Integrating the Back with the Front-Still Not Too Shabby - Customer Relationship Management

If we’re in an era where engaging the customer with the company and its partners in a collaboration is becoming important,is there any value in cleaning up the supply chain in the way that P&G did? It seems so . . . incremental at this point.

The answer is “Yes,there is.” According to Benchmarking Partners,inventory being held by retailers at any single moment is approximately $1 trillion. This is based on U.S. Department of Commerce data. If planning,forecasting,and replenishment were improved,the inventory could be reduced by $150 to $200 billion (in other words,15 to 20 percent). That’s just for the SCM changes. Imagine if you were able to forecast customer demand and understand customer behavior,making far more sophisticated analyses. But the return doesn’t stop there. CRM/SCM integration provides a measurable return on a number of key indicators that don’t apply to just CRM or just SCM. AMR Research identified them in a report on the benefits of this integration in March 2003:

  • Shorter order cycle times—decrease up to 65 percent
  • Increased order accuracy—up to 100 percent improvement
  • Incomplete orders—reduced by 20 percent
  • Fewer order status calls weekly—up to 86 percent
  • Inventory costs—10 percent reduction in sales inventory days
  • Enterprise spend—5 to 10 percent savings on the cost of goods

There’s something to be said with results that are this blatantly good. But there is something else that shouldn’t be ignored. These numbers,from 2003,are the most recent numbers easily available. While the ROI is there,the conversation is starting to diminish around this because it’s escalating about customer engagement. Yet,back and front office integration is something with an undeniable benefit.

The Next Step: Value Chain Integration
Back and front office integration is only one kind of integration with benefits available to an enterprise. Let’s take it a step further (or deeper,depending on your metaphor inclination).

Value chain integration is the evolution from a series of linearly interlinked processes that had historically been isolated from each other,to a smoothly functioning integrated business model that is effectively a single link from multiple parts of the enterprise. CRM,SCM,ERP,and a strategy for product lifecycle management (not covered here) will provide a complete “system” for a refreshed look at the new enterprise and what it needs.

Imagine this scenario. You made a decision to take your company to new revenue heights. To do this,you decided that you had to move from a product-out-the-door sales plan to a voice-of-the-customer strategy. You formulated a CRM strategy and included all the right elements. To gain some early credence among your colleagues,and to solve some immediate issues,you took care of the first damaged area: sales. You developed new compensation plans based on customer satisfaction ratings for the salespeople. You implemented a new SFA solution that reduced administrative time and improved the real-time access to customer and competitive information. Pricing customization was now easier.

You had amazing results. Your product sales numbers improved by 45 percent. Your sales teams had 17 percent more time with customers,gratifying the customers,because administration and attention were that much more efficient. Things were going great,weren’t they?

Sure. CRM strategy aimed at the front end alone worked wonderfully-for a little while. But where were those products to be delivered coming from? How fast were they getting out the door? Did you (and do you) have sufficient inventory to meet the demands of the increased sales? How were you going to schedule the delivery of those products so that customers who ordered them received them in a timely way? If the sales numbers were that improved,the strain on the supply chain had to be enormous,because it is likely you didn’t make any fundamental changes to the organization of the supply chain. After all,this was a CRM sales force automation initiative,wasn’t it? Backlogged orders needed to be entered into the financial system,but they were straining the staff because no new employees were hired to enter the data properly. Employees had to work overtime to meet the load created by the success of the CRM strategy and the application of the SFA tools. As time moved on,you began to fail to follow through on orders,delivery was routinely late for your items,and orders fell off precipitously as customer satisfaction with your company declined,even though the customers liked the salespeople personally and admired their effectiveness. Before long,the success kills you.

The lesson:Don’t be successful! (Just kidding.)
The real lesson is that a CRM strategy in the new world customer ecosystem is merely the forward facing part of an encompassing collaborative enterprise strategy,whether you are a behemoth or a mosquito-sized company.

Integration Challenges
The challenges of linking the demand and supply chains are substantial,and the failure of any one segment can have catastrophic efforts on your customer. The most formidable problem comes when the supply chain and the demand chain are each seen (and thus organized) as a discrete set of processes and practices that are uniquely optimized. The relationship between them has been parallel at best,not integrated. For example,supply chain management has been touted as the organization and optimization of production and performance,including delivery and logistics. CRM has targeted the identificationof and improvement in the customer experience,leading to improved top and bottom lines. Historically,SCM has been associatedwith efficiencies and cost controls;CRM traditionally has been associated with effectiveness and revenue increases.

The irony,of course,is that the supply chain’s entire purpose is the efficient delivery of the products and services to customers,so how well that delivery is executed is vital to the pulse rate of those customers. Think of it this way. One of my clients is David’s Bridal. As you may know,they sell all apparel and accoutrements related to weddings. Imagine if their supply chain success rate was only 98 percent. That would mean 2 percent of all brides they delivered to wouldn’t have their gown ready on their wedding day (note:they do far better than that). Let’s just say the expression “going postal” would become “going bridal.” That’s how important supply chain success can be to an integrated customer-centered initiative.

But we’re talking about a lot more than just an internal set of operations,aren’t we? What about the partners? They have their own value chains to deal with and their own systems they use and their own processes,yet they are part of a fully integrated extended value chain.

The Extended Value Chain:Meet the Partners
The customer ecosystem creates some serious complexity. Not only are customer demands more intense,and their need to use companies to not just purchase but attend to their personal agendas more important,but the levels of service that partners have to provide are more granular than ever before. This is particularly daunting for partners because they are often limited to areas that are far more specific than the range of their expertise would permit. But they have to be that specialized,even if it limits their markets to some extent,because as Sand Hill Group venture capitalist rock star M. R. Rangaswami noted at a 2006 conference,CIOs don’t want to talk to startups,and startups usually are modeled to sell directly to users-not to CIOs.

This leaves small young companies in the arms of the largest vendors as a role player if they want to penetrate markets that those vendors are in. To a certain degree,the smaller partners-those that don’t fit the designation “strategic”—are beholden to the big boys. Luckily,the vast majority of the large vendors don’t treat their partners the way that Wal-Mart treats its suppliers-we’re the behemoth,you’re the mosquito,so you do what we say. Most vendors see the value that the smaller companies bring to their overall ecosystem and they work with them accordingly.

Microsoft is perhaps the paradigm for working with partners. They were in 2004,when the third edition of this book came out,and they are in 2009 with this edition. Microsoft has understood the business value of partner ecosystems for a long while. Historically,the best reflection of their ideas around building ecosystems has been their partner network. Think of these two numbers:

  • As of 2009,they reached one million partners (including partner affiliates) globally
  • Year after year,they get around 95 percent of their total revenue from partners

While those are numbers that could stop Tony Stewart cold in lap 50 of the Daytona 500,it’s actually not enough to understand how contemporary ecosystems work. The partner ecosystem is a true ecosystem— not just a channel. Microsoft understands they can’t do everything to meet the more demanding customer’s imperative or even the business and consumer’s separate demands to provide an adequate customer experience. They also can’t acquire enough companiesto do it without them running out of money. So they built,afterall kinds of permutations and glitches,an extraordinary partner driven ecosystem that covers what is perhaps every vertical and horizontal facet of a given individual’s life.

Okay,back to the strategy. The partner ecosystem was built with a lot of problems along the way. At one point,Microsoft had 54 partner programs. They’ve consolidated to a single program that is chock-full of incentives for partners,including Microsoft handing over business. The way they focus their partner program is not only the revenue driver for the company,but each partner also fits into an appropriate place in the overall ecosystem they are utilizing to provide the level of personalized experience each of us craves. They also are quite generous with code,so there is a large community of developers dot-netting away,and that can only bear fruit for Microsoft’s plan to create that unique environment—because they have outside innovators innovating toward that end.

At the Worldwide Partner Conference in Denver in August 2007,Kevin Turner,the excitable and articulate COO of Microsoft,nodded toward that idea when he announced to some 10,000 acolytes that “while Bill Gates’s vision used to be a PC with a Windows operating system on every desktop,his new vision is for Microsoft to be the one company in the world connecting digital work style and personal lifestyle.” Which will take a lot of partners,since the one thing that Microsoft gets above all else when it comes to partner ecosystems is that Microsoft can’t do it alone. They actively solicit partners who can fill specific holes in a channel portfolio.

Brad Wilson,Microsoft’s CRM general manager and the man responsible for their CRM strategy,put it well when he described the partner ecosystem for CRM:

A lot of our perspective on partner ecosystems comes from a global view. We have thousands of partners in over 80 countries and we have to consider the pre-existing environments and the needs of the individual partners and the nations they reside in. This has an effect on our choice and how it’s used.

For example,an auto dealership in Turkey who might be serviced by a partner there differs from a bank in Latin America being serviced by a partner there. So the requirements vary accordingly. The technology platform used for such a widely diverse set of global partners needs to be highly flexible and allow the partners to tailor it accordingly.

This is why Microsoft is so effective. They understand the benefit of a laser-sliced view of the customer and are working to make sure that their partner ecosystem can meet those highly specific needs.

But the partners themselves are becoming as demanding as the customersand create an interesting conundrum for the brand-holding business they are associating with. They know they have a choice as to whom they partner with. They have no qualms whatever about leveraging that. The brand holders that understand that do well. For example in July 2009,Microsoft announced the revamped Partner Network which incorporated,among many other changes,a community feature that integrated partner communities and use of social media tools to enable the interactions among partners and between Microsoft and the partners and a partner “accelerator” that allows partners to manage sales leads more effectively.

Of course,those brandholders who don’t get this,fail.

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