Is ROI the Right Measure for CRM?

Graham Hill
Guru
Member

Posted 29-Jan-2006 05:19 AM
Fellow CRMers

This post is a spin-off from another on the role of business in CRM implementation.

CRM IS BUSINESS
It should now be painfully obvious not only that business should be fully involved during CRM implementation, but also that CRM implementation will deservedly fail if it isn't.

In reality, the business should be involved in any CRM project from the start through to the finish. CRM is fundementally about how you carry out the customer-facing parts of business after all, not just about IT/IS implementation!

There is an even more fundamental reason why business should be involved in CRM all the way through and it goes to the heart of how CRM projects are managed & measured.

CRM AS A CORPORATE CAPITAL INVESTMENT
In the past, most CRM projects were managed & measured as corporate capital expenditure projects. And most of the capital was spent on a combination of IT/IS and systems integration consulting. These projects were designed as stand-alone projects, managed likje corporate R&D and measured through the ROI they generated at some point in the future, typically three-years hence.

ROI IS FUNDAMENTALLY FLAWED
With the benefit of hindsight, I believe this to have been a FUNDAMENTAL FLAW in the management of CRM. The flaw is that ROI forces managers to concentrate on the future returns of the finished CRM project, rather than on generating cashflows continuously through step-by-step improvements in CRM. And the flaw is still dooming many CRM projects to failure in your typical risk-averse corporation.

CRM AS A VENTURE CAPITAL INVESTMENT
For some years, I have been setting-up CRM projects as corporate venture capital projects rather than corporate capital expenditure ones. The project are designed to deliver cashflow as quickly as possible. This is achieved using a "bootstrapping" approach to making investments in the project only as and when required, getting CRM in use by the business when it is "good enough" to be deployed rather than waiting until it is perfect, piloting each wave of CRM capability developments before industrialising those that really work well, involving the business CRM's continuouus development and above all, concentrating on generating incremental cashflow now rather than ROI later.

CRM projects structured as corporate capital investments have a poor record compared to those structured as venture capital investment projects.

BOOTSTRAPPING
There is plenty written on the process of bootstrapping, but Guy Kawasaki is particularly good on this topic. See his 26th Jan posting on the Art of Bootsrapping on his blog "Let the Good Times Roll" at http://blog.guykawasaki.com/ for more details, or his book, "The Art of the Start".

What do you think?
Is ROI the right measure for CRM, or is cashflow a better one?

Feel free to add to the discussion.

Graham Hill
Independent CRM Consultant

CRM Coach
Member
Picture of CRM Coach

Posted 30-Jan-2006 07:36 PM

Great topic!!

I advise companies to implement CRM in a series of what I call "High-Win" projects...projects that are high in pay-off and low in complexity. Sounds similar to what you're suggesting Graham.

However, for smaller and even medium sized businesses, the initial outlay of capital to put in server infrastructure and purchase initial licenses becomes a capital expense.

This is one of the appeals and indeed selling points for on-demand solutions which seem to be sprouting up continuously...However, their costs can certainly add up within a 2 year window and I've seen them easily become more expensive than had the company outright bought the licenses and paid yearly maintenance.

I'd love to hear others' thoughts on this...this could be a very interesting idea to explore.

Scott Gingrich
The CRM Coach
(519) 538-4619
Author of the "Insider's CRM Success Toolkit" that holds nothing back and gives you the hands-on detail you need to succeed with CRM. Free reports with Insider CRM Street Smarts.
http://www.thecrmcoach.com

Robin Dua
Member

Posted 12-Feb-2006 07:16 AM

Actually while forming the business case which will determine the risks and the benefits of the CRM program, the organization should be intelligent to assess and evaluate that the CRM technology being implemented is "good enough" to be deployed in few areas where they think it is strategically important that the technology can leverage their financial gains. A strategic group should be formed which should include guys from top management as well as from different functional groups of the organization. The strategic group should also include some guys from the IT consulting group who can decide as and when required to go for CRM implementations into different cross functional groups of the organization. This group should also review and audit the different functional business processes and determine what and how things should be measured (ROI and ROR).

The group should identify how the ROI is being measured currently (w/o IT) and discuss this with the IT guys and chalk out a plan that how this should be taken into the business case for the CRM implementation program and come out with the final ROI measurement plan (with CRM tech.). All this require experienced staff in the strategic group and should report to a manager (Chief Investment Officer) (CIO) directly responsible for all the investments going on in the organizations.

The comparison between corporate capital investments and venture capital investment projects could be initially sought out in our discussion. I feel that CRM technology investment won't pay immediately in companies that do not have a concrete sales, marketing, services strategies. Technology is an underlying force that is a medium to achieve the desired goals on CRM initiative. Venture capital investments are a good option but could seriously affect the options of a company to get the desired ROI which has solid strategies currently but fail to achieve immediate gains initially due to bad planning. "Making a quick buck should not be the aim" and entry of venture capitalists into technology initiative is could undermine the cause and the returns for which the CRM technology initiatives were taken initially. Also if this trend is started then the venture capitalist should not move out in case the technology fails to deliver in first go. He should sit with the strategic group and come out with a suitable plan and find out what were the weak areas strategically and need to improve there.