InformationWeek

October 5, 1998

Behind The Numbers:
Cheaper To Keep Customers

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f names like Drucker, Peters, and Hammer sound like Yankee infielders to you, then consider this a brief introduction to customer management. And jot this axiom on a Post-It note near your PC: It's far less expensive and far more efficient to mine your current customer list than it is to go out and capture new customers. At least, that's one major idea zooming across corporate boardrooms these days. If your CEO hasn't assigned you to the task yet, you might consider volunteering to chair the committee turning this technology-intensive undertaking into reality. An InformationWeek Research Priorities survey of 250 IT executives released this week reveals that senior business executives are making customer management a higher priority for three out of four IT departments.

But the survey results also indicate that spending on customer management is still modest--and that the end results, including return on investment, remain mixed. In all, 58% of the executives surveyed say their organizations will spend less than $250,000 on customer-management tools this year. Only 22% will spend more than $1 million.

While the total dollars pale in comparison to spending for enterprise resource planning deployments, for instance, recent InformationWeek Research findings suggest that far more organizations are making improved customer management a high priority.

Even so, most IT executives readily concede that their organizations aren't close to maximizing the value of customer data. Asked to rate how well their organizations use technology to manage customer relationships, the IT execs graded themselves a mere 5.7 on a 1-to-10 scale, where 10 means the IT applications are highly integrated with customer management. The same execs rate the importance of their efforts to manage these customer relationships with technology a whopping 8.5 on a 1-to-10 scale, where 10 is extremely important.

How well is your organization using its customer-management data? Let us know at the address below.

Rusty Weston
Managing Editor, Research
rweston@cmp.com

This week in Behind The Numbers:

Simplicity Rules

When First Is Least

Buying Satisfaction

The Early Returns

Simplicity Rules

The state of the art in customer-management applications appears to be ancient technology. The most commonly used tool to track customer relationships is a spreadsheet. It's in use at 87% of all organizations surveyed. The least-used tool is a data mart, found at only 18% of the companies.

Not surprisingly, the most pervasive solutions are also the least expensive to deploy and among the simplest to administer. That's probably because customer management is still gaining currency as an endeavor worthy of investment. As it becomes more of a priority, the development and adoption of better tools won't be far behind.

When First Is Least

Ironically, IT executives say the most widely employed customer-management tool--a spreadsheet--is absolutely the least effective of all the applications they use to manage customer relationships. On the other hand, the least-used of all tools--a data mart--ties for most effective with midrange and PC/LAN server relational databases.

The research suggests that the easier solutions, such as spreadsheets, pay fewer dividends. But even the best tools seem to provide only moderate success. No solution earned a rating greater than 7.2 on a scale of 1 to 10, and eight of the 13 tools earned a rating of less than 7.0.

Buying Satisfaction

Remember when "quality management" was all the rage a few years ago? Now, the idea has morphed into "getting to know your customers via technology" in order to pump up their satisfaction with your company's products or services.

It turns out that identifying your most profitable customers isn't what matters most. Nor is saving money. Increasing customer satisfaction and providing a quicker response to customer inquiries are what's driving customer-management initiatives. Many IT executives clearly feel the use of technology can improve overall customer satisfaction.

The Early Returns

Paradoxically, there's little evidence to suggest that sites spending heavily on customer management are seeing a significantly higher return on investment than those that spend far less. While 73% of IT executives say customer management provides a measurable return on investment, only 41% of those say that ROI is very significant. The majority, 54%, call it only somewhat significant.

Overall, IT executives rate their ROI from customer management an average of 7.0 on a 10-point scale where 10 is very significant. This is indicative of a maturing technology--one that many organizations concede is not yet tightly integrated with other enterprise applications.