Friday, September 2, 2011

How to Avoid the Four Threats of CRM


Companies spend enormous amount of money into Customer Relationship Management (CRM) but according to my experience most initiatives fail to deliver.  Below are the reasons why is happening and some tips to raise the odds for success.

The promise of customer relationship management is captivating, but in practice it can be perilous. When it works, CRM allows companies to gather customer data swiftly, identify the most valuable customers over time, and increase customer loyalty by providing customized products and services. It also reduces the costs of serving these customers and makes it easier to acquire similar customers down the road. But when CRM doesn't work-which is often-it can lead to disaster.

Threat 1: Implementing CRM Before Creating a Customer Strategy
Any new management tool can be seductive, but there's something particularly captivating about software that promises to make a perennial problem go away. Many CRM products do just that, claiming they will automate the delicate and sometimes mysterious process of repelling low-margin customers and luring high-margin ones. CRM can indeed do that, but only after -a traditional customer-acquisition and retention strategy has been conceived of and implemented. The reason? Effective customer relationship management is based on good old-fashioned segmentation analysis. Moreover, it is designed to achieve specific marketing goals. To implement CRM without conducting segmentation analyses and determining marketing goals would be like trying to build a house without engineering measures or an architectural plan.

Still, most executives mistake CRM technology for a marketing strategy. That is, they allow software vendors to drive their approach to customer management. Or, just as often, they retrofit a customer strategy to match the CRM technology they've just purchased. To make matters worse, they then delegate customer relationship management to their CIOs. It's mostly technology, isn't it? It partly is-and therein lies the problem. Technology that affects customers must always be aligned with an overarching strategy if it is to work (and that includes both business and marketing strategy).

Threat 2: Rolling Out CRM Before Changing Your Organization to Match
Installing CRM technology before creating a customer-focused organization is perhaps the most dangerous pitfall. If a company wants to develop better relationships with its more profitable customers, it needs to first revamp the key business processes that relate to customers, from customer service to order fulfillment. Having a strategy is not enough: A CRM rollout will succeed only after the organization and its processes- job descriptions, performance measures, compensation systems, training programs, and so on - have been restructured in order to better meet customers' needs.

It's also important to evaluate existing departmental, product, or geographic structures. Believing that CRM affects only customer-facing processes, however, executives often do not see the need for changes to internal structures and systems before investing in CRM technology.

Threat 3: Assuming that More CRM Technology Is Better
Many executives automatically assume that CRM has to be technology intensive. It doesn't. Customer relationships can be managed in many ways, and the objectives of CRM can be fulfilled without huge investments in technology simply by, say, motivating employees to be more aware of customer needs. Merely relying on a technological solution, or assuming that a high-tech solution is better than a low-tech one, is a costly pitfall, in fact, companies with well-functioning CRM programs dot all points of the technology spectrum: low-tech, mid-tech, and high-tech.

An essential part of CRM technology which is almost ignored by executives is the data mining function which allows you to carry out customer segmentation, customer profiling, and campaign measurement.

Threat 4: Stalking, Not Wooing, Customers
If your best customers knew that you planned to invest X amount to increase their loyalty to your products, how would they tell you to spend it?

Would they want you to create a loyalty card or would they ask you to open more cash registers and keep enough milk in stock? The answers depend on the kind of company you are and the kinds of relationships you and your customers want to have with one another. Such relationships can vary across industries, across companies in an industry, and across customers in a company. Unfortunately, managers tend to ignore these considerations while using CRM, with disastrous consequences. They often end up trying to build relationships with the wrong customers, or trying to build relationships with the right customers the wrong way

To infer, successful CRM depends more on strategy than on the amount you spend on technology. Strategy is about allocating scarce resources to create competitive advantage and superior performance. The only way you can make CRM work is by taking the time to calculate your customer strategy, which helps employees understand where they are going and why, and to align your business processes before implementing the technology.

You'll also need to effectively lead and manage change, showing CRM support teams how to achieve their goals through new processes. Employees must be equipped with the tools necessary to succeed-whether it's stationery and pens to send thank-you notes or software to create self-service options for customers. Indeed, while technology is a powerful facilitator in the process of customer relationship management, that's all it is-a facilitator. And the moment companies forget that, CRM will turn into a tool that, instead of building loyalty, does just the opposite.

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We can help you with the auditing of your current CRM strategy and assist in shaping a new customer strategy/plan that will suit your needs. For further information, please contact me at info@antonymichail.com

Dr. A. Michail


Wednesday, August 3, 2011

How to apply a Cost Leadership Strategy within a Company’s Value Chain


Following my previous post regarding “How to apply a Differentiation Strategy within a Company’s Value Chain”, I will now discuss the Cost Leadership Strategy.

 

Campbell et al. (2002) purport that value chain analysis is central to identifying where cost savings can be made at various stages within it and its internal and external linkages.  Achieving a cost leadership position will depend upon the arrangement of the value chain activities with purpose to:

·         Reduce unit costs by copying rather than originating designs

·         Using cheaper materials and other cheaper resources

·         Reducing labour costs and increasing labour productivity

·         Achieving economies of scale by high-volume sales and by allowing high fixed costs of investment in modern technology to be spread over a high volume of output

·         Using high-volume purchasing to obtain discounts for bulk buying of raw materials

·         Utilising governmental support when is available (grants)

·         Obtaining learning curve economies

·         Identifying the relative importance of each activity in comprising total cost
·         Investigating the cost drivers for each activity and why the firm is comparatively efficient or inefficient in individual activities
·         Examining which activities should be undertaken within the firm and which activities should be outsourced

Cost Savings in Primary Value Chain Activities
Cost savings can be introduced by cost leaders in all aspects of the primary value chain activities.  Primary activities according to Porter (1985) are: Inbound Logistics, Operations, Outbound Logistics, Marketing and Sales, and Service. 

Within Inbound Logistics the following cost saving activities can be identified (Grant, 1996; Hax & Majluf, 1996; Hardy, 1994; Porter, 1985):
·         Superior handling of incoming raw materials to minimise damage and improve the quality of the final product
·         Supplier related cost saving activities:
(i)         Direct supply
(ii)        Highly efficient systems to link suppliers’ products with a firm’s production processes
(iii)       Located in close proximity with suppliers
(iv)      Long-term ‘win-win’ relationship results in supplier’s passing through cost savings

Within “Operations the following cost saving activities can be identified (Grant, 1996; Hax & Majluf, 1996; Hardy, 1994; Porter, 1985):
·         Purchase of inexpensive capital equipment: Firms sometimes are motivated to divest a business even at a price far below replacement cost or book value. In an industry with significant fixed costs obtaining a low cost capacity can provide considerable competitive leverage.
·         Efficient plant scale to minimise manufacturing costs (largest scale economies): The key to scale economies is to determine the optimal size for an operation (i.e. advertising, sales, staff work and facilities).  Hence, when the size is below optimal, a firm can suffer a severe competitive disadvantage.
·         Timing of asset purchases
·         Specialisation and division of labour
·         Experience effects raise efficiency over time
·         Incremental improvements in coordination and organisation
·         Reduced labour input through mechanisation and automation
·         Highest product physical properties
·         High yield, low detects

Within Outbound Logistics the following cost saving activities can be identified (Grant, 1996; Hax & Majluf, 1996; Hardy, 1994; Porter, 1985):
·         Delivery schedule that reduces costs by computerising delivery routines
·         Selection of low cost transport carriers
·         Efficient order sizes (shipping in bulk lowers transportation costs)
·         Extensive warehouse network
·         Rapid delivery guaranteed
·         Interrelationships with other business units

Within Marketing and Sales the following cost saving activities can be identified (Grant, 1996; Hax & Majluf, 1996; Hardy, 1994; Porter, 1985):
·         Small, and highly trained sales force
·         Products priced to generate sales volume
·         Extensive personal relationships with buyers
·         Cost control on promotional activity
·         Timing of market entry
·         Strong coordination among functions in R&D, Marketing and Product Development (horizontal integration)
·         National advertising campaigns create economies of scale in buying media space/time

Within Service the following cost saving activities can be identified (Grant, 1996; Hax & Majluf, 1996; Hardy, 1994; Porter, 1985):
·         A direct approach to low cost is simply to remove all frills and extras from a product or service
·         Effective product installations to reduce recalls
·         Training for dealers and customers
·         Highest technical service coverage
·         Expert service technicians repair product right the first time, avoiding the expense of follow-up calls

Cost Savings in Secondary Value Chain Activities
Cost savings can be introduced by cost leaders as well in secondary value chain activities.  Secondary activities according to Porter (1985) are: Firm Infrastructure, Human Resource Management, Technology Development, and Procurement. 

Within Firm Infrastructure the following cost saving could be utilised by companies wish to adopt a cost leadership strategy (Grant, 1996; Hax & Majluf, 1996; Hardy, 1994; Porter, 1985):
·         Reduction of overheads
·         Highly developed Information Systems
·         CRM (to better understand customers’ purchasing preferences)
·         Cost effective MIS systems
·         Simplified planning practices to reduce planning costs
·         Relatively few management layers to reduce overheads (flatter organisation structure)

Within Human Resource Management the following cost saving could be utilised by companies wish to adopt a cost leadership strategy (Grant, 1996; Hax & Majluf, 1996; Hardy, 1994; Porter, 1985):
·         Consistent policies to reduce turnover costs
·         Extensive use of subjective performance measures
·         Effective training programs to improve worker efficiency and effectiveness (i.e. by training production employees reduces waste and scrap)
·         Integrating sales and technical services

Within Technology Development the following cost saving could be utilised by companies wish to adopt a cost leadership strategy (Grant, 1996; Hax & Majluf, 1996; Hardy, 1994; Porter, 1985):
·         Coordination among R&D, marketing and product development
·         Investments in technology in order to reduce costs associated with manufacturing processes
·         Product reformulation allows use of cheaper ingredients
·         Easy-to-use manufacturing technologies

Within Procurement the following cost saving could be utilised by companies wish to adopt a cost leadership strategy (Grant, 1996; Hax & Majluf, 1996; Hardy, 1994; Porter, 1985):
·         Frequent evaluation processes to monitor suppliers’ performance
·         Located in close proximity with suppliers
·         Systems and procedures to find the lowest cost products to purchase raw materials

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We can help you with the analysis and formulation of your business’s competitive strategy.  Please do not hesitate to contact me at info@antonymichail.com.

 

Dr. A. Michail

 

PS the references although are given within the text I have not fully included them

 

Copyright Dr. Antony Michail. 2011. All Rights Reserved