Put Strategic Measures in place for your CRM programme and find out its real ROI In today's market, Financial Services companies are seeking to ensure that return on investment in CRM is not only backed by a clear business case but is also governed by a set of strategic measures to determine how far the benefits are being achieved. In the following article, David Wetton uses CRM illustrate the importance of devising appropriate strategic measures for large scale change programmes. He provides insight into some of the objectives and measures that could be applied and demonstrates how they can be used in practice. David Wetton has extensive experience of change management and is a Director of Kharis Consulting which specialises in benefits realisation. Current clients include NatWest, Egg and Britannia. Measuring and understanding the impact of your CRM investment Current estimates suggest that the global market for CRM systems could be as high as USD 25bn. At the same time, however, according to a recent study by Gartner, it is predicted that the proportion of unsuccessful CRM projects will rise from approximately 65% to 80% by the middle of 2003. The message is clear: With over 85% of financial service organisations claiming to be adopting a full CRM approach with their customers, it's obviously essential to ensure that a successful, measured payback is received from their substantial investments. Unfortunately, a recent conclusion from Cap Gemini Ernst & Young showed that despite having spent large amounts of money on implementing their CRM systems, around 60% of the organisations in the European Financial Services industry still did not know what the impact of their CRM investment had been on customer profitability or cross-sell of products. Identifying Key Strategic CRM Objectives and Measures Having decided to take the plunge and introduce some strategic CRM measures, it makes sense to first identify your key strategic CRM objectives, before moving on to define your supporting CRM measures. To help get the ball rolling, a review of recent best practice and CRM surveys reveals a number of potential key strategic CRM objectives that could be adopted : - Peppers & Rogers Group survey suggested that the leading CRM benefit objectives used today are: - Increase customer retention rates - Improve customer satisfaction - Alexander Group CRM survey reported that the most commonly used CRM benefit objectives were: - Drive revenue growth (80%) - Improve effectiveness, including employee productivity (80%) - Increase customer loyalty (72%), including customer satisfaction - Bansal, writing in 'The Banker', suggested that there are five CRM Profitability Levers : - Lower new customer acquisition costs - Cross-sell, up sell - Reduce costs to serve - Retain profitable customers longer - Manage out persistent low profitability customers From my consultancy work with clients, coupled with the research that I've carried out, I would suggest that the following six key strategic CRM objectives would be a good place to start for a financial service organisation looking to introduce some meaningful CRM measures. (Note: Within the Customer Net Revenue Growth objective, Net Revenue = Gross Revenue minus Gross Costs and therefore captures the CRM cost savings due to improved effectiveness, improved employee productivity, etc.) An example of the importance of conveying measures, both actuals and targets, based on strategic CRM objectives, was given at the presentation of the Alliance & Leicester's half year results for 2002, where Group Chief Executive, Richard Pym, reported: - 'Customer satisfaction on an upward trend' - 'Average product holdings (i.e. per customer cross-sell) continue to increase:' - A supporting bar chart showed the average product holding increase from 1.50 in June 2000 to 1.59 in June 2002 and a target of 1.65 for December 2003. Example measures for the six key strategic CRM objectives I identified earlier are shown in the following table: As many, if not all, financial organisations carry out customer segmentation, I would suggest that it makes strategic sense and provides a much richer source of pro-active information if you are able to capture the CRM measurements by targeted customer segments, where possible. Indeed, some retail banks who have undertaken this customer segment analysis have found that 10% of their current account customers were in fact bringing in 100% of their profits! Identifying Relationship Links using Key Strategic CRM Enablers Organisations that have started to record and track their strategic CRM measures quickly find that the results naturally lead them into assessing the underlying business case 'cause and effect' of their CRM investments. E.g. 'Our average profit from our most profitable customer segment XYZ has risen by 10% over the last year, but how has our investment in CRM systems actually supported this?' Or 'We are planning to invest £X million in the latest phase of our CRM processes, but what potential impact will it have on our average profit from our most profitable customer segment?' I would suggest that any investment in CRM systems, related tools and supporting HR processes, actually impacts at the lower customer process level (the customer-facing front-line, in modern parlance!). Identified areas at this level, such as Time-Saving Benefits, Customer Experience Benefits, etc, I have termed 'Strategic CRM enablers' It's the improvements at this lower level which then enable and drive an improvement at the higher strategic CRM objective levels of customer satisfaction, acquisition, cross-sell, etc. I have found that the use of a cognitive map model, such as the one shown, proves helpful in explaining this concept. As an example, Guaranty Bank in the US recently undertook an investment in their CRM systems which resulted in a reduction of the time required to update a customer's name or address by 50%. In addition, it also helped them to resolve customer inquiries up to 30% faster. The cognitive map model proposes that these 'Time Saving Benefits' would support an increase in Customer Net Revenue Growth (Gross Costs go down), but could also support (see arrows): i) An improved Customer Cross-Sell if some of the time saved is used to spot and achieve cross-sell opportunities. ii) An improved Customer Experience, as changes are more efficient, which could then in turn support improved Customer Satisfaction (and Customer Retention) , as well as support a more effective Customer Acquisition process (details captured quicker). Thus the success of a CRM business case for investment in a 'Level 2' Time Saving benefit could well be measured with targets for increases in customer cross-sell and customer satisfaction, as well as measuring the cost productivity savings. Note: The red arrows show relationship links suggested by Heskett in 'The Service Profit Chain' and also those relationships considered to be the future for modelling Business performance by Hill . In conclusion Financial organisations who employ The Balanced Scorecard will no doubt be familiar with Kaplan and Nortons' maxim of 'What you measure is what you get'. Given that the most recently published Gartner study predict that 80% of CRM projects will be classified as 'unsuccessful', Financial Services organisations who choose to ignore the importance of determining and implementing criteria for measuring and understanding the impact of their CRM investments are likely to become just another part of Gartner's statistics.