Are your CRM undertakings lost in a sea

of failed or uncompleted projects?

CRM Failure and the

Seven Deadly Sins

BY SUDHIR H. KALE

Were all

familiar with the seven deadly sinsgluttony, sloth, pride,

lust, envy, anger, and greed. Yet the awareness of these sins has not prevented some of the
spectacular corporate excesses that we have witnessed in recent times with the likes of
Enron, Arthur Andersen, and WorldCom. When it comes to specific projects such as customer relationship management (CRM), most executives arent even aware of the sins that
could potentially spell disaster for their careers and for the company.
Thomas Carlyle, the influential Victorian writer, once said that the greatest of human faults
is to be conscious of none. This maxim is particularly applicable to the CRM projects that are
so eagerly embraced by many companies all over the world. With worldwide expenditures on
CRM rapidly approaching the $100 billion mark, its time to understand what accounts for so

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Losing sight
of customers

Focusing solely
on technology

Ignoring customer
lifetime value

Lack of
management
support
Undervaluing
data analysis

Underestimating
change
management

Inflexible
business
processes

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43

EXECUTIVE

Done properly, customer relationship management (CRM) results in business relationships

briefing

that bestow a source of sustainable competitive advantage. Yet most organizations report
dismal results from CRM initiatives. Successful CRM initiatives should steer clear of the

seven deadly sins in CRM implementation: viewing CRM as a technology initiative, lacking customer-centric vision, not
understanding customer lifetime value, having inadequate top management support, underestimating the change management involved, not re-engineering business processes, and underestimating the difficulties in data mining and data
integration.

many failures in the CRM arena. Estimates of CRM projects

failing to achieve their objectives range anywhere from 60% to
80%. Visit any software systems graveyard and youll find
remains of abandoned or incomplete CRM projects.
Brainchildren of top consulting firms and Fortune 500 companies, these CRM undertakings represent a disproportionate
amount of the skeletal remains of failed IT ventures.
What is it about CRM that makes it so susceptible to failure? What mistakes are made along the way that cause so
many CRM projects to falter? In the January/February 2002
issue of Marketing Management, Lawrence Crosby and Sheree
L. Johnson write, The companys effectiveness in building
customer relationships simply depends on too many largescale, organization-wide enabling conditions to be considered
anything but a business strategy. In other words, CRM mandates a synergistic combination of interdepartmentally construed strategies, programs, and processes. It is the weakest
link in this combination that will determine the ultimate success or failure of CRM. The reasons for this are many. We shall
restrict ourselves here to the seven most common blunders.
Here, then, are seven takeaway keys to avoid failure.
The reasons for unsatisfactory CRM outcome are (1) viewing
CRM initiative as a technology initiative; (2) lack of customercentric vision; (3) insufficient appreciation of customer lifetime
value; (4) inadequate support from top management; (5) underestimating the importance of change management; (6) failing to
re-engineer business processes; and (7) underestimating the difficulties involved in data mining and data integration.

Conceptualizing CRM as Technology

The feedback I receive at many marketing conferences suggests that most managers view CRM as the technological
magic bullet that will dramatically improve their bottom line.
Nothing could be farther from reality. CRM, devoid of its portrayal as a panacea for all the inefficiencies of business, is
nothing but the practice of the old-fashioned marketing concept with a view to maximizing the retention of your valued
customers. Information technology is the conduit that aids in
practicing and perfecting your marketing practices but, in and
of itself, technology does little to further customer retention.
Its the internal customers of a company (i.e., your employees)
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who bring about customer retention, not technology. Thats

why we see superior people achieving quite outstanding
results even with mediocre technology. Mediocre people
invariably deliver mediocre results regardless of the technological superiority at hand.
Companies, enamored by the technological prowess of
their CRM systems, invariably get distracted from the tasks
that the technology is supposed to perform. Attention shifts
from the people providing the technology to the features of
technology. The result is that the IT department, not marketing, is given the implicit mandate of coming up with an optimal strategy. Given the lack of understanding of customers
and markets, people within IT invariably get lost in volumes
of customer data void of strategic insights. As one expert at a
2002 Insight CRM seminar concluded, Hunting dogs can be
thrown off a scent by dragging a pungent fish across their
path. Just as easily, companies trying to understand their customers better can head off in the wrong direction because they
have been distracted by the powerful technological capabilities of customer relationship management systems.

Customer-Centric Vision
According to a Mercer marketplace survey, Establishing
and maintaining customer relationships will be the single
greatest source of competitive advantage in the 21st century.
Companies have had to shift drastically from the old ways of
market penetration to this new wave of customer-centric mentality in order to remain competitive. While most CEOs and
marketing professionals espouse the mantra of customer is
king, true customer-centric vision is seldom seen reflected in
their corporate vision. When it comes to CRM projects, companies often forget that the C in CRM stands for customer.
Consequently, they realize that their CRM projects dont yield
the results so eagerly anticipated.
In his recent book, Why CRM Doesnt Work (Bloomberg
Press, 2003), Fred Newell demonstrates how many CRM initiatives fail because the idea of customer-centricity is at odds
with the way many companies work. Surveys of CRM users
attest to the soundness of Newells diagnosis. A 2002 survey
of 219 IT professionals by DMR Consulting revealed that the
ability of a company to be customer-centric requires much

more than CRM software. In fact, nearly two-thirds of companies with CRM software were apparently no closer to being
customer-centric than they were before they installed the software packages. More importantly, the survey revealed that,
while non-customer-centric companies met an average of just
53% of their stated goals for the project, companies rated as
being customer-centric met 71% of their implementation goals.
Clearly, the vision of customer-centrism, which involves an indepth customer understanding and an overriding desire to
create a consistent experience for valued customers across all
functions, divisions, and communication channels, needs to be
the prime driver of CRM projects.

Customer Lifetime Value

Relationship marketing constitutes a shift in marketing
practice away from transactions and toward customer relationships. The premise behind this shift is that, as a result of
exchange efficiencies, long-term relationships are more
profitable than short-term relationships.
However, the CRM strategy should
explicitly recognize that not all
relationships are equally profitable or desirable. The
focus of CRM should be
on serving those customers the best that
have the potential of
delivering the highest lifetime value to
the firm.
Customer lifetime
value (LTV) is the estimated profitability of a
customer over the course
of his or her entire relationship with a company. A recent
study by Deloitte Consulting
shows that companies who understand
customer value are 60% more profitable than
those that dont. Thus, understanding and correctly applying
LTV is an important factor in increasing a companys profits.
The Pareto Rule, which states that 20% of a firms customers generate as much as 80% of its profits, applies in most
B2B exchanges. In a recent study, researcher Lisa Watson and I
discovered that similar situations also occur in consumer markets. In our analysis of the Australian casino industry, we
found that a mere 3% of table game customers in casinos generate approximately 90% of all table game revenues! Harrahs,
one of the most successful gaming companies in the world,
successfully capitalizes on the lifetime value concept in its
widely touted CRM system. Using players clubs (similar to
airline frequent-flier programs), the company categorizes its
26 million customers into three levels based on lifetime value:
gold, platinum, and diamond. The bulk of the companys mar-

keting attention is then devoted to the diamond-level customers because those players provide 85% of Harrahs revenues. According to Gary Loveman, a former professor at
Harvard Business School and now the CEO of Harrahs, the
company has thus far spent $500 million on its CRM project
and continues to spend $60 million each year on its maintenance. Loveman attests to the payoff of this investment, as do
financial analysts, investors, and gaming experts.
In order for a company to structure its CRM strategy
around customer lifetime value, accurate data on the revenues
as well as costs of servicing various customers are needed.
This is precisely the principle of activity-based costing (ABC).
ABC recognizes that customers are the cause of all business
activities. In order to assess the exact costs associated with a
customer relationship, ABC seeks to compute the costs of relationship-specific resources deployed in serving that customer.

Management Issues
Executives at the very top need to
assume ownership of the CRM project in order for it to succeed.
Without support and commitment from top management, even the most
brilliant CRM undertaking is doomed to
failure. Support for
CRM is needed in
order for the initiative to get off the
ground. Without
commitment from top
management, the CRM
vision is unlikely to survive the implementation
process intact.
According to a 2002 Accenture
survey, while business executives overwhelmingly agree that technology has helped
them strengthen relationships with their customers, more than
half (55%) say that CRM shortfalls can be attributed in part to
inadequate support from top management.
CRM experts Kevin Murtha and Joe Foley observe that If
you dont experience change, you are not going about CRM
the right way. Proactive change management is by far the
biggest component of CRM success. Effective change management involves a focused internal marketing initiativeselling
the vision of change before it is made to happen.
Investing in a CRM program is not going to make a nonmarketing driven organization customer-focused overnight.
Rigby et al suggest that job descriptions, performance measures, compensation systems, and training programs all need
to be made customer-centric before any investment is made in
CRM technology. Our own research on CRM failures suggests

With worldwide

expenditures on CRM
rapidly approaching the
$100 billion mark, its time
to understand what accounts
for so many failures in the
CRM arena.

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that lack of adequate change management was the primary

cause of failure in 87% of the cases investigated. These findings suggest that without a true customer-centric, outside-in
corporate culture in place, the best CRM software is doomed.
Initiators of CRM often forget that its the people within
the organization who make CRM a success. People need to be
inculcated in customer service skills and the purpose and
functions of CRM. They also must be prepared for the technological changes that will invariably affect the way they work.
When it comes to change management, especially training,
two protocols need to be in place. The first involves the culture change so essential to make the organization customercentric and ready for CRM. Since employees are the ones who
develop relationships with the customers, they need to be
trained in the art of interacting, influencing, and servicing customers to optimal effect. The second protocol involves technological readiness. Change management along this vector
involves soliciting inputs from all employees as to how they
see the CRM strategy in action. In light of new technology,
CRM processes will need to be re-engineered. In the absence
of maximum buy-in from internal customers (the employees),
any CRM undertaking will invariably falter.

Re-engineering Processes
A vital aspect of CRM is the embodiment of all processes
that take place between an enterprise and its customers in the
supply chain. Any company adopting CRM will have to
expend considerable resources in the re-engineering of its
processes. This applies to processes visible to the consumer as
well as those commonly classified as back office processes. A
2001 report by Gartner Research attests that, in any CRM
application, the relationship with the customer needs to be
viewed and managed in terms of the customer life cycle and
formalized processes need to be in place to manage that life
cycle. Furthermore, processes need to be created or re-engineered for creating customer insight and leveraging it during
customer interactions. To quote from the Gartner report,
CRM calls for a fresh approach to business processes,
rethinking how they appear to the customer and re-engineering them to be more customer-centric and deliver greater customer value.
CRM processes are a true test of whether a company is as
customer-centric as it claims to be. In process re-engineering, a
prioritization of processes is undertaken since not all processes would matter equally to the customer. However, all
processes that are set in place should support the customer
value proposition.
In embarking on CRM, a company should start out by
reviewing all major business processes within the organization. This will enable it to understand and highlight those
processes that could be performed better with the aid of technology. The re-engineering effort should always be cognizant
of the people performing the processes. If users are incapable
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or unwilling to perform the processes in their re-engineered

form, the whole CRM endeavor will collapse. The persontechnology fit is of essence, hence the need for change management and training.

Data Mining and Integration

In any organization, heaps of ever-changing customer data
reside in various places, from legacy systems and back-office
databases to enterprise resource planning (ERP) implementations and CRM applications. These data need to be analyzed
in order for them to have any predictive, causal, or diagnostic
value. This is the task of data mining. Data integration, on the
other hand, deals with being able to link all customer data
scattered across the organization and making these data available to a user so as to give the service provider a 360-degree
view of the customer in real time.
A recent article in InfoWorld magazine focused on how
most CRM users are now realizing that integration holds the
key to unlocking CRMs full potential, but are finding the
journey quite arduous. In order to facilitate both data mining
and data integration, a firm needs to precisely ascertain what
knowledge about customers is required in order for it to
retain, grow, and delight its most valued customers. Data collection fields and software applications can then be chosen to
convert customer information into knowledge. Making this
knowledge available to all employees who need it, in real
time, is a major challenge in data integration.

Securing Loyal Customers

Locking in valuable customer relationships is increasingly
emerging as the most prized strategic capability a firm can
possibly have. CRM, when correctly visualized and implemented, can uniquely provide an organization with this
strategic capability. The seven deadly sins discussed here
encapsulate the experiences of companies banished from CRM
heaven. Those desirous of a virtuous CRM implementation
are well advised to stay clear of these transgressions.
CRM could provide you with a valuable asset that does not
appear on the balance sheet, but is, nonetheless, essential for
survival in todays competitive world. This asset is loyalty on
the part of your most valued customers. In the words of W.
Edwards Deming, it will not suffice to have customers that
are merely satisfied. Satisfied customers switch, for no good
reason, just to try something else. Why not? Profit and growth
come from customers that can boast about your product or
servicethe loyal customer. He requires no advertising or
other persuasion and he brings a friend with him.

About the Author

Sudhir H. Kale is associate professor and chair of the marketing department at Bond Universitys School of Business, Gold
Coast, Queensland, Australia. He may be reached at
skale@staff.bond.edu.au.