"Our Take" - Justify CRM as a Cost Saver

(Past Editions by: Date, Title, Topic)

 
About "Our Take" 
"Our Take" is a collection of daily vignettes covering a wide range of CRM topics. It's an attempt to add our own spin to the world of CRM. We will use the column to share our perspectives, opinions, epiphanies, web nuggets, or quite frankly anything that moves us. Get ready to expect the unexpected. And, don't be shy about sharing your thoughts.
 
 
9/21/07 - CRM as a Cost Saver
Today, I'll share some more Gartner CRM conference observations from Paul Greenberg as blogged on myCRMcareer.com. It seems he heard from many about using CRM as a cost controller and he has some strong opinions about that. Here it goes.
 
More than one of the analysts suggested telling the boss that CRM can be a cost controller indicating such a message was something to basically tell the boss but not to really drive with. Another analyst seemed to think that this was some sort of driver for CRM - which I disagree with wholeheartedly. I don't even agree with setting a false expectation with the boss to get the project accepted, frankly. CRM is NEVER driven for any reason by its ability to save money. It can, but it may not. It's a costly ongoing programmatic initiative that benefits because it provides value to customers and in return receives value (in the form you hopefully are looking for) from customers. Period.
 
Paul has always been a straight shooter. You know exactly where he stands. Have you ever tried to get support and/or funding for a CRM project based on cost savings?
 
Gary Lemke, Publisher
(Share your thoughts)
 
9/25/07 - CRM as a Cost Saver
Last Friday, I shared some thoughts about CRM as a cost saver. The stated position is that CRM should never be considered as a cost saver. I included those remarks because I didn't share that opinion. More specifically, I wanted to see what others had to say. One reader wrote:
 
Yes, there is one circumstance where I can justify CRM by cost savings. The easy one is when replacing a big, expensive, cumbersome CRM system with a modern, easy, mid-market system. The new system has many operational advantages, but it can also be justified simply on the cost savings compared to running the old system. Even here the improvements in ease of learning, ease of use, greater functionality, etc. could be more important than the cost savings. The cost savings are not speculative. They are hard numbers.
 
The reader finishes by saying, "And for new CRM initiatives (as opposed to replacing an existing dinosaur system) I have to agree that it should not be justified by cost. Do you agree?
 
Gary Lemke, Publisher
(Share your thoughts)
 
9/26/07 - The CFO Says “Not So Fast”
Do we focus too much attention on the potential cost savings of a CRM initiative regardless of its strategic or tactical nature? Many believe that is indeed the case while in their hearts they believe CRM should be justified on enhancement to the customer experience. I received a long and well thought out opinion on the subject and I need more time to digest it. But I want to leave you with the last sentence to ponder today. Here it goes:
 
"I focused on the CFO as the evaluator of the argument because I believe that for most companies, the investment in a CRM system is strategic and expensive enough that the CFO will, at some point in the process, have to authorize the investment."
 
That says it all, doesn't it? If you are involved in anything meaningful, at some point the numbers guy is going to get involved. Regardless of how strategic you might think the project is in terms of creating a better customer experience, some one is going to ask you a bunch of ROI questions that will need to be answered before funds are approved. More on this tomorrow. In the meantime, tell me if you have an experience where the CFO did not get involved because of the strategic nature of the CRM initiative trumped the numbers question.
 
Gary Lemke, Publisher
(Share your thoughts)
 
9/27/07 - Justifying CRM - More Thoughts
I've received quite a few excellent comments on the idea that CRM should not be justified on cost savings. Today, I'll simply share a few of them for you to consider.
 
One reader wrote, "Firstly, quickly lose the notion that any company invests in CRM for intangible benefits like ‘provide more value to the customer, become more responsive to demand shifts, improve communication channels or achieve competitive differentiation’. These are lovely phrases provided by the marketers of the software industry to provide “boilerplate” text for the executive summary section of the business case document."
 
And another added, "While I agree that cost-cutting should never be the primary motivation for implementing CRM, we can’t ignore cost-cutting aspects. While streamlining workflow and information flow and automating individual work process in most non-manufacturing environments, we free up 10% or more of current staff for repurposing. That provides a very quick ROI on the implementation, which helps many CEOs (and CFOs) pull the trigger." I'll follow up tomorrow with more comments including additional thoughts from Paul Greenberg, the person that made the first comments.
 
Gary Lemke, Publisher
(Share your thoughts)
 
9/28/07 - Justifying CRM - Even More Thoughts
As promised, I'm wrapping up the week with a few more comments on cost justifying your CRM initiatives (entire set of columns pertaining to this topic). This is a popular topic so look forward to even more discussion next week. Paul Greenberg started the discussion with his comments and he now offers more thoughts. Here it goes:
 
"When I made my comments on CRM and cost-savings, I said that it cannot and should not be a driver of a CRM initiative. Of course, if done well, there will be cost-savings, but if you're looking for a business initiative to drive costs out of a company in some way, CRM ain't it. The purpose of CRM is not to create a lean company in any way - it is to engage customers in ways that make them advocates. Cost-savings as a driver are a contradistinction when it comes to doing that."
 
He goes on to say, "The idea is to be customer-driven, not cost efficient. Being cost effective when planning your CRM initiative is one thing. But planning it for its cost-efficiencies is quite another - and just wrong - because it ignores the real purpose of CRM. If you're looking for cost-savings, then reduce your defects with Six Sigma or whittle down the number of processes and interactions with lean "thinking" but don't use CRM for that purpose. Your ROI is based on successful customer engagement, not how cheaply you were able to accomplish it." Do you agree?
 
Gary Lemke, Publisher
(Share your thoughts)
 
10/1/07 - CRM Cost Justification
OK, the topic of cost justifying CRM projects is obviously near and dear to many hearts. So I continue with another piece of reader input: "Not being able to justify the cost of your CRM implementation is just laziness. So what if you don't have hard figures at your fingertips. That's why they call it analysis - you have to put in the effort to figure it out. Have the guts to put it on the line in numbers."
 
The reader offers a roadmap: "First commit to an increase in the sales figure as a result of improving customer service with CRM. It might be as modest as 1%. Next, determine what the CRM implementation is going to cost for the first year. Drop the program if it doesn't yield the sales increase after the end of year one and move on to the next project."
 
With regard to what matters most, the reader offers, "In the end, you can chase customer satisfaction numbers all you want, but the most important feedback you get comes straight from the customers' wallets - straight to your sales revenue. We waste a lot of time trying to avoid justifying things, or to avoid facing the reality of the risk or lack of upside on projects we think are cool. If you're not growing revenue on a customer relationship management initiative, you're not getting much out of that relationship. Really, it's pretty simple." Do you think it is that simple?
 
Gary Lemke, Publisher
(Share your thoughts)
 
10/2/07 - Do You Have Your Ticket?
I continue to receive a steady stream of very insightful comments about cost justifying CRM. So I will share some more thoughts today.
 
Another reader comment suggests, "Most people have a preference for the tangible as opposed to the intangible in their decision making, and this is more pronounced in corporate decision making. In the category of tangible benefits (i.e. discernable by the measurement systems of corporations) there are three categories of potential drivers for investment in CRM: 1) Increase top line revenue 2) Decrease the cost of acquiring, servicing and managing the customers that produce that revenue , and; 3) Increase shareholder value."
 
On the other side of the coin is the opinion that anyone conversant with statistical measures knows you can’t accurately measure what you can’t isolate. And you can’t isolate revenue generated by improving customer service from contextual influences. As opposed to playing numbers games, consider what a client CEO said when launching into an ROI discussion: “I don’t want to hear about ROI. CRM is our ticket of admission to the market.”
 
Gary Lemke, Publisher
(Share your thoughts)
 
10/3/07 - Compared to What?
Whether or not you believe CRM will save you money, you certainly hope an investment in new CRM technologies, processes, or experiences will result in something positive. Duh. But did your last project improve something and by how much? The most common answer I get when asking people about their proud project is, "We think things are better but we really don't know by how much."
 
How can that be? Simple. There was no baseline measurement taken. One analyst wrote, "I am not a big fan of ROI because it is so one dimensional and some things just are not made for analyzing along that axis. Our research has repeatedly shown that the biggest impediment to getting good ROI numbers is lack of planning. Specifically, people don't capture baseline numbers so they have nothing to compare with and in the end they estimate their starting point and work backward."
 
The analyst goes on to comment, "Our research shows that people estimate conservatively meaning they underestimate how bad things were. Consequently, they under-report their ROI and the project looks mediocre. Don't let this happen to you." Any of this sound familiar?
 
Gary Lemke, Publisher
(Share your thoughts)
 
10/4/07 - Where's the Retention Discussion?
If you've been reading this column for any period of time, you know about my soft spot for discussing the value of customer retention. If you haven't been reading this column, let me simply say you might as well not invest in customer attainment if you don't have a strategy to retain that same customer.
 
So when someone wrote to me about the discussion on CRM cost justifications, I had to share. Consider this: "What surprises me the most is the lack of attention given to the number one reason to undertake a CRM initiative, and therefore the primary performance area to measure, customer retention. If you start with the goal of demonstrated improvement in retaining accounts year over year, and also understand the value of each account segment that is being retained, you can clearly support the investment in CRM. In the end CRM cost justification is rooted in the cost advantages associated with minimizing acquisition activities to sustain revenue goals."
 
I might sound like a broken record, but let me ask you two simple questions. First, do you have a systematic and rigorous way to measure customer retention? Second, if you measure customer retention, how has the metric changed what you do? Please read tomorrow's column. I'm going to make a to customer retention offer you can't refuse.
 
Gary Lemke, Publisher
(Share your thoughts)
 
10/9/07 - Under-Estimating How Bad Things Are
A few days ago, I talked about the difficulties associated with calculating the ROI of a CRM project. In basic terms, ROI is a factor of improvement from where you started over a period of time at a certain cost. The key is to have a good handle on where you are now compared to where you started.
 
But so often the "where you started" question cannot be answered. One reader wrote commenting, "People don't capture baseline numbers so they have nothing to compare with and, in the end, they estimate their starting point and work backward. Our research shows that people estimate conservatively meaning they underestimate how bad things were. Consequently, they under-report their ROI and the project looks mediocre."
 
Sad but true. In the rush to implement something new, organizations often don't take the time to accurately measure their starting point. It's like looking at the odometer hoping to see how far you traveled without first writing down the starting mileage. Do people over-estimate or under-estimate? That is difficult to know for sure. But one thing is quite certain - a guess is simply a guess.
 
Gary Lemke, Publisher
(Share your thoughts)