Intelligent Enterprise

VentanaView™

Summary

As the economy gathers steam, the "top of mind" issues for executives will transition from survival issues (e.g., cutting expenses, cash conservation) to growth issues (e.g., increasing market share, acquiring competitors). For this reason, Ventana Research expects customer related initiatives to become more important over the next year.

Increasing customer profitability was the rationale for many CRM initiatives in the 1990s boom. Improving profitability is a key objective of performance management efforts, through a combination of improving efficiency (thereby lowering costs) and increasing revenues (usually by enhancing the effectiveness of process execution). We assert that applying a customer-profitability performance-management discipline should be an ongoing focus of senior executives, particularly the CFO. Information technology will be a critical component in any customer profitability effort, but executives must also manage strategic, organizational, and analytical issues. The payoff from these efforts can be a significant boost to the bottom line.

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Efforts to improve customer profitability are not new. Good managers have always looked for ways to achieve the highest margins possible. However, companies rarely approach improving customer profitability in a systematic or strategic fashion, and individual efforts to improve returns in one's own bailiwick may be counterproductive for the enterprise (e.g., extending warranties to boost sales without considering support costs).

In the 1990s, vendors (and analysts) promoted both business intelligence (BI) and customer relationship management (CRM) software as ways to improve customer profitability. BI advocates believed that combining information held in disparate operational and financial systems would provide answers to critical questions. CRM proponents thought having a centralized view of the customer would provide the knowledge and insight required to achieve performance breakthroughs. Some argued that using the data in these systems would allow companies to intelligently segment customers and prospects and tailor offerings. Yet few of these efforts produced their desired results. Having the right information is important to the success of any attempt to improve customer profitability, but analyzing this information properly in the company's strategic context and organizing the initiative appropriately are critical to making customer profitability a winning business approach.