10 Reasons CRM is Waiting for Take-Off

A renewed or intensified customer focus can facilitate more effective and efficient customer service—which, in turn, can reduce churn, increase revenue per subscriber, and provide growth in high-value segments. In his book The Loyalty Effect, Fredrick Reichheld of Harvard Business School notes that “a five percent improvement in customer retention can result in a 75 percent increase in profitability.”

According to studies by the Harris Research Center, 66 percent of organizations have a CRM strategy in place, but 33 percent of executives surveyed believe their customer databases are largely incomplete. Ninety percent of respondents do not have integrated customer information and feel they are unable to obtain it. Forty percent do not use data warehousing and data mining for CRM purposes, although they recognize that such technologies underpin most strategic approaches to CRM. Additionally, 25 percent of organizations do not integrate sales and marketing data with customer service data, although more than two-thirds believe such integration is vitally important for CRM.

So why aren’t service providers wholeheartedly embracing it?

1. CRM as a competitive differentiator hasn’t matured because of other focuses. Historically, the communications industry has focused its investments on networks and internal operations. In a regulated environment, where the goal was universal access and the ability to serve all customers equally well, the industry naturally focused its resources and attention on building efficient infrastructure and systems, rather than understanding and forging relationships with various customer segments, says Dale Raaen, a managing partner in Andersen Consulting’s communications industry practice. Three trends are pushing communications companies to focus on customers and develop deeper CRM capabilities to take a more effective and profitable approach to reaching those customers.

? Continued deregulation is opening previously protected local and global markets, providing new opportunities and new challenges. In truly competitive segments, such as long distance and wireless, market shares for incumbents have plunged 40 percent or more in a short period of time.

? Technology-driven markets provide opportunities for communications companies to expand their offerings, but they also give consumers alternatives. For example, Internet telephony is emerging as a long-term potential competitive threat to communications companies’ core competency. In the summer of 1999 in the United States, news services began reporting that some customers have given up their local phone connections in favor of wireless—a trend already maturing in other parts of the world.

? A 1998 IDC Residential Telecommunications Services Satisfaction survey noted that local, long distance, cable and cellular/PCS providers are currently falling below customers’ expectations on pricing, simplicity of pricing structure, and customer service. A 1997 Andersen Consulting study shows that only 50 percent of customers are satisfied with their current provider’s performance. Raeen says that communications companies need to focus on customer service, examine their product and pricing strategies, and leverage customer information to offer the right products and services through the right channels at the right time.

Ed Norton, president of UCMS, a CRM outsourcing company, believes that today’s differentiators come from “bigger and faster networks, more functionality, different pricing plans, bundled services . . . . I foresee the general recognition of differentiation through customer service as something that’s got to be thrown in that mix. CRM is going to be a hot issue in 2000—after the sort-outs that are going on with Y2K, mergers and acquisitions, and some of the technology issues, such as the GSM alliance, CDMA vs. TDMA, modems vs. cable modems vs. DSL—which isn’t really available to most people in their homes even though it’s being pushed like hell.”

2. Carriers don’t fully recognize the benefits of effective customer relationship management or its scope.

Tangible projects such as billing have instant gratification, says Sean Brown, director of business integration at Telution. “But while CRM leads to less churn and increased revenue, it is difficult to quantify short term.”

Dave Dague, principal at AMS, says that some carriers regard customer care as sufficient CRM. But “CRM is about the ability to focus your resources on your high-value, high-potential customers and treat your customers that may be of a low future value to you appropriately as well, by not bombarding them with marketing messages and perhaps taking a more passive retention approach,” he says.

Norton believes that some service providers don’t fully understand what CRM means. “It’s important to realize that CRM is not a product, it’s a strategy,” he says. “There are products which are necessary to make successful CRM work, but CRM is not a Siebel application, it’s not Vantive plus this, plus that. It’s not one or a set of application products. It is very important that service providers understand you can’t buy CRM in a box on two CDs.”

3. Carriers appreciate the benefits of CRM, but CRM is so broad, nobody knows exactly where—or how—to start.

Andersen’s Raaen says that in a competitive industry, the importance of building customer relationships is intuitive, but the precise value of investing in specific CRM initiatives is not. As a result, many such initiatives are undertaken based on experience and intuition, not on reliable financial data. What’s more, customers interact with companies in many ways, and CRM depends on a number of specific capabilities within marketing, sales and service. For executives trying to allocate resources, the broad array of CRM capabilities presents a bewildering range of options. In short, communications executives face a fundamental challenge: they need to invest in CRM capabilities, but they do not know where to invest to get the highest return, or how to justify those investments.

Andersen Consulting recently released results from a study conducted to assess the relationship between CRM performance and financial performance. The study surveyed 94 executives from 42 communications companies, including long distance, local, wireless and cable firms that collectively represent 72 percent of industry revenues in North America.

The findings indicated that a relatively small number of CRM capabilities produced strong financial results, Raaen says. Investments in some capabilities have a greater impact on business performance than others. This is contrary to the view in which many industry executives think that all CRM capabilities are equally important, he says. “This perception indicates that communications companies may be missing many high-value CRM opportunities and focusing on others that cannot provide any real advantage.” (See sidebar.)

The report states that CRM performance accounts for 50 percent of the variation in companies’ return on sales [ROS]. To determine the potential ROS impact due to CRM performance, the company measured the difference in CRM performance between average and top-tier organizations (“average” was the exact average of all survey scores, and “top-tier” was the average of above-average scores). The study shows that a typical $2 billion communications business unit that improves its overall CRM performance from average to top-tier can increase its ROS by 16 percentage points, or more than $320 million. ROS for business units participating in the study ranged from minus five percent to plus 45 percent.

4. Service providers have budgetary restrictions based upon the perception that customer service is a “cost center.”

Many telecom providers view call centers as a financial burden; as budget belts are tightening, the head of customer services is challenged to cut costs, but doesn’t have much interest in reengineering operations, Norton says. “The CEO may understand that customer service is not a cost center, but when you step one office away, the call center employs 2000 people, costs X per person, costs Y per call, et cetera. ‘How can we reduce the cost?’ is all you hear. ‘Should we outsource this?’”

Cost reduction ultimately will result in a lower level of customer service, Norton says. “CRM should be viewed as a value proposition—increasing your top line or increasing your profitability or some combination of those. You may or may not reduce your costs. But if you raised your EBITs by 15 percent, would it matter if your costs were flat, or even a little higher? It wouldn’t.”

Richard Campione, vice president and general manager of Siebel Systems’Communications & Energy division, says he often sees budgetary restraints cause stovepipe extension and what he calls “swivel-chair integration,” where CSRs have three or four computers with access to different systems in their workstations.

5. There has been no long-term CRM strategy development.

Determining the business drivers for CRM implementation is an important first step, and they can include churn reduction, geography expansion, market share exploitation, among others, Norton says. “Increasing the revenue per subscriber from $48 per month to $52 does X to your bottom line without acquiring any new subscribers. Try reducing your average accounts receivable days from 38 to 32, and see what that does to your business. Reduce your net bad debt by 0.1 percent by performing better fraud prevention in credit card authorization. Consider what a move to prepaid would do.”

One of the most important objectives should be customer segmentation, he says. “If you don’t segment your base, you have a million subs out there and they are who they are and they come and go when they come and go, and they spend what they spend. You don’t know who they are, so the customer relationship is low. Segmenting to a level of one, and incorporating profiling, warehousing, mining and such technologies, is the ultimate. You may not ever want to reach a ‘segment of one.’ You may find that having a hundred segments for a million subscribers is going to get you 80 percent of the way where you want to go and that’s good enough.”

Dague identifies three levels of customer analysis for segmentation purposes. One is an aggregate analysis of the entire customer base, which allows for strategic tracking of customer value migration and is suitable for thousands to millions of customers. The second is a detailed analysis of specific customer groups/segments, which allows for detailed ranking by a broad set of variables and is suitable for hundreds to thousands of customers. The most detailed analysis is within an individual customer account, which allows for a deep understanding of your most complex accounts and is actionable in both inbound and certain outbound applications.

Data analysis, Dague says, can include:
? Customer Profiling: Descriptive Segmentation/Tracking Residential customers: geographies, demographics, lifestyles Business customers: industry code, total revenues, headcount

? Advanced Analysis: Behavioral/Predictive Segmentation/Tracking Timeseries, regression, induction trees (AID / CHAID / C&RT), and modeling tools

? Guided and ad-hoc analysis: Dynamic Assessment/Tracking Must support on-the-fly aggregation, rotation, filtering, ranking, and custom calculations in a graphical, easy-to-use interface

6. The billing system’s customer care functionality is seen to be “good enough.”

Sean O’Shay, consultant at DMR, says service providers don’t use much more than billing data for CRM for several reasons: inexperience within senior management in the telecom field, lack of money, foresight and competitive drivers, and the fact that the vast majority of customer calls are for billing inquiries.

Dague says the carriers who are relying solely on the billing system for CRM are missing an opportunity to use publicly available demographics information. The second area of neglect is credit and risk management, he says. “Customers may be high-value from a marketing and upsell perspective, but a tremendous credit risk. Carriers are also missing loyalty program opportunities and the direct customer response that comes with it.”

Steve Bamberger, Clarify’s director of telecom services, believes that the billing system’s biggest inefficiency is in service data retention—order history, service history, trend data that fits the appropriate customer segment, and buying preferences, combined with billing information provides a powerful picture of the customer.

“The pitfalls are virtually infinite,” he says. “Using the billing data gives you purely a transactional view of the customer, and customers are not transactions. Customers are living, breathing people who have service problems and questions and preferred buying patterns to whom you can upsell or cross sell or deter from churning, but not by using just billing data. And that’s why the billing vendors are aggressively trying to position themselves upstream of billing.”

“Billing is about bits-and-bytes, invoices, stamps and receivables,” says Brown. “A customer relationship is about listening, understanding, changing and responding appropriately. Billing data is narrow and only captures a piece of the information needed to understand and appreciate the customer. Paying on time does not necessarily mean that your relationship is optimized.”

7. The integration efforts to provide a unified or single view of the customer are often very difficult and incredibly expensive—and sometimes hindered by regulation.

It’s not just integration of back-office systems; a service provider must also consider customer touch-point, cross-product and business unit integration. “With convergent services,” Dague says, “a subscriber with data, wireless and phone services is three different customers to some service providers.”

Deregulation has undoubtedly hindered incumbents. Regulatory limitations have forced Bell Atlantic to appeal to its customers for permission to integrate information across business units; the company recently sent notices with its customers’ phone bills asking permission to share customer data for different services for bundling purposes.

Brown believes that a “service provider must view every interaction in the context of all other interactions, and piece together an understanding of this customer in light of these small interactions. This means that the call center representative, logging into a system, should be able to have access to all of the information about a customer at the click of a mouse. Examples of this interaction include access to demographic information, past and current billing information, order information, for both existing and pending orders, trouble ticket information, and all information regarding past calls, when they logged in using the web, and what their needs are.” And although service providers may well view this as the ideal situation, with disparate systems the prospect is outrageously expensive.

8. Past data warehousing efforts have failed.

Data warehouse efforts, which often provide the basis for future CRM initiatives, can fail for several reasons, says DMR consultant Don Tiedeman. One leading cause is what he calls “scope creep,” where people in the marketing department doesn’t have a clear definition of what they want in the warehouse or how they want to access it. Another problem involves data hygiene issues and the difficulties of quality and timeliness in integrating the data. If the billing database is streaming data to the warehouse once a month on the 20th, and the marketing department is adding its campaign or demographics data on the first of the month, data integrity may be distorted.

“One of the reasons that service providers use the billing database for customer management is that is the most current and robust database,” Tiedeman says.

“All of us get discouraged when the first step in any project flops,” says Brown. “After a failed $2 million project most of us would say, ‘I’ll just start another ad campaign or buy a new switch. I’d rather do anything else than start that process again.’”

9. Dependence on partnerships and alliances for functional capabilities.

Much of the lackluster performance in this capability may be due to the fact that building effective partnerships and alliances requires special skills and capabilities in its own right, says Andersen Consulting’s Raaen. According to research, 90 out of 100 alliance negotiations observed in a number of industries failed to reach an agreement—and only two alliances survived more than four years. In the communications and high-tech arena, 50 percent of alliances between large and small firms survive only four years. Partnerships and alliances tend to fail for a number of reasons. In descending order of importance, the reasons are:

? Strategic direction of one or more partners shifts
? Senior management attention shifts
? Champions move on
? Lack of career path leads to shortage of excellent staff
? Clash of corporate cultures
? Disagreement over the distribution of returns

10. Organizational structure within the company impedes true CRM.

“One of the biggest challenges that we see with carriers is that the organization culturally is provided along business and network lines, rather than customer support lines,” Bamberger says. “So you end up, especially at the incumbent carriers, with monolithic network operations and business operations. They split the customer facing responsibilities, so if I’m a customer and my line is disconnected, I end up calling a network operations help-desk, but if it’s disconnected for non-payment, I get shuffled back to business operations. What you end up with is a fragmented customer experience from an organizational perspective,” he says.

Siebel’s Campione notes that there is a lot of polarization within communications organizations—which results in negative customer interactions, such as a call during dinner to offer customers services they already have, or a salesperson pitching a new service to someone whose existing service is down.

Norton’s contention is that as CRM matures, the organizational structure has to change to accommodate company-wide ownership of data, rather than continue to support the present IT ownership.

Key CRM Capabilities

To determine the relationship between financial performance and CRM, the study examined 54 CRM capabilities in marketing, sales and service. Eleven of these capabilities had the greatest impact on ROS, with each of these having the potential to add $20 million or more to the ROS of a typical $2 billion communications business unit.

Marketing

Relative to other industries, the communications industry has traditionally under-funded and under-staffed the marketing function. However, the study shows that communications companies that are able to improve their marketing performance can add significant value to the bottom line.

These four capabilities together contribute more than $100 million to potential ROS for a typical $2 billion communications business unit.

Sales

The general link between effective sales performance and financial performance is generally accepted.

More revealing is the high impact in the study of the sales capabilities that focus on attracting, developing, rewarding, and retaining sales people. Four sales capabilities account for the majority of the potential ROS impact in moving from average to top-tier performance in sales—and three of those four focus on attracting, developing and retaining top talent.

This emphasis on talent should only increase. As we know, the demands on the sales function have changed dramatically and will continue to change, particularly at the high end of the market. Salespeople must increasingly be able to understand, explain and sell complex bundled products and/or customized solutions.

The top four sales-related CRM capabilities contribute more than $130 million to the ROS of a typical $2 billion communications business unit.

Customer Service

Today, customer service—in which we include both the billing function and the traditional service function—is widely recognized as an important function in communications companies. However, many of them are still struggling in the service arena. Billing, for example, is key to customer service, but many companies that have invested in billing systems have yet to derive real value from their efforts, primarily because of inadequate and unfocused investment.



Companies that do focus their service investments see significant results. Together, these capabilities account for more than $70 million in potential ROS impact for a typical $2 billion communications business unit.