The reasons companies measure customers is obvious. In order to manage effectively, one must measure. Businesses have long since measured financial performance with traditional financial measurement tools: profit and loss statements, balance sheets and cash flow statements. These measurement frameworks suffer from limitations; they measure past activities and are “lag versus “leading indicators (Kaplan & Norton, 2001). Kaplan and Norton created the balanced scorecard to address some of these deficiencies and have expanded the tool to measure strategy. In this example, the balanced scorecard intends to predict future financial performance and track how effectively the corporate strategy is executed.
What companies need from measurement systems can vary from the mundane to the profound. The social sciences have established rigorous theories of measurement and research design to ensure experiments themselves and the conclusions researchers reach are valid (Trochim, 2001). While these principles have influenced some CRM practices today, many businesses look at measurement in less theoretical terms. With that in mind, three main uses for CRM measurement systems are:
- To influence or validate decision making
- To guide ongoing activities or tactics
- To predict future states
Influencing or validating decision making
Companies implement CRM measurement very differently based on their internal decision making styles. As companies make decisions about customer strategies, they look to customer measurement to help influence specific decision makers or the decision making process or validate initial ideas about how to manage customer relationships.
These styles break down into five categories:
| Hard ROI approach | In this approach, companies develop a return-on-investment model that seeks to deliver actual cash benefits to the company. These approach identifies cost savings, provable productivity improvements, or well-tested revenue generation opportunities. |
| Intangible benefits/assets | In this approach, so-called softer benefits or intangible assets are identified and quantified. For example brand equity or knowledge capital are two forms of intangible assets that companies do try to measure and quantify and correlate to future company performance. |
| Competitive assessments | This approach measures how competitors are interacting with customers and decisions are made to either seek parity or exceed a competitor’s capabilities. |
| Value-driven | This approach measures economic value delivered to and/or derived from a customer. This style involves building a model of customer value exchange. |
| Instinct and experience | This approach uses manager’s individual experiences and intuitions about what CRM solutions to execute that may or may not be informed by additional facts. |
Many companies frequently adopt more than one style. The styles adopted, consciously or not, shape how the company will measure customer activity. The company’s business model, approach to the market and history of measuring customers also influences which of the measurement styles seem more appropriate or expedient for the company.
Guiding ongoing activities
CRM measurement frameworks are not only used to help managers collectively formulate plans and make decisions, but they are also used to inform and guide ongoing daily activities related to customers. This is related to but somewhat different from influencing decision-making. Measuring customer activities not only helps companies decide which customer strategies to adopt, but also helps front-line employees and managers perform regular tasks. Often, this is the predominant focus for CRM measurement systems. For example, for those businesses with call centers, managers frequently run reports from the call center technology systems, such as automatic call distribution (ACD) systems, on how well the call center is performing and if customers are being serviced at the prescribed level. If managers see problems with performance, those problems can be diagnosed and resolved.
Depending on the company’s business model and the business unit within the company, these measurement frameworks vary. Some categories include:
- Brand performance measures
- Customer asset management
- Customer behavior
- Marketing performance
- Sales force performance
- Service center performance
- Field service performance
- Supply chain and logistic performance
- Web site performance
Since a company interacts with customers through a variety of different business units in a variety of methods, each business unit measures customers very differently. The way a brand manager measures its customer-facing activities is very different from the way the field service staff may measure its customer-facing activities. It is this different way of “touching the elephant that contributes to a company’s inability to deliver on the promise of CRM systems. Given the diverse nature of these measurement frameworks, it is not surprising that CRM practitioners are often skilled in one measurement framework and unaware of the issues, complexities and importance of the other frameworks.
Specific measures in each of these measurement frameworks can be focused internally towards company employees and productive processes that generate and deliver products and services or externally towards customers and their behavior. For example, a call center frequently measures the cost per call as a measure of economic productivity. This is an internally focused measure. Call centers frequently survey customers to determine the level of customer satisfaction. This is an externally focused measure. Figure 1 depicts these measurement orientations.
In this figure, products and services originate in the company’s value production capabilities and then flow through the value delivery capabilities and to the customer. The company’s customer insight capabilities must collect knowledge about the customer’s behavior and mindset and inform the value production and delivery capabilities. While companies frequently measure customer value production and delivery capabilities, very few measure the customer insight or knowledge management capabilities. Very little has been written on how customer knowledge management capabilities can and should be measured.
What makes CRM measurement difficult is that the measurement problem is not confined to just measuring customer behavior and mindset. Instead, businesses need to measure activities that occur inside the company, too. CRM measurement also sometimes goes beyond measuring those activities that directly touch the customer (value delivering capabilities). Companies frequently need to measure specific attributes about how a product or service is produced (value production capabilities), especially if the product or service is customized for the customer. Value production capabilities extend through to suppliers and partners. Hence CRM measurement may also involve supply chain management activities. In fact, supply chain management, as a discipline, exists to better deliver value to customers and therefore is often a key component in CRM activities.
When it comes to coordinating customer-facing activities, the level of interconnectedness within companies and within value chains can be surprisingly high. In the retail consumer packaged goods (CPG) industry, when a grocery store chain changes its consumer promotion schedules, at least seven groups within a CPG firm are impacted: sales, marketing, trade promotions, warehouse, transportation, manufacturing and finance (Rubin, 2001). Rubin reports the lack of coordination costs manufacturers $100,000 in lost revenue per promotion. Collaborative supply chain tools, planning, forecasting and replenishment applications, address these issues and all are heavily dependent on customer insight capabilities within each company in the value chain to work.
When CRM measurement is looked at in this way, one can get the impression that CRM is too wide of a discipline and a technology set since it encompasses nearly every aspect of a company. While this is true, that is because companies exist to sell to and serve customers and it is natural that a wide set of measurements would need to be managed. Companies also have to manage all sorts of measures and measurement frameworks that customers are typically not interested in, such as stock price volatility, bank financing interest rates, overall accounts receivables days sales outstanding and so on. So where does CRM measurement begin and end? One way to answer that is to say that CRM should measure those company activities that pertain to or can benefit specific customers as well as specific customers behavior and mindset.
Measuring strategic capabilities
CRM measurements can play a significant role in measuring portions of corporate strategy. While customer measures are discussed in the balanced scorecard literature, most CRM measurement approaches involve far more metrics at a lower level of abstraction than those represented within a balanced scorecard. However, as companies continually review and reformulate their customer strategies, CRM technology solutions now allow digital execution of those strategies. Technology serves as a mechanism for quickly generating customer measurement data. Figure 2 depicts the relationship between tactic execution and data collection and customer strategy review and reformulation.
Not only is the mechanism for creating customer knowledge not typically measured, so too are the mechanisms for generating customer strategies. While CRM measurements can and do measure the outcome of these strategies and serve as leading indicators for future corporate financial performance, they can potentially be extended to measure how frequently and accurately customer strategies are reviewed and reformulated. Specific CRM tactics can be linked to the strategic process that spawned them. This linkage can be used to “score� the strategy generation capabilities.
Predicting future states
Companies have a need to use CRM technology to help anticipate customer needs or otherwise predict a future customer or market state. Within marketing, there is a long history of using predictive modeling techniques to test out potential marketing approaches to determine how successful the program will be in advance of launching the entire program. CRM technologies and approaches are being used to help companies improve the design of existing products and build new innovative products through closer collaboration with customers. Digital technologies let companies engage customers in a less costly and highly measurable dialog
As more companies and value chains adopt CRM technology and as the technology gets more robust, companies will be able to capture a fairly comprehensive set of data representing the behavior of a market. This information gives these companies clearer insight into what direction their market and customers are headed. From there these companies can determine how to shape or adapt to their changing market conditions. While specialized companies like ACNielsen and IRI are information companies that capture consumer insight and resell it to companies at different points in an industry’s value chain, more companies will be able to “go it alone and develop comparable capabilities themselves. General Mills now conducts 60% of its market research themselves on the web, up from 20% in 1999 (Ashton, 2001). Doing so carries strategic significance. The type of dialog between the company and its customers can get increasingly tailored to the company’s brand and value proposition for proprietary competitive advantage.
Companies use CRM technology to help predict future states in other ways. Gathering customer insight to drive product or service innovation can take many forms, from well-controlled research experiments and surveys to more collaborative and ethnographic approaches. All of these approaches collect data that can be structured and measured. For more traditional CRM system implementations, companies frequently pilot the solution within a single business unit or customer segment (or a small part of a customer segment) to determine if the program will be successful before being rolled out to the entire company or market.
CRM complexity
To summarize, several factors have conspired to make CRM measurement increasingly complex:
- The appearance of many different digital channels to exchange information with customers
- The ability to distribute all or parts of the product/service bundle through digital technologies
- Business unit silos causing differentiated and disconnected technologies and human processes
- Product silos causing differentiated and disconnected technologies and human processes
- Increased data and process integration between companies within a value chain
- Differing styles of customer decision-making approaches
- Differing CRM measurement purposes: influencing collaborative decision-making processes, guiding ongoing activities and predicting future states
The challenge for businesses is to weave together a CRM measurement approach that deftly handles these complexities and constraints.
by Vince Kellen
March, 2002
CIO, DePaul University
Faculty, School of CTI, DePaul University
Chicago, IL. U.S.A.
http://www.depaul.edu