Shaw Robert Shaw is a leading authority on Measuring, managing and customer relationship management, and a world expert on the application of improving the performance measurement and accountability to maximise of CRM business performance. He has written a dozen books Robert Shaw and numerous articles, runs Shaw Consulting, and is visiting professor of marketing at Cranfield Schol Abstract of Management. His recent Customer relationship management (CRM) has largely escaped book, Improving Marketing systematic measurement, and as a result its ability to deliver Effectiveness published by The Econmist Books, is profitable performance is often regarded sceptically and under- nominated for Management supported by senior management. This paper describes a unique Book of the Year. framework for assessing the effectiveness of performance management in the CRM area. It enables both marketers and senior executives involved in aspects of customer management to evaluate Keywords: how effective they are managing and improving the performance of Customer relationships, their CRM. The framework is driven by a cause-and-effect model performance, measurement, scorecard, learning, knowledge (the Drivers of Customer Performance) and a performance management, Accountability. management framework (the Virtuous Circle). Introduction Assessing performance of customer-related investments is an increasingly important task for managers and other corporate stakeholders. Firstly, many firms are embarking on a wave of investments in the customer area after years of downsizing:1 new brands, service improvement programmes, sales channel developments, Measurement is the call centres and information technology. Second, performance key to the credibility measurement is high on the corporate agenda and increasing attention is 2 and success of CRM being given to non-financial measures of performance. Third, performance management is evolving from the HR perspective, of performance appraisal, into a multidisciplinary perspective.3 Fourth, investors and analysts are increasingly asking for information on the marketing performance of their investments.4 Unfortunately, assessing the performance of customer-facing investments is also very difficult to do. Unlike purely internal factors, such as defects per million, whose performance is ultimately controllable at a cost, CRMs success depends on consumers, trade customers, competitors and other actors whose behaviour is not directly controllable. Further, CRM is a mediator between these internal actors and various internal policies and processes. Bonoma and Clark5 observe that outputs are lagged, multivocal, and subject to so many influences Robert Shaw, that establishing causes-and-effects linkages is difficult. This paper has Shaw Consulting, 58 Harvard Road, three aims. Firstly, it is intended to introduce the reader to some of the London W4 4ED key concepts of performance management, both the lessons from Tel: +44 (0) 181 995 0008 general management writers and those from marketing specialists. Fax: +44 (0) 181 994 3792 E-mail: [email protected] Second, it seeks to apply those lessons to propose a performance 44 © HENRY STEWART PUBLICATIONS 1463-5178. Interactive Marketing. V O L . 1 N O . 1 PP 44-58. J U LY/SEPTEMBER 1999 Measuring, managing and improving the performance of CRM management framework that can be applied in the CRM field. Third, it will provide a checklist for CRM managers to assess how effectively their existing performance management works. Performance management approaches Performance management began as a general management discipline early this century and has been actively developing through to the present day. In the field of customers and marketing, it began in the 1930s and has progressed steadily until the present day. General performance management studies Early studies of performance tended to concentrate on two areas: the Most business output of individual managers, and the output of the firm as a whole. frameworks for Management performance in the guise of an annual merit rating has goal-setting and been around since the First World War. A strong and influential attack performance on this approach was mounted by McGregor in the Harvard Business assessment do not Review (1957).6 He suggested that the emphasis should be shifted to take proper account analysis from appraisal, to future from past performance, and to actions of customers relative to goals. The management by objectives (MBO) movement, led by Peter Drucker,7 claimed that it overcame McGregors objections and retained prominence until the late 1970s. It established a formalised cyclical framework of goal setting and analysis. Levinson led a series of attacks on MBO in a Harvard Business Review paper (1970),8 in which he suggested that emphasis should shift from top management to the whole organisation, from individuals to teams, and from quantifiable outputs to multiple qualitative measures and process measures. While many of Levinsons criticisms have now been addressed by modern methods of performance management, the concept of a cyclical performance analysis framework has remained prominent in most HR accounts of performance management. Corporate performance management in the guise of budget setting and budget reporting has also been around since the First World War. Generally, criticism of these techniques has been muted. However, John Rockart wrote an influential 1979 Harvard Business Review paper9 suggesting that chief executives should track not only financial inputs and outputs but also intermediate factors which he called critical success factors or CSFs. Strategic management writers began to pay particular attention to the performance management process following Michael Porters work in the 1980s.10 Porter (1985) expressed the view that performance management can only be effective where the organisation has a clear corporate strategy and has identified the elements of its overall performance which it believes are necessary to achieve competitive advantage. Another way of saying this is that organisations have to establish what their critical success factors are, and align them with strategy. The most prominent recent work in this crowded area is by Robert Kaplan and David Norton The Balanced Scorecard (1997).11 They bring an integrating approach to the field, stressing both the content of © HENRY STEWART PUBLICATIONS 1463-5178. Interactive Marketing. V O L . 1 N O . 1 PP 44-58. J U LY/SEPTEMBER 1999 45 Shaw Managers can help the measurements (ie the scorecard itself) and the management validate framework (ie the cycle of goal setting and performance analysis). They hypothesised cause also make the important point that the scorecard should be viewed as a and effect whole: instead of simply reporting information on each scorecard relationships by measure, on an independent, stand-alone basis, managers can help measuring the validate hypothesised cause-and-effect relationships by measuring the correlation between correlation between two or more measures. Their views are echoed in two or more factors some of the customer and marketing studies. Customer and marketing performance The earliest studies concentrated on marketing productivity. Among the first was the Twentieth Century Fund study (1939), 12 which concluded that most of the cost of finished goods came from distributive activities, but that labour productivity of these activities grew far more slowly than manufacturing in the period 18701930. Charles Sevins Marketing Productivity Analysis (1965)13 lays out detailed profitability models for products and marketing programmes. Goodman (1970)14 followed Sevins approach and advocated the establishment of the position of marketing controller in firms. However, they did not define the management framework by which such individuals would exercise control, so their ideas remained largely theoretical. Bonoma and Clarks Marketing Performance Assessment (1988)15 found that the most frequent output measures were, in order of frequency, profit, sales (unit and value), market share, and cash flow. The most common input measures were marketing expense, investment and number of persons employed. They also noted a large number (26) of moderating factors, which they grouped into market, product, customer, and task characteristics. Shaw and Stone propose the adoption of a cyclical performance measurement framework in Database Marketing (1988).16 Their Virtuous Circle is a circular framework of marketing accountability, and learning: If the system is working well, when we implement improved policies, we usually get further improvements in short the marketing system is a virtuous circle. Ambler more recently (1996)17 makes the case for using multiple measures, covering outputs, inputs and intermediate measures; and for viewing them together. He comments: a single index, or value, is not yet satisfactory but there must be some n dimensional measure which will serve n=2 will not do. My own preference is n being between 10 and 15. He goes on to list a sample of potential measures, and continues by pointing out that these measures must be viewed together, in much the same way as Kaplan and Norton comment on their scorecard: The numbers do not matter, but trends do. So does consistency between indicators. If perceived quality and relative price are both up, book your holiday, but if relative price is up and perceived quality is down, start taking the Zantak.18 While Ambler does not use the word scorecard in this context, his approach