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CRM: a two-way affair

It is pharma that needs to make more of an effort if it wants to extract value from CRM

Customer relationship management (CRM) promised so much, yet the reality for pharma companies has been disappointing with many struggling to achieve a satisfactory return from the hefty investments they have made. Why is this?

Customers differ in their value to a firm. Some may generate a large, growing number of sales across a product portfolio and produce extensive profits once the costs involved in serving them are deducted. By contrast, others may generate far fewer sales, have little prospects for growth and actually cause the company to incur a net loss in its dealings with them.

Clearly, a company will maximise shareholder value if it focuses its efforts on acquiring and retaining the most profitable customers, while reducing the resources it uses to serve lower value customers (eg, by migrating them to lower cost channels).

This is the basic rationale for CRM.However, as relationships are a two-way affair, if a company wants to effect a change in how customers behave it needs to offer them something in return. Put simply, CRM has to provide customers with a reason to change their behaviour in the way the company desires.

Consequently, the effective introduction of CRM involves far more than simply implementing an IT system. For a company to secure increased return on investment (RoI), it must address a series of questions across different parts of the business (as summarised in Figure 1, right).

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Question of strategy
First and foremost, a company needs to address the question of where, specifically, the increased RoI it is seeking from its CRM programme will actually come from. In particular, which customers is it targeting, what is the company seeking to make these customers do and, critically, what will it offer them to secure this behaviour?

This is an issue pharma companies frequently fail to address adequately and run into major problems as a result. All too often their CRM programmes simply focus on automating existing processes and sharing data between sales reps.

Unsurprisingly, such an approach often fails to deliver anything substantially new to customers. As a result, it also fails to produce any significant change in their behaviour and the increased business needed to justify the hefty investments that have been made fails to materialise.

Moreover, the need for customer-facing activities to generate more value for them has never been greater. The number of sales reps continues to rise, as does the volume of advertising, direct mail and other communications aimed at customers.

Meanwhile, there is a dearth of new blockbusters and the time customers have available to see reps or read promotional literature is becoming scarcer.

In this environment, improved salesforce targeting might lead to a rep calling on the right customer, but unless their visit is of value to the customer, the rep is unlikely to make it past the door.

Yet, companies continue to base the design of details around the delivery of a standard set of sales messages. Unless they begin to think instead about how these visits can also generate significant value for the customer, their messages are destined to go unheard.

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New way of working
Implementing a strategy that is based on increasing the value a company generates for particular customer segments has major implications at the operational level.

The value a firm delivers to a customer arises from across its operations with different parts of the organisation meeting the customer's various needs.

Consequently, if a company is to manage the value it delivers to the customers it is targeting, it needs to coordinate activity across the company to ensure that the assorted needs of these customers are met.

However, pharma has traditionally run its operations as discrete product and departmental silos, each tasked with achieving its own set of stand-alone objectives.

With each part of the business effectively managed in isolation from the others and with potentially differing priorities owing to their individual, functionally-based objectives, it becomes immensely difficult to coordinate activity between them to deliver an offer that meets the full range of needs any given customer is likely to have.

Moving the management of activity from primarily functionally-based processes to ones involving the coordination of activity across hitherto separate parts of the business represents a major change for most pharma companies. Time and again companies underestimate the challenge involved in this and run into major problems as a result.

Although one might wish otherwise, how people behave within an organisation is not simply the result of rational reflection about what would be in the best interests of the company. In practice, a wide range of factors shape how people act and if you are seeking to introduce new processes, you need to ensure that the behavioural drivers within the company are aligned with the new ways of working involved.

For example, you are unlikely to succeed in focusing a company on the value it is creating for customers unless there are management structures in place to monitor the company's performance in meeting their assorted needs with sufficient resources and authority to initiate corrective action as required. Similarly, you are unlikely to secure the cross-company collaborative working required if each part of the business continues to be assessed solely on measures of stand-alone performance.
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In addition, the new ways of working will also inevitably involve changes to job roles and require new skills. Unless steps are taken to ensure that staff are suitably equipped to perform these new roles, you cannot reasonably expect them to implement new processes effectively.

All too often pharma companies do not attend adequately to this area and fail to establish the `organisational infrastructure' needed to support their customer management programmes. As a result, however elegant their customer strategies and rigorously designed their new business processes, their customer management programmes simply fail to become operational in any meaningful sense and have little impact on company performance.

Cart before the horse
Technology is typically key to implementing a CRM strategy on a large scale. However, it is not a substitute for having a customer management strategy in the first place.

In such cases the focus has fallen either upon automating existing processes or adapting them to meet the needs of the software concerned.

However, with neither of these approaches generating increased value for customers, the subsequent CRM programmes fail to deliver any significant change in customer behaviour or any substantial increase in the RoI achieved. While companies may succeed in collecting and sharing more and more data about customers, they are doing so without a clear idea as to what to do with it and how to use it to generate increased profitability.

Introducing effective CRM is a complex affair involving many aspects of the business. Faced with so many variables, determining where to focus your efforts when dealing with a failing project can be a daunting prospect.

In such a situation, companies have to return to basics in order to establish exactly what it is they want from CRM and how this can be achieved.

Financial objectives need to be aligned to the target segments and customers, the response you wish to gain from them, and what the company will offer them to secure this behaviour.

The processes needed to achieve these goals can then be identified along with key performance indicators to assess the effectiveness of the process. In addition, the characteristics of the organisational and technical infrastructure required to support these processes can then be specified.

The output of this exercise is effectively a blueprint for what is required in each area of the business for the CRM programme to succeed in delivering the benefits being sought. This can then be compared with the reality to identify any shortfalls and determine any corrective action.

CRM remains a powerful means of increasing shareholder value. However, it is also complex and involves dealing with a range of questions across many different facets of the business.

Unless pharma companies succeed in addressing the strategic, operational, organisational and technical aspects involved and aligning each area with the delivery of the RoI they are seeking, their CRM programmes are likely to continue to fall short of their original promise.

The author
Chris Bebbington is a senior consultant at White Whale, specialists in developing and implementing customer management strategy (www.whitewhale.co.uk)

2nd September 2008

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