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Buyer Be Aware

Overbuying and elusive ROI measures plague CRM, yet customers continue to sign on.

Pombriant interprets the results to mean, generally, that CRM buyers are becoming more discerning. “We’ve certainly been through the early-adopter phase in the industry, and I think companies are now really understanding what their needs are,” he says.

Of course, getting a fix on exactly how much benefit accrues from any product is tricky, since few buyers are actually measuring returns in dollar figures. “When I ask our clients if they are achieving ROI, at least 80 percent say yes,” says Eisenfeld. “Then I dive down and get all these wishy-washy answers.”

More than half of the 653 companies Gartner surveyed in late 2002 claimed to have gotten a return on their CRM investments, but Eisenfeld also takes those claims with a grain of salt; most companies focused exclusively on benefits such as head-count reductions or improved order-processing times but didn’t quantify those in monetary terms and then subtract the costs from the benefits to calculate ROI. “Although respondents in our survey claim satisfactory ROI, we estimate approximately 13 percent of them are actually able to cite the ROI they claim,” she says, “whereas the rest can only anecdotally claim benefits.”

Why are companies so reluctant to track ROI on their CRM investments?

Some say that the amounts spent on targeted projects just aren’t worth the time spent on post-purchase calculations. Morningstar Inc., which sells stock research, software, and consulting services to mutual funds and big companies with 401(k) plans, spent about $200,000 on Siebel Systems Inc.’s sales-force automation system 18 months ago to collect and centralize its sales data. “Our costs were so small, I don’t even need to track results to know we’re getting returns,” says Morningstar COO Tao Huang, who led the project.

The product has helped the company take a global view of its relationships with multinational customers, he says, allowing it to win additional accounts within those institutions and cross-sell them on other products. Those benefits, along with the others that have accrued from having more accurate, up-to-date sales data in one place, he says, have increased the company’s revenues for the unit using CRM by more than 100 percent since implementation.

An emerging area of CRM dubbed customer analytics may further defy ROI analysis. “The analytical pieces are far lower in costs than the operational ones [like contact-management systems],” says Tony LoFrumento, executive director for CRM at Morgan Stanley. “But if you use such software correctly, it affects every decision senior management makes, becoming almost an allocation methodology for how much time and money to spend on each customer.”

At Morgan Stanley, LoFrumento uses CRM tools from SAS Institute Inc. to calculate each customer’s profitability and assign service levels accordingly, since “no company today can afford to give red-carpet treatment to everyone.” He says the tools have already paid for themselves, based on the service pricing changes the company has implemented and the success of its more-targeted cross-selling efforts.

His next step, though, is to figure out customers’ future profitability, based on their age, assets, and even investing style. Determining such so-called lifetime values of its customers will help Morgan Stanley determine how much to spend on marketing and retention programs. That puts returns on the technology investment out past the tenures of most executives, and is heavily contingent upon what doesn’t happen (customers leaving), two factors that are not particularly conducive to traditional measurements.


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