Customer management drives business performance

Business people intuitively know that managing customers well leads to improved business performance. Even analysts, economists and stockbrokers are starting to take customer management seriously, believing it to be an important intangible that determines sustainable long-run company performance.

Companies cannot invest in developing intimate customer relationships with all their customers. Rather, they should work through a process to understand their target market; their proposition to this market; how the proposition should be delivered in order to acquire and then manage customers through sales, marketing and service on a day-to-day basis; what they should measure to show they are doing this cost-effectively, and what infrastructure - people, processes and IT - is needed. Companies that do this will perform better than those that do not.

Managing customers is about how a company deploys any set of business techniques (not just marketing, sales or service) to attract potential customers and to maintain or change how existing customers relate to the company as buyers of its products and services. It does not presume that customers are managed in a relationship - there are many different models of customer management. These range from key account management, relationship marketing through product or brand, to spot buying. In practice, companies combine these models in complex ways.

It is not always obvious how customer management improves business performance, probably because there are various types and scales of benefit. Tactical benefits alone may justify CRM investment; strategic benefits lead to the greatest step change in benefits, but are also riskier, more demanding of leadership and organisation, and usually more difficult to quantify. Achieving strategic benefits normally involves significant change programmes requiring strong and visible leadership.

Whatever customer management model you choose, the determinants of revenue are:

* Acquisition (winning the right number of target (quality) customers);
* Retention (holding on to active customers longer);
* Penetration (selling more (up-selling or cross-selling) to customers); and
* Cost incurred in achieving the revenue (cost of customer management).

Should you have a senior manager overseeing customer management? The answer is yes, because functional management of organisations and the cross-functional nature of the customer experience tend to conflict, and a senior customer "champion" must sit in arbitration, or encourage certain functions to behave in a more customer-oriented way.

It is not always obvious how customer management improves business performance, probably because there are various types and scales of benefit.

Doug Leather, MD, REAP Consulting

It is also much more profitable to obtain more than just satisfaction from your employees. Employee satisfaction and business performance are linked, but employee engagement in the proposition is much more important. Better performance occurs when all of these are true:

* A company has taken the trouble to encourage employee behaviour according to brand values;
* It has used employees in the process of the development of appropriate behaviours;
* It understands key interactions or customer moments of truth;
* Employees are satisfied at work, and feel their views are being listened to; and
* The employee can describe why a customer should buy from the company.

Often customer-facing staff, or staff who influence the customer experience, are recruited, developed and managed according to the required process or skill, rather than their competency in doing it. If you define competency as a combination of knowledge, attitude and skill, then all three are needed to manage a customer interaction. There is no point paying someone who has the skill to work an order entry system if their attitude to what they are doing is all wrong (slow, inaccurate data entry, treating the customer poorly) and they do not know why the customer wants the product (no empathy to identify possible issues or enhancements that may make it a better solution for the customer).

Companies often develop impressive competency frameworks that "present" very well. However, the process of developing them makes them too complicated, or mechanistic, or protracted or inflexible, so that the required development needs cannot be easily identified.

Misalignment between company goals, how the company operates and its measurement systems may be due to poor connection between goal-setting and operations. This may be because goals are poorly thought through, or even mutually inconsistent - as interpreted or as managed by the company. The goal of satisfying customers may be inconsistent with profitability if the company has not worked out how it can meet customer needs while making profit in the short-term, so in the end it decides to make profit at the expense of customer satisfaction, though this does not need to be a trade-off.

Company goals do not just involve profit. There are goals for other stakeholders - customers, employees and the community in which a company operates. Measurement systems usually measure profitability, sales, revenues and cost.

They usually focus mainly on sales objectives, but rarely on the effect these targets have on customer experience. Customer experience is important for many companies, but is rarely considered before costs or financial returns. For instance: "We will encourage customers to call the contact centre (usually a cost reason for this anyway), then we will reduce cost to ourselves by putting them through an interactive voice response system and then on to an operator who is trained to 'smile` but targeted with sales and average call time, whatever the customer`s reason for calling." Not a recipe for a great customer experience!

Rarely is there an understanding of how the corporate infrastructure, which sets the direction and context in which employees work, and customers and partners are managed. Companies provide measures for overall sales, brand, customer, campaigns and human resources, but seldom show how the measures interact. As a result, targets are misaligned throughout the organisation, and drive employee or partner behaviours which detract from the overall business goal, but achieve a sub-goal for a function (reduce cost to serve, but alienate customers and reduce sales, retention and penetration).

Ultimately, managing customers effectively and efficiently involves a set of complex interrelationships between functions and departments, and this can best be achieved through clarifying the line of sight through the organisation towards the business goals.