Christopher Koch highlights some recent research by Wharton School of Business regarding “customer focus”.  The work is certainly right to dig deeper into what the costs are of “customer focus” and whether it is really a good thing.  It is absolutely correct to try and measure the lifetime value of a customer.  I was surprised when someone I knew working at a world famous investment bank admitted that they had little idea of the total amount of business done with a particular corporate client, let alone to what extent the aggregate business was profitable.  The problem in this case was that different parts of the bank had responsibilities for different aspects of the relationship in different countries, with different IT systems supporting those aspects.  Hence taking an aggregate view was surprisingly difficult.  

Understanding this will be much more difficult (and will make more sense) in some industries than others  A manufacturer like Unilever does not deal with the end consumer, so their customers are really the retailers.  However even in consumer facing industries, small improvements in customer “churn” can have a major effect on profits, since it costs much more to acquire a new customer than to retain and sell new things to an existing customer.  Moreover some customers actually cost a lot do deal with and yet generate little revenue; some may actually end up costing more to deal with than they bring in revenue, in which case it may be better to ease them out towards your competitors. Understanding which customers are actually worth dealing with is consequently important, yet few companies really have a good grasp of this.  Indeed, how many companies even survey their customers regularly and track how happy they are?

So far so good.  However the article makes some rather questionable assertions.  In particular it concludes that an enterprise IT strategy is “left out” when companies announce plans to be closer to the customer.  I don’t think this is really the issue.  It is not that the strategy is left out but rather than it turns out to be very difficult to execute.  After all, weren’t ERP systems supposed to create a “single business model” for the enterprise?  You didn’t find that?  Yet I could have sworn that was what those nice people in smart suits at PWC et al told people was the reason for spending all that money in the 1990s.  In that case, surely CRM was the answer?  I mean all that money on Siebel implementation surely must mean that companies now have a single view of the customer?  No?

The problem is only partially an IT one.  Sales people frequently resist “sales force automation” or, if they are forced into it, will do so under sufferance and so create entries that are, how shall we say this politely, of variable data quality.  This happens whether you are using Siebel, Salesforce or whatever system.  If the sales people don’t feel that they get a direct benefit then the system is just an overhead getting in the way of them making more sales calls.  Any data quality initiative would do well to start by examining the sales force automation system if you quickly want to find fertile ground for improvement.

Even if you overcome this issue, either by excellent discipline or somehow incenting the sales people to care about data quality (good luck with that), the next problem is that the sales force system does not control all the customer touch points.  Customers may well have lots of contact with the helpdesk. Yet how often is this seamlessly linked in with the salesforce system?  Similarly direct marketing campaigns to upsell have a real cost, yet how easy is it to assign these costs back to actual customers?  The costs of marketing, of sales and or support typically reside in entirely different systems in different departments, and few companies can consequently add all their costs up, even assuming that all these systems identify each customer in a consistent and unique way. 

How bad is the reality?  You only have to examine you own junk mail to get a fair idea.  I get four separate copies of every mailshot from Dell, a well run company, suggesting there are at least four places where my information is held, and that is just in their marketing systems.  Ever tried shifting your address when you move house and telling your various utilities and banks?  How quickly and smoothly did everything get redirected?

The article is right in pointing out that organisational issues are at the heart of what makes things difficult here, yet the survey of company respondents that suggested that “within three years they would be organised by customer” (rather than product, function or geography) seems to me entirely wishful thinking.  What does your organisation chart look like?  How realistic would it be organise a whole company by something as transient as “customer”?  If you think you get reorganised too often now, just imagine what this picture would be like.

In my view the difficulty of dealing efficiently with customers by assessing their lifetime value is an issue primarily of organisation and company power struggles, not one of technology.  For this reason I don’t expect it to be fixed any time soon.  If Dell stop sending me those multiple identical mailshots then I’ll let you know, but I am not holding my breath.

Christopher Koch highlights some recent research by Wharton School of Business regarding “customer focus”.  The work is certainly right to dig deeper into what the costs are of “customer focus” and whether it is really a good thing.  It is absolutely correct to try and measure the lifetime value of a customer.  I was surprised when someone I knew working at a world famous investment bank admitted that they had little idea of the total amount of business done with a particular corporate client, let alone to what extent the aggregate business was profitable.  The problem in this case was that different parts of the bank had responsibilities for different aspects of the relationship in different countries, with different IT systems supporting those aspects.  Hence taking an aggregate view was surprisingly difficult.  

Understanding this will be much more difficult (and will make more sense) in some industries than others  A manufacturer like Unilever does not deal with the end consumer, so their customers are really the retailers.  However even in consumer facing industries, small improvements in customer “churn” can have a major effect on profits, since it costs much more to acquire a new customer than to retain and sell new things to an existing customer.  Moreover some customers actually cost a lot do deal with and yet generate little revenue; some may actually end up costing more to deal with than they bring in revenue, in which case it may be better to ease them out towards your competitors. Understanding which customers are actually worth dealing with is consequently important, yet few companies really have a good grasp of this.  Indeed, how many companies even survey their customers regularly and track how happy they are?

So far so good.  However the article makes some rather questionable assertions.  In particular it concludes that an enterprise IT strategy is “left out” when companies announce plans to be closer to the customer.  I don’t think this is really the issue.  It is not that the strategy is left out but rather than it turns out to be very difficult to execute.  After all, weren’t ERP systems supposed to create a “single business model” for the enterprise?  You didn’t find that?  Yet I could have sworn that was what those nice people in smart suits at PWC et al told people was the reason for spending all that money in the 1990s.  In that case, surely CRM was the answer?  I mean all that money on Siebel implementation surely must mean that companies now have a single view of the customer?  No?

The problem is only partially an IT one.  Sales people frequently resist “sales force automation” or, if they are forced into it, will do so under sufferance and so create entries that are, how shall we say this politely, of variable data quality.  This happens whether you are using Siebel, Salesforce or whatever system.  If the sales people don’t feel that they get a direct benefit then the system is just an overhead getting in the way of them making more sales calls.  Any data quality initiative would do well to start by examining the sales force automation system if you quickly want to find fertile ground for improvement.

Even if you overcome this issue, either by excellent discipline or somehow incenting the sales people to care about data quality (good luck with that), the next problem is that the sales force system does not control all the customer touch points.  Customers may well have lots of contact with the helpdesk. Yet how often is this seamlessly linked in with the salesforce system?  Similarly direct marketing campaigns to upsell have a real cost, yet how easy is it to assign these costs back to actual customers?  The costs of marketing, of sales and or support typically reside in entirely different systems in different departments, and few companies can consequently add all their costs up, even assuming that all these systems identify each customer in a consistent and unique way. 

How bad is the reality?  You only have to examine you own junk mail to get a fair idea.  I get four separate copies of every mailshot from Dell, a well run company, suggesting there are at least four places where my information is held, and that is just in their marketing systems.  Ever tried shifting your address when you move house and telling your various utilities and banks?  How quickly and smoothly did everything get redirected?

The article is right in pointing out that organisational issues are at the heart of what makes things difficult here, yet the survey of company respondents that suggested that “within three years they would be organised by customer” (rather than product, function or geography) seems to me entirely wishful thinking.  What does your organisation chart look like?  How realistic would it be organise a whole company by something as transient as “customer”?  If you think you get reorganised too often now, just imagine what this picture would be like.

In my view the difficulty of dealing efficiently with customers by assessing their lifetime value is an issue primarily of organisation and company power struggles, not one of technology.  For this reason I don’t expect it to be fixed any time soon.  If Dell stop sending me those multiple identical mailshots then I’ll let you know, but I am not holding my breath.