The customer connection: armed with the knowledge that customers hold the key to their companies' success. CEOs are embracing customer relationship management as a valuable consumer science - Innovation & the Customer - chief executive officers

Chief Executive, The, June, 2002 by Molly Rose Teuke

* At the turn of the new century, as shareholders clamored for top-line growth, bleeding-edge innovation became the Holy Grail of competition. Be first on the block with the new product or new paradigm, grab first-mover advantage, and your company could be a star. High-risk innovation was a concept that winners lapped up for breakfast.

No more. "The name of the game today is to reduce risk, because companies can no longer afford to take a chance on losing money, losing time and losing business," says Julie Schwartz, vice president of research at the Information Technology Services Marketing Association (ITSMA). "Companies that win today are turning to innovations that reduce risk rather than increase it, which means they're being innovative in how they transact business and build relationships with their customers."

Enter CRM -- customer relationship management -- which promises an edge on one of the three cornerstones of competition: product offering, economies of scale and customer experience.

"Creating value is still the heart of the CEO agenda," notes John Freeland, managing partner of Accenture's Customer Relationship Management practice. "What's changed is that CEOs now see the customers they already have as their most important lever in creating value, and they recognize that maintaining the loyalty of these customers is their greatest challenge."

Customer relationship innovations are manifesting themselves in interactions across industries, in both the B2B and B2C arenas. "It's a matter of scale," says Wendy Close, CRM research director of Stamford, Conn.-based Gartner, Inc. "You may have more leeway in B2C than in B2B," where companies typically have a small customers base.

Freeland agrees. "The stakes are higher in B2B because you have fewer customers, but the importance of building a competitive moat around your customers, of offering them unique value, is the same." Place a seasonal order for manufacturing materials, and chances are your vendor will anticipate your order next time and know how much you want delivered to which location. Make a flight reservation, and your airline knows which seat you prefer. Dent your car, and you'll find the fuss has gone out offender-benders, thanks to personalized, user-friendly claims processing. Or visit a hotel repeatedly and watch how it personalizes your welcome: one frequent guest of Inter-Continental Hotels, for example, is greeted with a plate of his daughter's favorite cookies each time he travels with her.

There's nothing haphazard about such interactions. Innovations in customer contact are deliberate, meaningful -- and challenging to achieve. It's why CRM has emerged as a business discipline and why executives are increasingly buying into it as a necessary consumer science.

Freeland distills the opportunity for innovation in customer relationships into three themes. First is the leadership perspective, which focuses on brand positioning and customer value, and how clearly they are represented in a company's vision and mission. Second is alignment -- also a leadership issue, but requiring broader support throughout the organization. "This is about making sure everything I do in my business supports and strengthens my desired brand positioning and desired customer positioning," Freeland says. "The alignment of all moving parts of the organization fortifies my ability to deliver on the promise of my brand."

Third is an integrated view of the customer. "This is the greatest challenge for most organizations," he says. "Few understand the multiplicity of relationships and transactions. They don't see the whole customer. They never develop a living profile, which is shaped by every interaction they have with that customer.

"That's the real innovation agenda in CRM," he adds. "It's largely around true insight into both existing and prospective customers from the point of view of more effectively aligning the competencies and capabilities of the organization with the needs and wants of the customer franchise."

Sharing the vision

The power to innovate comes from the top, and it doesn't lie in the status quo. "The shift needs to be top-down, transformational change," says Freeland. "If it never gets to the top of the in-basket, if you rationalize that it will bubble up from the bottom, it won't happen." And top-down change boils down to creating a vision and disseminating it.

"If you have a very clear vision statement and everyone is aligned toward that," says ITSMA's Schwartz, "then the management team can let go, because they know the people below them have the right information and the right values and will make the right decisions. That's the mark of an innovative company."

But, she adds, "You also have to have an environment that encourages risk, where the biggest mistake you can make is one of omission, not commission -- an environment where people aren't afraid to try innovations because they're afraid to fail."

It seems a lot of people are, indeed, afraid to fail. "When we take the concept of CRM into a company, there's resistance," says Richard Feinberg, director of Purdue University's Center for Customer-Driven Quality. "The concept is simple, elegant and exquisite: give your customers what they want and how they want it, and they'll reward you. Yet we encounter a lot of denial.