y
dallas-feeney_chris@bah.com
Stephen S. Simmerman
simmerman_stephen@bah.com
Tom Casey
casey_tom@bah.com Getting the customer relationship right is the leading challenge on the CEO agenda for creating value.
Unfortunately, for many companies, the quest to capture value from better customer alignment has not produced
the expected results.
Does Customer Relationship Management (CRM) technology truly enable improved customer alignment or is
it simply a repeat of the ERP debacle of the 1980s and 90s? How can executives sort through the discord
around CRM to take decisive actions that result in bottom-line benefits?
Booz Allen Hamilton believes that the debate surrounding CRM fundamentally has missed the mark. Much
of the argument has centered on questions about technology, diverting attention from the more critical issue:
What is the best way to craft effective customer strategies? Creating and capturing value requires clearly
articulated, segment-level customer strategies that are supported by organizational, business process and
technology enablers. Effective CRM technologies do exist, but they produce value only when properly deployed
in support of winning customer strategies.
We believe all successful companies must take an active approach and build a practical plan to optimize
their customer relationships or they will lose ground to competitors that do. In the pages that follow, we
lay out a five-step approach to create and capture value from customer strategy.
Executive Summary Senior executives rationally want a return commensurate
with this significant investment. But there is increasingly
sharp discord in the marketplace about whether all
of the operations and systems investments let alone
the business model changes are paying off.
A Booz Allen Hamilton survey of senior sales and mar-
keting executives at Fortune 1000 companies conduct-
ed in late 2001 indicates widespread frustration about
the returns on CRM investments. Respondents with CRM
systems generally dont believe they are used with the
maximum effectiveness possible (see Exhibit 1).
Our study is consistent with other research which indi-
cates that, despite considerable initiatives to achieve
better customer focus, too few companies have real-
ized the promise of becoming fully customer aligned.
Although some have unlocked the value, many others
have been unable to capture the benefits required to
justify their investments. And more troubling is the fact
that, while more information is available on behavior
and customer interactions, companies continue to have
difficulties leveraging that information to enhance the
customer relationship (see Exhibit 2, page 2).
Conventional wisdom for the disappointing results
tends to fall into two camps. The first believes that
technology is to blame and that generic CRM software
simply cannot support all of the complexities of the
customer and channel relationships. The second camp
believes that technology is irrelevant and that the
problem stems from ill-advised customer strategies.
We believe the problem is much more complicated
than these simplistic views and that both strategy
and technology must work together to create value.
For years, Booz Allen has helped clients develop
customer strategies and implement technologies to
support improved customer loyalty and intelligence.
1
According to a 2001 survey of 506 global CEOs by
the Conference Board, CEOs ranked customer loyalty
and retention as their No. 1 management challenge.
That need has driven some companies to invest
as much as $30 million to install CRM systems.
Forecasts for 2002 global spending on CRM range
from $20 billion to $45 billion.
1
Capturing Value Through
Customer Strategy
Exhibit 1
Relative Effectiveness of CRM Usage
Sales
Marketing
Customer Service/Support
Management
Product Design
3.9
3.8
3.7
3.3
3.1
(1)
Not Effective
(5)
Highly Effective
Source: Booz Allen Hamilton
1
Source: IDC, Gartner, Meta Group, Aberdeen includes CRM software and services Based on our experience, we strongly believe that the
CRM dilemma stems from several root causes: Depending on the source, CRM can mean everything
from a class of software to a reclassification of the
entire set of sales and marketing functions Companies take an overly passive approach to
implementing new customer-oriented initiatives,
assuming that a single customer strategy will
work across all their customer segments Technology deployed without a clearly articulated
customer strategy will fail Technology alone will not fulfill the promise of a
customer strategy
It is not too late for companies to rise to the customer
challenge. The Booz Allen survey found that only about
one in four companies have CRM capabilities in place
today. About half (45 percent) of larger firms (those
with over $1 billion in annual revenues) have CRM
capabilities in place, three times the percentage of
smaller firms. However, many of the organizations that
have implemented CRM have done so only in a limited
way (e.g., in a single channel, division, or geography).
In short, most companies are still wrestling with the
development of customer relationship programs.
The solution, we believe, begins with the recognition
that there are many forms and intensity levels of
customer alignment, which depend on a particular
companys situation (i.e., competitive position, industry
structure, aspirations). Given the situational differ-
ences for any individual company, a one-size-fits-all
customer strategy does not and cannot exist. Within
any company it is also unlikely that the same strategy
is appropriate for each customer segment. All cus-
tomers are not equal in terms of lifetime value, which
justifies varying levels of resources being applied
to each relationship.
CRM systems implementation needs to follow a simi-
larly nuanced path. Technology solutions, either off-the-
shelf or in configurable form, are available to enable
most or all of the critical customer relationship require-
ments. The availability of appropriate software depends
largely on a companys industry and specific needs,
and choosing the right solution remains a critical factor
for success. But, as a general point, the most robust
technology solutions available today exceed what most
companies are able to digest. As we will describe in
more detail, it is critical for each company to under-
stand each customer segment it serves, to what extent
further customer alignment will produce quantifiable
benefits, and how technology can be leveraged most
effectively to capture those benefits.
For companies that desire a complete change in how
they relate to the customer, success is possible as
long as they recognize that the full promise requires
fundamental organizational transformation.
CRM Technology A Red Herring
To understand why the CRM category is now being
called into question, consider some of the facts and
beliefs that have dominated the marketplaces thinking
over the last three years. The CRM category appears
to be following a typical product life-cycle curve. It
started out as a set of distinct functional capabilities
for the call center and sales force and grew into a
very broad set of capabilities encompassing the entire
business front end.
With the rising demand for customer alignment and the
explosive growth in technology solutions has come an
avalanche of marketing from CRM technology vendors.
2
Support for CRM
Opposition to CRM
Sources: Morgan Stanley 2001 CIO Survey, The Data Warehousing Institute 2000
Industry Study, Meta Group, Gartner, IDC Up to 75% of CRM initiatives
failing to meet their objectives
(Meta Group) Just 32% of CIOs planning
to invest in CRM in 2002
(Morgan Stanley) Failure rate for CRM projects
expected to reach 80% in 2003
(Gartner) 92% of CIOs buying CRM
satisfied with experience
(Morgan Stanley) 58% of CRM projects meeting
or exceeding expectations
(The Data Warehousing Institute) Worldwide CRM spending
expected to reach $66 $76 BN
in 2005 (IDC, Gartner)
Exhibit 2
Discord in the Marketplace We need to start unraveling the CRM puzzle by coming
to terms with terminology. A few expressions and the
distinctions among them are critical:
Customer Strategy
Every company must have a clearly articulated strategy
for how to value, obtain, serve, and retain customers.
The term customer strategy is used to define how an
organization focuses on and aligns itself to each and
every customer segment. As we will discuss in more
detail, each customer segment must have its own tai-
lored customer strategy to capture full value from CRM
investments in customer alignment.
Customer Alignment
The manner in which a company structures the organi-
zation, business processes, and incentive systems to
be consistent with the needs and expectations of each
customer segment.
CRM
The acronym CRM (Customer Relationship Management)
applies specifically to the class of software and analy-
sis tools required to support the customer strategy.
It is vital at this point to separate the technology dis-
cussion from the strategy discussion. Much of the
CRM debate centers (wrongly in our view) on whether
the technology solutions currently on the market are
adequate. The quality of software and the robustness
of its capabilities certainly vary significantly by vendor
and industry: Smaller CRM vendors continue to spend
millions broadening their offerings functionally (sales,
marketing, customer service, analytics, etc.), whereas
major CRM vendors continue to focus a significant
share of their R&D budgets on deepening industry- and
market-specific solutions. Just as there is not a one-
size-fits-all customer strategy, there are no generic
CRM solutions that will meet all of a companys needs.
Because the needs of most com