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An in-depth look at the challenges facing senior managers Published by The McKinsey Quarterly July 2004
McKinsey on Marketing
Article at a glance: Most large companies have some form of customer-relationship-management (CRM) software, but more than half of them are disappointed with it. Critics blame the software, but the real problem could be a failure to address the organizational challenges posed by any new initiative. Top management often assigns executives with other primary responsibilities to take charge of the CRM effort on a temporary basis, and they may resort to heavy-handed mandates to get frontline staff to use the new tools. Instead, CRM should be treated as a product or service targeted at internal customers.
The take-away: CRM initiatives have a better chance of succeeding when accountability is clear and front-line users get adequate training and incentives.
Organizing for CRM
Companies should treat a customer-relationship-management solution as a product or service and its users as internal customers—by making it valuable, pricing appropriately, advertising, and providing after-sales support.
Gle
nn M
itsui
1
Organizing for CRM
Anupam Agarwal, David P. Harding, and Jeffrey R. Schumacher
What’s left to say about customer-relationship-
management (CRM) solutions?1 Business commentators
have spilled oceans of ink describing the gut-wrenching
rise and fall of these programs’ reputations. Most large
companies have implemented some form of CRM, and
many have followed their early disappointments with full-
scale CRM remediation efforts.2
Indeed, more than half of all companies investing in
CRM consider it a disappointment, according to several
recent surveys. What’s wrong? It’s not that companies
are spending wildly; many of them build robust business
cases before making their investments, which at this point
are likely to be incremental. Nor does the fault lie with
the technology itself—most systems provide the required
features. Companies have lavished attention on business
and technology issues because both were glaring early
impediments to CRM’s effectiveness.
The core of the problem now is that too few companies
are paying enough attention to the organizational
challenges inherent in any CRM initiative, whether it
involves delivering a new solution, fixing a foundering
application, or tweaking a functioning CRM capability.
These challenges stem from the wide variety of people—
frontline sales and service providers, business analysts,
IT professionals, and a broad array of managers, to
name just a few—who must collaborate to ensure that
a CRM program is defined, delivered, and deployed. This
diversity creates accountability issues and complicates
the challenge of persuading employees—particularly the
sales force—to embrace CRM.
Solving these organizational problems requires a company
to go beyond the vigorous exhortations and heavy-handed
rollouts that many have relied on—understandably, in view
of the money invested and the opportunity costs of failure.
Instead, companies should view CRM as a product or
service targeted at internal customers. Like any product
or service, it must be infused with clearly defined value,
priced appropriately, advertised, and provided with after-
sales support.
In our experience, no temporary centralized team,
however competent and well-intentioned, gets everything
right. What is needed to achieve long-term business
results is an infrastructure grounded in accountability, as
well as supporting initiatives to motivate, train, and track
the many employees in diverse positions throughout
the organization who make or break the CRM program.
Attention to these perennial organizational challenges,
which are easy to overlook in the rush to fix the technology
and business-alignment issues, correlates strongly with
success in CRM (Exhibit 1).3 Finally, CRM’s impact on
frontline employees is so significant and potentially jarring
that clear, forceful messages from senior executives are
critical to enforcing accountability and motivating change.
1 CRM helps companies to plan and analyze their marketing campaigns, to identify sales leads, and to manage their customer contacts and call centers. 2 Turning around a CRM program (or, for the lucky few, getting it right the first time) typically involves focusing on a few clear business objectives, building or reconstructing the technology to meet them, and realigning the organization to help it embrace new tools and processes. See Manuel Ebner, Arthur Hu, Daniel Levitt, and Jim McCrory, “How to rescue CRM,” The McKinsey Quarterly, 2002 special edition: Technology after the bubble, pp. 48–57 (www.mckinseyquarterly.com/links/13061). 3 The authors heard this message, loud and clear, from executives and middle managers in the insurance industry, whom we recently interviewed and surveyed about the factors influencing the successes and failures of their CRM programs. Similarly, a recent Forrester Research study found that resistance to process change was the leading obstacle to CRM’s success at 111 large North American companies.
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2
Organizing for CRM
The organizational challengeBuilding, modifying, or running a CRM solution involves a
large cast of characters. It can include systems experts;
business analysts; backroom operations specialists;
managers who use customized reports to fine-tune
sales, marketing, and customer service strategies; and
frontline sales and service people, who are responsible
for inputting much of the data the CRM initiative
needs to yield rich insights and for acting on them. The
breadth and scope of these constituencies create two
organizational problems: identifying who is accountable
for which results and truly achieving the broad behavioral
change that success requires (Exhibit 2).
Fuzzy accountabilityWhen the responsibility for different aspects of the
solution rests in different places, it’s often hard to muster
the organizational resolve to bring in the right people,
unclog bottlenecks, and make effective decisions. At
worst, companies wind up with the kinds of problems
that plagued Soviet-style planned economies: a lack of
ownership, a failure to choose the right features, and an
inability to meet performance goals.
Excessive reliance on technology specialists helped sink
some early CRM initiatives. In the past few years, some
organizations have overcompensated—so much so that
many capabilities are now defined by the business side,
without enough participation from IT. Too often, the
results resemble those experienced by one large media
company that developed a strong business case with
limited participation by its IT organization, took several
months to realize that achieving its goals with the chosen
technology would take more than a year, and ultimately
abandoned its original plans and began redefining the
program.
Resistance to changeThe large number of stakeholders involved with CRM
doesn’t just complicate accountability; it also magnifies
the difficulty of effecting behavioral change, particularly
in salespeople but also among managers and business
analysts—all groups whose recalcitrance can cripple an
initiative. Consider the problem of managing the sales
pipeline. CRM helps managers to see quickly when
salespeople are not hitting their targets and remedial
action is necessary. But management can act only when
e x h i b i t 2
Who’s accountable?
Location of primary organizational obstacles associated with CRM activities1
Organizational obstacles to implementing CRM
Q3 2004CRMExhibit 2 of 4
1Actual functions and organization vary by individual company.2Head of CRM program often reports to chief marketing officer.
Lack of commitment,communication
Lack of motivation,participation
Confusion aboutroles, responsibilities,accountability
CEO
Sales
Regional IT
Marketing
Service
Sales
Frontline users
Region A
Worldwide/corporate operationsRegion B
Region C
Business unit 1Business unit 2
Business unit 3
Sales
Marketing
Service
Frontline usersOperations
Marketing
Service
Development
Architecture
Infrastructure
Qualityassurance
Sales
IT Operations
Marketing
Service
Executives
COO CIO CMO2 Head of salesBusiness-unitheads
3
Organizing for CRM
salespeople input timely, accurate data and analysts
generate the right reports. If management doesn’t
augment the underlying performance metrics, frontline
employees are likely to go on behaving in the old way.
Yet it’s easy to see why salespeople and managers might
drag their feet:
• Salespeople are inherently skeptical because they
think that information flows in one direction only
(which it often does) and is therefore unlikely to
benefit them, even if it helps the company.
• Salespeople also fear that new systems and
bureaucracies will bog them down.
• Managers, on the other hand, often recognize
the potential long-term benefits of a successful
CRM program but worry that they will be penalized
if short-term results suffer during implementation.
The predictable result is that CRM systems are used
little or not at all. In the insurance industry, for example,
more than a third of the CRM modules developed
during the past three years in areas such as marketing-
campaign management, data analysis, and opportunity
management lie dormant. Many companies have
responded by punishing salespeople who don’t “get
with the program.” Heavy-handed approaches such as
docking commissions or circulating internal blacklists
of nonadopters may bump up compliance, but only in a
grudging and mechanical way that isn’t likely to exploit
the initiative’s full potential. Training—another typical
response—often overwhelms users because it involves
just a day or two of classroom immersion in the new
features.
Frontline solutionsOvercoming organizational roadblocks requires a more
elegant approach than pressuring uncooperative business
and IT personnel into building a solution and then forcing
skeptical employees to use it. A better way is to establish
an organizational structure that mimics a market in which
constituencies alternately take on the role of buyer and
seller or, in this case, “sender” (delivering the solution)
and “receiver” (implementing it). This approach creates
accountability and motivates employees to embrace
the initiative.
Sending and receivingInstead of holding businesspeople accountable for
determining the requirements of a CRM solution and IT
personnel for developing it, companies should make both
parties responsible for all of its aspects, from designing
process shifts to managing change to implementing
technology. At the same time, companies must carefully
delineate the responsibility for sending and receiving the
solution as a whole (Exhibit 3).
The sending team’s function is to define a solution that
meets the objectives specified in the business case,
to estimate the level of effort required to implement
the solution, and then to deliver it. “Delivery” includes
establishing the architecture of the system, building and
testing it, and supporting its deployment, particularly the
systems-training programs that help launch it in the field.
When all the elements of this broad mandate show up in
a sending team’s cost assessments, executives get fewer
surprises later on.
As for the receiving team, it provides the business case
and the usability requirements. Then it leads the rollout
by communicating to internal customers the goals and
likely implications of the program, assessing how the
behavior of end users must change to take advantage
of the proposed solution (and therefore what behavioral
training is necessary), and implementing the sending
team’s systems-training plans. When an initiative involves
placing new technology in the field, the receiving team
also ensures that the infrastructure is ready for use, that
support is available for customizing software to local
needs, and that data can be moved to the new system. All
of these actions have a cost, and the receiving team, like
the sending team, should estimate the effort required to
carry out its work before getting started.
The sending-and-receiving infrastructure addresses
accountability issues in two critical ways:
• Each team’s cost estimates make clear to the
sponsoring business executive what he or she
is signing up for while also clarifying the teams’
responsibilities. If the estimated benefits of the
business case appear too small or squishy to
justify the cost, executives have a solid reason for
backing off from weak initiatives.
4
Organizing for CRM
• Since each team includes both IT and business-
people, it becomes harder for either side to
define its scope of accountability too narrowly.
Finger-pointing by senders or receivers is of
course possible, but when problems arise, execu-
tives should hold teams accountable by checking
whether the receivers were unprepared, the
senders failed to deliver, or both.
When a large global technology company whose
executives coined the sending-and-receiving terminology
adopted this structure in its CRM program, it overcame
the weak accountability that had engendered budget
overruns, slipping delivery dates, “scope creep,” and,
ultimately, disappointment. Because accountability and
ownership were clear, often-overlooked issues such as
organizational implications and the communication of
the program’s goals to internal customers stayed front
and center.
The sending-and-receiving structure also helps bring
order to CRM’s training challenges, which frequently
arise because most CRM solutions create a need for
both systems and behavioral training:
• Responsibility for systems training—which includes
developing training material, running the sessions,
and providing follow-up support—should be owned by
the sending team.
• Members of the receiving team should take the lead
in behavioral training, which encompasses issues such
as changing job responsibilities, new incentive plans
and reporting relationships, and procedural changes,
including new processes for signing off on decisions.
Behavioral training is the more difficult to accomplish—and
deserves twice as much attention—because it addresses
deeply ingrained habits affecting all aspects of a worker’s
job. A major pharmaceutical company’s training efforts
illustrate effective behavioral training. The company asked
its sales reps to move from a uniform selling approach to
one that was tailored to doctors’ attitudes. It chose three
key areas for the pilot effort and sent teams of people
from headquarters to ride with the sales reps during the
first few days. In this way, it got the sales reps up to
speed quickly while allowing the management to see the
program in action and to make real-time adjustments.
Targeted follow-up visits tracked progress and provided
e x h i b i t 3
Mixing business with technology
Q3 2004CRMExhibit 3 of 4
1Includes determining hardware requirements and consolidation, if necessary.
Region C
Region B
Region A
Business
Business-unit /regional operations
IT
Business
Sending
Worldwide/corporate operations
IT
Key functions• Define solutions• Consolidate requirements• Verify/accept developed
solution• Develop communi-
cations and systems-training programs
• Manage organizational,behavioral change
• Coordinate deployment• Ensure readiness for
launch in field
Key functions• Create functional/
technical design• Build solution
architecture• Develop system• Test system• Manage software
versions
Key functions• Define business needs,
usability requirements• Document business
processes• Conduct user-acceptance
testing• Develop communications
and behavioral-trainingprograms for users
• Execute change-management process(organizational, behavioralchange)
• Deploy system
Key functions• Prepare infrastructure1
• Ensure localizationsupport for software
• Install software• Manage regional IT
development• Ensure smooth migration
of data
Receiving
5
Organizing for CRM
remedial support. In many cases, the pilots yielded sales
increases of more than 50 percent.
Helping CRM sell itselfThe work of the sending and receiving teams should
go on enticing internal customers to buy into the CRM
solution long after the teams have ceased to operate.
Research into organizational behavior suggests that
frontline employees will change only if they know why an
effort is important and what’s in it for them:
• Show salespeople how a CRM initiative could
reduce the number of processes they deal with
or of systems they use to enter data, improve
their collaboration with other sales reps, skim off
customer data that would help them develop
better leads, and reduce the time needed to
generate quotations or obtain information about
products and competitors.
• Target successful, influential salespeople as
early adopters. Their success gives the CRM effort
the credibility that drives widespread adoption.
Consider the experience of a department store retailer
that identified “aspirational” shoppers—those who shop
infrequently but aspire to do so more often when their
incomes grow—as key sources of revenue growth. This
retailer also observed that while loyalty programs and
periodic promotions helped pull in such customers, they
reacted particularly well to personalized service. A CRM
initiative provided sales associates in stores with lists of
target customers they could personally call and offer to
assist with new merchandise, styles, colors, sizes, and
the like. For sales associates, the message was, “We
have given you tools that will help you follow the lead
of your most successful colleagues and build long-term
relationships with customers who will earn you bigger
commissions.” The program yielded a 10 percent increase
in revenue from these target customers.
Incentives provide important reinforcement, and we’ve
found that quite specific goals are the most likely to
inspire the desired behavior. The best CRM initiatives
thus employ detailed “dashboards” that track changes in
metrics such as revenue, lead-conversion rates, system
usage, customer and user satisfaction, and margins.
Dashboard metrics that reflect the sources of value
propelling the initiative roll up into a high-level view for
executives.4 Often, results vary by region (Exhibit 4).
Comparisons promote the sharing of best practices
and the fine-tuning of goals and rewards for specific
regions and personnel. A retail bank seeking to expand
its business in credit cards, for example, set and tracked
ambitious weekly cross-selling targets down to the
individual branch and call-center employee and rewarded
those who met them. This highly focused effort yielded
a 15 percent sales jump for the targeted products in just
eight weeks.
Not every initiative yields immediate gratification. A
company planning such a program should take into
account the potential for productivity to drop during the
deployment period, which often lasts as long as three
months. Indeed, without some leeway, the motivation
to give the new system a real shot at success may fall
because frontline employees feel that they can’t risk
becoming less productive. In extreme cases, when a
big productivity drop seems likely, it’s vital to involve
the CEO and CFO early so that they can help manage
external expectations.
The senior executive’s roleAlthough many organizational challenges impeding CRM
require solutions from the front lines, senior executives
also have important responsibilities. For starters, only
the CEO and the business-unit heads (or their chief
lieutenants) have the authority to establish a sending-and-
receiving infrastructure that cuts across organizations.
Moreover, like marathoners running a difficult course,
CRM teams require cheerleading for motivation, fuel
to keep going, and clear direction to stay on course.
Senior executives are uniquely positioned to provide this
assistance by:
• Articulating a specific business rationale—
improving customer satisfaction to boost retention
and keep competitors from stealing market
share, for example, or improving cross-selling rates
to achieve annual revenue targets.
4 Of course, metrics are most helpful for companies that have already undertaken due diligence to determine which business levers are most important to them and how much value each can create.
6
Organizing for CRM
• Demanding regular status updates, which keep
the heat turned up and let them cut through
the political tussles that invariably arise during large
cross-organizational initiatives like CRM.
• Enforcing accountability. Executives need to treat
important CRM milestones and performance
goals just as seriously as they do quarterly business-
unit profit targets.
The senior executives of one North American insurance
company played all of these roles. At the beginning of
the fiscal year, its management team articulated a simple
goal: utilizing technology to achieve aggressive growth
and to improve customer retention substantially. In
management meetings across the company, executives
relentlessly emphasized the importance—and monitored
the status—of projects linked to growth and customer
retention, particularly the retooling of a major customer-
information-management system. To break barriers and
free up resources needed for mission-critical tasks,
the management team went to great lengths, such as
refocusing sales and marketing efforts on the goals
of growth and customer retention and eliminating IT
projects that didn’t promote them. In the end, the
company benefited rapidly by implementing a CRM
project it had abandoned on several previous occasions.
CRM and the forces impeding its success are both
growing up. Companies are increasingly getting the
business-alignment and technology issues right, but
many must still tackle the hardest challenge of all:
motivating organizations and making them accountable
for results. Q
Anupam Agarwal is a consultant and Jeff Schumacher is an associate principal in McKinsey’s San Francisco office, and David Harding is a principal in the Boston office.
This article was first published in The McKinsey Quarterly, 2004 Number 3 (www.mckinseyquarterly.com/links/14184). Copyright © 2004 McKinsey & Company. All rights reserved.
e x h i b i t 4
Rules of the road
Q3 2004CRMExhibit 4 of 4
1Exhibit depicts selected metrics analyzed by company for this particular business initiative; importance of specific metrics (andcombinations thereof) varies widely by industry, organizational makeup, goals of CRM initiative. Determining appropriate metricsrequires due diligence to determine beforehand which business levers are most important and how much value each can create.
20
15
10
5
00 20 40 60
Conversion rate ofleads into opportunities, %
Chan
gein
netr
even
ueov
erpr
evio
usye
ar,%
Region 4
Region 2
Region 1Region 3
20
15
10
5
0
Chan
gein
netr
even
ueov
erpr
evio
usye
ar,%
80 100 0 20 40
Conversion rate ofopportunities into orders, %
60
Region 4
Region 2
Region 1Region 3
Disguised example of ‘dashboard metrics’ for diversified technology company
Through analysis of selected metrics,1 company discovered thateffectiveness earlier in the sales process predicted successbetter than conversion rates did, as previously believed.