How Advanced Is Your CRM Performance Measurement?

As the old saying goes, "What gets measured gets managed, and what gets managed gets done". This is as true for CRM as it is for any other business discipline. And the few robust studies into successful CRM all point to performance management as being a critical success factor. In fact everyone is pretty much in agreement that great performance management is often the thing that separates CRM successes from CRM disasters.

But how do you know if your CRM performance management is as good as it should be?

Performance management in general goes through four stages of evolution. You can see the different stages in operation all around you if you know what you are looking for. The same four stages apply to CRM too.

• Stage 1: No Meaningful Performance Management - This is the default stage where many companies start at and continue for some time. That doesn't mean that they don't have any measures at all, just that they have too few or meaningless ones. The meltdown of the Internet bubble in the Noughties was caused in large part by meaningless measures (eyeballs! rather than cashflow). So is the current NPS fad sweeping through less-thoughtful organisations. If you are at this stage then you need to work diligently to skip to Stage 3: Balanced Scorecard as soon as you can. Your business' future success may depend upon it.
• Stage 2: Performance Measurementitis - Organisations at Stage 1 sometimes catch the measurementitis virus. They go from measuring hardly anything to measuring absolutely everything they can. I remember talking to an executive from an airline who was proud to be measuring 400 different customer-facing measures. 400! And most central government department's are full of well-meaning managers who want to know everything that is going on, but don't understand how any of it actually works. The problem is obvious. With so many measures to look at it is nigh-on impossible to know which ones are the really importnat ones and how they influence each other. If you are still using long-lists of plausible but unconnected measures, that is a sure sign that you need to move to Stage 3: Balanced Scorecard, by whittling down the list to something more meaningful.
• Stage 3: Balanced Scorecard - Kaplan & Norton's invention of the Balanced Scorecard in the Nineties was a god-send to managers. They showed that you need to focus on a small number of different types of measures to be successful. They originally identified four types of measure: Financial measures which measure how successful the organisation has been, customer measures and process measures which measure how effective the organisation is today and innovation & growth measures which measure how successful the organistion will be tomorrow. Some organisations added people and other measures too. The Balanced Scorecard is a highly effective way of focussing on a small number (probably no more than 20-25) of measures that provide a balanced view of success. For most organisations, the Balanced Scorecard is all they need to be successful. But there is a downside too. Many managers in public companies focus only on the short-term measures that drive quarterly reporting and ultimately, whether they make their bonus or not. To overcome this short-sightedness some organisations have started to move beyond the Balanced Scorecard to Stage 4: Systemic Value Drivers.
• Stage 4: Systemic Value Drivers - This is the final stage in the evolution of performance management. Smart organistions recognise that the real world is highly interconnected. And that these interconnections sometimes produce unintended long-term consequences. The lack of appropriate credit risk measures let to overlending to uncreditworthy house buyers in the US. The financial risks so created were then repackaged into opague CDOs and sold to financial institutions around the world. Once house buyers in the US started to default on their loans, the interconnections between the CDOs the financial institutions around the world had bought created the credit crunch now threatening to tip several European countries into economic recession. Only by understanding how value is created for the organisation, the interconnections between the value drivers and how this plays out over time can managers hope to manage performance over the long-term. This is one reason why carmaker Toyota, with its legendary long-term planning approach, is hugely more profitable than the US carmakers with their short-term focus. And Toyota's planning approach starts, continues and ends with its customers. Value Driver Analysis and the Value Based Management that uses it isn't as easy as just developing a Balanced Scorecard. But it is sometimes the difference between success over the long-term and failure in the short-term

Go take a long hard look at your own organisation. Which level do you think you are at? And what are you doing to go to the next stage?

What do you think? Are you happy with your current CRM performance management? Or is it work in progress on the way to a higher level?

Post a comment or email me at graham(dot)hill(at)web(dot)de to get the conversation going.

Graham Hill
Independent CRM Consultant
Interim CRM Manager