By now, everyone knows that to gain the most competitive advantage out of the Internet, a company must organize itself around the customer and embrace the concept of customer relationship management (CRM).
But while we all know that, it doesn’t make the application of one-to-one as easy at one-two-three. Most companies measure success in terms of lateral figures, such as quarterly sales of a product. But the value of a customer is a longitudinal asset, a variable based on a relationship that goes on through time, reflecting today’s sales to the customer as well as the value of potential sales.
Another problem is most firms simply aren’t organized to manage individual relationships across a number of operating units. At the overwhelming majority of companies, a cross-selling initiative – if it happens at all – is a completely ad hoc, informal program involving an interdepartmental committee. At some firms, cross-selling is a database marketing program designed to sell one product by contacting another product’s past purchasers. But even at these companies, there is rarely anyone playing “traffic cop” for the individual customer, setting and implementing the appropriate strategy for securing a greater share of that customer’s business.
The simple fact is that the problem of measuring customer-based, longitudinal assets – and holding managers accountable for cultivating these assets – is not a marketing problem at all; it is a management problem. And it challenges the central organizing principles of any firm that genuinely embraces CRM as a business strategy.
There is no good “top down” method for dealing with such issues. Managers have already been trained to think in certain ways, to value certain activities and results intrinsically. Sales quotas and “making the numbers.” Product excellence. Time to market. Many of these values are baked into the organization not only as compensation schemes and job functions, but even as shareholder expectations.
One of the reasons MCI’s “Customer First” retention program failed a few years ago was that it required the firm to concentrate its acquisition budget on a narrower target of more profitable – and more loyal – customers. For years, however, the company’s management had “taught” Wall Street analysts to pay attention to the increasing volume of new customers it was acquiring. All its internal compensation schemes were geared to new-customer acquisition, along with its organizational structure. It was now unthinkable to report financial results showing fewer new customers acquired in a particular quarter, even if the program producing that result would have had a much higher financial return for shareholders within three to four quarters, as a greater proportion of existing customers remained loyal. (The true financial benefits of the Customer First program were known conclusively through the use of control groups in testing the program.)
EDUCATION IS ESSENTIAL
No firm can successfully embrace CRM for the long term without educating, persuading and training a large portion of its senior and middle management first, along with all the other constituencies who play a role in the operation of the enterprise. We’re talking about chipping away at what might well be a highly successful product-centric culture at a firm, and replacing it over time with a less-familiar customer-centric one. It is vital not to damage a culture of product excellence, for instance, while still accommodating more and more customer-oriented initiatives.
When Hewlett-Packard first launched HP Shopping Village, which has become a remarkably successful direct-to-consumer Web site, it faced all these issues, in addition to the typical dilemma of channel conflict. The logic of selling HP-branded products direct online is, of course, irresistible, but putting the program together required a good deal more than simply agreeing it made sense. The task was complicated immensely by the very success of the traditional “HP Way.” Hewlett-Packard is highly decentralized, with a variety of product division managers enjoying relative autonomy, provided only that they make their quarterly numbers. Fortunately, more than a thousand of HP’s senior and middle-level managers had already received one-to-one training, which meant there was a network of customer-oriented change agents throughout the enterprise. When cooperation was needed from, say, the folks in charge of selling laptops, the Web site’s managers could rely on the managers in that division to facilitate the effort.
Both these companies had the best of intentions with their CRM initiatives. The only difference? One didn’t underestimate the magnitude of change management its program would require, and began by educating and training its people to cope with this change.
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