Smart Customer Management. The Complete Guide To Customer-Centric Management 8461665961, 9788461665969

Citation preview

S MART CUS TOMER MANAGEMENT

ABe g i nne r ’ sGui deTo Cus t o me r Ce nt r i cMa na g e me nt

FRANCI S COJNAVARRO

SMART CUSTOMER MANAGEMENT

SMART CUSTOMER MANAGEMENT A BEGINNER’S GUIDE TO CUSTOMER-CENTRIC MANAGEMENT SECOND EDITION

FRANCISCO J NAVARRO

Madrid, 2016

Title: Smart Customer Management. A Beginner’s Guide To Customer-Centric Management

First Edition, 2013 Second Edition, 2016

© Complexity Guru Avda de las Estaciones, 22 28850 Torrejón de Ardoz Madrid- Spain © Francisco Javier Navarro Meneses ISBN-10: 84-616-6596-1 ISBN-13: 978-84-616-6596-9 No part of this book may be reproduced, or stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, recording, photocopying, or otherwise, without express written permission of the owner of the copyright. Smart Customer Management ©2014 is a registered trademark of Francisco Javier Navarro. All titles, content, publisher names, trademarks, artwork, and associated imagery are trademarks and/or copyright material of their respective owners. All rights reserved. Contact Information: [email protected]

To María José, Sofía and Alicia ********** To those committed to better serving customers everyday

CONTENTS

LIST OF FIGURES.......................................................................................... ix PREFACE ..................................................................................................... xi INTRODUCTION .......................................................................................... 1 PART I. FOUNDATIONS OF SMART CUSTOMER MANAGEMENT ................... 9 CHAPTER 1. THE CUSTOMER REVOLUTION HAS BEGUN ........................ 11 CHAPTER 2. WHAT IS SMART CUSTOMER MANAGEMENT ABOUT? ...... 21 CHAPTER 3. THE FIVE PRINCIPLES OF SMART CUSTOMER MANAGEMENT .................................................................................... 31 PART II. IMPLEMENTING THE MODEL ........................................................ 55 CHAPTER 4. THE SMART CUSTOMER MANAGEMENT MODEL .............. 57 CHAPTER 5. FORMULATING AND SHARING A STRATEGY ....................... 63 CHAPTER 6. KNOWING YOUR CUSTOMERS TO IMPROVE RELATIONSHIPS.................................................................................... 69 CHAPTER 7. DESIGNING A SUPERIOR CUSTOMER RELATIONSHIP ......... 83 CHAPTER 8. THE ULTIMATE GOAL: CUSTOMIZATION ........................... 95 CHAPTER 9. MEASURING PERFORMANCE AND RESULTS..................... 105 PART III. MANAGING THE TRANSFORMATION PROCESS .......................... 113 CHAPTER 10. DESIGNING THE SMART CUSTOMER MANAGEMENT ORGANIZATION.................................................................................. 115 CHAPTER 11. INFORMATION TECHNOLOGY GOVERNANCE ................. 123 CHAPTER 12. EVOLVING FROM PRODUCTS TO SOLUTIONS ................ 129 CHAPTER 13. THE CHANGE MANAGEMENT ROADMAP ....................... 135 PART IV. ESSENTIAL IT TOOLS .................................................................. 141 CHAPTER 14. CRM: THE ENGINE FOR BUILDING CUSTOMER RELATIONSHIPS.................................................................................. 143 CHAPTER 15. CUSTOMER ANALYTICS: REAL-TIME CUSTOMER KNOWLEDGE ...................................................................................... 151

viii | CONTENTS

CHAPTER 16. SOCIAL MEDIA: CONSTRUCTIVE DIALOGUE WITH CUSTOMERS....................................................................................... 159 CHAPTER 17. DEPLOYING IT TOOLS .................................................... 167 CHAPTER 18. CHOOSING IT TOOLS ..................................................... 175 WHAT NEXT? .......................................................................................... 179 APPENDIX A. RETURN OVER THE CUSTOMER (ROC) ................................. 181 APPENDIX B. MEASURING CUSTOMER EXPERIENCE................................. 183 APPENDIX C. IT GOVERNANCE POLICIES .................................................. 187 APPENDIX D. ORGANIZATIONAL STRUCTURES FOR SOLUTIONS ............... 189 APPENDIX E. HOW TO IMPLEMENT A CRM STRATEGY ............................. 193 APPENDIX F. GOOD PRACTICES IN SOCIAL MEDIA MANAGEMENT ........... 199 APPENDIX G. HOW TO CHOOSE AN IT PARTNER ...................................... 203 ABOUT THE AUTHOR............................................................................... 211

LIST OF FIGURES

Figure 1. The Smart Customer Management model ...................... 58 Figure 2. Customers’ Value Matrix ................................................ 77 Figure 3. Double diamond design process ..................................... 89 Figure 4. Example of Touch point map .......................................... 90 Figure 5. Social networks activity profile ....................................... 92 Figure 6. Getwear.com online clothing configurator .................... 104 Figure 7. Product-centric organization chart................................ 117 Figure 8. The Smart Customer Management organization chart . 118 Figure 9. Lego Mindstorms online co-creation community .......... 163

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PREFACE

Selling has become an increasingly complicated task. Today, companies invest more time and resources than ever before to deal with customers who are otherwise more and more demanding, and know what they want. Margins are constantly shrinking and competition is now found everywhere in the marketplace. And concerns do not stop there, when you think you have found a chance to solely take advantage of a big business opportunity, the lead lasts shortly. Ultimately, it seems as if nowadays there is many more companies competing in a context where customers are scarce and hard to gain. However, it’s not so long ago that enterprises controlled the markets smoothly. What they used to do was offer products and services that flowed from the production chain to the customer’s hands in just a few simple steps. Whenever a company decided to change a price or modify some product’s features, there was the market full of customers waiting to be served and get satisfied. But times have changed dramatically and very little is left today of those cause-effect relationships that prevailed between companies and their customers in the last century. The Era of Industrial Production, also known as the Pre-Internet Era, has led the way to much more complicated times. In particular, this is a new age governed by customers aiming at satisfying their needs and most intimate desires individually, through a continuous and more collaborative one-to-one dialogue with companies. Like it or not, we all live today in what this author calls the New Age of Customers, an era characterized by the fact that the customer is no longer a passive and resigned being waiting to be served, but instead an informed individual with the ability to actively decide what, how and when to buy, and

xii | PREFACE

choose how much to pay for a particular product or service. New customers do not want to be treated like a number anymore, instead they compel companies to reconsider what building a customer relationship really means and how value must be created to gain their trust. In this book you are going to find the answers to many doubts and concerns regarding your company’s management. Some of them may be new and challenging while others may seem rather familiar, the type of those you have been trying to solve “all your life”. Notwithstanding, they all have something in common: when time comes to bring a solution into action you must open your mind and accept that CHANGE deserves a highlight in your agenda. Furthermore, if you (or your company) really want to move forward and pave the way for the next stage of your company’s development, it is inevitable that you become committed to transform your business altogether. As it is always the case when society experiences a moment of deep change, uncertainties emerge that threaten the status quo. Yet new and appealing opportunities may arise for those who understand the real dimension of the challenges ahead and confront them with determination. This is why it is worth stopping and thinking carefully about how much your company has changed in the last years and how the context has influenced your company performance. Take a quick look at the differences between your current business concerns and those you had years ago, write them all down on a blank paper, and arrange them in decreasing order of importance. Bring the list with you when reading this book and note all the ideas and solutions you finally come up with to solve them. I feel confident that this book will offer great answers to most of your questions, but if you do not find the answer, contact me and I will be more than happy to help you take the right course. Certainly, old times will not come back and from now on everything in the world of business and organizations is going to be more difficult and harder to achieve than ever. But never forget that the future will continue to provide an inexhaustible source of opportunities for those who understand the real scope of these changes and who make the right decisions. I am sure that if you have read this far is because you seek answers to the key

PREFACE | xiii

managerial questions of our time and have realized the need for action. So, let us not spend more time and move forward! Francisco J Navarro Madrid, June 2016

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INTRODUCTION

This book is about the advent of the New Age of Customers or, in other words, how the up to now traditional customer has transformed him/herself into a new customer whose needs and desires, as well as the way he/she pursues its goals, now rule the business ecosystem. It is also an exploration into how society and companies alike have been affected by this dramatic change, and what they may do to thrive in this challenging times. The transition to the New Age of Customers can be perceived by deep changes that affect the customer-to-business relations, as well as by the way companies think and work towards meeting the customer’s needs. As we will see later in this book, some changes are so profound and radical that they are revolutionizing once and for all the entire customer-business ecosystem.

The Metamorphosis Ecosystem

of

the

Customer-Business

In the New Age of Customers nothing will ever be the same. That is why the sooner you learn the lessons to move along in this new time, the better it will be for your future and that of your company. The customer is no longer a resigned and passive individual in the hands of mass production markets and enterprises. Today, it is the customer who masters the game and has the power to decide what, how, when and who to buy from. Consequently, in the New Age of Customers companies are forced to rethink the way they understand and create true value, and what the best approach is for building up long-term relationships with the customer. That being so, the customer becomes any company’s main asset and, as such, he/she needs to be valued and treated.

2 | INTRODUCTION

This far-reaching customer-led revolution does not have specific geographical boundaries, and its effects are noticed by all sorts of organizations across the world, in all type of industries. Metaphorically speaking, the customer revolution is like a tsunami hitting every stage of the company´s value creation and exchange system, its processes, organizational and operational thinking, infrastructure, and even the way in which the company generates revenue to ensure growth. The 21st century company’s metamorphosis is complete. Furthermore, the New Age of Customers is a genuine revolution and not a short-lived bubble caused by a fancy technology with a somehow doubtful functionality able to influence customers’ lives. It is an overwhelming movement in a “point of no return”, deeply rooted in the unprecedented technological change that affects consumers and companies all over the world. Moreover, it is a revolution that has become a reality by means to new technologies, but also because of the thorough change in the culture of communication and social customs that has melted down the barriers that formerly stood between the companies and their customers. In the New Age of Customers companies are compelled to respond in a faster and more accurate way to the customer’s needs and desires. Bear in mind that the new customer no longer wants to be a number, instead he/she wants to be treated as an individual with its own needs, interests and preferences. The customer now has absolute freedom to communicate how, when, where and with whom he/she pleases in personal life, and does not understand why this should change when communicating with a company representative. For companies, the New Age of Customers means they must find a way to adapt themselves to the new rules governing the business ecosystem, most clearly using smart customer-centered strategies. These are strategies designed to place the customer at the heart of all the organizational decisions and which support more value-based business models. Notwithstanding the foregoing, it is still frequent to find companies that are not aware of the customer revolution, the impacts brought by the New Age of Customers, its reasons and consequences. Most of the times these companies remain well-anchored in the traditional customer-business relations, and are doomed to failure sooner than later. In other cases,

INTRODUCTION | 3

companies do not even really understand the meaning of customer-centered strategies, or they simply use them wrongly —i.e. particularly when the biggest step taken has been that of creating a fan’s site on a popular social network or a customers’ database. I truly hope this book helps you better understand the main reasons behind the New Age of Customers and the challenges that lie ahead as new principles govern now the relations between the companies and the customers. Whatever is your departing point, one thing is clear to this author, you need to undertake immediate action on the way to implement customercentered management practices if you have not yet started, and if you have already started, to fully develop a smart customer management culture in your organization. We will next see in this book how you can accomplish such a challenging task, the outcome of which is of paramount importance for your company as its future is at stake.

Who Really Is The Customer? The term “customer” is the hottest topic of this book and the one on which most of the ideas, strategies and tools of this book stay focused. Therefore, in order to avoid confusion it is all the more advisable to clarify the meaning of the concept “customer” as used in the book. According to the Oxford Dictionary, a “customer” is “a person who buys goods or services from a shop or business; a person of a specified kind with whom one has to deal”. Though this might seem to be a somewhat acceptable definition of customer, the truth is that it resembles the old idea of a consumer going to a store to buy something pushing his/her cart, thus leaving behind some key dimensions of the notion of “customer” that we should necessarily take into consideration to fully understand the New Age of Customers and the resulting Smart Customer Management. For instance, if we ask a company that sells its products or services to an end user about the idea of “customer”, the most likely answer would be that a “customer” is the end user or consumer of those products or services. Instead, if we ask the same question to a company that sells to another company —i.e. a B2B business— the “customer” would most probably be a company downstream in the supply chain. And still more, if we ask a

4 | INTRODUCTION

company which manufactures or produces materials or equipment, the reply might be that its customers are those firms that distribute its products to end users or consumers down the chain. We might also discuss the right time at which a “customer” acquires such condition and whether it is necessary that a “customer” consumes a product or service, or whether it is enough that he/she shows an interest or wish to buy something from a company anytime in the future. Whatever the enquiry we made, we can see that the term “customer” has many different meanings, all of them equally valid. Consequently, when this author cites the term “customer” in this book, he is referring to a key component of the company’s value system dynamics, whether the customer is a consumer visiting a store ―e.g. physical, virtual―, an end user, or an intermediate business agent in a more or less sophisticated supply chain. Furthermore, this author’s idea of “customer” makes not necessary that a cash transaction takes place between the customer and the company, as he considers enough that a human being shows interest in the products or services of a company to be thought as “customer”.

What Is There In This Book? This book pretends to serve the community of customer-related practitioners as a complete guide for the development of customer-centered strategies. As such, the book provides comprehensive knowledge on the key concepts, strategies, techniques and technology tools that are essential in the implementation of a seamless Smart Customer Management practice. Please be aware that a magic recipe —one that applies to every single company— does not exist. That is why the author cannot guarantee that the ideas contained in this book will deliver all the benefits that you expect. Ultimately, it is you and your company’s executives who must take the lead and carry out an effective implementation of the ideas and the model explained in this book. For the best results, it is important that you tear down some of the old myths and paradigms that usually catch our attention in modern customer management. Among them a widespread tendency is to think that customer-

INTRODUCTION | 5

centered strategies are no more than a software tool that helps companies increase sales, a sophisticated marketing technique, or those skills necessary to improve our social networking capabilities. Nothing could be further from reality! Let’s make it clear: this book is not a marketing manual, nor does it going to teach you new techniques to improve your website, or how to get more followers for your social media networks. If you are looking for fresh ideas on these topics, you will surely find excellent related literature in any bookstore. This book seeks to go beyond and show you how it is possible to increase the value of your company through a customer-centered strategy. As we have seen, this entails planning not only a strategy that puts the customer at the center of the organization, but it also involves gathering leadership and commitment from all members of the organization to make the customer occupy the outstanding position it deserves. If after reading this book I have convinced you that your company seriously needs to implement a customercentered strategy, then I will hold no doubt this book was worth the effort.

Who Is This Book Intended For? This book is mainly intended for all those in charge of the design and implementation of company’s strategies, as well as for those who have the responsibility to formulate, supervise, monitor and keep updated the organizational, functional and technological guidelines for customer management, marketing, customer service and/or sales. Furthermore, this book may also be used by C-level executives and managers responsible for defining, analyzing, performing, coordinating, evaluating and/or leading transformational projects inside the company, as well as for managing the change at a functional and/or departmental level. This also includes not only the technical staff in charge of implementing action plans, but also the owners, entrepreneurs and members of the Board of Directors responsible for company’s decisions. If you are approaching for the first time the customer management field, this book will serve you as an organized source of ideas and techniques that

6 | INTRODUCTION

may be easily understood and later on implemented in your organization. The book does not require the reader to have previous knowledge in the field of customer management, though some experience on topics related to customer relationship management will certainly help the reader make the most of the book. If you are a dedicated practitioner in the field of customer management, or if you are an experienced practitioner in the sales, marketing or customer service areas, this book will help you refresh some concepts, gather new ideas that have emerged in the last years, and use it as a reference guide to get started on the implementation of a Smart Customer Management practice. One last consideration: even though this author continuously refers to the term “company” throughout the book, the reader should be aware that all the concepts, strategies and tools contained in the book are equally applicable to all types of organizations aimed at customers. More particularly, they are useful in those organizations concerned with the creation of competitive advantages through customer relationships, irrespective of whether they are private or public, for-profit or nonprofit, and regardless of the size and industry in which they operate.

How To Use this Book? The content of the book has been arranged in four differentiated parts that cover the various levels on which the company should work towards a successful implementation of a Smart Customer Management practice: 1. 2. 3. 4.

Conceptual level. Strategic level. Tactical (or management) level. Practical (or technical) level.

Part I of the book addresses the reasons why the customer now occupies the leading position within the customer-business ecosystem and controls the relationship with the company. It also explains the basic principles on which the Smart Customer Management framework is based.

INTRODUCTION | 7

Part II introduces the different components that make up the model for the effective implementation of a Smart Customer Management practice in an organization. It further explains the stages through which the company needs to evolve, as well as the techniques the company may use to succeed in the transformation process. Part III examines the elements on which a company should focus to ensure the right alignment between the organization’s goals and those pursued by the Smart Customer Management model, so as to ensure an efficient use of the resources and long-term value for the customer. Finally, Part IV offers a synopsis of the key information technology tools that should be used to effectively implement the Smart Customer Management model. This part also introduces good practices for the deployment of the tools and a few key considerations on how to choose the right partner to help along the implementation process. My advice at the start of the book is that you read it from beginning to end, at least for the first time, and avoid jumping from one chapter to the next. This way you will get a first-hand picture as to what Smart Customer Management is all about and what the critical success factors are. After you have finished the first reading and have understood how the Smart Customer Management framework works, go back and forth as you wish to review the key ideas, or to follow-up the implementation process in your organization.

Get In Touch With The Author I welcome all the questions, comments and suggestions that you may have about the content of the book. Furthermore, if you consider the book should include new chapters or contents which are not sufficiently addressed in this edition, I will be happy to take up any suggestion and consider it for next editions. I would also love hearing your experience if you have tried to put into practice the ideas of this book, as well as to share good practices and experiences in the use of the tools and ideas behind the Smart Customer Management framework. If you wish to go into more detail about some of the concepts and strategies addressed in this book, please visit my website.

8 | INTRODUCTION

There you will find additional content and information for downloading. To contact me or share any comment, you can email to: E-mail: [email protected] Website: http://www.smartcustomermanagement.com

PART I. FOUNDATIONS OF SMART CUSTOMER MANAGEMENT

The customer is today the player who controls the game. Only he/ she is able to award victory or defeat in the market arena, and its decisions shape the way in which millions of companies around the world operate their business. The power of the customer has reached new heights, as he/she determines what, how, when and with whom he/she wishes to establish a relationship, and how much value needs to be created. But it has not always been this way. If we could turn back time to the eighties and nineties of 20th century and observe how things used to be, then we certainly would understand how customer relationships have evolved up to our present days. So join me on this exciting journey to the roots of the New Age of Customers and let us discover what the foundations governing Smart Customer Management are all about.

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CHAPTER 1. THE CUSTOMER REVOLUTION HAS BEGUN

In this Chapter you are going to learn about:   

What are the main reasons explaining the customer revolution? What are the key features that describe the new customer? What is the role played by the new technologies?

We all remember how times were back in the late 80s and 90s. The customer used to go to the nearest store in the neighborhood with the intention to get information about the latest products on the shelves and touch with his/her own hands the product that a friend or a family member had told him/her about, or saw in the media. Hardly ever had the customer a direct contact with the manufacturers, unless he/she had a problem with a purchased product that couldn’t be solved by any of the store’s official representatives. In that case the customer ran out of options and could then decide to call the company’s service center with the hope that someone might definitely solve the issue. From the company’s perspective, the customer was not someone with specific interests or needs, but rather a number within a much wider group of individuals who shared common traits inside a market or segment.

12 | PART I. FOUNDATIONS OF SMART CUSTOMER MANAGEMENT

In those days, most companies produced and sold products without virtually any contact with its customers, and only those companies truly interested in gaining a better understanding of the aggregated needs of a segment (or market) used sampling market techniques —i.e. customer panels, focus groups, or surveys aimed at large samples of customers. In reality the objective was not so much getting to know each customer’s individual needs, but rather to identify collective needs for the key (productcentric) segments. In the case of companies operating in a B2B environment, salespeople normally knew, on a somewhat more individual level, the needs of each individual customer. However, this information was often neither recorded by anyone in the company, nor shared with the remaining areas or departments of the organization. Thus, when salespeople left the company or retired, all the knowledge collected for years about customers was simply lost, and the company had to start its customer relationships all over again from scratch —on the assumption that customers were willing to commit the time and effort again to rebuild the relationship. During this time companies organized themselves to pursue a very clear vision: to sell their products and services to the largest possible number of customers, without worrying who the customer really was, and if the product or service really met a particular need or solve someone’s problem. Products were manufactured aiming at the least possible cost, thus efficient production chains were built for this purpose. Next, finished products ended up in warehouses, where goods rested waiting for orders, only to start again a new mass production cycle. As we can see, companies’ operations followed a rather linear sequence —from the factory to the distributor, and from there to the customer. Furthermore, a considerable effort was devoted to produce as efficient as possible, and to maximize the company’s productive capacity and mass distribution. Those were times when leading companies in the world adopted new manufacturing frameworks —i.e. just-in-time, Kaizen, Six Sigma— and quality control systems, among which the popular Total Quality Management (TQM) system became renowned as it aimed at maximum efficiency with the least number of failures. As we will see next, the last decades of the last

CHAPTER 1. THE CUSTOMER HAS BEGUN | 13

century also witnessed the unprecedented success of Kotler’s 4Ps and the boom of big media advertising campaigns.

1.1 The Product-Centric Era As we have seen above, in the era dominated by the production chain, quality control, efficiency and mass distribution, the main competitive weapon for many companies was manufacturing the same product thousands or millions of times, and at the least possible cost. Once the products were sold on the market, the company could then start adding small changes to the price or the features to keep them differentiated from competitors. Everything was much easier than today. It was simply enough to launch marketing campaigns and mass media advertising on the not too many existing channels to get good commercial outcomes. One of the main negative aspects of this approach is that it was based on factors that could be easily replicated by competitors, thus “competitive advantages” lasted the limited time that took a competitor to copy the new functions or features of the product, or just make the price lower. The struggle to maintain competitive advantages compelled companies to take hold of their brands and try to increase their value as much as possible. That way brands ended up becoming repositories of high value for companies, since the connotations transmitted to the customer through the brand—e.g. trust, familiarity, expertise— provided value themselves. Having got acquainted with brands management as an important asset for competition, companies started to devote efforts and resources to achieve the greatest possible reputation for their brands. Moreover, marketing actions in those years mainly focused on trying to gain customers’ preference for a brand. In the early 90s, the popular 4Ps were formulated by Professor Philip Kotler. Kotler’s clever strategies shook in a short period of time the way thousands of companies around the world thought about marketing. His message was simple and powerful at the same time, suggesting new ways in which companies should behave with their customers following these four basic principles:

14 | PART I. FOUNDATIONS OF SMART CUSTOMER MANAGEMENT









Product. It is the product or service —or a combination of both— that a company should offer the market. The goal was to meet the average consumer demands or, in other words, to take care of the needs of a group of consumers. Moreover, the product had to be the same for all consumers and mass-distributed to the market. The only adjustments recommended were those related with the product color, size, style or added services. Everything else should remain in the “standard” form. Place. This is about the activities that the company should carry out to make the product or service accessible to the consumers. The company should use channels of distribution, transportation means and tools for inventory management that provide support to the supply chain —i.e. consisting of a manufacturer, a distributor and a dealer. Price. It refers to the amount of money a consumer is willing to pay for a certain product or service. It is assumed that, at least in theory, everyone is willing to pay the same price for the same product or service. Furthermore, the company should set a retail price, intermediate prices and a wholesale price, taking into account customers’ credit capacity and financial costs. The company should also consider the changing conditions of competitors, the economic conditions of the environment, and market expectations when thinking about adjusting prices. Promotion. These are the activities aimed at communicating the value of the products and services to the consumer. Promotion should focus on each product and not on each customer, and use mass media or the company’s own sales force as main channels. Kotler’s idea of promotions was not very interactive and did not take into account individual needs, since the customer was perceived as a passive recipient of promotional messages.

Kotler’s approach to marketing dominated the corporate landscape until the start of the new millennium and laid the foundations for companies to produce goods in a standard way for mass markets. Kotler’s ideas also cleared the way for executive boards to spend their time discussing the features of the company’s products portfolio and how the company could gain a higher share of the market.

CHAPTER 1. THE CUSTOMER HAS BEGUN | 15

In conclusion, the Era of Product-centric companies was dominated by the search for new ways of gaining the largest possible number of customers and delivering a standard product or service. And, what a better way of doing this than turning to mass media in order to draw customers’ attention. Not surprisingly mass media soon became the most effective way —though not the cheapest— of advertising a product or service to a wide audience and get transactions fast.

1.2 The Power Of Mass Advertising As explained before, the last decades of the past century witnessed the development of big advertising campaigns. Every company that wished to stand out and get a strong foothold in the mass market had to throw itself into the arms of some advertising agent sooner or later. As a result, advertising and media agencies became essential partners for success, as they helped create the demand companies needed for their products and services. Traditional advertising campaigns used to be one-way and aimed at praising the features of a certain product or service. The process was simple but effective: the customer normally watched an advertisement on TV, magazine or newspaper, identified something that drew his/her attention, read the information of what the company was offering, and based on this information he/she decided whether to go to the nearest store and purchase the product. Advertising in certain media was clearly the best way to reach the target audience. Despite the huge budgets spent by leading companies trying to effectively communicate with consumers, the customer remained mute due to the poor flow of information between the company and the customer, rudimentary under the current criteria. Customers had very few options to choose from and, furthermore, information about comparable products and services was limited and difficult to obtain. Customers were, in fact, prisoners of corporations, which made decisions alone on what products and services should be sold on the market and under what terms. In summary, customers in those days had neither control over the information nor access to the knowledge base about the products or services beyond what the

16 | PART I. FOUNDATIONS OF SMART CUSTOMER MANAGEMENT

manufacturer, distributor, or the store staff provided. But do not rush, everything is about to change! Let us see how.

1.3 Technology Takes The Lead The process of technological change experienced in the last twenty years, and which continues to this day, has brought a dramatic transformation of multiple social and business spheres. This has not only meant a genuine revolution in the way of thinking, communicating and interacting with each other, but it has also made companies reconsider the way they create and exchange value, organize and build relationships with customers, and meet customers’ needs and expectations. Two are the main factors introduced by new technologies that have contributed most to the customer revolution. First, the speed and simplicity with which information flows from one place to another and it is exchanged between companies and people. Secondly, the easiness with which people communicate and relate with each other in online communities. The former means a radical transformation in the way information flows between companies and consumers, mainly due to the mass adoption of email as a global communication tool and the emergence of e-commerce. Today, consumers may review products with enough time in advance before deciding to purchase them, send orders very easily and at any time of the day, receive a confirmation in seconds, and track orders all the way until the product finally arrives at home or the office. Furthermore, with global courier companies coming on the scene and making it possible to ship any product to every corner of the world at a reasonable price, many traditional competitive advantages, such as the size of the company or the ability to save customers a few cents, have lost the power they once had. Many companies not able to adapt their business models to the new circumstances have perished, and instead new competitors have emerged breaking the geographical barriers for trading. The whole world is now definitely globally open to commerce. Meanwhile, the later changes involve that customers are now able to communicate easily and faster with other customers and users through the Internet. This significant milestone in the customer revolution fundamentally

CHAPTER 1. THE CUSTOMER HAS BEGUN | 17

originated at the end of the 90s when affordable Internet access started to be available in all homes. Since then, the Internet has given rise to a myriad of online communities in which customers can continuously exchange their comments and knowledge about this or that product or service, and freely express their personal experience with almost any company. Customers now have access to such an amount of information that they know the products better than the manufacturers and distributors themselves. Furthermore, trust among friends has become one of the most powerful tools that support consumers’ purchasing decisions, much more than the average best information any company provides. As all these changes have taken place on the customer’s side, those responsible for the companies’ sales have started to get seriously concerned about the decrease in customers’ loyalty rates and shrinking of profit margins. Compelled to take action, companies are doing things they were not used to, namely to engage customers in highly dynamic and active ways. Many companies have started to unfold new tactics and implement new tools with the purpose of gaining new customers and keep their sales volume steady. The negative side of this entire picture being the substantial increase of costs when compared to the “traditional” business models. In the 90s, a new wave of customer relationship management tools — best known as CRM— came to being together with other software tools that promised to make customer-related operations more efficient. Once a CRM system was implemented, it was believed, it would help to automate key processes such as sales, marketing and customer services, which would allow the company to release resources previously dedicated to repetitive tasks. Thanks to these new tools, the amount of customer information that companies began to gather and manage was increased far beyond what they ever imagined. But customers deserved to move further ahead and demanded more interaction from companies, new touch points, and a wider range of choice. Those companies which understood the message increased their products and services portfolios, expanded and diversified their touch points with customers, and initiated steps towards the improvement of their customers’ experience.

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In conclusion, very little is left today of the “traditional” competitive framework that played its role along the last century. Nowadays, it is the customer who controls the new ecosystem emerged from the customer revolution, and the traditional competitive advantages such as price, availability, and product features have lost most of their relevance. Instead other key competitive factors unknown until now has emerged, such as the experience lived by each individual customer.

1.4 The New Age Of Customers The New Age of Customers acquires its main typical features at the beginning of the first decade of 21st century and distinguishes itself by the way customers and companies build and feed their relationship, as well as by the new dialogue that takes place between both of them. In the New Age of Customers, the customer feels at the same level of the company and demands a one-to-one dialogue as he/she does in daily life or at work. The customer also demands to be treated with respect and that companies recall his/her profile, purchase history, and information regarding shipping, in exchange for more efficient and reliable interactions the next time. The New Age of Customers is definitely the time of speed, so you would better realize the customer does not have time to waste! It Is not surprising that the best suited companies to benefit from these challenges are those who always keep in mind the interests of their customers, even though this means having to sell products and services from competitors if that prevents the customer from going away empty-handed. Successful companies in the New Age of Customers are those able to implement new technologies that improve customer experience —i.e., tools that make easy for the customer to buy something online with just one click, or allow to choose the time of the day in which the customer is at home to receive an order—, make interactions more efficient, and provide the resources needed by customers to communicate openly and share their experience freely. Moreover, these companies have the ability to gather all the customer information they can and to create databases that are accessible by the key members of the organization, in order to get a better knowledge on customers. With all this data about customer interactions and

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needs at hand, leading companies can focus more efficiently on the customer’s needs and generate more and differentiated value upon individually customized solutions.

1.5 Towards The Social Customer We have already learned that in the older customer-business ecosystem, interactions with customers used to take place under the company’s terms and through a few channels, such as post mail, fax, and telephone, if the customer was lucky enough to find the right person to contact. In B2B environments, interactions happened through a network of vendors, provided that the customer had enough commercial relevance to be worth a visit or a call. However, none of these classic means of customer interaction remain useful anymore. Today the customer is the boss and holds control of the interactions with the company. It is true that the customer has always been able to interact with the company in one way or another, but what it has really changed is that today the customer is who sets many of the terms and conditions. Thanks to the same technologies that enable companies to interact with people, individuals can now socialize with each other and take full advantage of social media to achieve what and when they want, and with the conditions they deserve. Today, customers spend good part of their day using social networks, reading emails and blogs, or ranking sites where one user guides another. Consequently, social media tools have opened new possibilities for communication and collaboration between customers and companies, and mutual benefits have started to be shared. This social customer emerged from the customer revolution have substantially increased his/her level of knowledge about what companies do and what products and services are available in the market. Moreover, most social customers are now regular users of hand-held devices —i.e. smart phones, tablets, GPS— and they have become much wiser at the time of purchase. No doubts that with the social media tools in their hands, customers are much smarter and their opinions are better formed when the time comes to make a purchase decision.

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Companies have had no option than to take careful note of these new developments. The outcome has made companies quake, as almost every product that existed a decade ago have ceased production or added new features or modifications to integrate more technology to attract the new consumers. Ultimately, everything seems to have gone far more “techy”; just take a glance at any catalogue in a retail store and you will soon realize that from a home’s fridge, down to a pair of running shoes, every single article on the list now has a chip thought to improve its usability and customer experience. Reality has surpassed the old customer-business ecosystem governed by products and companies not very interested on what the customer had in mind or how his/her live was. As a result, a new ecosystem controlled by the customer has emerged. This new ecosystem is now the domain of open, continuous, and one-to-one communication between the customer and the company. One ecosystem in which the customer should now occupy the center of the organization’s decisions. This new thinking is precisely at the roots of Smart Customer Management, and its implications for the way most organizations manage their activities, create their culture, set their strategies, design their processes, deliver value, implement their technologies and offer solutions to their customers, are huge.

CHAPTER 2. WHAT IS SMART CUSTOMER MANAGEMENT ABOUT?

In this Chapter you are going to learn about:   

What are the foundations of Smart Customer Management? What is the origin of the Smart Customer Management framework? What are the main implications for companies?

Let us start in Miami (USA), home of an imaginary well-known international food restaurant that I will call “America’s House”. The restaurant currently seeks a word of advice that helps it fill the tables with customers again. For years “America’s House” has enjoyed recognition from the local community and critiques for its excellent cuisine and customer service. The business of “America’s House” is the result of the effort and vision of an immigrant entrepreneur named Andrew, committed to show his country’s cuisine and share the good nature of its people —values that he has been promoting for years employing natives with good customer service skills. For years Andrew has relied on acclaimed chefs, some even brought from his own country straight to the restaurant, and a highly professional management team well aware of the tastes and demands of the people of Miami. Nobody doubts that “America’s House” used to be one of the best

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restaurants in the city, following Andrew’s own recipe: “excellent food and better customer service”. Regretfully times have changed and happiness is an old memory. “America’s House” is today in the eye of the storm. The number of customers has progressively declined for several trimesters now and they no longer seem to respond to the methods Andrew and his team put into practice. The truth is that Andrew has the feeling that maybe he has not done enough to adapt “America’s House” to his customers’ ever-changing profiles, mainly middle-aged professionals eager to experience new things in a city full of gastronomical options to choose from. In the last month Andrew has had little choice but to let one of his best employees leave and include some less sophisticated, though also more affordable, dishes in the menu to draw more attention from customers. Aware that “America’s House” requires immediate actions, Andrew has turned to some friends and colleagues for advice in order to figure out what he might do to bring customers back to the restaurant. However, advice does not seem to be providing much relief to Andrew’s concerns. Many of those consulted also feel somewhat confused by these moments of change and are experiencing similar problems with their own business. There are some who are even worse due to overwhelming financial constraints. Among the ideas gathered by Andrew there is a suggestion to create a fans page in Facebook that might help him attract customers quickly with updated and interesting offers. HE has been said that some colleagues are having good results with social networks, so Andrew is willing to give it a try, even though he has never been fond of social networking, nor does he know how or who may help him accomplish these tasks. Andrew feels disoriented and all his experience and knowledge after so many years of successful management of “America’s House” do not seem useful at all. Nevertheless, he is open to listening to anyone who contributes with practical ideas on how to attract new customers. In the meantime, his once successful business seems to be fading away at an amazing speed. The example of Andrew and “America’s House” is a true story, except for the imaginary names and characters. Unfortunately, it is a story more common than you might think in the world of business. It is not only that

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Andrew does not have an in-depth diagnosis of his business and why it’s going into bankruptcy. Andrew and his restaurant —as it happens with thousands of other businesses in the world— will continue suffering the pains of the customer revolution to the end unless he changes direction and starts thinking on a more customer-centered approach for his business. So keep on reading and learn how Smart Customer Management may be helpful for you.

2.1 A Theory, A Philosophy, Or A Strategy? Smart Customer Management is not a theory about what you can do to be more attractive to your customers, or how you could deliver a better service. It is not even about how to take the first steps in the relational marketing field, or in the social networking arena. Smart Customer Management is neither a philosophy, nor an assortment of methods you can bring into action after making a statement of good intentions or showing a desire to change things. Smart Customer Management is fundamentally a strategy on how to put your customers at the core of your organization’s thinking and decisionmaking. A lifelong path of change focused on building up long-lasting customer relationships aimed at meeting customer needs and expectations individually. You may be tempted to think that Smart Customer Management can be easily achieved implementing the right information technology tool or a better customer service in your organization. Nothing, however, could be further from reality. Smart Customer Management is about generating a deep knowledge about your customers and sustaining a continuous dialogue with them, in order to allow your organization better align its products and services with each customer’s individual needs. Notwithstanding the foregoing, be aware that leading your organization through Smart Customer Management is not an easy task, or effortless. You certainly are going to need time, patience and a firm determination to embrace a culture of change and an attitude for continuous improvement. The reward at the end of the day is greater than you might ever have imagined.

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2.2 The Origins Of Smart Customer Management Smart Customer Management is rooted in the radical changes taking place as a result of the customer revolution and the advent of the New Age of Customers in what we may call “smart markets”. Smart markets are characterized by an intensive use of information and knowledge flowing from one place to another at a great speed. Unlike “traditional” markets —which are static and with a low information and knowledge turnover— smart markets are dynamic, information-rich, and in constant evolution. Smart markets are also based on so-called “smart products”, which are products or services that embed some kind of technology or information component. This makes “smart products” particularly easily adaptable when interacting with the customers, or the environment. Additionally, “smart markets “are also made up of “smart customers”, namely those consumers who continuously “talk” and “show” the company who they are and what they want. This makes a big difference with “traditional” markets, where consumers usually stay mute. The unstoppable development of smart markets in recent years has made competition change radically. Rather than remaining locked in the game of what company has the best or cheapest product, today’s most successful competitors are those capable of investing more time interacting with the customers, thus learning and understanding more deeply their interests and preferences. In this fresh competitive environment, companies which really want to play the game have no other choice than to become “smart companies” and create competitive advantages by means of customer knowledge and the implementation of advanced information technology tools. Therefore, for a company to succeed in the New Age of Customers, information must become one of its core assets, and the management of which an absolute priority to make the company different before the customers’ eyes.

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2.3 The Impact On Companies One of the main impacts that Smart Customer Management has on companies is the need to reformulate its functions, processes and organization, in order to embed more customer knowledge and make it actionable deeper into its operational model. To achieve this, companies need to deploy all the means at their disposal —i.e. information technologies, higher data processing capacity— across the whole organization, and engage all key members in sharing their knowledge about customers’ behavior. Furthermore, for a successful implementation of a Smart Customer Management practice, companies must take into consideration a set of assumptions that, in real practice, means the following substantial changes in the way they operate and think: 1. 2. 3. 4.

Internal and external boundaries increasingly become blurred. Consumer’s expectations determine behavioral patterns. Relationships based on mutual learning are key. Maximization of the value of the customer database is paramount

Next we analyze in more detail these assumptions upon which Smart Customer Management is based.

2.4 Internal and external boundaries increasingly become blurred Smart Customer Management entails tearing down some of the internal and external boundaries that traditionally have shaped organizations. The following are some of the most important type of boundaries: 



Boundaries between products and between products and services. These kind of boundaries have become more diffuse and permeable day by day. Boundaries between departments and/or functional areas. We assume that no department in the company can be the sole holder of all the necessary information to respond the customer’s needs. Therefore, departments must share all the information they have

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

about the customers in order to take the most appropriate and effective actions. Boundaries between the company and the outside world. The boundaries between the company and its competitors are disappearing. As customers’ demands are more complex and new market opportunities arise, companies realize they need partners to complement their resources and capabilities. Furthermore, boundaries between the company and its customers are getting dimmer every day. As we have seen before, customers are no longer the passive beings they used to be, instead they are taking a more active role in the design of their own products and experiences — with the help of technologies that allow a more interactive and bidirectional communication with the company.

2.4.1 Consumer’s expectations determine behavioral patterns Smart Customer Management considers that consumer’s behavior is influenced by the following three types of expectations, each of which has important consequences in the way companies are managed: 





Consumer’s first expectation is to have a greater freedom of choice. As a consequence, in the New Age of Customers the customer has become more demanding with companies and requires not only more options to choose from, but also to be treated as an individual with specific needs and goals. Consumer’s second expectation is to be assisted in the process of choice and with the information overload resulting from the large number of options that companies provide to customers. The third is to collaborate and participate in a constructive dialogue with the company that it may lead to mutual benefits.

All these expectations result in distinctive consumer behavior patterns which, once they are well understood by the company, may generate sustainable competitive advantages far beyond the features of a product or service. Some of the consumer’s behaviors that companies may benefit from are the following:

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





Convenience. This means that consumers will prefer to buy more and more products and services from the same company instead of switching to another company, as they highly value not having to waste their precious time analyzing other companies’ products and services. Collaboration. This means customers choose to collaborate with companies when it comes to designing, producing and promoting the products and services they are most interested in, provided that companies make available all the necessary tools to accomplish the collaboration tasks. Anticipation. This implies that once the customer has decided to build a relationship with a company, he/she prefers the company to anticipate his/her needs. To achieve this goal, the company will necessarily have to increase its knowledge about the customer’s behavior and be proactive promoting the products and services that the customer will demand throughout its life cycle

2.4.2 Relationships based on mutual learning are key Companies seeking to implement a Smart Customer Management practice will need to be particularly proficient in managing customer knowledge. What this fundamentally means is that companies should first generate timely and adequate information about each customer —in addition to aggregate information about the market— in order to take specific actions aimed at building long-term relationships. Building a relationship involves companies giving the customer the opportunity to show them who he/she is and what he/she wants, so that this information may be returned to the customer in the form of better products and services than those offered by competitors. In other words, if you are my customer and I am able to hold a continuous one-to-one dialogue with you, I will get to know you better along the time. As I am going to learn something new about you every day that my competitors ignore, sooner than later I will make things for you —products or services— that my rivals will not do because they do not know you as well as I do. What is more, if you wished to quit the relationship at any point, you would have to start a new relationship

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with another company all over again, which would be very time consuming and much more expensive than simply staying with me. Bear in mind that in a customer relationship, exchanges between the customer and the company are always beneficial for both sides —i.e. the customer provides large information in return for a more customized product or service that satisfies his/her needs. It is this exchange which implies a collaborative dialogue between the company and the customer and that we call “mutual learning relationship”, which becomes progressively smarter with each successive interaction. Smart Customer Management is therefore based on the assumption that the more the customer teaches the company about him/herself, the better the company will deliver what he/she wants. Once such a relationship has been created, it will always be more rewarding for the customer to feed the relationship rather than wasting the time and effort to build a new relationship with another company.

2.4.3 Maximization of the value of the customer database is paramount Building up a relationship based on mutual learning and information exchange between the customer and the company is at the heart of Smart Customer Management. However, experience teach us that for most companies it is not so easy to obtain valuable information about its individual customers. Most often when a company tries to obtain this type of information, many customers are hesitant about sharing their personal data, filling out forms, or answering private questions. It is thus important that the company learns how to take advantage of each interaction with the customer in order to learn something new every time. This is what we call developing a “smart dialogue” with the customer. One of the key tools that companies may use to foster a smart dialogue with customers is the Customer Database (CDB). A CDB basically consists of a relational virtual database containing all the relevant information about customers. It is relational because all data are interrelated, and it is virtual because even though it works as a customers’ unique data source, actually

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the CDB is made up of several databases located in different places —either within or outside the organization. For a CDB to be effective, customers’ records must refer to individual customers —both actual and potential— and not to market segments. Additionally, customers’ data should be organized at least in the following three categories:  



Attributes. Mainly including demographic data, regardless of the type of relationship the company holds with the customer. Feedback to company’s decisions. Data related to customers’ perceptions and preferences —i.e. the influence that some products have on the customer— and the marketing mix —i.e. price sensitivity, or customer’s behavior in a multi-channel environment. Shopping history. Data about the products and services that customers have previously purchased, as well as the revenues, costs, and profits associated with each transaction.

It is very important to keep in mind that when a company decides to work towards Smart Customer Management and establishes the maximization of the value of its CDB as one of its main goals, then the metrics traditionally used to gauge the organizational performance —e.g. sales in a period of time, market share per product, etc.— should be replaced by a different set of indicators related to customer profitability and lifelong customer value. Making the company change its way of measuring performance and embrace a whole new set of customer-oriented metrics is, without a doubt, one of the most challenging tasks any company will need to accomplish to successfully implement a Smart Customer Management practice. Notwithstanding, from a Smart Customer Management perspective the key fact remains that everyone in the organization must get to know the CDB and work to maximize its value

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CHAPTER 3. THE FIVE PRINCIPLES OF SMART CUSTOMER MANAGEMENT

In this Chapter you are going to learn about:   

What are the principles governing Smart Customer Management? What are the main objectives pursued? What myths harm the effective development of Smart Customer Management?

Smart Customer Management is made up of a set of core principles that govern each and every stage of its development. Companies should pursue these principles in order to succeed in the implementation of a Smart Customer Management Practice. The purpose of the principles examined in this chapter is to provide companies with a better understanding of the key processes underlying the development and implementation of a Smart Customer Management practice, as well as to avoid delays, mistakes and misunderstandings along the transformation process that companies will necessarily need to accomplish.

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If you are approaching Smart Customer Management for the first time, these principles are a good starting point that may help you realize the real implications behind a Smart Customer Management practice. They may also serve as guiding principles to decide whether to move forward in the implementation process, well before committing any resource or budget to the transformation process. Remember that implementing a Smart Customer Management practice is not a simple task that can be accomplished alone by a member of the marketing or sales department. Quite the contrary, the implementation process is a major collective undertaking that involves significant changes within the whole organization, and whose effects will remain for a long time. These principles may also be interpreted as a set of recommendations that any company may follow to improve the experience and performance of those working on Smart Customer Management, and to make managers’ and executives’ actions more efficient and better aligned with the company’s general goals. Last but not least important, compliance with these principles help ensure that all members of the organization share a common focus on the customer. The five principles that govern Smart Customer Management are the following: 1. The customer is the most important asset of the company. 2. The company must devote all the energy needed to build long-term relationships with the customer. 3. Gathering knowledge about the customer is critical for the company. 4. People’s abilities and motivations to innovate are crucial contributing factors. 5. Strong leadership and an entrepreneurial mindset are also key factors for success.

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3.1 Principle 1: The Customer Is The Most Important Asset Of The Company Companies implementing a Smart Customer Management strategy must realize that the customer is its first and foremost important asset. Furthermore, it should be clear from the very beginning that the customer is its only source of revenue, since no other resource makes it possible for the company to generate revenues and continue to operate and grow. Neither products and services, nor brands, employees, marketing campaigns, innovation, the financial department, or any software or IT system, generate cash flow for the company as the customer does. Of course, this does not mean that the above mentioned resources are no longer important for the company, obviously they still are! However, their importance does not lie in having accumulated traditionally more or less organizational resources, but rather because they contribute to generate revenue from the customer. This significant change in the way the company thinks and operates is fundamental for Smart Customer Management, and involves replacing the traditional product-centric value creation approach by a customercentric one, focused on generating value from customers while constantly taking care of them —just recall the importance of the CDB as a key financial asset. However, as mentioned before, the changes in the organizational culture and strategy required by Smart Customer Management are not simple tasks. They entail significant transformation not only of the sales and marketing functions —those traditionally responsible for building up and sustaining customer relationships —, but of all levels of the organization. Bear in mind that unless every member of the organization has a strong commitment and is accountable for creating value for the customer, the company will no longer stay competitive in the future. Companies that successfully implement a Smart Customer Management strategy and enjoy its benefits shall be those that perform an active and efficient customer relationship management and maintain an open one-to-one dialogue with them. As a rule of thumb, an increase

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in the value of your company’s CDB will most surely result in an increase of the value of your business.

3.2 Principle 2: Build Long-Term Relationships With The Customer Building a long-term relationship with the customer based on mutual learning and trust is another core principle within Smart Customer Management. To make customer relationships work and deliver benefits, customers and companies must interact constantly and provide continuous feedback one another, thus learning something new from each other – i.e. about their needs, preferences, service level— in every interaction. These long-term mutual learning relationships may need some time to develop themselves and, as it happens with interpersonal relationships, companies should seize the opportunities that arise along the way to learn from customers to develop relationships much faster and at a deeper level. The benefits for those companies building this type of relationships are huge, since it will be more cost effective for the customer to stay with the company than not to stay. Customer retention rates will also tend to increase significantly. Having reached this point, we may wonder what customer relationships need to have to be really effective. The following are five main characteristics: 1. Knowledge. The company must understand how the customer develops a relationship, what the stages are, what he/she expects in return, and what he/she usually gets. The company must also realize that relationships are built overtime and that the richer the context of the relationship is, the more difficult it will be for the customer to recreate this context somewhere else, thus customer loyalty rates will increase. Without a clear understanding of how these factors work, no company will ever be able to build a solid connection with the customer.

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2. Continuous interaction. For relationships to succeed there must always be some sort of interaction between the customer and the company. By interaction I mean that both sides exchange information and that there is reciprocity —i.e. that both sides are aware that they exist. Interactions may take place by phone, face-toface, on the web, or every time a customer purchases a product sold by the company. 3. Mutual benefit. A relationship should generate continuous benefits both for the customer and the company. This is an important characteristic because many times companies wrongly believe that for an interaction to exist it is enough to carry out a routine communication addressed to the customers. However, no mutual benefit will result from a relationship if the company is not able to customize its message and to address its actions to each individual customer in a personalized way. If this does not happen, then the customer might decide not to continue with the relationship. 4. Exclusiveness. All relationship must be exclusive, since every customer is different and unique. Furthermore, the company must clearly understand that relationships are built around individuals and not with groups. A company that aims at building long-term relationships with customers should be poised to take part in different kinds of relationships and at different levels. 5. Trust. This is probably the single most important requisite to building a long-term relationship with the customer. Trust can be defined as the feeling of assurance of one party in the reliability and integrity of the other party, and the belief that its actions will safeguard the interests of the trusting party. Trust is important for those companies aiming at building true and honest relationships with their customers, which means both sides need to share common values —i.e. similar ideas on what it is important and what behaviors are appropriate on each situation—, have a continuous and high quality communication —i.e. open, trustworthy, relevant and frequent—, show a non-opportunistic behavior —i.e., no party pursues unilateral benefits but rather looks forward to generating long-term mutual benefits—, and keep a certain degree of

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interdependence —so that risks and vulnerability are minimized through the relationship.

Customer relationships based on trust are a significant source of competitive advantages for companies, and they may generate multiple benefits that can be summarized as follows: 





A greater cooperation between customers and companies. Trust is valuable for mitigating uncertainty and risks, as it involves more cooperation between both sides. Through cooperation both sides learn joint efforts may deliver better results than those achievable individually. A longer lasting relationship. Trust makes both sides to be prone to preserve a relationship and avoid the temptation of gaining shortterm advantages and/or to act opportunistically. For instance, trust of a customer towards a company is generally based on the expectation that the company will keep on doing its best to solve his/her problems and satisfy his/her needs in the future, which it is also the same reason why the relationship will tend to last longer. A greater exchange of information. Trusting parties tend to share more information, thus obtaining greater benefits from the relationship. When trust is present, disputes and conflicts between both sides can be solved in an effective and friendly manner, whereas in the absence of trust, disputes might easily lead to an ending of the relationship.

In summary, whenever a company seeks to build an effective relationship with its customers, it is important to understand that relationships are solidly built only over time, keeping a close eye on customers’ needs and showing a genuine commitment to safeguard the customer’s interests.

3.3 Principle 3: Gather Knowledge About The Customer One of the success factors for building long-lasting and mutual learning relationships with the customer is gathering in-depth knowledge about

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each customer value, so that the company is able to understand customer behavior and the nature of the relationship. Customers generate long-term value because they have memory and each decision they make on a purchase is based on the customer own experience, not to say on their friends’ impressions. The important issue here is that every time the customer has an experience with the company, the likelihood of purchasing in the future varies. If the experience is positive, then the chance is that the customer will continue purchasing, and he/she might even recommend the company or brand to someone else. However, if the customer has a negative experience, the chances are that he/she will not purchase from the company anymore and critics arise. Customer’s long-term value is so important for Smart Customer Management that it is a key determinant of the company’s financial value itself. This is of paramount importance to the extent that when the probability of a customer purchase varies, or when the chance of sharing his/her experience with another friend varies, then the company’s future value also varies. The company’s financial value will therefore increase or decrease not only as a result of having more or less customers, but also depending on the customer willingness to maintain the relationship in the future. In order to understand the customer’s behavior and the factors affecting long-term relationships, it is essential that the company gathers the experience and knowledge from all members of the organization — not only from those responsible for sales and marketing— and make a thoughtful reflection out of it. Only this way the company will gain an insightful view of the customers as the persons they really are, and will get to know what they true needs are, what their goals and ambitions are, how they define success and the things they want to avoid. There is too much at stake when it comes to gathering knowledge about the customer. Ultimately the benefits the company may reap in return are huge and decisive for future growth. Below is a list of the key benefits: 

Low attrition rate. This is achieved because customers stay longer with companies that know them best. When this is the case,

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



customers’ willingness to shift from one company to another diminishes, and they are also more motivated to recommend the company or brand to their friends. Greater efficiency. A greater knowledge on customer’s needs makes interactions more efficient, allowing the customer not to waste so much time interacting with the company —i.e. the company will not ask the same questions or send the same promotions twice to the same customer. When this happens, the customer experience improves dramatically with every new interaction, as well as loyalty rates. Customization. Based on the knowledge the company has about each customer, it is closer to being able to design customized individual experiences, instead of trying to improve customer satisfaction uniformly. This way the company may create significant competitive advantage and achieve more intimate and loyal relationships with its customers.

As a conclusion, Smart Customer Management oriented companies are those that seize every opportunity to interact with the customers and gather a greater knowledge about them. In this process, companies most frequently resort to some of the following practices.

3.4 Principle 4: People’s Abilities And Motivations To Innovate Every company aiming at successfully implement a Smart Customer Management strategy must be able to develop solid innovation capabilities that improve customer experience and support long-term relationships. As far as the company is committed to building long-term relationships with its customers and provide them with solutions that truly respond to their needs, it is fundamental that the company stays focused on creating a continuous flow of new ideas, instead of just trying to maximize the monetary return of the same old ones. Furthermore, as far as the “traditional” resources needed for innovation —i.e. creativity, training, IT systems and knowledge— have

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increasingly become commodities, companies are compelled to change the way they conceive and organize for innovation, and make sure they meet these two conditions: 1. That innovation delivers new ideas that result profitable and add value to the customer. 2. That a continuous innovation environment is developed within the organization.

For the company to innovate in a profitable way it must always keep in mind the customer’s behavior. This basically means the company must remain vigilant of what being a customer means and be ready to take actions on behalf of the customer’s interests, even though this means not to reap short-term benefits for the company. Companies must realize that innovation “as is” does not have any value itself. Unless the customer is carefully considered, innovation might even be counterproductive for the organization in the longer term. Do not get confused by siren calls and think the role of business innovation should not be other than to help customers generate value, and for companies to make sure it is demanded by customers. Ultimately, companies should provide the conditions for developing a climate of continuous innovation within the organization —i.e., provide the leadership, organizational, managerial and financial practices that foster innovation. No matter how creative the company members are, no company will create a sustainable climate for innovation by means of a control and command method. It just does not work that way, because neither innovation nor creativity can be imposed. So, what can a company do to develop a climate for innovation? I suggest you should carefully follow these main guidelines: 1. Be more tolerant to failure and realize that each new idea the company brings to the market has a high risk of failure. Overcome fear of failure and poor performance, otherwise the company will never take advantage of the small number of ideas that may be successful. 2. Increase the number of creative people in the organization, either by hiring them from outside or by training and promoting them from within. Getting your people become more creative means they will

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have to learn how to cross organizational boundaries and develop skills in complex problem solving. It is not surprising that most creative people tend to be intellectually curious, more flexible and open to new things, but also rebel and not very fond of accepting authoritarianism. This means you will need to guide them towards achieving measurable results which result profitable for the company. 3. Afford to create a culture that encourages adaptability and innovation. Although many people think organizational culture is a hindrance for the development of business innovation, it is precisely the “quality” of that culture what instills people’s shared feelings about the company’s values and mission. Furthermore, contrary to the common wisdom, it is the culture of most innovative organizations what encourages disagreement —as long as it is respectful and constructive— and fosters trust among employees and in the company itself. 4. Last but not least, to create a successful culture of innovation you should keep a balance between exploitation and exploration of new ideas and opportunities. Most innovative companies encourage experimentation, trial and error, and the role of incidental innovation, and do their best to keep a balance between the exploitation of capabilities and the exploration of new resources and opportunities. When a company focuses its efforts solely on exploiting its revenue sources and does not explore new sources of resources it means it is living on a short-term basis and condemning its ability to meet the customers’ needs in the future. On the contrary, long-term success demands that the company explores and innovates constantly.

As you can see the factors hindering the development of a proper climate of business innovation are many and varied. Among them the way the company is organized, sets and measures its objectives, and rewards its employees, are just some of the key factors dragging companies towards exploitation rather than exploration. The same can be said of the role that quality management systems have played in the development of innovation –e.g. TQM, ISO9000, Six Sigma and similar. Even though they are good at helping companies

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improve its operational processes and reducing costs, they usually have prevented people from thinking out of the box, thus reducing the number of breakthrough innovations introduced by the companies. Furthermore, since most companies feel uncomfortable with or are afraid of those innovations that imply changes in the established norms, they end up introducing minor-scale changes or short-term improvements. These so-called “innovations” involve fewer risks and are safer for generating short-term benefits, though they miss the great potential of generating new sources of revenue through more creative and radical innovations. At the end, those companies which do not value or do not pay proper attention to the “exploration” side of innovation are committing a big strategic mistake. Instead, companies should allocate resources to exploitation and exploration and realize any business will always find itself in a strained situation when trying to keep a balance between shortterm benefits and long-term value creation.

3.5 Principle 5: Leadership And Entrepreneurial Mindset A company’s willingness to take new risks, face the consequences of the unknown without fear, and explore new ideas that respond to the customers’ needs, are key features characterizing entrepreneurial companies. Why it is so important to develop an entrepreneurial mindset in a company aiming at building long-term customer relationships. To answer this question let me highlight some of the main elements which feature the entrepreneurial organization: 1. Constantly searches for new opportunities. Companies with an entrepreneurial mindset always stay alert for opportunities that help them better meet customers’ needs, and improve the way customers do business. Additionally, being entrepreneurial means the company needs to adapt its business model to the ever changing

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2.

3.

4.

5.

6.

7.

market circumstances and keep the organization flexible to seize new incoming opportunities. Pursues opportunities with great discipline. The entrepreneurial company not only stays alert to new opportunities, but also takes proper actions upon them. For this purpose, the entrepreneurial company keeps an inventory of opportunities that periodically reviews for further action as competitive conditions are attractive and markets mature. It only pursues the best opportunities. Even though the company might have enough resources to pursue multiple opportunities at the same time, it prefers to focus only on a limited number of projects at different stages of development. By doing this, the entrepreneurial company does not dilute too much its effort and keeps its capability to change direction as opportunities unfold. It makes sure everyone gets involved. The entrepreneurial company gets all sorts of people involved from within and outside the organization for the development of opportunities, and tries to make the most out of people’s creative potential. Takes timely action. The entrepreneurial company has the ability to quickly respond to the opportunities and gather knowledge regarding the customer likings and preferences. This is very much important, since customer’s time is valuable and their desire for speed has intensified. Companies aiming at faster operations —and transactions— will need to constantly scrutinize new ideas and speed up opportunities. It’s agile and flexible. These two factors are closely related. Generally, agility is a challenge for any company because it means trying new things that could lead to mistakes. On the other hand, being flexible means the company is willing to take risks and change direction if necessary. When the company acts in an agile and flexible way, it is capable of harnessing new opportunities much faster and achieve its goals quicker. It anticipates the customers’ needs. This means the entrepreneurial company is ultrasensitive to the slightest customer changes, it analyzes them quickly and delivers an adequate response. The entrepreneurial company develops the ability to anticipate changes,

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constantly experiment with new ideas and adapt quickly to the customers’ new demands. 8. It embraces experimentation as a norm. Since the world has become more and more competitive and less certain, the entrepreneurial company develops strategies that combine a disciplined analysis, experimentation and opportunity discovery for business development. This is why the company is not afraid of carrying out projects of uncertain results, and implements robust processes to measure and manage them. For instance, for an entrepreneurial company the implementation of a Smart Customer Management strategy would mean carrying out a strategic experiment from which to gather information to make better informed decisions and changes as conditions evolve. 9. It has a well-defined leadership. I am not talking about the leadership style that dictates how and where new opportunities should be found, or how resources should be identified to make the company more competitive, but rather the leadership that makes the entrepreneurial mindset a part of the organizational DNA. The kind of leadership that makes everyone in the company realize that success is achieved by continuously searching for new customer related opportunities. In other words, the leadership that makes everyone have the right and obligation to seek new opportunities and make them real. The leadership that inspires people to get to work motivated and feel proud to be part of the organization. 10. It knows how to get into the customer’s head. Entrepreneurial companies are aware that to stay ahead of competitors they need to understand better than anyone else how the customer experience is created —even better than the customer him/herself. Literally, the company must learn how to get into the customer’s head, know the effects that its products and services have on the customers’ needs, and find out how much the customer is willing to pay for them. As you can see, it is not necessary that the company has a revolutionary product or service to be successful. Instead it must generate advanced knowledge about the environment its customers live in and provide solutions to important needs within that context.

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Note that if your company is trying to develop an entrepreneurial mindset it is key to focus not only on the directors’ and executives’ profiles, but fundamentally on the organizational culture that is shared by all members of the organization.

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Tearing Down Old Myths Some myths from the old product-centric days are still alive and survive in today’s customer management arena. The problem with them is that they feed a wrong understanding of Smart Customer Management and hamper companies to make further progress. Moreover, most of these myths are the result of negative experiences and bad practices carried out by companies when venturing with new ideas, and have otherwise prevailed in the business culture for years. Getting rid of myths in business management is a daunting task that needs time, but one that companies must accomplish sooner than later as new room is needed for Smart Customer Management. Meanwhile, I provide a bunch of reasons that will make you realize why some of these myths are proved wrong and will clear up the road for the following chapters in the book.

MYTH 1: The customer revolution is an invention of technology companies It is true that technology companies have seen in the customer revolution a source of great opportunities to sell their products and services and be profitable for years to come. But to assert that the customer revolution is an invention of these companies is going too far. As we have examined previously in the book, the customer revolution is the result of dramatic social changes taking place today and that affect all organizations in the world. It is a revolution in the way and in the means people communicate with each other and in the technologies that

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make this happen. Not a high-fly idea coming out of someone’s imagination.

MYTH 2: There are a lot of customers everywhere. If I don’t sell here, I’ll sell there Remember how Smart Customer Management stresses the importance of the customer as the main asset of the company? I now add that the customer is also the scarcest resource of the company, scarcer than market products and services, or the money you can raise to finance your company’s operations. It’s true that world’s population is above 6 billion people and that you may be tempted to think this is the potential market for your products or services. However, reality proves that only a small fraction of this huge market would want to buy something from you. Thus, your company’s ability to grow in the future will depend more than ever on identifying new customers, building individual relationships, and generating as much business as possible with them. Once you get this clear, it will be easier for your company to start changing its mindset and make better decisions based on the Smart Customer Management principles

MYTH 3: Most important are today’s revenues We have learned in this chapter how customers create value for the company in two ways: i) from revenues coming from customer purchases, and ii) from the customer’s willingness to continue purchasing from the company and/or recommend the company to a friend. Even though these two components of the customer value equation are so important, many companies still do not know how to calculate the second one. This means that

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a significant number of companies simply ignore and do not measure how much value they are creating to make their customers come back tomorrow —which it is as important or more than the revenues generated today.

MYTH 4: Relationships with my customers are fantastic because they purchase my products This assertion so common among executives is proven absolutely wrong, since not all kinds of exchanges between customers and companies may be defined as “relationships”. Most of the exchanges are mere transactions that take place between a buyer and a seller and do not have any correlation with previous or future transactions. Furthermore, for a true customer relationship to exist certain types of exchanges must occur between a company and a customer; these exchanges are what we call “relational”. Relational exchanges are connected with the history of previous exchanges, and help anticipate what comes next. And unlike “transactional” exchanges, participants in relational exchanges exchange information and aim at improving interactions over time for the benefit of both sides.

MYTH 5: My customers are loyal because they purchase frequently This is also wrong. There are many ways through which a company can encourage its customers to come back once and again, none of which means a relationship must exist. The company must understand that customer loyalty and customer relationships are not the same thing.

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Customer retention —namely, that a customer continues purchasing from a company over time— is what we call “behavioral loyalty”, while customer relationship implies “emotional loyalty”, which is deeper in essence. Consequently, the fact that customers purchase from a company on a regular basis does not mean that they are loyal or that they have built a relationship with the company. Quite the opposite, these types of customers can be defined as “functional loyals” because the factors that rule their behavior are of a functional type. Among functional loyals there can be an evident absence of attachment to the company and little or no emotional connection with it. Ultimately, note that this is a very vulnerable type of loyalty, since there is not an authentic relationship between the customer and the company.

MYTH 6: Social networks are a passing fad in which it is not worthwhile investing There are many features that ascertain the difference between today’s path of technological progress, mainly led by social media technologies, and that of decades ago. For instance, in the times of Web 1.0 it was thought that web applications would bring drastic changes in the way we all solved problems. Moreover, the more “cool” an application looked, the higher the chances were that developers made a fortune. Nobody recalled to ask the customer what he/she thought, and reality ended up proving that there was not enough social demand to support an economy built on somewhat artificial pillars. But the times of Web 2.0 and social media are totally different. They are no longer based on making money upon technological applications with greater or smaller utility. As a matter of fact, a large number of the new technologies

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that have appeared in the last ten to five years have been developed not by companies, but by communities of developers, and have been made available to users totally free. This is a significant difference with respect to the previous times, and also a guarantee that we are not before a passing fad, but rather before a far-reaching social change.

MYTH 7: Customer service is the sole responsibility of its director Even though there is a growing number of companies that employ dedicated staff and managers to customer service, in the context of Smart Customer Management customer service operations require the involvement of all company’s departments and, in many cases, of external partners too. Departments like finance, systems or product development also have a role and impact on customer service, thus they should not be oblivious to the work carried out by the customer service department itself. The rule of thumb for companies thinking of Smart Customer Management is that the person responsible for customer service should be who sets the standards and processes for the service, while customer service accountability should be assumed by the organization as a whole.

MYTH 8: Building customer relationships is difficult because they require time and proximity As we have learned above, one of the core principles of Smart Customer Management is to build long-term relationships with the customer on mutual trust and learning. To achieve this, it is important the company provides a setting of intimacy with the customer that

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encourages the exchange of information and generates knowledge and benefits for both sides. Recent psychological studies have proved that intimacy is a state that can be achieved rapidly and in several ways —i.e. using a pleasant tone of voice that motivates dialogue, developing an active listening process, or showing that the person who listens shares and understands the message of the person speaking. Additionally, though proximity is another desirable factor while developing intimate relationships, the truth is that there are many examples that demonstrate it is not such a relevant factor when building up relationships —i.e. the intimate relationships that develop through social networks or as a result of a club membership.

MYTH 9: Building trust with the customer is time consuming Many executives think that building a relationship of trust with customers is a process that demands a great amount of time and energy, as well as a high investment that is not really worth making. However, it is not really time what it takes to build trust with customers, but instead the experiences that lead the customer to think and feel the company is authentic and trustworthy. It is true that some time ago providing experiences to customers took a lot of time, but today experiences can be summed up rapidly without consuming much time. Furthermore, according to the last studies on the field, all factors required to create trust —i.e. credibility, intimacy and sharing common goals— do not really depend on time.

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MYTH 10: The more customized the contact with the customer is, the better Well, it depends. Guess how you would feel if you called a company’s customer service department and the operator knew all your history records, your likings, and he/she was able to anticipate your needs. Most probably you would feel happy. And imagine if the operator transferred your call to another operator and this was still able to remember your previous conversation, knew your name and had access to your profile information. You would probably celebrate it! Now think of this different scenario. How would you feel if you received a call from an unknown salesman offering you a product or service that you do not need and he/she knew your name and records? Would you feel as happy as in the previous situation? I guess the answer would certainly be NO. With these two examples I am trying to show you that customers do not always wish to maintain a customized contact with your company. It will depend on the context in which the contact takes place and on the purpose of each interaction.

MYTH 11: People trust companies, not other people There are many companies which still think that the staff behind a brand, or a certain product or service, is totally harmless when it comes to build a trustworthy relationship with the customer. Often the reason is that companies believe that what customers really trust are companies, and no other people. However, this is wrong! The customer is a human being and, as such, always prefers to build a relation with other human beings, and not

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with brands or companies that are impersonal. Customers love socializing with other people and, when possible, like talking about what they want, when they want it, and under what circumstances. The boom of social media is a clear example of how customers associate important values for relationships to another people —i.e. credibility, intimacy — and not to companies.

MYTH 12: People like to be asked for their opinion Many companies believe customers like to be asked for their opinion and that every time the company ask them, they are contributing to build a trustworthy relationship with the customer. Moreover, some companies still think that when they frequently ask the customer about this or that experience, they are indirectly transmitting the importance the customer has for them. However, reality is different. What people like is to be listened, but listening is not the same as being interrogated. People are not too keen on filling out long questionnaires to say what their satisfaction with a certain product or service is. Instead, people prefer a company that listens actively to what they have to say through all possible means. Do not you agree? Try to remember when was the last time you filled one of those questionnaires in a hotel.

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PART II. IMPLEMENTING THE MODEL

In Part I of the book we have learned the reasons that explain the advent of the New Age of Customers and how its multiple consequences are having a deep impact over the company’s way of thinking and operating. We have also learned that in a not so distant future if your company aims to remain competitive, it will not be enough to produce the best products or services, or to offer the lowest prices. Neither are you going to control your company’s information, nor to prevent customers’ opinions from spreading across the world, including your competitors. In the New Age of Customers if you want to reach new customers, retain them, and increase the value of your customer database, you will need to roll up your sleeves, spend time and effort understanding the customer, and fully master Smart Customer Management. Unless you take the matter in your hands soon, your company is at risk of becoming irrelevant to customers. In the following chapters, we are going to examine the components that make up the Smart Customer Management model. A model that will certainly help you start developing successful customer-centered management strategies in your company.

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CHAPTER 4. THE SMART CUSTOMER MANAGEMENT MODEL

In this Chapter you are going to learn about:   

What are the main features of the Smart Customer Management model? What are the stages that make up the model? What are the goals pursued by the model?

The implementation of a Smart Customer Management strategy requires the company to carry out several types of interrelated activities, all of which make up “the model”. Some of the activities are subject-specific and grouped around vertical stages, while those supporting and facilitating the implementation process are grouped in horizontal blocks. The model describes in a structured way, the key tasks needed to build long lasting relationships with the customers and the tools and techniques that the company should provide itself to become a more customer-centered business. Furthermore, the model is the result of research and analysis on the best practices organizations across the world have successfully set up to deploy a customer-centered strategy. It is worth noting that companies thinking of implementing the Smart Customer Management model for the first time may decide start working on

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any of its proposed stages, as the model does not compel companies to strictly follow the stages in the same order. However, although the company itself might decide to undertake the activities covered in a particular stage in a different order —i.e. because a certain maturity level has previously been reached by the company—, the model depicts the sequence that most often would result in a successful implementation of the model. The Smart Customer Management model (Fig.1) consists of a circular flow of activities grouped in stages, where the outcome of one stage feeds the inputs of the next stage. This iterative process guarantees the company will obtain continuous feedback about its performance and ensures that the transformation process does not stop. Additionally, all stages of the model stand on top of two blocks comprising horizontal activities, Change Management and Tools, which group together the techniques and technologies needed to manage the company’s transformation and implementation processes. In summary, the model is a process-based methodology that may be applied by any organization operating in any environment or business scenario.

Figure 1. The Smart Customer Management model

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4.1 Stage 1: Strategy Building up a relationship with the customer does not happen by chance or accident, but rather through a careful and deliberate working process that needs to be planned by the company in order to be successful. A simple and well-defined strategy sets the guidelines needed to understand the customer and to pilot the model implementation process, making sure that everyone in the organization is well aware of the objectives pursued. Without the right strategy, the company’s employees, executives and partners will never know what to expect, or how or when they must build relationships with customers. Furthermore, they will be hesitant every time they have to face a change, and this lack of orientation will negatively affect the customer —who in turn will lose the faith in the company’s ability to satisfy his/her needs. On the contrary, a solid and well-aligned Smart Customer Management strategy will help to put order in the inevitable company’s transformation process and allocate the resources in a more efficient way and where they are most needed.

4.2 Stage 2: Knowing the Customer This is surely the single most crucial stage in the Smart Customer Management model and implementation process. Its goal being to dive into what the company knows about its customers, in order to act over the customer’s behavior. The above means that the company must first realize that every customer is different. This may be accomplished by finding out each customer identity, learning what the customer wants, and determining how he/she perceives the interactions with the company. To achieve this goal, the company will need to mine all customer data and provide itself with the tools to make this information available. It is worth noting that unless the company is able to have its customers’ information readily available as to convert it into meaningful and useful knowledge for all the people in the organization, the tasks covered in Stage 2 of the Smart Customer Management model will make no sense. Capturing

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the right customer data and turning it into actionable knowledge is thus a fundamental step towards removing bad customer management practices — mostly based on wrong beliefs about customers’ behavior— and make serious progress in the implementation of a Smart Customer Management strategy.

4.3 Stage 3: Designing the Customer Relationship Once the company has made available all the necessary knowledge about its customers, the next stage in the Smart Customer Management model should cover the design of the individual interactions with the customers, fundamentally centered on treat them differently. Managers and decision makes within the organization should bear in mind that relations with the customers are a dynamic process that evolves as the company and the customer deepen their mutual knowledge. For this it is essential that the company stays as near as possible to the customer at all times. Designing a relationship is not only a way to demonstrate the customer that the company thinks about his/her interests permanently, but to create affective bonds to better meet his/her needs. Ultimately, designing the customer relationship is not about setting up tools to blast e-mails to the largest possible number of contacts, but rather to create a collaborative cycle aimed at finding out more about the customers, to the extent that no competitor is later on able to provide an offering like yours.

4.4 Stage 4: Customizing The Company’s Offering Treating each customer differently primarily involves customizing the value of the products and services offered by the company according to each customer’s value and needs. Certainly this is the final goal of Smart Customer Management and fundamentally suggests that your company will need to adapt some of its behaviors to, and closely collaborate with, the customer in order to deliver solutions that meet his/her needs.

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Note that sometimes customization will simply consist of changing the look of a product, modifying its packaging, or switching the way an invoice is printed. However, on other occasions customization might become something much more complicated —i.e. wrapping up together some products and services whose value, as a whole, would exceed the value of each item individually. Customization is key to increase the number of transactions with each customer individually and to keep the company attractive for more business. Furthermore, it is the very reason that explains why a customer is willing to pay a higher price and how to raise the benefit per transaction.

4.5 Stage 5: Measuring Results As we have already seen above, companies focused on Smart Customer Management make an intensive use of customer data and knowledge on their path to achieve its final goal: to treat each individual customer in a differentiated and customized way. Along this process, it becomes key to account for the processes and technology tools that may enhance the capture, measurement, and analysis of customer data, as well as the dissemination of knowledge across all levels of the organization. Change management experts usually assert that “you can’t manage what you can’t measure”. Whilst I agree with this idea, it is worth noting how crucial is for the company to make the customer behavior something tangible and measurable from which to learn new lessons and assess the extent to which its actions are useful to respond to the customers’ real needs. In the race for customers, the more complete the (customer) snapshot is, the more prepared the company will be to respond in a faster and more efficient way to the customer preferences. The following chapters in Part II of the book are dedicated to dive deeper into each of the stages that make up the Smart Customer Management model, as well as to learn more about the activities the company needs to accomplish to achieve an effective implementation of the model.

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CHAPTER 5. FORMULATING AND SHARING A STRATEGY

In this Chapter you are going to learn about:   

Why is it important to plan a Smart Customer Management strategy? What are the key elements of a Smart Customer Management strategy? Which is the best strategy for my company?

Building long lasting relationships with your customers is the result of an endless number of attitudes, behaviors and decisions of each and every member of the organization. Since the size and complexity of the customerbusiness ecosystem is unmanageable, it is important that the company does it homework and starts aligning all employees, executives and partners around its Smart Customer Management strategy and vision. Note that unless the company lights up the path for such an alignment, people will wander off on their interactions with the customer and behave in ways that will seem random and nonsense to the customer. Even worse, the decisions taken by the different actors in the ecosystem might conflict despite their best intentions.

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Many companies become aware of the need to implement a Smart Customer Management strategy precisely at the moment they discover there are conflicts within the organization, different philosophies or ways of understanding the relationship with the customer, or there are too few ongoing projects pursuing opposing goals —i.e. one project aiming at servicing customers by telephone, another trying to avoid the telephone, and yet others attempting to expand the telephone service to a few more languages or customers segments. Surely each department or project leader may have its best intentions and believes in the way they understand the customer relationships is sincere and valuable. However, most likely none of them will know what the others are doing or how the relationships with the customer are being managed from a company’s perspective. Unfortunately, this situation is more frequent and frustrating than one can imagine, no matter how big or small the company is or in which industry it operates. Hence, if this circumstance is so common, why on earth do not companies prevent this from happening? The answer itself may sound simple: because they lack a strategy for the development and implementation of a Smart Customer Management strategy. In order to avoid this mistake, it is important that every time you make a decision about designing a new product or service, investing in a new technology, launching a marketing campaign, or hiring someone, you first take into consideration your customer relationship strategy. In other words, you and your company should never take decisions about how to interact with the customers unless there is a well-thought out strategy in place, otherwise you all face the risk that customers end up fleeing and the CDB losing its value —thus affecting the company’s own competitive capability.

5.1 What Does A Strategy Involve? A Smart Customer Management strategy is not some director’s assignment to a member of the marketing or sales department, nor should it become one of those annoying projects that make people have to leave their duties and meet together while still needing extra time to complete their everyday work.

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A strategy is the plan that every company must develop in order to push the Smart Customer Management implementation forward. Formulating a strategy is a critical process that must ensure Smart Customer Management will be in place, thus providing the organization with the guidelines to understand the customer, design the relationship, meet the customer’s needs, and assess performance. A good strategy should therefore consist of a structured group of actions that shed light on the right path to implement Smart Customer Management, and ensure a seamless alignment with the general business strategies. Moreover, without a clear and concise strategy that is well understood and shared by all members of the organization, the employees, directors and partners will not know where they stand, nor whether they should build relationships with the customers, not to say how to do so. Even worse, a lack of strategy might make the company deliver customized products or services to customers who do not really need them or do not care about them, but to whom the price may be key. Thus, if the company does not have a solid and consistent strategy it will most likely generate dissatisfaction among its customers and make them leave the company.

5.2 How To Formulate A Strategy? The first thing you should start doing to formulate a Smart Customer Management strategy that endures overtime and keeps itself aligned with your company’s general business strategies, is to envision and outline it in detail. Although this may sound obvious to you, it is common to find many companies whose strategies consist only of a combination of vague and disjointed statements, like “we wish to deliver a memorable and unique experience” or “our goal is to exceed customers’ expectations”. This misleading way of formulating a strategy makes many executives get surprised when their employees do not know what to do or how to work with customers, or when they realize that employees’ behavior is not what it was expected of them. Indeed, it would be more surprising that with those empty statements, employees could do any better!

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When formulating a Smart Customer Management strategy, you basically have two alternatives: i) to let your employees and partners continue on asking themselves what they should do to improve the relationship with the customers and stumble over the same stone every time they intend to coordinate their own activities with those of other departments, and ii) guide them so that they share a common vision and work out a strategy that clearly sets future actions. Every strategy should contain a clear and well-defined vision; otherwise it is likely that many people in the company will understand the strategy in a different way and all the work will come to nothing. Additionally, it is key that the strategy is tangible enough so that all employees understand it unambiguously and can put it into practice without personal interpretations about what is in or out of the strategy. Once the strategy has been formulated, the company should start spreading it out among those who need to know it and get things underway. Only after, will the company be able to move forward to the next stages of the Smart Customer Management model and find out how to align its strategy with the customers’ real needs, their behaviors and motivations.

5.3 What Is The Most Suitable Strategy For My Company? Once you have decided your company needs a clear and compelling strategy for the implementation of Smart Customer Management, then the next question might be: What is the most suitable strategy for your company? No doubt, this is a question of great concern. To answer this question, it is worth noting that most companies usually do not make this question themselves, nor do they take the necessary time to think this matter over. Instead, they take for granted that their strategy is the best possible, or they simply copy and paste someone else’s strategy — generally a strategy from some well-known renowned company. A good piece of advice here would be to forget about copying the Apple’s, Amazon’s or Starbucks’ strategies and think about your own strategy carefully twice. It is fairly unlikely that any of these VIP strategies may yield

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the same results in your company, and they might even bring in some really bad consequences. Definitely this is not the right way to formulate a winner’s strategy. In fact, no one would be surprised to see that Disney’s or Toyota’s customer relationship strategies are built to meet their customers’ needs and desires and to anticipate next purchases. But this does not mean their strategies may work for your company, or that they are the most suitable ones. Unless your strategy is exactly the same as of those companies —in which case you would have to adapt it to your distinctive features—, the next thing you would need to do is align it with the general business strategies of your company, which is not either an easy task. Another simpler option, and the one that I would strongly recommend, is to formulate your own Smart Customer Management strategy and turn it into a kind of “super-strategy” from which all your company’s remaining strategies —e.g. financial, technology, innovation, manufacturing, commercial— emanate and get aligned. Doing so would certainly make easier for your company to assure a successful Smart Customer Management implementation and avoid that either a wrong strategy or a misalignment throws your customers and employees into your competitors’ hands. In conclusion, your company must choose among two alternatives: i) either to make your Smart Customer Management strategy your company’s “super-strategy”, or ii) to design a way to assure that your Smart Customer Management strategy will always remain aligned with the general business strategies of the company. It is needless to say that, in the latter case, the Smart Customer Management strategy will need to be aligned with each and every component of the customer relationship design process (see Chapter 7), as to make sure that the organization stays current on how and when it can relate to the customers and how it can meet their needs at all times. With so much work ahead, you would better be prepared for the battle!

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CHAPTER 6. KNOWING YOUR CUSTOMERS TO IMPROVE RELATIONSHIPS

In this Chapter you are going to learn about:   

What does the process of knowing your customers involve? What methods are useful to gather knowledge about the customer? How can you get the most out of customer knowledge to improve relationships?

Knowing the customer is the next stage in the Smart Customer Management model and one of the most crucial for its successful implementation. It requires that the company spends a great deal of time and resources gathering knowledge from the customers, which will later serve to treat each individual differently. This stage is made up of a group of activities whose final goal is to achieve a deep understanding on who the customer really is, what he/she wants or needs, and how he/she perceives the interactions with the company, in order to share all this knowledge with every member of the organization. Customer knowledge is thus of paramount importance for the company because it makes it possible to put an end to some wrong beliefs about customers, which are otherwise deeply settled in many companies —i.e. customers’ needs are the same as those of employees and executives and

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thus easy to anticipate. In fact, these wrong beliefs are typical of traditional organizations still grounded in a product-centric approach rather than in a customer-centered approach. Companies focusing on Smart Customer Management must replace its myths and beliefs by more robust and informed customer knowledge. You may start this process by gathering knowledge about the customer before accomplishing other related tasks, such as product and service design and development, organizational reengineering, or making investments in technology. If the company does not have enough knowledge about its customers, then it risks making mistakes and spending more money and effort than one would expect for the implementation of the Smart Customer Management model. Getting customer knowledge is thus key to tackle the next stages in the model and without it you might probably end up frustrating and bothering your own customers despite your efforts to serve them in the best possible way. In conclusion, only if you are able to understand what your customers really want and allocate the means to act upon that knowledge, your company will build a solid and long lasting customer relationships and achieve a real competitive advantage. To gather knowledge about the customers that is useful and allows the company to successfully develop a Smart Customer Management strategy, you will need to carry out a process made up of the following tasks: 1. 2. 3. 4.

Collecting customer data. Analyzing the information gathered. Documenting research results. Making available the results to all levels of the organization.

6.1 Collecting Customer Data Collecting customer data is the first step your company will need to undertake in order to get as complete a picture as possible about who its customers are and what they want from you, this being a necessary step to start drawing relevant conclusions about your customer relationship.

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The company should start recognizing each customer individually through the information it gathers from touch points, the products and services the customer purchases, and the communication channels that are open. Later on, it should organize and aggregate all the information captured and, finally, spread it out across the organization in real time. An example of this entire process can be found in service companies, many of which use information technologies to integrate all customer data. These technologies allow employees with direct contact with the customer to gain faster access to the customers’ profiles and customize the experience on the go. Furthermore, these tools enable employees to collect extra data about the interactions held with each customer, and distribute it to other company departments so that they can analyze it and manage customer relationships more efficiently. Collecting data seems to be a fast and simple process, but in reality is not so. Maybe you are asking yourself how you may start identifying and gather information about your customers, if this is the first time you need to. My advice is that you may follow these basic two steps, depending if your company has customer data already available or not: 1. If your company has customer data available: Extract and aggregate the customer data that already exists in the company. Make an inventory of all customer information that your company has available in any format, either digital or not. Most likely, customer data will be dispersed and in different formats, some may even be in text format, other in databases, other in spread sheets or similar. If customer data is not available in electronic format, my suggestion is that you begin transferring it to an electronic database —as long as it is valuable information— so that it can be accessible from within the organization and be safe from any possible loss. 2. If your company does not have enough valuable customer data available: Then you should use a method to identify and collect that information. One of the most frequently used methods is to organize a contest or some kind of sponsored event, as budget permits, whose objective is to compile a list of real customers’ names and addresses. When the company has enough customer data available, then the next step would consist in linking this data

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to the customer purchase history. This may help the company to later know the actual and future values of each customer. Some differences may arise when collecting customer data. These are mainly due to the differences between companies operating in B2B and B2C environments. In a B2B environment, the main challenge is to identify who the final user of a product or service is. For this you may organize a meeting with your customer, attend festivals or exhibitions to exchange business cards, or to invite the customer to an event sponsored by your company, or simply join a tour to your facilities. Another usual method to find out who your customer really is consists in offering a service or advantage that only he/she can benefit from, once he/she identifies or takes an active part in an activity. In a B2C environment, you may use a great variety of technologies that will let you download tons of data about your customers —not only their full name but also information about former orders, demographic and psychological profile— and to categorize each customer according to one or more variables. Of course, you may also turn to social media. This will help you communicate with your customers in a much more personalized way and “listen” to what the customer has to say about your company. Moreover, by monitoring your social media you will be able to follow up each interaction with the customer and keep all opinions and comments saved, together with the assessments made by your employees in the CDB. In addition to all the methods above, you may also have access to other more or less sophisticated tools to extract relevant data about each customer, among which it is worth mentioning the following:

6.1.1 Surveys Surveys may help the company collect customers’ opinions about specific interactions and aggregate customers’ feelings thanks to the statistic relevance of survey results. Even though many companies use surveys as a reliable method to obtain fast and trustworthy information on customers, the fact is that surveys have many limitations mainly related to the type of knowledge they can help generate —i.e. surveys are not good if you are

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interested in finding out the reasons why people do or do not do a certain thing or how they do something. On the contrary, surveys are a reliable method when the customer knows the answers beforehand, which is unlikely when he/she is asked about how is his/her relationship or the experience with the company. Furthermore, surveys assume that what participants respond is always true. However, most people who answer a survey are not completely sure or they simply do not recall their own behavior in situations they have not been in before. This is the main reason why companies seeking as complete as possible customer knowledge must complement surveys with other qualitative methods of research.

6.1.2 Regular communication channels with the customer Many times customers give the company the opportunity to find out what their opinion on a particular subject is without having to ask them —i.e. you may get opinions through e-mail, chat, blogs, forums, support and service calls, and/or postings on social networks. Continuous communication with the customer gives you plenty of information that you may later transform into customer knowledge if you learn how to do it (see Chapter 15). Once you have gathered this information and analyzed it with the appropriate tools, it may be easier to identify those key areas that need your attention or swift improvement.

6.1.3 Direct observation Direct observation is about capturing information based on the direct observation of the customer behavior in a familiar environment —i.e. home, work—, where you can examine what the customer does on a daily basis, analyze how he/she consumes a determined product or service, etc. In this way it is possible to understand what the customer really does, what motivates his/her most, and what opportunities best satisfy his/her needs, and help create experiences that are tailored to the personal and/or professional life style.

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6.1.4 Employees’ information Although most customer data should come from the customer itself, companies must not forget the great amount of information that is stored by salespeople, customer service staff, and contact center operators. These employees have direct access to the customer and know a lot about the good and bad experiences customers are having, much more than traditional research methods usually do. For this reason, you would better pay attention to what your employees may say and do not forget they are an important source of information about your customers. Moreover, they may help you better understand how your processes, policies and information systems are affecting the relationship with your customer. Finally, another important issue that needs attention is what kind of information companies store and how they store it. Bear in mind that names are not good customers’ identifiers, since more than one customer may have the same name or a customer may use variations of a name to identify him/herself. Thus, for properly storing customer data in the CDB, it is advisable that a unique identifier is assigned to each customer —i.e. a number that is automatically generated, an e-mail address, a telephone number, or a user ID chosen by the customer. This way you will have no problems. Once again you can see the CDB is of paramount importance within the Smart Customer Management model, as everything regarding the CDB data model —i.e. how the database structure is determined, how data is organized and delivered, or the ownership and responsibility over the CDB— involves key decisions the company needs to make at this stage.

6.2 Analyzing The Information Gathered The analysis of the customer data stored in the CDB aims at providing a better understanding of the nature of the differences that exist among customers. In the later stages of the Smart Customer Management model

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implementation, the analysis of data will help the company treat different customers in a different way. Understanding, analyzing and taking advantage of the differences that exist among customers is a key task within the Smart Customer Management model, as this allows the company to develop specific behaviors for each customer and increase the overall value of its customer database. Thus, customer data analysis as such, is an essential step within the process of knowing the customer and one that must be accomplished in two steps: 1. The analysis of customer value: It aims at understanding the way customers create value for the company and why some customers create higher value than others. In other words, it focuses on why some customers are worth more than others. 2. The analysis of customer needs: It is the last step before interacting and starting a dialogue with the customer. Next we learn more about these two steps involved in analyzing the customer information gathered.

6.2.1 Analysis of customer value Getting to know the value of each customer, namely to determine which customers are the most and least valuable for the company, is a key task when managing customer relationships and allocating time, money and resources to the customers. Knowing customers’ value enables the Smart Customer Management oriented company to set individual financial goals for each customer. For that goal the company needs to know both the actual value that the customer is creating for the company, as well as the potential value that might be created in the future. For instance, the company’s goal for a customer with a high potential value might be increasing its share, while the goal for another with a low actual and potential value might be minimizing the costs of service. Once each individual value is known, the company should classify every customer in one of the following five categories (Fig.2), according to his/her actual and potential value:

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1. Most valuable customers. These are the customers who have the highest actual value for the company, as they contribute with the biggest share of business. They are also the ones that provide the highest profit margins, the most loyal, those who cost less to serve and who refer the company to the largest number of potential customers. The company’s main financial goal for this type of customers is to retain them. 2. Customers with higher growth potential. They are customers that despite having a low actual value for the company, their potential value is high. The company’s financial goal is to increase their actual value, ensuring that the business these customers have with other competitors will eventually shift to the company. Usually these customers are the competitors’ most valuable customers. 3. Customers with low maintenance cost. They are customers with low actual value for the company and low expectations for potential value growth. Usually they are the largest customer category., Nonetheless, they still might provide value were they profitable in some way. The financial goal of the company is to reduce the variety of services provided to them and/or to make the interactions with them as efficient —and automatic— as possible. 4. Super-growth customers. They are customers who have high actual and potential value. Usually the company only has a few of this type of customers. They are more common in B2B environments and typically are big companies that purchase considerable amounts of supplies. The goal with these customers is not only to keep them afloat, but to try to increase the business with them. 5. Customers below zero. They are customers with very low actual and potential value, or even with negative value. They provide less revenue than what they cost to serve, no matter the effort the company makes to avoid it. The goal should be to create an incentive to transform these customers into profitable customers — i.e. to charge a fee for services that were formerly provided free of charge, or to ask them politely to leave for a competitor.

High

Customers With Higher Growth Potential

Low

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Customers With Low Maintenance Cost

Most Valuable Customers

Low

High

Potential Value

Super-Growth Customers

Customers Below Zero

Actual Value

Figure 2. Customers’ Value Matrix Although this value categorization of customers may seem somewhat arbitrary, it is in fact rather useful for the company as it allows to set different financial goals depending on each customer category. Furthermore, once all customers have been categorized upon their value for the company, those responsible for the company’s marketing or customer management should be able to formulate a well-informed strategy able to cope with the company’s customer mix —i.e. either by adding new valuable customers, increase the profitability of the customers with the highest growth potential, and/or reduce the number of customers below zero. In this regard, it is worth noting the following two strategies companies might use depending on its customers’ value definition:

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1. “All Customers Are Good” strategy: This strategy is mainly focused on gaining more and more new customers. With this strategy the company’s market share might improve, however the customer mix will most probably have the same value as before. In fact, this strategy often leads to a systematic downgrading of the customers’ value, since the customers more easily gained are those that usually generate the least value for the company. 2. “Only Valuable Customers, Please” strategy: This is the strategy that I recommend most to the Smart Customer Management oriented companies. It consists of focusing on gaining only those customers with the highest value instead of trying to gain any type of customer. Moreover, this goal may be extended to increase the current customers’ actual value, moving them up individually on the value scale. Most of the time this strategy yields an overall increase of the customers’ value. As you can see, one of the most important benefits of knowing your customers’ value is that the company can allocate its resources and marketing efforts in a more informed and efficient way. You may focus on the customers with the highest value and growth potential, and spend fewer resources on the lower value customers. Furthermore, by analyzing your customers’ value you will come to the conclusion that it is a much less appealing strategy to gain new unknown customers, since most of these customers will never add any value for your company. If you take the time to know and understand the value of each customer, it is most likely that your company will be more efficient when it comes to gaining more profitable customers, besides you will better develop the profitability of your existing customer base, and you will be able to increase your customers’ retention rates. Ultimately, your company will earn more money and its future will be brighter.

6.2.2 Analysis of customer needs Once your customers are categorized by their value, the next step in the analysis of the customer information gathered is to differentiate them by their needs. While customer value analysis is useful to determine the

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company’s financial goals for each customer, customer needs analysis may help us set up the tactics to achieve these goals. Note that when I talk about customer’s needs I refer to what the customer wants, what he/she prefers and what he/she would like to get from a company. Customer’s needs are thus the force behind the customer’s behaviors and reflect the why —and sometimes the how— of customer actions. Occasionally, the customer’s needs may be confused with the features or benefits of a product or service. Companies create products and services whose features are specifically designed to satisfy customers’ needs, still these benefits are not equal to the customer needs. Two different customers, for instance, might use the same product with the same features and, nonetheless, meet very different needs. Understanding the customer’s needs is a decisive step towards influencing customers’ behavior in a way that is financially favorable for the company. Moreover, when the needs of a particular customer are known, the company finds itself in a better position to take the customer’s place and offer him the best possible solution. The analysis of the customer’s needs consists of categorizing the customers in different groups with regards to their specific needs. However, some difficulties may arise since there are tons of factors that can explain customers’ needs —as well as different kinds of analysis that can be applied. Add to this the fact that companies collect the information about the needs from interactions that are different, all of which makes the analysis intricate. For instance, given a group of customers, their needs may vary depending on their beliefs, psychological biases, life stage, mood, ambitions, and an endless list of similar factors. To overcome the complexity involved, marketeers usually turn to customer segmentation techniques, which have spread out so widely in the last years as to become a highly sophisticated discipline itself. Customer segmentation is based upon the attraction that some customers feel towards specific product or service features, although it does not take into account the customer point of view, nor is it focused on offering solutions to the broader set of needs that each individual customer has.

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Instead, the Smart Customer Management model recommends carrying out a customer needs analysis that leads the company to think beyond conventional customer segmentation and address each customer particular need. Rather than encompassing customers into segments, the Smart Customer Management model aims at aggregating them into portfolios based on their specific needs (see Chapter 10). Thus, while one segment would be made up of customers that share a particular feature of a product or service, a portfolio is made up of customers that have similar needs. All this does not mean that customer segmentation is not worthwhile anymore. As a matter of fact, customer segmentation continues to be a valuable method for companies to check whether the features of a particular product or service comply with the attributes of a specific segment. However, as the company gathers more and deeper knowledge about the motivations of each customer category, it realizes that customer relationships cannot stand on customer segmentation, as it needs to meet customers’ multiple needs one at a time.

6.3 Documenting research results Once the analysis of the customers’ value and needs is completed, the following stage in the process of knowing your customer consists of turning all the information into a compelling picture that may be easily interpreted and distributed among members of the organization. To achieve this goal, it is highly recommendable to document all the new knowledge gathered, using techniques as the ones described below: 

Avatars, also known as persons. This tool may help the company document the knowledge on who its customers really are. Avatars are fiction characters often used to embody certain behaviors, attributes, motivations, and goals that are common among the company’s customers. Unlike customer segments, which neither have a name nor a face, avatars usually are given a full name, a face and they are even attached to a fictitious biography to make them more attractive and realistic. By means of avatars customer knowledge is summarized to what is really important and,

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

consequently, it becomes easier to manage and understand that knowledge by all people within and outside the organization. Journey maps. This technique may help the company document what the customers really do. Journey maps are documents that visually illustrate the activities of particular customers over a period of time. Some journey maps may even depict a complete interaction path between a customer and the company, from the time the customer discovers a product or service, evaluates it, purchases it, uses it, and asks for help when a problem arises. Journey maps are tools that show what happens in all touch points with which the customer interacts along the way. The depth and detail of these journey maps may depend on the use the company gives to them

Both avatars and journey maps have become widely used tools among companies throughout the world when it comes to improving the knowledge about who their customers are and what they do. These techniques are so popular that many companies have even forgotten the importance of carrying out previous customer data analysis. My advice is that your company should never overlook the previous steps in the process of knowing its customer, otherwise the organization will continue feeding itself with the wrong beliefs about its customers and the Smart Customer Management model will never deliver the results expected. Do not forget that the ultimate goal at this stage is no other than achieving a deep knowledge of your customers in order to later on improve your offerings.

6.4 Making The Results Available All the knowledge that the company now has about its customers is not worth if it is only stored in someone’s head or in a database that only few can access. It is thus of paramount importance that the company shares and disseminates all that knowledge across all levels of the organization. Remember that avatars and journey maps are good tools for spreading the customer knowledge throughout the organization. However, you may still need other effective methods at hand to share that knowledge, such as the ones below:

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



Videos. A very good way for disseminating customer knowledge is to create a video that displays the research results to the members of the management team and the employees. Videos have the advantage of allowing the people responsible for changing things in the company to realize what circumstances need to change fast and help making the right decisions in a much faster and informed way. Customer immersion programs. These programs consist of a group of sessions, often one full day, in which members of the management team and/or department executives expose themselves to real interactions between the customer and the company. This type of programs normally includes a review of customers’ opinions in four key areas of the company: marketing, sales, systems and production. Additionally, depending on who the audience is, attendants complete a case “as if” they were the company’s customers. Thanks to this type of programs executives become more conscious of the changes that are needed with respect to customer relationships and experience, and they usually want to play a more active role in the change process.

Finally, it is worth pointing out that there are many companies with a good amount of customer knowledge, but which do not have the key technologies or understanding to put into practice the premises of the customer analysis described in this chapter. If this is your case, do not rule out the possibility of hiring an expert who helps you accomplish the tasks involved in the process of knowing your customers. Expert counsel may be an excellent way to increase the soundness and reliability of your customer research results, as well as to accelerate the progress made by your company in the implementation of the Smart Customer Management model.

CHAPTER 7. DESIGNING A SUPERIOR CUSTOMER RELATIONSHIP

In this Chapter you are going to learn about:   

What stages make up the customer relationship design process? What tools are useful to design a strong customer relationship? How may you solve the customers’ privacy concerns?

We have learned from the previous chapters of the book that by gathering sound customer knowledge, the company may get better prepared to achieve one of the key principles of the Smart Customer Management model: treat each different customer in a different way. Now we are going to learn how the company may design its relationship with customers and interact with them individually. It is important when you try to understand how customer relationships work that you think of a relationship as a dynamic process that evolves as the company and the customer get a deeper knowledge of each other. In this process it becomes key that the company stays as close as possible to the customer at all times, which means to perform interactions that are continuous and provide the information needed to understand the customer as an individual.

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Relationships according to the Smart Customer Management model are iterative and collaborative processes between the customer and the company, which go well beyond what is strictly transactional and aims at creating emotional bonds between them. The ultimate objective of this relational process is to lead an ever increasing customer satisfaction spiral, as mutual knowledge improves. By means of customer relationships, the company learns about the customer, mainly about his/her value and needs. Meanwhile, the customer learns about how to better satisfy his/her needs and become a more informed consumer. It is thus quite clear that customer relationships are not about how to send continuous messages about the company to as many customers as possible, but instead a collaborative cycle that allows each customer to get exactly what he/she needs, no matter what. This relationship-based approach involves a significant leap ahead with respect to the traditional transaction-based approach which used to prevail before the New Age of Customers.

7.1 Requirements For Building Up A Customer Relationship Building up a customer relationship requires that the company starts developing some processes which integrate all possible interactions that take place between the company and the customer. These processes should be designed in such a way that the company makes sure the interactions are not only efficient, but also effective and profitable both for the company and the customer on a long-term basis. Above all it is necessary that the customer gets actively involved in the relationship and that a productive and mutually beneficial dialogue is maintained between both sides. This means a dialogue that stimulates interesting conversations for the customer and that adds value, instead of just adding pressure on the customer to drive a new sale. Keep in mind that nowadays, what most companies miss is not the mechanics of the interaction with the customer, but the strategy of the interaction, the substance and the course followed by the interaction. If the company wants to sustain a continuous dialogue with the customer, it should

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first make sure customers want to voluntarily participate in the dialogue. Contacting a customer or forcing the customer to contact the company is a bad practice carried out by too many companies, which does not foster the development of a constructive dialogue at all, nor does it provides any benefit for the marketing of the company. Instead, the company should provide the customer with all the necessary tools to promote the dialogue, so that such relationship can deepen and grow. In order to achieve this goal, the company should integrate the customer information gathered from all touch points into a single source of information. This way each customer might be identified accurately, regardless of the source of contact or whom the customer contacted within the organization. Data integration and coordination of interactions are therefore key tasks that involve all members of the organization, not only the people responsible for marketing and sales. The company needs to look at itself through the eyes of its own customers, and realize what the customers are experiencing throughout the different channels and technologies. Likewise, it is important that the company recalls everything about its customers and keeps on adding every new interaction that occurs to the CDB —i.e. e-mails, website forms, call-center calls—, so that it never asks the customer the same questions again, and creates a 360° snapshot of each customer. That way each new interaction might start from the point where it was left and put into context, as if the previous interaction had not finished. The benefits of achieving this point are far-reaching. Companies able to integrate customer data and coordinate the interactions with the customer efficiently might gain a superior reputation with regards to its competitors and keep loyalty rates higher.

7.2 Customer Relationship Design Process As you may have expected, customer relationships are not only about designing a striking logo or some colorful brochures to dazzle customers. Instead, it is a complex business process focused on delivering real solutions to meet the customer’s needs, based on the knowledge gathered and disseminated throughout the organization.

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The design of customer relationships is the “secret weapon” behind the success of most well-known global companies in industries such as entertainment, high-tech, and e-commerce. Furthermore, it constitutes a main source of competitive advantages for the company and encompasses things like product and service design, the features for every interaction, the company’s website look and feel, or how consumers must be attended when they go to any store of the company. Along the customer relationship design process, it is very important that you are aware that regardless of the degree of automation an interaction may have, interactions with customers cost money and there are interactions that require more investment than others. Therefore, if you want to manage all interactions with your customers in an efficient way, you will necessary need to know what the value of each of your customers is (see Chapter 6). When the time comes to design customer interactions it is also key that you find a balance between customer value and cost of the interaction. For instance, a customer with a high actual value might be qualified to receive a regular call from a sales consultant —which is one the most expensive types of interactions—, while a customer with a low actual value might be redirected to the website for service —probably the least expensive type of interaction. In addition to efficiency, the company may also want to account for customer interaction effectiveness. In other words, to what extent the dialogue with the customer is contributing to build a solid and profitable relationship for both sides. To answer this question, the company should carefully analyze the metrics that gauge the customer interaction performance —e.g. percentage of the customer’s requests that are satisfactorily managed by the counter and the call-center staff, or the time customers stay waiting before hanging up the telephone. Measuring and monitoring customer interaction efficiency and effectiveness are, therefore, key tasks underlying the design of successful customer relationships. We will focus next on these factors in more detail.

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7.3 The Design Process Designing customer relationships is a process that should be centered on the people and feed itself with all the customer knowledge previously gathered by the company. This means that the company should start relying on the people and only take a step forward when the organization has internalized the findings of the customer analysis completed in the previous stage of the Smart Customer Management model. An important consideration to bear in mind when in the design process is to avoid sit back in your desk and see. Instead, try your best to engage with a diverse group of people from the customer ecosystem to participate in the process. What I mean is that you should rely not only on the participation of customers, but also on the employees and external partners of the company, since they can all provide you with valuable ideas at the time of designing the customer relationship. These heterogeneous group of individuals may give you informed opinions about the viability of some hypothetical solutions that you might be thinking of, and their participation could be essential when you seek to reinforce a change in the organizational system, processes or policies. Be also aware that unless you involve these participants in the design process from the beginning, they will probably end up reacting against the solutions that you may want to deliver. The first stage in the design process consists of generating new ideas. To get this done, you may want to put all participants to work on a brainstormlike session and do not worry about the viability of their ideas. Of course, later on you will need to ensure that a technical team figures out how the best ideas can be implemented. Experience has taught this author that the first ideas are neither the best nor the final ones, so most probably you will end this stage with dozens or hundreds of possible ideas from which to choose from. Most frequently, the ideas provided at this stage belong to one of the following categories: 

Physical. These are ideas related with the design of the company’s physical infrastructures —e.g. stores, offices, customer service points—, as well as other elements regarding the availability and accessibility of the facilities, interior and exterior design, and even the flow of customers.

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



Emotional. These are ideas related with the culture of the employees that work face-to-face with the customers and the behaviors they usually display when interacting with the customers. Logic. This category encompasses the ideas regarding the company’s business processes, the flow of information, and the information technology tools used.

Once you have gathered all the ideas from participants, you may then move forward to the next stage of the customer relationship design process, which is Prototyping. Prototypes are small-scale models of the ideas you have chosen and they can have different formats depending on the customer relationship dimension to which they belong. After a prototype is completed, the best approach is to put it immediately in the hands of the company’s customers and employees, so that they can start testing it and give their feedback, and not only once but many times. It is important that during this stage you take care of all opinions received, this way you may implement all needed changes into the prototype until it finally meets what the customer needs. In the last stage of the design process it is generally appropriate that you document the features of the resulting solution and the type of interactions it will cover. The format may vary from a simple sketch that summarizes the diverse functions of the solution, up to a detailed description or flowchart depicting how each element of the solution behaves. The design process described above is known as the “double diamond process” (Fig.3), because it starts at a point then diverges rapidly as new knowledge is gathered and/or new problems arise, then it converges at the central point after the research results are summarized, or the process objective is reset. Further on it diverges again as there is a wide range of possible ideas available and prototyping begins. Finally, the refinement of the solution after several prototyping rounds and user tests converges into the final solution.

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Figure 3. Double diamond design process Source: Manning & Bodine, “Outside In”, 2012

7.4 Design Tools There are multiple tools that may help the company develop an effective customer relationship design process, however, given the large number of options available, I am only going to focus briefly on the advantages offered by two of the main design tools in the market: touch point maps and the social networks.

7.4.1 Touch point maps Touch point maps are graphic representations depicting in a single document the interactions taking place between the company and each group of customers —or portfolios— through the various communication channels made available by the company (see Fig.4). The purpose of Touch point maps is to show an “outside-in” perspective of the customer interactions, instead of the traditional “inside-out” approach that is common among product-centric companies. Touch point maps provide a holistic vision about how the company interacts with its customers. They also shed light on the usual problems that affect customer satisfaction, attrition and company growth at large. For many companies, Touch point maps are one of the few means for

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communicating the customer vision to the executive team members or Board of Directors, and take it into account when designing customer interactions. Touch point maps may also help companies that do not have an accurate idea of the services they offer and the channels they are using, or those that lack a standard definition of what a service is, or do not have the necessary coordination to interact with customers. For all these purposes, Touch point maps provide order and standardize processes and definitions. A handy way of working with Touch point maps is to draw a map containing all the current interactions carried out by the company at the present moment, and a second map with the desired interactions —i.e. those interactions that the company would like to establish with the customer. The differences between the actual and the desired maps may serve as the basis for later actions in the customer relationship design process.

Figure 4. Example of Touch point map Source: Trainiac

In addition to depicting customer interactions, Touch point maps can be very useful when they are linked to the company’s internal processes and

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information systems. With this information integrated in the Touch point map, it may be possible to visualize the value the company delivers to each individual customer throughout a touch point.

7.4.2 Social networks Even though the design of the customer relationship should be accomplished well in advance of the implementation of any customer interaction technology, the truth is that on many occasions, information technologies are exactly those pushing for improving the customer relationships. A paradigmatic example of this is social media technology, the use of which has grown exponentially by companies focusing on the customer relationship design process. It is true enough that customers have always been able to interact with companies in one way or another, and that interactions are not something new. Back to the last century customer relationships however were controlled by the terms imposed by the companies, and what has changed today is that customers are who dominate the relationship and want to be heard. The ever increasing development of social networks has untapped endless communication possibilities that companies can now use to dialogue and relate with the customer. Today nobody doubts that social networks play a key role in the design of customer relationships, with some of the most frequent benefits being the following: 1. Social networks help engage and encourage the most enthusiastic customers of the company, so that they can get involved in “spreading the word” about the benefits and the value the company or brand provides. 2. Encourage customers to stand up for the company, especially when the company makes mistakes or goes through dishonest criticism from the users. 3. Listen to conversations between customers with regard to the company, and/or its competitors.

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4. Make the customers, and sometimes volunteers, provide assistance to other customers —i.e. as when experience in the use of the company’s products and services is needed. All in all, social networks have become essential when the company is committed to dialogue and listen to the customer, or when it wants to know what it is said about the company. Bear in mind that as much as 70% of social network users read carefully the experiences other customers share, and around 50% use social networks to complain about a product or service (Fig.5). Consequently, customer information gathered through social networks is particularly relevant today to determine the optimal methods for interacting with the customer, either in or out of social networks.

70% Hear others’ experiences

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50%

Learn more about brands/ product/services

Express concerns/ complaints

47% Share money incentives

Figure 5. Social networks activity profile Source: Nielsen, 2012

As a result of all before, the Smart Customer Management oriented company should deliberately listen to the customer on the social networks as an integral part of the customer relationship design process, and make it not only once in a while, but continuously and over the months and years. It is key that the company listens not only to those conversations mentioning the name of the company or brand, but also monitors the social networks space for any employee or executive names, or the name of a competitor. All this dedication pays off once the company obtains valuable customer information to questions such as:  

Who is talking about the company or brand? Are the customers talking the most valuable ones? What are people saying? Are they praising or criticizing the company or brand? Are they demanding someone to take action?

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Where are they talking, on the company’s own channels, in someone’s own channel, or in any other type of independent community?

For monitoring the social networks space the company may use different software tools or subscribe to any on-demand service which should allow it to listen to the customers’ conversations and follow-up the trends as time goes by. Additionally, the company may also want to follow-up the topics with the largest number of discussions, and stay alert in case that some user mentions a key word that invites the company to take action. Besides listening to what is being said about the company or brand, the company should go one step further and generate customer knowledge. This means that the company should find out what customers are saying between the lines, analyze their behaviors and, even more, determine what their individual needs are. In this regard, recent studies reveal that what a company finds out about customers’ particular needs in social networks has the same or even more value than what the company might find using traditional surveys, interviews, or other more expensive research methods. Furthermore, most market researchers think today that information collected from conversations in social networks is more genuine than that obtained from a formal survey. Of course, this is not to say that companies should not complement what they learn from social networks with a deeper and more scientific-based customer analysis, rather a balance must be found between the formal customer research and the social media inputs.

7.5 Information Privacy Issues When the time comes to design a customer relationship a problem arises that has important consequences for the development of a Smart Customer Management strategy: despite being essential, gathering information about the customer is not easy as respect for privacy is strongly demanded. Curiously enough, both companies and customers share the same interest in the protection of personal data, though for different reasons. On one hand, customers are concerned about the implications of exposing personal

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data openly, who might use it, and with what purpose. On the other hand, companies are aware that the value of their customer database depends on this information. It is thus of paramount importance for the Smart Customer Management oriented company to safeguard its customers’ data and take privacy issues very seriously. Put yourself for a moment in the head of a customer who thinks he/she might lose control of his/her own data. You will soon realize that it is highly likely the customer will no longer dare to actively engage in a dialogue with your company. The company must find a necessary balance between collecting enough information from the customer to make its business work, and be respectful with the customer’s right for privacy. Customers should also be aware of the company’s own privacy policy, know what type of information does the company collect, and how and for which purposes the company is going to use this information. The company should also explain the benefits the customer will obtain when he/she shares personal data and ensure data will be safe and under control at all times. Moreover, a customer relationship will not be successful unless the customer is confident that the company will adhere strictly to the terms of its privacy policy. Notwithstanding the foregoing, it is important that you are aware that building a trustworthy relationship with the customer is something that goes beyond writing a simple privacy policy statement and make it public in the company’s website. Unless the company is careful enough when using its customers’ data, the opportunity to build up a long lasting customer relationship will fade away. Finally, it is also very important that companies promote their privacy policy beyond their own website and marketing materials. It is advisable that the company makes references to its privacy policy on the email’s footer content, invoices and all type of communications addressed to the customer. There is no doubt that a meaningful and consistent privacy policy should help strengthen the foundations upon which customer relationships are to be built.

CHAPTER 8. THE ULTIMATE GOAL: CUSTOMIZATION

In this Chapter you are going to learn about:   

What is customization all about? What does customization mean for the company? How to start developing a customization strategy?

The end point of the Smart Customer Management model implementation is reached when the company is able to treat different customers in a different way. More specifically, when the company is able to customize its products and services according to the knowledge it has gathered about each customer value and needs (see Chapter 6). To pursue this challenging goal, the Smart Customer Management oriented company must use what has learned about customer relationships in the previous stages of the model and make a final leap towards customization of its offerings, with a view to gaining a larger share of the customer business. Customization must be seen as a strategic choice that allows for the alignment of all organizational resources and capabilities of the company around the customers’ needs. As such, customization is key to increase the number of transactions per customer and make more appealing for the

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customer to come back and purchase from the company. Customization also helps explain why a customer will be willing to pay a higher price for a product or service, and why transaction benefits will keep growing. This way of understanding the customer relationship and customers’ needs has led to a significant growth in the demand of customized products and services in the last years. As a result, the number of companies offering their customers the chance to customize its products and services to their particular needs has increased substantially. Moreover, instead of waiting for the customer to put into practice what he/she knows about the company and choose what to purchase, the Smart Customer Management oriented company uses its own customer knowledge to anticipate the customer needs and provide customized solutions. By doing so, the company simplifies the customer’s life and keeps him/her away from having to search and choose the most suitable solution among a broad variety of products and services, whether they are provided by the company itself or by competitors. Fortunately enough, information technologies play an active role in the development of customization strategies, making easier for the company to improve and rationalize its production processes and service delivery, so that customers can choose the products and services they need in a customized way. The web has become the most relevant tool for products and services customization, since all that can be digitalized can be customized. Nevertheless, satisfying the customer’s needs through customization does not mean giving the customer the full capacity or freedom of choice to pick up what he/she may wish. Many times what the customer wants is something rather specific to satisfy a particular need or to solve a problem, and the only way to meet that need is by giving the customer the possibility to choose among a (limited) number of alternatives. Eventually the ideal outcome of any customization strategy is reached when the customer takes part in the design of the products and services that he/she needs and, as a result of this joint effort with the company, the customer is fully satisfied and does not need to try with another competitor —even though the competitor might do the same thing in the same way.

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8.1 Customization Methods From a theoretical perspective, customization is a very simple process. Unlike what you might think, the company does not need to carry out customization from scratch, but rather the work consists mainly of configuring. Configuring basically means that the company manufactures in advance dozens or hundreds of different components —or modules— of a product or service and, based on each customer particular need, it then combines those different components to produce thousands of possible configurations that differ from the original product or service. To give you a better idea of the different forms customization may take, experts usually divide customization strategies into the following four categories: 1. Adaptive customization: It means offering a standard product with a design such that the customer may freely modify it. 2. Cosmetic customization: It consists of delivering the standard product in different ways to different customers. 3. Collaborative customization: It is about carrying out individual conversations with the customers to let them freely express their needs and identify the best solutions, so that the company can later on produce customized solutions for them. 4. Transparent customization: It involves providing each customer with a customized product or service without the customer being aware of it. For instance, some hotel chains arrange the rooms based on the preferences expressed by the customer in previous visits without the customer even knowing. While adaptive and cosmetic customization offer the customers a better way of getting what they want rather than simply a standard product or service, these are not strategies with memory of the customization being offered. As a result, the company must compel the customers to specify what they are looking for before each purchase. We might say these customization strategies are not meant to create sustainable competitive advantages throughout time. On the other hand, collaborative and transparent customization strategies recall what the customers want, thus they are strategies able to

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anticipate customers’ preferences and make it possible to create and maintain a competitive advantage over time. Whatever the case, the company willing to adopt a customization strategy should understand what alternatives may be used and what the differences between them are, since this is the first step towards modulating a customer offering.

8.2 Implications For Your Company The company should not think of customization as a strategy for use at all times, or in any context of the customer relationship. Customization demands a significant effort from the company and it will only be a worthwhile option when the company is sure that its customers are willing to pay more for a custom-made solution. The greatest obstacle for the development of a successful customization strategy lies in making sure that the different components (or modules) can fit and work properly when combined with one another. Ideally, these components may be combined in a standardized or modularized way, since the total costs of the customization process would then be significantly reduced, especially when compared to the costs of the traditional mass production system. Bearing this in mind, the company committed to a customization strategy as part of its Smart Customer Management implementation effort, may obtain the following benefits: 1. Greater efficiency in the manufacturing/delivery process. Especially if compared to the traditional manufacturing processes, since the company will not need an inventory until it is going to start manufacturing. Additionally, in many cases the company will only manufacture after the customer has paid for the product or service. 2. Greater efficiency in the use of resources and capabilities. This is because customization may be used just in time and for the solely purpose of manufacturing what the customer really wants to purchase.

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3. Improvement of the customer experience. Customization makes it available a more comfortable and tailored product and service delivery, which at the end satisfies the customers’ needs in a better way. 4. Greater customer loyalty. When a company is able to recall the customer’s needs and uses its “memory” to deliver a product or service which perfectly suits the customer’s requirements, the customer has a greater incentive to be loyal to the company. As a matter of fact, the more complex a product or service is and the greater the customization applied to the customer relationship, the more likely is it that the customer will keep him/herself loyal to the company and that he/she is willing to pay a higher price for a product or service. It is worth mentioning that the customization strategies described above may be put into practice by any company, even those that might think it is impossible that their products or services can be customized. Companies that find customization strategies difficult to implement might choose to change the physical features of its products, combine them with other features, or combine services that enable the customer to get a more personalized attention. Furthermore, companies might also go beyond product or service customization by simply changing certain components related to the way in which the products or services are delivered to the customer, such as the packaging, the ordering and payment terms, logistics, auxiliary services — e.g. financing, maintenance, repairing—, training, etc. More importantly, customization also means that the company will need to integrate its supply chain —i.e. procurement, manufacturing, and distribution—with its demand chain —sales, marketing, and customer service—or, at least, to make sure that a higher level of coordination between both chains exists. If the company tries to develop a customization strategy based on a weak supply chain, it will simply jeopardize its customers’ trust and will raise doubts about the company’s commitment to look after their interests. The implication of the above is that any customization strategy should never be considered a mere set of customer-facing processes, but rather a core organizational-wide strategy that affects virtually every process in the organization, including those of the supply chain, the product development

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cycle, financial planning, service delivery and, even more, the company’s own organizational structure.

8.3 How To Formulate A Customization Strategy Companies that are successful in developing customization strategies usually carry out the following actions: 1. Create a solutions space. A solutions space is a set of all the possible solutions that a company may develop to meet the needs of each individual customer. 2. Design of robust processes. These are the processes that allow the company to constantly re-use and re-combine the resources at their disposal in order to meet the customers’ needs, without damaging the organization’s operations or the supply chain functions. 3. Support customers’ choice. These are actions aim at guiding customers through the process of identifying his/her needs or problems, as to help them choose the most appropriate solution. By supporting customers’ choice, the company helps to reduce the complexity of the decisions and releases the customer from the burden of making the right choice. Surely most of these actions are not new for your company or you may even have been developing them in one way or another for years. The novelty introduced by the Smart Customer Management model is that for the company to succeed with its customization strategy you must think of combining all these capabilities in an integrated way, so that the company is able to treat different customers in a different way. Next, we are going to dig deeper into the actions that should be covered in order to successfully implement a customization strategy in your company.

8.3.1 Creating a solutions space Once the company understands its customers’ particular needs (Chapter 6), next it should move on to the next step: delineate the company’s solutions

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space; namely, draft an outline of what the company is going to offer to its customers, and what not. A solutions space is made up by the “universe” of benefits that the company seeks to provide by means of its portfolio of products and services, as well as by all the possible combinations of their components or modules. To better understand this idea simply think about the solutions space of a physical product, which may be made up of a set of options resulting from the combination of different sizes, functionalities, colors and shapes of a standard core product. Within a solutions space, there is an effective method to manage a growing number of products or services, and still achieve economies of scale. This method is called “families”, and it helps lower the risks of new product development by reusing shared elements, already tested by the company in another products or services. Examples of some well-known product families are Apple’s mobile devices family —i.e., iPhone, iPad, iPod— or the worldfamous all-purpose Swiss blade “army knife”, which combines in one single tool a knife, a screwdriver, a pair of scissors, a nail file and a can opener.

8.3.2 Designing robust processes A key rule for the success of any customization strategy is that an increase in the customization requirements should not harm the company’s operations, nor interfere negatively on its supply chain. To prevent any friction, the company should design robust processes that enable to re-use or re-combine the organization’s resources in an efficient and reliable way, without affecting everything else. Designing robust processes also aims at preventing customization from adding new costs to the company as a result of the greater sophistication of its customized products and services, and the increase in operational costs. In order to avoid higher costs, the company may use techniques such as flexible automation and product differentiation, to which we will refer next. Flexible automation is used in industries where a part of the production processes is carried out by intelligent robots and programmable automatons, which are programmed to offer high versatility and customization levels within the production chain. Besides flexible automation, companies also

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often use what is known as process modulation, which consider the company’s operational processes as if they were segments, each of which is linked to a particular customer need. By combining various segments in the appropriate way, the company is able to serve different customer requirements without having to create a costly ad-hoc segment. Product differentiation involves dividing production and supply chains in two differentiated stages, so that the product’s “standard part” is manufactured in the first stage of the process, while the “differentiated part” of the product is to be produced in a second stage focused on the preferences stated by the customer in the order. A good example of this method can be found in the automobile industry, where the standard part of the vehicle is manufactured by the brand company (first stage) and sent to the dealer (second stage), where the different options chosen by the customer are installed —i.e. the CD/DVD player, GPS, leather or fabric interiors, etc. It is clear that before the car reaches the dealer’s differentiation stage, all parts of the vehicle must be manufactured to be compatible with the solutions space provided by the manufacturer. Finally, do not forget that in order to design robust processes the company must invest in human capital. People dealing with complex solutions spaces must have the ability to self-adapt —especially the staff and directors responsible for managing new and ambiguous tasks— and have a knowledge base wide enough to interact with the rest of the company’s functions in an effective way. This knowledge base should also be complemented with the development of relational skills to allow the staff and directors to easily connect with other employees engaged in different functions within the organization.

8.3.3 Supporting customers’ choice Supporting customers’ choice means that the company assists or collaborates with the customer when identifying his/her own needs and solutions, thus minimizing the complexity and effort of choosing among a wide variety of options. The development of this type of practice is very important because when a customer faces a decision-making process, the cost of evaluating all the

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options may easily exceed the benefits of having so many options available. At this point, the customer may end up delaying or even suspending his/her purchasing decision. This syndrome, known as “the paradox of choice”, may at times lead to a reduction in the value the customer gets from the company and, even worse, that the customer classifies the company as difficult or undesirable to do business with. Therefore, the company should provide the customer with the means to simplify the way in which he/she explores or navigates through its products and services. Certainly, one of the most effective methods for doing this consists of providing the customer with a product configurator. A product configurator is a tool that guides the customer throughout the process of combining the product’s modular components, and connects the final solution with the company’s manufacturing and sales processes. The philosophy behind this type of tools is to get the customer involved in a trial and error learning process and in fast design and manufacturing cycles. Hence, the customer may check if any of the options provided by the company matches his/her own needs, before deciding to purchase a specific solution. In addition to product configurators, the company may use other methods that automatically search for similarities between the customer’s needs and the company’s solutions space. Some companies provide the customer with software tools that automatically configure a product or service after the customer’s needs are compared with the solutions space. All the customer has to do is choose among several pre-determined configurations and, in exchange, the company automatically recommends the best solution. This way the customer saves a considerable amount of time and effort when searching for the most suitable solution. Figure 6 below shows an example of one solution of this type found on the web, consisting of taking the customer’s body measurements and recommending the jeans that best fit him/her from a broad assortment of leading brands in the market.

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Figure 6. Getwear.com online clothing configurator Occasionally, it might happen that the customer is not in the best position to decide on the purchase after receiving a company’s recommendation, maybe because the customer is not sure about his/her real preferences or because the recommendation does not exactly match the real needs. In such case, combining a recommendation tool with another tool based on the cocreation principles might be a good choice for the company.

CHAPTER 9. MEASURING PERFORMANCE AND RESULTS

In this Chapter you are going to learn about:   

Why is it important to measure performance and results? What are the benefits for the company? What should the company measure?

In the previous chapters of the book you have learned about the different stages that make up the Smart Customer Management model. You have also realized that the main purpose of the model is to build long-lasting customer relationships that are mutually beneficial, both for the customer and the company. Furthermore, you now know that the Smart Customer Management model is based on the idea of smart companies making an intensive use of customer information, from which they generate the knowledge needed to achieve its ultimate mission: treat each different customer in a different way. Up to this point it has also become clear that the Smart Customer Management oriented company needs to furnish the appropriate processes as to gather customer data, deeply analyze it, and disseminate the resulting knowledge throughout all levels of the organization. Without these key

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processes underway, any effort committed to the implementation of the model would be meaningless and full of errors. We have also learned one of the key principles behind customer data and knowledge management: “if you can’t measure it, you can’t understand it, and thus you won’t be able to manage it”. The opposite being also true. Therefore, it becomes essential that the company focuses its efforts on setting up the processes, the analytical techniques, and the information technology tools that will help you understand as deep and as reliable as possible, what is going on around the customers, and build a holistic vision of the customer throughout the whole organization. The company will need to measure each customer interaction in a disciplined manner, and record and analyze each contact regardless of where it comes from, in order to learn and improve the next interactions. Furthermore, measuring and analyzing customer data will allow the company to “see” its customers’ activities throughout all the touch points and channels, thus making the customer behavior somewhat tangible. Only when all this comes to happen, the company may achieve its true goals: a greater customer loyalty, an increase in the Return Over the Customer (ROC), and more value out of its customer database. Nonetheless, all the goals above will only be reached if the company really knows what must be measured, how to measure, and whether it is capable of transforming all the customer knowledge into specific actions that improve customer relationships. But wait, this is not all. The company will finally need to align its business processes with the knowledge gathered through its measuring and analytical processes. In summary, the more complete the customer snapshot is, the more consolidated the customer view will be and more prepared the company will be to take the proper actions when its customers change their behaviors or preferences. Bear in mind that the race to gain a customer will be won by those companies that have gathered better and more complete customer knowledge, and which have learned how to apply this knowledge to retain and make its customers grow.

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9.1 The Benefits Of Measuring We have already examined the meaning of the measuring and analytical processes involved within the Smart Customer Management model. Let us now review some of the key benefits that its implementation may generate for the company: 





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These processes help create a complete view of the customers. The company may end up seeing things from the own customer perspective and delve into personal stories with the aim of customizing a certain product or service. Essentially, measuring and analysis processes help the company transform the customer information into strategic business decisions. They provide hidden trends behind the customer’s behavior, and help to simulate and predict purchases for different sales promotion strategies. This is important when it comes to formulating customer acquisition strategies, since measuring and analytical processes provide a solid knowledge base to identify which potential customers are most likely to become valuable for the company. They enable the company to optimize its contacts with the customers, considering that each customer has different needs and sensibilities when getting a sales pitch. Customer contact optimization is the very opposite of some modern marketing practices, more focused on pestering the customer with messages that, in most cases, are irrelevant and wrongly programmed. They allow the company to model the customer’s behavior and anticipate and predict drop off and acceptance rates. In the first case, the aim is to identify in advance what customers are about to drop off, so that the company may provide tailored offers that prevent customer defections. In the second case, the key is to identify those customers more likely to accept a certain sales pitch, or those who have a greater preference for a certain type of messages and willingness to stay with the company. By combining both kinds of actions, some companies are able to lower dropping off numbers, and encourage customers to continue their relationship with the company.

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



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They are useful for classifying customers by their value and predicting if a customer potential value is increasing or decreasing, and how fast it is doing so. By means of customer knowledge, the company may take actions that have a positive impact on the customer value scale, thus managing the type of messages, the contact frequency, and the channels that are more conducive to a customer relationship. They facilitate the analysis of products and services profitability and allow the company to determine which the best product mix is for each customer portfolio, as to find new sources of income. They provide in-depth knowledge about each channel and help identify what type of products or services sells best on which channels. Moreover, they allow the company to figure out which the most effective products and services are for certain groups of customers, and how many customers purchase through single or multiple channels Last but not least important, they help reduce the amount of time and effort needed to interact with the customers, thus making information exchange and transactions much simpler, faster and more likely. They also contribute to make customer service more efficient, and improve customer perception of service quality.

9.2 What Should Your Company Measure? One of the dilemmas any organization faces when storing customer data is what to do to ensure that it is meaningful and useful for improving its customer relationships. Quite often because the company does not have the necessary techniques and knowledge to accomplish data mining, other times because it does not have the right information technology tools, and still others because the company does not really know what needs to be measured, the fact is that a significant number of companies are not doing all they should to squeeze more value out of its customer data. As we have previously learned, capturing, analyzing and transforming customer data into knowledge is a key process in Smart Customer

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Management. Thus, it is key that the company starts understanding what it should measure and how. The answers to these questions are fairly simple: 1. The company should measure what is viable and at a cost the company can afford. 2. Anything that is focused on the customer and on improving the customer relationship. 3. What may be disseminated throughout all levels of the organization. Undoubtedly, the number of things the company might measure is too large to be addressed in this book. Moreover, what a company should measure might not necessarily be the same as in another, especially if they operate in different industries. All this indicates that there is no universal listing for what your company should measure. However, from the Smart Customer Management perspective, there are two fundamental measures every company should seriously consider when getting into the model implementation process: customer value and customer experience. So let us dig deeper into each one of them.

9.2.1 Measuring customer value Measuring customer value means that every time the customer is willing to purchase from the company, its value increases —also when the customer drops, the value decreases as well. Therefore, increasing or decreasing customer value must be interpreted as the company ability to create or destroy value in dollars, on a long-term basis. The fact that customer value may increase or decrease depending on the customer willingness to stay with the company means that the company should measure customer value differently from the way traditional productcentric companies used to do. While products do not have memory, customers certainly do; therefore, the way companies treat their products does not have a direct impact on the benefits. Quite the opposite happens when the company focuses on the customer, since now its benefits entirely depend on how the company treats its customers. Hence, customer experience is of paramount importance for the Smart Customer Management oriented company, as far as it will directly impact on the company’s financial statements and value, well beyond an ordinary fiscal

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period. If a company wants to be successful it should then swiftly adopt a long-term strategy that influences customer future’s willingness to purchase and maximize value. Therefore, the company should think of each customer as if he/she was a financial asset that generates cash flow. This way the company’s actual financial value would be the sum total of all customers’ current and future cash flows. As you may expect, calculating customer value and explaining the reasons why it varies are methods to which the company must commit. For it is necessary that the company follows-up and stores information not only of previous purchasing transactions, but also of interactions other than purchases, such as website visits, incoming calls, surveys completed, or enquiries managed by the contact center, among others. In short, it is all the more advisable that the company captures any kind of interaction or transaction that occurs throughout its business. Moreover, the more data gathering points the company makes available; the more knowledge it will generate about the customers’ future behaviors. Once the company has learned how to measure customer value and gained practical experience analyzing how value varies, then the next step should be calculating the Return Over the Customer (ROC). Appendix A of the book further explains what is ROC about as a practical means to carry out a more productive customer management.

9.2.2 Measuring customer experience Measuring customer experience is important for the company in order to assess customer interactions performance, as well as to examine whether the customer relationship design and customization strategies are truly helping customers or, otherwise, it is necessary to make changes. For measuring customer experience, the company may accomplish the following to phases: i) decide what type of experiences need to be measured, and ii) determine how these experiences are to be measured to make them useful for the whole organization. Appendix B of the book gives you more detail on how to undertake these two phases.

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9.3 What’s Next? The future of the measuring and analysis processes lays in connecting the analysis of customer data with the company’s financial information. This way, the company might be able to get a more accurate picture of what the economic consequences are from certain customer actions and behaviors. For instance, a company might get to know in advance what relation exists between the cost of a marketing action and sales performance, thus identifying specific promotion actions that might be addressed to customers with a certain profile. In the next coming years, customer analysis is going to experience a revolution that will transform the way companies make their marketing decisions, supported by simulation tools that will allow organizations to risk less. Recent trends point to a growing market for tools with heavy weight mathematical algorithms that will facilitate the assessment of customer relationship strategies and its associated costs, and help to decide what actions are best to yield higher benefits. Customer analysis will become more and more sophisticated over time and highly advanced statistical techniques will be applied to customer knowledge. With the help of the most advanced CRM and analytics tools, companies will be able to create customer intelligence and use it in just few days, minutes or even seconds after an interaction with a customer takes place. These real time analysis tools will boost the measuring and analysis processes, reaching speeds that seem unthinkable today. Finally, I just want to recall that no matter how striking all these technological advances will be, the last reason that explains why the company should measure and analyze customer data is to build up much deeper and long-lasting relationship with its customers and increase the value of its own CDB.

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Implementing the Smart Customer Management model is not a simple copyand-paste exercise, but rather a new business strategy that compels all people of your organization to change their way of thinking and behaving with regard to the customers’ needs. To ensure that your company succeeds in the implementation of Smart Customer Management, you will first need people’s commitment, formulate a careful plan, and make available a set of processes, metrics and technologies that should be well orchestrated and aligned towards the same goal. Additionally, those responsible for setting up the company strategy will have to take the lead and make the organization adopt a more inclusive and collaborative attitude that standardizes and unifies the criteria about customer information. Last but not least, you will need to go back to the starting point and review each and every step taken as to make the necessary improvements or adjustments. In this part of the book you are going to learn how to manage the transition process from where your company stands today towards a Smart Customer Management oriented company. This includes the practices on which your company may want to focus in order to avoid mistakes and move

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faster in the implementation. Needless to say that the benefits to come are definitely worth the effort.

CHAPTER 10. DESIGNING THE SMART CUSTOMER MANAGEMENT ORGANIZATION

In this Chapter you are going to learn about:   

How to manage change in the customer-centered organization? What role does leadership play in the change process? How may you turn your employees into your best allies for change?

One of the first things to do when implementing the Smart Customer Management model in your organization is reconsider all the product-centric processes in which the organization has trusted for years. For many organizations this step may seem quite a simple one, since they think it will be enough for the customer to occupy the place left by the product or service, and everything shall be done. Many companies even believe this change in the strategy is not such, and it will not even involve any business disruption, since they already provide products and services addressed to specific customer segments. Nonetheless, what we usually realize in companies is that their processes and metrics are still focused on increasing the company’s market share in

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specific customer segments, instead of being really focused on the customer. For instance, though most companies understand what the aftermath of acquiring new customers or investing in a new technology is, generally it is not too clear what customer value really means —beyond the revenues for the company. Indeed, there are still today many companies with a vague idea about why some of their customers are more valuable than others, and they are not able to differentiate one customer value from another. When implementing a Smart Customer Management strategy, employees are usually one of the first to realize the difficulties involved. This is because such a strategy calls into question a great deal of the company’s culture and values governing the business and the criteria used to gauge the organization’s performance. Consequently, it is very important that the company aligns its new customer-centered vision across all levels of the organization, and that the executives and directors lead to raise a new culture focused on the customer. Once these three components of change are firmly settled in the company —vision, leadership and culture—you will start to see how the alignment with the rest of the Smart Customer Management strategy components — e.g. assets, processes, infrastructure, organizational priorities, investments and projects— comes to happen naturally. Certainly, most failures in the implementation of the Smart Customer Management model are not due to a lack of resources or training, nor because the investments in technology are inadequate, but because the company does not care enough to align its vision with the resources and the processes demanded by the Smart Customer Management model. You may spend lots of money trying to change your employees’ mindset, investing in new information and communication technologies, hiring new executives, or training your staff in the new processes and systems, but none of these will make sense unless you have not first aligned your company’s Smart Customer Management vision with the goals of your organization.

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10.1 A New Organization Model One of the greatest challenges coming up when implementing the Smart Customer Management model has to do with the company’s own organization model; in other words, who is accountable for the decisions regarding the customer relationship. The main difficulty found while working in the implementation of the Smart Customer Management model is that organization models are usually designed to manage lines of products, brands, channels or customer segments, and to ensure that the sales goals —or the impact the brand makes on a certain customer segment—, are achieved accordingly. In a very simplified way, Figure 7 shows a common product-centric organization chart, where you may see how each product or brand is the direct responsibility of one member of the organization. The person responsible for a product (or brand) behaves, in fact, as the guardian of the product and he/she is in charge of ensuring that the sales goals are achieved and the company reaches the proper market positioning. This person is also who controls the company advertisement policy and the way offerings are promoted in the market, making sure that the message that reaches every customer segment is the best and the most convenient one. Just remember that for a product-centric company the key is selling the largest amount of products or services.

Figure 7. Product-centric organization chart

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Nonetheless, as we already know, in the New Age of Customers managing customer relationships entails that the company will treat different customers in a different way, which means there are going to be different goals per customer, requiring different actions. What the Smart Customer Management company pursues is to deliver products and services that generate the highest possible value, even though there might still be other goals, incentive systems or interests within the organization. This is the major reason why the customer-centered organization chart is totally different from the product-centric chart, as we can see in Figure 8.

Figure 8. The Smart Customer Management organization chart

10.1.1 Customer Managers Ideally in the Smart Customer Management organization the customer is under the sole responsibility of one Customer Manager, who is in charge of deciding what the most appropriate strategy is regarding each particular customer. The Customer Manager also makes sure that customer strategies are implemented, even though the customer does not know there is a Customer Manager in charge working behind the scenes. As far as there are more customers than customer managers in the company, each manager should be held responsible for a full set of customers, namely a customer portfolio, not a customer segment. A

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customer portfolio is thus made up of a given number of customers who are perfectly identified and not duplicated, so that no customer may join a portfolio more than twice. A Customer Manager’s main goal is to maximize the customer portfolio long-term value, and the company rewards him/her accordingly. Ideally, the company’s customer base might be divided into different customer portfolios, each of them under the responsibility of one Customer Manager. As the Customer Manager is the sole responsible for the growth of a specific customer portfolio value, it is wholly reasonable that he/she has the authority to undertake any action deemed as necessary in relation to the customers’ portfolios. Customer Managers should therefore be in control of the way in which the company communicates and interacts with the customer —i.e. the e-mails sent to the customer, the interactions with the contact center, the website, and even the interactions that take place in a store or at the cash register. In summary, the Customer Manager should be held fully responsible for following-up the conversations between the company and the customer on a daily basis. From the products and services perspective, the Customer Manager should be ideally responsible for pricing each customer individually, as well as for managing promotions and discounts. Of course the company may still continue managing its own marketing campaigns, but the Customer Manager might act as the “air-traffic controller” of the customers’ portfolios, thus allowing some promotions to reach the customer, customize others, and yet stop others. With all said above, I do not mean that the Customer Manager will have to pay an exclusive attention to each customer individually. This would be neither financially nor operationally viable for a company with hundreds or thousands of customers. The company needs to be realistic and soon become aware that the best way to manage most customer communications is by applying business rules.

10.1.2 Business rules Business rules are the activities someone within the organization carries out when some business conditions are met. For instance, a business rule

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might work like this: if a customer amounts for more than one million dollars of revenue and makes more than ten orders a month, then this customer is added to a particular customer portfolio. Business rules may also be applied when the company customizes an offering or contacts its customers. The definition of the different business rules that support the customer relationship should belong to the Customer Manager, who should also monitor the correct application and execution of the rules.

10.1.3 Resource Managers In the Smart Customer Management organization there ought to be socalled Resource Managers, whose job should be to manage all the company’s resources and capabilities to meet the Customer Managers’ demands. Resource Managers’ main responsibility is to determine if the company either needs to develop, buy or partner with someone else to develop the new products or services the customer may need. These managers are like the Product Managers of the traditional product-centric organization, with the difference that they do not sell products or services directly to the customer, but instead to the Customer Managers who are responsible for the customer relationship.

10.2 Leadership The implementation of the Smart Customer Management organization requires key staff members to exercise a great leadership capacity, besides holding to a vision and culture that supports the company’s transformation process. Leaders need to be able to lift their focus above their own responsibilities and department competences, and assume a customer-centered vision that benefits the whole organization. A big part of the company’s transformation success will depend on how leadership plays out and on the leaders’ profiles. Company transformation requires leaders with a creative mindset, who know how to apply integrative thinking, and who are able to merge many

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different perspectives together while still pursuing a single vision towards the customer. Note that the leaders’ profiles will evolve as the company’s transformation process matures. Maybe at the start of the process the ability to innovate, work in teams, and motivate people will take priority, to later on value the processes and cultural values shared by the organization. Moreover, there are some abilities that most leaders should share and are worth noting here: 1. Their relationship with customers is close and based on mutual understanding. In addition to this, most leaders are experts in their customers’ business. 2. They wish to stay connected permanently with the customers and have as accurate as possible picture of what being a customer of the company means. 3. They share a passion to learn about their customers that competitors cannot match. 4. They can hold two conflicting ideas in their heads at the same time and still solve the tension between them in a creative way, generating new and better ideas. 5. They are people that inspire others. They are able to embrace the view, the complexity and the values necessary to lead the organization towards excellence. Good leaders are also able to cross the boundaries of the different areas, functions and departments of the organization, and shift the mindset of executives and employees.

10.3 Employees Up until this point we have learned how the company’s transformation process entails implementing a new organization model and having leaders who are able to work in a complex environment with the ability to cross organizational boundaries. However, the factors affecting the change process do not end here.

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Companies have invested lots of money to streamline, reorganize and automate their most routine and repetitive tasks for decades. However, costs advantages achieved have lasted very short time, exactly the time it has taken the rest of the industry to become equally efficient. Efficiency, costs savings and being leaner is thus just the price that all companies must pay to stay in business. When the company learns how to best manage its employees, or when it really understands how to create intangible advantages through them, then new opportunities spring up that are much more difficult to copy by competitors. The secret behind this other source of competitive advantages is not in the technology or in the processes, but in the company being able to create a culture of mutual trust with its employees that fosters the following values: 1. All employees take into account the value of customers. 2. Customer retention is a priority for the company, as well as for employees. 3. There is real willingness to treat each customer in a different way and a commitment to take rapid action upon the customer data available within the organization —i.e., complaints, questions, suggestions, surveys, contacts, etc. 4. Employees have a considerable freedom to take the necessary steps to satisfy the customers, without having to waste time waiting for a superior’s approval. 5. Employees are allowed to fully develop their creative capacity, empathy, and all those abilities that neither can be automated nor outsourced to someone else. Thanks to values like those above, employees should be better prepared to meet each customer individual needs and to achieve the company’s overall goal of increasing its customers’ base value.

CHAPTER 11. INFORMATION TECHNOLOGY GOVERNANCE

In this Chapter you are going to learn about:   

Why is information technology governance important? What elements make up an information technology governance framework? What are the critical success factors for information technology management?

As you have learned in previous chapters an important part of the success in the implementation of a Smart Customer Management strategy depends on how the company gathers customer data, how it transforms it into usable knowledge, and whether it is able to disseminate it throughout all levels of the organization to change the way the company relates to the customer. This is a highly information and knowledge intensive process, very much dependent on how the company manages its systems and applications, thus making information technologies (IT) a critical factor for the development of Smart Customer Management. Despite its relevance, many of the risks involved in the implementation of Smart Customer Management have to do with the inability of companies to

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align its IT systems with the business real needs and to leverage IT to generate real value for the customer. Efficient IT systems management is thus key to create a source of competitive advantage for the company, even more because companies continually need to lower their operational costs. This is why an active and efficient management of the companies’ technological assets becomes more important and necessary than ever. In this chapter you are going to find out which conditions must be satisfied by the Smart Customer Management oriented company to adequately manage its IT, as well as what are some of the benefits that result from the implementation of an IT governance framework.

11.1 Why IT Management Is So Important? As IT systems become essential tools to manage business processes in Smart Customer Management, companies have come to realize the need to integrate its IT management within the company’s general business strategy, and align its IT goals with the strategic ones. This way IT management has become an additional responsibility for the company’s executives, to the point that today it encompasses a full set of organizational structures, processes and leadership aimed at ensuring that IT supports and makes it easier the deployment of a Smart Customer Management strategy. Companies realizing the value of the connection between IT and Smart Customer Management strategies generate much more value through their IT investments, and substantially improve the way they operate. Moreover, these companies achieve higher levels of customer satisfaction, since everyone in the organization understands much better what the customer’s needs are. Therefore, it is very important that the company aiming at developing a Smart Customer Management strategy implements an IT governance framework, based on clear goals aligned with the rest of the organization’s strategies. IT governance should also be reflected in the company’s organization model, so that it can be more effective and in line with the

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company’s general mission. It is the Resource Managers (Chapter 10) who must help implement the policies within the IT governance framework. Note that, in many cases, failure to implement an effective IT governance framework comes from Resource Managers’ and executives’ lack of involvement in IT decisions. This may also help to explain the absence of IT governance in most companies and that IT governance has led to many wrong decisions on IT investments and outsourcing. Not surprisingly, when IT governance becomes a part of Smart Customer Management, the company is better poised to improve its management processes, and meet the customer’s needs.

11.2 IT Governance Framework Even though there is a good number of IT governance frameworks out there in the market —and I recommend that you evaluate them before deciding which one to use—, in this section I am going to outline the main features that an IT governance framework should have to be fully compatible with the Smart Customer Management model and strategy. In case that your company does not have an IT governance framework already available, one of the best things you can start doing is to use the basic framework described below in a flexible way. Thereafter, as your company makes some progress in its IT governance approach, you might then think of turning into a more strategic and professional framework. Any IT governance framework consistent with Smart Customer Management should answer these three basic questions: 1. What type of decisions about IT should the organization make? 2. Who should be part of these decisions? 3. How should decisions be made and put into practice? The first question intends to identify the type of decisions that the company should make, prior to aligning its IT strategy with the Smart Customer Management strategy. Most common decisions about IT often are:  

Decisions about the infrastructures the company must make available. Technical guidelines and standards that the company must follow.

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  

Applications the company must have. Projects to invest in. Budget for investments.

Once the company is aware of the decisions that need to be made, it should then choose who will take part in these decisions. Bear in mind that the right to participate in these decisions will determine who will be hold accountable for them. People taking part in the decisions usually are the company´s General Manager, or the highest executive in the company, together with the person responsible for IT systems, as well as the customer and/or resource managers. The next step is about designing the decision making process, and the setup of the mechanisms needed to communicate the decisions and make sure they are adopted downstream in the organization. For that the company has the following three key policies available: 1) own decision-making structures, 2) alignment of processes and decisions made, and 3) channels for communicating decisions. Appendix C further explains these policies in more detail.

11.3 IT Governance Critical Success Factors The factors affecting the implementation of an IT governance framework are many and sometimes may vary in importance from one industry to another, or may depend on the companies’ business model. Despite this disparity, there are many examples of good practices from companies that have successfully implemented IT governance within their general management strategies, and which can be used by Smart Customer Management companies. Usually these good practices have allowed organizations to achieve their strategic business goals and, at the same time, make IT gain relevance among the company’s executives and employees. Some of the good practices that may enable Smart Customer Management oriented companies achieve a solid IT governance structure are the following:

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1. Business goals that support IT investment decisions. This basically means that companies with just a few but well-defined IT investment goals usually perform a more effective IT governance. 2. The general business strategy is clearly communicated. Those companies that communicate their strategy to all members of the organization and where people really understand the organization’s mission are in a better position to realize the importance of IT management. Moreover, these companies usually focus their attention more on the strategic goals to be accomplished, rather than on IT costs. 3. Executives take an active role in IT governance. The General Manager’s involvement when laying the foundations of an IT governance framework has a direct impact on IT management. Likewise, the more executives get involved with the IT governance goals, the better the results often are. 4. IT governance is a stable policy and it only has few changes. Since technologies evolve rapidly it is very important that IT governance structures remain as steady as possible. If IT structures change, then the confusion about the role that IT governance may play within the organization will spread, and IT management will stop being efficient. Generally, any change in the IT governance framework takes months to be implemented, and the more changes there are, the further work needs to be accomplished by the management team. My recommendation is to make small changes in IT governance only when necessary, and communicate them as clearly as possible to all levels of the organization. 5. There are formal processes to make IT decisions. Companies with effective IT governance also have solid processes to make decisions on IT investments. If these processes do not exist, then the company is at risk of losing opportunities and making mistakes when acquiring new applications and systems. 6. There are formal communication methods. This means that companies with standard communication processes usually get better results out of IT governance. There are many tools that may help the company strengthen its communication with regard to IT governance, such as the announcements made by the management

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team, intranets, etc. The presence of the person responsible for the systems department in the company’s Board of Directors —or steering committee— may also help to reinforce the role that IT governance ought to have within the Smart Customer Management oriented organization. In conclusion, as business processes depend more and more on IT and companies are bound to follow the pace of technological change to remain competitive, it is essential that organizations equip themselves with an IT governance framework. Additionally, company’s leaders should carefully integrate IT within the general business goals and make sure an alignment with the Smart Customer Management strategy has been achieved.

CHAPTER 12. EVOLVING FROM PRODUCTS TO SOLUTIONS

In this Chapter you are going to learn about:   

What is a solution and what benefits does it provide? How can a company develop a solution-oriented strategy? What impact do solutions have on the organization model?

The process of building up a long-lasting customer relationship is based on the principle of trust and the development of close bonds between the company and the customer (Chapter 3). Mutual trust is achieved when the company and the customer share common values and nurture constant dialogue, whereby the company gathers the knowledge it needs to offer its customer the things that no other competitor can. The peak in the relationship is reached when the customer overcomes the psychological barrier of price and the value he/she gets greatly exceeds the cost of the relationship itself. Customers who trusts the company are well aware that the company will look after their interests and will do its utmost to meet their needs, or solve their problems. As a matter of fact, Smart Customer Management oriented companies know that addressing customers’ needs in such a way may sometimes be at the expense of its own short-term benefits. Nonetheless, its

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focus remains on the long-term and constantly think of increasing its customer database value by means of new experiences and solutions — instead of just products and services.

12.1 What Is A Solution? A solution is a packaging or combination of related products and services whose value for the customer far exceeds the value the customer might get from its individual components. The key differences between a real solution and a mere bundle of products and services from the company’s catalogue can be summarized in the following criteria: 1. A solution is custom made for each customer. 2. A solution is co-created with the customer. 3. A solution is the result of a mutual trust relationship between the customer and the company. Therefore, a solution is much more than a simple option provided by the company to customize a certain product or service according to some customer specification. The key issue here is that when many companies think of solutions they follow an “inside-out” approach that leads to situations like: “we have this product (or service), what can we do to sell the largest possible number of it?” Unlike the statement above, real solutions are guided by an “outside-in” approach, which means they aim at solving a customer problem by applying all knowledge and resources available in the company. Developing a real solution thus involves an analysis and in-depth knowledge of the customer’s needs, which is the result of a customer relationship and the company’s ability to proactively use that knowledge. This change in the way companies work to meet the customer’s needs is a major step forward compared to the past, the main consequence being a significant change in the way companies perceive customer value and how they create its value propositions. As you already know, the way in which Smart Customer Management oriented companies generate value depends on what the company “knows” about its customers, and on its ability to deliver a customized combination of

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products and services, namely a solution, which meets customers’ requirements and solve their problems. In the New Age of Customers, products and services are no longer the final aim of the company’s activities; instead, they have become mere means towards a different goal: to assist customers achieve their needs and desires. For this to happen, products and services must now be integrated into solutions that thoroughly solve the customer’s problems.

12.2 Benefits Of Solutions The most common benefits obtained by customers who demand solutions provided by the company, are the following:    

Costs savings, especially when solutions includes activities previously accomplished by the customer. A superior level of response when problems arise or when new products or services are ordered. A higher capability to act, due to the fact that the customer has access to more and better technologies. Risks reduction, since they are shared with the company.

It is important to point out that when the company develops solutions, the benefits must outweigh the costs resulting from the customer’s limited ability to turn to other companies and the resulting less flexibility to make decisions. For the company, the largest benefits may be obtained when the customer is willing to make a commitment to the company and takes a step further from the mere exchange of information to the coordination of interdependent activities —i.e. the development of new products or services or the development of joint investments. Companies able to build such close relationships with their customers enjoy the benefits of this significant source of competitive advantages, and they still get more loyal customers.

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12.3 How To Develop A Solutions Strategy? As we have learned, Smart Customer Management means that the company evolves from a mass production approach to the development of solutions aiming at providing the customer with customized experiences, or solving global problems. In some occasions, companies may also provide multichannel global solutions, which would allow the customer to choose how he/she wants to communicate and under what circumstances. For the customer, solutions may be perceived as a limited way of outsourcing, which leaves at the company’s discretion the development of certain processes —which supposedly provides in a more efficient way— to better focus on his/her core tasks. For the company, solutions are an important source of competitive advantages, nurtured by customer knowledge and mutual trust. The real challenge for the company is to be able to combine the different components or modules of value for the customer, in a single best integrated solution. That is why in order for a solutions strategy to deliver its expected benefits and the highest possible value for the customer, the company must consider these four dimensions: 1. Scale and scope. This refers to the amount and diversity of components that may be combined together to create a solution. For instance, a telework solution may have a low scale —only one unit of each component— but a high scope —a great variety of components, such a local network, a desktop computer, a printer, a hard drive, a Wi-fi modem, an Ethernet cable, and a data service. 2. Degree of integration. It refers to the degree of integration that exists between the different components of a solution, which can go from a simple bundling of products up to a highly integrated combination of products and services. Between the two extremes, the company may develop intermediate module-based combinations. 3. Type of solution. Basically there are two types of solutions: horizontal and vertical. Horizontal solutions are generic and may be applicable to any customer category, regardless of the industry. For instance, a courier company that collects merchandise and delivers

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it to a destination does not need to take into account the industry the customer is operating in. On the other hand, vertical solutions are industry-specific. For instance, a website company offers design services differentiated by industry, because it is not the same to design a website for a multimedia company than for a financial business. Generally, vertical solutions require the organization to be much more focused on the customer’s needs than horizontal solutions. 4. The revenue attained by the solution. This dimension is important because depending on the amount of revenue attained by the solution the company will organize itself one way or another. If solutions provide, for example, 10% or less of the total revenue of the company, then the company may simply create a unit to integrate its products into solutions. When revenue share increases, the company might then start thinking of specialized solutions units, either vertical and/or horizontal. In conclusion, companies developing solutions allow a faster response to the opportunities their customers provide, but they also face greater challenges as far as they increase the degree and scope of their solutions. Furthermore, the impact of solutions on the organization grows as the degree of the integration required by the solutions’ components increases and revenues are higher.

12.4 The Impact Of Solutions On The Organization One of first things a company implementing a solutions-based strategy needs to do is adapt its organization model to provide room for the different levels of coordination and customer relationship that solutions deserve. Some good practices show that the best way of organizing for solutions is around internal networks that wrap up resources and capabilities and add valuable to the customer. These networks may be of various types, therefore the biggest challenge for the company when designing its organizational structure is to match the appropriate type of network with the strategic importance and complexity that the solution has for the customer.

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For instance, some companies organized around business units for each product line may also make available dedicated internal networks focused on coordinating the different business units’ resources. In other cases, companies organized in geographical profit centers may have developed networks dedicated to coordinate themselves throughout the different geographical structures. The type of networks that your company chooses will depend on the degree of internal coordination required among the different organizational functions or departments, as well as on the degree of interdependence and cooperation required by the customer. Most of the networks implemented by companies are one of the following types, ordered from the lowest to the highest degree of coordination and interdependence: 1) informal networks, 2) customer teams, 3) team coordination, 4) matrix type organization, 5) customer independent line. Appendix D provides further explanation on some of the key organizational structures associated with solutions management. It is important to bear in mind that the level of authority and autonomy of these networks must match the level of importance that solutions have for the company. If solutions are very few, then the level of formality should be low, as well as its authority and autonomy. On the other hand, if the importance of solutions is high, then the company should consider individual solution units with higher decision-making autonomy.

CHAPTER 13. THE CHANGE MANAGEMENT ROADMAP

In this Chapter you are going to learn about:   

Why is change management so important? What are the best strategies for change management? What steps in change management should not be missed during the company transformation process?

Smart Customer Management oriented companies have learned that creating value for the customer and become a truly customer-centered organization is not a destination itself, but rather a life-long journey not without difficulties. Despite the pitfalls your company surely is going to find along the transformation process, the truth is that the rewards for managing a Smart Customer Management organization are huge. In case you are asking yourself how much is this going to cost, or how much my company will need to invest, the best thing you can do is switch gears and ask yourself, how is the bill for not doing it going to be? You now know what the Smart Customer Management model offers you. Its framework may be of great help for your company to gradually evolve towards the customer in a safe and orderly way. However, in order to

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implement a Smart Customer Management strategy, it will not simply be enough to copy and paste the ideas contained in this book into your organization. This will not work, and it could even be counterproductive for the future of your organization. As you have learned, the organizational and cultural transition towards a Smart Customer Management strategy involves the whole transformation of your company. The chances for success may be higher if everyone in your organization understands and shares the goals of Smart Customer Management, and what the change process is all about. Bear in mind that once your company gets on board of Smart Customer Management, you all in the organization will be making a commitment for continuous improvement and change, as well as accepting that there will always be further steps the company needs to undertake to create value and enhance the customer relationship. Hence, what should you do to properly manage the change process in your organization? What are the next steps in order to put my organization right on track? In this chapter you are going to learn more about the different strategies you may use to become a Smart Customer Management oriented company, and how to cope with change.

13.1 Pilot Projects Pilot projects are the easiest and less risky strategy for starting up a Smart Customer Management strategy in any company. The philosophy behind pilot projects considers that it is much easier for the company to implement small initiatives of limited scope, instead of launching a big transformation project that affects the whole organization. According to this approach, the company’s main objective is to gather small incremental changes, the sum of which will result in significant changes for the organization. One of the major advantages of pilot projects is that by implementing small incremental changes in the organization, it is not necessary to “touch” the company’s organization model at all, which would otherwise avoid acting upon tricky issues that might create resistance to change.

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Pilot projects are focused on taking small steps towards the implementation of the Smart Customer Management model, enabling the company to test in a limited context the outcomes that a certain change or a new policy might have. Once an initiative is demonstrably successful, then the company may choose to extend it to the rest of the organization, or even decide to start a more ambitious program. An example of pilot project would consist of capturing and categorizing the identity of new customers, sweeping through databases for customer data. The “experimental” nature of pilot projects enables the company to measure performance, and not to focus on profitability or commercial success metrics alone. Instead, the company and the project leaders may stay focused on the benefits that a pilot project generates for the company. As a matter of fact, most pilot projects seldom are intended to generate revenue for the organization, since they aim at testing new initiatives as to later decide whether it is worth pursuing a more ambitious scope. In summary, many companies use pilot projects as a change management strategy to boost the company transformation. Furthermore, pilot projects provide an opportunity to obtain short-term successes and earn the confidence of the company’s executives to further progress towards the implementation of Smart Customer Management.

13.2 The Umbrella Strategy This strategy considers that the best way of transforming a company is not project by project, nor product by product, not even department by department, but rather customer by customer. Therefore, what the company should do is start putting some customers under the Smart Customer Management model —the “umbrella”— and gradually keep adding more customers. For this change strategy to be successful, your company will need to manage its customers in a differentiated way for some time and distinguish the customers “under the umbrella” —i.e. those managed in line with the principles of Smart Customer Management model— from those who are not. As the change process makes progress, the number of customers “under the

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umbrella” will increase, thus making the company its transformation process effective. The umbrella strategy may be suitable for companies that have already identified its customers individually and know their value or, at least, the value of some of them. Moreover, once the company categorizes its customers by their value it shall be easier to prioritize and move the most valuable ones “under the umbrella” in the first place. When customers come “under the umbrella”, this means that a Customer Manager will start setting goals for each individual customer and draft the strategies needed to increase the number of customers beneath. It is worth noting that the company does not necessarily have to move all its customers “under the umbrella”. Surely there will be some customers not willing to take part in the relationship proposed by the company, and others will not be profitable enough to make it worth building up an individual relationship with them.

13.3 Customer Managers Strategy Another strategy to manage the company’s transformation process consists of using the Customer Manager figure. While the umbrella strategy is a process where customers are moved incrementally “under the umbrella”, the Customer Managers strategy consists of increasing their roles and capabilities. Therefore, this is a strategy focused on the progressive development of new roles and not on the way individual customers are managed. Furthermore, while the umbrella strategy is appropriate for companies that have already identified their customers or might do it easily, the Customer Managers strategy is more suitable for companies that have more difficulty in identifying and/or following-up their customers individually. As a matter of fact, companies managing change by means of a Customer Managers strategy may be considered to be on an intermediate stage between a product-centric organization and a customer-centered. As far as the company does not really have the capabilities to identify its customers individually, it will not be able to evolve and become a Smart Customer Management organization.

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13.4 The Change Process Step By Step After you have learned about the main strategies to manage change, this section is dedicated to explain what actions should not to be missed in the transformation process. Many companies still think that the biggest pitfall a Smart Customer Management organization has to overcome is to choose and implement the right software tool. In fact, this is one of the reasons that explain the poor results achieved by many companies when they attempt to focus more on the customer. However, the major obstacle for the success of a Smart Customer Management strategy has nothing to do with technology, but rather with the company’s traditional organizational structure, its culture, processes, metrics and product oriented reward methods. Being aware of the significant endeavor that the implementation of a Smart Customer Management strategy entails for the company, I summarize below the key steps your company should never miss to achieve a successful transformation process: 1. The first step consists of assessing your company’s starting maturity level in relation to the Smart Customer Management model. This way you may make an idea of your company’s current capabilities to build long-lasting customer relationship. 2. The next step is deploying a framework for the analysis of customer data and the categorization of each customer by value and needs. By doing so, the company will gather a better knowledge of its customers’ base and assign them to a single customer portfolio. 3. At the same time the company may carry out an assessment of the technological infrastructure in support of the Smart Customer Management model. Moreover, the company may also formulate an action plan and take the appropriate decisions on technological investments to adequately support the transformation process. 4. The next step aims at adapting the organization’s model to manage customer relationships. This is done better by creating the figures of the Customer and Resource managers. Once the company completes this step it will be in a better position to prioritize actions and deliver customized solutions.

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5. The company must resolve the question of customer ownership in all the channels and touch points made available by the company, including the marketing, contact center and sales department. 6. The company should carry out a training program on Smart Customer Management for all employees and executives. 7. The company launches an IT integration program for decisionmaking and monitoring new customer-centered metrics. 8. Incentives for employees should be aligned with customer performance metrics as well as the company’s Smart Customer Management priorities. 9. Last but not least, the company should set up a Change Management Office, responsible for leading the transformation process. The office may be composed of those in charge of the company’s change projects, as well as the members of the working groups. The office might also be in charge of implementing a Communication Plan, mainly intended to overcome people’s resistance to change.

PART IV. ESSENTIAL IT TOOLS

The heart of the Smart Customer Management model beats to the rhythm of the customer data cycle, namely from the moment customer data is captured at the company’s touch points, analyzed and transformed into knowledge, and this is disseminated throughout the organization. It’s then when the company may carry out specific actions that respond to each individual customer’s needs. Without the proper IT tools that give support to this information and knowledge intensive process, the implementation of the Smart Customer Management model is simply not viable. There is no doubt that the role of IT tools is of paramount importance for the future of the Smart Customer Management organization, as well as getting to know which tools should not be missing in your change management strategy. That’s why in this part of the book I’m going to briefly introduce you to the key technologies for the development of your Smart Customer Management strategies.

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CHAPTER 14. CRM: THE ENGINE FOR BUILDING CUSTOMER RELATIONSHIPS

In this Chapter you are going to learn about:   

What does CRM mean? How may your company develop an effective CRM strategy? What is next for CRM?

Most companies have started taking an interest in Customer Relationship Management (CRM) at the time they have found the need to get in closer contact with its customers, to engage and retain them, and to manage interactions beyond the everyday transactions taking place between buyers and sellers. For many companies the term CRM is very confusing, since it means different things depending on who you ask. Some believe that CRM is a kind of sophisticated customer database, others think that CRM is a tool to blast emails to customers, and if we ask a technology consultant he/she may say that CRM is a software that encompasses a set of advanced technologies such as OLAP, XML, etc.

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The truth is that none of these definitions of CRM is wrong, though all of them are somewhat incomplete. Certainly, what these different meanings have in common is that CRM involves a wide variety of disciplines that may be used by different types of customers to seek different goals.

14.1 Looking Beyond The Traditional CRM Concept In order to really understand what is behind the CRM concept we must open our minds and take a step away from the features and functionalities that usually define this type of tools. Beyond technology, CRM is a business strategy that focuses on understanding and anticipating the customers’ needs, and increase the company’s revenues and profits. The list below summarizes some of the most common definitions given for the term CRM: 







CRM as process. CRM enables companies to work in an orderly fashion in pursuit of continuous customer relationship improvement, a better knowledge of its customers’ needs and desires, and superior ways to respond to them. CRM as strategy. CRM allows a greater awareness of each customer value and needs and the resources needed to invest in each individual relationship. Additionally, CRM makes it easier for the company to constantly assess its customer relationship and set priorities upon customer data. CRM as philosophy. CRM is based on the idea that customer loyalty improves when the company focuses its attention on building and maintaining a long-lasting and trustful relationship with the customer. CRM makes it easier for the company to put the customer at the center of its decisions and to respond to the changing needs. CRM as technology. CRM is an information technology tool that may provide the company the opportunity to gather knowledge about the customer and disseminate it.

From a functional point of view, CRM means capturing all available customer data within the organization, aggregate it into a central database, analyze it, disseminate the results to all customer touch points, and use this information to better interact with the customer.

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As you can see, CRM is not just a product or service, nor does it confer any direct and immediate benefit to the company. Instead, we should consider CRM as a full business strategy to manage the customer relationship and assist the company in generating long-term value, hence its importance for the development of a Smart Customer Management strategy. In this chapter, we will focus more on the functional side of CRM and not on the most usual specifications and technical jargon that usually characterize CRM systems.

14.2 Types of CRM The tools and techniques used to manage customer relationships have evolved notably in the last 20 years, partly as a result of the media fragmentation and, more recently, due to the enthronement of the customer within the business ecosystem. The traditional customer relationship framework, often featured by the popular “sales funnel” and mass marketing strategies, has experienced such a significant metamorphosis that today it is almost unrecognizable. Nowadays, companies do not control the customer relationship anymore, and its customers have become the most important variable in the equation (Part I). Furthermore, as customer relationships evolve, so have done the IT tools that support them, among which the CRM tools are some of the most important. The following list offers you a brief overview of how the CRM tools have transformed themselves in the last years: 

CRM Suites. They became very popular in the 90s and meant an important leap forward with regard to the previous contact management applications. Unfortunately, the complexity of these tools was such that they were difficult to implement and maintain, and users found it hard to adapt themselves to processes designed more for the sake of technologists than for the business needs. Thus, the resulting implementation rates were low and success was limited to some marketing and sales areas. Even so, the benefits gained from the previous CRM versions made them a must-have tool

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

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for many corporations. Today, demand for CRM Suites is clearly decreasing in the market. CRM as service. The first CRM as a service solution, or CRM SaaS (software as a service), appeared in the early 2000s and its main advantage was that it drastically reduced the implementation workload for IT departments. This new CRM is more scalable than its predecessors and allows companies to add new users and functionalities according to their needs. This has also helped small and middle-sized companies to approach CRM. CRM as a service has meant a significant leap forward in the customer management race and it represents a market that has not stop growing. According to Gartner in 2012 40% of all CRM tools sold in the world were CRM as service, a year in which the CRM market reached US$18 billion and grew a 12.5%. Cloud-based CRM. This is the last and most recent stage in the development of the CRM tools. Cloud-based CRM combines CRM as a service with the open source software model (see Chapter 17). A cloud-based CRM tool may be “connected”, or shut down, by any user in just a few minutes, just as if it were a self-service. Its main advantage lays on the fact that it allows companies to significantly lower the risks inherent to IT investments. Moreover, since cloudbased CRM are hosted in the cloud, it provides access to a wider variety of data than their predecessors, which helps companies improve its knowledge about how to better build customer relationships. Other important benefits associated to cloud-based CRM tools are its portability, interoperability with open source applications, and that it can be easily customized by users.

14.3 CRM Strategy The need to implement a CRM strategy or tool usually arises when the person responsible for a critical business process in the company starts having a problem. Generally, it is the sales manager who sounds the alarm when he/she realizes the company’s products and services promise such a great number of options to the customer that the organization is not capable of managing them in a reliable way. As a result, customers start receiving

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orders that do not correspond with what they have really ordered, thus causing customer annoyance and the return of orders. On other occasions, it is the person responsible for customer service who warns of difficulties when the company is not capable of efficiently addressing the service requests resulting from the complexity of the company’s products and services. This usually happens when the number of components that make up a product or service is so large that the customer has trouble getting it to work properly. The result is that the customer service department is not able on its own to get to the root of the problem, thus the response time extends and the customers become dissatisfied. Other times it is the person responsible for capturing new customers who reports the need for implementing a CRM tool, after he/she realizes that the marketing campaigns’ response rates are lower than expected due to the lack of e-mails qualification. When a CRM tool is not available, the company simply is not able to monitor the campaigns, nor it is able to update the customers’ behavior, thus when time comes to renew the customers the company loses its windows of opportunity and allows competitors to “steal” the customer. As you can see, the needs for implementing a CRM tool are varied and seek different objectives, so your company would better get prepared for changes that impact on the employees’ skills, as well as on the processes and people’s attitude towards sharing customer data and knowledge. Appendix E covers in more detail the different stages that your company should go through in the implementation of a CRM strategy.

14.4 The Future Of CRM We have learned in the previous chapters of the book that companies need to become much more knowledgeable on its customers and that, in the future, it will not be enough to just know something loose about the customer’s pattern of behavior or the customer profile. Competition for the customer has grown exponentially and now there are many more companies trying to draw the same customer attention. Any action that the company carries out and engages the interest of the customer

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is going to be influenced by hundreds of messages the customer gets daily. This means a lot of “noise” for the customer to differentiate among offerings. Consequently, the company will need to work much harder than it has done before to catch customer’s attention. In the meantime, CRM tools have been defined by a list of functionalities and capabilities that enable the company to be more efficient when managing customer relationships, or optimizing the customer experience. Up until recently, all that companies needed to know was the list of functionalities that a CRM system provided to get a better idea if such a tool would be of value for the company. However, with all the changes noted above, this approach based has given way to Social CRM. Social CRM is one of the major CRM transformations since it came to live back in the 80s and its approach, beyond the technologies, metrics and functionalities of the former tools, mainly focuses on generating as much customer knowledge as possible. Social CRM is a philosophy and a business strategy supported by a technological platform, business rules, and processes designed for engaging customers into a collaborative dialogue framed by honesty, trust and mutual benefits for both sides. Social CRM seeks real customer involvement at a time when 360° view of the customer is no longer enough. I do not mean that a 360° view of the customer is not valuable anymore for the company. However, this old “mantra” of CRM is today nothing more than a requirement to walk the road towards customer knowledge, and not the final purpose of Smart Customer Management. Furthermore, the future of CRM will also be determined by the evolution of some market trends like VRM (Vendor Relationship Management), a methodology that you should know to fully understand the implications of the New Age of the Customers. VRM philosophy affirms that “free” customers are much more valuable than “captive” ones. Therefore, for the company to have more “free” customers it must provide the tools and the necessary strategies to engage customers in a more freely way with the company. According to VRM ideologists, once VRM tools become popular they will allow the customers to set themselves free from the company’s ties, as well as to:

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     

Behave as independent actors within the relationship (with the company). Become integration spots of their own data. Set the conditions for their engagement with the company. Express their demands and intentions outside the company’s control. Control all data generated by them. Share the information on a selective and voluntary basis.

From the company’s perspective, we might say that VRM is the customer equivalent to the companies’ CRM. This means that thanks to VRM the company might be released from its condition of “customer hunter” and leave behind the burden of having to capture and manage customers continuously. VRM might make CRM not be the only tool focusing on improving the relationship between the customers and the companies. Customers might be able to actively involve themselves in the management of the relationship, as they would not be captive followers of the company any longer. The consequences of these trends do not mean that CRM tools will disappear overnight, though they will need to evolve to integrate, sooner than later, all the new needs that emerge from the social media world and that affect the way customer relationships are managed.

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CHAPTER 15. CUSTOMER ANALYTICS: REALTIME CUSTOMER KNOWLEDGE

In this Chapter you are going to learn about:   

What are customer analytics tools about? What are the benefits of analytics tools? What are the main implementation pitfalls to avoid?

Customer analytics tools enable the company to capture, extract, measure, and generate customer information that may be used later on by the company to achieve its customer relationship goals. It is the capability these tools provide to generate real-time customer information and allow the company to adapt its behavior to the customers’ needs, what makes analytics tools so important for the development of Smart Customer Management. There are many examples of analytics tools being used in all type of industries. You may find them when you search for a product on a website and suddenly you come across a discounted featured product. Is that a coincidence? Of course not. The reality is that an analytical or optimization engine is operating behind the scenes and comparing your purchase history with your activity online, thus “thinking” the best chance to sell you a related product.

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This is only one of the many uses customer analytics have. Analytics tools may help improve customers’ satisfaction levels, as well as retention and loyalty rates. Moreover, these tools are crucial to get to know customer value, which is one of the key principles behind Smart Customer Management (see Chapters 3 and 6). Despite all these advantages, 90% of the companies using analytics tools are doing so with the solely purpose of capturing new customers, mainly due to competitive pressures or marketing budget cuts. Therefore, there’s still a long way ahead for companies to learn about the full potential of analytics tools. Analytics tools have matured in the last few years and reached such a level of sophistication that they can assist companies like yours to effectively transform its customers’ behavior and experience. You may notice the evolution of analytics tools with the progressive integration of new advanced data analysis capabilities and how easily different data sources are integrated and its results disseminated all over the organization. Yet, with all this accelerated development going on, choosing the best customer analytics tool that fits your company’s needs is not an easy task. Notwithstanding if you get it right, the benefits you may find in terms of customer knowledge and competitive advantage are substantial.

15.1 Types of Analytics Tools When we talk about customer analytics tools we should start differentiating the following types of applications, each of them pursuing different objectives: 1. Descriptive analytics tools: These are tools for analyzing customers’ behavior, the habits of certain customer segments, or the organizational performance from a historical perspective. This type of tools may also be used to know whether a marketing campaign has been effective, if your customer service has improved calls resolution time, or what your sales team performance has been in the geographical areas where they operate. Descriptive tools are also known as operational analytics tools.

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2. Predictive analytics tools: These tools try to figure out what might happen if certain conditions occur. Predictive tools usually count on models based on the probability that certain circumstances — individually identified— come to happen. Predictive analytics tools gather customer data, identify customers’ groups and predict their possible behavior based on historical results and other factors introduced in the model. For instance, if you reduce the time your sales team dedicates to administrative tasks by 10% and you give them the means to capture customer data faster, predictive analytics tools would help you answer questions like, what would be the impact on costs and revenues? Or, to what extent would sales grow if you were to launch a promotion with a price reduction for the young public? 3. Marketing optimization tools: While the tools above are best suited to improving customers’ interactions, marketing optimization tools help the company to deal with the difficulties facing the marketing department. Among the capabilities provided are: help decide what campaigns should be addressed to which customers, comply with contact policies, and spend within budget limits. This type of tools applies mathematical techniques that enable the company to maximize their financial results for each communication, while at the same time the company’s customers contact strategy can be improved —since customers are not overloaded with irrelevant communications.

15.2 Business Intelligence Business intelligence is one of the most important applications of customer analytics and consists of exploiting the scattered customer data the company has, in order to generate knowledge about its customers, employees, suppliers and business partners, for more effective decisionmaking. Business intelligence does not only involve customer knowledge, but it also encompasses knowledge of the company’s value system and other areas, such as products and services, supply chain, finance, or human

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resources. Bear in mind that the more information your company has about each interaction, the easier will be for the company to treat each different customer in a different and innovative way. Business intelligence uses both predictive and descriptive analytics methods and applies complex algorithms for the purpose of extracting some meaning out of the data captured. Once customer data has been conveniently analyzed, results are usually displayed by means of a reporting tool, so that any user in the organization may use them, even without previous mathematical knowledge. Among the most common applications of business intelligence in the company we may find sales and marketing analysis, planning and forecasting, financial consolidation, budgeting, and profitability analysis. Other possible uses include helping the company to predict what the next sale will be, to whom, and when the sale will take place. Many companies from the financial sector, for instance, use business intelligence to analyze which type of products are the most suitable ones for each customer group and season of the year. Analytics tools might even assist your company decide whether it is a good moment of the year to sell a certain product or service, and to which customer group.

15.3 Critical Factors For Analytics Implementation For the company to get all the benefits of a customer analytics tool it is important that data supply and demand of knowledge from the departments and functions of the organization are reasonable aligned. The issues regarding data supply are usually easier to handle, as the company may resort to multiple tools available in the market to work out the concerns. However, it is important the company makes sure data supply meets the following requirements: 1. High quality of data. This is one of the most important factors for customer analytics tools to work effectively. Although most companies have significantly improved its customer information gathering processes in the last years, yet the main problem remains: to ensure good quality data, integrate and reconcile data across the

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company’s systems, and decide which part of the data must be made accessible. 2. Appropriate technological environment. The company should make available the appropriate hardware and software environment in order to succeed in the implementation of a customer analytics tool. Analytics tools are data processing intensive and, therefore, related systems and servers need to be much more powerful than office ones. This has made many companies to migrate hardware to 64-bit environments, as to improve more complex analysis processes. From the software perspective, the market offers a wide range of solutions for capacity management, data storage, enquiries and reports, data mining and statistical analysis. Ideally, all these components should integrate smoothly and be easy to use. 3. Analytical capabilities. As customer analytics tools become more powerful and sophisticated, companies should start thinking about equipping themselves with quantitative and analytical capabilities, either because they have the experts within the organization or because they hire them. For a customer analytics expert to be effective, not only will he/she need to have knowledge of quantitative analysis techniques, but also be familiarized with the current business problems within the function and the industry he/she works in. Moreover, it is always convenient that a close collaboration exists between analytics experts and those responsible for decision-making, in order to shape seamless decision-making processes. With respect to knowledge demand, the main issues are usually much more complex. Generally, the need for customer analytics arises when the company faces a problem, or has a lack of knowledge, which affects its operations. Unlike in data supply, analytics demand solutions are not available in the market for purchase, and no tools are there to easily create it. Therefore, in order to develop a demand for customer analytics and make it become a source of competitive advantage, it is recommendable that the company works on these lines of action: 1. Executives’ commitment. The lack of analytics demand from executives is one of the main obstacles preventing the development

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of customer analytics in the company. The main concern here is that many executives feel more comfortable making intuitive decisions and ignoring the possibilities customer analytics offers them —or they simply do not have enough personal experience in the subject to develop a strategy in this field. Certainly, unless executives use customer data and analytics to make more informed decisions, customer analytics will not develop, thus affecting the effective implementation of Smart Customer Management. 2. Stimulus of analytics demand. In view of the low levels of analytics demand that exist today in most companies, it is advisable to start taking actions that stimulate it. To stimulate demand, some companies have created organizational units for this purpose, which have analytics experts who generally report to the business unit head. The role of these experts usually is to act as intermediaries between the data suppliers —i.e. IT department— and the customer analytics users —mainly executives—, to teach the business units how analytics might be useful to achieve their goals, and to ensure that the right data reaches those who need it. Another factor to consider when implementing a customer analytics tool is how its outcome is going to be used. Most often, analytics outcomes are for internal use only; however, an increasing number of companies have realized the opportunity to create competitive advantages when the results are shared with suppliers —i.e. to improve response levels and costs— and customers —i.e. information about their purchases or the prices of both the company itself and the competitors’. As you may expect, the implementation of customer analytics tool is a complex task that might require years until it becomes a strategy that yields benefits. Along this period of time, the company will have to make decisions regarding the amount of data it needs to process, the number of users that can access the analytics system, the speed at which it must respond to the business needs, and the business processes optimization. Executives will also need to fully understand the real meaning of customer data and feel comfortable with analytics outcomes. For all these reasons my advice is that your company would better start working on making its customer data available as soon as possible, that it builds an adequate hardware and communications environment and, finally,

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that it chooses a customer analytics tool. Without doubt the benefits and competitive advantages created through the implementation of customer analytics will outweigh by far the costs and difficulties your company will face along the way.

15.4 Pitfalls of Customer Analytics The implementation of a customer analytics tool in the company may face some of the following pitfalls, which you should be aware of before your company dedicates resources: 1. Internal conflicts. Some problems may arise when departments or areas of the company have their own policies regarding customer relationship management and they store and exploit its own customer data. This usually causes inconsistencies in the use of the customer analytics tool, and raises questions about who should access the outcomes —i.e. in most cases the sales and marketing departments instead of the whole organization. 2. Analytics enemies. This is the people who make decisions based on intuition or “good vibes”, and boast about not needing customer analytics tools at all. If you meet someone like this the best thing you can do is try to stimulate the demand of analytics —i.e. by hiring an analytics expert who can demonstrate the value of analytics for decision-making. The bad news is that this might take years to achieve and the results might not be as you would expect. Therefore, the best approach to start with is to generate relevant information about the organization performance and make it available to executives, so that they may use it every time they need to make more informed decisions. 3. Technical hurdles. They usually come up when customer data is stored throughout scattered sources, is scarce, contaminated, corrupted, or there is not a shared standard for data formats or displaying the results. Sometimes such problems arise when there are different tools for managing customer data in the company. In its 2012 report on “The State of Customer Analytics”, consulting firm Forrester concludes that the lack of customer data management and data

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integration and the low quality of data, are the main inhibitors for customer analytics development. As a matter of fact, Forrester’s report states that 54% of the companies surveyed in the United States found difficulties when managing and integrating their customer data, while 50% were concerned of data quality. Data quality is key when the time comes to using a customer analytics tool, but even more crucial is that the company has a well-defined strategy that clearly establishes who its customers are and what it expects to gain. Once a customer analytics strategy is formulated, the company may then dedicate its efforts and resources to set up its customer analytics processes, before implementing any analytics tool. Last but not least important, it is always advisable that the company keeps an eye outside its walls and engage experts with the expertise to implement a customer analytics tool and/or use data mining. To be successful in customer analytics your company will certainly need not only the right tool, but also the right people who can help to get the most out of the customer data.

CHAPTER 16. SOCIAL MEDIA: CONSTRUCTIVE DIALOGUE WITH CUSTOMERS

In this Chapter you are going to learn about:   

What risks are involved in a social media strategy? What are the benefits and opportunities that social media provides? Why is it important that your company cares about its online reputation?

As we have learned in previous chapters, traditional product-centric business models have been superseded by the effects of the customer revolution and by online and information technology-driven changes. Today, customers and companies find themselves in a crossroad where four thirds of the world’s Internet users are involved in some type of social media, and for the first time in history there are more people communicating through social media, 66.8%, than through e-mail, 65.1% (Nielsen, 2009). Add to this that the fact that more than 6.8 billion mobile phones are currently in the consumers’ hands. This revolution has transformed the way in which individuals interact with each other and with organizations, thus resulting in a new type of customer that we call “social customer”. Social customers demand much more involvement with, and from, companies and are eager for the control of their

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own experience. Moreover, social customers see the company as one among many steps on their way to satisfy their personal agenda. For all these reasons, and some more that we are not going to analyze, social media has become an essential tool for the implementation of Smart Customer Management. Consequently, from now on, your company should not remain indifferent to these social changes and learn as much as it can about how to better manage social media and leverage the endless opportunities it offers. Having said that, this chapter is not about how your company might draw more benefits from Facebook, Twitter, LinkedIn and the like. In fact, Appendix F provides you with a bunch of good practices that may help your company better manage its social media. However, what concerns us most here is the implications that social media may have for your company’s Smart Customer Management strategy, how your company can make the most out of it, and how it can effectively manage the main social media tools.

16.1 Social Media And Its Risks Social media is not a new thing. Actually, for many years social media has made it possible for consumers to communicate with each other, as well as with companies. An example of this may be found back in the early 2000s when sending SMS messages became the standard in social communication. That being the case, what are the real differences between the current and traditional social media, and why have they become so popular among consumers and companies? I dare to say there are two fundamental reasons that explain the above: 1. In today’s social media you do not necessarily have to be in the presence of other people in order to be in contact with them, and it is much easier than ever to collect information about the conversations that take place among users. Furthermore, with the right tools, companies may analyze conversations among social customers in a much easier and faster way and deliver better responses to their needs, worries, fears, complaints, disappointments and/or hopes.

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2. Most social media is organized around contents created by the users on their own, such as posts on forums, photos, videos, rankings, or social tags sites. For many consumers this type of information is the most important one and the most reliable of all —not to say the only one— when it comes to decide on a purchase. Notwithstanding the foregoing, one of the most important thing you should never forget is that social media are tools. This may sound obvious, but in my experience companies are often inclined to use some of the most popular social media tools for one of these wrong reasons:   

Because everyone uses them and they are just there —and most are free! Because they apparently allow to unfold a participatory, dialoguebased strategy with customers. Because they convey an open and modern image of the company.

It is important that your company does not allow social media to replace its endeavor to build up real customer relationships and implement an effective Smart Customer Management strategy. No doubt social media has its own benefits, but also its own disadvantages, so your company would better use it carefully and rather as a component within a wider customer relationship strategy than as standalone. Certainly, the temptation for companies is to believe that every social media can be potentially useful for their needs. But do not be fooled and do not take for granted that a social media is going to provide value to your business. First and foremost, your company needs to decide in advance whether a particular social media is interesting, as long as it fits its Smart Customer Management strategy. Then it must remember that social media, though a meaningful facilitator of change on the path towards the effective implementation of a customer-centered strategy, should never become a way to replace the transformation process the company must necessarily address.

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16.2 Opportunities Of Social Media Although social media may somewhat intimidate at first and mastering its tools might mean a real challenge for the company, the truth is that the opportunities offered are huge and, at times, even greater than you can imagine. Nonetheless, despite social media adoption indicators keep growing at an unstoppable rate, many companies are still reluctant to make the most of its potential benefits. Only after customers threaten to abandon or complain it is that many companies realize they need to start managing social media and change the way they interact with customers. Do not wait to see if your customers would have their desired conversation with or without you. So, it is up you to give them what they are asking for. Remember that traditional marketing and advertising campaigns have always been very limited by the number of channels they used —e.g. radio, TV, magazines, press— the high costs of these channels, and the slow time to market —weeks or even months. With current social media, the company has within reach the opportunity to fine-tune its messages in real time, with lower costs than before, and within minutes or hours reach millions of potential customers worldwide. Furthermore, customer data has become available on social media without the company having to pay a fortune for it and, if things continue like this, data will continue growing at such a rate that companies will not even be able to manage it —even with the most advanced CRM tools available. Nowadays companies are no longer limited by the information they capture through their own channels or research methods, instead they have available many affordable tools which may provide all the necessary knowledge about the customer’s behaviors and preferences —i.e. what book does a customer read, what music listens, what clothes is wearing, etc. However, one of the major sources of opportunities provided by social media is derived from mass collaboration with users, and the new business models that can emerge from it. Companies are realizing that co-creation communities can become one of its strongest allies when it comes to solve technical problems, make the supply chain work more efficiently and, even

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more, design and popularize new products and services. In all these cases, both the development costs and time to market may be drastically reduced to just a small fraction of what we would expect, had traditional methods been used. Well-known companies like Samsung, Nike or Lego (Figure 9) are at the forefront of co-creation communities, and they use them to get advice on new products designs, make users test prototypes before launching them, and even share intellectual property with lead users in exchange for feedback.

Figure 9. Lego Mindstorms online co-creation community Adopting co-creation practices, however, is not trouble-free for companies and generally involves important cultural and organizational changes which makes them to be out of reach for most companies. Nonetheless, in the next coming years we will see how a growing number of

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companies develop co-creation practices, and the time will come when social customers will normally take part in co-creation and work-sharing practices with companies. All this will only be possible as long as companies give up the control over its sources of information and customer knowledge.

16.3 Watch Out Your Online Reputation! The trust of customers is one of the key competitive edges in the New Age of Customers and also a critical success factor in any social media strategy. If customers trust your company, then it might focus much better on genuine value creation processes and there would be less need to work on unproductive or not customer-centered tasks (see Chapter 3). Nowadays information and communication technologies together with affordable connectivity and social media, make your company’s reputation —for better or worse— travel at the “speed of light”, and be shared by more people than we can imagine. This is a major reason explaining why trust and technology go hand by hand. Likewise, in the interconnected world in which we live, the demand for trust is favored by the ever-increasing use of social media. Any user opinion or rating has now an immediate effect on a seller’s reputation, as it will be instantly published on tens of Internet sites. This has the advantage that people may easily know a company even though they have never purchased anything from it, or know somebody who has dealt with the company before. The bad news for companies is that review websites have spread very quickly across the world, thus a lack of trust from customers has a negative impact on the company and cannot be kept in secret. Any company doing something wrong with their customers is quickly uncovered and its business suffers the consequences. Therefore, cheating a customer, even though it might mean a short-term financial benefit for the company, can make somebody to publish a bad opinion or a negative review on some site, and as a result that the business suffers the consequences for years, or even forever. In this case, the best advice your company should follow is to act on the customer’s behalf. It is hard to find a simpler advice that entails more benefits for your company. No matter how difficult the situation might be in

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your company, or how confusing things are in your industry, the safest harbor for any Smart Customer Management oriented company is always to gain and keep the customers’ trust.

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CHAPTER 17. DEPLOYING IT TOOLS

In this Chapter you are going to learn about:   

What deployment methods are best for IT tools? What advantages does open source software offer? What benefits do cloud technologies provide?

One of the most common concerns companies have when they work on the implementation of a Smart Customer Management strategy is to decide what type of IT tools should the company be equipped with, and what the options are for an effective deployment of these tools in the organization. As you already know, Part IV of the book helps answer the questions about which tools should not be missed in any company’s Smart Customer Management strategy. However, once the tools are identified and an IT governance framework is implemented (Chapter 11), the question soon arises as to what is the best, whether the traditional on premise deployment method, or the software as a service (SaaS) method. The issue of IT deployment has long been discussed in the IT industry, and almost always gets stuck in the same kind of questions: who should be the owner of the technology and who should control data. However, these questions have far-reaching implications for your company, since what it is really at stake here is deciding whether your company: i) should license the software, provide the servers, hardware and the staff needed for maintenance, in exchange for keeping control of customer information or, ii)

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your company should hire a vendor who provides all the hardware, software, and employees needed to install and service the IT infrastructure, in exchange for a subscription fee and lose control of data. But the discussion does not end here. There are other factors which make deployment decisions more complex and pass unnoticed for most companies. This is particularly the case about the roles played by the open source software and cloud computing tools. In this chapter we are going to examine the main criteria your company should consider when choosing a deployment strategy for the IT tools which support your Smart Customer Management strategy. Moreover, we are going to sort out the relationship between open source software and terms like “on-premise”, “on-demand” and “cloud computing” that are usually confusing for companies.

17.1 IT Deployment Methods An important part of the decision on the type of technologies your company will need to implement depends on the options it has for installing, operating, and making them available to the users. Since each tool is unique, it is important that your company carefully examines what are the stages of the deployment process, determines the connections between them, and makes it clear if they take place in the company’s or vendors’ site. In case the deployment process might require some kind of customization, you should also consider the consequences that customization will have for your company. It is thus very important that you are aware that each technology tool has end users who are different, and which require a deployment specific to each environment. For instance, in a sales environment there will be customer managers responsible for customer portfolios, whereas in a financial environment the end users will be accountants or controllers concerned about the financial statements reflecting the faithful image of the company’s financial situation. Not least important is that the activities that are part of the IT deployment process are monitored, measured and automated whenever possible to get better results and be more efficient.

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Note that companies may generate important competitive advantages by developing their own IT deployment capabilities. To pursue this goal, companies should become more flexible when they implement new IT tools, configure or reconfigure them, and quickly make them available to all members of the organization. The development of strategic agreements with external partners and the proper alignment of the business and IT strategies are other factors that should help increase your company’s deployment capabilities. In the next sections you are going to learn about the advantages provided by two of the most widespread IT deployment methods among companies: on-premise and on-demand.

17.1.1 On-premise deployment The on-premise deployment method is the traditional process for software installation and administration, and the best known among people. This method basically consists of obtaining a software license and installing the software on a server physically located in the company’s premises — where data is stored and managed with the company’s own security measures. This method allows the company to keep control over the data, but requires it to hire the necessary staff to install and customize the software, as well as to update it. The on-premise model has many advantages, especially for big companies, since it provides optimal control over the processes and data, and scales better than the on-demand method. This does not necessarily mean that the on-demand method does not easily scale, but rather that the on-premise deployment allows a more flexible customization process to fit the company’s particular needs. The main criticism to the on-premise deployment method is that it can take weeks or even months to install. And though these periods of time have become considerably shorter in the last few years, the differences with the on-demand method remain significant for most IT tools.

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17.1.2 On-demand deployment The on-demand deployment method consists of providing the company access to software, in exchange for a subscription fee. The subscription fee is usually calculated on the number of users —either monthly or annual— and prevents the company from taking the risks typical of the on-premise method —e.g. budget deviations, technical problems—, thus avoiding unpleasant surprises like new organizational or maintenance costs. The sophistication behind the on-demand deployment method has recently increased and nowadays you may find a great variety of on-demand software tools covering the whole range of business management needs — e.g. CRM, customer analytics, business intelligence, customer service, supply chain, accounting, etc. Most users agree that the main advantages of the on-demand deployment method are its reliability, the reduction of operational and technological risks, the removal of financial uncertainties, its upgradeability, and its ease of use. Among the drawbacks, users usually find the difficulties to customize the service and integrate it with other applications or technology environments, and the problems that arise when changing the vendor after some time working with on-demand tools. However, many of these drawbacks are myths far from reality. For instance, many users blame the on-demand method for security problems, even though the truth is that most on-demand platforms are safer than if they were deployed on-premise. Other users say there are integration problems, though the truth is that vendors are increasingly using serviceoriented architectures, which allow most systems to be interoperable and provide seamless communication. Yet there are other users who consider that the on-demand method is not very reliable due to service interruptions, when reality shows that interruptions are fewer than in the on-premise installations. In either case, the best guarantee for your company is to draft a service level agreement with the vendor you choose, where penalties are established for poor service, and which keeps you away from paying for services that are not rendered.

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17.2 Open Source Software There is a lot of people who still confuse open source software with software as a service, or simply believe that open source is a software free of charge. The truth is that open source is neither SaaS, nor cloud computing, nor is it an on-demand tool. Open source software is neither the architecture of a new application, nor a software deployment method, nor a source code free of charge. Any comparison with these concepts is a mistake. Open source software is basically three things: i) a type of license, ii) a culture or philosophy for producing and distributing software, and iii) a free to access source code that people may modify or repair. Followers of the open source “movement” stand up for the idea that source code should not be protected by intellectual property laws; instead it should be freely distributed to whoever wishes to use it. Actually, in open source software the code still belongs to its owner, but the owner chooses to distribute it free of charge and allows it to be altered as long as it is distributed “democratically”. This is exactly the opposite of what a software developing company does when it tries to protect its source code with a license. However, one of the key determinants that makes open source software one of the best options for companies seeking IT tools to support its Smart Customer Management strategy, is price. Most open source price schemes are more attractive for the company than proprietary software pricing. In addition, most open source software tools have available a wide range of extensions and applications, usually developed by large communities of developers, which are easily integrated with the original applications. Notwithstanding, for some companies open source software involves some risks, because sometimes it is difficult to ensure the quality of the thousands of applications created in the software development community, where almost any developer in the world can participate. Additionally, open source software licenses do not restrict code modifications or who can make them. Neither do they limit the distribution of applications, nor modified code. Under these circumstances many companies decide to develop the core code themselves, and then turn to the community to complete the secondary work.

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One last word of attention: industry forecasts for the next years indicate that 80% of world’s commercial software will use some type of open source component. Moreover, today there are more than 70 different versions of open source software licenses already approved by the Open Source Initiative. All this together makes us think that within a short period of time, virtually any company in the world will be able to find an open source software tool that meets its need.

17.3 Cloud Computing The use of cloud computing is not something new. Back in 2008 a report issued by consulting firm Gartner stated that 69% of consumers worldwide were using some type of cloud-based tool —like a text processor on Internet or the services of Gmail or Hotmail. Even though neither people nor companies were much aware of it, we all have been using cloud services for a while. According to the Wikipedia, the term cloud computing is used to describe “a variety of different types of computing concepts that involve a large number of computers connected through a real-time communication network such as the Internet”. Cloud computing basically means that resources are dynamically scalable and that they can be virtualized and offered as services through the Internet. In this new environment, users do not need to have any knowledge or control over the technological infrastructure that supports the resources. The main benefits provided by cloud computing to the want to be Smart Customer Management oriented company are the following: 1. Services are fast delivered, usually in seconds or minutes, which means that there is not a technology implementation process, nor does the company need to plan for capacity. 2. Costs are always under control and limited to the subscription fee, which significantly reduces the risks of incurring in unexpected costs. In addition, subscription payment can be made with a credit card, thus dismissing the need for a procurement process that slows things down.

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3. The company only pays for the resources it uses, therefore the more resources are used, the higher the cost of the service is. 4. Since cloud computing tools are not hosted on the company’s servers there are not maintenance costs. In most cases these costs are included in the subscription fee. 5. Cloud computing tools are accessible at any time and from any device with a web browser. This means users have the freedom to work from their preferred device and wherever they want. 6. It is not necessary for the company to maintain or clear the data. The above does not mean cloud computing is perfect and it does not have drawbacks. In fact, most common issues with cloud computing are very similar to those of SaaS —i.e. data security, data control, service interruptions. But one thing seems clear: latest market research indicates that, in the next years, cloud computing will keep growing at a significant pace to become one of the biggest markets in the technology industry in terms of revenue. According to Gartner the growth for 2013 is estimated at a 18.5%, and the global market volume will reach US$131 billion. In 2020 cloud computing market is estimated to exceed US$160 billion.

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CHAPTER 18. CHOOSING IT TOOLS

In this Chapter you are going to learn about:   

What factors influence the choice of a strategic IT tool? Why is it important to choose a strategic IT partner? What stages should you follow to choose the right partner?

Learning how to choose an IT tool that supports your Smart Customer Management strategy is certainly crucial for the success of your company’s customer-centered transformation process. But even more important than choosing a tool itself is knowing how to choose the right strategic partner who keeps its word and works with confidence. Today, almost all key business IT tools and services are hardly differentiated and they are more or less the same. For instance, if we were to examine CRM systems, we would most probably find that most CRM tools offer the same modules —e.g. sales automation, marketing, calendar management, tasks, documents, etc. Even subscription fee CRMs are almost the same. So we might ask ourselves, where are the differences among IT vendors? And, what should I do to choose the tool that best suits my company’s needs?

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18.1 Choosing The Right IT Tool When choosing an IT tool to support your company’s Smart Customer Management strategy, one of the most important factors to consider is the architecture of the application. This has to do with the way the tool integrates with other systems of the company, how users access the tool — i.e. browser or desktop— and how consistent and reliable its operation is. Most IT tools described in this book have made substantial progress with regard to integration and interoperability, with web services allowing most of these tools to “talk” with each other, which means data exchange is now possible between them. However, if your company still operates old IT tools, it might then not be possible that systems interoperate, or that on-demand systems can be used. The same might happen if you are using a client-server architecture. Whichever architecture you choose to support your Smart Customer Management initiative, my advice is that you would better be sure it makes sense for your company. Another important point to consider when choosing an IT tool is the total cost of ownership (TOC), as well as the amount of resources your company will need once the tool is up and running. It is also important to make it clear whether your company wish to pay a periodic subscription fee that allows it to control costs —but puts the data on the vendor’s hands—, or it prefers to have its data stored on its own server and license the software for a fixed price. You should assess your vendor’s culture; in other words, make sure that your company’s culture and that of your vendor are compatible. This is not a trivial matter, because when you decide to pay for a tool, you will also be purchasing your vendor’s way of doing things. Like it or not, your vendor will become your partner and not a simple technology supplier. The IT tool that you choose can become the foundation for your business’ next growth stage or, on the contrary, a source of problems and headaches. So if you think this is not important guess what might happen if after you sign a contract with a vendor things start going wrong. Are you going to complain saying they (the vendor) are responsible for everything and are not able to understand your business? This is not something I would recommend you to do.

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The best thing you can do is to work closely with your vendor as partners and forget about finger-pointing. If you want to trust your vendor during a crisis, you would better start trusting each other before you sign the contract. Thus be careful when time comes to choose an IT tool and follow these steps to get along with your vendor: 1. Talk with other customers who have had problems while implementing the same IT tool and ask them how their vendor solved them. 2. Try to confirm that your vendor is a financially stable company and has the proper credentials. 3. Pay a visit to the vendor’s facilities or headquarters if they do not have a local office. 4. Pay attention to how your vendor manages problems, if the staff is willing to accept failure and is eager to help, and if they are honest and acknowledge what they do not know. In conclusion, bear in mind that the same qualities social customers expect from you —e.g. trust, dialogue, authenticity— are exactly the same you should demand from your IT partner.

18.2 Choosing The Right Strategic IT Partner The selection of a IT partner is often a slow process not free from difficulties that might lead to serious setbacks for your company if not accomplished properly. Therefore, in order to avoid mistakes, it is important that you follow an orderly method aimed at gathering relevant information about your potential partners and not leave anything to chance, or to the opinion of a few in the company. Given the importance the selection of an IT partner has for the successful implementation of your Smart Customer Management strategy, the following stages ensure a consistent and reliable partner selection process: 1) Gather partner information, 2) Check for internal readiness, 3) Request for information, 4) Request for proposal, 5) Compare offerings, and 6) Make final decision. Appendix G provides further explanation of the different stages involved.

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WHAT NEXT?

If the ideas in this book have persuaded you to move ahead with the implementation of a Smart Customer Management strategy in your company, or you want to continue to explore the concepts, methods or tools explained in the book, here you have some additional resources that may interest you: 

 

The book’s website at http://www.smartcustomermanagement.com contains additional expert and up to date content on Smart Customer Management. Read the author’s blog at http://www.smartcustomermanagement.com/ blog. Check the website for training videos or the most recent research papers

Do you belong to an organization and are you looking for help to improve your customer-centered management model? I would be very pleased to work with you. I can assist your company to assess its current customercentered policy, methods and tools, and help you design a Smart Customer Management strategy that aims to improve them all. I can also give seminars and workshops addressed to your management team and employees to convey the importance of Smart Customer Management, and raise awareness about the impacts brought by the New Age of Customers and how your company may create competitive advantages through Smart Customer Management.

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APPENDIX A. RETURN OVER THE CUSTOMER (ROC)

Return Over the Customer (ROC) is a metric specifically designed for the company to get insight about how well it is using its customers to generate value. As such, ROC may be used as a tool for decision makers to assess efficiency, while the company creates customer long-term value and shortterm returns at the same time. ROC is also a very useful tool for assessing the company’s global performance and make decisions within the Smart Customer Management model, since it balances short-term and long-term interests. For instance, ROC helps prioritize a one-million-dollar information system investment which helps generate cost savings and leads to a 30% increase of customer value in the next 24 months, versus an investment without such an impact on customer value. ROC may also be used in conjunction with the knowledge of a certain customer. For instance, the company might make every contact center, or customer service agent, have a real time ROC available for each customer. This way, agents might treat different customers in a different way in real time, depending on the ROC value of the customer. The sales department may also use ROC as a metric to follow-up customer managers’ or departmental performance. In this case, company executives

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would be able to keep up the right pressure on their sales teams and guide them better towards short and long-term customer-centered goals. Additionally, ROC is a metric that may assist many organizations fixing the problems they face when measuring performance. Whilst most companies are very detailed when measuring current sales volume, they do not normally know or simply do not want to measure how much their customer database value has increased or decreased in a period of time. Very often these companies are only concerned with financial indicators and end up generating an incomplete snapshot of their real financial performance, since they fail to acknowledge how much of their main asset “customer” is being used to generate their business. Hence, if a company wants to focus on ROC management it needs to make sure that every sale, service or marketing initiative generates a ROC that is positive and higher than its cost of capital. Only this way will the company generate short-term revenues and enough customer value to support future growth. Furthermore, when calculating ROC it is very important that your company has a thorough understanding of its customers behavior. This is the reason why your company will need to foster a direct and continuous interaction with the customer, which shall provide you with the quantitative and qualitative information you need for ROC. This unequivocally involves having available a sound and reliable customer information and information technology framework.

APPENDIX B. MEASURING CUSTOMER EXPERIENCE

B.1

What Experiences To Measure?

When deciding what experiences should your company measure, it is very useful to distinguish between the general customer experience with the company, and the particular experience of the customer on each touch point. In the first case, what the company should measure is the perception that each customer has about the company as a whole and along a period of time —e.g. a trimester, a semester. In most cases companies measure things such as how easy or difficult it is for the customer to communicate with the company, or how easy it is for the customer to do business with the company. In the second case, your company should measure customer perceptions on each and every touch point. For instance, in the case of an airline this would mean measuring customer perceptions from the moment the customer purchases a ticket until he/she arrives at the destination, or the steps the customer must follow until he/she finds a product in a physical store. Furthermore, those responsible for the company’s business lines or channels should measure customer perceptions on those touch points that are most important to them —i.e. how easy it is for a customer to navigate

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through the company’s website, or the level of satisfaction of the customer with the sales staff. It may also be advisable to add some operation-based measures, such as the average customer wait time in a store, the ordering and delivery times, or how long a return or refund takes. In case you have not yet identified what your company’s key touch points are, or if you have not elaborated a touch points map, these are tasks that you may want to think of before starting to measure the customer experience (see also Chapter 7).

B.2

How To Measure Customer Experience

After identifying those experiences your company wants to measure, the next step consists of deciding how to measure them. Any of the following three types of metrics could be useful for that purpose: 



Perception metrics. These are metrics for measuring perceptions that only exist inside the customer’s mind. In order to catch this data, you will need to ask your customers whether they are satisfied with regard to each experience that you are trying to measure —i.e. if their needs are being met, if it is easy, if they enjoy. For this you may use surveys, which have the advantage of making the customer quantify his/her perceptions within a previously settled scale —i.e. one point for extremely unsatisfied and five for extremely satisfied. This way of scaling perceptions will also allow you to follow-up the customer experience over time and build models that correlate it with the benefits gained by the company. Descriptive metrics. They provide operational data regarding customer interactions. These metrics basically help your company put together a picture of what happens in the customer real world, providing data such as when the customer calls, waiting times, or what the customer purchases and through which channel. To get these metrics up and running you will need to cross-reference data stored in heterogeneous applications throughout your company, such as accounting, billing and/or CRM systems; so most probably you will need the assistance of the systems department staff.

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

Results metrics. These are metrics that tell you what your customers attempt to do, or what they really do, after interacting with your company. These metrics allow you to draw connections between the customer perceptions —i.e. satisfaction with a trip— and the corresponding business results —i.e. the customer chooses the airline again. Results metrics may consist of information provided directly by the customer regarding his/her intentions, or historical data about the customer behavior. In the first case, the customer provides information about his/her plans for the future. The second one is data about the customer real behavior that can be pulled from the company’s management systems. In both cases, you will need to match the survey results with your customer records; otherwise you will not be able to make a reliable assessment of its causes and effects

Note that once all customer data is captured and put together, you will find how easy it is for you to get a clear idea about how the customer perceives an interaction, and what it is the impact on your business. Additionally, your company will be able to identify problems that require immediate action and opportunities that you may want to seize.

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APPENDIX C. IT GOVERNANCE POLICIES

C.1

Own Decision-Making Structures

The company’s own decision-making structures are those organizational units responsible for making decisions about IT in the company. Frequently these structures consist of committees or the Board of Directors, which hold regular meetings depending on the business needs. In the beginning of any IT governance effort, it is important that the executive team gets very much involved with these structures, so as to ensure the highest commitment of the organization with the decisions made. As the company learns how to use IT strategically, the executive team involvement may start to decline.

C.2

Alignment of Processes With Decisions

The alignment of processes with the decisions made in IT helps ensure that everyone in the company is fully committed to carry them out, and to provide feedback. Some of the most important processes to this respect are those regarding IT investments assessment and IT projects monitoring. The first one is crucial for the company, since IT investments may generate substantial benefits for the company, if they are properly managed —or quite the opposite. IT projects monitoring allows the company to followup project milestones and monitor the outcomes from each IT related project, as well as to identify if any issue or deviation might require action.

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C.3

Channels of Communication

Finally, the company may use several mechanisms to communicate its IT governance policies and to inform everyone about the decisions made on the subject. Among them are Board of Directors official announcements, formal committees, and the information posted on the company’s website or intranet. Recall that the highest the executives’ and directors’ commitment is to take part in the communication of IT decisions and to inform about what they do and what they expected in return, the more effective IT decisions will be.

APPENDIX D. ORGANIZATIONAL STRUCTURES FOR SOLUTIONS

D.1

Informal Networks

Informal networks are created “naturally” within organizations, though at first they are usually boosted by executives who later allow them to take their own course. In most cases these networks are organized around the customer’s database (CDB), and maintained by a Customer Manager from a geographical business unit who informally coordinates data input and updates. Any staff member with a customer relationship may input data into the CDB, seek advice, or make any comments through the network, all of which should be stored in the CDB. As time and experience increases, informal networks may become more formal and sophisticated ways of coordination —i.e. using electronic means or sharing workspaces.

D.2

Customer Teams

Customer teams are the next notch on the scale when the customer wishes a greater degree of coordination for solution. Companies usually start with formal teams focused on just a few customers —usually those with the

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highest value for the company— and then incorporate more teams as the number of customers with a need for greater coordination or more complex solutions increases. Typical examples of this type of organizational structure are key accounts and global accounts teams, which are created by adding all those people responsible for the sales, or accounts, of a customer into one single team. Members of these teams usually belong to geographical business units or product lines and have a direct relationship with the customer. The team meets periodically in order to exchange information about the customers, drafts an account plan, and sets the goals for each customer. The person responsible for the account in the geographic area where the customer is located is usually the one who leads the customer team. Occasionally, these teams may strengthen and assume further tasks when the customer requires a greater degree of coordination. This usually happens with solutions that are largely dependent on the supply chain. In this case, the team may be enlarged to add those members responsible for manufacturing, distribution, marketing or finance, thus seeking to reduce the delivery times and inventories.

D.3

Team Coordination

Team coordination involves creating the figure of the Key or Global Accounts Coordinators. They are usually designated after the company has created several formal teams and the customer still requires a greater level of coordination. A Team Coordinator provides many important advantages. First, the Coordinator is the voice of the customer before the company’s executive team and the person who unifies all the plans drafted by the different customer teams. Second, the Coordinator helps to set up the priorities for the customer and is the person who resolves conflicts that arise between the customer teams, or between the customer teams and other areas of the company less focused on solutions. The Coordinator may also be responsible for managing the infrastructures that give support to the solutions and the customer teams, including the information and communication systems, as well as team members training.

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D.4

Matrix Type Organization

The matrix type organization consists of customer units within a product line, geographical zone or industry, each one reporting to a Customer Coordinator. This type of organizational structure makes sense when the customer is a strategic partner of the company and takes part in some of the company’s operational decisions —i.e. when the customer has gained such an importance for the company that his/her relevance is equal to, or higher than, a business unit or a specific geographical unit. Although the level of interdependence that exists between the customer’s and the company’s organization is very high in the matrix type organization, there may still exist one more level: the customer independent line.

D.5

Customer Independent Line

This is the most customer-centered organizational structure. Generally, it consists of a fully independent structure for the customer relationship that integrates all the resources dedicated to the customer in product lines, geographic zones and functions. Customer independent lines are thought to gather, in the least time possible, any resource from the organization and provide the solution required by the customer in the most efficient possible way. Customer independent lines are often found in auxiliary companies in the car industry, where it is usual to find business units or profit centers per customer, comprised of all those people with a relationship with the customer.

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APPENDIX E. HOW TO IMPLEMENT A CRM STRATEGY

The following stages summarize the recommended steps to successfully implement a CRM tool that it is suitable for your Smart Customer Management purposes.

E.1

Stage 1: Create A Database

The customer database (CDB) is one of the CRM main pillars. For most companies with customer data available, creating a database should not be a big deal —it would be enough to gather customer data from transactions and the contacts made with customers. Nevertheless, for those companies not having customer data this stage may require to resort to historical data stored in internal data sources, such as accounting or customer service. If this is not an option, then the company should create some mechanism to interact with customers and to extract the necessary data to identify them (refer to the techniques described in Chapter 6). Ideally, your company should store the following type of customer data to feed the CRM tool:

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







Descriptive data. This data identifies the customer, allows the company to know his/her preferences, and shows the demographic profile to which each customer belongs. Customers’ contacts. It is the information regarding not only the purchases or service requests, but also whatever contact initiated by the company or voluntarily by the customer. Transactions. It is the information regarding the customer’s orders history and related data, such as purchased items, prices, dates, billing, delivery terms, etc. Responses to marketing activities. It is the data about whether a customer has responded to a direct marketing action, a sales call, or any other direct contact.

For stored customer data to be really useful you should continuously update the data. Bear in mind that with the popularity of the Internet, many customers are worried about the amount of personal information they provide to the companies and how they use it. So take the necessary precautions to ensure that the company’s privacy policy meets all customers’ expectations in accordance with the current data protection legislation (see Chapter 7).

E.2

Stage 2: Analyze Customer Data

Traditionally the analysis of the data contained in the CDB has aimed at setting customer segments. With that purpose in mind, most companies have been using more or less sophisticated techniques to group customers together, whose descriptive data or behavior patterns were alike. Once the segments were clearly defined, then the company used them to develop the different products and services and to launch mass media marketing campaigns. Nevertheless, you already know that this approach has been superseded by the Smart Customer Management approach, as far as segments do not take into consideration the relationship with the customer individually, but rather an “average” customer within each segment —who does not necessarily match any of the real customers the company has.

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Additionally, companies’ interest to continue using customer segmentation techniques is decreasing with time due to the large number of marketing tools now available in the market that allow individual interactions with each customer. Moreover, what it is most important today is to know each customer individually and understand the value —actual and future— that each customer adds to the company. Therefore, when developing a Smart Customer Management strategy, the analysis of data should stay focused on each customer value, so that customer managers can choose the customers with whom they wish to create long-lasting relationships and decide how they want to address them.

E.3

Stage 3: Choose The Customers

After setting up a CDB and analyzing customer data, the next step for the implementation of your CRM strategy is to decide the customers with whom the company intends to build a long-term relationship, and how you plan to address them through different marketing actions. Choosing the customers is carried in a way that depends on the type of data analysis completed in the previous stage. These are the two most likely scenarios the company may face: 1. If data analysis is performed on existing customer purchase data, then the company will first choose those customers who purchased more during a certain period of time. Other factors may also be taken into consideration when choosing customers, for instance, the positive reaction of customers to particular sales promotions, or the stage of life of customers, which helps predict the customer next purchase. In this case, customers’ descriptive variables —i.e. annual income, location of headquarters, type of industry (if B2B), or the age, sex, home address (if B2C)— are the most used variables when launching further marketing actions. 2. If data analysis is performed considering each customer’s individual value to the company, then it is likely that customer managers first choose the most valuable customers, or those expected to be the most valuable in the future. You already know that customer’s value analysis allows the company to easily discriminate between most

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valuable customers and those who do not generate value for the company. In the extreme, data analysis might give customer managers the opportunity to discard some customers when they are too costly to serve if compared with the revenue they generate for the company.

E.4

Stage 4: Build Relationships

Once the company has chosen its customers then it may start thinking about initiating a customer relationship program aimed at achieving a higher customer satisfaction level than competitors. You have already learned that the traditional way of addressing the customer through mass media marketing campaigns becomes largely meaningless within the Smart Customers Management model. That is why your company should leave behind blind e-mail blasting campaigns and, instead, start getting customer permission to receive customized company communications. Any new customer relationship program that your company puts into practice should thus seek a constant dialogue aimed at building customer relationships, which in turn should enable the company to customize its products and services upon the customer’s individual needs. By doing so, you will realize how your company best retains its customers and cuts down the costs per transaction.

E.5

Stage 5: Measure and Monitor Performance

The implementation of a CRM tool means the metrics traditionally used to measure products and services performance need to be changed. Financial indicators and those indicators based on the market evolution — e.g. market share, profit margins— may still remain relevant, but in the world of CRM the company needs to put the emphasis more on measures centered on the customer and which provide a more realistic idea on how customer relationships are performing (see Chapter 9 for more).

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Some of these new metrics will target the costs of customer acquisition, conversion ratios, attrition and retention rates, the share over total customer expenses, and similar. It is important to note that all these new performance indicators will likely involve a significant change for the company in terms of new working processes and culture.

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APPENDIX F. GOOD PRACTICES IN SOCIAL MEDIA MANAGEMENT

Social media management is as important, or more, as what you do to capture new customers or advertise your company’s community. This is the reason why so many companies use professional community managers to serve as moderators and facilitators in social media management. Community managers can belong to the company or be hired outside the company. If you decide your community manager is someone from your company, the value for the customer would certainly be higher, because you will be exposing your own company before your customers and facilitating the dialogue between them and the company’s employees. In exchange, you will get more information about the customer, create a reputation for the company, and start building the type of customer relationships that you are looking for. Keep in mind that the ultimate goal with regard to community managers is to achieve continuous participation of your customers in a dialogue with the company or the employees. And to achieve this it will be necessary that your company constantly gives them reasons to come back, until they do so spontaneously. The big question now is, how can you reach this stage? Below are some recommendations based on the social management industry good practices:

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1. Make sure your organization has a clear objective and shares a common interest for social media. 2. Designate a good social media manager or community manager, or a good team. Bear in mind that to do things right, social media management needs to be a full time job or work for most part of the day. Having a good community manager is key for the success of your social media strategy. 3. Identify and collaborate with your lead users. They usually represent 1% of all your social media users —as a rule of thumb social media users usually follow the 90-9-1 rule, which means that 90% of the users enter and read, 9% participates and responds, and only 1% are lead users. 4. Do not forget the users who do not participate in the community, because they might start participating at any time. Also do not behave as if they do not exist and always give them something to do —i.e. a survey or a contest might help. 5. Practice moderation by exception. This means setting up rules that everyone knows, like terms and conditions, an ethical code or a community behavior protocol. Once you have formulated those, you should only get involved in case of infringement. Try to avoid the micro-management of the activities in the community. 6. Always try to meet the community’s demands and answer the requests their members make. Be always aware of the company’s limitations and borderlines. 7. Answer negative comments immediately. The rule here is to transform the negative into neutral, the neutral into positive and to strengthen the positive. 8. Nurture your community with expert content until members start producing content themselves. This is easier said than done, so you should encourage your users to get involved with the contents you provide and, above all, make them interesting for the people. 9. Allow members to upload contents, make comments, link to other sites, or create forums around particular comments. Make sure users are able to start new threads —although you might need to moderate them later.

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10. Do not reward members just for things related to sales. Reward them for their participation in the community —i.e. the more a member participates, the bigger the reward might be. This way they will also feel more committed with the community. 11. Encourage members to collaborate with the company. Collaboration might be as elaborated as the development of a new product or service, or as simple as asking somebody to assist a member to solve a problem. For more sophistication, you might give members the tools to rate others’ ideas. 12. Make members feel valuable. Members not only need to feel valued as members of the community, but also by the company. Give them the means to improve their own reputation —i.e. with tools to grade their activities— and offer them rewards when they reach high scores. 13. Members should be able to create their own experience. The less interference there is from the community manager, the better. Members seek to customize their experience and the best thing you can do is leave them alone. 14. Expect something from your members. Members should know what you expect from them from the beginning, what the rules are regarding the information you require from them, and for what purposes you will use it. In exchange, customers must be sure that you will keep your promise and comply with your privacy policy all the time. Although many companies are serious about building their own social communities and managing their own external networks, this does not mean they all do it correctly. If this is the case of your company, try to avoid these common mistakes when managing social media: 1. Social media is not just a website where you can capture customer data. Even though your ultimate objective may be to collect that kind of information, you should respect at all times the principles that govern social media —i.e. dialogue and collaboration among users and between the users and the company. You should continuously provide reasons to meet these principles so that users are eager to return.

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2. Social media requires a continuous commitment and dedication from the company, and not just a one-time or short-term effort. Although this might sound odd, media like Linkedln —with over 200 million registered users as of January 2013— gets “only” 47.6 million one-time visits per month, which represents 24% of its total users. Meanwhile, Facebook with 1,110 million reported users as of March 2013 says it had “only” 665 million active users each day (source: Quantcast). 3. Avoid an underfunded social media effort. The tools your company is going to need to build a social media presence are not cheap. We are talking about the tools that need to be used to manage and maintain your company’s social media strategy, and those that should be made available to the users. In addition, you should consider the costs of producing original content, which are usually higher than those of the employees involved in the management of social media. 4. Bear in mind that users are interested in you. This means that if I am a member of your community is because I have a personal interest or there is something that I like about you. Certainly, I am not a member for some altruistic reason, unless your organization is one of a kind. I am a member because your company meets my needs and your community is a means for me to satisfy them efficiently. Notwithstanding the foregoing, companies often get trapped in pointless analysis, such as ROI analysis, and they see members as mere objects to whom something has to be said, instead of taking care of them as individuals who are trying to satisfy their needs.

APPENDIX G. HOW TO CHOOSE AN IT PARTNER

G.1

Get Information And Know Your Options

When choosing an IT partner is key to begin understanding what your options are. The main issue here is that with so many IT tools out there in the market and the frantic pace of IT innovation, there are literally hundreds or even thousands of different sources of information that might guide your company through the world of IT tools and vendors. You may subscribe to some IT bulletins or newsletters of the industry you are working in, and make a research on the topics you are more interested in. It is also highly recommended to subscribe to an alert service or RSS, and to some vendors’ blogs with expert content. All this might be very useful if your company is seeking an IT tool and partner. Another way to increase your exposure to IT tools and vendors is to visit an exhibition or event. This would allow you to make a first contact with technology experts and get an idea of which vendors and tools might best meet your needs. Moreover, many technology vendors hold webinars that are highly recommended, especially if you already know some vendors and you have the time to do so. Whenever you have the chance do not miss the opportunity to discuss the details of your particular needs with the

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salespeople and IT experts. Surely they will be happy to assist you and show you how their solutions can best fit your needs.

G.2

Check For Internal Readiness

As you learn more about the options your company has, and you get more information about the IT market and the vendors who might help you, you must make sure your company is in the best position to tackle the partner selection process and the implementation of the new IT tool. At this stage your organization should think how to optimize the Return On Investment (ROI), so try to answer the following questions before moving forward:        

Does your organization have a vision and a shared strategy about the technologies and services it will need? Is it already clear for your organization how new technologies are going to add value? Do the sales, commercial, marketing, IT and customer services departments’ employees agree with the strategy? Does your organization understand the goals sought by customers and how is it going to help them? Do you have a clear definition of the results you expect to achieve with every IT investment? Have you identified and documented the next business and customer relationship processes? Do you already have the necessary budget and staff available? Have you already obtained the Board’s commitment and approval to move forward with your company’s next IT change initiative?

If one or some of the answers are negative, then think your company is not sufficiently prepared to tackle the IT tool and partner selection process. If still you decide to continue, it is highly likely that your efforts will be a waste of time and money. On the other hand, if your answers are all positive, or mainly positive, your company should then take the next step on the IT tool and partner selection process.

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G.3

Request For Information

Requesting information from vendors is a good way to get consistent and comparable information about your possible IT partners in an organized way. The main goal of this stage is to find out if any IT tool vendor can really meet your company’s technical requirements. When you request information from a number of vendors you should give them as much information as possible about your particular needs. Talk to them about your business objectives, your vision regarding customer relationship and experience, and your expectation for budget and implementation time. After you request the information, wait for replies. Depending on the amount and complexity of the information requested, vendors may come up with questions. Do not refuse the conversation. Answer their questions and let them do their job. They are trying to offer you a solution and show you how they can help. You should run a simple dialogue process based on the number of vendors you have requested information from. This can be best achieved by asking them to send you a questionnaire or hold at least one conference call to make the process easier to manage. The dialogue and exchange of information will let you reduce the number of suitable candidates and start building a relationship with your future partner. Usually, the number of vendors you request information from varies from 3 to 10. Suggest a period of 20-30 days to receive replies and talk with those really interested. Avoid to send your request for information to 10 vendors and then leave for holidays! The type of information you should request from vendors may vary, but this is basically what you should not miss:    

Vendor’s history and introduction. IT tool general description. Cost of the tool; more specifically, total cost of ownership for a period of 1-3 years. Estimated time of implementation.

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      

Support services, service level agreement, training, customer support, etc. Type of technologies to be used. Suggested deployment method: on-demand, on-premise, or both. Performance and support requirements. Examples of other companies using the same or similar technology. List of customers who have implemented the same technology. Other solutions that can be integrated.

Once you start receiving replies you may soon realize there are companies that fit better than others with your company’s values and needs. Take time to understand the contents of the replies, including the reasons why some companies have declined to participate in the selection process. At the end of your assessment choose 2-4 vendors you consider will meet all or most of your needs, and have a deeper conversation with them. It would be interesting if you could meet with those candidates with greater possibilities and schedule a demonstration session before the end of this stage. This way you will meet the teams behind the vendors and tools. The best place to hold the session is your own office, since you might want to invite other people from inside your organization to join the meeting, and the vendor could get a better idea of the environment the technology is intended for. Having reached this point, you should be wary of a tactic often used by many vendors: the free trial period. Vendors know that once you have invested time and effort in getting to know their tool and users have started using it in a real environment, your company will get hooked and will not want to consider other options. This is a mistake. Of course free trials are awesome, but only when you know what you really want and with whom you prefer to work. Free trials are an excellent opportunity for people of your organization to get to know the tool and plan the next steps without definitely having the pressure to choose a tool. Notwithstanding free trials can have a negative impact on the organization and disappoint your customers and employees.

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G.4

Request For Proposal

After you get the vendors’ information and hold a dialogue with them, you will come to a closer idea of which vendors are in a better position to meet your company’s needs. When you reach this stage of the process do no rush on your partnering decision, unless it is absolutely clear which vendor will best meet your needs or you have serious time limitations. Request a proposal to the vendors you have chosen in the previous stage. This will allow you to address some critical issues with greater detail and dig into the IT tool purchase process. Through the conversations held with the vendors you should have been able to fine tune and formulate more specific requirements. Provide candidates some more clues about your Smart Customer Management strategy, details about your processes, expectations regarding your company’s customer relationships and the expected business outcomes. Other details such as the development and implementation calendar and the estimated budget should also be added to your request for proposal. This is the moment to clear up doubts that have arisen in the interviews and conversations and clarify how your company wants the vendor and its people to deliver the service and/or support. The more details you provide, the better. At this stage you should end up with 1-3 proposals, which should contain the following information:   

   

Description of the IT tool and how it is supposed to meet your company’s specific needs, including the implementation calendar. Total cost of ownership for 6 months, 1 and 3 years. Type of support services which are to be delivered from the start, and which over time. Also service level agreements, training, customer service, etc. Type of technologies involved: hardware, software, networks… Recommended deployment method/s. Capabilities and resources required to use and support the IT tool. Role of each party during the implementation process, training and support.

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 

References from other companies using the same or similar IT tool. Warranties provided by the partner.

In conclusion, the main objective of the proposals is to definitely identify the right IT tool and the partner with the highest value for the company. If you and you company follow the steps above, you both may surely be in a position to successfully choose the right IT tool and partner.

G.5

Compare Offerings

For each IT tool that you want to implement you will find many different options in the market. Comparing offerings and prices has thus become a very complex and tiresome task. First you must make sure that you are comparing similar tools and understand the different options available, which usually are not exactly the same as the standard solutions. Bid prices depend on so many pre-requisites that they can be somehow unrealistic, either because they are too low or too high. Therefore, you should also take into consideration whether there are hidden costs or restrictions regarding service delivery depending on the price category chosen. Moreover, if the tool requires some kind of customization or if your company is going to need new modules or capabilities soon, then the costs will increase. Be careful with this, because a proposal that might initially seem economically favorable, can later on become a disaster for your company. It is important that you know what the real costs per user are, and that you estimate the total cost of ownership (TCO). TCO must include things such as the software license cost, any additional hardware and software that your company might need, tool customization and integration costs, support and maintenance costs, internal resources that are necessary to develop, build, use and maintain the tool, external consultants’ costs, and/or any type of incentive your company will have to use to reward internal users and customers who adopt the tool. Once you know the final TCO, you should then project and compare it in a period of 6 months, 1 and 3 years. Competition among vendors is, without

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a doubt, the ideal way to get the best price for your IT tool. Therefore, if you want to get the best price go ahead and explore more than one option.

G.6

Final Selection

At this stage you will certainly know who your strategic IT partner may be. Once the final decision is made, all you have to do is negotiate and close the terms of agreement, draft a detailed work plan, and identify the people and the teams that will start working in the implementation of the IT tool. Before you close the contract remember two important things: 1) do not over-negotiate with your partner, make your IT partner comply with the terms already set in the request for proposal and do not add new conditions or requirements, 2) start working with your new IT partner and bear in mind that your partner is someone you should trust. This way your relationship will get off to a good start and the IT tool implementation process will surely progress satisfactorily.

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ABOUT THE AUTHOR

Francisco J Navarro Francisco is a professional with over 18 years’ experience in business consulting, having served with “Big Four” consultancy companies, as well as in his own company. His specialties include strategic change and innovation-led projects in industries ranging from airlines and hospitality, to health services and government. Along his career, he has served as CEO for several service companies. Currently, Francisco is a Managing Director of consulting firm Zinkea Business Consulting, dedicated to advise private and public organizations on how to implement customer-centered management initiatives that foster competitiveness and innovation. Francisco holds a PhD in Economics and Business Management from University of Alcala and an Executive MBA from Instituto de Empresa. He lives in Madrid (Spain) with his wife and two daughters.