KEY CONCEPT

Customer relationship marketing (CRM) has become a big focus for companies in recent years, witnessing heavy investment in call centres, sophisticated database systems, online support services, etc. But despite these large-scale CRM investments, 55–75% of companies have failed to meet the expected returns. Why is this the case and, moving forward, how can managers ensure better results from their CRM initiatives?

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IDEA SUMMARY

Despite being well-managed and well-resourced, a large number of companies have failed to see adequate return on CRM investments. This is a definite concern as many invested heavily prior to the recession (between 2000 and 2005, $220 billion was spent on CRM solutions) and will be planning to invest further as the world economy improves.

It seems that organizations with the money to do so simply rushed into large-scale IT-based investments, seduced by conventional wisdom and management fashion. Along the way, managers have continued to run their businesses as they always did, assuming customers would simply value the results of their investments and not realising the capabilities needed to support them. But successful CRM investment cannot be achieved without developing specific marketing skills and CRM capabilities. It’s easy to acquire resources, but building the right capabilities to genuinely enhance customers’ service experience, is much harder.

In this Idea, faculty from Cranfield School of Management propose a framework to help managers position their organization’s four principal marketing capabilities, which are as follows:

1. Demand management (generating revenue for goods and services);
2. Creating marketing knowledge (generating and disseminating insights about consumers, markets, etc.);
3. Building brands (creating and managing brands for products, services and the organization); and
4. CRM (developing how the company relates to consumers).

Through use of this framework, they can then identify how these capabilities must be developed in order to execute their desired CRM strategy. Two examples help illustrate this in practice:

• BMW Ltd. (UK), who decided to delay its investment pending further capability development in relationship management; and
• Flutter, an online betting company, who, after going through a programme of identifying its true marketing capabilities, invested in a less expensive and different aspect of CRM than it had first intended.

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BUSINESS APPLICATION

Four key insights for managers responsible for their companies’ CRM investment decisions can be summarised as follows:

1. Capabilities are the precursor of CRM investment and not vice versa: marketing capabilities should be developed in advance of major capital investments in resources such as CRM technologies. If this is not done, these investments will generate little or no return.
2. The rate at which capabilities develop varies between companies: how quickly a company can change the way it relates to a consumer will be determined by their rate of organizational learning. Managers should be realistic about the time it will take to develop new capabilities.
3. CRM cannot always be driven top-down: the development of CRM capabilities are emergent rather than immediately obvious. As such, top management should encourage teams of consumer relationship managers to experiment with and them monitor the extent to which each team is making progress.
4. Hard work and commitment are what it takes to develop marketing capabilities: conscious, goal-orientated learning by those responsible for CRM are what will help develop the correct capabilities.

As well as the above, an organization’s top team needs patience and the courage to eschew neat global solutions, consultants’ so called ‘best practice’ models and their own preference for immediate results by allowing marketing capabilities to develop and lead CRM investments.

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REFERENCES

Why CRM Fails – and How to Fix it, “Maklan, Stan”, “Knox, Simon”, “Peppard, Joe”, MIT Sloan Management Review, Summer (2011), p. 77–85

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