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CEOS NEED TO EMBRACE CUSTOMER MANAGEMENT

 

By Doug Leather

 

Although "customer management" is still immature in most large companies, it remains a board agenda item. However, widespread failure of CRM to deliver expected benefits has generated a healthy scepticism about the CRM "promise". The danger is that this becomes an unhealthy scepticism, and results in projects, which are tactical and short-termist. DOUG LEATHER, founder and MD of REAP Consulting, reaffirms why customer management is key, and puts forward a view that for most companies the next generation of CRM programmes will demand strong leadership.

 

Customer management is a serious CEO issue. The dichotomy between high spend on CRM but immature company performance in customer management illustrates the fact that much CRM spend is wasted. The statistics suggest that most significant CRM projects will fail. So, it's not surprising that some senior management are sceptical about the rewards of CRM, which is affecting investment decisions.

 

However, senior managers should take CRM seriously because institutional investors are taking it seriously. They are looking for reliable indicators of long-term business performance, including the investment a company has made in customer management. Today, 80% of a company's market valuation is based not on the balance sheet but on "intangibles". This compares to 50% 30 years ago and 20% 70 years ago. Intangibles include leadership, brand equity, customer loyalty, quality of people, product leadership, and capital efficiency.

 

Companies can create and destroy economic value through customer management just as easily as they can wipe billions off a share price through damage to their reputation by being "named and shamed" for dubious practices. Whichever way you look at it, customer management can make or break a business in today's competitive world. Analysts and CEOs must get under the skin of the way their companies manage customers and prove to themselves that the company is competent in this area.

 

Independent verification of various metrics applied to intangibles, from regulatory compliance to customer management and satisfaction, may be essential for fair valuation of companies.

 

Another reason why CEOs should take customer management seriously now is that "CRM pioneering" is over. Companies have learnt that success does not come easily in this area and are beginning to tread more carefully. CRM may be discredited as a term, but managing customers is, and will always be, important.

 

          Company leadership is required to unlock potential

 

Although islands of excellence in customer management exist within departments, organisational blocks impair good customer management and are restricting the development of organisation-wide customer management. This is a leadership issue.

 

Senior managers must begin to demonstrate leadership in the five areas outlined below.

 

         Focus on business basics first

 

Few senior managers have regular contact with a broad range of customers, while many do not give clear, visible leadership in achieving excellence in customer management. In addition, many companies do not know how many high-value customers they lose, nor do they know the reason why key customers are lost. What is also alarming is the fact that studies have shown that in the vast majority of companies, staff responsible for talking to customers could not articulate why customers should buy from them. Each failure to observe good practice leads to a leakage, or even in some cases a haemorrhage in profitability.

 

It helps if companies look at customer management as four separate, but related entities: the revenue drivers of acquisition, retention and penetration and the cost of service (efficiency), together with others such as customer satisfaction and commitment.

 

         Determine why customers should buy from you

 

Most business sectors have more direct competitors than a few years ago. Customers are spoilt for choice in what and from whom to buy. How do customers choose which product to buy from which supplier? Products are becoming more similar. As product differentiation is becoming harder to achieve, a key differentiator for companies will be their overall proposition (brand and service) to customers - what they stand for and how well they deliver it - and the efficiency with which they deliver it.

 

         Align the organisation behind the brand values

 

Maximum returns from customer management will occur when all elements of customer management are treated and managed as interdependent rather than independent parts - joined-up management creates maximum value. Thus, a knowledge of which customers provide most value will help you to develop and implement a more appropriate proposition aimed at retaining and developing those customers. A cerebral understanding of what best customers want is no good if the sales and service teams do not manage these customers appropriately.

 

In most large companies, there are islands of customer management excellence that must be joined together and aligned to provide a consistent customer experience. The bridge that joins these islands together is dependent on leaders understanding the brand experience that needs to be delivered to best customers; ensuring a consistent customer experience can be delivered across functions in the organisation; and developing enterprise-wide customer metrics to ensure that it is being delivered.

 

         Ensure all processes are customer-focused

 

 

Consumers dislike poor or circular automated options, synthetic voices, incessant music, and nice but helpless operators.

 

Most sales, service and customer administration processes are not customer-focused, but inward-focused. Although many companies seem outward-focused in many "analysis" and research" behaviours, nearly all are inward-looking where it matters most: at the customer interface.

 

         Ensure the organisation is driven by a set of customer metrics that fits your strategy

 

A company can feel it is in control of customer management if it has an overview of retention performance, efficiency performance, acquisition performance and penetration performance (the amount of product that is being sold to customers as a percentage of their available spend, and the number of products you have sold to each customer). All these can be analysed by segment, or customer value group. Whether your strategy is based on operational excellence, customer intimacy, product leadership or some combination of these, there will be a set of measurements that is right for your strategy. It is a leadership issue both to agree the actual measures and to ensure they can be measured.

 

Ultimately, customer management implies that acquisition, retention, penetration and efficiency levers should work together in a managed integrated system, where investment decisions can be made with some confidence. It is a key driver of business performance, and always will be, but without the involvement of senior managers, most companies will reach a plateau of customer management capability.

 

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* Doug Leather is MD of REAP Consulting.

 

Contact

 

Doug Leather, REAP Consulting, 083 327 1010, doug.leather@mweb.co.za

Frank Heydenrych, FHC Strategic Communications, 011 608 1228, frank@fhc.co.za

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