Let the Customer Drive Your Business with “Lean CRM”
Original Post: 7/19/2004
When Michael Hammer wrote his now infamous book, Reengineering the Corporation, his recommendation was to start business process reengineering (BPR) as close to the customer as possible and then work back into the company, cutting costs and headcount as you went. At least that was the theory.
The bitter experience of most companies who tried it was that although it did have a positive impact on efficiency and costs, it had a much bigger negative impact on effectiveness, business adaptability and revenue growth. A study by McKinsey & Company in the late ’90s found that a lack of joined-up business thinking lay behind the 75 percent of BPR programs that destroyed value for the companies that tried it. Today, nobody talks much about BPR.
Many of the reasons why BPR failed are the same ones now shown to be behind CRM’s own similarly high failure rate. But it doesn’t have to be this way.
Toyota goes to Lean CRM
Faced with acute shortages of raw materials after the Second World War, Toyota developed the lean management principles that underlie the Toyota Production System. This allowed Toyota to become the most successful manufacturing company in the world. A recent Harvard Business Review study into value-creating companies named Toyota as the No. 1 value-creator in Asian companies
Toyota is now extending the lean management principles into the CRM domains of marketing, sales and service. These are the areas that have been slowest to improve their productivity, despite enormous investments in technology over the past decade. The introduction of Lean CRM is likely to revolutionize these areas even more than it did manufacturing.
At the heart of the Lean CRM approach are five principles:
Principle 1: Specify what adds value from the customer’s perspective
Lean CRM starts with an understanding of what adds value from the customer’s perspective. If processes don’t directly add value to customers, or don’t support processes that do, such as hiring the right customer service staff, then they are targets for “obliteration.” Developing this level of understanding of how customers think about value and which processes deliver it is probably the single biggest challenge faced by many companies.
Principle 2: Identify all the steps along the entire value chain
From a CRM perspective, the value chain starts with branding processes that raise awareness through the traditional marketing, sales and service processes all the way to the customer’s experience of using the product. This means that in addition to the company’s processes, you also need to understand the processes the customer goes through when using the product. If partners are involved in any part of the value chain, their processes need to be understood, too.
Principle 3: Create a continuous flow of work
Once you know how value flows through all the processes in the customer experience, the processes need to be redeveloped so that the value flows seamlessly to the customer without interruption. A continuous flow of work removes many of the sources of waste that destroy value, both from the customer’s and the company’s viewpoint.
Principle 4: Only make what is pulled by the customer
In Lean CRM, it is the customer who triggers the processes in the value chain. This can either be through a customer-driven contact or as the result of a previous contact, such as a follow-up call after a sales inquiry. Seth Godin’s well-known “permission marketing” approach works very well within Lean CRM. Godin, the author of Permission Marketing: Turning Strangers into Friends and Friends into Customers, argues that once the value chain is triggered by the customer, it flows seamlessly to completion.
Principle 5: Strive for perfection by continuously removing waste
Most companies work toward achieving industry best practices in CRM. In stark contrast, Lean CRM strives to achieve CRM perfection. It does this by continuously improving all aspects of the processes in the value chain using Kaizen techniques. Although this sounds expensive, the pursuit of perfection actually reduces longer-term costs by reducing the many sources of waste that individually increase costs. In the automotive business, Toyota’s pursuit of perfection allows it to reduce the cost of its models each year and still make a profit, while its competitors can only increase theirs and still make a loss!
Balancing value to customers with customer lifetime value
Unlike much of what passes for CRM today, Lean CRM is truly driven by customers. Triggered by a customer event, value flows seamlessly through continuous processes to the customer. But value needs to flow in the other direction, too, or the company will quickly go out of business and the value chain will be broken.
Fortunately, developing an understanding about how value flows through the value chain to customers leads to understanding how value flows back to the company. It is then only a matter of using Value Driver Analysis (discussed in an earlier CRMGuru article, Increasing Customer Value One Contact at a Time) to balance the flow of value in both directions, so that customers and the company can share value equitably and maintain a profitable business relationship over time.
Are you practicing Lean CRM? Take this quick quiz to find out.
Lean CRM Quiz
Does the customer drive everything you do, or does your company drive everything that customers are allowed to do?
Have you segmented your customer base by their needs, wants & requirements?
Do you know how each segment assesses the value your company and its products deliver to them?
Do you know how customers really use your products?
Do you know which touchpoints along the end-to-end customer experience add value to customers?
Do you know which business processes deliver or support each touchpoint?
Do you know what causes “waste” in your processes?
Do you actively search for and remove waste in your processes?
Do you identify the customer events that trigger processes to immediately kick-into action?
Do you know which processes drive revenues for your business, which ones drive costs and which ones drive risk?
If you answered yes for most of the questions, you are already using Lean CRM principles to drive your business. You are probably among the most successful companies in your field.
If you have a mix of yes and no answers, you need to pay attention to some areas of your business. Identify which areas are your weakest and put in place a rapid action plan to fix them.
If most of your answers were no, you have some serious work ahead of you. Work with an experienced Lean CRM partner to identify your priority areas for improvement and put in place a comprehensive plan to fix them. If you don’t, you may be one of the many businesses that won’t be around a decade from now.
