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CRM: The Customer Isn’t Always Right

Bryan Bergeron

T
wo common mis- demonstrated daily by
conceptions in Service companies believe two myths, says the successful services
customer-focused author. One is that the customer is always right. companies, is that the
service industries are And the second is that anyone willing to part with customer isn’t always
that (1) the customer is his money should be treated as a valid customer. right, and that there
always right and (2) Instead, the author argues, successful companies are times when it’s
anyone willing to part target customers who fit their business model. appropriate to cater to
with their money They’re embracing a process called Customer the demands of some
should be treated as a customers and decline
Relationship Management (CRM).
valued customer. those others. See
© 2002 Wiley Periodicals, Inc.
In reality, success- Exhibit 1 for a quick
ful companies are overview of CRM.
selective in focusing
their resources on customers that areas that provide the greatest THE CHALLENGE
fit their business model, which traction and potential for profit,
often entails dissuading some many corporations lack a formal The challenge is to segregate
potential customers from enter- strategy for aligning resource good customers from those that
ing into business transactions. allocation with their business don’t add value to the corpora-
Companies that attempt to work model. In response to this need tion because they are revenue
outside of their core competency for a formalized strategy, many neutral or negative. For example,
not only inefficiently compete senior executives are embracing customers with minimal bank
for customers that can be better Customer Relationship Manage- balances can be dissuaded from
served by other firms, but cor- ment or CRM. using a bank through relatively
porate resources that could be high banking charges, while cus-
focused on efficiently serving DEFINING CRM tomers with large balances can
valued customers are diverted as be treated to special benefits.
well. Similarly, focusing CRM can be defined as a Similarly, customers with large
resources on potential customers dynamic process of managing a balances would be answered on
that represent neutral or even customer–company relationship the third or fourth ring, whereas
negative revenue prevents the such that customers elect to lower tier customers would be
company from providing poten- continue mutually beneficial assigned to a pool of reps that
tially profitable customers with commercial exchanges—and might put customers on hold for
the service that they demand. are dissuaded from participat- five or ten minutes. This later
Although successful CEOs ing in exchanges that are group of customers may com-
and CFOs intuitively know that unprofitable to the company. plain of poor service, but the
resources should be allocated to The premise of CRM, which is former customers—customers

© 2002 Wiley Periodicals, Inc.

Published online in Wiley InterScience (www.interscience.wiley.com). DOI 10.1002/jcaf.10120 53
54 The Journal of Corporate Accounting & Finance

there are technologies such as

virtual customer service repre-
Exhibit 1
sentatives that promise to bring a
semblance of emotional connect-
edness to the company while
What Is Customer Relationship Management (CRM)? simultaneously servicing thou-
sands of simultaneous customer
• CRM is a business strategy, not an information technology tactic. email messages. These virtual
• CRM is about conserving and focusing resources on transactions that representatives or Bots (software
provide the greatest return on investment. robots) are being used by com-
• CRM can have a long- or short-term focus, depending on the business. panies that need a cost-effective
alternative to costly call centers.
• A prerequisite to practicing cost-effective CRM is knowing who your
customer is—and isn’t.
• CRM can be applied to the employee–corporate relationship to LOOKING INWARD
reduce administrative costs. One of the most influential
• The current trend in the industry is integrating CRM capabilities developments in the field of
seamlessly into other applications. CRM is the availability of data
mining and profiling programs
and internal Web sites or portals
that are focused on employees—
so-called Employee Relationship
that account for the profitability direct human contact with the Management (ERM). By treating
of the company—should be companies involved. As a result, employees as customers, compa-
pleased. The alternative, treating it’s difficult to determine which nies can increase employee loy-
every customer with a level of customers should be given pref- alty, reduce administrative costs,
service that’s somewhere erential treatment over others. and increase efficiency. For
between the two extremes, will example, companies such as
likely result in the exodus of ENABLING TECHNOLOGIES Coca-Cola, CISCO Systems,
many high-profit customers to Delta Airlines, and Ford use
competing companies—and red Fortunately, a variety of internal ERM portals that allow
ink on the balance sheet. technologies are available that employees to select healthcare
In a small company with a allow automated profiling of plans, arrange shifts and sched-
few hundred customers, such as current and potential customers, ules, and obtain office sup-
a corner store, it’s possible for based on demographics, income plies—all without the overhead
the store manager to keep every- level, and other information that of administrative support.
one’s profile—buying habits— can be garnered from charge For example, at Delta Air-
in memory, and to use a mod- card and other transaction data- lines, pilots and flight attendants
icum of common sense when bases. Profiling technologies bid on shifts and arrange their
serving customers. If two cus- allow companies to provide seg- own schedules. In addition, the
tomers walk in the front door, mentation of products and maintenance staff relies on Web-
one a teenager likely to buy a prices that suit the potential based reference guides for
stick of bubble gum and one a customer’s expectations and repairs and ordering parts instead
long-time patron in for her ability to pay. That is, as in the of unwieldy books. At CISCO
weekly shopping, the store man- airline travel industry, some Systems, new employees go
ager will instinctively spend customers pay more than others through Web-based orientation
more time catering to the do for the same service. As long and then use their internal portal
woman’s needs. The problem as customers have a willingness to set up their office and enroll in
occurs when there are thousands to pay, companies can maximize a benefits package that meets
of customers, known to the profits while providing a need- their needs. The portal cuts the
company only by transaction ed service. typical weeklong orientation and
records. Customers of mail In addition to automated office setup ordeal to about a
order, utility, and online compa- profiling programs that support day. What’s more, after the
nies typically don’t have any mass customization of services, employee is on-board, the portal

© 2002 Wiley Periodicals, Inc.

November/December 2002
is used in an ongoing basis to
purchase office supplies, book
and pay for travel, submit
requests for reimbursement,
scheduling vacation time off, and
accessing corporate services.
Employees at Ford use the
corporate portal to arrange for
custom benefits packages and
healthcare plans. Prior to the
introduction of the portal, bene-
fits packages were limited
because of the complexity of
administering multiple plans.
With the task of selecting bene-
fits packages in the employee’s
hands, Ford saves money on
administration and the employees
have a wider selection of options.
Coca-Cola’s initiative is rep-
resentative of employee portals
that aren’t limited to benefits
directly related to work. Using
the portal, employees can access
not only internal services, but
outside services, from discounts
at local restaurants to dry clean-
ing services. The benefit to the
company is a more satisfied,
productive workforce while cut-
ting administrative costs. The
theory is that employees do bet-
ter work because they can take
care of pressing personal issues
without leaving work.
The strategy taken by Coca-
Cola complements an alterna-
tive approach of using “push
technology” to make employees
aware of special benefits. For
example, at Partner’s Health-
care Systems in Boston,
employees are emailed lists of
special group discounts negoti-
ated by the administration,
from heavily discounted theater
tickets to subsidized public
transportation passes. In each
case, automating inefficient and
time consuming processes with
an enterprise portal that can be
personalized to address employ-
ees’ needs increases the value
of the company.
© 2002 Wiley Periodicals, Inc.
CRM ON THE RISE
As the United States shifts
more into a service economy, the
significance of CRM will
increase. This is perhaps most
obvious in the PC industry,
where stellar rises in companies
have been flattened as the hard-
ware becomes a commodity
item. With very little differentia-
tion possible in the hardware
side of the business, the primary
differentiating factor is customer
service. For this reason, Dell
Computer, for example, has been
able to maintain momentum in
the PC market by providing
exceptional customer services
through phone and Web-based
systems. A customer can self-
configure a custom PC without
ever interacting directly with a
customer service representative.
It’s also important to note
that embracing CRM as a busi-
ness strategy isn’t synonymous
with making a major investment
in information technology. For
most customers, human contact
is still the preferred means of
communication with a company.
Companies like Amazon.com
have been able to practice effec-
tive CRM while maintaining a
bank of customer service repre-
sentatives by employing comput-
er tools that tell operators how
long someone has been on hold
and by moving support opera-
tions offshore, where labor costs
are significantly lower than in
the United States.
RISKY BUSINESS
Despite the hype of CRM
vendors, even the flawless execu-
tion of a CRM initiative may
result in partial or total failure.
(See Exhibit 2 for some of the
things that can cause CRM fail-
ure.) That is, even if the typical
hurdles associated with comput-
55
erizing the processes of an organ-
ization can be avoided or over-
come, there are internal and
external factors that can come
into play. However, knowing what
these hurdles are can help the
CEO recognize problems while
they’re insignificant or to address
likely issues before they arise.
Most of the risks associated
with implementing and realizing
the potential benefits of a major
CRM initiative can be catego-
rized as either internal or exter-
nal to the organization—and
within or out of the CEO’s direct
control. For example, vendor
failures, quickly evolving stan-
dards in the CRM marketplace,
shifting customer expectations,
the introduction of new, disrup-
tive technologies that make the
current implementation out of
date before it’s fully installed,
and general economic slow-
downs are largely uncontrollable.
Even so, due diligence in
selecting a vendor, paying atten-
tion to technological trajectory of
Exhibit 2
What Can Cause CRM
Failure?
• Vendor Failure
• Customer Rejection
• Cost Overruns
• Time Overruns
• Disruption of Service
• Internal Rejection
• Evolving Standards
• Shifting Customer
Expectations
• General Economic
Slowdown
• New Technology
56 The Journal of Corporate Accounting & Finance

the products offered by the top system and can therefore make sales force is compromised
CRM developers and vendors, realistic estimates. Industry- because of a lack of connectivity
maintaining contact with cus- wide, the cost of customization to information they need to sup-
tomers and their wants and needs, and integration of CRM software port the sales process.
and instructing the company’s with other systems is the most These potential sources of
CIO to stay abreast of potentially expensive aspect of installation. failure, taken as a whole, pale in
disruptive technologies can go a Even small errors of omission or comparison to the most signifi-
long way in suggesting external commission in the requirements cant source of CRM initiative
problems before they significant- and functional specifications that failure—internal rejection. In
ly impact the company. In addi- must be corrected later can sig- this regard, CRM is no different
tion, knowing the likely failure nificantly increase development from any other computerization
points can help avert disaster expense and time requirements. effort. A system can be delivered
later. For example, given the Since most cost and time over- on time, to specification, under
volatility of CRM vendors, a sec- runs are due to the goal becom- budget, and work flawlessly
ond, backup vendor should be ing a moving target—that is, from a technical basis. However,
identified when the primary ven- changes in the specifications of if a politically powerful group of
dor is selected. The second ven- the deliverable after the project users rejects the system for
dor should be equipped to utilize has started—many of these over- whatever reason, then the CRM
a software escrow or to at least runs can be avoided by investing initiative will fail. At one level,
make use of the infrastruc- the chances of rejection can
ture so that the CRM proj- These potential sources of failure, be minimized by insuring
ect can continue with mini- that, for each of the major
mum disruption, should the taken as a whole, pale in comparison stakeholders (marketing,
first vendor fail. to the most significant source of CRM sales, and customer repre-
Similarly, the negative sentatives), the system
effects of potentially dis-
initiative failure—internal rejection. saves them time, makes
ruptive technologies, such their job less complex,
as the wireless Web, can be increases their paycheck,
at least partially mitigated by more resources into the planning and requires no more effort to
selecting a CRM software devel- stage of the project, and not use than the system the new ini-
oper with a forward vision and a jumping into the implementation tiative is intended to replace.
research and development budg- phase prematurely. In many cases, the mix is
et that includes experimenting Perhaps the risk with the more important than satisfying
with new technologies before greatest potential for harm is each parameter. For example, if
they become part of the main- unplanned disruption of service. the CRM system makes an
stream. This developer should Time overruns or unforeseen employee’s job more complex
also have the means of bringing problems with implementation but puts money in their pay-
the technology to market. In can result in costly disruptions in checks, the increased complexity
other words, all else being equal, service that may leave the sales may be acceptable. A common
the CEO should make an effort force without their normal con- mistake is to assume that
to select the CRM software nectivity to the main office. If a because a CRM effort is good
developer most likely to make legacy system is removed so that for the company, everyone
the products from other CRM a new CRM system can be put affected by the initiative will
developers obsolete. in place, the customer service automatically rally behind it.
Related to software develop- reps, representatives in sales and However, countless information
er and vendor selection, as well marketing, and the customers are services initiatives have showed
as internal planning are time and at the mercy of the CRM imple- this isn’t so.
cost overruns, as well as the mentation team. Unfortunately, Another avoidable but dead-
costs associated with disruption problems that should take a few ly mistake is to drop a CRM sys-
of service. Time and cost over- days to fix often take months, tem on a group of employees
runs can be minimized (or even leaving employees and cus- and expect them to use it. Even
avoided) by proper planning, or tomers without support. Disrup- if the system saves them time,
by hiring a consultant who has tion of service is most detrimen- increases their paycheck, and
actually implemented a CRM tal when the income-producing makes at least part of their job

© 2002 Wiley Periodicals, Inc.

November/December 2002 57

less complex, the system may be
rejected out of principle. For
example, there are numerous
cases where the groups that felt
excluded from the initial deci-
sion-making process eventually
killed CRM initiatives that were
started without buy-in from
every group involved.
In a major Boston teaching
hospital, for example, a CRM
system was developed to support
physician order entry and to pro-
vide patients with information on
their condition, to schedule their
appointments, and otherwise to
address their medical concerns.
The system, which took several
years and over a million dollars
to design and implement, was
enthusiastically accepted by
patients and their physicians.
However, the nursing staff, who
were not part of the decision
making process were infuriated
because they were expected to
perform most of the data entry—
and yet hadn’t been consulted in
the early phases of the project.
Two thousand unionized nurses
refused to use the system. The
million-dollar system was
scratched, and a new system was
designed—with a representative
from nursing and every other
stakeholder in the system.
Clearly, sales, marketing,
and customer representatives
should have a voice in the CRM
approach taken. The group
should be charged with helping
decide on the CRM developer
and vendor, as well as the time-
line, training requirements, and
schedule, and other issues relat-
ed to implementation and use of
the system. It’s imperative to
reach a consensus on these
issues before proceeding with
implementation.
Making decision without all
of the information is part of
being a CEO; sometimes it’s
simply unavoidable if the com-
pany is to move forward. How-
ever, failure to gather some data
is inexcusable. For example,
before installing a CRM system
that will directly affect the sales
force, asking salespeople what
they need and will use is simply
part of due diligence. Of course,
problems or predicaments that
are external to the company may
not be knowable or may cost too
much to determine. However, the
CEO should know his or her
employees and what they will
accept and what they won’t.
Often, it isn’t so much a matter
of whether a particular technolo-
gy can be of use to various
groups within a company as it is
a matter of timing.
MANAGING THE BOTTOM LINE
Clearly, managing the cus-
tomer relationship is one key to
profitability in the new economy.
The challenge for senior man-
agement is to become familiar
with CRM to the point that they
can base ROI calculations on
realistic expectations, as opposed
to the hype that vendors are
pushing in the industry.

Bryan Bergeron is president of Archetype Technologies, Inc. (Brookline, MA), a technology consulting firm,
and the author of several books on business and technology, including The Essentials of CRM: A Guide to
Customer Relationship Management (John Wiley & Sons). He teaches at Harvard and MIT, is editor-in-chief
of e.MD, technical editor of Postgraduate Medicine, on the editorial board of Healthcare Informatics, Per-
spective in Biology and Medicine, Medical Software Reviews, and speaks internationally to physicians, sci-
entists, CEOs, and government leaders on a variety of technology and business issues.

© 2002 Wiley Periodicals, Inc.