Reference no: EM131052717

CASE

Zach Nelson sits in a Silicon Valley coffeehouse, sipping a latte, nibbling a pastry, and drawing IT architecture diagrams. His mission: to illustrate what he believes is the biggest reason that the software category known as customer relationship management (CRM) has been unable to shake the black marks of too many failed multimillion-dollar deployments. CRM is easier to implement when a company is young, he says. "The elephant in the room with CRM systems is that there's no customer data native in them," says Nelson, CEO of NetSuite Inc., which sells a suite of Web-based, ondemand business applications, including CRM. "That's why they fail." When CRM came onto the market in the mid-1990s, driven largely by Siebel Systems, the software typically came bundled with proprietary databases that then had to be populated with customer data housed in disparate enterprise systems. The result? "Customer records are scattered and there's often overlap and inconsistency," Nelson contends.

By the time he's finished with his morning snack, Nelson has also made a convincing case as to why small and midsize companies are primed to get CRM right. CRM is a lot easier to do early in a company's history than it is later. Also, Web-based subscription software, such as the kind that Nelson's company offers, has given them access to IT applications that in the past might have been too costly or too complex. Designs for Health Inc., a $10 million-a-year maker of prescription nutritional supplements, isn't ready to invest millions in a big CRM package, but it did need a more sophisticated accounting system than Intuit Corp.'s QuickBooks. So, it turned to NetSuite to host a general-ledger application that would let the company automate its accounting processes and easily share the data with other NetSuite applications, such as the CRM module it would add later. Perhaps the most crucial factor to the CRM success of small and midsize businesses is that most aren't yet paralyzed by data silos and disparate systems, and they've learned from those that have had to spend lots of time and energy bridging the silos. "The biggest problem I have with having disparate systems is determining what is your source of the truth," says Steve Canter, CIO at Berlin Packaging LLC, a $200 million-a-year maker of cans and bottles used to package everything from makeup to jelly.

"I have a customer- relationship-management system that has a customer master file. I have an order-management system that has a customer master. If the information between those systems doesn't agree, which one is true? Having a single instance of the customer master, we know what the truth is." In theory, customer data integration provides a universal view of a customer by resolving discrepancies in names and addresses, as well as summarizing customer interaction data from multiple systems. Customer data in many IT companies remain balkanized as CRM, enterprise resource planning, and supply chain management systems have proliferated. That means the IT behind customer-facing operations such as call centers often can't provide employees with a single view of a customer. Berlin considered adding a PeopleSoft CRM application to the company's existing PeopleSoft enterprise resource planning and supply chain management system, but it decided that such an effort might prove too distracting. So Berlin opted to use the People Tools programming code in the ERP system to build bolt-on applications that convert financial and supply chain management functions into CRM processes. Including housing records on more than 27,000 customers acquired since the mid-1990s, the ERP database now serves as a clearinghouse of customer data that lets any part of the company access definitive and wide-ranging information.

The knowledge that there are no other collections of customer data else-where in the company provides significant peace of mind. What's more, Canter not only has accomplished this without absorbing any hard costs, but employees have quickly adopted every tool he's introduced, something that any big-company CIO will tell you is the most elusive part of a CRM deployment. The key, Canter says, has been a combination of incremental changes and interfaces salespeople already are familiar with. "It's not like implementing a CRM system where overnight their lives are changed," he says. "Little by little, they're getting a CRM system without even realizing it." Creating de facto CRM systems out of other applications isn't for everyone, says Barton Goldenberg, president of CRM consulting firm ISM. Goldenberg is a firm believer that CRM software can provide data intelligence and support for front-end business processes that even the most carefully tweaked ERP system can't match. "Data in its own right [are] useless unless it's put into context," he says. "I can serve data up via pigeons, but it's the CRM application that adds the value." A CRM deployment that's carefully thought out has done just that for Churchill Downs Inc., the $500 million-a-year operator of six horse-racing tracks, including its namesake, the famed home of the Kentucky Derby. It's also converting its mass-market advertising to a more one-to-one approach. Before Atique Shah joined the company in late 2003 as vice president of CRM and technology solutions, Churchill Downs had just assumed that the aggregate data culled from its Twin Spires loyalty club could be broken into four distinct buckets of customers. Shah wasn't so sure.

So, he got budget approval to obtain a range of technologies, starting with Epiphany Inc.'s CRM software and supported by SPSS Inc.'s Clementine data-mining tool and IBM's Ascential data-extraction and transformation software. Shah then ran the data through Clementine and discovered that there were actually nine aggregate customer types, which was an indication that its previous marketing efforts probably weren't as useful or relevant as they should have been. Asked how close he is to achieving a 360-degree view of his customers, he laughs and says, "I believe we're probably at about 190 degrees." Churchill Downs has 27 sources of customer information, and refereeing among them is a constant problem, Shah says. To reflect the more-detailed profiles that emerged, Shah transitioned from generic labels for the old buckets-platinum, gold, silver, and bronze-to descriptions that hinted at the personalities of each segment. So, a female customer who only visits the track a few times a year and is there more for the social spectacle than for the betting is now known as a "Seldom Sally," and a wealthy man in his fifties who spends more than $100,000 a year at the track and is confident in his racing knowledge is a "Smarty Steve." Shah published the new intelligence to the company's various tracks and engineered a test campaign with Arlington Park near Chicago. Arlington's staff selected 55,000 households from its database and then broke them into the nine customer segments Clementine had spit out. Each distinct group of customers then received direct mail advertisements that reflected its profile, with information and offers that jibed with its attributes.

The response rate was impressive, with nearly 10 percent of those who received the mailing coming to the park during the following season. "What was more amazing was that the group of customers they had segmented generated $1.6 million in the first two weeks," Shah says. "A year earlier, the same customers generated $950,000." The success of that campaign underscored the value of the data that Churchill Downs had, in many ways, been sitting on. However small and midsize companies implement CRM, it's clear that data can translate into increased sales. ISM's Goldenberg reiterates, though, that companies need to make sure data are in order before they launch any major CRM initiative. Even though he believes that in most cases, it's the CRM application, not the data, that's providing the real business value, it's also clear that one can't thrive without the other. "Without accurate, complete, and comprehensive data, any CRM effort will be less than optimal," he says. Which brings us back to the prediction that NetSuite's Nelson makes: A few years from now, today's small companies will be running circles around their larger competitors, primarily because establishing a master record of customer data will prove to be a less-daunting task for them. The way Nelson sees it, the decision to jump on establishing unified sources of customer data will pay off for the emerging companies that do so. "Once you get your data in place, things that were very complex before become quite trivial, he says. Maybe not as trivial as sipping coffee and nibbling on a Danish pastry, but wouldn't it be great if it were pretty darn close?

CASE STUDY QUESTIONS

1. What are the business benefits of CRM implementations for organizations such as Berlin Packaging and Churchill Downs? What other uses of CRM would you recommend to the latter? Provide several alternatives.

2. Do you agree with the idea that smaller organizations are better positioned to be more effective users of CRM than larger ones? Why or why not? Justify your answer.

3. One of the main issues noted in the case is the importance of "good" data for the success of CRM implementations. We discussed many of these in Chapter 5, when we compared the file processing and database management approaches to data resource management. Which of the problems discussed there do you see present in this case? How do CRM applications attempt to address them. Use examples from the case to illustrate your answer.