CRM returns: Calculate to accumulate

Measuring the benefits of implementing any number of technologies can be hard. Stewart Baines looks at recent successes with CRM and finds best practice is alive and kicking.

CRM and measurable benefits don’t appear to go hand in hand. That’s the conclusions of Gartner Group’s latest research (and coincidentally the conclusion of a recent poll of CIOs by silicon.com). It states that of 250 companies it has interviewed in depth, only 5 per cent are coming up with real figures showing return on investment (ROI).

Results from a recent IDC survey also reveal an ROI disquiet. Of the firms it interviewed about CRM ROI, 19 per cent generated ROIs of 50 per cent or less, half generated ROI returns between 50 per cent and 500 per cent, while 29 per cent hit paydirt of over 500 per cent ROI. With such wide variation, it is hard to believe they were measuring the same thing.

The task of those measuring it is not made any easier by the huge number of processes the area can encompass: sales force automation, call centre, web ecommerce, sales processing and database analytics. Costs and benefits also need evaluating against technology, labour, consulting services and training.

“People weren’t focussed on ROI in the early days of CRM. I think most people did it at a gut level – their consultants were telling them to do it and their rivals were doing it, so they though they’d need to as well,” says John Radcliffe, VP Research at Gartner. “But as disillusionment has set in, I think the finance guys were beginning to question its worth. They want a business case and now we’re seeing ROI demands everywhere.”

That’s even the case for CRM champions – intangible benefits must be converted to tangible ones and demonstrable gains must be made. Steve Ackling is heading up a business transformation project with BT Retail’s call centres. “Our CRM business transformation is built very much around cost savings. We could put forward loads of hard and soft benefits but the business case wouldn’t have been accepted without proving cost savings,” Ackling explains. “ROI is expected in year two and will really reap rewards in years three to five.”

BT’s Retail arm was serving 20 million customers, making 12 million transactions a day through 150 disparate call centres, some as small as 20 seats. It consolidated these down to 31 multi-channel contact centres and deployed a new CRM platform from Siebel. “We have a massive amount of legacy equipment and platforms so to transform it is a major job,” says Ackling.

The project had two distinct goals, one for the Volume business (low value, high number of transactions of residential and SMEs) and one for the Value business (high value, low number of transactions from 26,000 corporates). Its mass-market value channel transformation aimed for a £150m cost reduction against an investment of £100m by 2003/04, and Value channel is planned to deliver cumulative benefits of £68m by 2005/06, compared to an investment of £29m. According to Ackling, the Volume ROI is 3 months ahead of target, and the Value ROI is on target. His advice to others is to seek 6-12 month paybacks for discrete, easily defined project stages where the costs and benefits are clearly measurable.

Another firm that has been able to measure its ROI accurately is the travel agent Thomas Cook. Cost cutting was the main driver for Thomas Cook to review its customer queries process and so any new technology implementation would need a measurable benefit.

“We looked at many of their processes,” explains Claire Hellier, head of solutions consulting with call centre systems vendor Aspect, which worked with Thomas Cook. “And found lots of long enquiries calls where agents would talk callers through choices of hotels and beaches, and what the sea was like, and the call could be 15 or 20 minutes and then the caller would ring off to confer with their spouse or try another quote.”

Hellier continues: “When they called back later, they would get a different agent and have to go through those preferences again.” Using on calling line identity (CLI), Aspect recommended routing recent callers called through to the same agent that dealt with their first query. “It reduced duration of the second call, increased the conversion rate and it had the welcome effect of increasing agent morale,” explains Hellier. The £0.5m implementation, a virtual contact centre supplied jointly by Aspect and Energis, paid for itself in 25 weeks claims the travel firm.

Few companies have been able to track the success of their CRM projects as well as BT and Thomas Cook. Gartner believes that it is because they don’t know what to measure.

The first rule of successful ROI modelling should be to start at the beginning, a self evident truth that escapes many companies’ attention. Business goals must be identified at the beginning of the project and an ROI estimate completed then. This can be done with the call centre equipment supplier or an outside consultant or even solely by the project leader. The evaluation should assess the expected costs, tangible financial benefits and intangible strategic benefits as well as the risk involved. Without a business case being in place before the project begins, there is little to benchmark it against once it is underway.

Another failure to track ROI properly is that many companies misguidedly believe the soft, intangible benefits of a CRM implementation deliver more than tangible benefits such as cost cutting, so any measurement of benefit over cost would be nonsensical. Even though many CRM projects have a goal of customer satisfaction, companies must find some way to measure it, both before and after implementation.

“I think that one of the biggest challenges is that business units buy CRM software and leave it in the hands of the IT department to implement it. But it's very hard for someone in IT to say what the business return has been. Many CRM projects end up without proper ownership,” says Gartner’s Radcliffe.

Tangible benefits are easier to identify. Methods such as net present value (NPV) and internal rate of return (IRR) can be used to work how much the project will cost and what direct savings or earnings it will make. This must be against a set pay-back period, ideally within 12 months. Analysts recommend that tangible costs are certainly less than 75 per cent of benefits as cost overruns almost inevitably happen.

Increasing the top line by 20 per cent may make headlines in the company report but a real ROI cannot exclude costs. If it cost 30 per cent more to implement and manage, someone’s for the chop. A Gartner survey found that just 5 per cent of companies with CRM policies had found a true ROI that included total cost of ownership, key performance indicators and other metrics associated with individual processes.

Costs will usually be split between people cost, process costs and IT costs. A recent study by analysts at IDC found technology savings typically account for just 7 per cent of the average CRM return compared to 51 per cent for increased productivity and 42 per cent for business process enhancements.

And the final challenge in calculating an accurate ROI is to not leave it to the IT department. ROI calculation is best left to the project sponsor. “With the sponsor always involved it is viewed as a business change and always treated as such. It's not seen in IT terms,” says BT’s Ackling. “We identified at the beginning that this would be a top three factor in success or failure.”

As CRM has transformed from point solution – a new sales force automation application for instance – to a company-wide strategy, then the project sponsor should be business focused. If companies are to transform themselves with CRM, whether it's to cut cost or avoid them, increase their customer loyalty or shift more boxes, the project sponsor should be the CEO.