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May 17, 1999

Customer Centricity In The Post-Y2K Era

Savvy companies are cranking up customer-focused projects to prepare for the next millennium, despite the distractions of Y2K

By Jeff Sweat

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xecutives can issue all the mission statements they want about their companies being customer-focused, but IT is the engine that drives any successful customer-centric initiative. That's the conclusion supported by a growing body of evidence, including research reports and the testimony of companies in the midst of reengineering around their customers.

What's more, customer-oriented companies know that the time to act is now--regardless of other pressing IT issues, such as Y2K. Accelerating trends, such as razor-thin margins in cutthroat markets and the ubiquity of competitive information and offers on the Internet, will make customer loyalty a premium in the next millennium. Savvy technology managers are busy implementing customer-centric systems--despite the distractions.

"We're not using Y2K as an excuse not to deal with our customers," says Bob Connors, VP of IS at People's Bank and Trust Co. The Indianapolis bank has its customer initiatives well under way, even though its Y2K efforts won't be completed until the end of June. The bank spent 78% of its capital expenditures budget on IT last year. It allocated four times its usual annual IT budget to implement a trio of data warehouses and a front-office software package from Fiserv Co.; it's now working on delivering customer profitability analysis to the desktop. Those efforts, predicts Connors, will put the bank ahead of its slower competitors when the century ends.

There's a strong correlation between companies that have a sharp customer focus and the amount of money those companies spend on IT, according to a new InformationWeek Research survey of 300 IT executives. Customer-centric companies will spend 10% of sales revenue on IT in 1999--twice as much as their non-customer-centric counterparts. Customer-centric organizations are defined as being very committed to raising customer-satisfaction levels, using customer data to increase sales,improving customer data quality, gaining a deeper knowledge of customers, and implementing customer-management systems.

And for those businesses, the time to turn the focus on the customer is now--not after the year 2000, when competitors with less foresight catch on. "In the Internet- and E-commerce-driven world, the customer is given the increased power of choice," says Federal Express Corp. CIO Chris Hjelm. Global competitors appear every day, says Hjelm, and companies that provide the best customer service reach and keep customers at the expense of their competition. "Waiting too long to figure out what customers expect or want will put companies one to two years behind the power curve," says Hjelm. Federal Express will spend $1.3 billion on IT this year, about 7% of revenue; 25% of that will go directly toward customer-facing applications.

pie charts

Analysts and IT executives say companies that bank on technology and companies that want to reach customers share common traits. CyberCash Inc., a Reston, Va., provider of E-commerce payment products for merchants and financial institutions, has budgeted 13% of its revenue for IT. The company recently restructured around customers rather than products, but it didn't begin its cultural shift until it bought a front-office package from Vantive Corp. The software puts in place efficient customer-relationship business processes, and its central data repository makes it possible to support a companywide focus on customers. "Too many companies put a stake in the ground and say `we're going to be customer-focused,' and then they give people no tools to make it happen," says CEO Jim Condon.

CyberCash isn't alone. The customer has become the top priority for many businesses and their IT departments: 69% of the IT executives polled by InformationWeek Research said their organization is "very committed" to serving external customer needs, compared with only 42% last year. In large companies, the commitment is even stronger, with more than three quarters very committed. Also, 74% of the IT executives said they will take steps in the next year to raise customer satisfaction. In a separate survey to determine the priorities of IT organizations, understanding and meeting customer needs topped the list, followed closely by improving customer service. It's no surprise, then, that leading front-office vendors Siebel and Clarify grew 81% and 75% respectively in the first quarter, growth rates shared by many of the vendors in that industry.

"Companies should be looking at customer-relationship management--Y2K or no Y2K," says Steve Bonadio, an analyst at the Hurwitz Group. "The earlier they embrace customer-centric policies, the better they're going to be able to transform themselves into electronic businesses."

Relationships with customers are more important than ever because differences in products and prices have become increasingly slight. If companies want to grow, they must distinguish themselves in other, service-oriented ways. "We want to form relationships with the customer and build on that, instead of just thinking that we can always win on price," says John West, senior VP of commercial applications at CSX Technology, the IT division of railroad and logistics company CSX Corp.

CSX is adopting Saratoga Software Inc.'s Avenue customer-management package, having just completed a substantial enterprise resource planning initiative using Oracle and PeopleSoft to deal with its Y2K issues. With resources freed up by that project's completion, CSX is focused on customer-management projects. "Customer management is a focal point for 1999 and going forward," West says. The Saratoga apps will store customer information and track sales opportunities across the business, so that data about customers is available not just to a specific sales rep, but to all employees who need it. CSX can then offer services that benefit all of a customer's operations, not just a certain division or region. "We had data on users, but we weren't leveraging that across the enterprise," says West.

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In addition to storing customer information and tracking sales opportunities, Avenue will link into the Jacksonville, Fla., company's proprietary systems, such as those for pricing, so that sales reps can give quick estimates for services. Later, Avenue will link to a homegrown Internet application, letting customers trace shipments and place orders online.

Customer-focused technology is also helping CSX digest its acquisition of Conrail, due to close June 1, that opens up customers in the Northeast that CSX is scrambling to target. The company is building an $800,000 terminal in Montreal to move trucked goods to its railroad cars. CSX has done extensive market studies using a data warehouse to determine what might be moved in the new terminal--corn syrup and flour, for instance--and has put in the equipment necessary to handle the material to attract those customers.

"We've identified $100 million of truck business that we can convert to rail," says Aden Adams, executive VP of sales and marketing. Data mining efforts revealed there are 26 paper mills in Maine, but the rail share for the business is only 10%. That compares with 55 paper mills and 55% rail share in the Southeast, CSX's home turf. CSX is attempting to cross-sell to the Maine mills: Since much of their product is white paper heading south to book plants, while the Southern products are brown paper and cardboard headed to New England produce companies, the trains can carry paper back and forth. They don't need to be modified to attract the new business, and customers get the types of cars they need.