Enterprise Software

Measuring the benefits of CRM: How it helps financial and IT managers see eye to eye

Measuring the return on investment of a CRM solution can be a headache and create a rift between the IT and financial departments of your organization. Find out how one software company is trying to make the pain go away.


How many times have you given your CFO the “deer in the headlights look” when the accountants started droning on about a new budget process? How often has the CFO returned the favor as you explained the architecture of the new software package the IT department installed?

This game of “no one’s home” happens often in the world of enterprise applications. For instance, the IT department wants the enterprise application to work at all costs, while the financial department wants to find the best application for the money.

CRM dodges the past mistakes of ERP
Enterprise resource planning (ERP) has been especially hard-hit by glazed eyes and staring competitions. In its infancy, ERP was a powerful tool designed to manage back-end processes, but it lacked a way to ascertain how such a solution saved time and money.

Customer relations management (CRM) is now facing the same hurdle, as more companies are looking to integrate a customer-centric solution into their existing ERP and legacy systems. One software company, eLoyalty , is getting a jump on demonstrating the tangible benefits of CRM solutions so that CRM is not caught in the same snares as ERP.

eLoyalty is addressing the arduous task of uniting the technical side of a company with its financial counterpart through a system that measures the financial benefits of a CRM solution. To accomplish this, eLoyalty tracks the level of customer loyalty a company has collected. It can then evaluate this level of loyalty and turn the results into an easy-to-understand set of data that's intended to be useful for both sides of a company.

The newest addition to eLoyalty’s CRM software evaluation suite is Loyalty Value Added (LVA). LVA is the tool that brings the financial and technical sides of a company together.

“Our research pointed out that there is a great deal of difficulty in measuring the returns on CRM projects. We came up with a methodology that incorporates the operating metrics of CRM projects and drives them into financial metrics. So now you have a tangible way to measure the returns on your investments,” said Paul Marushka, eLoyalty’s vice president of business case proficiency.

With LVA, executives and managers can:
  • Select, track, and prioritize the progress of CRM initiatives.
  • Define the customer-centric metrics that follow the progress.
  • Assess the total contribution of the initiatives.


Me Tarzan, you CRM?
The eLoyalty suite, which includes LVA, is designed as a way to put companies on the right path to finding the true financial potential of understanding customer behavior. LVA can also be used to decipher what customer service gaps exist in a CRM solution.

“Given its current structure as an industry, the CRM world is a jungle, and one of the things we do to help our clients is guide them through that jungle and figure out the right path through it," said Mark Turchan, eLoyalty’s senior vice president of loyalty strategy proficiency.

To continue Turchan’s metaphor, think of eLoyalty as the pattern of vines that connects the trees in the jungle. Now, imagine that the trees represent the IT and financial sides of the company and the vines are the standard set of economic measurements that both types of trees can understand.

Trying to get the usually unrelated sides of a company to speak to each other and create a meaningful investment report at the same time is not easy.

“Both sides are always in a battle of wits and a butting of heads around what’s the right project to be investing in,” said Turchan.

David Caruso, general manager and vice president of e-business strategy for market research firm AMR, has worked as a consultant for eLoyalty. He agrees that the key to reaching consensus is for the two camps to adopt a standard methodology. “What we’re talking about are tools typically used for measuring an abstraction. It puts both organizations focused squarely on the same metric and measurement tools, which oftentimes isn’t the case.”

The methodology behind LVA allows clients to define the value of an individual customer and appraise the set value’s impact on the operating metrics of a CRM solution. Those metrics are translated into a set of quantifiable economic-based data. This new set of data is then the standard for assessing value on the CRM solution.

“You can gather the data and try to utilize the model of the LVA to add value to your segment set. I don’t think the market has been able to do that in a comprehensive way. Now there is a single standard you can use throughout an organization,” Marushka said.

The behavior capabilities of LVA also allow companies to track unique customer situations. Theoretically, a system can hold an infinite number of unique customer situations, said Turchan. However, the situations are predetermined by a client and adjusted as new behavior patterns appear.

Three key factors to ROI
Caruso has determined three factors that are key to determining the ROI of a CRM solution or other enterprise application. He calls them the Three Pillars of ROI for enterprise applications.
  • Process Innovation: How does an application function in a new or different way?
  • Process Performance Measurement: Measuring a new process from a customer perspective, not in terms of unit cost or output.
  • Revenue Enhancement: How does a business tool add to company growth and achieving set company goals?


It’s in the eye of the beholder
LVA currently runs on a client-to-client basis using what eLoyalty calls a rules engine. Each rules engine is set to monitor a specific client need and to follow the customer behavior associated with that need. The rules engine can track data that comes in through a variety of customer contact points. The rules engine then turns the data into readable information about customer behavior. Understanding customer behavior is the direct benefit of having a CRM solution in the first place. The information produced by the rules engine shows what might be needed to leverage specific actions or activities, Turchan said.

“We can see how the behavior on an individual customer basis is aggregating over time, with lots of customer interaction, so you can really see what’s going on.”

The LVA rules engine can also be configured to interact with customers after certain scenarios are programmed into the service. For instance, Turchan explained that a Web site that experiences an unusually high volume of traffic can program LVA to send messages to customers suggesting they contact the company directly over the phone.

Currently, every client of LVA is able to set up a rules engine, with guidance from eLoyalty. “It’s more of an art than a science,“ said Turchan. “The art of the rules engine development is only going to be as good as the individual out there who understands the behavior between the customer interaction points and the other functional aspects of your business.”

He also explained that new forms of eLoyalty and similar offerings will work through all the aspects of how to measure CRM investment.

“It’s not a solved problem yet,” he said. “The next generation of platforms (ERP, CRM) will have learned from experience, and the vendors like us will start offering meta-rules, or sets of rules that are pre-packaged for those applications.”

What’s in your CRM future?
Tell us about your plans. Post a comment below or send us a note.

 

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