InformationWeek

Most senior management teams want to know how much bang for the buck they're getting on CRM initiatives. Basic ROI calculations depend on the economic life of the investment, which is the span of time in which the realization of economic benefits exceeds the feasible alternatives. It's assumed that the hardware will be replaced after five years and software will be upgraded after two years, which is typical of system software upgrades. But the upgrade isn't a radical change in the computing environment.

Costs and benefits (cost savings) are major considerations in determining the merits of the initiative. However, the decision doesn't depend entirely on the benefit-cost ratio of the initiative because nonmonetary (intangible) benefits should also be given consideration. However, the net costs of a system are an important factor when considering its implementation. CRM projects typically have large costs early without any cost savings or recognizable revenue enhancements for a while after the project is completed. Management must have a basis for comparing these different net cost savings and for evaluating costs incurred now against benefits achieved later.

Two popular measures in use today are economic value added and total shareholder return. EVA is the amount the operation earns over and above its cost of capital multiplied by the amount of capital invested. Its advantage over other calculations is that it relates directly to stock valuation. The present value of all future EVA likely to be generated by a company plus the value of its invested capital is equal to its intrinsic value. In some cases, the intrinsic value and stock price (for publicly held companies) are linked. If a company is privately held, an internal valuation must be calculated to determine if EVA is indicating positive or negative results. TSR also works best with publicly held companies, though internal valuations can be calculated for privately held companies.

TSR basically measures the actual return on a shareholder's dollars. So, if a shareholder invests $1 today and receives $2 tomorrow, the TSR is 100%.

EVA and TSR are both long-term measures, and will not be evident for quite a while after the E-commerce initiative is complete. Some cost savings may be evident more quickly. Labor savings is one metric that may appear fairly quickly. Reduced duplication of effort and less time spent correcting mistakes can become clear immediately after implementation. Faster access to information may result in productivity increases.

Even if head count is reduced, productivity increases occur when additional output can be achieved with the same level of effort. Sales may go up as well, but only count if those sales are incremental (not sales that are switched from phone to Web). Overall, ROI for CRM is a wait-and-see process.

Customer acquisition and retention is about rethinking the most basic relationship in business: the one between a company and its customers. How well does the company meet their needs? How smoothly does it solve their problems? How quickly does it anticipate what they'll want next? The real promise of CRM is that consumers and business customers will get what they want, when and how they want it. To reach this goal, companies must consider strategic issues such as acquiring customers, end-to-end customer care, providing ongoing value to retain customers, personalization, and making sense of customer data.

Meeting and successfully overcoming these issues is key to success in the CRM market. The ability to share information, business rules, and processes across multiple CRM applications provides companies with the ability to leverage customer relationships in new ways. Many companies want a system that combines multiple CRM modules such as customer service, telemarketing, and sales-force automation in an integrated fashion. This means a system that supports the customer acquisition and retention process.

Leading Enterprise Customer and Market Management Market management applications support business-to-business trading
Allink Suite Harte Hanks Data Technologies San Antonio 800-456-9748 www.harte-hanks.com CRM Suite S2 Systems Addison, Texas 972-458-3800 www.s2systems.com Datamart on America Claritas San Diego 800-866-6510 www.claritas.com DataStage Suite Informix Menlo Park, Calif. www.informix.com Epiphany E.4 Epiphany San Mateo, Calif. 650-356-3800 www.epiphany.com eListen Harland Atlanta 770-981-9460 www.harland.net	Industry Warehouse Studio Sybase Emeryville, Calif. 978-287-2788 www.sybase.com MarketFirst 2.3 MarketFirst Mountain View, Calif. 650-691-6200 www.marketfirst.com Solvitur Acxiom Conway, Ark. 501-342-1000 www.acxiom.com TargetSmart, ProspectSmart TargetSmart Denver 303-698-2233 www.targetsmart.com TrueLead, Model 1 Group 1 Software Lanham, Md. 301-731-2300 www.group1software.com Viper, FastStats, eData SmartFocus Bristol, England +44 117 943 5800 www.smartfocus.com
DATA: TREPPER GROUP

Attracting a new customer costs five times as much as holding on to an existing one. A good CRM tool with high-quality analytical capabilities should ideally help a company predict which customers are likely to take their business elsewhere. Using advanced analytical technology to sift through millions of customer transactions, some tools can find patterns among customers who have left in the past. The system then detects current customers who share these characteristics, identifies likely defectors, and gives the company a chance to keep them.

To acquire and retain customers, companies must successfully manage their brands in cyberspace. Many companies find the move from real-world customer acquisition and brand management to cyber-brand management quite frustrating. Levels of customer loyalty in cyberspace tend to be much lower than in the real world. Customer turnover can be very high, sometimes driven by nothing more than a new face on the block and the hype surrounding the new entry, which drives customer curiosity.

Even the business-to-business channel isn't immune. If a company supplies widgets to several manufacturers and a new player goes online, it's quite possible that customers will take a look and decide to switch. Because entry barriers for online business can be very low, customer-retention costs are much higher in cyberspace. Customer-acquisition costs, on the other hand, are lower online, which is good for smaller companies looking to build brand equity, but bad for larger, more established companies trying to fend off new players.