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The customer connection: armed with the knowledge that customers hold the key to their companies' success. CEOs are embracing customer relationship management as a valuable consumer science. (Innovation & the Customer).

* At the turn of the new century, as shareholders clamored for top-line growth, bleeding-edge innovation became the Holy Grail of competition. Be first on the block with the new product or new paradigm, grab first-mover advantage, and your company could be a star. High-risk innovation was a concept that winners lapped up for breakfast.

No more. "The name of the game today is to reduce risk, because companies can no longer afford to take a chance on losing money, losing time and losing business," says Julie Schwartz, vice president of research at the Information Technology Services Marketing Association (ITSMA). "Companies that win today are turning to innovations that reduce risk rather than increase it, which means they're being innovative in how they transact business and build relationships with their customers."

Enter CRM -- customer relationship management -- which promises an edge on one of the three cornerstones of competition: product offering, economies of scale and customer experience.

"Creating value is still the heart of the CEO agenda," notes John Freeland, managing partner of Accenture's Customer Relationship Management practice. "What's changed is that CEOs now see the customers they already have as their most important lever in creating value, and they recognize that maintaining the loyalty of these customers is their greatest challenge."

Customer relationship innovations are manifesting themselves in interactions across industries, in both the B2B and B2C arenas. "It's a matter of scale," says Wendy Close, CRM research director of Stamford, Conn.-based Gartner, Inc. "You may have more leeway in B2C than in B2B," where companies typically have a small customers base.

Freeland agrees. "The stakes are higher in B2B because you have fewer customers, but the importance of building a competitive moat around your customers, of offering them unique value, is the same." Place a seasonal order for manufacturing materials, and chances are your vendor will anticipate your order next time and know how much you want delivered to which location. Make a flight reservation, and your airline knows which seat you prefer. Dent your car, and you'll find the fuss has gone out offender-benders, thanks to personalized, user-friendly claims processing. Or visit a hotel repeatedly and watch how it personalizes your welcome: one frequent guest of Inter-Continental Hotels, for example, is greeted with a plate of his daughter's favorite cookies each time he travels with her.

There's nothing haphazard about such interactions. Innovations in customer contact are deliberate, meaningful -- and challenging to achieve. It's why CRM has emerged as a business discipline and why executives are increasingly buying into it as a necessary consumer science.

Freeland distills the opportunity for innovation in customer relationships into three themes. First is the leadership perspective, which focuses on brand positioning and customer value, and how clearly they are represented in a company's vision and mission. Second is alignment -- also a leadership issue, but requiring broader support throughout the organization. "This is about making sure everything I do in my business supports and strengthens my desired brand positioning and desired customer positioning," Freeland says. "The alignment of all moving parts of the organization fortifies my ability to deliver on the promise of my brand."

Third is an integrated view of the customer. "This is the greatest challenge for most organizations," he says. "Few understand the multiplicity of relationships and transactions. They don't see the whole customer. They never develop a living profile, which is shaped by every interaction they have with that customer.

"That's the real innovation agenda in CRM," he adds. "It's largely around true insight into both existing and prospective customers from the point of view of more effectively aligning the competencies and capabilities of the organization with the needs and wants of the customer franchise."

Sharing the vision

The power to innovate comes from the top, and it doesn't lie in the status quo. "The shift needs to be top-down, transformational change," says Freeland. "If it never gets to the top of the in-basket, if you rationalize that it will bubble up from the bottom, it won't happen." And top-down change boils down to creating a vision and disseminating it.

"If you have a very clear vision statement and everyone is aligned toward that," says ITSMA's Schwartz, "then the management team can let go, because they know the people below them have the right information and the right values and will make the right decisions. That's the mark of an innovative company."

But, she adds, "You also have to have an environment that encourages risk, where the biggest mistake you can make is one of omission, not commission -- an environment where people aren't afraid to try innovations because they're afraid to fail."

It seems a lot of people are, indeed, afraid to fail. "When we take the concept of CRM into a company, there's resistance," says Richard Feinberg, director of Purdue University's Center for Customer-Driven Quality. "The concept is simple, elegant and exquisite: give your customers what they want and how they want it, and they'll reward you. Yet we encounter a lot of denial.

"We see a lot of middle-management executives who are scared of taking a chance, scared of someone above shooting them down and scared of losing their jobs," Feinberg continues. "The pressures for short-term gain are enormous, but this is a competitive business strategy in the 21st century, and you're going to have to do it to survive."

"The stakes in getting it right are very high," agrees Freeland. "The success stories are fewer than the number of organizations that have tried to do this, but most shareholder-driven organizations don't feel they have much choice. In the long run, successfully executing a strong customer-centric vision is going to have the single greatest correlation to shareholder value creation."

The customer's champion

Organizational alignment is fundamental to making innovation possible. It's also one of the toughest aspects of CRM. It means making sure every player -- vertically (in product and service lines) and horizontally (across support functions) -- is focused on what attracts customers and what will ensure they'll keep coming back. If the brand manager who positions the brand has little to do with the customer service group that is on the front lines with the customer, any shot at capturing customer loyalty is undermined. "When that happens, the value proposition of your company becomes very hollow," Freeland says. "You can position your brand, hut the first time a customer checks into your hotel and the fulfillment process is inconsistent with the promise, you've damaged the customer's perception of value."

In most organizations, Freeland adds, the power base resides in product silos, and there's little motivation to change at those levels because it can mean giving up turf. Yet innovation works best when every link in the value chain -- from product development, marketing and sales, and customer service to every front-office and backend business process -- is consistent with the brand positioning, and every customer interaction reinforces the promise of the brand.

A growing number of companies are establishing an executive-board-level position for CRM, someone whose job it is to lobby for the customer and make sure customer needs and desires remain paramount across the organization. But such a role can be a hard sell. "What company wants to admit to needing a champion for their customers?" asks Gartner's Close. "But it's important, because it's how they will attract, retain and develop loyal customers." Two years ago, fewer than 10 percent of companies had a "chief consumer officer" or similar board-level position, she reports. Today, it's 40 percent.

Technology is another ingredient in successful CRM alignment, but this aspect of CRM, perhaps above all others, is fraught with peril. When CRM first emerged, technology was, for many, the visible, definable touch point. Companies lurched into IT implementations and spent vast sums on data warehouses, but few recognized one of the most critical ingredients: deployment of the data in meaningful ways to the internal players who need it. "It was a matter of putting the cart before the horse," Freeland says. "It's easier to spend money on technology and harder to define how this is going to help me create value with customers."

"If you have flawed processes surrounding your customer and you add technology, you just make things worse," adds Close. "You need formalized processes that manage each step in the complete customer life cycle. You need sales, service and marketing all working together, and that takes change management. Not just IT, but real internal change."

Innovative pricing agreements are one manifestation of what becomes possible when a company achieves organizational alignment, particularly in B2B transactions. "Value-based agreements [based on percentage of profits, cost savings, or usage and transaction formulas] are a key ingredient in both establishing customer intimacy and reducing risk," says Schwartz. 'You share both the risk and the reward, and there's upside potential for over-performance, not just penalties for falling short. These agreements eliminate the concept of the zero-sum game; they're a win-win that creates more opportunity for value for both customer and vendor."

Another pricing innovation is the extraordinary guarantee: "I guarantee a result, no exceptions," Schwartz explains. "If I blow it, there's a payout for you that is meaningful, relevant and easy for you to evoke. There's no fine print. This can be very compelling to the customer, and the only way your competitors can compete is to say, 'We'll make the same guarantee.' But you've got the systems in place and you know you can deliver. If your competitors make the same offer without the systems to support it, they'll go out of business."

The next wave

According to a Gartner Research report published last year on milestones for achieving customer loyalty, fewer than 10 percent of enterprises have a single, integrated view of their customers. It's a critical failing, says Close, and that's why she sees analytics as the next wave of CRM.

At its core, customer analytics promises to broaden and deepen the insights mined from raw customer data, opening new opportunities to optimize revenue, profitability and customer satisfaction. How that promise is realized depends on the organization. It might be deployed into customized reporting mechanisms such as electronic dashboards -- Web screens that customize and present data to employees according to job function -- or incorporated into key performance indicators. Methods for deploying customer insight, like methods of data gathering, will continue to parallel the growing sophistication of technology and the customer's eagerness to use it.

Thanks to changing attitudes about high tech and self-service, Jon Anton, researcher at Purdue's Center for Customer-Driven Quality and and CRM guru at Benchmark Portal, believes customers are revealing more information about themselves than ever before. This, says Anton, is the new arena in which companies will vie for customer loyalty.

"Americans love accessibility' he says. "They love all those technological channels, all the media through which they, as customers, can reach you, the company. And every time they hit one of these touch points, they leave a data fingerprint."

The intersection of consumer accessibility and customer relationship innovation is the new locus of competition, says Anton, who cites three key facets of CRM innovation. First is operational -- using technology to make it almost seamless for customers to get information. Second is analytical-using new tools to process the growing body of data gained via data fingerprinting. And third is collaborative -- partnering with vendors to cost-effectively enable all of the self-service desires and demands of the customer.

"Customers will always win," concludes Purdue's Feinberg. "They will always get what they want, so you'd better know what it is and give it to them better than anyone else. The promise of CRM will be as strong 10 years from now as it is today, and we will be further along on the road to fulfilling it."

RELATED ARTICLE: Co-sourcing Calling

Betsy Bernard thrives on innovation and risk. It's one of the aspects she loves most about her job as president and CEO of AT&T Consumer. Not surprising, then, that when she signed an innovative co-sourcing agreement with Accenture in January. it involved significant risk, calling for AT&T Consumer to spend $2.6 billion over the next five years to transform sales and service delivery.

While outsourcing isn't unusual at AT&T Consumer, this arrangement is unique, says Bernard. "We didn't start down this road saying we were going to create a co-sourcing agreement." she explains. "We started with the thought that we needed to transform our delivery capability. What we came up with was so large, so transformational, so radical, so encompassing, that a co-sourcing structure was more comfortable than the usual tag-you're-it outsourcing agreement."

The agreement plays into the three strategic objectives Bernard laid out when she took the helm of AT&T Consumer last year: to manage the business for cash, to expand service delivery capability and to prudently invest in growth opportunities. "I have a burning platform," says Bernard. "I'm operating in an industry that is in decline. We are not going to be successful at AT&T Consumer if we take incremental steps. We have to take big, bold, transformation steps, and this is an example of one of them."

Some would say you don't get much bolder than integrating self-service into customer care, yet that's one central thrust of the agreement. AT&T Consumer has begun exploring new Web-based and IVR (interactive voice response] technologies, and plans to expand on that, drawing on Accenture's expertise with CRM to create an engaging self-service platform.

To bring the process into focus, Bernard began defining a clear set of metrics on what AT&T Consumer was capable of delivering on its own, without the benefit of a co-sourcing partner. "We were signing a deal based on how effectively the partnership would perform off our trend lines," says Bernard. "When you do that, you better work really hard to know what those trend lines are."

That means knowing where you're going, how you're best going to get there -- and being flexible enough to make changes midstream if things aren't working. "You have to zig and zag and constantly ask yourself "Does this still make sense?'" she says. "Flexibility has to be a core competency, both culturally and skill-wise, and it has to be written into the agreement."

Making sure everyone on both sides gets the big picture and contributes to the process is another key to a successful co-sourcing structure. "You can't look at it as a zero-sum game," she says. "It has to be a win-win. You go back to the metrics, and if it's a two-plus-two-equals-ten, then it's a good agreement."

Did finalizing the deal make her nervous? "If anyone tells you they're signing a $2.6 billion deal without butterflies, they're not being straight with you," Bernard says. "But we had accurately defined and codified our current metrics, we had set aggressive internal goals, and I knew that this agreement could deliver well and above what we could do on our own."

Innovations in Interaction

Technology is the catalyst for another commercial revolution now under way, this time in communication and messaging.

Millions of people now use instant messaging channels to send more than one billion messages daily. Personal communication devices such as pagers, personal digital assistants and mobile phones have experienced equally dramatic growth.

A customer with access to any one of these channels can now be contacted anywhere at any time. This constant connectivity means companies can deliver urgent and time-sensitive information to customers quickly and cost-effectively. Meanwhile, natural-Hanguage processing helps instant messaging services receive and respond to customer inquiries, while voice processing and synthesis technologies proactively send customer alerts and intelligent voice messages -- all without involving a customer service representative. These advances not only reduce the supplier's costs, but also differentiate service quality.

Some of the key trends at the heart of this transformation in customer care include:

* Customer-created profiles that give suppliers both permission and detailed instructions for contacting them

* Customer-defined protocols that route and re-route a critical message through multiple channels until it reaches the customer

* Companies that use detailed user histories to deliver consistent yet personalized messages to large customer bases

* Companies that use cost-efficient virtual service agents that interpret and respond to customer requests and send customer updates proactively.

Molly Rose Teuke is a magazine writer based in Madison, Wisc., who specializes in business topics.
COPYRIGHT 2002 Chief Executive Publishing
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2002, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:chief executive officers
Author:Teuke, Molly Rose
Publication:Chief Executive (U.S.)
Geographic Code:1USA
Date:Jun 1, 2002
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