ERP Strategies: New research: Page 2

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Want higher profits?

Andersen Consulting says pay higher salaries. Research also quantifies the financial impact of a broad range of customer-focused initiatives.

Investing to attract and retain top sales, marketing, and customer service professionals can add upwards of $40 million to the bottom line of a typical $1 billion business unit, according to a recently released comprehensive, cross-industry Andersen Consulting study.

The biggest bottom-line payoffs

Investment
Projected payoff
Financial rewards and incentives, including higher salaries and bonuses $13 million
Improved customer service $13 million
Turning customer information into insight $12 million
Attracting and retaining "stars" $10 million
Building selling and service skills $9.5 million
Investing eCustomer Relationship Management (eCRM) products and technologies $8 million
Source: Andersen Consulting
The study quantifies the impact of initiatives designed to foster improved customer relationships and provides CEOs a roadmap for investing in the most profit-generating programs.

The study, "How Much are Customer Relationship Management Capabilities Really Worth? What Every CEO Should Know," pegs the potential payback for providing financial rewards and incentives at $13 million. Other investments related to creating a high-performing organization could add another $27 million, including, attracting and retaining "stars" ($10 million) and building selling and service skills ($9.5 million). Above industry average sales and marketing compensation is highly correlated with higher profit in every industry Andersen Consulting studied.

The survey sampled the views of approximately 500 executives from more than 250 companies in industries that included chemicals, communications, electronics and high technology, forest products, pharmaceuticals, and retailing.

Andersen Consulting studied more than 50 individual marketing, sales, and service capabilities common across most industries. Of those, the research revealed that fewer than half have dramatic impact upon financial performance. For the 21 capabilities that have particularly high impact on company profit across industries, it was determined that even moderate improvements could result in additional pretax profits of $40 to $50 million a year for a typical $1 billion business unit. A full-fledged, multi-pronged approach to driving world-class performance around these same 21 capabilities could boost pretax profits $120-140 million a year.

Technology-related skills ranked among or near the top value-adding skills in every industry studied. Many capabilities fueled by technology help companies gain knowledge about customers, convert that information into insight, and implement programs based on that insight. Technology, the study concludes, influences approximately 40% of customer relationship management's impact.

The importance of technology as a key to success in managing customer relationships has accelerated with the rapid growth of eCommerce. The research highlights that, despite its relative infancy, eCRM--what Andersen Consulting describes as using electronic channels to market to, sell to, and serve customers, both directly and with channel partners--is already in the top third of the most profit-adding capabilities identified in the research, with the potential to contribute $8 million in pretax profits per year, for a typical $1 billion business unit. eCRM came out ahead of more traditional drivers of value, such as segmentation and channel management.

"Previous to this study, companies knew they had to become more customer-driven, but weren't sure precisely how to get there," said Dale Renner, global managing partner of Andersen Consulting's Customer Relationship Management practice. "This research takes the guesswork out of where CEOs should put their investment dollars. It starts and finishes with people and the technology that enables them to better understand their customers and to convert that knowledge to tangible results."

Of the top 21 capabilities, five produce the highest impact on financial performance, with three of those five being directly related to people. Motivating and rewarding employees topped the list with a $13 million impact, followed by customer service ($13 million), turning customer information into insight ($12 million), attracting and retaining personnel ($10 million), and building selling and service skills ($9.5 million).

The impact of technology can best be felt in the area of customer insight--or the ability to take transactional data and other information companies capture about their customers and use it to understand customer needs, expectations, and the potential value added by tailoring customer offers and interactions. Leveraging that insight quickly and profitably is even more critical in the Internet economy, where speed alone often determines who will succeed or fail in a given market. The research found that using technology to collect and analyze data, then share the insights of that analysis with everyone in the organization, could add another $12 million to the bottom line.

"Our research clearly found that the highest performing companies give frontline employees quick and easy access to critical customer data. And top performers even share information with channel partners outside their organizations," said Mark Wolfe, lead Strategy partner for the Customer Relationship Management practice at Andersen Consulting. "Technology is critical to ensuring both the collection and flow of information across all channels that ultimately impact the customer."

Methodology

The research surveyed how well companies execute various CRM capabilities by asking over 400 questions covering a range of strategy, process, technology, and human performance issues in three sections: marketing, sales, and service. Nearly 500 executives representing over 250 companies and six major industries (chemicals, communications, electronics and high technology, retail, forest products, and pharmaceuticals) participated in the research. Statistical techniques allowed the research team to calculate the impact of improving performance of CRM capabilities on a company's return on sales (ROS). Survey questions were correlated to the business unit's self-reported ROS for three years. Advanced statistical analysis methods were used to identify how much ROS variation across survey respondents is explained by the CRM capability scores of business units.


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