Written by Christian Kohler for Buljan & Partners Consulting
Do you really know the Return of Investment (ROI) of your Customer Centric Management (CCM) activities?
On my last business trip to Germany I was reading an interesting article about the credit crunch which is affecting many companies in Europe at the moment, and which makes continuous innovation and growth so difficult in almost every industry.
We are definitely living in financial times and access to capital becomes more and more crucial for the prosperity of our economy, for many companies it turns out to be a key element to survive this deep crisis we are facing in the European Union.
“ROI is Key”
For CEOs, CFOs and other Top Managers the current situation means to take tough decisions, because the importance of corporate solvency, cash flow development and of the general debt strategy is rising. The Return of Investment (ROI) of every strategic initiative is turning into a key consideration for the management. All departments have to justify in detail all investments and cost items of their budgets. Projects or initiatives without clear objectives, assumption of their impact on revenues, profit or costs are rejected before even appearing on the board meeting agenda.
So, what does this all means for Customer Centric Management, especially for the Managers who are working in this area?
Customer Centric Management is a mid- and long-term corporate strategy and its impact on the financial results of a company can be significant, on both sides, growth in revenues and profit, and costs of the business. Usually important investments over years are necessary to establish well performing customer acquisition, customer loyalty, customer experience, and/or customer retention concepts which make a firm more competitive and allowing a sustainable innovation within the customer value chain and guaranteeing business growth.
In my work as strategic CCM consultant, I often notice that CRM/CCM/CEM initiatives are started without knowing exactly what the contribution to the financial results really is. To define the “Why” from a strategic and economic perspective is essential for Managers.
So, are you ready meeting your CFO, explaining in details the impact of your strategy for the company’s revenues, profit and costs within the next 1-5 years?
CCM/CRM/CEM, in most cases, is funded within the Marketing or After Sales budget, focusing usually on IT investments, customer processes adaptation and customer service center activities, but do not clearly define the value of the activities for the company based on revenues, profit and costs. Many years can pass by to become a real customer-centric company and if you cannot specify your financial impact and results at all time, you will always keep the risk to be the next “victim” of cost saving measures and lose your budget, even your department. Sounds cruel, but I have seen this happening during the last years in too many companies, where resources are redirected to sales and marketing, cutting all expenses which are not directly linked and justified by financial results. As you can see, although CCM is directly connected to a company’s financial performance, without having clear evidence, you can suffer this situation. In general, and this is applicable for all areas and departments, it is a must for every manager or director to justify the value of his/her work for the company at any time in terms of revenues, profit and costs. In business we are always talking about the allocation of rare resources to the most profitable, innovative and sustainable initiatives and projects.
So what should you in order be prepared for the finance guys?
When you establish a CCM strategy and activities from scratch, it is important to create a business case with clear assumptions of your financial impact during the next years. If you do not have experience in elaborating this type of analysis, look for internal or external experts, i.e. consultants. A well prepared business case will help you to receive the necessary budgets in order to define and realize a CCM strategy in your company.
The quality of a business case or a detailed analysis of CCM activities depends as well on the availability of data. You have to check if all necessary information is available. Talk to your controllers and financial manager, they normally can tell you what data is in the ERP and how revenues, margins, costs and expenses are linked with each other. An important element that could really ease this exercise would be an activity based accounting system, which allows you to track the profitability of each of your customers in detail, but not all companies usually have it in place.
In reference to CCM KPIs, I suggest focusing not just on KPIs for your CCM processes and customer satisfaction, like i.e. a CSI (customer satisfaction index), but also define and create clear financial indicators considering the impact on revenues, profit and costs. Your CFO will become your best friend and budget discussion will be much easier for your department. One way, and the most recommended one is an integrated Controlling, a CCM Balanced Score Card. A customer centric Management approach needs a department wide control and analysis of all activities within the CCM strategy. A BSC includes a strategic, financial, market and customer, process and resource perspectives giving the Management an integrated view on CCM.
So, in conclusion, if you are doing all this already, keep on track and you will improve your results and budgets of CCM. If not, start as soon as possible, because you never know when the next budget cut is coming in these financial times.