The Four Perils of CRM and How to Avoid Them

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The facts of life regarding Customer Relationship Management (CRM) are both shocking and remarkable. On the plus side, the technology’s popularity is obvious — from annual revenues of about $2 billion in 1999, CRM vendors are expected to rake in $20 billion a year by 2004, according to Boston-based AMR research. Currently, the technology has achieved only 6% market penetration yet Salomon Smith Barney gives it only five or six years to achieve market saturation.

However, there is a dark side to CRM. It turns out that many CRM projects fail and several actually drive customers away and dilute earnings.

“A CRM implementation is often a perilous journey,” said Gerhard Waterkamp, an executive consultant at IBM’s Siebel Practice. “Studies show that about 55% of CRM projects can be regarded as failures because the projects did not achieve the desired Return of Investment.”

Waterkamp earns his bread and butter helping organizations steer clear of the pitfalls to join that elite group who are actually reaping the much-vaunted benefits of CRM. So let’s take a look at the four chief perils of CRM and how to avoid them.

1. Implementing before creating strategy

It seems obvious that you should draw up a plan before implementing anything. Yet a surprising number of firms dive headlong into CRM without carefully working out an exact customer strategy that the technology helps the company execute.

In some ways it’s similar to the rush to be on the web a few years back. It was so hip and “must-do” that everyone joined in. Yet most never stopped to ask why they were doing it or what they would get out of it. As a result, few websites to this day produce much of anything. Most were poorly thought out and almost nobody visits them. Only those who understand the Web and the role it plays in overall customer strategy have mastered how to utilize it.

It may well be that the same thing is happening with CRM. Companies hear that Siebel or SAP or PeopleSoft CRM is the thing to do and they go ahead and buy the software. That leads to implementing it before drawing up a customer centered acquisition and retention strategy.

But the right away to go about it is to lead with strategy. Before even considering a specific CRM technology, organizations should figure out where they are going. This would include such basic planning actions as segmenting customers from most to least profitable, deciding whether to simply invest more in profitable customers, manage costs better to improve overall margins, divest unprofitable customers, or a combination of various options.

Companies should be asking strategic questions such as “What customer experience do we want to achieve?” and “Is the company organized around the customer or does it have an internal focus, around product or service lines?” By doing so, organizations define the strategic changes they have to make. From that perspective it is far easier to implement the technology enablers that will actually forward that strategy.

2. Installing CRM in an organization that isn’t already customer focused

It is no wonder a large percentage of CRM failures stem from insufficient change management based on trying to force CRM down the throats of staff that don’t yet have a customer focus or an organization that’s processes are not conducive to the building of strong customer relationships. It is folly to embark on CRM without taking the time to survey the company then reconfigure all processes and systems so they actually fulfill customer needs.

For instance, many companies spend a lot of money on voice prompt systems that can drive business away. By making it virtually impossible to speak to a live person, some have learned the hard way that technology isn’t just to make your life easier — it is supposed to make it simpler for customers to do business with you.

It takes time to prepare an inwardly focused group for a CRM initiative. But it is time well spent as it oils the lines by giving staff a reason to want CRM and a purpose to get behind it.

3. Solving CRM implementation problems with more CRM technology

Some companies try to implement a state-of-the-art CRM system in one fell swoop. They spend, and often waste, millions in doing so. Their faulty reasoning considers that the latest technology will instantly solve a decade’s worth of people problems that plague the business. More often than not, the expensive technology goes largely unutilized and the same problems continue to haunt the company.

A West Coast call center, for example, woke up one day to the fact that its costs were much too high compared to results achieved. It called in a consultant who found that the training and hiring budget came to $2.4 million annually, more than double what the organization thought it was paying. Worse, customer service rep (CSR) turnover rate was 195%.

This company’s strategy was to invest lavishly in technology while stinting on training. What executives overlooked, though, was the huge amounts it paid to trainees each month in wages, most of which was wasted due to attrition. The technology itself was also found to be little used. Even among veteran agents, a good portion of the functionality was ignored due to lack of training and familiarity.

In many cases, then, it may be better to start small with a relatively low-tech approach to CRM. Some, for example, stick to a few simple aids for sales or call center staff — inexpensive projects that make life easier for people to sell or interact with customers. Building on that success, CRM buy in is increased and management obtains a better perspective on how to phase in higher-tech solutions.

4. Don’t confuse customer interaction with hounding

In some cases, organizations have implemented CRM in such a way as to hound customers with repeat messages by phone, fax, email or direct mail. While marketing has used CRM to devise innovative methods of inundating the mailing list, this approach may actually drive business away in the long run.

“The idea is to woo, not stalk, customers,” said Waterkamp. “Just because you can contact people, does not necessarily mean that you should contact them.”

The important thing is to identify the right customers i.e. those that actually want to form a relationship with you. Next, you have to work out how to contact them in the best way so that they continue to value the relationship. Spam, for example, is almost a sure-fire way to destroy respect.

A better approach is to better understand the demographics of key customer segments, survey for what types of communication they most value and deliver your message in such a forum. For some, this may be direct mail, for others via seminars or personal meetings. Bottom line: the right communication is 1,000 times more valuable than dozens of poorly though-out attempts.