No matter how we measure performance, in the end, it will be expressed by one or more financial indicators—growth or efficiency—as defined by management’s priorities for adding value to stakeholders. But achieving results is a long journey that is always determined by how smartly you make your customers and non-customers fall in love with your value proposition. Adding value to your stakeholders has a prerequisite: creating real value to your customers, which is the job of any well defined CRM strategy.
The overall performance of any organization is the result of the performance of the processes that conform to it; and the performance of any individual process is the result of the performance of the activities that make up the process. It all adds up to getting things done. In other words, there are three levels to execute, three levels to innovate and three levels to add value in your organization with your CRM strategy: organizational, process and activity. However simple it may sound, your chosen marketing-sales-service strategy is the route to the top of the mountain you have elected to climb.
But how do you get there? Alpinists who climb Everest (29,035 feet) in Nepal/Tibet or Mt. Jefferson (11,810 feet) in Nevada prepare for months and, sometimes, years to meet the challenge. They establish an overall strategy, break it down into pieces (processes), work out the details (activities) based on their past experience and assess all possible risks that may arise as the result of unexpected conditions. Only minor mistakes can be allowed—and preferably none. Should mistakes occur, they must be overcome promptly; it’s the climber’s life that is at stake, and the quality of the gear is what matters.
In today’s customer-driven economy, companies constantly struggle to get to the top of their mountain, not just to reach the peak, take a picture and climb down. The idea is to get there—and remain there—for as long as possible. No one doubts that having loyal customers is a safe way to meet your goal and deliver exceptional results. So measuring the performance of your CRM strategy should be indicative of how well your company is coping with and reacting to the constantly changing environment in an efficient and effective way.
What are the goals of your CRM strategy, of your customer-oriented processes and of your customer-support activities performed by the employees? What mix of indicators (lead and lag) have you established to measure the results of your CRM initiative at the organizational, process and activity levels? Have the CRM functions, processes and job activities been designed to respond to the dynamic industry/market you are in?
There is a wide body of knowledge and specialized managerial disciplines that help in responding to the above questions. Managing performance (BSC, BI); process (BPI; BPM); cost (ABC/M, RCA); quality (ISO, Six Sigma); and finances (EVA, ROI) is all part of the same ball game: taking strategy to execution. All companies, one way or another, formally or informally, are—or should be—involved to some degree in all of them, and your CRM strategy affects, and is affected by, them. For example, true CRM needs ABC; otherwise, you will not know the real cost of servicing your customers or which ones are profitable and which ones aren’t. It is a reinforcing ring (see the figure below) that requires a constant feedback. It is the way for the modern company to remain competitive in the customer and information age.
It’s the leaders’ job, based on a deep understanding of the internal and external environment, to establish the proper balance among these disciplines. Doing it certainly helps translate the strategy into measurable processes and actions, makes it easier to understand the cost structure and profit sources and allows managing the target costs and setting strategic prices, core to the CRM strategy, in a much more fluid way.
Profit equals Strategic Price minus Target Cost
Where strategic price generates the revenue and target cost is defined as the cost to add value to the customer, less the required costs that do not add value to the customer, less the waste you have not been able to eliminate
But be careful. Before you reduce costs, you must know what they are, so you don’t mistakenly cut muscle when you’re aiming at fat. Here is where activity-based costing (ABC) and resource consumption accounting (RCA) become powerful tools to identify the real costs and profits of products/customers/segments.
The framework will set the company in a path of continuously improved productivity, efficiency, effectiveness and profitability by means of value innovation, which is the most powerful source for satisfying, growing and retaining customers, not to mention creating new customers/markets out of non-customers or non-existing markets.
When it comes to performance, it is people who make the numbers. And if we want people to perform and change their behavior, we better start measuring them. As Paul Sharman, (president and CEO of the Institute of Management Accountants said,
In order to influence behavior, measurement systems must provide feedback to decision makers in a timely and effective manner. It is not enough to measure results unless decision-makers have some control over those results and understand how those measures effect the achievement of process and organizational goals.
The historical financial indicators that we all are used to are no longer enough to measure performance. As Robert Mednick, partner at Arthur Andersen & Co., said, “Accounting systems are based on pre-computer thinking.” Measurement influences the behavior of people and, thus, drives action, which, if properly guided, should lead to the effective attainment of the CRM goals, providing that:
- CRM objectives are clearly spelled and communicated to everyone.
- The job performers possess the knowledge, skills, experience, etc., and personal attributes needed.
- The proper organizational structure, processes, information systems and feedback mechanisms are in place.
- Fairness is the basis of any consequence (reward/punishment) that results from the measurement system.
The balanced scorecard strategy maps and methodology, when applied to the CRM initiative, eliminates the need to pray for miracles and may spell the difference between winning and losing strategies, helps to sustain maximum performance and to drive laser-like focus to what really matters to the customers and to the company.
This is not a small challenge. It is a process that may take years to achieve and, in fact, never ends. But it should be designed to show encouraging and positive results within a business cycle.