CRM Strategy is a formal structured approach on implementing CRM and what it represents to your business, no matter the size.
Formal researched papers offer factual insight. This articles goes through a number of the formal considerations for developing a CRM strategy based on academic research.
When I’ve been put on the spot “why do you argue that?” I need to be able to refer to fact to back up my argument. This article represents those facts.
Whilst a lot of the materials I deliver are conversational in nature this article is focusing on formal academic approaches, so it reads a little differently.
This article would be really useful if you were considering your CRM and you want to make sure your thinking and arguments are air tight before you bring them to the boardroom.
I know I’ve used the methodologies and models numerous times in my professional career, so I figured sharing them here might be useful to someone at some time.
With you prepared that this is about strong academic arguments to support your decision making process, let’s get discussing.
- Comparing apples and apples
- CRM Strategy and your Strategic Intent
- Relationship Architecture
- Starting your CRM strategy
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Comparing Apples and Apples
What is CRM?
One of the most challenging parts of understanding the outsourcing of Customer Relationship Management (CRM) is finding a precise definition of what CRM is.
The Joint Information Services Committee (JISC) in 2012 on their website lists numerous definitions collated from several authors.
So parking the immediate definition problem, what are we trying to achieve?
The famous management author Peter Drucker (1954) stated “The purpose of a business is to create and keep a customer.”
Using this as a basis the numerous extensions of the definition have arisen.
Petersen (2012) points out that CRM in modern terms now requires consideration of a lot of elements including:
- firstly information technology,
- software solutions,
- also marketing inbound and outbound,
- lead and customer acquisition programs,
- next are data sources and databases,
- numerous ways of contacting the customers (multi touch point),
- furthermore multi-media and multi-channel marketing,
- consideration of enterprise solutions
- data protection and the application of relevant laws
- finally social media.
Ferrara & Nelson (2001) expressed that CRM is actually the concept of referring ownership of the customer to the enterprise rather than individual elements and departments of the business.
Yes the departments are responsible for the interactions with the customers but the enterprise as a whole is responsible for the customer.
This explanation of CRM goes towards explaining the broad nature of the requirements when trying to work out what CRM is.
For your CRM strategy you need to know what CRM means to your business.
Coining the phrase
There is no recorded first date for “sales and customer relationship management” as a phrase appearing.
Sigala (2004) identifies that CRM is a strategic imperative for organisations due to the economic and business benefits derived from when the process is executed effectively.
Fjermestad and Romano (2003) deliver that successful [solutions] consider attracting and retaining economically valuable customers and simultaneously repelling and elimination of economically invaluable ones.
Gornroos (1994) explores that relationship marketing is focusing on building relationships, customer retention and long-term loyalty as opposed to the traditional one time sales approach.
Once the organisation is able to define what role CRM plays to it, it will be possible to define the strategic objectives and expectations towards the outsourcing engagement.
You can start your CRM strategy.
In operational terms getting collective agreement could be a project ending process.
If a strategy is not already in place for a business, this could lead to a lot of discussion and restructuring before getting CRM in place can even come to the table.
McCarthy (2009) when discussing outsourcing considerations for government, states it is important to be clear on the reasons for outsourcing as that will help the selection of an appropriate supplier.
Outsourcing according to Gupta and Gupta (1992) is the idea of utilising external professional services to the deliver the needs of an in-house requirement.
Creating a framework for managing the process of outsourcing any service or business process is challenging as each outsourcing situation offers unique challenges.
Jahner & Krcmar(2007) outline that there are many factors that must be considered when outsourcing.
As part of their research they proposed a typology for approaching outsourcing.
Their research identified four key areas,
- Firstly there must be Strategic Intent
- Next is to explore Relationship Architecture
- Following this is to Manage governance and monitoring mechanisms
- Finally to review and Improve Interactions.
Using these as a basic framework for consideration of outsourcing let’s try apply it to the area of outsourcing CRM.
CRM Strategy and your Strategic Intent
The CRM-Diamond framework
Corbett (2004) demonstrates how outsourcing critical noncore processes can contribute to the bottom line of the business.
Mack et al (2005) demonstrate that critical core business activities make up CRM.
Mack et al continue by identifying that the right customers need to targeted, their needs understood and that the business focuses on a customer oriented strategy.
The following diagram provides an overview of the strategic elements considered important in developing a company CRM strategy.
Image from Mack et al, (2005), The CRM-Diamond
As part of their research Mack et al (2005) also propose a project plan to implement a CRM strategy.
Their research does not give terms of reference as to what size or type of company would apply the model and so the time frames may not be realistic for international organisations or large enterprises.
It does however provide a well-founded approach to developing strategic intent.
Image from Mack et al, (2005), Project Approach to Implementation.
Make it someone else’s problem
Corbett(2004) and McCarthy(2009) echo the potential outsourcing of the elements the CRM diamond represents and their influence on your CRM strategy.
Each individual item could be outsourced to experts in the particular area.
However the highest levels of the company must first drive the strategic intent for CRM .
The resulting high level strategic business requirements of CRM will dictate the approaches and measures required.
McCarthy(2009) emphasises that outsourcing is most effective when applied to high volume, low complexity processes. The effectiveness of outsourcing is empirically proven.
Thouin et al (2009) performed a firm-level empirical analysis on the impact of outsourcing IT.
Their research showed a profit increase of 25% with each additional network and telecommunication service outsourced, which resulted in $3.12M in increased profit for the organisations analysed.
Identifying in-house skills and ability to deliver aspects of CRM is also part of the project approach.
Cost-Benefit calculations help dictate the effectiveness and business logic. Do we keep elements of the CRM in-house or outsource them?
What CRM is worth globally
This shift in corporate position since 1994 to customer retention reflects back in the sales of CRM software solutions.
The adoption of a CRM strategy is a global issue.
DataMonitor (2009) estimated the annual revenue rate of the on-demand CRM Software market to be US$1.7bn. That’s a lot of CRM software.
Gartner (2018) published that worldwide CRM software revenue amounted to $39.5 billion in 2017 overtaking DBMS.
Yet according to Grand View Research from April 2017 they expect the global CRM market to reach US$81.9 billion by 2025.
This investment is global and reflects the cost and challenge of getting the project going.
Not an easy ride
Outsourcing CRM is not an easy endeavour if rushed into. The following highlights why having a strong CRM strategy is important.
Finding strong partners with experience and recognising the breadth of the change to your business is equally important.
Nobody likes to admit failure so research in failure rates tends to lag a bit behind but from 2017
- 2001 Gartner Group: 50% Failure Rate
- 2002 Butler Group: 70% Failure Rate
- 2002 Selling Power, CSO Forum: 69.3% Failure Rate
- 2005 AMR Research: 18% Failure Rate
- 2006 AMR Research: 31% Failure Rate
- 2007 AMR Research: 29% Failure Rate
- 2007 Economist Intelligence Unit: 56% Failure Rate
- 2009 Forrester Research: 47% Failure Rate
The Data Warehousing Institute (2000) identified that 41% of more than 1500 organisations with CRM projects were either experiencing difficulties or close to failure.
Of those organisations only 7% had achieved full deployment of their CRM solutions.
The survey also revealed that 91% of companies surveyed have adopted or intend to adopt a CRM solution within a close time frame.
Yet only 22% of these companies have appointed a Chief Customer Officer to manage and facilitate the change.
The argument for outsourcing
With the organisation now capable of clearly distinguishing the strategic, managerial and operational goals for the CRM function of the organisation, identifying the elements which can be outsourced becomes far easier.
However the pros and cons of what goes into the relationship need to be identified.
Clarke et al (1995) outline a number of pros and cons with regards to outsourcing IT which also apply to CRM situations.
On the positive side for your CRM strategy if properly managed:
- engaging with outsourcing allows for reducing costs,
- deploying the solution more quickly improving quality and productivity,
- leading-edge technologies can become immediately available,
- reducing investment risk and increasing technological flexibility,
- reducing implementation times,
- creates a baseline on which to compare internal capabilities,
- allows internal resources to be redeployed and allows for high level quantification of costs.
Objectively there are a some negatives to outsourcing if not closely mitigated namely
- increased long term costs of operation,
- increase risk in dependency,
- loss of internal technical knowledge and learning,
- loss of flexibility and
- increased complexity of management reporting.
All of which have significant strategic business impact.
Service Oriented Architecture (in Business)
A Service Oriented Architecture (SOA) has been defined by Hurwitz et al (2009) as
- “an architecture for building business applications as a set of loosely coupled black box components orchestrated to deliver a well-defined level of service by linking together business processes.”
This concept also applies to outsourcing specific services.
Schekkerman (2006) clarifies that this SOA model also has a maturity model.
This model can also be reflected in the level of relationship shown with the supplier.
Image from Schekkerman (2006) Service Oriented Architecture Maturity Model
Accenture have published numerous case studies demonstrating their proficiencies at engaging with customers at numerous levels in Business Process Outsourcing.
These levels are from the very cursory, functional levels to the highest level of strategic influence and optimisation of outsourcing planning.
Once you’ve built a CRM strategy there is the ongoing challenge of reviewing it and keeping it relevant.
The challenge of black boxes
Linthicum (2012) acknowledges there are known challenges with this isolated outsourcing / black boxing of interactions and describes the primary thrust of the challenge as being likened to the poem by John Godfrey Saxe’s Elephant.
Six Indonesian blind men encounter an elephant, each describing a part of the elephant they have experience with.
- Firstly the man touching the trunk believes it to be a snake
- Next the man touching the tusk believes it to be a spear
- Yet the man touching the ear believes it to be a fan
- Furthermore the man touching the elephant’s side believes it to be a wall
- Also the man touching the tail believes it to be a rope
- Finally the man touching the legs believes they are trees.
- “…And so these men of Indostan
- Disputed loud and long,
- Each in his own opinion
- Exceeding stiff and strong,
- Though each was partly in the right,
- And all were in the wrong!”
Image from Linthicum (2012) Saxe’s Elephant
This analogy highlights the complexities of establishing the relationship with the outsourcing supplier and the understanding of your CRM strategy organisation wide.
It also highlights the importance of establishing common understanding as part of the relationship architecture between the parties.
Do the other parties need to see the whole elephant?
Types of relationships
Sambamurthy& Zmud (2000) break the relationship with the two parties into 3 distinct types.
The loosest function linking are virtual networks with loose arrangements with large numbers of potential partners on an as needed basis.
More closely tied relationships which are extended networks, which provide commodity solutions up to strategic architectures which consist of relatively stable relationships with limited numbers of partners.
Another consideration is the power relationship between the company requiring the outsourcing and the company providing the outsourcing. Ensuring the balance in the relationship and attempting to prevent one or other side gaining dominance is an important factor.
Jahner & Krcmar (2007) further provide examples of how these relationships can be managed and mitigated.
Pros and Cons of the relationship
Drawing on the pros and cons outlined by Clarke et al (1995), the SOA maturity model, the analogy of Saxe’s Elephant and Sambamurthy & Zmud (2000) categorisation of relationships.
It can be seen that at the lower levels of integration, virtual networks, great gains can be made with relatively low risk, however the level to which the pros can be leveraged is greatly reduced.
As the relationship begins to be more tightly integrated the advantages of the pros increase but the effects of the cons also become more apparent.
If too much dependence is placed on the company doing the outsourcing they can become dominant in the relationship which is an increased risk in dependency.
One of the biggest challenges is that facing the company attempting to outsource their CRM.
If the parent company doing the outsourcing are not sure of their strategic goals and requirements, the company-being-outsourced-to may be unable to see the bigger picture and not deliver as required.
This strategic balance poses a significant decision for management.
Starting your CRM strategy
This article has covered the basis of the first two sections Strategic Intent and Relationship Architecture.
I think that’s enough to start a few discussions. I’ll follow up with a further article on the second two sections in the coming days.
If you’d like the links or the papers from which all the referenced material is from please get in touch I’d be happy to share it with you.
Consequently if you think I could help you in any way or have a discussion on any point above, please get in touch.