Making the most of CRM

pharmafile | March 4, 2004 | Feature | |   

In recent years, pharma companies have spent considerable sums on introducing customer relationship management (CRM). However, our research into the customer management programmes of leading UK pharma companies suggests there is a serious risk that these investments will fail to deliver significant business benefit.

In particular, there are serious weaknesses both in the strategies underlying these  programmes and in the approach to implementing customer management within their organisations.

Acquiring customers is an expensive business. The longer a company can retain the business of hard-won customers, the greater the return it can achieve on the typically sizeable investment it made to acquire them originally. This is the goal of CRM. Moreover, the potential gains are great. Repeated cross-industry studies indicate that increasing the number of customers a company retains each year by just 5% can increase contribution to shareholder value by 40 to 95% (depending on the industry concerned).

Running a successful CRM programme

Relationships are by nature two-way affairs: if companies want increased customer loyalty and the financial benefits that brings, they need to offer their customers something in return. In other words, there are two key issues that an effective CRM programme needs to address:

• The value a company offers to customers to retain their business for longer.
• The value the company gains from increased customer loyalty.

Worryingly, pharma companies appear to be falling short on both counts.

The value programmes are delivering to customers

When developing CRM programmes pharma companies are largely focusing on automating existing sales processes, salesforce targeting and sharing intelligence between sales representatives. Little attention seems to be paid to how the programme will generate additional value for customers to secure an increase in their loyalty. With programmes not delivering significantly increased value in customers' eyes, it is difficult to see how they can succeed in attracting the increased level of business needed to justify the hefty investments typically involved.

Yet the need for customer-facing activity to deliver increased value to customers has never been greater. The number of sales representatives continues to rise as does the volume of advertising and direct mail aimed at customers.

Meanwhile, the time customers have available in which to see company representatives or read promotional literature is decreasing. Moreover, with companies increasingly developing products in similar treatment areas using similar technologies, the time which any product enjoys unique superiority over competitor is shortening.

Increasingly, salesforce targeting may succeed in a sales representative calling on the right customer but unless their visit actually creates value for the customer, they are increasingly unlikely to make it through the door.

Programmes deliver  value to companies

Customers differ in the value they provide to a company: some generate extensive sales across the company's product portfolio, are poised for major growth and generate substantial profit, once costs incurred in serving them are deducted from revenue generated. In contrast, others may produce far less sales, have little growth potential and result in a net loss for the company.

Clearly a company will maximise shareholder value if it can focus on acquiring and retaining the more profitable of its customers. However, the CRM programmes of the companies studied appeared to have been developed without such a level of discrimination, targeting customers across the board rather than specifically targeting the company most profitable customers.

Consequently, these programmes have inevitably led to additional resources being diverted to serve low value customers, decreasing their value still further and consuming resources that could otherwise be used to target customers offering far greater returns. The overall effect is to substantially undermine the returns CRM programmes are likely to achieve.

The companies studied also faced further problems in focusing their CRM programmes on those customers offering the greatest returns. Traditionally pharma companies have managed their operations by dividing the organisation into a series of stand alone product P&L accounts.

However, a customer's value to an organisation lies in the sales they generate across the company product portfolio. Consequently such an approach can systematically fail to identify the full value different customers represent.

Although the companies studied tended to have measures for the value customers represented to individual brands, none of the companies appeared to have consolidated these to determine those customers representing the greatest value to the organisation overall.

Set appropriate financial objectives

The bases on which financial objectives are being set for CRM programmes also appear problematic. Typically the companies studied had based them either on the cost of the system plus some targeted rate of return or on the achievement of some arbitrary percentage increase in sales. Worryingly, none appeared to have based them on the observed results of prior small-scale trials.

The risk is that not only will the programmes' objectives prove unrealistic in practice, but with no empirical basis for assessing the market potential response to a programme, it becomes impossible to determine the appropriate level of investment. Thus, if a company underestimates the market response, it may invest insufficient resources to capture the full benefit. Similarly, if a company overestimates a programme potential, it may invest more than is merited. Either way, shareholder value will be destroyed.

Implement CRM strategy across the company

However elegant a strategy, it is of little value if it is not implemented effectively. As well as these weaknesses in strategy, companies are also failing to address critical areas when attempting to introduce customer management into their organisations.

The companies studied typically managed their activities by dividing the organisation into a series of product or functional departments, or silos, each responsible for achieving its own objectives.

However, the value a customer derives from a company arises from across its operations, with different parts of the business meeting the customer's assorted needs.

With different parts of the business charged with achieving their own objectives and operating largely independently, it is difficult to co-ordinate activity to ensure the customer range of needs is met.

Each silo may monitor its performance in achieving its own objectives, but such a structure lacks any control systems to track the company's performance in meeting the needs of targeted customers overall.

If a company is to successfully focus on delivering value to the customers targeted in its CRM programme, it needs to co-ordinate activity across the company to deliver the range of benefits they are seeking, monitoring its performance to identify areas for future improvement.

However, such structures were absent in the companies studied. Although these companies typically had posts like account manager or customer manager, these were chiefly concerned with conveying sales messages to the customer rather than with managing the company's overall performance in generating value.

CRM involves a fundamental change in how companies approach the management of their business. However, implementing structural change will, on its own, not be enough to implement customer management effectively. Securing adoption of the new ways of working requires other critical areas of the business to be addressed.

Measure performance to get results

As the old adage goes: "What gets measured, gets managed." If a company is to move from managing its activities in isolated silos to co-ordinating activity across the company to ensure that the assorted needs of targeted customers are met, it needs to make corresponding changes to the performance objectives set within the business.

However, many of the companies studied continued to assess the different parts of the business solely on measures of stand alone product or functional performance, providing little incentive for them to collaborate with other parts of the business in the ways desired.

With each part of the business naturally focusing on areas maximising individual performance, immense resistance is inevitable if one attempts to get them to collaborate and invest resources in issues not linked to their own performance.

The CRM working strategy and methods will also require changes in the roles individual employees are required to play. Companies similarly need to identify such changes and ensure that the bases upon which staff are assessed are aligned with the new behaviours required. However, this also appears to be an area companies are neglecting. To use a simple example, many companies are naturally relying upon sales representatives to source information about customers but continue to assess them solely upon call rates and sales generated. However, this places sales representatives in an impossible position. Performing this role can only be done at the expense of the time they spend on the activity on which they are primarily assessed, namely selling.

Not surprisingly, such companies are encountering immense resistance from sales representatives to performing this additional role and the quality of the data gained is frequently poor.

Power in a company tends to surround those individuals or functions that have made the greatest contribution to the organisation's established ways of working and its past successes. Consequently, attempts at changing how a business manages its operations can quickly come into conflict with those who have the power to stop the project in its tracks.

Manage the issue of internal politics

However, the companies studied were failing to manage the politics surrounding their CRM programmes adequately. For example, there was often little unity of vision amongst senior management with no agreed quantified business plan and little consensus on what its implementation would involve. With such potentially diverse views on the role CRM is to play in the business, there is immense potential for conflict and overwhelming resistance when major power bases find their particular expectations are not being met.

Change the organisation's culture for success

Companies are full of features that serve to communicate to staff what is expected of them and how things are done within the company. Awards, stories about key figures in the company past and even the layout of office buildings all reinforce particular ways of thinking about the business and behaviour.

However, companies appear to be neglecting this area when introducing their CRM programmes. For example, when visiting company offices we repeatedly encountered reception areas featuring displays of the company's individual products.

The implication for anyone working within the company would clearly be that the business was about the performance characteristics of individual products and the management of individual brands. Nowhere were there displays featuring high value customers and accounts of how the company as a whole was working together to meet their assorted needs and deliver greater value than competitors with comparable products.

By failing to align such symbolic aspects of organisational life with their customer management programme, companies are not merely overlooking a useful tool for influencing staff behaviour. They also risk sending staff conflicting messages about what is expected of them. At best this may cause confusion but at worst risks suggesting that the traditional silo-based management approach is what ultimately matters and that CRM is an initiative of only peripheral significance.

Revisit the programme  underlying strategies

Pharma companies appear to be underestimating the level of change involved in introducing customer management. Many are simply relying upon end-user IT training and workshops to raise staff awareness of customer management principles to support the introduction of the new ways of working involved. Unless they also attend to the more fundamental issues of structure, performance metrics, politics and culture, they are unlikely to succeed in implementing and making operational their customer management strategy effectively and will achieve little benefit.

However, before turning to questions of implementation, companies need to revisit the underlying strategy their programmes are designed to achieve to ensure they are targeting those customers offering the greatest potential returns with an offer that delivers sufficiently increased value to increase the company hold on the business they generate.

CRM is a powerful means of increasing shareholder value. However, if it is pursued without rigorously addressing these complex issues, it can be an equally effective way of destroying it too.