Chapter 3:

Strategic CRM
 Overview

Topics discussed:

 CRM perspectives

 The components of strategic CRM

 Steps in developing a CRM strategy

 Case Study: CRM implementation at International Business Machines, Inc. (IBM)

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CRM Perspectives

CRM at the CRM at the CRM at the

functional customer- facing organizational
level level level- strategic
CRM

 Set of processes  Set of activities

to execute that provide a  Knowledge about
marketing functions single-view of the customers and their
like sales force customer across all preferences have
automation or contact channels implications for the
marketing campaign  Customer entire organization
management intelligence obtained
is available across
all customer-facing
functions

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Strategic CRM

 Successful strategic CRM is a complex set of activities that together form the basis for a
sustainable and hard-to-imitate competitive advantage

 Strategic CRM shapes interactions between companies and customers to allow the
maximization of customers’ lifetime value

 Recognizes differences between customers with respect to their economic value to the firm
as well as their expectations from the firm

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Components of CRM Strategy

1) Customer-
management
orientation

4) CRM
Strategy
Implementation

2) Integration and 3) Information capture

alignment of and alignment of
organizational processes technology

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Customer Management Orientation

 Defined as the set of organizational values, beliefs, and strategic actions that enable
the implementation of customer management principles

 Characterized by a top management belief and commitment that the customer is at the
center of activity

 Recognizes that customers are heterogeneous in needs and value to the firm and reflects
a readiness to treat different customers differently

 Considers the fact that a longer-term view of revenues from customers needs to be taken
into account

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Case Study: CRM Business Model - Capital One

Capital One in Falls Church, Virginia, one of the fastest growing financial corporations in the
U.S., was founded in 1988 and has witnessed phenomenal growth. How?

 Business model founded on the premise that

 Every customer carries a specific and unique credit risk and potential revenue profile,
which determines his risk-return profile from the company’s point of view

 The better the company can understand and assess a customer’s specific risk, the
better it can manage it

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Case Study: CRM Business Model - Capital One

 The better the company understands the customer, the more it can tailor its products to his
needs

 Thus, low risk and high returns for the company on the one hand, and high satisfaction for
the customer on the other hand can ideally go hand in hand

 Management and employee evaluation is, amongst others, tied to customer retention and
customer profitability measures

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Integration and Alignment of Organizational Processes

 Comprises organization wide creation and synchronization of processes and systems

enabling the implementation of customer management principles

 Firmly incorporates needs of the customer and goals of the firm into product and
service delivery

 Strategic CRM works best for organizations that are organized around cross-functional
processes rather than functional silos

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Integration and Alignment of Organizational Processes

 Characterized by an understanding that value provided to target customers should

be what drives all processes

 Individual processes work in sync with common goal of attracting and retaining
target customers

 Customer management compatible incentives drive employee and organizational

goals simultaneously

 Processes are designed in such a manner that they automate a feedback

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Inter-functional Alignment Example: Capital One

 Strong alignment of organizational processes with the customer-focused strategy

forms the backbone of CRM success

 The “Operations Department” cooperates closely with the “Marketing and Analysis”
department in the new product introduction process

 Information on customers used to craft strategy is obtained from the front-end people

 Information from “Operations” is used to improve the NPV (Net Present Value) models
that serve as decision-making aids

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Information Capture and Alignment of Technology

 Comprises all necessary technology and processes to collect, store, and process relevant
and timely customer information

 Characterized by the capability of leveraging data to actionable information

 Makes customer management processes not only more efficient but also more effective

 Helps to create entirely new processes and channels based on online and mobile
applications

 Firms that are able to generate intelligence and act on it will derive a competitive
advantage

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CRM Implementation Matrix

Customer dimension

Acquisition Growth and Decline and

stage retention stage exit stage

Analytical
CRM
Management
Dimension Operational
CRM

Each cell in the matrix corresponds to a specific implementation activity or process

Customer dimension: captures influences of changing phase of a customer-firm relationship
Management dimension: constitutes analytical and operational aspects of CRM

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Characteristics of Marketing-Driven CRM Implementation

 Activities and processes that constitute analytical CRM

 Activities and processes that constitute operational CRM

 A firm’s ability to understand the value of the customer to the firm and the variety of
needs different customers have

 An acquisition and retention process that continuously aligns the offering with
customer needs and values

 An ability to continuously improve what the company offers by learning about its
customers

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CRM at Work: Capital One Testing New Products

 Credit card business - uses “poking the bear” approach

 Learns what customer characteristics might be a predictor of their risk profile
 Adjusts its product offering to the customer’s risk

 Offering higher credit line might make customers with higher default risk respond more
favorably thereby revealing their higher risk

 Hypotheses on customer characteristics are developed and used to run experiments to

test what characteristics best correlate with utilization and risk profiles.

 Response rates and behavior during first months of using the card are carefully monitored
- this data is used to determine the value of each mailing

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CRM at Work: Capital One Testing New Products

 As soon as the results of tests are clear, the viability of new products is assessed and
the potentially successful ones are rolled out

 As product development is based on customer data and feedback, final products are
mass customized

 Test results are integrated into the databases and used again to initiate the process of
idea development and product design

 Result: This strategy led to an innovative product portfolio of more than 600 credit card
products which are very well aligned with diverse customer needs

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Steps in Developing a CRM Strategy

Developing a CRM strategy

Gain enterprise Build a CRM Analyze Define the CRM

wide project team business strategy
commitment requirements

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Step One: Gain Enterprise-wide Commitment
Budget
allocation
for the
solution

Bottom-up
buy-in from
Top down system users
management
commitment

Dedicated
full-time
project team

Enterprise-wide
Commitment
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Step Two: Build A CRM Project Team

Obtain active representation from:

Management - Provide leadership, motivation and supervision

Information services/ technical personnel – Ensure that CRM system is compatible with
existing software applications

Sales, marketing and services groups - Evaluate usability of CRM system based on
effectiveness, efficiency and satisfaction

Financial staff - Provide critical analysis for assessment of increased sales productivity,
evaluation of operating costs, estimated cost of system expansion and ROI projections

External CRM expert - Provide a valuable source of objective information and feedback

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Step Three: Analysis of Business Requirements

Gathering information to:

1. Identify the services and products that are being supported
2. Map current workflows, interfaces, and inter-dependencies
3. Review existing technologies, features and capabilities
4. Discuss the vision for the business and the operational plan
5. Define business requirements
6. Develop enhanced business workflows and processes
7. Identify gaps in technology functionality
8. Map functionality to business processes
9. Develop a new technology and functionality framework
10. Develop a conceptual design and prototype plan

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Step Four: Define the CRM Strategy

Characteristics of a defined CRM strategy Value Proposition

Business Case

A defined CRM strategy Customer Strategy

Enterprise Transformation
Plan

Other Stakeholders

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The Value Proposition

 Multi-faceted package of product, service, process, price, communication, and interaction

that customers experience in their relationships with a company
Areas to be addressed:

 What the customers value – what the company should focus on

 What the company promises to offer the customers

 What the company actually offers the customers

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Business Case

 Directly links delivery of customer value with creation of

shareholder value
 Ensures acceptable ROI
 Addresses:

 Planned increase in economic value of customers over the duration of their

relationship with the company

 Reference and referral effects-increased investment in customer satisfaction

resulting in increased customer acquisition

 Impact of learning and innovation- reduce cost incurred through higher marketing
effectiveness and improved products and services

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Customer Strategy

 Defines how the company will build and manage a portfolio of customers

 Covers:

Customer
Customer Customer Customer
management
understanding competitive context affiliation
competencies
> Customers > Awareness of > Primary factor > Providing
benchmark competitor’s affecting ability customized
expectations services and to both retain offers including
against past how to increase and extract customized
experience and customer share greater value products,
best-in-class from customer services,
standards through cross- communication,
sell and up-sell prices, etc
efforts

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Enterprise Transformation Plan

Covers:

 Business process

 Organization

 Location and facilities

 Data flows

 Application architecture

 Technology infrastructure

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Relationship Management of Other Stakeholder

Practice of Strategic CRM: Framework

Partner
Customers

Supplier

Employees
Practice of
Strategic CRM
Environment
Management

Competitors
Product

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Relationship Management of Other Stakeholder

 Relationships with all stakeholders need to be effectively managed

 Management needs to be committed to CRM

 Product provides link between the customer and the company

 Importance of each stakeholder depends on the industry

 Customers are the major focus of every CRM strategy as customers are mostly the only
source of revenue

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Suppliers

 All those who contribute to a company’s value chain, including suppliers of

 Raw material
 Components
 Technologies
 Money
 People
 Knowledge

 For total quality management, companies build long-term, and more interactive
relationships with fewer suppliers

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Suppliers

 Benefits of relationship-oriented supply chain management

 Improved communication, quicker problem resolution and closer cooperation

 Reduced purchase costs due to elimination of cost for search of new suppliers

 Reduced cost per transaction because of aligned information management system and
simplified transaction process with strategic and long-term suppliers

 More cooperation between companies and suppliers in terms of information sharing and
development of new products

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Owners/investors

 Options to increase long-term oriented investors:

 Educate current investors

 Shift investor mix toward institutions that avoid investment churn

 Attract the right kind of core owner

 Take the company into private ownership

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Employees

 Increased employee satisfaction results in increased customer satisfaction

 Internal Marketing (IM)-treating employees as if they were customers- involves:

 Improving management style

 Improving recruitment practices

 Integrating all employees into the planning cycle

 Refocusing training on interactive and service skills

 Open communication lines and empowerment of front-line staff

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CRM Implementation at IBM

 Objectives:

 Share information and collaborate easily internally and across the entire value
chain

 Focus on core capabilities while shedding less profitable or non-strategic business

activities

 Build a fully integrated IT infrastructure to support the business vision and reduce
the total cost of operations

 Streamline and integrate customer facing operations - sales, marketing and

customer service

 Strengthen the brand image across all lines of business

 Offer full-scale solutions for the client, instead of multiple products

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Implementation Stages

 Initial Stages –
 Opportunity management (1993-2000)
 Development of in-house application

 Starting point- opportunity management in customer acquisition phase of a

sales cycle

 Company developed ‘Virtual Machine’-a host-driven IBM application

 Identification of opportunities, ways of tracking them and storing information of

winning conditions

 Storage of data, such as pricing, inventory, and customer master record,

provided by the marketing department

 Customer segmentation based on size of the company and industry, and

customer needs and geography

 Collected information used to drive marketing campaigns

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Implementation Stages

Siebel Implementation (2000 – Today)

2000 2001 2002 2003 2004

ibm.com Contact Centers

Service and Support
Business Partners
Field Sales
Marketing

The modules of Siebel CRM software that IBM has implemented and is planning
to implement are Sales, Call Center, Marketing, Field Service, Service,
e-Channel, e-Marketing, e-Service, and General e-Business

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IBM Case Summary

 Creation of an On-Demand Operating Environment: competitive advantage facilitated

by CRM

 Integrated process management through CRM: allows instant updates about inventory
levels, customer complaints and latest recommendations

 Pricing and revenue data are integrated in Siebel: assesses each customer’s revenue
generation potential

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IBM Case Summary

 IBM estimates that its internal CRM implementation has delivered benefits of $2
billion cost reductions, 22% productivity improvement, significant IT cost
avoidance, reduced sales staff requirements, and improved management
reporting

 In 2004, IBM has implemented the worlds’ largest CRM application with 60,000
users linked with Siebel

 In 2005, it is expected that more than 80,000 employees, thousands of business

partners and millions of IBM customers, will use the system

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Key Lessons From IBM

 Genuine top-level support within the organization is essential

 Without the cooperation of each business unit, an enterprise-wide implementation like

CRM is not possible

 Data cleansing at the initial stages of an implementation is crucial

 CRM training time should be planned well in advance, and managed carefully

 CRM implementations come with extensive business process reengineering and change
management initiatives

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Summary

 Strategic CRM focuses on shaping the interactions between the firm and its customers
in a way that facilitates maximizing the lifetime value of the customer to the firm

 Business case for CRM determines whether an investment in CRM meets its
expectations by linking the delivery of customer value with the creation of shareholder
value, or ROI

 CRM strategy calls for a transformation in business process, organization, location and
facilities, data flows, application architecture and technology infrastructure

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