Customer Relationship Management Measurement Frameworks: The Purpose For CRM Measurement

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Customer Relationship Management Measurement Frameworks: The Purpose

for CRM Measurement
Article · January 2002
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CRM Measurement Frameworks
Vince Kellen
Adjunct Faculty, E-Commerce
DePaul University
Chicago, IL
U.S.A.
http://www.depaul.edu
President, CRM Strategy

Blue Wolf
Hoffman Estates, IL
U.S.A.
http://www.bluewolf.com
+1 (312) 543-0589
[email protected]
Abstract
Comprised of several distinct disciplines and cutting across just about all business units within most
companies, customer relationship management (CRM) measurement is complex. Companies use CRM
measurements for different purposes; digital channels provide for new measurement and product/service
distribution options; businesses are fractured internally with inconsistent communication and often
incompatible systems. Despite this complexity, companies are adopting measurement systems, or
frameworks, that have acceptance in the marketplace. These frameworks range from the strategic to the
operational. How companies build and deploy a CRM measurement framework depends on the planning
horizon under consideration, the market volatility, the company’s overall strategic posture and goals, and
how much of the organization and customer base is impacted by the CRM solutions considered. In
addition, how customer knowledge is created and utilized for benefit is under continual debate with
different points of view. This paper reviews the key issues in CRM measurement, offers some attributes
for describing and evaluating CRM measurement frameworks, and suggests several implementation
approaches.
Introduction
A customer relationship management (CRM) practitioner at a large consumer goods company once said
many in his company have determined the three-letter acronym CRM stands for “Can’t Really Measure.”
That phrase stuck in my mind for some time. It seems odd in light of the fact that over time businesses
have been quite clever about measuring a great many things. Why would this company, filled with some
very bright people, feel measurement and CRM just don’t get along? The answer probably lies in the fact
that companies have just started measuring customer activity in any real depth and breadth. Implementing
CRM software can be done quickly. It takes companies time to learn how to measure properly.
Many businesses have bought technology solutions at a rate faster than those solutions can deliver real
value. While the reasons for this are varied, the ability to properly measure customer-facing activity is
obviously crucial for successfully managing CRM programs. To complicate matters further, measuring
customer-facing activity is one of the most complex and varied measurement endeavors businesses can
undertake. The area of study is relatively new and undergoing significant change as new technologies are
beginning to blur the lines of distinction between information channels. Customers are interacting with
businesses across far more information channels than they did 25 years ago. More and more activity is
being pushed to interactive, real-time digital information channels, providing businesses with
unprecedented potential for observing and measuring customers in new ways.
The way businesses have been traditionally organized, along functional and product lines, may be
insufficient to take full advantage of the apparent and latent opportunities in measuring customer activity.
Many companies are seeking to shift the central focus of corporate activity away from products and on to
customers or at the very least to learn new ways of managing customer-facing activities. To effect this
change, businesses will need to build out new, more robust measurement systems, replacing or standing
alongside existing product oriented measurement systems. Designing and managing these measurement
systems and the CRM technologies around them requires new combinations of skills and roles, for which
many companies have not planned.
Change begins with knowing. In order to successfully build out these new customer-oriented capabilities,
companies will need to build out new ways of knowing customers.
V. Kellen February, 2002 Page 2 of 37

Target Audience
This paper was written with the CRM practitioner in mind. Many companies have created new staff
positions to assist in building out customer-facing capabilities and skills. These positions have various
titles, often with the term CRM, 1:1, interactive or integrated marketing and e-business in them. People
holding these positions have varied backgrounds and come to the position with a partial view of the
measurement approaches available. The purpose of this paper is to give these practitioners a starting place
from a high enough level where the full CRM measurement field can be surveyed.
CRM Background
Definition
In order to understand CRM measurement, we must first define CRM. Definitions abound. Many
vendors, consulting firm, and even companies, build their own definition of CRM partially mindful of
how other are defining the term. Because of this, while definitions are diverse, the market seems to have
coalesced along three “kinds” of definitions:
1. Technology centric
2. Customer lifecycle centric
3. Strategy centric
Technology centric definitions of CRM evolve out of the need for vendors to position their particular
product, which often automates just a portion of the CRM problem, in the best or broadest possible light.
These definitions include the use of technology within them. For some of these definitions, CRM is
nearly synonymous with technology.
Customer lifecycle definitions evolve out of the need for CRM practitioners to describe a new business
capability, or a new arrangement of capabilities, that focuses on the customer lifecycle, not the product
lifecycle. The customer lifecycle, often described somewhat differently, has four phases:
1. Attracting
2. Transacting
3. Servicing and supporting
4. Enhancing
In the attraction phase, a customer becomes aware of the product or company, develops interest and tries
to understand the product or company. In the transacting phase, the customer has moved to the next level
of commitment and decided to procure a product or service. In the service and support phase, the
customer requires the company’s assistance installing, using or servicing what was procured. In the
enhancement phase, the customer may be thinking about purchasing additional products or services. For
the majority of companies, especially larger ones, the parts of the companies that interact with the
customer throughout this lifecycle are separated from each other and not optimally coordinated or
integrated. The customer lifecycle definition of CRM often describes CRM as the ability to seamlessly
interact with or market to the customer across this lifecycle.
Strategy centric definitions look primarily to free the term CRM from any technology underpinnings and
to a lesser extent from specific customer management techniques. These definitions describe CRM as a
technique to compete successfully in the market and build shareholder value.

Definition Used in the Paper

For the purposes of this paper, CRM is defined as a business strategy aimed at gaining long-term
competitive advantage by optimally delivering customer value and extracting business value
simultaneously. As such, this definition lands squarely in the strategy-centric camp. The reason for this is
two-fold.
First, anything that measures customer-facing activity has the potential to measure those activities that
create the business value in the first place. Having the best manufacturing capability is useless if
customers don’t buy. Customers have differing mindsets and needs to fulfill and companies need to be
able to understand that mindset, sense those needs and deliver solutions. Technological innovation and
information liquidity have changed competitive landscapes. Fewer and fewer companies can exploit
propriety, one-of-a-kind technology or captive and exclusive supply or distribution channels to maintain
competitive advantage (Chew, 2000). For the vast majority of businesses, the ability to acquire, retain and
enhance customer relationships is the last place left to find advantage. CRM and its accompanying
measurement potential, is then a key technique for understanding customers and managing ongoing
customer activity (and by argument, shareholder value).
Second, while technology is deployed to provide customers with a more seamless experience across
channels and throughout the customer lifecycle, that capability alone may be an insufficient long-term
competitive advantage. Once every company has mastered the art and science of providing a seamless
customer experience, what is next? Because CRM measurement systems can be used to understand past
and future customer behavior, the ability for companies to convert that knowledge into business results
can be a significant form of competitive advantage (Peppers & Rogers, 1997). Knowledge about how a
company interacts with its customers is specific to the company’s brand and its customers and therefore is
proprietary to that company. Knowledge about this unique relationship is not easily transferred to another
context (another company, brand and customer). One can argue that CRM measurement systems and
CRM analytic capabilities are the last refuge for significant competitive advantage. Interestingly enough,
because of the skills challenge companies face, the vast majority of companies do not fare well in this
area, which also makes for a strategic opportunity for competitors (Buytendijk & Hersche 2001)
Technology-Driven Change
Technology is the primary impetus behind CRM approaches. Despite that fact that this paper uses a
strategy-centric definition, most likely you would not be reading this paper had it not been for the
explosion of technological capabilities. These new capabilities affect how information and products are
distributed and how companies integrate and communicate across product and functional silos.
Information Channels
CRM technologies now can automate or manage how information is delivered to customers across the
following channels:
1. Face-to-face
2. Mail
3. Phone (wired and wireless)
4. Fax
5. Web and e-mail (wired and wireless)

Companies have tended to (and to a great extent still do) optimize their capabilities on a channel-by-
channel basis. Companies typically build out the organizational and technology capabilities, look at
benchmark data, and then working towards meeting key single-channel metrics. For example, many
businesses have call centers, which over the past two decades have undergone technological and
operational improvements, yielding performance improvements in that channel. Today however, the vast
majority of businesses with call centers have yet to develop superior multi-channel coordination
capabilities.
With the tremendous Internet build out over the past six years, history has repeated itself. Nearly all
companies with web sites have focused on single-channel excellence and are just now realizing the cross-
channel implications, benefits and the concomitant measurement hurdles. For web-based customer
interactions, single-channel measures abound and companies struggle to relate these metrics to other
channels.
Product distribution
With the Internet, companies have the ability to distribute all or portions of their product or service
digitally and direct to the customer. Information-based products, such as news and research are being
distributed digitally. Books are now being distributed digitally. The photography market is undergoing
some major transformation as digital cameras are beginning to replace film cameras. Where digitization
of the product is impossible (soup for example!), parts of the product service bundle are quickly getting
digitized. When a consumer asks a soup manufacturer, via its web site, for ideas on new uses for the soup,
the manufacturer can now send tips and recipes electronically. Product specifications and reviews, prior
customer experiences with those products and consumer reports are all available online.
For those companies that can’t go direct to the end-user or the consumer and have channel partners to
contend with, extranets and demand chain digitization are allowing electronic movement of pieces of the
product/service bundle. Insurance carriers and brokers use electronic forms to communicate insurance
risk, quotes and contracts between end-user and carriers. Auto dealers and manufacturers share electronic
documents that manage warranty repairs and maintenance on consumers’ cars.
The complete or partial digitization of the product/service bundle is making new forms of customer
measurement possible.
Functional Silos
Companies have long since decomposed themselves into groups that have historically been considered a
set of closely related skills. Typical groupings that touch the customer include:
1. Marketing
2. Sales
3. Manufacturing
4. Logistics and distribution
5. Field service
6. Contact center
7. Billing and accounting
Over the past two or three decades, technological advances have had significant impact in these functional
groups. In nearly every case, the goal was excellence within the functional silo. For example, call center
technology has increasingly utilized technology to accept incoming calls, route them, measure call traffic
and collect and distribute customer data to call center agents significantly improving the contact center’s

capabilities. However, many if not most of these contact centers have not integrated other communication
channels such as fax and web interactions effectively. In the web world, brochure-ware product and
service web sites went up first, since these were the easiest to build from a technology perspective, and
since this represented the digitization of a single functional silo: marketing. Later, as the technology
matured, the sales function followed with electronic transactions over the Internet. And today, many web
sites are not well integrated with other technologies running other areas of the business such as point-of-
sales, inventory and call center systems.
Again, as with single-channel focus, functional area focus created isolated technology and business
process islands. Business processes and the technologies deployed did not and still do not easily
accommodate cross-functional silo planning, coordination and execution. Enterprise software vendors
have begun to address this cross-functional silo problem with some technology integration, but the
vastness and complexity of the customer-focused part of the business has still left the customer-facing
business processes fractured in several dimensions.
Product Silos
Still another key dimension involves product silos. Again companies have historically aligned themselves
around the means of production, that is, around products or product groupings and either have replicated
all or some portion of their customer-facing teams (sales and service) across the product silos. Many
manufacturing and consumer goods firms are organized this way for good reasons. The wide range of
difficult issues in managing products requires management to limit its focus and build core capabilities
from the product outward. While modular manufacturing has let businesses decompose products into
assemblies that are brought together later and even customized for customers, designing a modular system
is much more difficult than comparable non-modular ones (Baldwin & Clark, 1997). Many managers
continue to look at business through “the twin lenses of mass marketing and mass production” rather than
with the “twin logic of mass customization and one-to-one marketing.” (Pine, et al., 1995).
The challenge for traditional, product-oriented companies is in pulling together customer measurement
data from across the different product silos so that customer behavior can be researched more
comprehensively. Having cross-category and cross-product sales and marketing data helps companies
bundle several products into better solutions as well as identify customer needs that extend beyond one
product category. Especially for consumer packaged goods firms that have dozens of different and
sometimes competing brands, the real challenge is in figuring out ways of leveraging the product portfolio
to sell more of their brands to their customers.
Data warehousing, data integration, data quality and data mining tools have all been brought to bear on
this problem. Data warehousing and data integration tools help companies consolidate customer data.
Data quality tools ensure that data is accurate, reliable and consistently presented across the company.
Data mining tools have helped companies find information within data faster than would otherwise be
done. These tools serve as the backbone driving CRM systems and have enabled the measurement
frameworks in place today.
The Purpose for CRM Measurement

The reasons companies measure customers is obvious. In order to manage effectively, one must measure.
Businesses have long since measured financial performance with traditional financial measurement tools:
profit and loss statements, balance sheets and cash flow statements. These measurement frameworks
suffer from limitations; they measure past activities and are “lag” versus “leading” indicators (Kaplan &
Norton, 2001). Kaplan and Norton created the balanced scorecard to address some of these deficiencies

and have expanded the tool to measure strategy. In this example, the balanced scorecard intends to predict
future financial performance and track how effectively the corporate strategy is executed.
What companies need from measurement systems can vary from the mundane to the profound. The social
sciences have established rigorous theories of measurement and research design to ensure experiments
themselves and the conclusions researchers reach are valid (Trochim, 2001). While these principles have
influenced some CRM practices today, many businesses look at measurement in less theoretical terms.
With that in mind, three main uses for CRM measurement systems are:
1. To influence or validate decision making

2. To guide ongoing activities or tactics
3. To predict future states
Influencing or validating decision making

Companies implement CRM measurement very differently based on their internal decision making styles.
As companies make decisions about customer strategies, they look to customer measurement to help
influence specific decision makers or the decision making process or validate initial ideas about how to
manage customer relationships.
These styles break down into five categories:
Hard ROI approach In this approach, companies develop a return-on-investment model that
seeks to deliver actual cash benefits to the company. These approach
identifies cost savings, provable productivity improvements, or well-
tested revenue generation opportunities.
Intangible In this approach, so-called softer benefits or intangible assets are

benefits/assets identified and quantified. For example brand equity or knowledge capital
are two forms of intangible assets that companies do try to measure and
quantify and correlate to future company performance.
Competitive This approach measures how competitors are interacting with customers
assessments and decisions are made to either seek parity or exceed a competitor’s
capabilities.
Value-driven This approach measures economic value delivered to and/or derived from
a customer. This style involves building a model of customer value
exchange.
Instinct and This approach uses manager’s individual experiences and intuitions about
experience what CRM solutions to execute that may or may not be informed by
additional facts.
Many companies frequently adopt more than one style. The styles adopted, consciously or not, shape how
the company will measure customer activity. The company’s business model, approach to the market and
history of measuring customers also influences which of the measurement styles seem more appropriate
or expedient for the company.

Guiding ongoing activities

CRM measurement frameworks are not only used to help managers collectively formulate plans and make
decisions, but they are also used to inform and guide ongoing daily activities related to customers. This is
related to but somewhat different from influencing decision-making. Measuring customer activities not
only helps companies decide which customer strategies to adopt, but also helps front-line employees and
managers perform regular tasks. Often, this is the predominant focus for CRM measurement systems. For
example, for those businesses with call centers, managers frequently run reports from the call center
technology systems, such as automatic call distribution (ACD) systems, on how well the call center is
performing and if customers are being serviced at the prescribed level. If managers see problems with
performance, those problems can be diagnosed and resolved.
Depending on the company’s business model and the business unit within the company, these
measurement frameworks vary. Some categories include:
1. Brand performance measures

2. Customer asset management
3. Customer behavior
4. Marketing performance
5. Sales force performance
6. Service center performance
7. Field service performance
8. Supply chain and logistic performance
9. Web site performance
Since a company interacts with customers through a variety of different business units in a variety of
methods, each business unit measures customers very differently. The way a brand manager measures its
customer-facing activities is very different from the way the field service staff may measure its customer-
facing activities. It is this different way of “touching the elephant” that contributes to a company’s
inability to deliver on the promise of CRM systems. Given the diverse nature of these measurement
frameworks, it is not surprising that CRM practitioners are often skilled in one measurement framework
and unaware of the issues, complexities and importance of the other frameworks.
Specific measures in each of these measurement frameworks can be focused internally towards company
employees and productive processes that generate and deliver products and services or externally towards
customers and their behavior. For example, a call center frequently measures the cost per call as a
measure of economic productivity. This is an internally focused measure. Call centers frequently survey
customers to determine the level of customer satisfaction. This is an externally focused measure. Figure 1
depicts these measurement orientations.

Internally focused measurement Externally focused measurement
Value Value Customer

production delivery behavior,
capabilities capabilities mindset
Customer
insight
capabilities
Figure 1
In this figure, products and services originate in the company’s value production capabilities and then
flow through the value delivery capabilities and to the customer. The company’s customer insight
capabilities must collect knowledge about the customer’s behavior and mindset and inform the value
production and delivery capabilities. While companies frequently measure customer value production and
delivery capabilities, very few measure the customer insight or knowledge management capabilities. Very
little has been written on how customer knowledge management capabilities can and should be measured.
What makes CRM measurement difficult is that the measurement problem is not confined to just
measuring customer behavior and mindset. Instead, businesses need to measure activities that occur inside
the company, too. CRM measurement also sometimes goes beyond measuring those activities that
directly touch the customer (value delivering capabilities). Companies frequently need to measure
specific attributes about how a product or service is produced (value production capabilities), especially if
the product or service is customized for the customer. Value production capabilities extend through to
suppliers and partners. Hence CRM measurement may also involve supply chain management activities.
In fact, supply chain management, as a discipline, exists to better deliver value to customers and therefore
is often a key component in CRM activities.
When it comes to coordinating customer-facing activities, the level of interconnectedness within

companies and within value chains can be surprisingly high. In the retail consumer packaged goods
(CPG) industry, when a grocery store chain changes its consumer promotion schedules, at least seven
groups within a CPG firm are impacted: sales, marketing, trade promotions, warehouse, transportation,
manufacturing and finance (Rubin, 2001). Rubin reports the lack of coordination costs manufacturers
$100,000 in lost revenue per promotion. Collaborative supply chain tools, planning, forecasting and
replenishment applications, address these issues and all are heavily dependent on customer insight
capabilities within each company in the value chain to work.
When CRM measurement is looked at in this way, one can get the impression that CRM is too wide of a
discipline and a technology set since it encompasses nearly every aspect of a company. While this is true,
that is because companies exist to sell to and serve customers and it is natural that a wide set of
measurements would need to be managed. Companies also have to manage all sorts of measures and
measurement frameworks that customers are typically not interested in, such as stock price volatility,
bank financing interest rates, overall accounts receivables days sales outstanding and so on. So where

does CRM measurement begin and end? One way to answer that is to say that CRM should measure those
company activities that pertain to or can benefit specific customers as well as specific customers’
behavior and mindset.
Measuring strategic capabilities
CRM measurements can play a significant role in measuring portions of corporate strategy. While
customer measures are discussed in the balanced scorecard literature, most CRM measurement
approaches involve far more metrics at a lower level of abstraction than those represented within a
balanced scorecard. However, as companies continually review and reformulate their customer strategies,
CRM technology solutions now allow digital execution of those strategies. Technology serves as a
mechanism for quickly generating customer
measurement data. Figure 2 depicts the
relationship between tactic execution and data
CRM knowledge
management
collection and customer strategy review and
reformulation.
Not only is the mechanism for creating

Strategy reformulation customer knowledge not typically measured,
CRM activities
execution
so too are the mechanisms for generating
customer strategies. While CRM
measurements can and do measure the
outcome of these strategies and serve as
leading indicators for future corporate
Strategy review financial performance, they can potentially be
extended to measure how frequently and
accurately customer strategies are reviewed
and reformulated. Specific CRM tactics can be
linked to the strategic process that spawned
Figure 2 them. This linkage can be used to “score” the
strategy generation capabilities.
Predicting future states

Companies have a need to use CRM technology to help anticipate customer needs or otherwise predict a
future customer or market state. Within marketing, there is a long history of using predictive modeling
techniques to test out potential marketing approaches to determine how successful the program will be in
advance of launching the entire program. CRM technologies and approaches are being used to help
companies improve the design of existing products and build new innovative products through closer
collaboration with customers. Digital technologies let companies engage customers in a less costly and
highly measurable dialog
As more companies and value chains adopt CRM technology and as the technology gets more robust,
companies will be able to capture a fairly comprehensive set of data representing the behavior of a
market. This information gives these companies clearer insight into what direction their market and
customers are headed. From there these companies can determine how to shape or adapt to their changing
market conditions. While specialized companies like ACNielsen and IRI are information companies that
capture consumer insight and resell it to companies at different points in an industry’s value chain, more
companies will be able to “go it alone” and develop comparable capabilities themselves. General Mills
now conducts 60% of its market research themselves on the web, up from 20% in 1999 (Ashton, 2001).

Doing so carries strategic significance. The type of dialog between the company and its customers can get
increasingly tailored to the company’s brand and value proposition for proprietary competitive advantage.
Companies use CRM technology to help predict future states in other ways. Gathering customer insight to
drive product or service innovation can take many forms, from well-controlled research experiments and
surveys to more collaborative and ethnographic approaches. All of these approaches collect data that can
be structured and measured. For more traditional CRM system implementations, companies frequently
pilot the solution within a single business unit or customer segment (or a small part of a customer
segment) to determine if the program will be successful before being rolled out to the entire company or
market.
CRM complexity
To summarize, several factors have conspired to make CRM measurement increasingly complex:
1. The appearance of many different digital channels to exchange information with customers
2. The ability to distribute all or parts of the product/service bundle through digital technologies
3. Business unit silos causing differentiated and disconnected technologies and human processes
4. Product silos causing differentiated and disconnected technologies and human processes
5. Increased data and process integration between companies within a value chain
6. Differing styles of customer decision-making approaches
7. Differing CRM measurement purposes: influencing collaborative decision-making processes,
guiding ongoing activities and predicting future states
The challenge for businesses is to weave together a CRM measurement approach that deftly handles these
complexities and constraints.

As discussed earlier, how a company measures its CRM activities depends on who is doing the measuring
and what activities are being measured. Below are the common CRM measurement frameworks that both
experience and literature review suggests:
1. Brand-building
2. Customer equity building
a. Customer behavioral modeling
b. Customer value management
3. Customer-facing operations
a. Marketing operations
b. Sales force operations
c. Service center operations
d. Field service operations
e. Supply chain and logistic operations
f. Web site operations
4. Leading indicator measurement
a. Balanced scorecards
b. Customer knowledge management

Brand-building
The goal in brand building is to carefully manage a company’s name, brands, slogans and symbols,
otherwise known as brand equity. Various models (and criticisms) of brand equity have been published
over the years. The main challenge lies in how to quantify this important intangible asset. David Aaker
(1991) breaks down brand equity into the following components:
Brand loyalty This is a measure of the attachment a customer has to a brand. How
likely is a customer to switch to another brand?
Brand awareness This is the ability of a potential customer to recognize or recall a brand
as a member of a product category.
Perceived quality This is the customer’s perception of the overall quality of a product or
service with respect to its intended purpose and considering
alternatives.
Brand associations This is anything that is linked, in the mind of the customer, to a brand.
The association also has a level of strength. An association can be a
celebrity or person, a life style, a geographic area, various product
attributes, some customer benefit, a particular application or use and
any other intangible concept.
Brand loyalty can be measured quantitatively in a number of ways. So can brand awareness through
surveys and interviews. Many qualitative techniques are used to generate measures for perceived quality
and brand associations.
Companies can look at brand building as if they were managing an asset. Brand equity can be calculated
by removing from operating earnings attributed to a brand the cost of capital, taxes and risk and then
determining the value of the remaining number as a discounted cash flow extending out five or more
years (Schultz, 2001). By treating brand value as an asset, investments in brand building can be measured
and more easily compared with other corporate investments, the value of the brand and the performance
of the investments can be tracked and the performance of specific brand activities can be monitored.
Measuring brand value can get complex. Boston Consulting Group’s brand value creation (BVC)
approach looks at dozens of variables concerning different aspects of a brand and various competing
brands and determining how significant each variable is to the brand’s value (Bixter, et.al., 1999). This
approach uses cross correlation analysis, cluster and factor analysis and linear regression to build the
brand value model. The authors state that this approach helps companies understand what consumers
value most and how well brands deliver it.
Complexity also lies within each brand equity component Aaker describes. Brand awareness has been
discussed in depth over the past 40 years yielding plenty of measures such as brand awareness (unaided
and aided), brand recall, purchase intention, brand preference and willingness to pay. In addition, brand
equity components have relationships between each other. For example, high brand awareness can
positively affect perceived quality (Hoyer & Brown, 1990). Brand equity as a measurement framework
can also encompass traditional and easier to determine measures such as market share, sales volume, the
number of customer inquiries, customer and customer retention, among others. Many managers eschew
the more formal and rigorous brand equity measures in favor of measures that are more easily derived
(Macdonald & Sharp, 1996).

Davenport and Beck (2001) suggest a different way to think about company or brand awareness. Their
technique, called the AttentionScape, helps managers understand what kind of attention they are getting
from customers (or employees, suppliers, etc). Data is collected through survey techniques and plotted
along three scales:
1. Front of mind / back of mind attention

2. Voluntary / captive attention
3. Attractive / aversion attention
Competitors can be plotted along these axis and companies can develop strategies to reposition
themselves relative to their competitors’ attention profile.
Customer Equity Building

Recently much has been written about the benefits of looking at customers as the key asset, rather than
the brand as the key asset. Companies have historically measured products and brands and focused on
eliminating unprofitable products from their portfolio. This approach, while seemingly a correct one, fails
to account for the multi-product effect on customers and can actually cause a “profitable product death
spiral” in which weeding out unprofitable products causes initial customer defections, which causes
additional products to become unprofitable, which causes further elimination of unprofitable products and
so on (Rust et al., 2001). Rust et al. argue for changing the focus from unprofitable products to
unprofitable customers.
With the customer as the primary unit of analysis, the CRM literature suggests two frameworks:
understanding how customer equity links to business value and understanding how customer behavior
works and is linked to parts of the overall customer equity. The first framework is a management
framework for linking various customer-facing activities in a reasoned way to overall customer equity and
business success. The second framework is a marketing research framework that seeks to understand how
customer behavior is influenced by a company’s customer-facing activities.
Customer value management
Different approaches exist for measuring customer value. Four approaches are considered here: customer
equity management, customer value analysis, loyalty monitoring, and customer satisfaction. While
customer equity management, as described by Rust et al. in 2001 is perhaps the most encompassing of the
approaches, each of these approaches has a history of research and literature behind it.
Customer equity management
Rust et al. identify three main components to customer equity:
Value equity The customer’s objective assessment of the utility of the brand, with
quality, convenience and price satisfaction as key components.
Brand equity The customer’s subjective and intangible assessment of the brand
beyond its objectively perceived value. Key components include the
customer’s awareness of the brand, customer’s attitude towards the
brand and how the customer perceives the brand’s social ethics.
Retention equity The customer’s tendency to stick with the brand above and beyond the

customer’s objective and subjective assessments of the brand. Key

components include loyalty, special recognition, affinity, community and
customer knowledge-building programs.
Each of these areas of customer equity require measurement and the authors identify some preliminary
drivers of each area of equity that can be measured.
Customer Value Analysis (CVA)
Much has been written about customer value analysis (CVA), which was devised by Bradley Gale and
utilized by Ray Kordupleski at AT&T. CVA compares price and quality (or value) of a product against
competitors. The purpose of this analysis is to determine how changes in price, value or quality can affect
market share and as such, this framework provides a linkage between a company’s customer facing
activities with overall corporate performance. One form of this analysis compares two competitors in a
grid with two axes: relative cost and relative product and service quality.
Since each product or competitor’s scores for price (relative competitive price or RCP) and quality
(relative total quality or RTQ) are expressed as relative percentages (for example, between 90% and
110%) of each other. If one company changes price or quality in its product, the position of both
company’s products will change on the map. In essence, this map tries to show how customers perceive
the product relative to a competitor and how price and quality perceptions will affect their choice in
purchasing (Gallagher & Kordupleski, 2000). Most of the analysis work is in determining the components
to quality, although depending on the product and category, price can have several components that
require analysis as well. When performing this analysis, perceived price (or price satisfaction) and
perceived quality are the key measures versus actual price and quality. Surveys are a primary means of
capturing CVA data. Frequencies and sampling can vary depending on how dynamic the customer base
and competitive environment are and how frequently internal processes within the company change.
CVA fits inside of a comprehensive framework call Customer Value Management (CVM). CVA is the
information component of customer value management (APQC, 2001). CVM has a strategic component
that helps companies answer 4 basic questions:
1. Where are we now?

2. Where do we want to go?
3. How do we want to get there?
4. Are we there?
CVM also has a continuous improvement component or an operational component that helps companies
understand the root cause of delivery failures, improve the value delivery systems, enhance team
development across all improvement initiatives and establish customer recovery or intervention programs
to keep and enhance profitable customers and shed unprofitable ones. The APQC identifies 4 basic steps
for establishing and monitoring a CVM measurement system:
1. Identify strategic priorities in the context of customers and products.

2. Conduct qualitative research to get a comprehensive understanding of the ways customers think
about value
3. Conduct surveys that will provide data for analysis so that the company can determine what from
the customer’s perspective are the 3-4 key benefits of the 10 or 12 benefits for each product.
These surveys need to be specific to customer segments.
4. Monitor the value proposition with a limited subset of questions.

CVM proponents feel the method addresses limitations within the customer satisfaction survey approach.
According to the APQC, customer satisfaction scores lack linkage to key internal performance metrics
and may be unrepresentative of how customers really evaluate product and service purchase decisions.
The customer satisfaction framework is older and widely adopted in North America while the customer
value framework is newer and being adopted by leading edge companies (Gale, 2002). Gale positions
CVM as the latest evolutionary version of voice-of-the-customer initiatives with conformance quality as
the first followed by the customer satisfaction and then the customer loyalty paradigm.
Loyalty monitoring
Frederick F. Reichheld’s writings on loyalty (not just customer loyalty, but employee and shareholder
loyalty as well) are widely cited with the CRM world as a framework for measuring the effect of
customer-facing activities. This measurement framework helps companies look at the customer base
along a longitudinal axis. The central notion is that if a company can cause fewer customer defections, the
long-term effects on company performance would be significant. Customer loyalty data, then, serves as a
predictor of financial performance. For example a 5% increase in customer retention rate can have
between a 30% and 95% impact on customer net present value and a similar impact on corporate profits
(Reichheld, 1996).
To perform the analysis discussed in Reichheld (1996), companies need to collect defection data, sales
data and gross profit, marketing and expense data in a way that can be attributed to customers. This data
needs to be analyzed by customer cohort (grouping customers into periods of acquisition. For example,
all customers acquired in 2002 would be in the 2002 cohort and reported on). This type of analysis helps
identify and manage loyalty problems pertaining to a specific acquisition period. Customer-facing
activities can then be tailored to customers based on their loyalty.
Reichheld offers two key loyalty measurement documents: a customer balance sheet and a customer value
flow statement. The balance sheet looks like this:
Customer category Number % of Revenue NPV

Beginning Balance
+ New customers
+ Gainers
- Decliners
- Defectors
Ending Balance
The term new customers refers to customers acquired. The term gainers refers to customers who bought
more in this period. Decliners refer to those who bought less and defectors refer to customers who left.
The customer value flow statement captures the following information about a company’s customer and
some of its key competitors:
Price Quality drivers Retention

Share of wallet Gain Yield
New customer NPV Current customer NPV Defector NPV
Average profit per customer Average revenue per customer
The gain rate is the ratio of new customers to the current customer base. The yield rate is the percentage
of customers who actually convert to buyers, or sign up. As do Rust et al. (2001), Reichheld discusses the

use of an acquisition/defection matrix that shows how many customers defect from one company’s brand
to another.
To collect defection data, understand what are the components of quality and service from a customer’s
perspective, and enumerate which measures will represent the company’s value proposition’s success (in
addition to the measures discussed here), requires ongoing customer surveying and other qualitative
research techniques with their concomitant data collection approaches.
Customer satisfaction
For the past several decades, businesses have been determining customer satisfaction to help improve
their customer-facing activities and predict and improve financial performance. Customer satisfaction,
then, is an antecedent to some form of loyalty behavior. Customer satisfaction has been defined as a
“satisfactory post-purchase experience with a product or service given an existing pre-purchase
expectation,” (Vavra, 1997).
Vavra (1997) offers a model for customer satisfaction in which satisfaction is an antecedent to repurchase
behavior and has several antecedents as well. The most important antecedent is prior experience that
“serves as a ‘memory bank’ of all the previous experiences with a product or service.” Several factors can
influence prior experience, such as the customer’s demographic characteristics, their level of personal
expertise, the nature of the competition, advertising and PR influences, and the evolution of technology.
Along with prior experience, customer desires and expectations, the perceived product or service
performance and ease of evaluating that performance are all antecedents to a mental process customers go
through to compare what was expected and what was delivered. This
“disconfirmation/confirmation/affirmation” process, in which expectations are not met, met or exceeded
can be visualized as a sigmoidal function (Vavra, 1997). As “perceived performance exceeds
expectations, satisfaction increases but at a decreasing rate.” As performance falls short of expectations,
satisfaction decreases at a faster rate than it does for exceeding expectations (Vavra, 1997).
Following Vavra’s model, satisfaction is an antecedent to repurchase behavior, but the relationship
between the two is mediated by several factors including the industry structure and life cycle, switching
barriers, channel structure, complaint management and relationship management. Within this model are a
host of measures companies need to collect. Before data collection can be done however, the company
must design a survey instrument. The challenge is to formulate a customer satisfaction survey that
balances internal company-process issues with external customer needs issues. When designing this
survey, companies can use a variety of qualitative data collection techniques to determine the product or
service characteristics and attributes to survey. Once designed, surveys are distributed through a variety of
channels: face-to-face, mail, fax, e-mail, web and phone. Standard data analysis and data mining
techniques are then employed to understand the represent the survey data.
The linkage between customer satisfaction and financial performance is often cited as the weak link in the
customer satisfaction discipline. Attempts have been made to resolve this by linking customer satisfaction
with some notion of product or service quality and customer loyalty and retention. A model for doing that
is pictured in Figure 3.

Internal External Financial

quality, quality, Customer performance:
production, value, loyalty and cost savings,
maintenance customer retention revenue
processes satisfaction growth
Figure 3. Source: Johnson & Gustafsson (2000).
To implement this financial causal model, Johnson & Gustafsson (2000) argue for a cyclical process that
starts with identifying the overall purpose (strategy and planning), moves to building the “lens” of the
customer (qualitative research), which moves to building the quality-satisfaction-loyalty survey which
moves to performing data analysis which then moves to making decisions before starting all over again.
Others have also linked customer value analysis concepts to customer satisfaction to address some of the
inherent limitations in the customer satisfaction paradigm (Woodruff & Gardial, 2001). Woodruff &
Gardial list the following differences between the paradigms:
• Customer satisfaction is a reaction to value received. Customer value determination tries to

capture the relationship between the product, the user and their goals in a specific use situation.
Satisfaction measures the gap between expected and actual product performance. Satisfaction
measures and customer value determination complement each other.
• Satisfaction measures are historical. They measure what has been delivered. Both the customer
value paradigm and the customer satisfaction paradigm build out, through qualitative techniques,
a model of how customers perceive value. The satisfaction paradigm applies to model to value
that has been delivered. The customer value paradigm is not tied to post-delivery measures.
Customer value can be measured before, during and after consumption whereas satisfaction is
measured after consumption.
The problem with many implementations of satisfaction surveys is that what is being measured are
attributes of a product from a company’s perspective rather than how the customer arranges their
hierarchy of values in the context of specific use situations. This can cause companies to be measuring
correctly but measuring the wrong thing.
Researchers and practitioners within the CRM, marketing and customer satisfaction circles have argued
among themselves as to which approach: loyalty, satisfaction, value, quality or some other attribute is
what matter most. The CVA crowd looks at CVA and CVM as the successor to the customer satisfaction
paradigm. Customer satisfaction practitioners have expanded their model to resemble the CVA/CVM
model. In some respects, the debate is pointless, since nearly every paradigm tries to establish a sequence
of causal relationships at three levels:
1. Company behavior towards customers

2. Customer behavior in total (including factors outside of the company’s direct control)
3. Financial results derived from changed customer behavior

The debate is about how to arrange the various nodes in the influence diagrams to model, more
accurately, the causal linkages. The risk in all measurement paradigms is not so much inaccurately
measuring, but in measuring irrelevant things.
Customer behavioral modeling
Embedded within brand-building and customer equity measurement frameworks is some form of a
customer behavioral model. These models try to explain one or more customer behaviors by describing
the antecedents on that behavior and the level of influence each antecedent has. The reason customer
behavioral modeling is discussed separately here is that the market research literature is rich with studies
that do not necessarily try to tie customer behavior to financial performance or company responses.
Instead, the research simply wants to understand customer behavior better more or less removed from
specific company goals, objectives or performance. In addition, researchers are focusing on new concepts
to link to customer behavioral loyalty.
An example of this kind of model with its appropriate measurement issues is shown in Figure 4. Here the
authors (De Wulf et al., 2001) are probing how different relationship marketing tactics impact customer
perceptions of relationship investment by the retail company. Through predominantly qualitative
techniques, including surveys, interviews and focus studies, the authors established measures and
collected data to understand how each of the relationship marketing tactics did or did not affect purchase
behavior.
While this example is very research-oriented, companies can use these kinds of measurement techniques
to understand customer loyalty behavior in depth. This detailed level of explanation can be useful for
critical customer interactions, especially where the type of product, service or customer experience is
unique to the company and no relevant research is applicable.

Preferential Interpersonal Tangible

Direct mail
treatment communication rewards
Perceived
relationship
investment
Product Consumer
category relationship
involvement proneness
Relationship
quality
Behavioral
loyalty
Figure 4. Source: De Wulf et al. (2001)
These types of measurement frameworks abound in the academic literature and are usually cloaked in
veils of secrecy within the few companies that perform this type of research. The vast majority of
companies, especially mid-sized and small companies, never go to this level of analysis to understand
customer behavior. This measurement framework requires a robust qualitative research capability that is
refreshing the data and revising the behavioral model frequently as markets and customer behaviors
change.
Customer-Facing Operations
Most, if not all or traditional CRM and customer transaction software, collect all kinds of basic data
regarding customer facing activities. These operational CRM systems automate customer facing activities
and in doing so, collect information on employee and customer behavior. For most companies deploying
CRM technology, these are the only kinds of CRM measurements they make.
Marketing operations
Software that manages marketing operations lets companies plan, schedule, execute and track their
marketing campaigns. Several key metrics from the marketing automation function include:
Reach How many potential customers have been reached by the campaign.

Response rates What percentage of the total campaign population responded to the campaign.
RFM Stands for recency, frequency, monetary value. This is a calculation for scoring a
customer based on past behavior. The recency of past interactions (purchases),
the frequency of that type of interaction and the monetary value of those
interactions are added together, with specific weighting applied. This composite
score is used to predict likely involvement with a campaign.
Conversion rates What percentage of the total campaign population bought something or
completed an activity (enrolled in a sweepstake, for example) as a result of the
campaign?
Customer How much did the company spend to acquire a new customer?
acquisitions costs
Average The total cost for interacting with a customer as part of a campaign divided by the
customer number of interactions. Useful for comparing costs of interacting with customers
interaction costs across multiple media.
Attrition, churn How frequently do customers terminate the relationship by opting out, stop
purchasing or choose a competitor.
Share of wallet, How much of the customer’s total budget for purchases within a product category
share of do they make with a company.
requirements
Average order The average amount spent by a customer per order. Many companies have goals
size of increasing average order size through marketing.
Category The amount of money a customer spends or interest a customer shows within a
involvement product category. Customers with high involvement in a product category
frequently buy more than those with low involvement.
Sales force operations
This CRM area is perhaps the most mature. Companies have been deploying sales force automation
solutions long before CRM became a popular buzzword. The rise of sales force automation (SFA)
software parallels that of the portable and laptop computers and the handheld devices. Measurements in
sales force operations focus on tracking leads as they develop into sales, measuring performance of
individual sales staff members and teams, monitoring the sales performance of products, reviewing the
impact training has on performance, and the cost of sales. Some measures include
Sales quota The amount of sales each sales representative, team, product or product category
has committed or is assigned to solicit.
Close percentage This metric goes by many names. The purpose of the metric is to score a lead
with a percentage that it is likely to turn into a sale. As sales personnel work with
the customer to answer questions, exchange information, prepare legal contracts
and so on, the percentage is changed up or down.

Customer score Not only are leads scored, but customers are too. By scoring a customer,
companies can develop a model that helps them predict which customers are
likely to purchase their product or service. Many attributes (size of the company,
geographic location, level of access into the company, level of cultural, industries
the customer serves, size of budget for the solution being sold) can go into
scoring a customer. In this regard, customer scoring is similar to a segmentation
exercise. However, many sales teams score customers within a segment and the
scoring is often subjective.
Sales expenses This metric includes all expenses related to the sale, such as travel, entertainment,
printing, shipping, use of other internal resources, 3rd party expenses, etc.
Close rate The percentage of sales leads that convert to sales. This is often tracked at the
sales representative, team, customer segment and product/product category level.
Sales totals The total number of sales represented by all leads. This metric is often multiplied
by the close percentage for a weighted sales leads number. This metric is used to
predict future sales.
Sales lost The number (or percentage) of sales lost, broken down by reasons, which can
include loss to a competitor, loss of customer funding, and many other reasons.
Training impact Companies use different techniques to detect the impact of sales training on the
sales force, including sales staff surveys on training effectiveness and
comparisons in other sales metrics pre- and post-training.
Cross-sell rate The percentage of sales totals that include items that were not specifically
requested but recommended by the sale force or through marketing.
Number of calls The number of calls made by a sales representative or sales team. This can be
broken down by new account calls and existing account calls.
Number of new How many new customers have been added during a period of time.
customers
Service center operations
With the increased use of phone technology to handle incoming phone calls and manage outbound sales
calls, companies have long housed those resources into a single functional group called the call center,
service center or interaction center. Much has been written about call center and service center operations,
revealing a host of measures (Anton, 1997), some of which are listed here.
Call counts and The number and duration of calls either received or sent, often broken down
duration by call type, which is input by the call center representative after completing
the call.
Average hold time The amount of time a customer has to wait before being served by an agent.
Abandonment rate The number of calls abandoned expressed as a percentage of the total calls.
These are customers who hang up while waiting for an agent or get
disconnected.

Average abandonment The average time a caller waited before abandoning the call.
time
Adherence The amount of time the agent is “in their seat” ready to take calls, expressed
as a percentage of the total time the agent is scheduled.
Wrap-up time The amount of time, after the call is completed, the agent needs to complete
administrative tasks related to the call.
Average cost per call The sum of all costs for running the center divided by the number of calls
received.
Average talk time The amount of time the agent spends on the call talking to a customer.
Average handle time The sum of the talk time and the wrap-up time.
Agent utilization The amount of time agents spend on calls versus other internal tasks,
expressed as a percentage of available time.
Blocked calls The number and percentage of calls that receive a busy signal and could not
even get to the automatic call distribution system (ACD).
Service level A goal for call center performance. A widely used format for the goal and
values is for a call center to answer 80% of the calls within 20 seconds.
Call quality Companies have devised ways to monitor the quality of a call and the
agent’s abilities. Scores can include vocal intonation, friendliness,
promptness, knowledgeableness, and adherence to procedures.
With the heavy emphasis on internal metrics associated with call efficiency, companies have instituted
balanced call center reporting that combines efficiency scores with effectiveness scores (like call quality).
Field service operations
Field service operations include a host of post-sales activities, including: warranty and service contract
management, scheduling and dispatching field service agents, service call routing for inside service,
problem tracking and resolution management, service inventory management, managing the logistics of
part fulfillment and replenishment. Measures are less standard than call center measures but can cover a
wider variety of areas.
Response time Amount of time it takes a service agent to respond
Completion time Amount of time it takes a service agent to resolve a customer’s problem.
Repair fulfillment time The amount of time it takes to deliver a requested part or service needed for
a repair.
Service level This metric is similar identical to the call center metric when applied to
inbound phone calls. It includes additional measures when applied to all
support calls.

Customer satisfaction Many companies routinely survey their customers after a service call to
score verify satisfaction.
Service call priority Service calls are frequently prioritized to comply with service contracts or
warranty terms or to indicate the importance of the request.
Supply chain and logistic operations
Frequently discussed as separate and distinct from CRM, supply chain management and logistic functions
are significant areas of interest for CRM practitioners. Customers consume physical and digital products.
How quickly and efficiently these products flow through the value chain is of importance, especially
when the time it takes a product to be delivered is a key component of improving customer satisfaction
and driving customer value. As more products allow for mass customization, more of these measures will
be tied to specific customers. While most of the measures within supply chain operations and systems
refer to suppliers, some of these measures may have applicability for understanding customer behavior.
Some of these measures include:
Fill rate The number of items ordered compared with items shipped. Fill rate can be
calculated on a line item, SKU, case or value basis.
On time ship rate What percent of orders where shipped on or before the requested ship date.
On time ship rate can be calculated on a line item, SKU, case or value basis.
Performance to What percentage of orders where shipped on or before the promised ship
promise date. In some cases, some items may be on back order or delayed for
whatever reason. This metric captures the overall conformance with
promised ship dates.
Backorders The number (or percentage) of unfulfilled orders.
Customer order cycle The average time it takes to fill a customer order.
time
Cash to cycle time The number of days between paying for raw materials and getting paid for
the product by the customer.
Supply chain cycle The total time it would take to satisfy a customer order if all inventory levels
time were 0.
Perfect Order Measure The error-free rate of each stage of an order. Error rates are captured at each
stage (order entry, picking, delivery, shipped without damage, invoiced
correctly) and multiplied together.
Upside flexibility The ability of a supplier to meet additional demand requirements

Web site operations
With the advent of the Internet, companies have launched web sites for a variety of purposes including,
marketing, sales and support. Because of the heavy use of marketing on the Internet, web site operational
measures include many marketing operations measures. Some are:
Visitor count How many people have visited a web site.
Unique visitor How many unique people have visited a web site. This measure does not double-
count count users who visit a site multiple times in a period. Web sites can have
difficulty in accurately determining unique visit counts, especially for those
visitors who have chosen not to identify themselves by not registering with a site
(anonymous users), visitors who use multiple machines to visit a web site, and
visitors who disable cookies in their browser preventing the system from
anonymously identifying them.
Page hits How many pages have been downloaded from a site, or how many times a single
page has been visited in the site.
Duration Total time a visitor spent on a page or a site.
CTR Click-through rate. What percentage of visitors clicked on a banner ad or other

form of internet marketing to visit the advertised web site.
Impressions How many visitors viewed a page that contained an advertisement of some kind.
Registered users How many visitors registered with the site.
Breakage What percentage of visitors started interacting with a site (for example, by
starting a survey or purchasing a product), but chose not to complete the
interaction.
Click stream Not a measurement per se, but a source of many measurements. The click stream
is the sequential history of all interactions with a visitor on a web site usually
stored within log files in the web server. This behavioral data is used to derive
page hits, visitor counts, counts of images and advertisements viewed, etc.
Most of the measures within a web site are designed to review the health of the web site. However with
the wealth of customer information embedded within the click stream data, many CRM software products
include the ability to tie these measures to other off-line customer measures, such as loyalty measures,
survey responses, etc.
Despite the highly measurable nature of web site traffic, many companies have significant problems with
this framework. Based on interviews with 51 business-to-business and business-to-consumer web site
managers at Global 3,500 firms, Forrester Research, Inc. reports three key areas of concern. One, the
structure of the web site reporting doesn’t lend itself well to understanding customers. Second, the
measurement tool providers lag behind users needs. Third, cross-channel tracking and measurement is
practically non-existent (Souza, 2001).

Leading Indicator Measurements

A leading indicating measurement is a predictor of future financial performance. Many companies look to
CRM systems to provide the right leading indicator outputs so that the business can adapt to changing
conditions sooner. While most of the measurement frameworks discussed can be leading indicator
measurement frameworks, the two main paradigms here are either deliberately designed to be such
(balanced score cards) or have no other real historical analysis use (knowledge management).
Concrete / low $ Speculative / high $
Measurement payoff
Past Present Future
Activities measured
Financial Accounting Balanced scorecards

CRM Measurement
Knowledge management
Measurement
Figure 5.
Figure 5 depicts the relationship between time and payoff for measurement frameworks. Financial
accounting systems measure activities that have happened in the past (e.g., last quarter’s financial
performance). Balanced scorecards and CRM measurement systems tend to measure activities occurring
now that lead to, through the causal links identified, future financial performance. Measuring knowledge
management is more speculative because the process of generating knowledge will impact activities not
yet conceived.
Balanced scorecards
Introduced by Robert S. Kaplan and David P. Norton in 1992, balanced scorecards are in widespread use
among Fortune 1000 companies. At the time, the authors were seeking to find a way to report on leading
indicators of a business’s health rather than lagging indicators, which they felt conventional financial
accounting measures were (Kaplan & Norton 2001). Exclusive reliance on financial measures was
causing organizations to do the wrong things. The measures included in the balanced scorecard are
derived from the company’s vision and strategy.
The balanced scorecard is broken down into four sections, called perspectives:
The financial perspective The strategy for growth, profitability and risk from the shareholder’s
perspective.
The customer perspective The strategy for creating value and differentiation from the perspective of
the customer.
The internal business The strategic priorities for various business processes that create customer
perspective and shareholder satisfaction.

The learning and growth The priorities to create a climate that supports organizational change,
perspective innovation and growth.
Within each section, companies identify key measures and discover and map the causal linkages between
measures and overall company performance. Typically, learning and growth objectives have a causal
relationship with the internal perspective, the internal processes and programs. In turn, the internal
perspective has a cause-effect relationship with the financial perspective (for example, if an internal
manufacturing process, when changed, produces cost savings) and can have a cause-effect relationship on
the customer perspective. Overall value flows upwards from the learning and growth perspective to the
financial perspective. Figure 6 depicts an example of a balanced scorecard for a retail company.
ROI - ROCD
Financial
EBITDA
Perspective
Gross Profit
New concepts New customers Contribution Asset utilization

*GP fr new concepts *Growth, # cust *$, % chg *Inv. Turn, hurdle rate
Customer Quality, value,

Enjoyable Interesting
Perspective cleanliness, Selection
experience promotions
friendly
Enhance the Store, in-stock

Roll out new and associate
Internal and innovative customer
experience productivity
Perspective programs *In-stock avg,
*Pride rides,
*Roll-out rating *GP/lab or $,
*Mystery shoppers
*GP/lab or hr
Competencies Employee
Learning & Growth *Tenure
Technology
Perspective *Capab ility
Technology satisfaction
evaluation sheet *Gallup poll
evaluation
* Measures
Figure 6. Source: Kaplan & Norton (2001).
CRM systems can serve as the source for data within each of the perspectives. External customer-focused
measures can be used to populate the customer perspective. Internal CRM efficiency measures could be
used to populate the internal perspective. CRM knowledge management measures could be used to
populate the learning and growth perspective.
Despite the wide adoption of the balanced scorecard, problems exist. First, it is not always possible or it
may take too long to prove through statistical means the causal linkages between perspectives and
measures. Second, the scorecard is reliant on performance measures from a variety of sources that must
be reliable and timely. Poor data quality or misuse of the data is diminishing the usefulness of the

balanced scorecard (Maisel, 2001). This problem is not unknown to CRM either. Gartner reports the
number one reason CRM fails is that data is ignored or is of poor quality (Nelson & Kirkby, 2001).
Customer knowledge management
CRM systems can collect an enormous amount of data about customers. As pointed out earlier, the
inability to use that data is proving to be a big stumbling block for CRM. Interestingly, very few
companies actually measure their ability to create, manage and communicate customer knowledge. One
of the reasons for lack of measurement is the fact that CRM data is widely dispersed across business
functions. Each function has its own interests regarding customer information and its own ways of
formatting and structuring the data (Davenport, 1998). This makes it difficult to pull the data together.
Davenport distinguished between several types of customer knowledge:
• Quantitative, data-driven knowledge found in transactional systems

• Knowledge derived from interactions with people including: experiential observations,
comments, lessons learned, qualitative facts, etc.
• Tacit knowledge which is unstructured and difficult to express and must be converted to explicit
knowledge
When it comes to customer knowledge, companies can (and a few do) measure three aspects pf customer
knowledge:
1. The value customer knowledge has (intangible asset measurement)

2. The process by which it is produced and consumed (knowledge management operations)
3. The quality of the knowledge or data (data quality)
One study, conducted by APQC in collaboration with Corning, Dow Corning and Siemens AG (Lopez et
al., 2001) documented examples of real-world measures used throughout the process of implementing
knowledge management. The authors identified five stages of knowledge management:
Stage 1 - Enter and advocate

Stage 2 - Explore and experiment
Stage 3 - Discover and conduct pilots
Stage 4 - Expand and support
Stage 5 - Institutionalize
Measurement proved critical for stages three and four but was found present in all but the first stage.
Measures in this study are asset and operational measures. Stage 2 measures pertain to interest within
knowledge management and fall into three categories: anecdotal data around war stories, success stories,
etc., quantitative data around the growth of the knowledge management initiative, and qualitative data
extrapolated from the anecdotal data. However, in this stage companies are formulating their knowledge
management strategies.
Some measures in this stage include:
• The number of sponsors recruited as champions and project sponsors

• The number of appearances in from of decision makers and the response received
• The amount of corporate funding
• The size of the gap between current state knowledge management measurement and desired state
• Measures against a benchmark

• Measures of cultural readiness
Stage 3 measures have more rigor and definition with the focus on proving business value.
Some measures in this stage include:
• Hard and soft business value derived from each pilot

• Time spent per hit (to distinguish between a quick review and rejection of data versus actual
comprehension or use)
• Hits per user
• Frequency of site visits
• Percentage of total hits that are from repeat visitor
• Qualitative data concerning knowledge-sharing, knowledge value, team work, rewards,
recognition and other organizational and cultural issue
• Identification and measuring of communities of practice
• Costs of capturing and creating knowledge
• Costs of ongoing knowledge management project management
• Project management effectiveness
Within stage 4, companies have adopted knowledge management within the organization and measures
increase in robustness. Examples include:
• Knowledge flow in an out of a community

• Feedback (amount and quality) that flows in and out of a community
• Surveys to determine how employees value knowledge management
• Maturity measures to determine If the knowledge management process is ad-hoc or optimized
Stage 5 is a continuation of stage 4 and measures are not used to prove value. Instead they are used to
check progress monitor the continued evolution of the culture.
Another approach to measuring knowledge involves measuring the flow of communications between
people (Krebs, 1998). “An organization’s data is found in its computer systems, but a company’s
intelligence is found in its biological and social systems,” he argues. Kreb’s approach involves using
surveys and observation to uncover the formal and informal communication links between people and
groups within a company to uncover the social links within and across the boundaries of the organization.
Link frequency is scored and visually depicted in a network diagram that clearly shows the nature of the
linkages.
Another way to measure knowledge management is to understand not only the production and
communication of knowledge but also its consumption. Knowledge turnover (Kellen, 2001) is a term
used to describe how knowledge moves between understanding and action in four distinct phases:
Perceived Involves analyzing data, merging different types of data, building models, authoring with
new information.
Plan Involves prioritizing, communicating and developing a plan of action based on information
perceived.
Act Involves executing the plan derived from the information perceived correctly and changing
the company’s behavior in the market.

Adjust Involves measuring how much the planned execution generated had the desired effect and
adjusting the execution, mid-stream if possible.
•External data
•Internal state •Abstraction
•Center & periphery •Prioritization
Perceive •Consensus
Plan
Learning
•Interaction flexibility Learn
•Collaboration
•Memory
•Motivation
Adjust
Act
•Awareness
•Quickness •Timing
•Appropriateness •Precision
•Efficiency
Figure 7
Knowledge is externally derived in this scheme in the perceive and adjust phase and is internally
generated within the plan and adjust phases. Knowledge within this flow is communicated and retained
(Figure 7). One “knowledge turnover” is the completion of one perceive->plan->act->adjust cycle. This
measurement schemes quantifies the collection and use of knowledge without regard to its inherent value.
However, as measurements of actions based on knowledge collect data, the indirect or direct value of the
knowledge can be derived.
Implementing CRM Measurement

If one includes the full breadth of what can be measured with CRM technology and approaches, CRM
measurement is frighteningly difficult. Despite the successes that are described in various books,
publications, vendor web sites and CRM industry portals, no company is systematically and consistently
measuring customer facing activities across the breadth and depth of the organization and customer base.
In fact, recent evidence is mounting that the vast majority of CRM initiatives are failing to produce
results. So many impediments, technical and human, lie ahead.
Nearly every measurement framework, at its core, relies on the principle of causality. Lower level
measures “roll-up” into a higher-level measure based on some reasoned causal relationship. As CRM
measurement frameworks become more complex, the causal linkages become more difficult and time-
consuming to map, maintain and more importantly, to prove. Clearly some balance has to be struck
between simplicity and complexity, between identifying causes and taking immediate action.
If the field of CRM measurement is complex, it is because the sum total of interactions between
customers and companies are complex. If one considers this field as a region in space, or better still, an
ocean, which is opaque, the problem becomes clear. In order to find fish, one needs more than one’s eyes.
One needs some tools to find and catch fish. The same is true for finding a region of customer behavior
that would be useful to understand and exploit: one needs tools designed to find that small area of useful
information in the vast opaque sea (apparent entropy). When customer behavior is fluid due to a dynamic
and changing market, existing tools designed to find significant patterns of customer behavior cannot be

calibrated on old data or assumptions. The tools must evolve as the market evolves. A company’s ability
to perceive the market must be as fluid as its ability to adapt to or shape the market. In complex, dynamic
markets, it is quite conceivable that known causal linkages between layers within a company’s working
theories of customer or market behavior can be invalid or worse still, be correct but irrelevant. When it
comes to measuring something as dynamic as customers, most measurement frameworks need continual
reassessment and recalibration.
At the other extreme are non-causal measurement schemes in which successful solutions proceed without
establishing the causal linkages between related or rolled-up solutions. In some (most?) companies, this is
the default approach to measuring successful initiatives. Lack of enterprise-wide coordination between
various initiatives can lead to conflicting, redundant and sub optimal solutions. In this Darwinian model,
however, successful CRM solutions are advanced, unsuccessful programs are weeded out and the
company does receive some benefit. In fact, one could, in theory, design a measurement system that
measures competing CRM programs on operational measures to help the company weed out what
shouldn’t be done. Key concepts from successful programs can be shared and cross-pollinated across
multiple teams. Proving causal linkages between human (customer or employee) behavior and business
success can be dispensed with or downplayed. Instead, surviving programs and the key concepts behind
them, however cross-pollinated they have become, represent the “causal” linkages “explaining” behavior
or “predicting” performance. Anecdote rules. The key concepts, which inform new CRM programs, are
more like memes, units of cultural information that successfully spread throughout the company. No one
engineers a comprehensive behavioral model around customers nor does anyone engineer how customer
knowledge is created. Is this a valid measurement approach?
Perhaps. If speed of adaptation is important, companies may not have the time to identify the right
measures and the right causal relationships, which may take months or years to develop, as it sometimes
does for balanced scorecard methods (Smith, 2001). Are causal measurement models better than
correlated or non-causal ones at finding useful patterns? Perhaps, but the real issue is whether the
measurement system is finding the right knowledge in timely way. While a non-causal CRM
measurement system can detect conditions that provide opportunities quickly, determining the right
business response will require some root cause analysis for diagnosing and fixing customer problems.
Time becomes the pivotal variable.
All the things that can and should be measured across the enterprise regarding customers, be they value-
creation, value delivery or customer insight activities, can be compared to that opaque sea. While the
business can cast its net (its measurement system) to find fish (useful knowledge) where the fish usually
swim, all sorts of things can cause the fish to swim in other hidden waters. Overly developed and non-
adapting measurement systems are like the persistent fisherman casting his or her old nets in the same
place, waiting for the fish that may never return. In this regard, the sea of activity between a company and
its customers and within itself as it serves customers, is that sea of complexity. The theory of
measurement advanced here is neutral on this question of causal versus non-causal customer knowledge.
Investing in identifying causality is a decision that folds within the framework offered here and will be
influenced by many factors. The CRM practitioner that complained that CRM stands for “can’t really
measure” was most likely responding to the cost of identifying causality that made proving CRM
investments more difficult.
How does a business go about consistently measuring that field of complexity in a way that will detect
new and unseen patterns? Most companies assume that this can be engineered in a predictable way. Some
argue that it can’t. At best, a business can create an adaptive internal environment that seems best suited
for detecting and acting upon this field of dynamic complexity. Stacey (2000) argues that the mainstream
thinking about knowledge management that says knowledge is stored within the minds of individuals in
tacit form and has value only when extracted as explicit knowledge, is wrong. For Stacey, knowledge

assets lie in the “pattern of relationships between its members.” Knowledge is “the act of conversing and
new knowledge is created when ways of talking, and therefore patterns of relationship change.” Customer
knowledge comes about through interactions between people within the company.
Thomas et al. (2001) also agree that mainstream thinking about knowledge management is too simplistic.
“Knowledge management is not just a matter of managing information. It is … deeply social in nature and
must be approached by taking human and social factors into account,” (Thomas et al., 2001). The authors
argue the most important aspects of a knowledge management system is that it becomes a knowledge
community; a place where people can encounter and interact with others who discover, use and
manipulate knowledge.
Maxfield & Lane (1997) provide a deeper discussion about the non-deterministic way that strategy can
unfold into business success through people. In this paper, the authors describe how, in complex, dynamic
market conditions, business strategy shifts from management attempting to control a process of
interactions by the players (or agents) involved, to control being redistributed among agents themselves to
pursue a more dynamic “bottom-up” approach. In this model, agents in the market pursue and form
“generative relationships” with each other. These relationships are perceived as creating value for the
agents involved. How agents perceive themselves, products and services in the market and generative
relationships is re-examined and reinterpreted as the agents themselves understand and describe the
market space.
Another way of thinking about this knowledge management debate is to pose a question. For companies
that deploy CRM systems, which contributed most to the benefits derived from the CRM system:
• Establishing strong causal linkages within the measurement model deployed or in use?
• The use of CRM technology for some efficiency or effectiveness gain?
• The socialization of the measurement framework within the culture of the company?
In extremely fluid market conditions, it seems unlikely that businesses can identify, in time, key causal
linkages in customer and employee behavior when all the agents involved are reinterpreting and
redefining how they conceive of products, services, customers and relationships. When the nouns are
fluid, do the verbs make sense?
In actual practice, businesses combine both approaches measurement and strategy. In many cases,
successful market strategies are executed locally and often without upper management knowledge and
control. In time and as market conditions stabilize, these distributed pockets of control can inform and
shape overall strategy for a more traditional top-down approach through performance measurement and
control systems. These measurements and systems must support top-down and bottom-up communication
and feedback to support learning (Simons, 2000). Figure 8 depicts the relationship between the competing
concerns of overall strategy posture (shape, adapt or do nothing), market volatility within the planning
horizon and organizational approach.

Framework for
understanding
Shape
Bottom-up, distributed
Emergent performance
h
ac
Strategic posture
o
p pr
la
na
Adapt t io
iza
n
ga
or
ic
t eg
ra
St
Engineered performance
Top-down, centralized
None
Framework for Stable Foresight horizon Complex

action
Figure 8.
This debate between engineered-knowledge-in-the-artifacts versus emergent-knowledge-in-the-human-

network is a key issue for CRM measurement. For CRM measurement frameworks to be successful,
companies need to understand and refine their vision of how knowledge should be structured,
communicated and socialized within the organization to influence results within required time frames.
Attributes of a CRM Measurement Framework
What we need now are some attributes that help us understand what constitutes the key dimensions of a
measurement approach. Measurement frameworks can have three attributes or vectors that describe them:
1. field breadth
2. field depth
3. field tractability
The term field here is defined as those customer-facing and customer-impacting activities to be measured
that can include processes within the company, among its suppliers and certainly with its customers. Each
of these vectors competes with each other for management funding and attention. Field breadth refers to
how much of the total set of activities needed to be measured are actually measured. Are all customer
segments, product categories, business processes measured? Field depth refers to how granular is the
measurement approach. Systemic? At the customer segment level? At the customer level? How far are
sub-attributes broken down? How frequently is data measured? Field tractability refers to how
explainable and provable is the CRM measurement framework employed.

With these attributes in mind, here are the principles companies should consider for establishing the
proper measurement framework:
1. The measurement framework designed must cover the field width, depth and tractability in a cost
effective manner that meets the company’s strategic goals. Tradeoffs between these vectors will
ensue to address the cost of measurement and applicability to meeting strategic goals.
2. The measurement framework designed must consider the level of stability or complexity within
the market or within the enterprise. The more complex and volatile the market, the more adaptive
and timely the measurement framework needs to be.
3. The measurement framework needs to be able to function with partial and incomplete measures.
It is impossible for companies to measure everything at once. A starting point must be had. One
can be determined by restricting any combination of field breadth, depth and tractability.
4. For highly complex markets, the measurement framework itself will evolve, perhaps rapidly. The
measurement framework needs to be either self adapting or measured in some way (meta-
measurement) so that it can be reconstituted as needed. This requires a different knowledge
management approach and organizational model than most companies possess. Analogies from
the complexity sciences provide some future directions for thinking about adaptable measurement
systems.
Building a Composite Measurement Framework

If they haven’t done so already, most companies will need to build composite CRM measurement
frameworks to get the optimal combination of measurement breadth, depth and tractability. Measurement
frameworks are not a one-size-fits-all proposition. They need to be tailored for the company and its
conditions. With the abundance of measurement approaches and lack of a comprehensive theory of
customer behavior to guide them, companies will be designing frameworks themselves. Based on the
issues discussed so far, here is an approach to consider.
1. Consider the planning time horizon, competitive market stability or volatility and other market of
company factors.
• Are current market conditions stable or chaotic with rapid unpredictable change?
• What is the company’s current competitive posture? Is the company attempting to shape the
market significantly, adapt as a fast follower to the market, or sitting it out for a while and doing
nothing?
• What is the balance of focus needed between measuring internal capabilities and measuring
customer behavior?
• How much of the measurement framework needs to measure past activity or predict future
events?
2. Consider the technology implications
• What technical infrastructure changes are needed to support the measurement framework?
• Can the data needed be collected and combined within this infrastructure?
• What is the ongoing cost of measurement and data collection?
• What are the sampling and refresh rates that will be needed to support the measurement
framework?

• What are the core analytic techniques and technologies to support the data analysis needed?
• What are the technical needs to continually collect strategic and qualitative data as opposed to
conventional CRM operational data?
3. Consider the organizational implications
• What skills sets are needed to support the measurement framework?

• How do motivation and incentive approaches in the company need to be altered to encourage
successful measurement?
• Can the company’s decision-making abilities absorb and use the measurement framework?
• Does the company have flexible communication and collaboration tools and policies that let
people within the company interact with each other concerning measurement data?
• Can the customer decision-making capabilities of the company be measured and monitored so
that the health of decision-making capabilities can be assessed?
• Can feedback from the decision-making process inform and alter the measurement framework?
With these considerations in mind, a CRM measurement framework deployment plan can be formulated.
In most cases, deployment of new measurement approaches is evolutionary. With the inherent risks in
disrupting a customer base and employees that serve the customers within a company, companies
frequently choose to limit deployment along some axis. Typically companies try to control the field
breadth in the following ways:
Product A measurement approach is rolled out for all customers for one specific
deployment product or service.
Segment A measurement approach is rolled out for one customer segment (or sub-
deployment segment) for all products or services.
Narrow A measurement approach is rolled out for one customer segment (or sub-
deployment segment) for one product or service.
Within each deployment model, companies can control scope further by restricting the remaining two
vectors (depth and tractability):
1. Controlling the field depth by limiting the how detailed the measurement approach is
2. Controlling the field tractability by limiting causal research, data collection and analysis.
In practice, probably any sequence of deployment is possible. Since it is most unlikely that companies,
especially large ones, can transform themselves completely, iterative implementations of new CRM
strategies and measurement frameworks will be needed. In fact, for many companies, “adapt or perish” is
the directive. Changing market conditions and customer behavior and the proprietary, non-reproducible
relationship companies and brands can have with their customers practically insists on iteratively
implemented, adaptable CRM measurement frameworks.
Conclusion: The Complexity of CRM Measurement

The trends sweeping us along into this era of CRM have their roots midway through the 20th Century.
Postmodernism is replacing modernism. One of the key conditions of postmodernism is the reversal, in
importance, between production and consumption (Firat et al., 1995). Consumption, which makes up the
three-quarters of the U.S. economy, now has privileged status instead of production. Firat et al. (1995)

point out that “consumption becomes the means through which individuals define their self-images.” And
the marketing discipline is the primary institution reinforcing this trend.
Consumer behavior theories built on the consistency and orderliness of consumer behavior are being
obviated, the authors argue. Global competition and new technologies ensure that as soon as customer
behavior is on the “verge of stability and explainability, new products and services are introduced to
destabilize the consumer behavior model so as to create competitive openings for challengers.”
Traditional variables that have been used to predict or explain consumer behavior are now lacking, the
authors say. It not just that “consumers frequently change their self-concepts, characters and values, …
but they often subscribe to multiple … value systems and lifestyles.” This problem is not simply restricted
to business-to-consumer companies. The business buyer within a company is also a consumer and is
affected similarly. In addition, business-to-business companies need to understand consumer behavior as
much as the retail company.
With all this hand wringing, is it that customers are becoming segments of one? Are all the recent trends
of targeted marketing, micro-segmentation, 1:1 marketing, mass-customization and CRM a response to
this fractional, relativistic consumer mindset or is the new consumer mindset a reflection of these recent
trends? In the competitive business world, it doesn’t matter which is the cause of the other. Consumers
and businesses are quickly changing and showing no signs of slowing. Our measurement frameworks
need to catch up. The multiplicity of frameworks for measuring “all things customer” from the strategic to
the operational is supremely challenging the CRM practitioner. These new customer-facing capabilities
will take time to build out. This is not surprising since companies have had 150 years of industrialization
and the modern project to perfect product-facing capabilities.
Change begins with knowing. Companies today need to implement more sophisticated ways of measuring
this complex and diverse field. Technology will continue to drive these new measurement approaches.
Can our human minds and our human cultures keep up?

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President, CRM Strategy

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Definition Used in the Paper

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The Purpose for CRM Measurement

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1. To influence or validate decision making

Influencing or validating decision making

These styles break down into five categories:

Intangible In this approach, so-called softer benefits or intangible assets are

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Guiding ongoing activities

1. Brand performance measures

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Internally focused measurement Externally focused measurement

Value Value Customer

When it comes to coordinating customer-facing activities, the level of interconnectedness within

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Measuring strategic capabilities

Not only is the mechanism for creating

Predicting future states

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CRM Measurement Frameworks

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1. Front of mind / back of mind attention

Customer Equity Building

Customer value management

Customer equity management

Rust et al. identify three main components to customer equity:

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customer’s objective and subjective assessments of the brand. Key

Customer Value Analysis (CVA)

1. Where are we now?

1. Identify strategic priorities in the context of customers and products.

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Customer category Number % of Revenue NPV

Price Quality drivers Retention

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Internal External Financial

Figure 3. Source: Johnson & Gustafsson (2000).

• Customer satisfaction is a reaction to value received. Customer value determination tries to

1. Company behavior towards customers

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Customer behavioral modeling

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Preferential Interpersonal Tangible

Figure 4. Source: De Wulf et al. (2001)

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Sales force operations