Mercer Sees CRM Limits

Mercer Management Consulting has a section on its "How We Help" page called "Featured Capability." The feature today is "Targeting Customers for Profit" -- the gist of which is that you should segment your customers and sell harder (or smarter) the ones that are the most profitable. In other words, pick the best low hanging fruit first.

Pick the best low hanging fruit first.

Most readers already know that, of course, so what's the point of telling them? Like saying overweight people should eat less and exercise more, the real point is attacking the reasons it's just not happening. In the case of customer targeting, I can think of several:

• This is harder than it looks
• CRM systems are not set up properly
• Companies ask the wrong questions
• Data is wrong or insufficient
• There's inconsistent follow-through by frontline staff
• There's a cultural disconnect between "what's really happening out there" and senior management

Mercer hints at a few remedies on its web page and links to an HBR article with more. For example, a company can look at what's worked in the past; and it can also look at the market and see what's likely to work in the future, based on trends. But again, how many companies are really going to do that if they're not already doing it now?

Going back to the weight loss analogy; it strikes me that the real answer is that you need both good equipment and a good trainer (or at least a good workout partner). Of course, the better the coaching, the less good the equipment needs to be. A really great trainer can get you a good workout even in your hotel room (and eat right too, even in airports!). Great coaches don't need good equipment, but it helps. On the other hand, buying that really expensive treadmill doesn't help if it just sits in the bedroom. Apparently, that's equivalent to how many companies are using (or not using) CRM.

Here's one message I see for CRM technology providers: Get good partnering relationships with CRM consultants -- not just to promote the use of the technology but also to promote good CRM exercise.

The One Mistake Banks Can't Make Is the Second

A.T. Kearney's Financial Services practice published a study showing which financial services firms are in the best position to grow their retail banking businesses from operations rather than just by acquisitions. (No surprise -- the study also found that companies that do well organically are in the best position to also grow by acquisition.) Overall, 31 institutions were ranked on various parameters, creating what the consulting firm calls its Organic Growth Index. You can read more about it here.

Make a second mistake and a customer is 35% more likely to leave.

The study found that one of the biggest indicators of whether a bank will keep and add customers is number of service errors. The study also found that big institutions are more likely than smaller ones to make mistakes with a customer -- despite the larger institutions' obvious advantages in infrastructure like call centers, ATM networks, and back office consolidations -- in other words, all the economies of scale typically cited as reasons banks should merge.

And their customers are not very forgiving either. The tipping point seems to be only a single mistake a year. Make a second mistake and a customer is 35% more likely to leave. Make it three, and the attrition rate doubles.

Clearly, big providers still have problems acting like small providers (when it counts) in retail banking. I would guess that this is also still a problem as well for a lot of other customer-facing services that are technology intensive.

Booz Allen Hamilton on Virtual Scale

The Resilience Report is a monthly update on business complexity and strategy-based transformation, from Booz Allen Hamilton. It's part of the consulting firm's monthly online magazine called Business + Strategy. To see a list of current reports you can click here.

It's a difficult enough task just managing suppliers -- and you're actually paying them to work for you.

The August 1st report drew my attention because it speaks to a topic that has to be among the top five that are most on the minds of high tech marketers: scale. Almost every high tech white paper ever written talks about advantages of scale. That's what standards are for. That's what middleware and Internet services are for. That's what virtualization is for. That's what globalization is for. That's what supply chain management is for. And so on. It's also why most high tech founders (and their VC backers) hope to grow their companies large enough so they will be acquired. Prove the concept then cash out.

The title of the Booz Allen article is "Virtual Scale: Alliances for Leverage." The point it makes is that you don't have to be big in order to achieve advantages of scale. You can partner with other firms. You can share marketing, procurement, manufacturing, logistics, back office operations -- almost anything. The authors say that you can increase revenues 14% and profits 7% if you do it right.

You can even partner with competitors, the authors say, by sharing things that have no relevance to your marketplace positioning (like high-volume sourcing of commodity parts).

Of course, in high tech, almost all companies are small -- which helps explain the obsession with scale. High tech companies also tend to be very idiosyncratic -- an issue the Booz Allen authors don't touch on. Entrepreneurial firms like to do things their way. Scale matters but so does nuance. That's why the scale up methods of choice are 1) make your product scalable; and 2) merge. Both options let you focus on "hard" technology and financial skills without getting into "soft" areas like ongoing partnerships. It's a difficult enough task just managing suppliers -- and you're actually paying them to work for you.

Bottom line: I think most high tech firms are absolutely interested in achieving advantages of scale. I just don't think they will ever adopt alliances on any large scale as a way to get them.