Case Study: CRM Implementation at IBMImplementation at IBM

IBM is the world’s largest information technol-ogy company, with 2003 revenues of $89.14 billion.¹Its portfolio of capabilities ranges from

1This case study is based on research by several INSEAD MBA students: Alper Aras, Natalia Boksha, Tatiana Kachalova, and Eyal Katzenstein.

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sophisticated services, such as business transfor-mation consulting, to product offerings including software, hardware, fundamental research, financing, and component technologies used to build larger systems.

In the 1990s, the landscape of the IT industry changed significantly. A narrow set of incum-bents, including IBM, Hewlett-Packard, and Com-paq, faced fierce competition from domestic and foreign invaders. Their products were virtually interchangeable and hard to differentiate. The environment was marked by tight margins and shrinking market share. To survive, companies had to minimize inefficiencies in their operations and develop the ability to deliver high-quality customer service. To increase customer satisfac-tion and loyalty, as well as reduce the costs of serving customers, IT companies began to imple-ment CRM programs, which also created more transparency between customers and partners.

For IBM, implementing a CRM program involved streamlining client offerings and strengthening its brand image across all lines of business. The main goal was to be able to offer full-scale solutions for clients, instead of multi-ple, separate products. This goal meant moving away from the sale of boxes and toward real solutions for clients. In this implementation process, IBM also realized the need to manage the increasing complexity of web-based, multi-channel business environments. Most companies in the market faced frustration in their efforts to combine a consistent, high-quality customer experience with better cost structures. But IBM found a way to use CRM to streamline and inte-grate its customer-facing operations (e.g., sales, marketing, customer service). In 2004, IBM initiated the world’s largest CRM application, with 60,000 users. In 2005 more than 80,000 employees, thousands of business partners, and ns of IBM customers would use the system.

3.4.1 CRM Implementation Process Objectives

IBM’s overall goal in its CRM implementation initiative was to ensure each and every customer interaction was handled with the same degree of

excellence, using the same tools, and informed by data gathered across all IBM geographies and sales channels. This integration would help improve customer satisfaction, and encourage collaboration among employees and business units. Moreover, the CRM implementation enabled the company to reduce its internal IT systems, from about 800 in 1997 to fewer than 200 in 2006 through rigorous integration.

Furthermore, its CRM implementation sought to create a disciplined framework that enabled IBM to

• Share information and collaborate easily internally and across the entire value chain.

• Focus on core capabilities while shedding its less profitable or nonstrategic business activ-ities.

• Build a fully integrated IT infrastructure to support the business vision and reduce the total cost of operations.

3.4.2 CRM Implementation Process Stages

IBM developed a six-step process for its CRM implementation:

1. Establish a common CRM vision and strategy across the enterprise. The strategy included the following key objectives: Decrease operating costs, drive incremental revenue, create market advantage, and reduce risk. At this stage, it was crucial to obtain senior man-agement support and ensure the viability of necessary trade-offs to achieve enterprise-wide efficiency. One of the key factors was to predict how stated values could be imple-mented top-down throughout the organiza-tion. For example, IBM carefully adjusted incentive systems linked to balanced score-card measures.

2. Identify the required capabilities to execute the vision. The company assessed its current situation according to several major blocks:

organization (structure and corporate culture), business processes, and IT. In so doing, it also identified specific gaps in its desired capabil-ities.

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3. Develop a roadmap of prioritized initiatives.

This stage suggested the detailed design of the architecture, together with a master plan for closing gaps. Specific initiatives were priori-tized according to their impact, constraints, risks, and dependencies, with the ultimate goal of creating customer value.

4. Manage the end-to-end change process. This stage required skillful change management implementations. The program needed to pre-dict levels of end-user support across all implementation phases. User involvement and training were crucial.

5. Implement in phases, with a broad initial deployment of each CRM application. A phased approach decreased the time for deployment, as well as resistance and frustration within the organization. It also allowed for plan and scope revisions down the road.

6. Adopt a comprehensive, end-to-end deploy-ment methodology. The framework ensured the coordination of different project teams to achieve a common goal.

3.4.3 CRM Implementation

Initial Stages: Opportunity Management (1993–2000)

The CRM initiative at IBM started with the development of an in-house application. The ini-tial feature, implemented before 1995, was the opportunity management element, used primar-ily by the sales organization during the customer acquisition phase of a sales cycle. IBM selected this area as a starting point for its implementation because the company was looking for the biggest possible initial ROI, as well as for a quick way to demonstrate the positive impact of the initiative to senior management. The initiative had cross-organizational effects, spanning a large portion of the members of the organization. Because there was no application already available on the market for this purpose, the company devel-oped its Virtual Machine, a host-driven IBM application.

This initiative was first designed to work for customer acquisition in a particular geography.

The initial phase was followed by system imple-mentation, rolled out across all offices. Customer acquisition processes were reengineered to be consistent across all products and geographies.

The opportunity management program also included supportive processes for customer acqui-sition, including tools to help create solution designs and delivery plans. In addition, the solu-tion could be tested, checkpoints could be identi-fied, and quality assurance could be performed across all the involved individual products and services. A newly created team pursued each opportunity. The system could identify opportu-nities, track methods, and store information, such as pricing, inventory, and customer master records (i.e., name of the company, address, key contacts, client financing options), provided by the market-ing department. If a particular opportunity could not be pursued, information about the customers’

requirements or needs that IBM could not fulfill also was recorded.

Customer segmentation in the system fol-lowed two criteria: Size and needs. The size criteria featured customers divided into either large and small/mid-market segments. Further-more, larger companies were segmented by industry. The needs criteria provided segmenta-tion based on customers’ needs and geography.

The collected information then drove the mar-keting campaigns. Opportunity teams tracked customer behavior and past revenues, then iden-tified growth rates. Prospective clients were added to marketing campaigns or forwarded to telesales to contact. Each client was assigned a code linked to planned revenues. This stage of the implementation continued until 2000.

Motivation of Employees (1993–2000)

A CRM implementation strategy can be achieved only with the full support, participation, and commitment of employees. Accordingly, IBM undertook substantial efforts to streamline its organization according to lines of business.

Selected employees were identified as change champions to drive others through the change process. Although there was no direct incentive

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link to the CRM initiative, the members who adapted well to the new requirements received a sense of appreciation. For example, employees received better laptops when they made signifi-cant contributions to the CRM implementation.

Encouragement also came from the CRM project members each time a module had been implemented successfully. Employees enrolled in required training programs, which typically lasted for 2–3 days, and they received support as needed during the implementations. These measures set the necessary organizational back-ground and made it possible to start, in 2000, the full-scale CRM implementation across the entire organization.

Siebel Implementation (2000–2004)

Siebel Systems, “the world’s leading provider of customer relationship management (CRM) solu-tions and a leading provider of applicasolu-tions for business intelligence and standards-based inte-gration” (Siebel, 2005) was chosen as the first partner in IBM’s CRM implementation. Through its extensive partnership with Siebel, IBM has been implementing various modules, then using its extensive technical and business process expertise to adapt the software for its customers.

The modules of Siebel’s CRM software that IBM has implemented include Sales, Call Center, Marketing, Field Service, Service, e-Channel, e-Marketing, e-Service, and General e-Business (IBM,2003a). Figure3.7 illustrates several steps of the Siebel project at IBM, in terms of the scope of each implementation phase. That is, the implemen-tation began with the launch of theibm.com call center, a channel for contacting business partners, particularly dealers and solution vendors. The initial rollout of Siebel’s call center package started with 26 ibm.com call centers. By October 2003, it had been deployed in 47 call centers in 32 countries.

This system supports information flow, mainly from IBM to the dealers. When a particu-lar chance to acquire a new customer or initiate a new sales cycle appears, IBM informs dealers about this opportunity. After this notification, dealers must respond within 48 hours, specifying whether they want to pursue the opportunity.

If the opportunity is rejected, the rejection

message returns to IBM. IBM then seeks other suitable dealers that are interested in this oppor-tunity.

Even though the dealers were the main source and owners of customer data, they did not act as reliable sources of customer information for IBM. Confidentiality agreements with their mul-tiple customers meant their customer records were closed. When dealers provided some cus-tomer data, the information often was not reli-able. Because both IBM and the dealers came to recognize the benefits of seamlessly integrated and two-way data flows though, both parties joined efforts in marketing campaigns toward the end of 2003. The call center implementation also included telesales and telemarketing. These subordinate modules served mainly to manage simple product campaigns.

In 2001, the implementations of the service and support initiatives began. Within this func-tionality,Service refers to back-office operations;

it supports exchanges with other applications, such as pricing and configuration.Configuration refers to the arrangement, customization, and preparation of a customer order, depending on the variation of product features in the order.

Used for both hardware and software solutions, configuration is available only for internal and partners’ use, not for customers. However, IBM foresees customer access to this functionality in the future, in which case it must determine whether customers are sufficiently technically literate to perform configuration on their own.

Other challenges of this extension include finding ways to perform change management with each business customer. The implementa-tion of thesupport module also is underway. As Fig.3.7portrays, business partners were included in all these initiatives in 2002.

IBM is now tackling the field sales initiative with the Siebel implementation. Field sales operations mainly refer to activity management processes, which enable efficient task allocation to sales personnel. This assignment is based on the specific availability of a sales opportunity, customer sales history data and requirements, order specifications, and so on. In 2004, IBM also implemented the marketing block, an

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effective tool for facilitating its interactions with business partners, which has enhanced one-way communication processes to encourage bidirec-tional communication.

These initiatives have helped IBM respond increasingly well to customer requests in real time (orOn-Demand, as IBM calls it). The com-pany promises products, services, and informa-tion to its customers as they demand individual modules or components. This system also allows IBM to customize offerings for particular cus-tomer orders and requests. Such capabilities are greatly appreciated by customers, especially in the rapidly changing high-tech area. For exam-ple, on-demand services can provide customers access to CRM applications without having to implement an entire solution.

3.4.4 Case Summary

At a more specific level, several points illustrate the key strengths of the IBM CRM initiative that has enabled the company to generate competitive advantages:

• The On-Demand operating environment establishes an ability to provide customized solutions, available on an immediate and, if desired, piecemeal basis.

• Although some of IBM’s competitors have been implementing Siebel solutions, none has a full-scale CRM implementation covering as many people and functions as IBM’s system.

• Integrated process management through CRM provides instant updates about inventory levels, customer complaints, recommendations, and so on. In turn, sales and production strategies can be updated quickly and efficiently.

• The pricing and revenue data are integrated, which provides revenue analysis opportu-nities for IBM. Each customer gets a code in Siebel, describing its revenue-generation potential. When IBM seeks to sell a particular hardware or software solution, the codes pro-vide potential customers in the next cycle.

With these competitive advantages, IBM has achieved the following positive outcomes:

• Improved sales productivity, effectiveness, and channel integration.

• Greater awareness of market dynamics and the elimination of integrated legacy applications.

• Higher customer satisfaction through better responsiveness and ease of doing business.

• Improved sales management effectiveness, reflected in tighter management controls and proactive sales coaching.

• Better forecast accuracy and reporting.

• Enhanced partnership management.

• A top-ranking position for IBM in the IT area, according to a recent survey byForbes.

• Decreased time to complete the sales cycle and serve a customer. (These times also are lower than competitors’, so IBM serves its customers faster.)

• Transformed contract management process to more efficient and simpler procedures.

As of today, IBM estimates its internal CRM implementation has provided it with $2 billion in cost reductions,² 22% productivity 2000

ibm.com Contact Centers

Service and Support

Business Partners

Field Sales

Marketing

2001 2002 2003 2004

Fig. 3.7 Scope and timing of Siebel implementation at IBM

2A component of savings also comes from gaining effi-ciencies in the sales process, measured in the hours saved because sales personnel use the CRM system. These saved hours, multiplied by the cost per hour to employ that salesperson, equal the total savings value achieved through sales efficiency improvements (IBM Corporation, 2003a).

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improvements, significant IT cost mitigation, reduced sales staff requirements, and improved management reporting (IBM Corporation, 2003b).

Key Lessons: Insights from IBM

The IBM case summarizes some lessons for implementing large-scale CRM initiatives:

• Genuine top-level support within the organi-zation is essential. The lack of such support during the initial phases of the implementation caused significant bottlenecks and delays at IBM.

• To deliver a truly enterprise-wide CRM solu-tion, chief information officers must stand firm. These top managers must have the will-ingness and power, to say no to requests for separate CRM solutions that are not fully integrated with other supporting IT systems within the organization.

• CRM is not just an exercise for IT; without the cooperation of each business unit, an enterprise-wide implementation is not possi-ble. Data integration plays an essential role in this case.

• Data are typically in much worse condition than one might think. To acquire the full benefit of an investment in CRM, data cleans-ing at the initial stages of an implementation is crucial.

• Front-line personnel cannot just be pulled off their posts and train for several weeks. Busi-ness units within the enterprise cannot afford to lose these work hours. The CRM training time thus needs to be planned well in advance and managed carefully.

• CRM implementations induce extensive business process reengineering and change management initiatives. The potential difficulties, bottle-necks, and delays that might result from these initiatives likely cause much more severe impacts than initially foreseen. Moreover, an effective CRM implementation often requires that the organization’s structure and philosophy radically change, including alterations in cus-tomer service values, incentive systems within the company, and critical success factors.

Conclusion

IBM, a global leader in implementing CRM solu-tions, both internally in business units and exter-nally for customers, provides an excellent example of the effects of the CRM initiative on the entire organization. Implementing CRM goes far beyond implementing software. Achieving complete success requires the commitment of the entire organization, from the bottom to the top. Planning such an initiative also creates a wide range of business process reengineering and change management issues. Designing effi-cient processes, creating appropriate milestones, engaging business partners and customers at the right time, and effectively managing data are key elements of success in CRM implementations. It is vital that commitment and patience be embed-ded any CRM initiative.

3.5 Summary

In this chapter, we have looked at CRM from a strategic perspective. When CRM is viewed as a company-level philosophy, such that knowledge about customers has implications for the entire organization, it is strategic CRM. The goal of strategic CRM is to shape interactions between the firm and its customers in a way that max-imizes the lifetime value of each customer to the firm. The four main components of CRM strat-egy are

1. Customer management orientation, which is the set of organizational values, beliefs, and strategic actions that enable the implementa-tion of customer management principles, driven by a top-management belief that the customer is at the center of activity.

2. Integration and alignment of organizational processes, which consist of the creation and synchronization of processes and systems to enable the organization to implement cus-tomer management principles.

3. Information capture and alignment of technol-ogy, because an understanding of the value provided to target customers drives processes.

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The processes also work in line with the goal of attracting and retaining target customers.

4. CRM strategy implementation. The processes and activities required for a successful CRM strategy are structured around two key dimen-sions in a CRM implementation matrix. The customer dimension captures the influence of the changing phase of a customer–firm rela-tionship, and the management dimension comprises analytical and operational CRM.

In turn, developing a CRM strategy consists of (1) gaining enterprise-wide commitment (2), building a CRM project team, (3) analyzing business requirements, and (4) defining the CRM strategy according to its value proposition, busi-ness case, customer strategy, enterprise transfor-mation plans, and other stakeholders.

The value proposition of each firm is a multi-faceted package that customers experience, including the product, service, process, price, communication, and interaction. The business case determines whether an investment in CRM meets expectations by linking the delivery of customer value to the creation of shareholder value, or ROI. It should take into account not only the economic value of a customer but also the potential for increased customer acquisition through referrals and the impact of learning and innovation. A customer strategy helps build and maintain a portfolio of customers through an understanding of their expectations, competitor contexts, and customer affiliations. The CRM strategy also demands transformations in busi-ness processes, organizations, locations and facilities, data flows, application architecture,

The value proposition of each firm is a multi-faceted package that customers experience, including the product, service, process, price, communication, and interaction. The business case determines whether an investment in CRM meets expectations by linking the delivery of customer value to the creation of shareholder value, or ROI. It should take into account not only the economic value of a customer but also the potential for increased customer acquisition through referrals and the impact of learning and innovation. A customer strategy helps build and maintain a portfolio of customers through an understanding of their expectations, competitor contexts, and customer affiliations. The CRM strategy also demands transformations in busi-ness processes, organizations, locations and facilities, data flows, application architecture,