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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. Glenn Mitsui

McKinsey on Marketing Organizing for CRM

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Page 1: McKinsey on Marketing Organizing for CRM

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

Page 2: McKinsey on Marketing Organizing for CRM

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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Page 3: McKinsey on Marketing Organizing for CRM

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

Page 4: McKinsey on Marketing Organizing for CRM

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.

Page 5: McKinsey on Marketing Organizing for CRM

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

Page 6: McKinsey on Marketing Organizing for CRM

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.

Page 7: McKinsey on Marketing Organizing for CRM

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.