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Customer Lifetime Value Management

Maximizing the ROI for CRM Initiatives

Principal Investigators

Dr. Jon Anton Purdue University

Center for Customer-Driven Quality (765) 494-8357

Dr. Natalie L. Petouhoff BenchmarkPortal, Inc.

(805) 614-0123

October 2001

Purdue Research Foundation, West Lafayette, In 47907 Used pursuant to license. All rights reserved.

Copyright © 2002, BenchmarkPortal, Inc.

This report may not be copied, scanned or reproduced without the written permission of BenchmarkPortal, Inc. Additional copies may be purchased at a reasonable price by e-mailing [email protected] or by calling (805) 614-0123 ext. 10.

WP15-073002

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Table of Contents Executive Summary............................................................................................. 1

Section 1: Introduction ...................................................................................... 3What Is the Return on the Investment of CRM? .............................................. 3

Section 2: Customer Lifetime Value (CLTV) Defined ................................. 7The CRM Gap .................................................................................................... 8Accounting Principles That Count .................................................................... 9Customer Value Chain (CVC) Strategy ............................................................ 9Customer Revenue........................................................................................... 10Customer Profitability ..................................................................................... 11Customer Loyalty ............................................................................................ 12Customer Growth ............................................................................................ 13

Section 3: Customers as a Balance Sheet Asset .......................................... 17Calculating Customer Lifetime Value (CLTV) ............................................... 17

One Customer’s Value................................................................................ 17More Than One Customer and Customer Segment’s Values.................... 18Increasing Corporate Customer Assets ..................................................... 18Adoption Resistance and Rework—Debts ................................................. 19Market Damage of Poor Service Calculation ............................................ 21

Leveraging CRM Analytics to Improve Customer Asset ................................ 22Measuring All the Elements in a CRM System ........................................ 23

How Increasing CLTV Increase Shareholder Value ....................................... 24Focusing on Analytics ................................................................................ 25Intelligent Analytics .................................................................................. 26Defining Return on Investment (ROI)....................................................... 27Revenue Elements to be Considered ......................................................... 28Cost Elements to be Considered ................................................................ 29

Section 4: Characteristics of CLTV-centric Companies ........................... 31CLVT-centric companies focus their CRM system to optimize in these areas: ................................................................................................................ 31Customer Segmentation .................................................................................. 31Economic Segmentation: 360o View of Customer............................................ 32

Section 5: From a Cost Center to a Profit Center...................................... 35Touchpoint Alignment ..................................................................................... 35Once-and-Done Interactions............................................................................ 36Customer Collaboration................................................................................... 37Information Management................................................................................ 38The Importance of Analytics............................................................................ 38Customer Listening Points .............................................................................. 38Balanced Scorecard.......................................................................................... 38Closed Loop Process......................................................................................... 38Total Experience Management........................................................................ 38


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Section 6: Case Studies.....................................................................................39Case Study 1.....................................................................................................39

Certifying Your Interaction Center via Benchmarking.............................39Establishing a Peer Group .........................................................................39Selecting and Defining Performance Metrics ............................................40Effectiveness Metrics..................................................................................40Efficiency Metrics .......................................................................................41Specific Effectiveness Metrics ....................................................................41Specific Efficiency Metrics..........................................................................42The Case Study Organizational Profile .....................................................43Selecting Improvement Initiatives.............................................................43Monitoring Improvement Processes...........................................................48

Case Study 2.....................................................................................................48The Wasted Data You're Collecting ...........................................................48Tracking Customers' Calls Through CRM Application .............................49Without The Right Tools, It's Useless Data...............................................49Customize OLAP Technology, Measure Product/Employee Performance................................................................................................50Real-Time Analytics Enable Company-Wide Views Of The Customer.....................................................................................................51

References............................................................................................................53

Authors’ Biographies .........................................................................................55

Table of Contents

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List of Figures Figure 1. Survey results concerning CRM implementation ................................... 4

Figure 2. When Operational CRM is done in conjunction with Analytical CRM, the total CRM System has a much better chance of providing the service customers want and you will get the higher return on investment on the purchase and use. .............................................................. 6

Figure 3. Customer Value Chain (CVC) is what enables CRM to be successful.......................................................................................................... 7

Figure 4. The value of one customer ..................................................................... 14

Figure 5. Customer-perceived value and market share when ATT was re-engineering to make the customer #1. Market share parallels customer-perceived value. ............................................................................. 14

Figure 6. Customer differentiation and contribution to profitability................... 32

Figure 7. Economic customer segmentation curve ............................................... 33

Figure 8. Peer Group Performance Matrix, using an efficiency index ................. 44

Figure 9. Excerpt from the Inbound Performance Comparison Report ............... 45

Figure 10. Excerpt from the Peer Group Ranking Report.................................... 46

Figure 11. Excerpt from the Gap versus Solution Optimizer Report................... 47

List of Tables Table 1. Customer Lifetime Value Calculations................................................... 21

Table 2. Variations on Customers and How Profitable Each Sector is To Your Bottom-line (from Beyond Customer Satisfaction to Customer Loyalty by Keki R. Bhote. AMA, 1996........................................................... 33

Table 3. Employee Productivity Worksheet.......................................................... 37

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EXECUTIVE SUMMARY

We summarize and highlight the following key issues for executives:

1. Successful companies have proven that managing CRM initiatives, through organized tracking of key performance indicators, can quickly transform CRM investments into bottom line profits by increasing the customer life time value.

2. Although CRM technology can aid in improving customer relationships, without having a systematic way to measure and manage the customer relationship, the real value of a CRM system is often lost.

3. A professional CRM measurement technology integrates analysis from all customer touch points and transforms the raw data into business decision-making intelligence.

4. Companies can take the information from the CRM system analytics, and drive business process refinements to increase customer satisfaction and lifetime value.

5. Companies that are able to quickly refine business processes based on customer feedback can greatly increase customer satisfaction and thereafter witness increases in profits, revenue, and growth.

6. There are many factors that are often not considered in calculating the ROI of CRM initiatives, including adoption resistance and the cost of re-work all of which affect the bottom-line.

7. More and more, we are witnessing that the company “with the most information wins” in today’s highly competitive e-business world.

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SECTION 1: INTRODUCTION

What Is the Return on the Investment of CRM?

In today’s fast moving and highly competitive market, products come and products go. For companies large and small, the most important real asset, with measurable long-term value, is loyal, one-to-one customer relationships. A fully implemented Customer Relationship Management (CRM) system provides executives with the ability to see the future and act on it to create loyal customers. It also provides an opportunity for them to learn about loyal customers and shift their company’s customer strategy to service profitable customers better.

Prior to the creation of the mass marketing, outlet chain, mail order, e-commerce (the world we live in today) individual proprietors created the ultimate CRM and loyal customers. They weren’t equipped with multi-channel, data warehouse, and videoconference capabilities. What they did have, though, was a strong personalized relationship with their customers. For example, in the 1800’s a blacksmith knew the name of each of his customers (and probably the name of their customer’s horse as well), and what their needs were. He had knowledge of who was buying a new horse, and who was building a new house. It was a small environment where customer knowledge and preference was readily available from neighbors or by observation. Today’s blacksmith is dealing with 100,000 customers, not 100, so personalization can seem more difficult, even overwhelming or impossible. Interestingly enough however, the data to provide excellent customer service is readily available, unfortunately however, many companies simply don’t appropriately utilize the customer data that exists. Creating the same customer relationship that was created in the 1800’s can be accomplished today with CRM solutions if there is a clear strategy, measuring technologies, improvement processes and employees who excel at customer service.

Percentage of companies that will spend more on CRM in 2001 vs. 2000: 74%.

—Harte-Hanks, Jupiter Media Metrix, July 2001

The rise in expenditures for CRM is not surprising, given that top management is buying into CRM. The question is are they getting the return on the investment for the technology?

With the changes in the economy, executives are turning to see how they can make marketing more efficient, how they can retain customers and how they can get more from existing customers.”

—Kevin, Scott, AMR Research Marketing Analyst


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Figure 1 shows the results of a survey of over 1,000 respondents when asked questions about their CRM implementation. The overall conclusion is that many are still looking for the real results from their investment.

Figure 1. Survey results concerning CRM implementation

In creating more from customers, there is a delicate balance between the millions companies are investing CRM systems versus the retention of highly profitable customers. The challenge an executive faces is knowing whether or not the money spent on CRM technology to foster the customer relationship is returning the investment the company expected or needed. Since customer relationship management is the main purpose of investing in the CRM technology, then it would make sense to measure how effective it is in cultivating the customer relationship. Yet many companies stop at

Introduction

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implementing CRM systems and never make the connection that they need to measure how well it furthers the customer relationship to the point of creating more profits. Even further from implementation in most companies is taking those measurements and incorporating the results (the voice of their customers) in the company’s business practices.

Until recently, a heady economy could mask the inefficiency or failure of enterprise resource planning, supply chain management, sales force automation and other large IT projects. With the advent of uncertain returns on other technology solutions (ERP and Y2K), shareholders are now beginning to demand financial accountability on new technology solutions.

“Only 6% of 500 companies surveyed considered their ERP systems to be effective at helping them collaborate with partners, while 79% said their ERP systems weren’t effective.”

—Forrester Research

“In a study of 100 large companies, only 52% reported achieving their business goals and only 37% could point to a tangible financial impact for technology solutions.”

—Boston Consulting Group

With little to show for the years of unmeasured IT spending, many companies are demanding proof of payback at each junction of a CRM project by CIOs. This requires CIOs to add financial expertise to their technical and business repertoires or to work very closely with their CFO. In Internetweek, July 16, 2001, the David Lewis article, Tops Execs Rein in CIOs, demonstrates the frustration of executives with the lack of ROI on technology solutions:

“We are now putting all technical projects through regular ROI analysis.” - David Billings, CIO of Airborne Express

“If CIOs are at the executive table as a peer, then they develop an intuitive sense of how technology needs to be aligned with business goals and where technology can offer a competitive advantage.”

- Tom Mangan, Andersen Consulting’s CIO Advisory Service

Executives now need a detailed knowledge not only of what the CRM technology will actually do to retain customers, but they also want to know whether that is truly impacting the bottom line. To gain ROI information on CRM technology systems, it is not enough to measure just a customer service satisfaction index. To know if the CRM technology is providing tangible results means that one has to measure how well the operational CRM system is managing the customer relationship. Figure 2 shows how the combination of operational and analytical CRM can provide a fully integrated approach to customer lifetime value.


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+ =

Effective Measure Increased And Market = CLVT and Efficient and therefore Use of Manage profits

Figure 2. When Operational CRM is done in conjunction with Analytical CRM, the total CRM System has a much better chance of providing the service customers want and you will get the higher return on investment on the purchase and use.

It is imperative to measure the “customer experience with the full enterprise.” The problem with that measurement is that few executives or managers know how to measure the CRM system’s effectiveness. Having a tool and a process to conduct detailed analysis can allow executives to aggregate the customer information and realign the business operations to produce bottom-line results. Analytical CRM measurement systems that can take raw data and turn it into management information are saving products, services and customers. We will look at a case study later in this paper. What we will see is that a CRM measurement system and process can answer questions to:

• why customers are upset • which product/service has a problem • which part of the world or country has the biggest concern and • what is wrong with the product.

The reason this kind of CRM data is so impactful is that a company’s employees are enabled to quickly resolve the issue, and thus impact the customer relationship positively. When issues are resolved quickly, or even better, proactively caught, then the company reaps the ROI for the CRM technology because they are serving the customer better. That positive impact increases the customer lifetime value (CLTV), and that increase in CLTV is what increases revenues and profits. The shift in paradigm for the business world is to view the CRM system as the “brain” with the intelligence that executives need to predict the future and stay ahead of it with factual information.

Why measure? It seems there is no other choice. Companies that know how to measure customer satisfaction, customer lifetime value and their CRM operations will be able to balance CRM technology expenditures and know how good is good enough.

Operational CRM Analytical CRM Fully Integrated CRM

People

Process

Technology

People

Process

Technology

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SECTION 2: CUSTOMER LIFETIME VALUE (CLTV) DEFINED

“You may think you make products, but what you make is loyal customers.” —Mark Hana and Peter Karp, in Beyond Customer Satisfaction to

Customer Loyalty by Keki R. Bhote

In order to measure whether a Customer Relationship Management (CRM) system is returning money to the bottom-line, executives need to have a clearer understanding of the value of a customer to their company. We have found that companies generally start with CRM technology without understanding the precursors that make a CRM system successful. The precursor to make a large return on the investment for a CRM system is to understand the direct, financial correlations between and among:

• customer satisfaction • customer retention • customer lifetime value (CLTV) • company profitability.

If the customers are satisfied, they stay and are retained. The longer customers are retained (increased CLTV), the more value they provide via profits. There are two aspects that can increase the CLTV of customers:

1. the customer’s spending at a specific point in time, and 2. the time span during which a customer keeps spending at your company.

Customer satisfaction is the key influence (key driver) to increase these two CLTV aspects. We coin the financial connection of all three aspects of satisfaction, retention and customer lifetime value as the Customer Value Chain (CVC) (see figure 3).

Figure 3. Customer Value Chain (CVC) is what enables CRM to be successful.


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The reason to purchase a CRM system is to have a process and the technology to create customer knowledge and to use it to select actions that enhance desired customer behavior that increases CLTV. The CRM system process to do this is made up of decision-support software and integrated data warehouses that focus on specifically maximizing CLTV. It does so by predicting customer behavior on the basis of customer data.

Behavior is a leading indicator of customer purchase intentions. A CRM system that focuses on customer satisfaction and CLTV enables a company to make decisions that reinforce desired behavior and thereby increase purchase propensity. The knowledge that is gained about customers will allow existing customers to be retained and grown and new customers to be attained by offering products and services that better fit the behavior. This means that 1 to 1 marketing can be put into practice.

The CRM Gap

Although “Customer Satisfaction” is first step in making CRM initiatives successful, it seems to remain only a buzzword in the business community. There is still an enormous gap between the stated goal of companies to increase customer satisfaction and attempts to implement customer retention goals and increase profits. For example, the analysis by the Center for Customer-Driven Quality at Purdue University of the annual reports of all publicly-owned Fortune 500 companies found there were no firms reporting actual numbers of loyal and satisfied customers. In many cases the most important asset, the customer, was often not even mentioned. This points to a serious “disconnect” between customers and CRM expenditures.

We found that while 87% of the 500 companies with annual revenues in excess of 100 million dollars listed customer satisfaction as one of their most important corporate initiatives, only 16.1% had any method to measure their customer relationship. Consider this: If someone asked you for advice on a large investment they were considering and told you that the chances of it being successful were only 16%, what would you advise them? How quickly would you put your own money into this “hot” opportunity? Yet every day business leaders invest money, time and human capital in opportunities offering just such a probability of poor return. In fact, of the 365 companies that did not have a CRM method in place, 92% asked us for more information about measuring customer satisfaction. This disparity in knowing how to measure customer satisfaction clearly highlights the need in the business community to understand more about the customer value chain.

Until recently, “customer value” has been more of a concept than a concrete set of tangible numbers. This white paper is designed to bring to light the absence of the customer on the balance sheet and to provide ways to calculate the value of customers so that companies can retain and gain more from their most valuable asset. In this section of the paper we provide some definitions of the value of a customer and some thoughts on where the corporate accounting world is on this subject. In the following sections we provide the actual equations to calculate customer lifetime value as well as the characteristics of CLTV-centric companies. While the in-depth science of customer

Customer Lifetime Value (CLTV) Defined

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satisfaction measurement is not covered in this paper, we recommend the following resources:

• Customer Relationship Management, by Dr. Jon Anton, Prentice-Hall, Inc., 1996

• Call Center Management by the Numbers, by Dr. Jon Anton, Purdue University Press, 1997

• The Voice of the Customer, by Dr. Jon Anton, Alexander Research & Communications, Inc., 1997

Accounting Principles That Count

Traditional accounting principles focus on a company’s income statement and balance sheet to keep track of the financial performance. The performance is measured by gains in corporate assets, return on equity, and the rising value of stock. Since most executives receive bonuses based on these financial scores, it makes sense that this is where the scoreboard focus remains. However, because of the highly competitive global marketplace, it is becoming recognized that the most important corporate asset, with the greatest lasting value, is the customer. No customers means no business; this very concept was experienced by the dot.com world that went into a downward financial spiral from which very few companies have survived. This new paradigm in the value of the customer to the balance sheet means a change in accounting methods.

Corporations of all sizes are coming to the understanding that customer satisfaction:

• is a critical strategic weapon that results in increased market share and increased profits

• begins with the commitment of top management

• involves the entire organization

• can be quantified, measured, and tracked

• has fundamental organizational structure implications.

Too many companies, however, still rely on outdated and unreliable measures of customer satisfaction. They watch sales volumes. They listen to sales reps describe the state of mind of their customers. They track and count frequencies of complaints. They scrutinize Accounts Receivable Aging Reports recognizing that unhappy customers pay as late as possible, if at all. While these approaches are not completely without value, they are no substitute for a valid, well-designed CRM program that includes operational and analytical aspects. It’s not surprising to find that firms that formally and systematically measure customer satisfaction are market leaders.

Customer Value Chain (CVC) Strategy

The problem most executives face is exactly how to measure CLTV and how to do that well. Many executives felt that by buying a CRM technology solution, the CVC would be


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handled. However, with the experience the business community has had with other technology solutions (like ERP), it is becoming clearer that, without a process and the people to make it an everyday reality, technology ends up being a very expensive paperweight. Without a clear and accurate sense of:

• what needs to be measured

• how to collect and analyze the data, and

• how to use the results as a strategic asset to drive business decisions, the company cannot realize the return on their million dollar paperweight.

Successful competitors are those that recognize the fact that the CVC is a critical strategic asset that provides increased market share and profits. They don’t have just an understanding of what is required, but they also have financial and other resources from top management that allow employees to take the steps required to change their corporate cultures and processes. As well, they are allowed to reward employees via an appraisal system that directly acknowledges them for providing excellent customer satisfaction.

In these companies, performance evaluation is used to coach employees to repeat behavior that supports CVC, thereby creating a cultural milieu where it is natural to go the extra mile. Those rewards are based on very specific, measurable tasks that lead to enhanced customer relationship management.

With an ability to measure and calculate the customer lifetime value (CLTV), companies can then focus the use of the CRM systems to optimize operations to add/increase the most important asset on the balance sheet. In the end, higher customer satisfaction leads to higher CLTV, which leads to increased revenue, profits, shareholder value, and growth. Therefore, adding the value of the customer to the income statement and balance sheet might be the most innovative initiative an executive can undertake.

The customer value chain can be examined by looking at:

• Customer Revenue • Customer Profitability • Customer Loyalty • Customer Growth.

Customer Revenue

The value of a customer is realized from the revenue stream that each customer brings to a company. Many companies measure revenue per customer in order to calculate sales commissions. Order and billing systems store customer revenue information, and customer revenue reports can, in most cases, be generated.

When customers are satisfied, they don’t change vendors frequently, and many will stay for years. When a customer is gained or saved through a satisfying customer


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experience, it isn’t only the revenues generated in one month or one year that make up customer revenue. Customer revenue is calculated over the long term. It takes into account the present value of the future stream of revenues generated as long as that customer remains loyal. Hence everything that can be done to enhance the long-term, end-to-end customer experience is necessary to make customer revenue an operational reality.

The primary form of return on a CRM system comes from allowing a company to better engineer the customer’s experience to increase the frequency of “great” experiences, thus leading the company to be the preferred company of choice for a long time. We all know that it is very difficult for our customer service agents to provide perfect service all the time, every time. A properly functioning CRM system increases the probability for our employees to provide more “magic” moments for our customers instead of “tragic” moments.

Many times, the company creates improvement programs that provide the service or product from their perspective vis-à-vis those who receive and use the service or product. By measuring the customer’s satisfaction experience through all touchpoints in the company, a 360o view of potential sources for change and improvement can be gained from the customer’s perspective. Delighted customers can result in literally generations of repeat customers—for example, the John Deere Company likes to measure customer loyalty in terms of generations of farming families that have used its products. Repeat customers are what create large revenues with consistent profits.

Customer Profitability

Analyzing profit means that you need to know your costs. Current accounting systems don’t do a great job of measuring actual costs. Accounting systems can measure historic costs and suggest an average direct and indirect cost for a product. In addition, they can allocate a portion of corporate overhead and sales and marketing costs to a product or customer. Accounting systems typically allocate sales and general and administrative expenses (SGA expenses) across product lines. This category can account for as much as 30% of total costs including customer care. However, allocating a blanket percentage to all customers doesn’t give a true picture of costs.

Activity Based Costing offers the ability to improve the calculation of cost and profitability data. It is based on business events (cost to place an order, deliver a product, service a customer, etc.) and correlates the event with activities and processes. The cost events are assigned to cost objects. With this type of system, it becomes easier to understand the cost of providing a service or product. However, this system still doesn’t take customer loyalty into consideration.

“The standard financial accounting model hides the value of customer loyalty.”

—Patricia B. Seybold, Customers.com


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Customer Loyalty

“The business of business is getting and keeping customers.” —Peter Drucker

If a company lost 10% of its inventory to theft, swift action would be taken to stop the loss. But if a company is losing 10% of its customers to competitors, no one might even notice, much less do something about it. Customer loss doesn’t show up on the balance sheet, yet in thousands of companies this happens daily. In fact, each year the average company loses 25% of their customers. Only a few percentage points of customer retention can equal millions or more dollars to a company’s gross revenues.

The opposite of customer loyalty is customer attrition. If we use customer attrition to account for customer loyalty, then we can begin to see the effect of the retention of loyal customers on the bottom-line. From Tom Peters in Thriving on Chaos, we know the actual business impact of customer dissatisfaction is as follows:

• “It costs 5 times more to get a new customer than retain a current one.

• 26 out of 27 customers fail to report a bad experience.

• Customers don’t report a problem because they feel you won’t do anything about it.

• 91% of unhappy customers won’t return.

• 13% will tell 20 or more people (potentially even more with access to the Internet), further polluting your reputation.

• 82 to 95 % come back if the situation is resolved properly, and especially in a timely manner

• A well-handled problem usually breeds more loyalty than before the negative incident.”

Customer dissatisfaction is expensive. Many times companies think losing a customer or two here and there means little, or that they are better off without those nitpicking, piddling, complaining customers. However, should just one customer a day (who usually spends $100 per week) stop doing business with your company, you will lose $1.9 million in annual revenues. This doesn’t include the additional potential loss resulting from bad-word-of-mouth from dissatisfied customers. From this information it appears that our P&L sheets need to have customer attrition added in order to adequately reflect the true accounting of the most important asset in a company. A system to measure CRM effectiveness could help to determine if this is happening in your company.


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Employing customer satisfaction programs as an integral part of continuous quality improvement is crucial to understanding its payback. Like internal quality initiatives, the customer loyalty programs impact profits in several ways, by:

• identifying the process, or processes, for change that will maximize their impact on customer satisfaction

• preventing erosion of the customer base

• minimizing negative word of mouth (WOM)

• understanding better what the customer perceives to be a value-added experience, worth a premium price.

Customer Growth

Although everyone hasn’t figured out how to implement it, the economics of customer loyalty and retention to enable growth has become a science.

“When you build a plant, it starts depreciating the day it opens. The well-served customer, on the other hand, is an appreciating asset,” says McGarvey in The Big Thrill in Entrepreneur.

In figure 4, you can see the real magic of customer retention, and the real reason for you to focus on managing your customer relationships. When customer loyalty is increased, a beneficial customer growth “flywheel” kicks in, powered by:

• increased purchases of the existing product • cross-purchases of your other products • price premium due to appreciation of your added-value services • reduced operating cost because of familiarity with your service system • positive word-of-mouth in terms of referring other customers to your company.

AT&T did a six-year study comparing their market share to customer-perceived value and found the results shown in figure 5 from Bank Marketing by T. Lian. Figure 5 shows a period of time during which AT&T was re-engineered completely to make the customer “number one.” Notice how exactly market share parallels customer-perceived value. Research has shown that customer-perceived value and satisfaction are excellent leading predictors of next year’s revenue, market share and profits.


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Figure 4. The value of one customer

Figure 5. Customer-perceived value and market share when ATT was re-engineering to make the customer #1. Market share parallels customer-perceived value.

Customer satisfaction is the link between short-term success and long-term growth and prosperity. Here’s a great example of how customer retention affects company growth. If a credit card company can increase it retention of customers by 5% each year, then total lifetime profits from a typical customer will rise on average of 75%. This retention translates directly into a company’s growth potential.


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If Company 1 has a customer retention rate of 95% and Company 2’s customer retention rate is 90%, the companies’ growth rates are sizably different:

Company 1: 5% loss of profit per year

Company 2: 10% loss of profit per year

If both companies acquire new customers at the rate of 10% per year, Company 1 will have a 5% net growth in customer inventory per year, while Company 2 will have none. Over fourteen years, Company 1 will double in size and Company 2 will have no real growth at all. And other things being equal, a 5-percentage point advantage in customer retention translates into a growth advantage equal to doubling the customer inventory every fourteen years. An advantage of 10 percentage points accelerates the doubling to seven years. In order to accomplish these kind of bottom-line effects, the leadership strategy must focus on how to create loyalty among its customers, which also means retention of its key employees who serve those loyal customers.

“The goal of loyalty-based management is to find a way to plug the human-asset leak in your corporate balance sheet to thereby improve your productivity, cash flow and profits.”

—Frederick F. Reichheld, The Loyalty Effect: The Hidden Force Behind Growth, Profits and Lasting Value

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SECTION 3: CUSTOMERS AS A BALANCE SHEET ASSET

Calculating Customer Lifetime Value (CLTV)

The connection between a successful CRM operation and customer profitability is the value of customers “saved” from leaving the company. When a customer is gained or saved through customer service, the value of the customer is the present value of the future streams of revenue from that customer for as long as the customer remains with the company. In order to convert the number of saved customers to customer profitability, the customer lifetime value (CLTV) of the customer is calculated. The method for computing the CLTV uses existing and proven financial concepts and models.

One Customer’s Value

For the sake of illustration, we will demonstrate a customer lifetime value calculation assuming for one customer that:

1. the stream of revenues from the customer is level across time at $25 per month or $300 per year = R

2. the interest rate (opportunity cost) is the bank rate paid on the money for which no other specific use is made and is assumed to be 9% = i

3. the time a typical customer stays with a company (unique to this example) is 3 years = N

4. the formula for the calculation is then:

where: R = annual revenue received from a loyal customer.

i = the relevant interest rate or opportunity cost of money per period.

N = the number of periods in which a customer makes purchases.

In our example, the lifetime value profitability of our typical customer is $759.39. Calculating the value of a saved customer is identical to calculating the lifetime value profitability. Why? Because a customer saved can be expected to stay another lifetime -- everything else being equal.


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More Than One Customer and Customer Segment’s Values

Once you have the sense of how to calculate this for one customer, you can then look at larger groups. The first step is to take a select group of customers that were acquired at about the same time and determine how many are still with your company a year later. This will give you your customer retention figure. You can then compute the revenue generated by this set of customers by taking the above formula and multiplying it by the number of customer with this type of buying history. This gives you the value of that particular customer segment. The calculation can be repeated for other customer segments with different buying histories and customer lifetime values. With each of the calculations, it will become clear which segments provide the most value and where you want to focus your CRM efforts.

Increasing Corporate Customer Assets

Once you understand the value of your customers, you can then begin to look at how they provide value and add that to the above calculations. You’ll want to look at:

• Where would your ROI come from?

• What are you measuring?

• What are you missing?

• Are you measuring adoption resistance to the technology implementation?

• Are you factoring in implementation and rework costs of the technology because the customer doesn’t know how to use the system properly?

“In many instances, companies spend millions of dollars on CRM systems, only to find out that a $12/hour call center agent is not really using the new case management system. Adoption resistance exits because change management and a proper way to manage service levels is left out of the equation.”

—Lisa Schwartz, Co-author of Change Management In Technology Implementations: Reducing the Risks of Failures

You don’t want your success to depend on variables that are controllable but go untouched because they don’t seem like they will have a financial impact. In Section 6 we examine CRM project risk management and ways to decrease the extra financial expenditures that arise when this is not built into the implementation.

Customers as a Balance Sheet Asset

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When the financial aspects of CRM systems are considered, sometimes the expected return is to recoup the actual costs of CRM deployment. To obtain the maximum return and increase the value of a customer, you’ll want to strategize on how you want the customer to increase profits. The following list will give you some ideas how customers can add value through the CRM system:

• the customer’s use of one product

• cross-selling the customer on other products

• direct efficiency savings pay for deployment

• retaining customers

• cross selling

• up selling

• being more competitive

• improve eCustomer service

• sales force automation

• improved sales process communications and connectivity-- increasing leads, closings and retention

• increase customer life cycle—marketing, sales, service cycle

• analytics optimization—finding customers and products that are the most profitable mix.

In addition, you want to understand that when purchasing CRM software, when ROI is promised, how much of the functionality of the CRM solution needs to be used to obtain that. A good example is, for instance, Microsoft Word™. It is a word processing software that most people use to create documents. It is certainly faster and more efficient than using a typewriter. However, of the functional power of the software, how much of it do you use? It is very powerful, but many people don’t use half of the functions it can provide: equation maker, footnotes, fancy tables, etc. The idea here is to examine all the full functionality of using a CRM system, and then determine what it is that you are actually using and how to increase the cost benefit of having it. And how much functionality did you pay for, how much are you using and how much ROI are you getting out of it?

Adoption Resistance and Rework—Debts

Part of the reason many technology companies that sell CRM systems don’t experience the true profits they might expect is that they spend their profits to solve “adoption resistance” and do re-work. You probably have calculated what it costs to develop and deliver the software/hardware. You may have added what you need for a margin to make a profit. But have you figured in the cost of re-work?


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Re-work is when the client comes back and says, “The software doesn’t do what you said. We tried ten times and get the same thing.” You know that it is the user, but in order to really verify the problem, you have to go back to your engineers and ask them to look into this and figure out what the customer doesn’t understand. This may take the time of sales people, marketing people, and C-level executives to smooth over the situation. Those people’s time spent on re-work costs the company money. In some cases, it might be that there is a glitch that needs fixing, and that leads into a whole other cost situation.

Multiply the salaries of the people by the number of hours they spend after the sale. Then add the time that they didn’t spend on new projects and the potential loss of revenue if they were selling to another customer. This is a double hit -- because you are spending time to fix something that is already sold and you are spending time you would have to be generating something new on fixing the old -- so basically that doubles the debt figure.

Other costs are market damage that we calculate in the next section, as well as the cost of bad-word-of-mouth – i.e., loss of future sales because the CEOs of companies golf together and tell each other: “Don't buy XZY system because...”. All these factors need to be considered when calculating ROI of CRM technology. Basically technology companies selling technology are often spending their profits in adoption re-work, market share damage, and bad word of mouth.

If we want to look further down the ROI road, take the company that bought that CRM technology. The same losses can be figured for them. They thought that they were buying something that would give them an ROI, but because of re-work and adoption resistance, they also spent their potential profit installing and re-working technology. In addition, what about the resistance of the employees using the system? Their lack of productivity is due to a built-in resistance to change, using a new system, feeling overwhelmed and feeling confused. That lack of productivity costs money! We’ll look at the cost of adoption resistance in Section 6.

This may be why technology stock prices have taken such a turn --technology is not being implemented well and the returns for both vendors and buyers isn’t there -- there is a black hole where all the money is going out. It would be interesting to see these types of calculations added to P&L sheets. The paradigm shift we’re trying to create is: “Don't fall into the CRM gap-- if you don't do technology implementation well now, you’ll pay later.”


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Market Damage of Poor Service Calculation

There are other aspects to consider when considering what should go onto a balance sheet with respect to customers and their value. In this next section we provide some easy-to-follow formulas to calculate the market damage due to poor service. In our market damage calculations, we include the following aspects, as well calculations to balance market damage with the value of the prevention of problems and enhance your customer service:

• impact of negative word-of-mouth • impact of poor service • impact of improving the service • net value of complaint handling • prevention of problems • value of better accessibility of your service.

In quantifying the impact of poor service, the primary purpose of this section is to answer the following questions:

• What is the cost of the current level of problems and service?

• What is the return on the investment for improving the service/preventing the problems, and from more responsive complaint handling?

Once you have calculated the value of one customer, you can collect more information about your customers to see the value of improving customer service to say reduce complaints. You begin by finding out the number of problems or complaints, and with the previously calculated value of the customer, you can follow the steps to see the cost of complaint handling.

Table 1. Customer Lifetime Value Calculations

Customer Lifetime Value Calculations: Average Customer Lifetime = 9 Initial Cost = $900 Price of Initial Purchase = $5,000 Expected Yearly Additional Revenue = $500 Interest Rate = 9% Customer Lifetime Value =

$7,098

Increasing Customer Lifetime Value Calculation: Price of Initial Purchase of 2nd Product = $300 Expected Yearly Additional Revenue = $300 Increased Customer Lifetime Value = $2099 Total Customer Lifetime Value =

$9196


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Market Damage Approximations: Total Customer Lifetime Value = $9196 Word of Mouth Factor = 15 Influence Rate = 100 Lost profits per lost customer = $10,576 Number of complaints = 100 Percent complaining = 11% Customers experience the problem = 909.0909091 Complaints resolved satisfactorily = 65% Market Damage =

$9,984,353

What If? More people learn of the problem? Word of mouth factor =

15

More people complain? Percent complaining =

11%

More complaints resolved satisfactorily? Complaints resolved satisfactorily =

65%

Customers as Corporate Assets: Percent of customers that score 5 = 14% Approximate total number of customers = 100000 Total Customer Lifetime Value = $9196 Customer Asset = $128,474

Leveraging CRM Analytics to Improve Customer Asset

In this age of product likeness, in which the market fails to perceive any profound difference between products or companies and any product advantage today is copied by the competition tomorrow, quality customer relationship management is the only thing that can place one company head and shoulders above the rest. The mindset for developing a competitive customer service strategy and execution must be different. Knowing that, what if you had data at your fingertips, within minutes, to know:

• how your customers feel about your products and or services • which products are were doing well, and • which products or services are in trouble and why,

and that the changes that you are about to make will have:

• won quick approval because you were able to calculate the ROI • ample payoff • benefits via a combination of increased revenue and expense reduction


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• included strategic advantages that help you beat your competition by increasing: o maximizing service delivery o optimizing productivity o increasing market share o avoiding unnecessary costs and o streamlining bureaucracies..

That can be the promise of a CRM system if it is leveraged properly. Executives can make their company stand out from the pack by offering such extraordinary service that it makes it hard for customers to look elsewhere. In order to do that, organizations must add an analytical solution to their CRM initiatives. This means executives need to know how to effectively manage the customer lifecycle and understand customer behavior through engagement, transaction, fulfillment and service to insure a business’s growth and maximize their customers' lifetime value. Since CRM is a combination of multiple data sources, multiple functions and multiple systems, it can be a complex business process problem to solve.

Measuring All the Elements in a CRM System

In order to fully understand how a customer relationship can be come quantifiable, there are three important aspects to consider:

• Integration of information • Analysis of that information • And action taken based on the information.

In designing a CRM system that can measure and learn from the data, a company needs the ability to integrate data across all customer touch points as customers increasingly embrace multiple e-touch points (simple clicks to Web server logs to ad server records and commerce transactions) and as well as to operational CRM systems feature increasing numbers of touch points, including: Web, ATM, POS, call center, kiosk, direct sales, mobile devices, etc.

The next step in CRM is to analyze the interaction between the customers and the company touchpoints. This should result in knowledge of which touchpoints have the biggest impact on customer behavior. Then it should be determined what information to gather. An important element in this is meta data. This is the data that determines the characteristics of the data to be gathered. The collected data is stored in operational databases. These databases are used for the daily operational business processes. From these databases, data is to be selected, extracted and cleaned to then be stored in a data warehouse. The data warehouse is a data repository that provides extensive multivariate analyses. These multivariate analyses result in the customer knowledge used to increase customer satisfaction and CLTV. Analyzing the data for behavioral pattern is done with data mining. This is done with elaborate statistical, logical and mathematical techniques. The last step is when discovered customer knowledge is spread throughout the organization and applied at the various touchpoints to make the products and services better suited to the customers needs and desires.


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Touchpoint Feedback Points can include:

• Sales • Marketing and advertising • Inventory management • Quality Control • Customer fulfillment • Field Services • Customer call centers and support

Measures include:

• Customer profitability • Customer segmentation • Customer loyalty

How Increasing CLTV Increase Shareholder Value

Taken together, both operational and e-business systems create enormous, granular data sources in “open” formats. They need to be combined, analyzed, measured and augmented with financial data to arrive at such critical indicators as revenue, profitability and ROI. In other words, CRM analysis needs to be intelligent enough and integrative enough to enable customers to measure revenues, profits and customer satisfaction—not just clicks. This integrative type of measuring capacity is what helps organizations to:

• Speed decision making • Enhance legacy implementations (i.e. leverage ERP analytics) • Improve margins • Maximize ROI

This integrated information leads to business process mapping and business process re-engineering, which then ties into Customer Service, CLVT and Shareholder value. Companies need to analyze more than just the customer service database. They need a tool to bring in the other customer service systems (ACD, IVR, eCare, etc.), the financial, the on- and off-line transactions, the prospecting and affiliating communications. A tool that can enable rich customer analysis needs to be able to:

• Measure customer behavior • Strengthen customer loyalty • Quantify customer lifetime value and increase it.


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A system that can do all that would need to be able to integrate data from all customer touchpoints, and business channels (from operational CRM to front office automation suites) so that the data would be inclusive of product data, financial information, customer demographics as well as psychographic data. In addition, other factors that affect the real measurement are understanding:

• Service Level Agreements

• The interaction center's responsiveness and management of the interaction life cycle

• What is takes to “certify” an interaction center, (which requires deep customer service benchmarking of the services delivered to customers.)

Focusing on Analytics

There is a very large difference in analysis vs. reporting. While many CRM technologies claim that they provide business analytics, in fact, they merely provide simple metrics reporting. That is why many times just purchasing a CRM system needs to be augmented with a system that is specifically designed to process the data from the CRM system.

The trouble with stark data points is they don't provide enough meaningful context or rich, textured, and actionable knowledge that can be effectively leveraged by sales, marketing and service channels to measure results and target appropriate changes to key business processes. Without this connection to these other areas the information cannot increase CLTV or increase shareholder value and there is little no return on investment for the CRM system. In fact, it could be a negative expenditure.

Straight reporting is comprised of “dumb” data points that have only a one-time usage. This kind of straight static reporting only tells WHAT happened by providing:

• Single data sources • Basic top-level data points such as: number of e-mails sent, bounced-back e-mails • Simple counts • Segmentation


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Intelligent Analytics

In order for the CRM data to give meaning to the bottom-line, another type of reporting is required than the static reporting type. Executives need to have CRM information in an easily digestible form that lends itself to quick decision-making power. Intelligent CRM analysis is smart, meaningful and manageable information which can be used for repurposing so that it can contribute to the bottom-line. It is analysis that demonstrates what happened, why, when, where and how; providing panoramic customer perspective, so next steps/action items are easily identified and leveraged across business channels so that one can change the right things in the business process. Intelligent analysis explains how the TOTAL customer-facing business is functioning, i.e.:

• Multiple data sources • Sophisticated reporting • In-depth, contextualized knowledge

Companies needs CRM analysis that drills down to deliver the what, where, why, when and how—the granular—yet contextualized details needed to fully understand the efficiency and effectiveness of today's eBusinesses. The measurements need to go far beyond raw data/metrics reporting by mining, measuring and managing real-time customer interactions/indicators such as Web logs, automatic call distribution systems, and e-commerce transactions to enable business leaders to plan, manage and execute on strategies and processes based on in-depth analyses and understanding of the customer relationship. In addition, a CRM measurement application needs do more than merely run reports that analyze the efficiency of a discrete operation. It needs to illuminate the effectiveness of an entire customer-facing business.

By illuminating the complete business picture, the CRM analytics needs to not only reveal the overall context, but also to reveal critical details like: customer retention and profitability, strategic effectiveness, and workforce optimization.

The solution needs to allows companies to:

• Track trends and study historical patterns • Analyze strategies and implementations • Forecast future usage

And then be able to answer questions such as:

• How call volume affects customer service • Which products have the greatest impact • What aspects of products generate inquiries, and/or positive and negative service

levels?

The system would need to show customer retention and profits, strategic effectiveness and workforce optimization. For the data to have real world meaning, it would need to track trends and historical patterns and forecast future usage. An example of the data


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might be how call volume affects customer service, which products are having the greatest impact in the market place or what aspects of the CRM system are generating good or bad comments- kiosks, e-mail, call center, etc. You might also gain information on how service level agreements are being kept. All of that information, integrated with financial data, can enable companies to measure and keep track of revenue and profitability and determine the ROI of their CRM system.

Defining Return on Investment (ROI)

Every chief executive officer has a fiduciary duty to maximize the return on every dollar of capital available to the company. With intelligent analytical information on customers and your CRM system, you can begin to make ROI calculations. Therefore, with a limited supply of capital for investments in process enhancements, every proposal for capital expenditure must be accompanied by a complete financial analysis demonstrating the possible return to the company of the proposed investment. Many times people tend to avoid trying to do these kinds of calculations because they know that the numbers they have to work with are estimates. For most C-level executives, a well-thought-out estimate is better than nothing. Most CFO projections are just that, so don’t be afraid to venture into ROI land.

Everything is measurable. It is really about putting a stake in the ground, gathering as much information from as many experts surrounding you and then presenting it with an open mind to get feedback. In introducing the ideas behind ROI, we will focus on a call center in the following section to help the ideas of ROI become grounded in reality so that you can use them.

There are classically two ways to approach an ROI endeavor:

• Cost reduction and/or cost avoidance.

“Direct costs” are those expense items that can be directly attached to a product or service offered by the company, and that can also be easily tracked by the company's accounting system. Indirect costs are those less tangible costs not as easily tracked by the accounting system, and, therefore often lumped together as overhead.

Focusing on direct costs is the most common approach to ROI calculation and, in our case, of call center information/telecommunication technology investments. Some common direct cost savings are:

• Increased productivity allowing fewer agents to do more in less time;

• Implementing information technology that replaces the agent's function altogether; or,

• Reduced telephone costs due to less time-in-the-wait queue.


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ROI calculations of this type are common, straightforward, and will not be discussed herein, even though we strongly recommend that they be used in conjunction with the ROI calculation techniques discussed below.

• Profits from new revenues generated.

This approach works well for some call center investments. It focuses on the simple concept that certain enhancements in customer service will result in retaining more customers, and also that retained customers will continue to purchase from us and produce profits. Our example below will focus only on this approach, since it is more subtle and less often taught in MBA or other business education programs.

Prepare yourself for some resistance and criticism in this category of cost/benefit analysis, because some financial professionals find this approach more difficult to accept, less tangible, more difficult to measure or hard to tie directly into the project being considered.

• A combination of savings and earnings.

The combination of savings and earnings is nice, but one important design rule in calculating ROIs is “keep it simple” for the audience to understand and to believe.

By assisting your client in presenting a credible and well-documented ROI, you are substantially increasing the probability that the company you are consulting with will actually implement your suggested call center enhancements. Ultimately, “hard dollar” ROI arguments are what sell new technology investments. The approach that we are doing “good things” for our customers, also known as “soft money,” frequently does not convince top management to take action.

Revenue Elements to be Considered

From our call center baseline survey research, we will have determined the process where the company's performance is low and where the impact on customer satisfaction is high. The model that we need to develop for the company is -- “If we invest in and improve the selected process, what will the increase in customer loyalty and re-purchase be worth in dollars and cents?” The data we need to determine added income value from this customer is:

1. The average number of purchases made each year, and the profit margin per purchase; and,

2. The average number of years that a customer remains loyal to the company.


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Cost Elements to be Considered

The cost elements are determined by:

1. A bill of materials with costs of all the pieces of the proposed information technology;

2. A cost estimate of the labor charges to install, train, and maintain the information technology investment; and

3. The cost of capital over the lifetime of the information technology to be implemented.

In Section 6, on becoming more CLTV-centric, we will show how an ROI can be calculated for certifying via best practices at a CRM interaction center.

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SECTION 4: CHARACTERISTICS OF CLTV-CENTRIC COMPANIES

CLVT-centric companies focus their CRM system to optimize in these areas:

• Customer Segmentation • Economic Segmentation • Customer Collaboration • Touchpoint Alignment • Once-and-Done Interactions • Information Management • The Importance of Analytics • Customer Listening Points • Balanced Scorecard • Closed Loop Process and • Total Experience Management.

Companies that focus on making these their key performance initiatives will generate the return on investment from their CRM implementation.

Customer Segmentation

With the data from the analytic CRM measuring process, executives can gain customer segmentation information, which further increases customer service, CLVT and shareholder value. Customer segmentation allows for the ability to determine which customers you want to have for a lifetime. Since gaining a new customer costs five times more that taking care of an existing one, having a strategy to discover which customers are the most profitable for your company is marketing dollars well spent.

The CRM data can be analyzed to determine who are the customers you want for a lifetime as well as to help learn who are potential customers who would be interested in your products or services and who might not be aware of them at this time. When the marketing dollars are focused on gaining these customers, the likelihood of obtaining them is much greater than if a broad marketing plan approach were taken.

In figure 6 we provide a visual way to differentiate between types of customers. The figure has two axes, base on the two fundamental goals of the company: x = company profitability and y = value of the customer. Following the Pareto principle, the core group of customers in the upper left hand side constitutes 20% of all customers, but 80% of the company’s sales volume and profits. So the place to focus your marketing budget is on the


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customers who add the most value. A company can use its expertise and technology applications, quality and people to nurture this group to create customers for life.

Figure 6. Customer differentiation and contribution to profitability

Economic Segmentation: 360o View of Customer

The data from the CRM analytics can help to obtain a 360o view of the customer including:

• Who are the profitable customers? • What are their demographics and psychographics? • What are their information requirements?

Another analogy to differentiate a customer base is shown in figure 7 based on work done by A. T. Kearney (The Customer Satisfaction Audit, Strategic Directions Publishers, Ltd). Some of the services and products provided for each group may not be valued by some of the other customer groups. This drives up costs with no tangible benefits. In the same vein of reviewing products and services, you’ll want to examine how you are designing your CRM system so that it meets the needs of whoever your target group of customers is. The various parts of the customer segments provide differing profit margins.

Characteristics of CLTV-Centric Companies

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Figure 7. Economic customer segmentation curve

With this information, one would be able to segment their customers into various economic sectors, as in table 2, where the Platinum customers provide the most profit margin, and the Tin would not be considered because they would take more money to serve than they would provide in revenues and profits.

Table 2. Variations on Customers and How Profitable Each Sector is To Your Bottom-line (from Beyond Customer Satisfaction to Customer Loyalty by Keki R. Bhote. AMA, 1996

Type of Customers Percentage of Customer Base

Percentage of Profit

Platinum 10 25 Gold 15 25 Silver 35 45 Bronze 20 5 Tin 20 -15

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SECTION 5: FROM A COST CENTER TO A PROFIT CENTER

In order for a CRM center to transition from a cost center to a profit center, it needs to provide more tangible value than it costs to run it. In this section we explore various aspects of a CLTV-centric center that if applied are the factors that allow a center to generate enough value to make it into a profit center.

When Jan Carlzon took over Scandinavian Airlines (SAS), he pioneered the concept of focusing his people on improving each and every contact they had with passengers (customers). He called these occurrences, when we come “face-to-face” or “voice-to-voice” with a customer, “Moments-of-Truth”. Points where customers and companies interact are call touchpoints. At every touchpoint there is a “Moment-of-Truth”.

At any point in time, companies are involved in “Moments-of-Truth” with their customer and thereby impacting their CLTV. For example, a customer might be viewing a Web site to buy a product and become frustrated by the cumbersome Web site navigation. This would be a negative “Moment-of-Truth”. Someone else might be talking to a call center agent and being impressed with their product knowledge and personal helpfulness.

Every “Moment-of-Truth” is an opportunity for a company to perform well and please the customer. Customer satisfaction is dependent on the way the “Moments-of-Truth” are handled. Handle them badly and the customer may decide to not purchase your product at all again or the customer might tell their friends who tell their friends and so on.

Effective CRM requires that data related to the “Moments-of-Truth” be captured. Ideally every “Moment-of-Truth” at every touchpoint would be captured. Implementing systems to capture data at all touchpoints is probably not realistic not would the benefits out way the costs. The goal should be to identify which “Moment-of-Truth” have the biggest impact on customer satisfaction and generate the most “Moments-of-Truth”.

Touchpoint Alignment

Touchpoints are all the places where customers interface with the technology: multiple e-touchpoints (simple clicks to Web server logs to ad server records and commerce transactions) and as well as to operational CRM systems feature increasing numbers of touchpoints, including: Web, ATM, POS, call center, kiosk, direct sales, mobile devices, etc… They are when “moments-of-truth” happen.

When the data from the CRM analytics is obtained and analyzed this knowledge is spread throughout the organization and applied at the various touchpoints to make the


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products and services better suited to the customers needs and desires. When all the touchpoints have the correct information about the customers and are in alignment about how to provide that service or product, the customer ends up taken care of in a more optimum way. Departments where the touchpoint feedback needs to be integrated within and cross-departmentally can include:

• sales • marketing and advertising • inventory management • quality control • customer fulfillment • field services • customer call centers and support.

Measurements of the various touchpoints can include and result in:

• customer profitability • customer segmentation • customer loyalty.

The most important aspects of this are that all contacts are tracked and all the channels are integrated. Also, customer information should not repeated be for the data to have statistical meaning. In addition, the contact information or history needs to be is readily available to be acted upon in real time.

Once-and-Done Interactions

Whether a customer shops in a store or on the Web, the highest satisfaction driver is a purchase or a service where their needs are met within one interaction. Customers hate having to call back or be called back to finalize the sale or get the information. Within the CRM industry, best practice is 85% across industries for once-and-done interactions. In addition to making the customer very happy, from a workflow stance, once and-done interactions greatly improve efficiency, which adds to the bottom-line. In cases where work has to be repeated because there wasn’t enough information or it wasn’t accessible when it was needed, the rework ends up being very costly. This is because, not only is the employee, for instance having to do the work twice, but the employee is not serving a new customer. There is a double negative effect on efficiency. If one looks at an employee productivity calculation this can be seen.

Let’s say you’re paying someone $10/hour to do a transaction.

If they have to do it twice, it costs you not only $10 for the first time they did it, but an additional $10 for the second time, as well as the loss of the $10 that they could have made if they had been able to do the task the first time.

A task that should cost $10, now costs you $30. This is a 20% increase in cost for customer service. If your product stays the same price, say $20, then you have lost $10

From a Cost Center to a Profit Center

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(see table 3). The time it takes to fix the situation or provide support to it eats into your profits.

There are three levels of profits from CRM technologies:

1. You’re in the hole. 2. You’re breaking even. 3. You’re making money.

Most companies think they are making money when they use CRM. However, our estimations are that most companies are in the hole and don’t even know it. There seems to be an ostrich effect with technology implementations: meaning that technology can come to be such a panacea to fix what pains us, that we don’t take the blinders off to really digest where we are on the profit continuum of CRM technology use.

Table 3. Employee Productivity Worksheet

Once and Done Rework Product Price - Cost = Profit Product Price – Cost = Profit Task done 1st time $20 - $10 = $10 $20 - $10 = $ 10 Task repeated $00 $-10 Future task delayed $00 $-10 TOTAL PROFIT $10 $-10

Customer Collaboration

Customer collaboration simply means that when a customer interacts with a touchpoint, the touchpoint is intelligent enough to not only recognize the customer, but to know enough about that customer to tailor the service to them, there by increasing the customer’s satisfaction. An example of this is a visit to the very popular automatic teller machine (ATM). In many cases, an ATM located in the Southwest of the U.S. will ask the customer “Do you want to interact in Spanish or English?” If the customer selects, for example, Spanish, then a good example of customer collaboration would be that the next time this same customer approaches any ATM operated by the same bank, the “system” would already know that they prefer Spanish, and proceed directly without asking the question about language preference. The bank would have learned from the previous customer interaction to customize all subsequent interactions.

The processes in the customer service chain can be customized to meet the customer’s needs so that the feedback the system gets is acted upon. This is what is called “one-to-one thinking.” In addition, there are many robust self-service options we use today such as a) self-serve gas stations, b) the help-yourself salad bar, c) voice recognition enabled IVR, d) carry-on baggage, e) information kiosks, and f) purchase airline tickets kiosks.


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Information Management

When the CRM analytic center creates data, you will want to make sure the contact data is available immediately so that decision-makers can have the information quickly enough to make choices that can positively impact the business.

The Importance of Analytics

Executive information systems need to be short and to the point, Executives don’t have the time or inclination to spend hours pouring over binders of information. In addition, the information needs to come in an actionable report form to key managers, meaning that it is easily digestible. Many times charts or graphs are much easier to read and decipher than dozens of spreadsheets that have to be poured over to try to make sense of the trends. This is why analog vs. digital readouts of the data are preferred.

Customer Listening Points

The customer listening point needs to be strategically designed so that they are close to where the action is. One wants to spend minimal time and expense and be able to get instant feedback.

Balanced Scorecard

As in the example above, in the customer scores combined with business drivers to form a multi-view e-commerce performance index

Closed Loop Process

In order to focus the employees and maximize the tasks that need to be done to provide excellent customer service, it is worthwhile to have the workflow automated with software. When workflow automation is utilized, very customers contact results in multiple close-loop scenarios.

Total Experience Management

It is important to study the life events of a customer through a buying experience. Once this is done, the CRM system can be re-analyzed for optimum end-to-end planning. This is best done by living in the customers’ shoes for a day as they go through the buying experience. In doing so, the CRM system can be designed from the customer’s way of thinking.

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SECTION 6: CASE STUDIES

The case studies are directly from customers who used analytics to measure customer service satisfaction. From the examples, you will be able to see the needs and requirements the customers are pushing for and the functions and benefits they want.

Case Study 1

Certifying Your Interaction Center via Benchmarking

In this section we look at the advantages to measuring your CRM system with respect to your peers via benchmarking. Benchmarking allows you to know where you are with respect to being CLTV-centric so that you can make the changes that matter most to your customer segments. You can become a certified call center manager by attending the ATT Call Center Excellence in Leadership courses found on the benchmarkportal.com Web site.

Since customer service is a strategic weapon for getting customers, keeping customers, and growing profitable customers, the importance of performance benchmarking is mission critical. Peer benchmarking is a structured, analytical method of comparing the performance of two or more customer service centers in order to determine best practice goals and to ensure competitive customer relationship management functionality leading to market dominance. It is the best way to determine if the money you are spending on CRM is returning on your investment and providing the customer service functions you want it to. To get out of the cost containment rut, a customer service process needs to be assessed and the gaps in its current performance addressed so that CRM function can then become a profit center.

Peer benchmarking of a mission-critical company process, like accounting, manufacturing, and shipping, has been around for years. The process is well documented and is a popular way to answer the question, “How good is good enough” when it comes to the performance of a department or process within an organization. Benchmarking is a structured gap analysis of performance metrics for organizations with similar characteristics. That is, it is logical to compare banks with banks, insurance companies with insurance companies, and the like. In order to most easily understand a peer benchmark and its value, we will use an actual case study.

Establishing a Peer Group

Most customer service center benchmark research has the following issues or problems for making sound management decisions:

• They don’t have sufficient participation of other customer service centers to make any real statistical comparisons that have a significance level worthy of


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management’s time. In other words, there are simply too few customer service centers in their database. If a benchmark study has fewer than 400 customer service centers, the data comparisons probably don’t represent the performance of customer service centers in your space.

• They compare your customer service center performance to others in your industry, i.e., banks to banks, insurance companies to insurance companies. In our experience, this is not a valid comparison, since in our database alone, banks range from customer service centers with 100 agents to those with 1,000 agents, from those handling one million calls per year to 20 million calls per year. These banks do not have the same challenges and are therefore not a valid benchmark comparison.

For a valid comparison, the characteristics of a customer service center need to be defined. For example, let’s assume that your customer service center had the following characteristics:

• call volume is at least 80% inbound calls • calls are at least 60% business-to-business • at least 500 agents handle more than five million calls per year.

For the comparison to yield meaningful data, your center would have to be compared with other customer service centers with the same characteristics so that it would result in an “apples to apples” comparison of performance.

Selecting and Defining Performance Metrics

The next section addresses which customer service center metrics to manage in the discovery process of comparing a customer service center to your Peer Group of customer service centers. The Purdue University Benchmark Research Web site at (www.BenchmarkPortal.com) provides a simple and cost-effective way to create a peer benchmark report.

The metrics most important in the Peer Group benchmarking investigation are described in two categories below, i.e., those metrics that impact (1) efficiency and (2) effectiveness. A very general benchmark goal is suggested for each metric; however, in the actual performance comparisons, this should be done directly with your self-defined Peer Group. These metrics are described and defined briefly below:

Effectiveness Metrics

Effectiveness metrics are those that address the caller’s issues, thereby achieving the strategic goals of the customer service center: getting, growing and keeping loyal profitable customers.

Case Studies

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Efficiency Metrics

Efficiency metrics focus on achieving the customer service center’s effectiveness goals as inexpensively as possible.

Specific Effectiveness Metrics

Some of the important effectiveness metrics are as follows:

1. Caller Satisfaction

Most customer service centers have some method of asking callers how satisfied they were with the calling experience. Suggested measures are what percentage of callers are willing to give you a perfect score, i.e., a 5 out of 5, a 7 out of 7, or a 10 out of 10 points. This is not easy to achieve and a reasonable benchmark goal is 50%.

2. First Customer Service Resolution

Callers want their issue resolved with only one customer service to your company (also called “first-time-final” or “once-and-done” calls). This means no transfers and no callbacks. A good benchmark target for this metric is 85%.

3. Percentage of Calls Blocked

This is a measure of caller accessibility. By dividing the volume of calls handled by the calls offered, the percentage of calls blocked is determined. A target goal for this metric should be under 4%.

4. Average Speed of Answer (ASA)

Average speed of answer (ASA) is also a measurement of customer accessibility when managed to a X- or X-hour increment. ASA is determined by dividing the total-queue-time by the total calls handled for the measurement period. A good benchmark is 18 seconds, managed to the half-hour period.

5. Service Level (SL)

As with ASA, service level is also a measurement of caller accessibility. SL is computed by determining the percentage of calls that are answered within X number of seconds in a distinct period of time. Also, as with ASA, it is critical to manage SL to a ½- or ¼-hour period, which ties the measurement to the customer experience. A common benchmark target is 80% answered in 20 seconds managed to the half-hour period.

6. Percentage of Calls Leading to an Up-Sell or a Cross-Sell

As customer service centers move from cost centers to profit centers, a measure of effectiveness is the ability to detect opportunities for making sales, i.e., the focus from productivity to profitability. A benchmark for this metric, in excess of 20% of calls, should result in an opportunity to at least do an “up-sell” to the caller.


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Specific Efficiency Metrics

Some of the important efficiency metrics are as follows:

1. Calls Handled per Shift

This metric will vary widely depending on the industry studied. If we study all respondents in our benchmark database, the average is 43 calls per shift.

2. Percentage of Callers that Abandon

If a caller accesses the customer service center ACD, is then placed into a queue and not handled by an agent within an acceptable time, the caller will hang up, or abandon from queue. The percentage of abandons is a good measure of how efficiently the center is managed. The benchmark is less than 4% for abandoned calls.

3. Average Talk Time (ATT)

Average talk time represents the amount of time an agent is engaged with a caller. The metric usually includes conversation time and hold time (when the agent puts the caller on hold to ask a question, access reference material, etc.) It does not include queue time. ATT varies considerably with the industry segment and purpose of the call. An all-industry benchmark would be less than 5 minutes.

4. After Call Work Time (ACW)

After call work time is the time an agent spends completing a transaction precipitated by a phone call after the call is released. The benchmark goal should be less than 3 minutes.

5. Percentage Occupancy

The formula for occupancy is talk time plus after call work time divided by talk time plus after call work time plus time waiting for calls. The target for this metric should be at 90 %.

6. Cost per Call

Cost per call is a figure that most customer service centers are able to compute. It is determined by dividing the operating budget by the number of calls handled by the center. Although it varies widely, the fully loaded average for all industries is about $7/call.

7. Percentage Calls Handled by Self Service

The percentage of all calls that are handled by the IVR unit is an indication of efficiency. The target benchmark for this metric should be 20% or more.

9. Percentage Schedule Adherence

Schedule adherence ties directly to the management of the forecasting and scheduling process. Once a schedule is created that determines when each agent should be at his or her position and available to take calls, this metric monitors how well the agents

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adhere to that schedule. Most companies set a 95% target, meaning that each agent is logged onto or off of the system, within the leeway of 1 to 3 minutes, 95% of the time.

10. Annual Turnover Percentage

Turnover is normal, and should be expected in any company. However, an excessive rate of turnover can hurt a company financially. The benchmark is less than 10% turnover per year (leaving the company). This does not include movement to other areas of the company or promotions.

The Case Study Organizational Profile

This case study describes the benchmarking experience of a customer service center in a banking and financial services organization in North America. This company, with $3 billion in assets, operated 22 customer service centers and employed 325 telephone service representatives who annually handled 4,524,000 calls. The primary functions of these representatives were customer service and handling complaints. Ninety percent of the calls they handled were inbound. The other 10 percent were follow-up outbound calls.

This bank participated in the Purdue benchmark research and has given its permission to use the data without revealing the identity of the bank. The Purdue benchmarking team selected a peer group, that is, a group of customer service centers with a similar profile to this bank’s call center. The profile delimiters used were industry segment (that is, banking and financial services), number of inbound calls handled (in this case, 2 million to 5 million calls), number of telephone service representatives (200 to 400), type of calls handled, and many more.

The next sections of this case study will:

• give examples of the reports the bank’s benchmark team used to change performance

• explain the initiatives selected by the benchmarking team

• report on the final actual improvements in performance that resulted six months later.

Selecting Improvement Initiatives

Once you have put in the benchmark data, via this online process, you get a profile of the call center. In the profile are several reports that can help a company determine the improvement initiatives to begin with. Those are the:

1. Peer Group Performance Matrix 2. Inbound Performance Comparison Report 3. Performance Ranking Report 4. Peer Group Performance Matrix.


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1. Peer Group Performance Matrix

The first report shows the peer group performance matrix shown in figure 8.

Figure 8. Peer Group Performance Matrix, using an efficiency index

This report uses an efficiency index. An efficiency index is a combination of ten performance metrics that are related to productivity. Examples would be average talk time, average after call work time, and calls per telephone service representative per shift.

To create this matrix, the efficiency index is plotted on the “x”-axis, and the effectiveness index is plotted on the “y”-axis. Customer service centers that are very inefficient at doing a very ineffective job for their companies are considered a corporate liability, whereas customer service centers that are very efficient and doing a very effective job for their companies are considered a corporate asset.

The performance matrix shows that the case study bank’s customer service center is performing at the level of a corporate liability, while six of its peer group customer service centers achieved the status of a corporate asset. Two of the peer group customer service centers are in the efficient but not effective quadrant. It is immediately obvious to the benchmarking team that they must drill down to determine what factors are causing this less-than-acceptable performance.

Although the peer group performance matrix is not an actionable report, it is a high-level and accurate litmus test of the call center’s ability to provide the customer-relationship-management best-practice standards of peer group customer service centers with the same business challenges. So, the next step is to find one or more of the possible root causes of the low performance.

2. The Inbound Performance Comparison Report

The first drill-down report is called the “Inbound Performance Comparison Report. Figure 9 shows a partial listing from this report. The peer group best is the top ten percent of a peer group.

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Figure 9. Excerpt from the Inbound Performance Comparison Report

This report shows the following:

• customer service center performance metrics descriptions in the first column

• a column with the actual customer service center performance metrics (noted as “Your Center”)

• the peer group medians and averages

• the best in peer group medians and averages

• the average for all participants.

For brevity purposes, this excerpt shows only ten customer service center performance metrics that highlight management opportunities. It immediately became clear to the benchmarking team that the customer service center is under performing on the following metrics:

• average speed of answer • average calls abandoned • average time-in-queue • average first/final calls • average telephone service representative occupancy • average adherence to schedule • average calls per shift per telephone representative.

At this stage of the drill-down research by the benchmarking team, it was already becoming clear which metric might be having the biggest impact on performance and customer service. The most important caller satisfaction driver is the ability of a customer service center to answer callers’ questions on the first call with no transfers and no callbacks. In figure 9, this metric is called the “average first/final calls” (also sometimes called “average once and-one calls”). The bank’s score is 65 % compared with the score of 77.3 % for the peer groups of banks. The difference of 12.3 % may appear small, but when the cost of this lack of performance is calculated for this bank,


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it totals over $2 million each year. That expense makes it worth launching an improvement initiative.

3. The Performance Ranking Report

The second drill-down report is called the “Peer Group Ranking Report. Figure 10 gives a partial listing of this report.

Figure 10. Excerpt from the Peer Group Ranking Report

This report gives the benchmarking team an even more granular look at how the bank compares, metric for metric, with its peer group of banks. For instance, when it comes to blocked calls, the case study bank is actually doing rather well, performing in the 95.7 percentile and ranking second. However, in the important performance metric of telephone representative occupancy, the bank is ranked only 11th, and only in the 18th percentile.

The team wanted to select the one metric that may be causing the most damage to performance--that is, finding the lowest hanging fruit--so management can direct a focused budget for an improvement initiative. (Again, we want to point out that CRM is about change, about changing the way service is being provided.

This is why we spent so much time previously discussing the nature of change. Measurement can tell you what to change, but not how to go about making the changes so that they are accepted and not sabotaged.) Not shown in figure 10 is that the bank ranks at the bottom, having had the absolute worst performance, on the metric of “average first/final calls.” That initiative became the focus of the bank’s benchmarking team.

4. Performance Gaps to Solution Initiative Optimizer

The final report is called the gap versus solution optimizer report. A partial listing of this report appears in figure 11.

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Figure 11. Excerpt from the Gap versus Solution Optimizer Report

This report gives the benchmark team a listing of all gaps in excess of 20 % (that is, the major ones). For each gap it provides a list of potentially applicable solutions to reduce that gap. The figure lists only one such gap--”percent of once-and-done calls”--although there were a total of eight major gaps in performance at the bank’s customer service center that would have their own list of optimized solutions.

From the previous reports, the benchmarking team decided that the biggest negative gap in performance seems to be the average first/final calls, or “once-and-done calls.” The Gap versus Solution Optimizer Report then became a management aid to select that one solution that may produce the best results with the minimum corporate resources.

This reports lists 11 solutions that could be implemented in the order of most desirable on the basis of the optimal decision index. This index is calculated by statistically averaging the most important issues that managers should consider when selecting any improvement initiative:

• Cost per seat: Many solutions are priced on the bases of cost per seat. Knowing this factor allows the manager to quickly determine if there is enough money in the budget to even consider the initiative.

• Implementation time: This is an estimate of the average implementation time to complete the installation of the solution. Most managers prefer to select initiatives that can be implemented within approximately six months.

• Risk factor: Most managers are risk averse. The risk factor has been developed over time by discussion solutions with those that have already implemented a solution. Sometimes high-risk solutions are worth undertaking, but only in light of the other decision factors.

• Gap impact factor: This factor gives an indication of the percent of the gap that will be reduced by the successful implementation of a particular solution.


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• Return-on-investment (ROI): This is the standard ROI equation that decision makers use most often in selecting one solution over another.

From the Gap versus Solution Optimizer Report it becomes clear that applicant testing and skill-based routing are high on the list of potential improvement initiatives. In this particular example, the bank’s benchmarking team received management’s approval to pursue both initiatives. Specifications were prepared, a requests-for-proposal (also called “RFP”) was issued, vendors were selected, and the initiatives were launched and successfully completed.

Monitoring Improvement Processes

It is important to not only make the changes, but also to monitor the changes over time to ensure they produce the desired results. In this case, six months after the successful installation and implementation of the two improvement initiatives, the following results were tabulated:

• The percentage of first/final calls improved by 11.6 %. • The average time in queue was reduced by 2.8 %. • The average TSR occupancy was improved by just over 6 %. • Calls per TSRs per shift were increased by 9.4 %. • Caller satisfaction rose by almost 7 %.

The bank spent approximately $600,000 for the two improvement initiatives, including the selection process, the cost of the software and hardware products, the training costs of the TSRs, and the installation services costs from a third-party integrator. When the improved metrics were converted to new revenue, reduced operating cost, and customer satisfaction, the estimated ROI was in excess of 100 % in 16 months of operation.

Benchmarking cannot guarantee the success of any improvement initiative. However, this case study does prove that by scientifically selecting initiatives based on hard facts, not just personal intuition or gut feel, management can effectively target improvements that have the maximum impact on the company’s profits.

Case Study 2

The Wasted Data You're Collecting

As the market flourished, Internet Security Systems (ISS) prospered, drastically increasing revenue and its customer base. In spite of its success, ISS knew it was not fully exploiting all of the data it generated but did not know what to do about that.

With the Internet booming the need for Internet security grew exponentially. When the phrase “I love you” (A phrase that has made women swoon, men blush, and schoolgirls giggle) had a .vbs extension added to it, IT departments all over the world cringed. Truly, the I Love You virus gave a whole new meaning to what many call the L-word. This is just one example for the increased need for internet security.

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Internet Security Systems (ISS), headquartered in Atlanta, capitalized on this need, growing 500% in the last two years and building a customer base of 6,000 since its inception in 1992. These customers include 34 of the Fortune 50 companies, 21 of the 25 largest U.S. commercial banks, the top ten largest telecommunications companies, and more than 35 government agencies. All have purchased one or more components within ISS' SAFEsuite security management platform. It seemed ISS' business too was booming.

Tracking Customers' Calls Through CRM Application

As with all blasts, however, the thunder will eventually come to a halt and the dust will settle. The Internet boom will reach its peak, plateau, and e-business technology purchases will be mostly upgrades, instead of full-scale initiatives. So, in order for ISS to continue to grow in this aftermath, the company must improve satisfaction, thereby at least retaining its current customer base. ISS recognized this need and looked for ways to measure its performance, specifically in the customer support center.

At the support center, customers call in, and via the touch-tone pad on their phone, they choose which products they want assistance with. That routes them to a support engineer. “Our business model is designed to enable customers to speak to a technical resource immediately,” says Shery Anglin, Vice President of Customer Support and Services at ISS. The engineers first ask for customer information, so they can pull up the customer account within Onyx, the ISS' CRM (customer relationship management) solution. Engineers then ask the customers if they're calling about an ongoing problem, or if they're reporting something new. Based on the answer, the engineer either pulls up the information that was entered when the customer reported the problem, or the engineer creates a new file with a new incident number. All of the information related to that call - regardless of whether the problem was solved immediately on the phone or if it is still pending - is documented in Onyx. “However, our goal is to solve at least 70% of all problems on the phone during the first call,” adds Anglin. “And within Onyx, there are features that allow us to track every time we touch that incident number and how long we spend on it.”

Without The Right Tools, It's Useless Data

Simply tracking an incident number wasn't enough. ISS wanted to examine the support center more in depth, such as the average time to close a problem - across products and across versions of products. It wanted to identify the source of the problems. For example, is one product giving the company more trouble than the others; is it the entire product line, or just the newest versions of the product? ISS also wanted to monitor the call rate per employee. For example, has the number of calls increased and how have individual engineers performed during the increase?

ISS was collecting this information all along. “We love Onyx - and all the data it collects,” says Anglin. But unfortunately, ISS did not have the tools in place to view summaries of this information. “Really the only tools available to me at that time were two primitive ones. The first method was within our Definity phone system, which has a BCMS (basic call management system) software monitor,” admits Anglin. ISS purchased


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the system from Avaya (formerly Lucent Technologies), and call center managers used it only to monitor and analyze call routing and agent resources. “To manage any of the information within Onyx, however, I had to go through an Onyx tool. This was our second method. But it required a lot of programming.”

While using the Onyx tool was possible, this option was tedious for Anglin and was not something that could be used mainstream across the organization. “Let's say a sales representative wants a report for a customer's activities with us,” illustrates Anglin. “Or let's say a product manager wants to know how his products are performing. I had to manually research and pull that information, then create reports. And this wasn't something that once I created I could regenerate. I had to re-create these results each time someone wanted them,” explains Anglin. “Not to mention there was a huge opportunity for human error - which did indeed occur.” Along with reporting, ISS was also looking for forecasting capabilities. “I didn't have an effective way to even forecast my resources,” says Anglin. “Because I didn't know, for example, how many problems or phone calls a given engineer could manage in one day.”

Customize OLAP Technology, Measure Product/Employee Performance

ISS decided it needed a solution to address these issues. And not long after that, it discovered Hyperion Solutions. Hyperion is a provider of business analysis software, headquartered in Sunnyvale, CA. The company introduced ISS to its Essbase and Analyzer products. Essbase is a back end engine used for processing data. It's an OLAP (online analytical processing) technology, which supports multi-user read/write access and detailed queries. Analyzer is the front-end business tool used to view the data in multi-dimensions. It gives Web-based interactive access to many graphical displays. “Hyperion came in and did a pilot using our data. That way we had an idea of what types of summaries we would see before we purchased it,” explains Anglin. “And it was a short pilot. It didn't take long to convince us.”

According to Anglin, Hyperion's products had a great deal of out-of-the-box functionality. This allowed ISS to take advantage of existing reports that Hyperion had already developed. “Since Hyperion was a solutions provider much like we are, they understood the support business. That was the good news,” she adds. “The bad news was that they gave us so much flexibility that we had an opportunity to customize it to meet the needs of our business.” Anglin says if the company would have used just the out-of-the-box functionality, it could have been up and running in a matter of days. But ISS chose to customize it to the business, changing many of the Hyperion rules and dimensions that were already in place. “For example,” Anglin explains, “we're a worldwide operation so we changed a number of our processes and the way we identified things in our system.” ISS broke down the business to identify what volume of support it gave to different parts of the world. It then took that a step further and decided, in order to measure productivity around the world, it needed to map to GMT (Greenwich Mean Time).

ISS also chose to do some more detailed evaluations of the business. Hyperion had pre-configured a set of rules that would evaluate a product line. These rules were

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included in the out-of-the-box functionality. However, as mentioned earlier, ISS wanted to measure the business more in depth - all the way to the product and even by the version. ISS did the same in-depth measuring with engineer productivity—both individual and group.

Real-Time Analytics Enable Company-Wide Views Of The Customer

Today, the Hyperion solution is up-and-running at ISS. The support team still uses Onyx to document all customer interactions. But each evening, all of the information gathered that day is taken from Onyx and built into a data mart through Essbase. Essbase builds this data mart and looks at all the variables and dimensions that ISS defined before installation - such as product, version, number of incidents, and time of day. It also measures this on a customer basis as well. From there, Analyzer - the other Hyperion product - pulls this information in real time from Essbase. Within Analyzer, ISS has built 25 reports that it uses on a daily and weekly basis. “We also can customize reports,” adds Anglin. “So we're constantly editing and modifying Analyzer.” Anglin also noted that the company upgraded its hardware significantly. “We were having performance issues because of the volumes of data that we were running,” she says. “It took double digit hours every night to process all of our information within the data mart. With new hardware, we have that down to an hour now.”

In the future, ISS wants to work with Hyperion to expand this solution company-wide. “We do have plans to roll this solution out to the product management, engineering, and sales teams,” says Anglin. “Then they will be able to look at the information themselves in real time, rather than the support center forwarding it to them electronically.” Anglin hopes this will provide the company with even larger customer and product views, as well as a clear understanding of the business. “The information is there,” she says. “And we plan to make full use of it.” This too, may be a pleasant little phrase...at which companies should raise a brow and really look at how well they understand their customers and their business. You may cringe at the thought. But as Anglin says, “It's never too late. This knowledge can provide you with significant leverage (quite possibly, the other L-word).”

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REFERENCES

1. Anton, Jon, (1996), Customer Relationship Management: Making Hard Decisions with Soft Numbers, Prentice-Hall, New Jersey.

2. Anton, Jon and Perkins, Debra, Listening to the Voice of The Customer: 16 Steps to A Successful Customer Satisfaction Measurement Program, Alexander Communications Group, NY.

3. APT Data Group, (1996), “Briefing Paper: What is Meta Data?,” March 1996.

4. Devlin, Barry, (1998), “From Data Model to Data Warehouse in Bite-Sized Chunks!”, InfoDB, Vol. 9, No. 5.

5. Fabris, Peter, (1998), “Cover Story: Data Mining,” CIO Magazine, May 15, 1998.

6. Huson, Stephen, (1998), “Diamond in the Rough: Bringing to Light Customer Information through Data Mining,” Call Center Solutions, July 1998, Vol. 17, No. 1, p. 104.

7. Inmon, Bill, “Getting Around Dormant Data,” Teradata Review, Summer 1998.

8. Javid, Shawn, (1999), “Data Mining in the Next Millennium,” DM Direct, October 1999.

9. Jenkins, Drury, (1999), “Customer Relationship Management and the Data Warehouse,” Call Center Solutions, August 1999, p. 88.

10. Kimball, Ralph, (1998), “Meta Meta Data Data,” DBMS, March 1998.

11. Kurtyka, Jerry, (1999), “Customer Knowledge Management,” Knowledge Management, December 1999, p. 85.

12. Lloyd-Williams, Michael, (1997), “Discovering the Hidden Secrets in Your Data: the Data Mining Approach to Information,” Department of Information Studies, University of Sheffield, May 1997.

13. MacIver, Kenny, (1999), “Universal Intelligence,” Global Technology Business, Vol. 2, No. 9

14. Moxon, Bruce, (1996), “Defining Data Mining,” DBMS Data Warehouse Supplement, August 1996.

15. Osterfelt, Susan, (1998), “Business Intelligence: Mining the Whole Enchilada,” DM Review, March 1998.

16. Parsaye, K., (1998), “A Characterization of Data Mining Technologies and Processes,” information Discovery Inc.


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17. Peter, J.P., and Olson, J.C., (1996), Consumer Behavior and Marketing Strategy, Irwin, 4th edition.

18. Sloley, Alex, (1999), “Wired to be Smart,” Global Technology Business, Vol. 2, No. 9.

19. Smith, Mark, (1999), “Why Cold Statistics Alone Don’t Make Hot Marketing,” DM Direct, April 1999.

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AUTHORS’ BIOGRAPHIES

Dr. Jon Anton (also known as “Dr. Jon”) is the director of benchmark research at Purdue University’s Center for Customer-Driven Quality. He specializes in enhancing customer service strategy through inbound call centers, and e-business centers, using the latest in telecommunications (voice), and computer (digital) technology. He also focuses on using the Internet for external customer access, as well as Intranets and middleware.

For the past six years, Dr. Jon has been the principal investigator of the annual Purdue University Call Center Benchmark Research. This data is now collected at the BenchmarkPortal.com Web site, where it is placed into a data warehouse that currently contains over ten million data points on call center and e-business center performance. Based on the analysis of this data, Dr. Jon authors the following monthly publications: “The Purdue Page” in Call Center Magazine, “Dr. Jon’s Benchmarks” in Call Center News, “Dr. Jon’s Industry Statistics” in Customer Interface Magazine, and “Dr. Jon’s Business Intelligence” in the Call Center Manager’s Report.

Dr. Jon has assisted over 400 companies in improving their customer service strategy/delivery by the design and implementation of inbound and outbound call centers, as well as in the decision-making process of using teleservice providers for maximizing service levels while minimizing costs per call. In August of 1996, Call Center Magazine honored Dr. Jon by selecting him as an Original Pioneer of the emerging call center industry. In October of 2000, Dr. Jon was named to the Call Center Hall of Fame. In January of 2001, Dr. Jon was selected for the industry’s “Leaders and Legends” Award by Help Desk 2000. Dr. Jon is also a member of the National Committee for Quality Assurance.

Dr. Jon has guided corporate executives in strategically re-positioning their call centers as robust customer access centers through a combination of benchmarking, re-engineering, consolidation, outsourcing, and Web-enablement. The resulting single point of contact for the customer allows business to be conducted anywhere, anytime, and in any form. By better understanding the customer lifetime value, Dr. Jon has developed techniques for calculating the ROI for customer service initiatives.

Dr. Jon has published 75 papers on customer service and call center methods in industry journals. In 1997, one of his papers on self-service was awarded the best article of the year by Customer Relationship Management Magazine.

Dr. Jon has published fifteen professional books, and these are listed at <www.benchmarkportal.com>. Dr. Jon is the editor for a series of professional books entitled Customer Access Management, published by the Purdue University Press.


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Dr. Jon’s formal education was in technology, including a Doctorate of Science and a Master of Science from Harvard University, a Master of Science from the University of Connecticut, and a Bachelor of Science from the University of Notre Dame. He also completed a three-summer intensive Executive Education program in Business at the Graduate School of Business at Stanford University.

Dr. Jon can be reached at 765.494.8357 or at <[email protected]>.

Co-Author

Dr. Natalie Petouhoff (alias ,”Dr. Nat”) is a principal investigator working with Dr. Jon Anton for BenchmarkPortal, Inc.

Dr. Nat’s background ranges from technology to human resources. She has first hand experience at companies like General Electric, General Motors, Hughes Electronics, Universal Studios as well as Internet start-up companies.

For her outstanding work in technology at Hughes Electronics, Dr. Nat received three awards, namely: 1) the Leadership Achievement Award for leadership in the face of resistance, 2) the Superior Management Award for quick technology solution implementation with a tiger team, and 3) the Peer-Selected Award for demonstrating exemplary behavior towards peers.

Dr. Nat’s formal education is in technology. She was awarded the General Motors Fellowship to complete her Doctorate of Engineering from UCLA where she did her thesis research at Oak Ridge National Laboratory and Hughes Research Laboratories in Metallurgy and High Energy Particle Physics. She also has a Master’s and a Bachelor of Metallurgical Engineering degree from the University of Michigan, financed by five scholarships. This is her fifth book on technology and CRM.

Dr. Nat can be reached at (310) 314-4498 or at <www.LMRassociates.com> or by e-mail at <[email protected]>.

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