Improving CRM Performance With The Customer Management Scorecard
The result of a £500,000 research project sponsored by Royal Mail and IBM, The Customer Management Scorecard is a groundbreaking report into current practices for managing customers. Conducted by leading customer management consultancy QCi, it includes the results of 51 assessments of FTSE250 companies using its Customer Management Assessment Tool (CMAT). Jan Wylie of Trend Monitor considers the highlights of the report. These are organised by key themes: Definitions Diagnoses Strategy Recommendations Tools Performance
As he discovered from the report, most companies are currently failing miserably in their customer management endeavours through a lack of knowledge. The authors found the majority of CRM activities to be "surprisingly poor", with either weak or missing measures in place. They offer CMAT as a key tool to get these programmes back on track.
Customer Management (CM) is a more holistic model than CRM. It is about "finding the right customers (those with an acceptable current and future net value); getting to know them (as individuals or groups); growing their value (if appropriate); retaining their business in the most efficient and effective way." "CRM integrates sales, marketing, service, enterprise resource planning and supply change functions through business process automation, technology solutions and information resources to maximise each customer contact. CRM facilitates relationships among enterprises, their customers, business partners, suppliers and employees." (TQM Magazine, Jeremy Galbreath and Tom Rogers — 1999)
The locus of control is seen as moving from the supplier to the customer, which has implications for companies used to controlling relationships. Three types of customer value are identified: intrinsic value customers (no added value, no frills); extrinsic value customers (beyond product value alone, advice and customisation needed); strategic value customers (only of value to large suppliers and customers). Research cited suggests that many customers want to be the relationship managers, finding and customising offers, but are "usually" not permitted to do so.
Organisational functions are still run as "vertical silos" and very rarely apply customer lifecycle thinking. Disloyalty is common even with highly satisfied customers; a study is cited suggesting that 68 per cent of customers are lost through "benign neglect" and employee indifference. Commitment is a better measure than satisfaction. Multiple propositions covering both complex relationships and simple transaction-based customer needs can often cause confusion. —"Perception is reality, and many studies have shown that customers’ feelings about the value of their time have been advancing faster than the real wage." —"Bad customers will inevitably lose a company money." A blame culture in organisations is said to be why complaints are seen as negative and are so often unresolved. A complaint should be seen as "just the tip of the iceberg". A single customer complaint could mean widespread dissatisfaction among the majority who do not bother.
An integrated approach is necessary. Cherry picking is not effective. "Customer lifecycle thinking is a pre-requisite for practicing excellent CRM." CM practices need to be established before any investment in technology is made. Too much emphasis is put on technology at the expense of the "more important" human aspects. Reliable, quality-controlled business processes should be designed for the convenience of the customer, not the organisation. Companies should work closely with customers and suppliers to ascertain how products are actually used. Establish how the offer or proposition is to be made. Choices given include: personalised communication and targeting of a standard offer (well understood having grown out of good practice in direct mail and telemarketing) top vanilla (giving the very best service for everyone in order to gain market leadership) spot-sell within managed roster (best deal offered from the customer’s selected roster of suppliers) spot-sell managed by agents (customer appointed intermediaries who should be treated as customers, too) pure spot-sell (customer rejects all relationships, purchasing exclusively on the basis of current perceived value)
Customer needs derived from research and feedback from customers; employees and other channel partners form the basis of the best propositions. High-level brand values and "customer experience at all touch points" also need consideration. Customers are key financial assets, which require investment. Customer relationships should not be delegated — as is often the case — to relatively junior
employees or to a customer service department. "This will lead inevitably to poor financial performance and low returns for shareholders." Low lock-in customers are suitable for "transactional treatment"; customers with high lock-in potential should receive "relationship-based account management and development". Manage profitable customers; manage out the least profitable. Research is cited indicating that customers become more profitable as time goes by. To keep customers from defecting, companies must go beyond satisfaction to "delighting them". However, people quickly take "delighters" for granted. Keeping employees is seen as a key factor in retaining customers. Customers are continually benchmarking their experience of companies, compared with their experience of the competition. Therefore companies should benchmark against non-competing companies because customers do it all the time. General relationship agents are well positioned to win customers’ permission to use their data.
The QCi Customer Management Assessment Tool (CMAT) is the result of 15 years’ research. At the heart of the model is the concept of the customer lifecycle, which is linked to other enabling elements. The lifecycle model starts with targeting, then cycles through enquiry management, welcoming, getting to know customers, customer development, managing problems and win-back. CMAT involves a two- to four-week, in-depth, evidence-based assessment of the intention and reality of customer management in the organisation. Typically, a trained assessor will interview and observe more than 30 people in an organisation (normally a specific business unit) from senior managers to sales staff. When QCi or their partners carry out an assessment they ask 260 questions (looking for specific practices). CMAT does not measure the macro-environment, which is beyond a company’s control, but focuses on factors which management can change or influence. The CMAT model starts before the Deming model (where customer-focused research leads on to design) by defining which customers a company wants to manage. CMAT includes all Balanced Scorecard perspectives: customer, internal, innovation/learning, financial. Compared with the European Foundation for Quality Management (EFQM), CMAT increases the magnification power on the customercritical activities, while EFQM deals with the whole organisation at "lower magnification". The QCi Customer Management model starts with analysis and planning which leads to technology solutions, actual propositions to customers, and the people and processes which deliver the customer experience - according to where he or she is in the customer lifecycle — the effects of which can be measured. The lifetime value of a customer is worked out by discounting future income streams back to the net present value (NPV). The Customer Review Process (CRP) gathers
data from key customers on how the company is performing for them as a supplier. During interviews, questions about customer perceptions of products and services are supplemented by questions about future needs, which "frequently" uncover opportunities for mutual benefit. Customer value management (CVM) is a methodology aimed at delivering customer benefits more effectively. Ask not, "where do we want to be and how do we get there?" Ask, "where do our customers want us to be and how do we get there?" The main steps in the CVM process are choosing a business direction based on value to customers, identifying core competencies and core capabilities, establishing an enabling people-and- process infrastructure, and providing customer value analysis based on "moments of potential value" they could potentially receive. ISO 9000 methodology is said to encourage organisations to "make things worse for their customers" and cause "sub-optimisation" of performance because it is based on the "flawed assumption" that success is achieved by means of controlling procedures.
The headline finding of QCi research based on 51 multinational corporations is that "CRM practice in reality is surprisingly poor". Even the most fundamental of measures - customer loss - is "usually either not defined, not measured or, worse, underestimated", while basic customer behaviour analysis is found to be rare. Other indications in the study are that only 15 per cent of companies use a customer lifestyle concept, while 62 per cent do not measure customer retention in "any practical form". Very few companies manage customers well, while there is "little evidence" of integrated systems. Customers are characterised as feeling confused, stressed, manipulated, or trapped. Evidence is cited indicating a positive correlation between good customer management and overall business performance. Implementation creates overload and organisational chaos, which leads to strong resistance from the employees most, affected. Cost-to-serve is seldom used in measuring customer value and customer management practice. Without good people and the right proposition, IT "may actually be a costly hindrance to good customer management". "General demotivation" among customer-facing staff is found having an adverse effect on sales. The CMAT research shows "many companies have no formal methodologies for managing customers at different stages, and may not have any data flows helping them determine which customers are at which stages." Although all companies carry out some form of competitive review, "only 50 per cent have formalised the collection and analysis of this information". Tacit knowledge from dialogues, such as e-mail, which cannot be codified, is gathered and analysed by only five per cent of companies. Also, research cited indicates that companies are
already unable to deal with the volume of unstructured enquiries and complaints generated by the Web due to the failure to structure inbound communication. A lack of senior leadership and management is seen as being a major problem, while skill issues are said to be easier to solve. Technology systems are managed, but the information they contain is not managed. Data dictionaries are described as often being meaningless to sales and marketing users. There is a lack of consistency and measures which do not reflect the customer value, behaviours and the cost-to-serve