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Whatever happened to CRM and the idea of treasuring the customer?

Customer Relationship Management | Whatever happened to customer relationship management (CRM) and the idea of treasuring the customer? Anthony Harrington

Just about the time we were all going through the bubble phase of the dot.com era, a time when technology had an extremely favorable wind behind it, a mid to big business IT solution that had been gaining traction for years really took off. This was customer relationship management, or CRM.

The basic idea was simple. Small businesses knew their customers. Medium to big business lost touch with customers and tended to focus on all the wrong things, such as the amount of revenue a customer was generating. Usually the company concerned had no way of matching that revenue closely to costs, so there were any number of instances where a supposedly key customer was actually a resource hog for the company and generated either marginal profit or a real loss, so the company was simply being a busy fool.

Another key driver for CRM was the indisputable fact that it is far cheaper to hold on to an existing customer than it is to find a new customer. Remember that the initial impetus for CRM coincided, not accidentally no doubt, with the arrival of the internet and the sense that your customer was only one click away from being someone else’s customer.

Still a third driver was the ability to increase “wallet share.” If you knew your history with a customer then opportunities would arise to up-sell or cross-sell, or to generate revenue by partnering with other companies to cross sell to your customer. This was more a consumer-facing thing than a business-to-business line, but similar reasoning applied in this case too.

What CRM set out to do was to reshape corporate IT systems with the customer at the centre, so all the key facts, such as the cost of maintaining and servicing the customer, key communications with the customer, current activity, and profit margin were all instantly visible. The often repeated mantra from the big IT enterprise systems providers such as SAP and Oracle was that in order to implement Customer Relationship Management organizations had to reinvent themselves with the customer at the centre. Tens of millions of dollars/pounds/euros/yen got spent on this and the surveys tended to show that it had some success. Putting the customer first did generate better profits, which is not wholly surprising, and CRM projects often did generate real and acceptable ROI, in contrast to many other large-scale IT projects.

So the question then is, how did we get from putting the customer first, to the largest banks in the US and the major ratings agencies adopting the “hang the customer, where’s the profit?” approach that characterized the months preceding the Big Crash? What happened to the idea of Customer Relationship Management and building a long term beneficial relationship with the customer?

As an example of just how far the principles behind CRM got left behind in the dash for short-term returns, consider the case of Goldman Sachs, as analyzed on the Naked Capitalism blog:

“…it is becoming pretty clear that Goldman, contrary to its sanctimonious twaddle about putting clients first, actually puts its fees first. This should come as no surprise to anyone who had dealt with the industry; indeed, any other behaviour would be surprising. Transaction-based revenues, not surprisingly, induce participants to complete more trades, the bigger and higher (the) margin, the better. The old-school style of cultivating relationships and taking a protective posture towards clients went out of fashion in the age of the dinosaurs, meaning roughly the 1980s.”

One of the good things about knowing where things have gone badly wrong is that it presents an opportunity to put them right again. The trading side of the financial services industry needs not just risk management but governance. It needs to be reminded that it is trading for a purpose, the ultimate purpose being the long-term existence of the company—and there is no such long-term existence without the customer.

Further reading on Customer Relationship Management, CRM and effective IT



Tags: banking , customer relationship management , financial crisis , information technology
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