by Mohanbir Sawhney and Stephen Brobst

Customer relationship management (CRM) is one of the hottest areas in the software industry. The logic behind investments in CRM seems compelling. Companies can profit by building deeper relationships with their most valuable customers. Through investments in CRM capabilities, companies can increase customer satisfaction, increase customer loyalty and minimize customer defections. However, the reality is that most companies fail to achieve the return on investment they expected from CRM. Recent studies by analysts estimate that more than 50% of CRM projects are classified as failures (Janowski, Walter, "Understanding Your Customers Through CRM Analytics," Gartner Symposium, San Diego, Calif., April 29-May 2, 2002).

Mohanbir Sawhney (left) and Teradata's Stephen Brobst share a common vision for CRM.

A common reason for the failure of CRM projects is that many rely on merely automating existing business processes. Automation is not enough to improve customer relationships. The processes themselves must be made more intelligent. It is clear that analytic CRM—the use of business intelligence to understand customer behaviors and preferences—is a critical component of an overall CRM deployment. However, even this is not enough. To unlock the potential of CRM, a company has to complement its technology investment with a realignment of its organization and a redesign of its offerings. To get in sync with its customers, a company needs to make its technology, organization and customer interface work together and reinforce each other like the sections of an orchestra playing a symphony.

The need for synchronization
When a company has too many organizational and technical silos, attracting and retaining customers becomes very difficult. Different parts of the company compete for the same customers and interact with customers without any coordination across the silos. The more diversified and decentralized a company is, the greater the problem that silos pose. For example, 3M Corporation, which sells 50,000 products in 150 different countries, organized its first Web site around business units and products (Sawhney, M. "Don't Homogenize, Synchronize," Harvard Business Review, July-August 2001). Customers coming to the site often had to look in several different places—using different passwords and methods of navigation—for information about the same or similar products.

Some experts believe that the solution to the silo problem is a radical reengineering of the organization aimed at breaking down the barriers between business units and functional areas. They recommend standardizing processes, rules and measurements. They suggest forcing people from different business units to communicate, cooperate and work together. But these radical prescriptions can be counterproductive and even destructive. Instead of homogenizing different functional groups, companies should synchronize their activities. This fosters innovation within business units while enabling communication between them. The silos don't need to be broken down; they need to be made more permeable to information.

Companies becoming customer-centric also get caught in the "tyranny of the OR"—they believe they must choose between excellence in customer intimacy or innovation in product development. This dichotomy echoes the classic debate between the generalist, who integrates different kinds of information and leaps across boundaries, and the specialist, who goes into specific products in depth. However, product-centricity versus customer-centricity is a false dichotomy. Companies need to simultaneously excel in product innovation, customer intimacy and operational excellence. The secret is to decouple different forms of expertise and different forms of technology in the company and then connect them so they work in a synchronized manner. Synchronization allows companies to escape the "tyranny of the OR," and to embrace the "genius of the AND."

Synchronization means making a company customer-centric by decoupling (separating) product resources from customer resources along three dimensions: customer interface, information systems and organizational structures (Figure 1). This is a truly cross-functional exercise that requires leadership from the heads of marketing, technology and operations. The CMO leads in decoupling customer interfaces, such as Web pages and call centers, from individual products. After synchronization, for example, 3M Corporation organized its Web sites, not by product, but according to customer segments and needs. The CIO leads in decoupling customer-facing applications from infrastructure using middleware and a tiered architecture. The COO leads in decoupling customer expertise from product and functional expertise by changing the company's organizational structure. The CEO serves as the executive sponsor and champion.

The biggest obstacles most organizations face when becoming customer-centric lie in the area of changing organizational structure. Ironically, it is the "softer side" of CRM—the organizational dimension—that presents the greatest challenges in synchronization.

Overcoming organizational challenges in synchronization
As a company changes its organizational structure to become customer-centric, it must shift many responsibilities from product teams to customer teams. Traditionally, companies have organized their sales forces around products, and these product-centric organizations tend to "own" customer relationships. When a company synchronizes, its product teams own products, and customer teams manage relationships with customers. This often causes turf wars between the old product salespeople and the new customer teams. And it raises hard questions: Who owns and is compensated for the customer relationship? In traditional companies, business units are usually responsible for profit and loss: Who is responsible for the P&L in a synchronized company? What happens to the former sales organization?

One company came up with a solution that mitigated conflict, thanks to an ingenious CEO. He recognized that the organization needed to be reorganized around customers, but he also knew how hard this would be on some groups—particularly the old product-oriented sales forces. So he implemented the organizational changes in three phases.

In phase 1, the company tiered its customer accounts: It selected the top 1,000, and changed the organizational structure only around them. The customer groups did not own the customer P&L, but their rewards were based on how much business the company did with each customer. Metrics such as customer account size, growth and profitability were used to determine compensation for customer account teams. The former salespeople were still rewarded for product sales. In phase 2, the customer-facing organization took P&L responsibility for these accounts, and the former salespeople became customer support consultants. The relationships were owned by the customer account teams. In phase 3, the company migrated all accounts to the customer-facing organization.

Another CEO who undertook a synchronization effort said that it is important to remember that the change affects the entire company, not just the technology and marketing groups. All the business units have to buy into the vision, and the CEO has to inspire their buy-in.

Closing the loop between strategy and execution
Imagine the all-too-common scenario in which a flight arrives in Frankfurt so late that some passengers miss their connecting flight to Paris. However, there is one last flight to Charles de Gaulle that night and it has a few available seats. A synchronized airline would ensure that its most valuable customers were given first priority in the assignment of those seats, and clear procedures and adequate information would help the gate agents make this happen (Brobst, S. "Your Business Strategy Is Only as Good as Its Execution," DM Review, March 2002).

After all, airlines know about late flights long before they land. Information about all the passengers and their connecting flights (along with many additional details such as whether or not the passengers have checked luggage) is easily available in the operational systems. Moreover, a customer-centric data warehouse should be able to easily identify the passengers most valuable to the airline and even which are most likely to defect due to bad travel experiences.

A synchronized airline uses all this information and has people and procedures in place to act on it. Advanced business intelligence systems are triggered whenever a flight is late; they retrieve passenger profiles from the warehouse, initiate scoring and determine appropriate treatment strategies. These are then packaged as alerts and forwarded to appropriate ground personnel who execute the customer relationship management strategy. This is how a sophisticated airline ensures that its most valued customers have the highest probability of making it to Paris that night and that appropriate action is taken for each passenger. All flight plan disruptions are proactively managed using resources appropriate to each individual passenger and his or her lifetime value equation; strategy is supported by execution so that any business impact is minimized.

Of course, at most airlines, technologies, customer interfaces and organizational structures are completely out of sync with each other and even themselves. There is no actionable decision support system, so the valuable information in the operational systems and data warehouse fail to come together when it matters most (that night in Frankfurt). Ground staff have no way of knowing which passengers are most valuable to the airline beyond looking at simplistic frequent flyer statuses. The company's organizational structure doesn't have the necessary people and procedures in place to optimize the experience for the airline's most valuable customers. The result? Customers who the airline's customer retention strategies most wish to reward spend the night in Frankfurt while the last remaining seats on the last flight to Paris go to low-value customers who push to the front of the customer service line.

What has to change?
Companies need to integrate information and business processes to enable complex business decision-making in near real time. They also must build proactive decision support systems that use analytics and rule-based systems to propose actions and alternatives in near real-time. Processes, of course, must be put into place to use the new capabilities in a timely manner.

The company's data warehouse must be an integrated data repository with actionable information that crosses traditional organizational and functional boundaries. It must also have a customer-centric focus, up-to-date information, high performance access (the ability to retrieve information and get it to decision-makers quickly) and be very dependable. These are the defining features of the active data warehouse, the emerging generation of business intelligence delivery evolving from the traditional data warehouse (Brobst, S. and Rarey, J. "The Five Stages of an Active Data Warehouse Evolution," Teradata Magazine, Spring 2001).

However, if a company hasn't reorganized to serve customers efficiently and effectively, then all its new strategies and all the information in the active data warehouse are irrelevant to the customer experience. All too often, companies invest in CRM technologies without aligning the company's reporting structures and day-to-day procedures around customers. They keep everything organized around products and then complain that CRM isn't bringing them a return on investment!

The synchronization index
To achieve ROI, a company must develop new customer interfaces and organizational structures and procedures as it develops new technical and information assets. Synchronized evolution with alignment along all three of these dimensions—getting all your ducks in a row—is crucial.

The diagram "Synchronization Index" (Figure 2) shows the interdependence of all three dimensions. The area inside the triangle represents ROI, which will only grow larger in an effective way if all three dimensions increase. An increase in any one dimension alone merely changes the shape without significantly increasing the area (ROI); the synchronization index is multiplicative rather than additive. Optimization demands growing the index in a roughly symmetric manner: Making changes to just one or two dimensions won't give a company payback on its CRM. To be effective, a firm must develop its customer interfaces, technologies and organizational structures in sync and keep them in sync.

This can only happen if the CEO makes it happen, because only under the leadership of the CEO do the responsibilities of the marketing organization (customer interfaces), the technology organization (technology infrastructure) and operations organization (organizational structure) come together. Therefore, only the CEO can lead such a companywide effort to synchronize the firm around its customers.

Leading a revolution like this and running a business is difficult (the CRM industry joke is that it's like changing the tires on a car while driving at 55 mph). As one CEO put it, "Customer focus and customer centricity is in every annual report, but who can really do it?" Synchronization requires vision, courage, passion and tenacity from the leadership team. And it requires a long-term commitment, not just for a quarter or some extended number of months but for as long as it takes to make the necessary changes. T

Mohanbir Sawhney is the Tribune Professor of Electronic Commerce and Technology at Northwestern University's Kellogg Graduate School of Management in Evanston, Ill., and a fellow with DiamondCluster International, a business strategy and technology solution firm based in Chicago. He wrote The Seven Steps to Nirvana, Insights into eBusiness Transformation (McGraw Hill, 2000). E-mail him at mohans@nwu.edu .

Stephen Brobst is Teradata's Chief Technology Officer. He specializes in very large database implementations for data warehouse and customer relationship management solutions.
E-mail him at stephen.brobst@ncr.com.