Gartner: ROI calculation isn't simple, but it's important for CRM

By Matt Hines, News Writer 24 Sep 2002 | SearchCRM.com

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CHICAGO -- Gartner analysts are plotting a road map to help CRM users build financial models that more accurately predict real prospects for return on investment (ROI).

"CRM economics aren't always obvious, and to build ROI there's an upfront need to illustrate the real value," said Beth Eisenfeld, research director at the Stamford, Conn.-based firm.

Last week at Gartner's CRM Summit Fall, Eisenfeld offered five fundamentals for measuring ROI:

• The cost and business benefits of CRM initiatives should be qualified and justified.
• Multiyear capital project planning should be seen as paramount.
• Enterprises can control the investments associated with CRM initiatives by using tools (such as total cost of ownership projections, work plans, benefit calculations and business case analyses) to manage projects.
• Businesses must understand critical success factors and pitfalls to achieve ROI predictions.
• Ongoing measurement systems must be put in place to ensure that benefits are achieved.

Eisenfeld recommends measuring ROI separately for each component of your overall CRM strategy. Beyond that, organizations should track returns for specific software modules. For instance, an organization should not only come up with separate ROI figures for its call center applications, but also for specific modules like head count.

Informal studies have shown that more than half of enterprises seldom measure ROI on IT projects. As many as three-quarters say they don't have the necessary tools in place to do the calculations.

Given the many high-profile CRM failures the market has seen recently, there's certainly a need for companies to get an accurate measure of CRM returns. In fact, there was no shortage of stories regarding failed CRM efforts on display at the Gartner conference.

For instance, Eisenfeld cited her struggle with American Airlines and its inconsistent frequent flyer program policies, detailing how she has been bounced in and out of its platinum-level club for a number of contradictory reasons. Eisenfeld used the example to illustrate what she sees as the classic downfall of most CRM projects: they frustrate customers with programs that lack consistency and actually undermine loyalty.

Another typical hurdle to accurately predicting ROI is the tendency of enterprises to gloss over the costs of reorganizing IT and other staff as they try to push a project forward. Doing so can undermine an entire CRM undertaking, Eisenfeld said.

Eisenfeld tried to reduce the ROI development process to its basics. She reminded users that CRM is not a technology so much as a strategy defined by tactics, processes and behaviors. When planning is done at an enterprise level, cost benefits transcend specific departments and affect the entire organization, even when technology is implemented locally, she said.

"CRM is an initiative that causes fundamental changes in organizational structures from departmental or internal, to functional or customer viewpoints," Eisenfeld said.

Attendees identified with Eisenfeld's theories, in particular when it came to the tools she detailed.

"The consistent message of specific financial formulas relating credit tools to process makes a lot of sense," said Anne Papinchak, performance excellence consultant at Indianola, Penn.-based Medrad Inc., a medical products design firm. "Of course, even though you can present the ideas this simply, it's still often hard to implement."

Papinchak said her firm is working hard to get its feet wet with CRM with the hopes that it will become a distinct competitive advantage in the cutthroat life sciences business.

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