Decision Framework, DF-14-2111 J. Radcliffe, J. Kirkby, E.

Thompson

Research Note 17 August 2001

The Eight Building Blocks of CRM CRM initiatives need a framework to ensure that programs are approached on a strategic, balanced and integrated basis. We introduce such a framework to help enterprises implement true CRM and maximize benefits.
Core Topic Customer Relationship Management: Creating Business Value for CRM Key Issues During the next five years, how will business strategies, behaviors, processes and technologies evolve to enable enterprises to develop more profitable customer relationships? What is CRM, how will it evolve, and what drivers are emerging to force its adoption? What will be the role of senior executives in successful CRM initiatives? Strategic Planning Assumptions Through 2005, 90 percent of successful CRM initiatives will balance the needs of improved customer experience with improved organizational collaboration (0.8 probability). Through 2005, enterprises that use a strategic CRM framework to estimate, plan and promote their CRM implementation while building up their capabilities in small piloted steps are twice as likely to achieve planned business benefits as enterprises that pursue projects without a framework (0.7 probability). Note 1 Gartners Definition of CRM CRM is a business strategy with outcomes that optimize profitability, revenue and customer satisfaction by organizing around customer segments, fostering customersatisfying behaviors and implementing customer-centric processes. CRM technologies should enable greater customer insight, increased customer access, more effective interactions, and integration throughout all customer channels and back-office enterprise functions.

To achieve the long-term value of customer relationship management (CRM), it is necessary to understand that it is a strategy involving the whole business (see Note 1) and therefore should be approached at an enterprise level. So far, only a limited number of enterprises have stepped up to this challenge and are implementing what Gartner calls true CRM (see Note 2). This number is steadily rising, as enterprises fail to achieve benefits in their first attempts at CRM and realize what really needs to be done. Recent research (see Note 3) shows that many enterprises are still implementing unintegrated departmental projects. If we focus on planning, as opposed to implementation, we estimate that: Nearly 30 percent of surveyed enterprises have plans that would fit the true CRM description. Approximately 50 percent are still planning a piecemeal approach. Less than 20 percent plan nothing in the next three years. The danger of the downturn in the world economy is that more companies in the planning or early implementation stage will be tempted to downsize their plans and move toward unintegrated departmental projects. If downsizing is needed, we suggest that it happens in the full knowledge of what needs to be done, so that efforts are not wasted and larger plans can be returned to at a later date. True CRM leadership otherwise it changes to
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is not easy. It requires board-level vision and to drive a relentless focus on the customer, will remain fragmented. It involves potentially difficult processes, culture and organization that can make

Note 2 True CRM Gartner equates the term true CRM with the leading level of CRM maturity, as defined by Gartners CRM Maturity Profile. True CRM is a truly enterprisewide initiative, where the enterprise knows how it wants to manage customer value and loyalty and puts all relevant capabilities in place to achieve those goals (i.e., it has a solid CRM vision and strategy with a supportive set of integrated initiatives in the areas of organizational collaboration, valued customer experience, processes, information, technology and metrics). Note 3 Enterprise-Level CRM Is in Its Infancy A survey performed by Gartner Dataquest in Spring 2001 discovered that only 3 percent of enterprises in Europe could be classed as having a leading CRM initiative when rated against the Gartner CRM Maturity Profile. Estimates for the United States put this highest-level of maturity at between 5 percent and 10 percent (see DF12-5262, CRM Is in Its Infancy in Europe).

the technology support seem easy but it isnt. Technology staff must grapple with the challenges of multichannel alignment, systems integration and data quality. Even if the board accepts the need for enterprise-level CRM, the quarterly demands of revenue and profit targets, especially in delicate economic conditions, make CRM the most important challenge facing an organization, but not the most urgent. This typically results in a focus on tactical quick wins until conditions are better. The main reason enterprises are not implementing true CRM is an inability to see the big picture and understand what is involved. Just as a map helps you understand the context of your journey (the roads you need to navigate and alternative routes), so the CRM framework helps enterprises make decisions about the best route and objectives for their situation. Following an analysis of several enterprises, Gartner has created a CRM framework, or map, called The Eight Building Blocks of CRM (see Figure 1) to help enterprises see the big picture, make their business cases and plan their implementation. The framework can be used for internal education and debate in developing the CRM vision and CRM strategies. It can then be the basis of an assessment of the enterprises current and required CRM capabilities, to help understand its current position and future strategy. Using this framework, Gartner recently profiled several enterprises that are great examples of CRM at work (see AV-13-9791, CRM at Work: Eight Characteristics of CRM Winners).
Figure 1 The Eight Building Blocks of CRM
1. CRM Vision: Leadership, Market Position, Value Proposition 2. CRM Strategy: Objectives, Segments, Effective Interaction 3. Valued Customer Experience Understand Requirements Monitor Expectations Satisfaction vs.Competition Collaboration and Feedback Customer Communication 4. Organizational Collaboration Culture and Structure Customer Understanding People: Skills, Competencies Incentives and Compensation Employee Communications Partners and Suppliers

5. CRM Processes: Customer Lifecycle, Knowledge Management 6. CRM Information: Data, Analysis, One View Across Channels 7. CRM Technology: Applications, Architecture, Infrastructure 8. CRM Metrics: Value, Retention, Satisfaction, Loyalty, Cost to Serve

Source: Gartner Research

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The eight building blocks in the model are the fundamental components for effective true CRM. Beneath each component are a variety of interlinked capabilities. A key feature of the framework is to emphasize the need to create a balance between the requirements of the company and the customer. Through 2005, 90 percent of successful CRM initiatives will have balanced the needs of improved customer experience with improved organizational collaboration (0.8 probability). Far too many CRM initiatives suffer from an inward focus on the enterprise, whereas the point of CRM is to achieve a balance between value to shareholders or stakeholders and value to customers for mutual beneficial relationships. The Eight Building Blocks 1. CRM Vision: This is a picture of what the customer-centric enterprise should look like. Without a CRM vision, employees, customers and other stakeholders will not have a clear idea of: The value proposition the company is offering Which customers it wants to have a relationship with
Note 4 Customer Value Proposition A CVP is a unique mix of a suppliers capabilities that will attract customers to buy. At the most-simplistic level, a CVP can be summarized as a mix of three elements: costs (dependent on the efficiency of the supplier), product or service excellence (dependent on the innovation and R&D capabilities of the supplier) and customer intimacy (dependent on the suppliers investment in customer-facing resources). Note 5 Creating a CRM Strategy The CRM strategy is created by: Auditing the current position regarding customers value, loyalty and satisfaction. Segmenting customers Setting customer objectives (i.e., acquisition, retention and development) Defining metrics for monitoring the execution of the strategy (e.g., satisfaction, loyalty and cost to serve) Outlining the strategy for the customization by product segment, pricing, communication and contact, channel, customer service, and segment management Specifying the customer infrastructure required (e.g., skills, organization, IT, analysis and data) to give direction to the other operational strategies

The importance and benefits of CRM to the enterprise strategy The nature of the customer experience to be delivered The vision starts with an overall customer value proposition (CVP) see Note 4 supported with appropriate corporate brand values. These values must be attractive to target customers and be created from their standpoint to ensure that the enterprise stands out from its competitors. The responsibility for creating the CRM vision clearly lies in the boardroom. The most fertile environment is one in which the board understands what CRM means and is receptive to new ideas and ways of working. The CRM vision must be well-known and accepted throughout the enterprise and the customer base. With this in mind, it is useful to have a meaningful, company-specific definition of CRM, rather than using a generic one from consultants. For successful implementation of the vision, the CEO must own it and provide inspirational leadership in creating it. 2. CRM Strategy: This should be interwoven with the marketing strategy and provide direction to other operational strategies, such as IT, HR and production. The ultimate driver for all these strategies is the corporate business strategy, which outlines how stakeholder value is to be delivered. The marketing strategy builds the enterprises position in the market. If the enterprise wants to increase profitability through customer loyalty, it has to weave a customer management strategy into the marketing
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strategy. The task of the CRM strategy is to create and maintain a customer base that is an asset to the company (see Note 5). 3. Valued Customer Experience: People tend to focus on the things that they can understand and influence the technology, the customer information, the processes or the organization. The result is that most CRM initiatives are inwardly focused and provide little value to customers. They fail to take into account that value must be created for both sides in relationship management. It is foolhardy to pretend that you understand customers without talking to them. Leading organizations (see Note 6) are creating positions that formalize the need for the customer viewpoint and ensure it is heard at the highest levels in the enterprise. In many cases, this is done through the appointment of a chief CRM officer, who ensures that processes are developed based on customer research and collaboration. However, this alone is not enough, customers need to be told about developments and their satisfaction levels routinely monitored. The customer experience should be consistent with brand values and well-known in the enterprise. 4. Organizational Collaboration: True CRM normally involves changing internal processes, organizational structures, compensation incentives and employees skills and behaviors. None of these are easy to achieve top management must drive the necessary changes through a formal program of initiatives (see TU-13-1897, Implementing CRM: Business Change Program Not Project). Any change will have to be gradual and it may take years to achieve, but it wont happen by itself (see COM-13-9554, CRM: The Workers Own the Means of Production). An enterprises value proposition is also partially dependent on suppliers and business partners. As well as optimizing CRM within the enterprise, work must be done to build a shared vision and CVP with them. 5. CRM Processes: The relationship with the customer needs to be viewed and managed in terms of the customer life cycle and formalized processes must exist to manage that life cycle. There must be processes for creating customer insight and leveraging it during customer interactions. Similarly, a knowledge management approach to managing and leveraging the enterprises intellectual assets is necessary. Enterprises frequently do not realize that their functionally fragmented processes do not result in a seamless macro process for the customer, so the customer has a poor experience. CRM calls for a fresh approach to business processes, rethinking how they appear to the customer and re-engineering them to be more customer-centric and deliver greater customer value. Not all processes matter equally to the customer, but in a customer-

Note 6 Gartner CRM Maturity Profile Maturity Levels Leading: An enterprise that has differentiated itself based on customercentric capabilities and has simultaneously redefined those capabilities.

Optimizing: An enterprise that has not only developed customer-centric capabilities but also actively integrates them into its daily operations. Practicing: An enterprise that has implemented basic customer-centric capabilities Developing: An enterprise that has a rudimentary, loosely woven set of customer-centric capabilities in place. Aware: An enterprise that exhibits few customer-centric capabilities.

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centric organization all processes should be supportive of the CVP. 6. CRM Information: Customer information is key to CRM. It must be acquired, stored, analyzed, distributed and applied throughout the enterprise and potentially to its business partners in a timely manner. It is the basis of both customer knowledge and effective interaction across any channel. Achieving quality information requires a lot of hard work behind the scenes. Most enterprises CRM information capabilities are poor because there are numerous fragmented databases and systems and no ongoing data cleanup strategy or quality strategy (see TU-13-8625, Data Cleansing: Detergent for CRM). A more-strategic approach to customer information is required at the start of any CRM initiative and the first step is planning. Enterprises should consider what customer data is required to support the desired insight (analytics) and interaction (operational) processes. Historically, these processes were seen as separate, and there was a unidirectional data flow from operational to analytic systems. However, true CRM demands the support of effective communication across the enterprise. Analytical insights, such as predictive behavior scores, are required in the operational systems to help drive customer interactions. 7. CRM Technology: CRM is not just about technology, but the technology enables the necessary analytical insight and operational interaction. Most enterprises CRM technology bases are fragmented. To achieve integration across channels and business units, an agreed architectural approach is needed, with policies and standards for sourcing applications, what performance, security and availability standards they should have, how they should interoperate, and how and when they should be refreshed. Some consistency in the underlying hardware, software, networking and telephony infrastructure is also required to aid integration, skills management and commercial management. Integration is key within CRM applications, whether they are bought or built, a suite, best-ofbreed or a hybrid of all the above. Integration is also important with non-CRM applications financial systems, supply chain management systems, legacy systems and maybe business partners systems. 8. CRM Metrics: Enterprises must set measurable, specific CRM objectives and monitor indicators if they are to become customercentric. CRM metrics not only gauge the level of success, but also provide the feedback mechanism for continuous development of strategy and tactics. In addition, they can act as a great tool for change management and are vital for the structure of employees incentives. CRM metrics must follow and
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measure the enterprises own CRM strategy. CRM metrics should not be viewed as an amorphous whole. A hierarchy of metrics is required, depending on their purpose and who is using them. Two primary challenges exist in developing CRM metrics: Understanding the linkage points between the levels. Avoiding over-complex and over-simplified internal and external measures of CRM success and failure. Bottom Line: Management teams should look beyond the fragmented CRM approach, which is popular with many enterprises because of its seemingly seductive quick wins. They need to grasp the big picture and plan their initiatives within a strategic framework to find the truly lasting quick wins and profitable relationships. Through 2005, enterprises that use a strategic CRM framework to estimate, plan and promote their CRM implementation while building up their capabilities in small piloted steps are twice as likely to achieve planned business benefits as enterprises that pursue projects without a framework (0.7 probability). Enterprises should use Gartners Eight Building Blocks of CRM to improve the effectiveness and long-term success of their CRM programs.

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