Why ERP is critical to a customer-centric business (and CRM/sCRM is not the endgame)

Bob, well put. An important ingredient of getting customer centric is what you measure and encourage in your business. Look at all the fabulous systems that find a house in business today – ERP, CRM, SCM and their “hot” cousins as you have eloquently put……they are all extensions of financial accounting. So, what is getting measured in business is cost and revenue, there is no room for customer centricity using today’s applications.

As an evangelist of how businesses can be run smarter, I often think that “hotter chicks” like self service (self check-in at airport, ATM, self check-out at a retailer etc) also are meant to complete a pre defined process so that it can be assigned a “COST CODE” or a “REVENUE CODE”

Bottomline is – most of today’s applications and all of performance management thinking is built to be “Investor centric” and not “Customer centric”.

Very happy to give examples and take this further.

Bob – great to hear an industry commentator saying these things – at UNIT4 (which includes FinancialForce and CODA) we long believed that CRM in isolation won’t deliver customer centric business. Your point that ‘CRM is not a strategy’ is spot on – it provides part of the toolkit you need, but there’s a whole lot more.

We’ve always believed that seamless collaboration between the ‘front end’ of the business (sales, customer support etc) and the accounting department is crucial to deliver on a truly customer-centric strategy. Hence our approach when we came to develop FinancialForce – it’s not just about having a few integrations – its about being sales and finance processes and systems being EMBEDDED together.

Hence our recent developments around collaboration tools, too, which we also see as an exciting enablers in driving customer centricity.

Bob,

Very interesting post. As my mom used to say, and I will adapt, there is nothing worse than a lapsed CRM strategist (just kidding).

Here is one point I want to take a little bit further. You say that CRM and ERP are the same — yet, in my experience and research in the cases where we did say they are similar in function (i.e. enteprise application, a technology) is where CRM failed. In cases where CRM was considered a strategy, business plan, or whatever we may want to call a non-technology thing it succeeded.

Why? because that is what ERP should’ve been but never was. We are taking an opportunity to re-write the errors we made with ERP by enabling Enterprise 2.0 (the real A McAfee definition, not the tools-only implementations we are seeing) to take over. Yet, we are making the same mistakes there as we made with CRM – technology implementations that are expected to deliver a strategy.

The bottom line here is that the problem is not that we call it a strategy or business plan or anything like that, but rather that we let people without a clue of what a strategy is implement technology and call it a strategy.

From my perspective, the better E2.0, CRM, and even ERP implementations are those that don’t rely on technology but rather use it to meet strategic imperatives and expectations. How many projects in this category? maybe 20% from my anecdotal work and research. The other 80% are too busy calling a technology a strategy and failing in different levels.

Just a thought…

Esteban, I enjoyed your comments.

My point is directed at the 80% (probably 90% or more) of CRM endeavors that are built entirely around the use of technology. The fact that the technology is complicated and requires a lot of planning, change management etc. doesn’t make it a strategy. That’s the point that seems lost of most consultants and pundits.

Building a house is complicated, too. Yet we don’t call a house a “housing strategy,” do we? In the end, we need a place to live. We need a plan to build the house to meet our needs. The larger strategy is really about the home we want for our families. The house is just part of that.

The problem I have with CRM is that a CRM strategy is, um, doing CRM. It’s circular reasoning. “We’re executing a CRM strategy because we’re doing CRM.” And what is the essential ingredient in that strategy? CRM technology. The same is true for Social CRM and Enterprise 2.0.

How many “CRM” projects have you seen that didn’t include using technology? If you ask smaller businesses if they “do CRM” most will say they don’t, or point to their use of software as evidence. Yet successful businesses, large and small, do have strategies to succeed, and they don’t necessarily revolve around tech-centered CRM.

I’ve interviewed dozens of companies of the years and I can’t remember once where an industry leader said they succeeded because of a CRM strategy. Instead, they talk about building loyalty, creating innovative products, providing a differentiated customer experience… or just being cheaper. These are the real business strategies.

Most of the so-called CRM “success stories” invariably revolve around how a company automated a process to achieve some short-term benefit. Not putting that down, but in my book this is not a strategy, just an implementation plan to get a return on a tech investment.

I think you nailed it when you said that problem is that “we let people without a clue of what a strategy is implement technology and call it a strategy.” Exactly.

Bob,

You are making an interesting statement, how many successful CRM implementations have no technology, but you are not stating things in the right order.

Gartner created a framwork for CRM called the 8 building blocks. The idea is that if you followed the 8 building blocks, in order, you are going to succeed with CRM. It was created after examining hundreds of both failed and successful CRM implementations. It goes, in order, like this:

1. Vision
2. Strategy
3 and 4. Customer Experience and Organization Process
5. CRM Processes
6. CRM Information
7. Technology
8. Metrics

By focusing your post above, and the example of building a house, on the technology only you are saying (again to use the house) that people fail because they focus on the blueprint and permits to build the house, not the drywall. You need to have the blueprint, and you need to have the permits that say that you have the right blueprint (that is 1 and 2 above). then you will get electricians, plumbers, carpenters, master gas technicians, etc. to come over, and when it is all said and done, you will then get the drywall and painting.

The argument that CRM is just technology is like saying that you can build a house just by using drywall. This is the problem, a lot of people believe this — and do it. Coming from a third-world country I can tell you that there are houses built merely with drywall and the do ok – until the first major storm or wind comes in. Similar to what happens when you do just technology for crm. If you have no plan, the first adverse event that has some power will knock down your crm implementation.

the same applies to erp, social crm, and e2.0. and virtually all other enterprise or business applications.

I advocate for strategy because you have to have a plan of what you are trying to do.

Don’t you think?

forgot to add the link to the eight building blocks, for more reference…

http://www.gartner.com/resources/103200/103204/103204.pdf

thanks
esteban

Esteban, I’ve researched hundreds of CRM projects too, and found that successful projects are driven by a sound business strategy, metrics, organizational alignment and process/experience design. Technology is sometimes an enabler, sometimes not, but definitely not a driver of success.

But the majority of projects, as you noted earlier, start with technology and then try to figure out the plan to implement and get value from that technology. “Strategy” is not connected to business imperatives, but rather is whatever will get the solution approved and implemented.

Sorry, the real world is not paying much attention to those building blocks. You’re talking about what you’d like CRM to be, not what it really is in the market. After 15 years or so, don’t you think it’s time to face the truth?

If I think the world is flat and write a paper or post on a blog that the world is flat, does that make the world flat?

Bob,

I will agree we did not talk to same or similar companies. In years at Gartner i had conversations with at least 1200-1500 people each year, and i would estimate, without systems to keep records, at least 600-800 each year since.

The eight building blocks, one way or the other, showed up in successful projects and was absent in those that did not follow at least 80% of the times. Anecdotal data, of course, as I did not follow religiously tracking it.

So, it is not a white paper about the world being flat, it is over 12,000 conversations in reference to a framework that we know works. Maybe not for everyone in every situation, agree, and maybe there is a 20-30% of the market that has other problems that no framework can solve.

Still, I can probably point to around 5-6,000+ implementations that used the methodology and reached different levels of success.

So, will agree that we don’t see eye-to-eye, but not that the framework does not help people deploy successful solutions.

Thanks for the interesting conversation.

See, Esteban, two industry veterans like ourselves can’t agree on something as simple as what is CRM. That’s my point in a nutshell!

I’m not arguing that the frameworks don’t help. You have building blocks, I have five steps… every consultant has some methodology.

And all of us for 10+ years has said “CRM is a strategy” and talked about all these things endlessly.

Yet, the market still largely sees CRM differently… as a technology to buy and implement, not a strategy. Vendors like Salesforce.com, Siebel and many others have been marketing CRM as a solution and that’s how most business people understand the term.

It’s time to move on, because you and I can’t change market perception at this point. CRM is strategy only to the extent that it involves the implementation of CRM technology. Some may call that a business strategy, but I don’t.

And now the problem we’ve seen with CRM is happening again with Social CRM and Enterprise 2.0. Consultants say these are strategies, but the market is quickly defining them (thanks once again to vendor marketing) as solutions. Like Yogi Berra once said, “It’s dÉjÀ vu all over again”.

I guess the good news for industry players is everyone will make money selling either services or tools. As for businesses, that’s likely to be a very different outcome.

Bob – Interesting Post
Esteban – Interesting discussion

Bob – As you said to me recently, customers do not care about the debate. But that said, I do. Not for debate sake, but for the sake of clarity and to help vendors, analysts and consultants. Does it really help the customers, maybe, maybe not. Customers just want it to work, whatever it is, no matter what we call it.

The house analogy is a good one. While we do not have something called a house strategy, the builder does. Beyond even the blueprint and permits, a general contractor needs to make sure that the electrician and plumber shows up to discuss the structure, then after the framing, then after the drywall is up. Good finishing work can hide a lot of lousy construction too. Does the customer (homeowner) know that – maybe (my wife would) maybe not.

To me and the kids it is a home, yes. From an experience perspective, I want hot water when I shower, and I want the lights to turn on when I hit the switch. You could call that front office, I suppose not too much of a stretch. But, I will admit that if the plumbing was not done right, the water heater not connected I would have a poor experience. You could call it a product problem or a delivery problem. It could also be user error (the circuit breaker was not set, I used the wrong knobs). Ok, analogy only extends so far, I will stop.

The Audience is Important?

For a large enterprise, who delivers a physical product I agree that it is the combination of front office and back that is important. But, I believe that it is an over generalization to suggest that “much of what customers value comes from the so-called “back office” . Product creation and delivery most certainly start the process, I cannot disagree. But, value in use cannot be ignored – and it may be bigger, much bigger. I have had a washer which has needed to be fixed twice a year for the past 6 years. I have a couple cars which require the same, or more. I have computers, ipods, etc.,… where the front office is critical to my personal experience – no not just twitter, nor facebook, but wikis, portals, the phone (heaven forbid).

I know you have considered all of these things. You are not suggesting one without the other. I believe that there are many businesses where ERP takes a different form (think hospitality) and the value, experience is service. Then you have Telco, ERP is there, somehow, but it does not create product, it has a different function (or set of functions), it no more creates value than CRM does. Yes, it does manage people, but maybe even their function, but not what they do.

This is quite the conversation – probably better to have in person 🙂

-Mitch

Mitch Lieberman
President and CEO
Comity Technology Advisors
comityadvisors.com

Mitch, you make a great point. Maybe terms like CRM, Social CRM and the debate about strategy vs. technology is just for insiders.

I’d buy that, except that “CRM” is a very commonly accepted and used term. Most business people think of it as using technology to manage their customer/prospect data.

How could they not? Do a Google search on “CRM” and page 1 is filled with ads from vendors. Oracle says “Choose the Right CRM” and Salesforce claims it has “World’s Most Popular CRM.” I’m pretty sure I wasn’t using an insider’s version of Google — so regular business people looking for “CRM” can’t help be educated that CRM=technology.

Of course, in the English language words can mean several different things depending on how the word is used. CRM is like that, because consultants use it to mean strategy and vendors use it to mean the tools used to help execute the strategy. Unfortunately, most consultants don’t make it to page 1 of a Google search!

Since CRM can mean both strategy and tech, I really thing it should be expressed as “CRM strategy” and “CRM solution” to avoid confusion. Going back to Google, SAP’s ad says “SAP’s CRM Solution” and NetSuite’s ad says “Web-Based CRM Software” which I think is clear.

On the value question, you’re right that every company is different. The only way to know what the loyalty drivers are is to do the research. But in my research I’ve found a surprising consistency in the 40/40/20 split of product, experience and price. CRM tends to focus on the experience piece (customer interactions, generally) while ERP is concerned with the actual production, delivery, quality and cost of the product/service. So I think that ERP, broadly speaking, has more of a role in the customer’s ultimate value perception.

Of course if the ERP is optimized and there is competitive parity on product and cost, CRM may be where the attention is given to create differentiation.

I raise the point about ERP just to increase awareness that being customer-centric means paying attention to *all* of the things that customers value. ERP+CRM is a powerful combination, and shouldn’t be thought of as separate initiatives, in my view.

Indeed a very interesting conversation; I am definitely on Esteban’s camp but I also chalked a lot of the disagreement to semantics mismatch.

Want to add a point: Bob states in his original post: “value that customers, um, value comes not from the front-office and certainly not from the new trendy social front office such as Twitter, Facebook or online communities either.” However later in the same post he writes: “In my benchmark studies the past 10 years, over and over again I found that core products/services are worth about 40% of the value, experiences another 40% and price 20%. Your mileage may vary. ”

I do believe the 2nd quote is closer to my experience than the 1st one; indeed the value does not ONLY comes from the front office; but (as Bob stated in the 2nd quote) its contribution is just as important as the product/services themselves.

Filiberto Selvas

Great post Bob. I’m coming in a few days late, but I wanted to add some thoughts.

As Taiichi Ohno said, “The #1 thing customers want is value.”

I believe that customer expectations and core business performance are the two key drivers of a customer’s perceived value. See this post for my proposition on that topic: http://deliverbliss.com/2010/07/customer-experience-simplified/:

Having said that, CRM and ERP technologies must both be implemented to properly manage the strategies behind them. And yes, of course, there should be a strategy. As I tell all of my clients, technology is just a tool, it needs to be used in accordance with your goals. If I take away your axe and hand you a chainsaw without altering your process, then we aren’t going to get very far.

In regards to Esteban’s comment,

“In cases where CRM was considered a strategy, business plan, or whatever we may want to call a non-technology thing it succeeded.”

I would say that companies viewing CRM as a strategy first were not only more competent, but also more customer-centric to begin with, thus greatly increasing the chances of success of a CRM implementation. It’s not the process that creates success, rather it’s the company taking on the project.

The same is true for ERP projects, a company that truly wants a better tool to manage resources and automate processes is many times more likely to achieve success than one that is simply looking for a system to spit out their financials each period. I don’t need research to tell me that, I live it every day. Consultants aside, the success (ROI) of a software project is largely determined by the people USING the software, not the people that are developing/selling/implementing it.

I’ll sum up my late-night rambling with this: Customers want value. Value is delivered by listening to what your customers want (CRM) and delivering it to them in the most efficient manner possible (ERP). Being viewed as “customer-centric” will be a result of doing those things exceptionally well.

Bob –

So, are you saying that we need to give up talking about the process that Esteban highlighted about, where *success* is measured as achieving strategic (and hopefully customer centric goals), and focus on better project management so the software is installed on time and under budget?

Which one is success?

If I’m building or buying a home, it is the result of a strategic plan to provide my family a place to sleep, entertain themselves, study, whatever your life plan is. CRM *solutions* are equivalent to the outdoor kitchen. You built it because it’s your particular way to be neighbor-centric. For someone else, that neighbor-centric plan may look like an indoor wet bar and pool table. Vastly different implementations – and you can’t simply move buttons around on the screen to achieve one over the other.

So, are we to believe the pool table store salesman when he tells us it will change our lives and friends forever? What if my friends and neighbors don’t like to play pool? Oops.

To me, success is achieving higher level goals. Installing software is not a goal. Installing it successfully may be a minor goal in the bigger picture.

So, everyone, what are we doing? Giving up? I mean, if customer-centricity is CRM and ERP, we’re golden. Just need to fine tune those marketing and project plans. I didn’t realize it could be this easy and I’ve been doing it all along.

Mike Boysen
Effective CRM

Bob,

Great post and obviously a great discussion starter. I started my career and spent several years in the world of ERP before transitioning my primary focus to the front office more than a decade ago.

Customer Focused business (I don’t like the term customer centric) is about understanding who your customers are, what they are trying to do, and delivering it in a way that exceeds exceeds expectations.

Obviously there are several things required to do this:

(1) Understand who your customers are
(2) Understand what they are trying to do
(3) Propose a value offering
(4) Get commitment
(5) Deliver the value offering in exchange for compensation
(6) Evaluate, get feedback – start again

1-4 are typically front office activities, while #5 is executed by the back office. #6 is critical for both front and back office personnel.

The primary difference between front and back office is that most everything happening in the back office is transactional. A movement of a good between locations. A purchase. A manufacturing step. A sale. ERP is a transactional system.

CRM includes conversations about many things that could or should happen. It includes meetings, activities, forecasts, etc.

Both are important enables of understanding, creating, and delivering a fantastic customer experience.

But to counter the technology point, ERP grew out of MRP II (Manufacturing Requirements Planning), which built on top of MRP (Material Resource Planning) originally formed in the 1960s.

These were all initially concepts, strategies, and methodologies.

In the 1970s, SAP and BaaN (and later Oracle, JD Edwards, and Peoplesoft) were formed to help enable the new strategies and processes with software and technology that utilized mathematical computations to optimize the manufacturing and distribution process(es).

ERP was born out of the need to extend the concepts (and technology from the vendors) beyond manufacturing and into the service and non-manufacturing companies.

This is similar to the journey we experienced on the road to CRM and Social CRM.

In both cases, there are underlying business concepts and principles that are enabled through the use of technology. Like Bob points out above, ERP is not the same as ERP software, and CRM is not the same as CRM software. They work together, but software or any technology doesn’t solve any problems by itself.

You could take the concepts of ERP or CRM and run your business on Excel if you wanted to. It likely wouldn’t be the best use of technology to get the jobs done.

In the end, a great customer experience is what drives corporate success. The only way to make that happen is an agile alignment of the companies’ entire value chain to meet customer jobs, wants, needs, and desires. Doing this in a way that creates value for internal and external stakeholders is the challenge and opportunity, and CRM and ERP systems/solutions/technology are valuable enablers in making that happen.

Thanks, Brian. Excellent perspective on ERP. I didn’t realize the term had gone through the same vendor “highjacking” as CRM.

Today, ERP is synonymous with the tools. Unfortunately, despite a lot of good work by many experts like yourself, CRM has gone the same route.

I agree with your point that a “great customer experience” drives success, but only if customer experience is used in a very broad context including interacting with the product too. Unfortunately, customer experience has been too narrowly viewed as just interactions with the people (e.g. front line workers) or systems (self-service, ATM, etc.). But with some products (think luxury cars, iPhones, etc.) the experience of using the product can be worth more than the functional value (transportation, making a call).

I think you are spot on in saying that success means “an agile alignment of the companies’ entire value chain to meet customer jobs, wants, needs, and desires.” CRM clearly plays a key role, but my original point was simply to not forget ERP. It’s part of that value chain, after all.

No Mike, I’m not saying give up. I am saying be realistic.

Understand that when you say “CRM” it may mean strategy to you, but to the listener, conditioned by many other industry forces and media, may hear something else.

If consultants would say “CRM strategy” and vendors “CRM solution” I think it would help a lot.

I am also saying that CRM, however you define it, is not the end-all-be-all for customer-centricity (delivering value customers care about). ERP is part of that, too, so don’t assume fixing the “front office” is all that’s required to earn loyalty.

If you can use ERP in a way that benefits the customer and distributor alike, that’s the best scenario.

I agree that you need both ERP+CRM to really be working at your maximum level of effectiveness as a company. I also wouldn’t underrate that hot cousin, as you put it, social CRM and I agree that it should not be the stodgy executives working on that.