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Archive for September, 2011


Let’s imagine a mobile phone provider that that has an on-line presence as well as a high street retail network. Their current website was built several years back on legacy technology; it is slow and has a conversion rate lower than industry norms. Along with having poor usability, the current shopping cart functionality does not support the concurrent usage figures that are hitting the site. The business takes the output from their web metrics and throw these at IT and demand improvements. And a new IT project is born. Rebuild the existing site on a new platform. They get a design agency to handle the look and feel. The functional requirements are built upon the existing functionality and chunked into functional silos.

A typical project process. That is flawed. It is starting with a functional premise. An alternative is to think in terms of the customer and customer journeys.

Typical Feature List

Typical Feature List

We can start by asking who the customers are. Almost certainly the marketing department has a customer segmentation model – this is a good place to start. That may give us basic attitudinal and behavioural details on customers, but we need richer data. How do customers shop for phones? So we go and spend time in the stores and observe how people buy them. It soon becomes clear that the choose phone – choose tariff buy model is a journey that is only taken by a certain number of customers.

Other customers come into the store with intentions – they don’t know what phone or tariff they want, but they know what they want a mobile phone for. Other customers come into the store asking lots of questions, they are doing research; they leave the store with the sales guy’s number, and costs for a couple of phones and tariffs. We look at the competition and see how they sell phones. We look at Amazon and eBay and expedia and see how other retailers sell products and experiences on the web. We synthesise our research and suddenly we have a whole bunch of new requirements. Gasp! Scope creep. Indeed if we list them out into functional silos again:

The business is excited and IT is despondent. When the business announce the date all this must go live by, the letters of resignation land on the IT directors desk and they start looking for contractors. It does have to be this way. You can have your cake and eat it.

Rather than thinking about vertical functional silos, we should think about horizontal slices through the functionality. Slices that support customer journeys. We can start with simple journeys to start and build complexity as we prove our process and new platform, mitigating technical risk as we progress.

The first release probably needs to demonstrate the new platform works: we can deliver on time; that a new shopping cart interfaces with our legacy warehouse order management system; etc. What’s the bare minimum we can do that does this and delivers business value. How about a microsite that sells a single product. Customers are directed to the microsite via a URL published on a flyer handed out in the stores.

As a customer who has picked up a special offer N80 deal flyer, I want to buy a Nokia N80 on a pay as you go contract

Our acceptance criteria:

Given I enter my personal details and credit card details When my credit card details are validated Then send order to warehouse to dispatch phone and activate contract.

We can decompose this requirement into discrete requirements, “stories” of sufficiently small size and estimate them. We’ll soon get a project velocity and because it is only a small release expectations, risks and dependencies will be easy to manage. We’ve not had to wait for months to get something out, everybody is happy.

We identify that a profitable segment of the market are the aspirationally clueless. People who want a mobile phone, realise they are a minority who don’t have one but are too afraid to admit they have no idea what they want. So we build a new customer journey.

As an aspirationally clueless I want say what I do and how I live my life and have a suitable phone selected for me.

OK, not the finest story, but you get the point. This story might take elements of the phone selection and tariff selection functional silos, but just enough to realise the required functionality. Because we are building around customer journeys, just enough to realise customer intentions that support those journeys we build only what is required. We are not building by feature list. We don’t over promise and under-deliver. We are building trust with all stakeholders. Surely this is the better way to build software, thinking about customer intentions and incrementally delivering to support more complex customer goals. Sadly, people all too often get fixated by feature lists. Because that is what they are used to. Because that is how products are sold. But isn’t there a marketing 2.0 where we sell experiences and go beyond the product. Isn’t that what Virgin does? But I’m probably off on a tangent.

Our philosophy ensures we see every one of customers as a long term relationship. Once set up we will support you for as long as you need. We take pride in being a trusted stakeholder in the success of your business.

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What is the Issue?

For the past several years information technology budgets have been increasing – increasing for a number of factors including the deployment of enterprise systems, new communications infrastructure needed to handle the explosion of email and data transmission, entries into electronic commerce. But companies are facing increased competitive pressures, are unable to increase prices, and thus continue to look internally at ways to wring out costs. Thus, IT is under the pressure to reduce spending while being called upon to aid in cost reductions in other parts of the business and having no control over many of the drivers that influence IT costs.

Control IT Costs

Control IT Costs

The CIO must both reduce costs while upgrading the infrastructure and IT environment to support electronic commerce, rapid applications development and, in many cases, a global communications structure. After reviewing practices at more than 25 companies, we concluded that well executed techniques for managing supply and demand of information technology services will free up the funds needed for the new infrastructure investment. The most significant barriers to achieving these savings may be political and cultural as business units see standardization of technology and controls on demand for IT services as threats to their autonomy.

A Cost Framework

We find that there are three ways to look at cost: cost efficiency, cost-effectiveness, and market growth. The cost-efficiency model looks at how efficiently IT is delivering the basket of services that it controls. For example, does IT deliver help desk services of high quality at a best-in-class price? The cost-effectiveness model looks at how IT affects the total cost of a business process – so the focus is less on the IT component and more on the business. The final way to look at cost is regarding IT’s contribution to new product development, market growth or business transformation. The real measures here focus on IT’s contribution to flexibility and innovation. The framework is important to avoid getting into a discussion focused solely on the total cost of IT – with requests to ‘cut 10% like all the other G&A departments.’

Cost Control Techniques

Cost control techniques look at two major considerations: controlling the cost of supplying technology and services and controlling demand for services. For example, in most companies IT is responsible for provision of long distance services. By negotiation, audit, comparative shopping and use of techniques, such as voice over the Internet, IT can lower the cost of a minute of long distance. However, these savings may be overwhelmed by increases in the usage of long distance – but misguided attempts to control, for example, long distance costs – may result in an increased total cost per sale. Thus, firms must address cost control techniques with an understanding of the possible outcomes. Some of the most significant and effective techniques we found in the research are outlined below.

Managing the Supply of Technology and Services

Techniques for management of the people resources in IT yielded significant benefits for many members  understandable when expenditures on staff and contractors were in the range of 30-50% of total IT costs. Probably the single most important technique (yet the least practiced) was the use of “total time  accounting.” Total time accounting is having IT staff account for their time at a sufficiently detailed level to be able to match hours with results. This is critical for two reasons: in order to do activity-based costing and budgeting, you need to know which resources are linked with which activity – that is, how many hours are we spending on “HR minor enhancements?” (You will also need this information for demand management.)  Total time accounting also allows you to re-deploy resources away from low value added activities to more strategic initiatives as you have a clear picture of where resources are really used.

Management of people resources also included performance management and retention management. Performance management meant that the company had a career development plan with an appropriate mixture of incentives and rewards for high performers and willingness, when necessary, to actively deal with poor performance. (Almost one-half of the 20companies we interviewed on this point did not actively deal with poor performance.) Retention management included a good understanding of the costs of losing and replacing an employee and having the flexibility to shape benefits and compensation plans creatively.

In managing the supply of technology, standardization of hardware, software and infrastructure led to significant benefits. Companies that tracked costs associated with the introduction of a different technology or new software quickly realized the amount of hidden costs associated with a variant technology – especially in long-term support costs. While there are legitimate business reasons for using different software in business units or divisions, lower cost companies tried to ensure that the differentiation was legitimate. They looked at a hierarchy from infrastructure items such as email and DBMS (must be standardized), back-office software such as HR/payroll (should be standardized), enterprise resource management systems (standardization strongly encouraged), strategic systems (more flexibility allowed).

Management of demand is where firms experience truly substantial savings. One firm in the study reduced IT costs by 50% over a two-year period by elimination of unnecessary systems, more appropriate use of existing systems, and reduction in support and enhancement of systems.

In many firms baseline costs (keeping what we have running, doing routine maintenance and making externally imposed changes) consumes 80-90% of the IT cash spend. And companies may consider these costs difficult to reduce. Yet upon dissection, support and operations of many legacy systems may be consuming a disproportionate amount of dollars. Companies under strong cost control mandates clamped down on “maintenance and support” with little degradation in service and large savings.

Other companies carefully analyzed their portfolio of applications and actively decommissioned applications whose operating costs were no longer justified by the benefits.

Barriers to demand management were predominantly political and cultural. In several cases, IT professionals knew that the applications had limited usefulness or consumed excessive resources but felt unable to raise this issue. In other situations, the culture was such that IT should always respond to user requests. (In one firm where a new CIO escalated this issue, they discovered that 30% of the IT development/maintenance projects lacked any tactical or strategic value.)

Implementing an IT Cost Control Program

As a first step, companies must shape the objectives, desired outcomes and measurement techniques. After this initial phase, the company must assess its current organizational and IT capabilities. This capability assessment is important, as typically there are many initiatives a company could undertake to reduce costs – such as the more than 50 listed in this report alone. But the capability assessment will direct you to those initiatives that will have the most impact in your situation…Learn More

Article By Shaun White Sacher Partners Ltd www.sacherpartners.eu

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Key Recommendations

All but a few companies have failed to realize that movement to eCRM is a business critical decision; the life of the business depends on it. If a company does not develop eCRM multi-channel capabilities, it soon will lose its customers and be out of business. The age of “build a better mouse trap and the customers will come” is over. The following ten imperatives will help your company make this transition?

Focus eCustomer strategy on dot-profit, not dot-com. Most Internet commerce strategies place their complete focus on how to become a ‘dot-com’ company. eCRM demands otherwise. Understanding the economics of customer retention, investment and the margins, one is able to harvest digital margins several times higher than brick and mortar margins that accompany the “also ran” growth rates of most companies. Companies spend large sums attracting customers to the first transaction, then fail to keep the customer so as to harvest the relationship by obtaining downstream revenue. For the most part, the first few transactions are needed to pay off the investment already made in locating and attracting the customer. It is only afterwards in subsequent transactions that the company obtains digital margins. This focus is the key to understanding the payoff from eCRM. If a company invests its capital only to attract the customer and carry out a few transactions, then it can not possibly hope to make a profit if the customer is lost.

  • Design the total customer experience, not just the interface. Companies frequently are confused by how to proceed with eCRM implementation. They fret about organizational politics, and spend too much time debating one CRM package against another. In contrast, best practice is to start by designing the customer experience. Leading companies devote a great deal of time and special resources, including teams of ergonomic engineers, psychologists, focus groups, and testers dedicated to getting the design right. Lots of common sense is also essential. Designing the customer experience is particularly important when you have different segments of customers that must be catered to. Designing also means scripting, that is the creation of interaction scenarios that specify how the organization will react to different situations. Special emphasis is placed on exceptions, handling of complaints, and promotion marketing. After the customer experience is designed and documented, the company only then makes decisions about technology acquisition and any required organizational or business process change.
  • Profile customers for profitable segmentation. For many financial institutions, only a few percent of customers are responsible for more than 100 percent of corporate profits. In contrast, there are always some segments of customers who lose money for the company (this is counter-balanced by the more than 100 percent profit responsibility for the top customers). With intensive work at segmenting the customer base, companies can learn about their best customers, and develop special programs that retain them and reward them with the perks they deserve. On the other hand, for customers that lose money, specialized programs can be developed that bring them back into profitability. For example, customers that use too many services and return no revenue for a bank can be gently migrated to an Internet-only channel that has a considerably lower cost for service delivery. Leading-edge companies maintain an analytical group specialized in customer data analysis and segmentation.
CRM

CRM

Define your business logic, and then embed it into your infrastructure. It is a common mistake to spend a considerable amount of effort and time putting a complex eCRM infrastructure in place, and then assume the job is done. This is only the first step. Many fundamental decisions must be made regarding how the infrastructure will work. What type of special offers go to your best customer? What is the policy for returns? How are customer service representatives (CSR) to be compensated for cross- or up-selling products? How much of a discount should be given as a one-time offer to a person who is visiting a product page for the third or fourth time? What scripts should be used to calm an irate customer? Business logic is the system of procedures and rules that underlie how the eCRM system – its technology and its people – operates with the customer. All of these hundreds of details need to be worked out and documented, then embedded through configuration into the eCRM infrastructure.

  • Use opportunistic sourcing in your architecture. Internet commerce will not wait for long systems development projects involving extensive work in design, prototyping, testing, roll-out, training and so on. Instead, IT departments are being forced to respond to competitive necessity by using external sourcing of important ingredients of Internet commerce and eCRM infrastructure. Examples include provisioning of click stream analysis, live interactive chat services, psychographic profilers, and demographic cross-matching services. Opportunistic sourcing allows you to get to market faster, without a strong commitment in capital characteristics of traditional systems development efforts. In addition, it allows you to implement “disposable” infrastructure – applications that can be added cheaply, and then thrown away when they are no longer needed, but without the problem of taking a large write off in your investment.
  • Implement multi-channel performance measurement. To operate harmonized channels means that the performance of your company as experienced by the customer is consistent regardless of which channel they choose to work through. This means that if you answer calls within 30 seconds, you should answer email equally promptly. The responses you give should be consistent across channels, and a unified record should be kept of each transaction for future reference. Performance measurement should be enforced rigorously in order first to understand which channels need work, and second to provide continuous feedback as channels are brought into harmonization.
  • Use information about customers only if it builds trust, not erodes it. As CRM technologies become more powerful, it is becoming increasingly easier to collect much personal information regarding your customers. Some hotel chains, for example, keep extensive records of customer preferences – favorite rooms, restaurants that are frequented, etc. – compiling what in essence is a computerized personal dossier of the favored customers. Apart from privacy legislation that provides many safeguards for collection and utilization of personal information, it is prudent policy to give careful thought to information use policy. Improper use of information can backfire, alienating the customer. Remember that trust is your single most important CRM-generated asset with customers.
  • Rethink your people strategies and organizational structure. eCRM provides entirely new capabilities for working with customers. Call centers, which might be re-named “customer interaction centers,” must be staffed with persons trained far beyond working with green-screen interfaces to legacy systems. They must be Web, eChat and email savvy as well as be incented to work with the customer in a new way. Other organizational changes involve setting up departments to encode business logic into the eCRM infrastructure, and marketing and sales coordination councils to ensure different product promotions and campaigns neither duplicate effort, nor sour customer relationships by exercising too many touch points.
  • Develop an information use culture. All too many times companies fail to use the large amount of data available from data mining and journaling of transactions data from customers. Instead, marketing is stuck in industrial-age practices, such as compiling mailing lists and sending out brochures. eCRM offers new avenues for understanding customers and introducing dynamic marketing into the relationship. The information use culture is found in companies where sales and marketing are competent enough to take advantage of the advanced features of eCRM and do so in order to grow the business. Without re-thinking how customer-centric information will be put to use, the company is wasting their investment in eCRM.
  • Learn from the bitter lessons of ERP. Companies embarking on the eCRM journey need to study what happened with ERP installations in many companies, and avoid the same pitfalls. It is anticipated that eCRM has a larger application footprint than does the average ERP. The principal lesson is to formulate first business outcomes and then only after that make decisions about implementation strategies and specific choices about technology.

About this Report

Chapter 2 of this report answers the question “What are the new realities of eCRM?” It discusses how the business environment has changed, leading to the need for integration of new “surface effects” in customer interaction and to harmonization between different channels to the customer. It discusses the building of new Internet channels and the challenge of harmonizing performance across them that is at the heart of the journey from CRM to eCRM.

Chapter 3 discusses the technology decisions that must be made along the way. What is the integration path that companies are following? This chapter reviews the technology fundamentals encountered in multi-channel architecture. Of critical importance here is the emergence of outsourcing of special value-added CRM functions using Cloud Computing.

Chapter 4 discusses how business processes and organizational forms must be changed to support eCustomer service. New forms of coordination between sales, marketing, operations and Information Technology must be set up and optimized. Hard work must be done to establish the business logic that defines the customer experience, and then encode that logic into configuration and operations of the technology infrastructure. This requires the creation of a few new groups or departments within your organization.

Chapter 5 shows how to make the business case for the new investment that is required for eCRM. It has always been difficult to justify investments in information technology when the benefits are soft (e.g., when they can not be defined strictly as cost savings). With eCRM, the basis for justification comes from understanding the economics of the entire customer life cycle. In addition, the new tools for database mining and customer segmentation should enable the organization to better focus their efforts on profitability. This chapter concludes with next steps companies can take to get the eCRM program immediately underway.

Article by Shaun White http://www.sacherpartners.eu Contact Shaun for more information

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What is Customer Knowledge?

Many corporations today are beginning to pay explicit attention to managing knowledge. One of the most important types of knowledge for virtually every company is about its customers. To understand “customer knowledge,” we need to understand both terms:

We define customer as all types of customers – direct and indirect, businesses and consumers, current and prospective. Most of the companies in Project CK had both businesses and individual consumers as customers. Even those that served only businesses had to view the people within those businesses as individual buyers and decision-makers. And firms that had consumers as customers wanted to begin understanding them as individuals in the same way a business-to-business marketer would treat a large business customer.

  • Knowledge has the more difficult definition. We’ll define it here as a fluid mix of experience, values, contextual information, and expert insight that provides a framework for evaluating and incorporating new experiences and information. It originates from and is applied by people, or “knowers.” It is “ready for action” – suitable for application to decisions and actions.

In practice, customer knowledge encompasses a wide variety of diverse material, including:

  • Customer identity – who customers are in their business and personal lives, and how they can be contacted.
  • Customer desires – what they want from us in products, services, and sales approaches.
  • Customer problems and issues – their business, competitive, and personal situations.
  • Customer behavior and attitudes – what they’ve bought from us in the past, and how they feel about it.
  • Customer networks – affinity and disaffinity groups.

While there are many different detailed forms of customer knowledge, there are really only three major types:

  • Data-based knowledge is explicit, structured knowledge that is derived from data or information. This form of knowledge typically involves computer-based analysis of customer transactions, and it may be about businesses or individual consumers. An example of data-based knowledge is when a consumer goods firm concludes after analyzing scanner data that, “Our customers typically buy our product about once a month when there is a promotion on it.”
  • Human knowledge is also fairly explicit, yet relatively unstructured – the knowledge that is derived from interactions between people. It may take the form of casual observations, lessons learned, news, or insights. Human knowledge can be about businesses or high-value consumers who do enough business with us to warrant capturing what we learn about them. An example of human knowledge might be a salesperson’s observation that, “The new purchasing VP says supplier quality will be a strong emphasis.”
  • Tacit knowledge may be better understood in some other business cultures (e.g., Japan’s) than in our own. Tacit knowledge is uncertain, impressionistic knowledge that cannot fully be expressed in words. It may be about individuals, groups of people, or businesses. A salesperson might note about an individual, “I think I’m going to get this sale because the customer seems receptive.” A fast food marketing executive might claim about a group of people, “We’re afraid our customers are tiring of fast-food hamburgers.” A salesperson might say of a corporation, “I think the company has lost its sense of direction.” Some Japanese companies excel at translating tacit knowledge into new products, as described in Ikujiro Nonaka and Hirotaka Takeuchi’s The Knowledge-Creating Company (Oxford, 1995). In the U.S. automobile industry, companies also use tacit, metaphor-based customer knowledge to guide new car development.

Why is Customer Knowledge Difficult to Manage?

Customer Knowledge

Customer Knowledge

Virtually everyone can agree with the common platitudes of customer management: “Know your customer.” “Market one-to-one.” “Develop relationships with your customers.” “Fire your worst customers.” Actually accomplishing these things depends on customer knowledge, yet the actual state of CK management is not yet particularly advanced. Few companies have identified it as an issue requiring concerted attention. There is little clarity about who within an organization even owns the problem. Many organizations have considerable difficulty with customer data management – let alone customer knowledge. It is common, for example, to find that simple customer identity information (company or individual customer name, address, other contact information) is inaccurate and varies from one part of a company to another. Even when companies do have substantial amounts of customer data (as in the case of large U.S. banks, which typically have over 200 pages of data on each of their customers), they often do not convert the data into knowledge; banks, for example, make little use of knowledge of ATM customers’ identities, and don’t even capture the language used when making an ATM transaction.

Why, given its obvious importance, is CK management so challenging? There are a number of reasons, and different ones apply to the different types of customer knowledge. First, the data from which data-based knowledge is derived is spread through a variety of systems and functions in the organization. We find it in sales, marketing, logistics, support, finance, and other functions, as well as in the information systems that support those parts of the organization. Some of the customer data in these systems is likely to be inaccurate or out-of-date. The different perspectives on customers found in these different systems may mean that it is very difficult to piece together a common customer view. Further, because all of these functions value their own perspective on the customer, attempts to achieve a common, organization-wide view may result in difficult organizational politics and change management processes. We believe the most important barrier may be the lack of ownership in CK management. It is the rare company that has a customer relationship process owner.

Human knowledge of customers is difficult to manage because, like all forms of human knowledge, it is located in the minds of individuals. We don’t know what customer knowledge people possess until they are motivated to share or record it; the use of such knowledge is similarly volitional. Further, a wide range of people may have customer contact; getting them all to record what they learn is a major task. Also, while some human knowledge is accurate, some isn’t – and determining the truth value of human knowledge is a challenge. One of the greatest challenges in customer knowledge may be its labor-intensiveness; to summarize, synthesize, and update customer knowledge always requires substantial human effort.

The greatest difficulties in managing tacit knowledge involve converting it to forms that can be disseminated and broadly applied. While the “voice of the market” may be expressed tacitly, converting that knowledge into explicit lessons is always problematic. Acquiring tacit knowledge from customers typically involves spending considerable time with them, which can be expensive. Finally, it’s hard to know whether you’re correct about tacit knowledge; this type of knowledge leads to hunches rather than certainty.

There are ways to make CK management more effective, however. In Chapter 2, we identify a process and establish an action plan that companies can tailor to their particular situations and CK needs.

If a high level of knowledge sharing already exists, the CK management process can leverage this cultural phenomenon. Likewise, a lack of knowledge sharing means that efforts to adopt a CK management process will have to address broader, more basic issues. Chapter 3 discusses how to identify your company’s particular cultural and organizational idiosyncrasies with respect to this process.

Because CK management involves the collecting, mining and sharing of data – which is typically embedded in multiple systems distributed throughout the organization – technology plays a critical role in generating and sharing customer knowledge. Chapter 4 identifies how different technologies impact each step of the CK management process and evaluates some of the stronger products currently available.

Finally, Chapter 5 points the way toward implementing a CK management pilot program. It is followed by six case studies (four of them disguised), which are referred to throughout the report and give real examples of how companies have developed their CK management processes.

Article by Shaun White http://www.sacherpartners.eu Contact Shaun for more information

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