of the business impact model.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”).000 wireless accounts should grow by 5% per year. incomplete. The exhibit describes the business impact assessment as well as the development and delivery of the business impact model. TERADATA will provide a presentation of business impact assessment findings to GST. Project DURATION 3.000. the End Date may be extended. Should the Start Date be postponed due to a delay in the execution of this SOW. 2. the project’s duration and the responsibilities of the parties to the agreement are detailed. 3. TERADATA will inform GST of any impact to cost. (“GST”) is for services to be provided to GST by TERADATA in connection with Business Impact Consulting. business issues. GST management believed the 13. EB-3104 PAGE 9 OF 14 3 . In addition. 1. Teradata’s business discovery was appealing to GST senior management. GST also recognizes that the provision of information that is inexact. A review of GST’s 5-year strategic plan by the Teradata team discovered a growth target for a portion of their customer base. which Davis would present to Kolks and Johnson in his final recommendation.1 Scope. During the business discovery. services. data. 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) 3.3 Development and Delivery of Business Impact Model. 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. 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. Project Deliverables TERADATA will provide a written report covering its findings and recommendations from the assessment services. This Statement of Work (“SOW”) between Teradata. 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. and necessary information for the execution of the objectives of this Service may. TERADATA will interface with a person appointed by GST to sponsor the work (“Business Impact Assessment Sponsor”). The main finding. With appreciation for the internal battles that Kolks might face. step by step the process Teradata would follow when developing a specific solution.

The process began with analysis and segmentation of targeted prospects for increased probability of acceptance. 8. the parent could buy the phone and the initial 1.1 Deliverables will be considered accepted upon delivery.Case Study ROI for a Customer Relationship Management Initiative at GST As an example. Payment 6. The customer would then have the option of prepaying ongoing required increments of time with options available for $30. convenient fax access. GST will pay all invoices in accordance with the Master Agreement. and outlets). RESPONSIBILITIES 4. and for a period of one year thereafter.4 All taxes incurred and all duties assessed on the products and services. telemarketers.1 TERADATA will provide the resource described in this SOW. GST agrees to not employ. and email) — the results were tracked for continued knowledge of customers and prospects. GST Program Sponsor will complete a “Deliverable Completion Sign-Off Form” for each Deliverable or billing milestone. 4. and other necessary physical facilities for TERADATA and third-party personnel. or maintenance. DELIVERABLE COMPLETION SIGN-OFF 8. 7 . For $99. 6. Actual individuals assigned to the Project may fill different combinations of roles. $50 or $100 with cost per minute being lower as you buy larger “blocks” of airtime.Any information provided regarding the return on investment of the Project is a non-binding estimate only. 5. 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. as reasonably requested. GST will be billed on a monthly basis.000. but are not limited to. light. 5. 8. A personalized offer was then extended through single or multi channels (direct mail. 6. 7. It is the responsibility of GST to assure that the systems and processes meet the requirements of those laws. software. except for income taxes levied against TERADATA. will provide the required personnel to complete the services. electric current.5 The total amount billed to GST against this SOW. working space and facilities (including heat.3 Travel and living expenses. Additionally. The process for designing and executing other campaigns was the same independent of the details of the offer. ventilation.000 minutes of use. 6. the solution of any problem originating from the quality of the data used to develop the Business Impact Model. are GST’s responsibility. as stated in the Addendum. GST’s latest experience shows that the cost to contact a single potential new customer is $5. Personnel 5. TERADATA and GST will make available additional personnel as needed.2 During the performance of this SOW. for both services and expenses will not exceed $50. 6. or subcontractor of..1 TERADATA will perform the services specified in this SOW for $30. will be made in a written document signed by both parties. fees. 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.2 This price does not include travel and living expenses or the price for products. and statutes that affect the existing GST application system or programs that TERADATA will have access to under this SOW. will be invoiced on a monthly basis. the average monthly spending by a customer in the EB-3104 PAGE 10 OF 14 Continued from previous page 4. or enter into a consulting relationship with any employee of. In addition. Such personnel will constitute the Project Team.5 The services to be provided by TERADATA include only what is expressly described in the SOW. The services and deliverables excluded from the present contract include. 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.3 GST is responsible for the identification and interpretation of any applicable laws. services.000 per day. Approximately 3% of the potential customers contacted recently became new customers (3% take rate). Change Control Process Any changes to this SOW.2 If GST requires rework or modifications beyond the scope of the Deliverable as provided in this SOW. except upon the prior written consent of TERADATA.2 GST will provide TERADATA personnel and third-party vendors with safe and reasonable access. local telephone extensions (including outgoing analogue telephone lines for modems).000. TERADATA who is directly involved with the delivery of services under this SOW. Third-Party Deliverables. 4. etc.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. including scope. made up of 15 days professional services at $2. The offer was made through direct mail to the parent(s) with a special package on a prepaid wireless phone. 4. 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. make an offer of employment to. 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.1 TERADATA and GST will assign personnel to execute the roles required for this Project.4 GST is responsible for the articulation and approval of the business requirements driving the definition of this phase of the service. including travel time to and from GST locations for TERADATA and its subcontractors. computer space. regulations. 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. GST will work with the TERADATA to provide the services called for in this SOW and. 4. 6.

better data makes that possible. what is the average monthly revenue per GST customer for the relevant customer base? What does Teradata propose as the anticipated increase in average monthly revenue per customer? What is GST’s average incremental gross margin percentage on the goods and services offered through the campaign? What is the appropriate tax rate for the analysis? What is GST’s appropriate required return for the analysis? Values 13. couples without children. retired people. it must replace any customers lost to churn throughout the year.000. the report indicated that with better data. 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. If the buying experience of a cohort of current customers is something the firm would like to replicate.000 5. For example. GST must acquire approximately 23% new customers each year. In order for GST to grow by 5% per year. these same couples exhibit an attrition 8 rate one-half the typical customer. Davis suggested the observations outside the range be tied to unique circumstances within those firms and should be In addition. During the data mart consolidation pilot program GST had contracted with Teradata. 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. to study the characteristics of a subset of GST’s customer base and to compare those characteristics with other companies with whom Teradata has worked. the competition for these customers is intense so that when GST signs a customer. The original Teradata contract was for $120. and propose a solution where appropriate. A targeted campaign would be designed to attract more married couples with children. 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%. Similar campaigns can be designed around single parents. Teradata suggested GST could expect an increase in average customer spending by the new group in the range of 10% to 32%.000 per year for the second and third years of the pilot program.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 Finding How many customers are considered relevant for the proposed CRM program? 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. the average number of customers leaving each year is 29%. in part.0% Monthly $5 3% 5% $42 20% 40% 38% 16% ignored in this analysis. firms could target customers likely to spend more per month than the average customer. The business discovery cautioned GST that while they might attract customers with increased spending habits. targeted group is $42 for the goods and services included in the proposed campaign offer. Typically.” GST is considered one of the best in the industry losing approximately 18% per year. For the metric “Customer Churn. it should highly discount projected revenue beyond one year. While smaller improvements and much larger improvements had been achieved. or company CEOs. EB-3104 PAGE 11 OF 14 . The average improvement was 8%. As a result of the work with Teradata’s Professional Services associates. what does it cost GST to contact one customer? Historically. Therefore. Within the industry. in order to increase the customer base by 5%. it was determined that GST was in the early phases of CRM development. In addition. the data might indicate married couples with two phones and children spend 20% more per month on average than does the typical customer. what is the current average campaign take rate for acquisition campaigns by GST customers? What does Teradata suggest as the anticipated improvement in the acquisition campaign take rate? Currently.

These items included: 500 monthly minutes of from anywhere to anywhere.500.000.000. The contract could be extended for a maximum of one year at the same rate quoted in the original contract.500. $2.500. and voice mail.000. Davis realized that for Johnson and Kolks to accept the ROI analysis. from past experience GST could assume the initial contract between GST and the new customer would be for one year.500. a detailed breakdown of the implementation project was not necessary. hardware and software charges 2. Cancellation Fee 2. The contract between GST and Teradata called for an initial commitment of three years for conone-quarters worth of the ongoing costs for hardware. Professional Services’ immediate charge (T=0) for the implementation is $1. however. 24/7. $1. laptop or television. 12%/yr of one-time cost. billed at current rates – maximum one year extension 9 EB-3104 PAGE 12 OF 14 . Software 2. Professional Services (Consulting) 3. 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. (T=0) for hardware and software for the Teradata CRM solution was $1. paid quarterly 2. The contract calls for an additional 20% of the original charge per year for consulting. These charges would be billed at the end of each quarter. for projects determined to GST FINANCIAL DATA & THE CRM PROJECT IMPLEMENTATION COSTS The Teradata Professional Services team suggested which items to include in the product service offer. call waiting. Software and Professional Services One-time Costs – Payable at T=0 and Depreciated Using Straight-line Depreciation 1.000 Ongoing Maintenance/Upgrade Fees – Billed at the End of the Monthly 1. GST could shorten or lengthen the contract at their discretion.00 and $2. $1. For example. The penalty for shortening the contract was a payment equal to The process for planning. Extension Fee 1. respectively. determined the gross margin on those items would be 40%. hardware maintenance and software maintenance. Standard with any offer were call forwarding.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. Annual maintenance and upgrades would be 12% of the list price for hardware and 18% of the list price for software. The weighted average cost of capital for GST was 14%. Ongoing Charges and Cancellation/Extension Fee for Hardware. 18%/yr of one-time cost.000. paid quarterly Cancellation/Extension Fees 1. The first acquisition campaign would be initiated one month after the Teradata proposal was adopted. worldwide calling and 1000 peak-time monthly minutes of Internet access through the handset. instant paging/instant messaging. paid monthly Ongoing Maintenance/Upgrade Fees – Billed at the End of the Quarter 1.000 2. Hardware 1. Professional Services (Consulting) 1. campaign. Software 2. software and consulting. delivering and measuring ROI is a science that requires discipline and consistency. 20%/yr of one-time cost. Dan Wymer. One-time Costs. payment at time of cancellation totaling three months of ongoing PS. Hardware (Nodes and Disk Array) 1. In addition. CAO. even though in reality these costs would be spread over a few months. The immediate payment sulting. Billing for consulting would be monthly. software and Professional Services are contained in Exhibit 9 for the CRM proposal implementation. For the business discovery ROI analysis.000 3. it was safe to assume the up-front implementation costs occurred at time zero.

the team also knew that if the analysis continued far enough into the future. he continued: Davis needed his team to make a decision and be prepared to defend their position in the meeting on Thursday. I know we will be ready. 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. I have committed our team to present the Business Impact Assessment to Mark Johnson and Erica Kolks next Thursday at 11AM . Ideally. We should be answering Mark Johnson’s questions long before he has had a chance to even think them up. Developing the profile of an ideal new customer utilizing current customer data was fraught with risk. 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. This information provided a sense of the kinds of new customers the firm would like to attract. etc. They could never expect such a quick payback... 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. However. a 16% required return was used. improved retention programs.Case Study ROI for a Customer Relationship Management Initiative at GST be riskier than average. “And by ready. fraud detection. We’ll be ready or we’ll lose the opportunity!” After a brief pause to make eye contact with the team. On the other hand. cleaned. we have a week. calculate the ROI. You have the results in front of you. the data had been screened. GST would have access to the demographic data of its existing customers. 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. The appropriate tax rate was 38%. I expect our analysis to be thorough. and the appropriate information obtained. Davis asked the Teradata Business Impact Modeling team for their suggestions when evaluating these real options. Now all that is left is to resolve the remaining issues.” A second issue Davis highlighted for the team’s discussion concerned the leads for the acquisition campaigns. and write the report. The team agreed that it would take several months for the hardware and software to be in place so clearly a one-year time THE PROFESSIONAL SERVICES TEAM MEETING Davis convened the Professional Services team meeting on Thursday morning with a rather startling announcement: “Well folks.Additional benefits could include better evaluation of GST’s network capacity. a 12% return was required. the mathematics alone would probably produce a rather decent ROI. EB-3104 PAGE 13 OF 14 . “Where does GST find the names and addresses of potential new customers?” At this point. a big question was: horizon from today was unreasonably short. 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. The business discovery process has been completed.

stored in a retrieval system. Produced in U. All other brand and product names appearing in this release are registered trademarks or trademarks of their respective holders. OH U.S.teradata. © 2002 NCR Corporation EB-3104 PAGE 14 OF 14 . or transmitted in any for by means electronic. NCR therefore. Consult your NCR representative for further information. or otherwise . All features. used in a spreadsheet.without the permission of Mark Jeffery.kellogg. photocopying. Teradata is a registered trademark and WorldMark is a trademark of NCR Corporation. All rights reserved. mechanical. functions and operations described herein may not be marketed in all parts of the world. No part of this publication may be Dayton. reserves the right to change specifications without prior notice.A.Case Study ROI for a Customer Relationship Management Initiative at GST ANALYSIS The following questions may help your analysis: • What is the investment cash outflow required to initiate the proposed acquisition program? • What are the monthly cash flows GST should expect to realize from the new program? • What is the expected ROI? Payback? • How does the team’s decision to utilize a three-year horizon affect the ROI? Payback? • How should the team incorporate their discussion of data reliability into the Business Impact Assessment? • Why might using a higher hurdle rate for risky investments be a good idea? Why might it be a bad idea? • Should Kolks and Johnson adopt Teradata’s proposed acquisition solution? • Are there any other factors Johnson and Kolks should consider prior to making their decision? © 2002 by Mark Jeffery.nwu.S. NCR continually improves products as new technologies and components become available. www.

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