Companies spend an enormous amount of money on Customer Relationship Management (CRM) but according to my experience, most initiatives fail to deliver.  Below are the reasons why this is happening and some tips to raise the odds for success.

The promise of customer relationship management is captivating, but in practice, it can be perilous. When it works, CRM allows companies to gather customer data swiftly, identify the most valuable customers over time, and increase customer loyalty by providing customized products and services.

It also reduces the costs of serving these customers and makes it easier to acquire similar customers down the road. But when CRM doesn’t work-which is often-it can lead to disaster.

Threat 1: Implementing CRM Before Creating a Customer Strategy
Any new management tool can be seductive, but there’s something particularly captivating about software that promises to make a perennial problem go away.

Many CRM products do just that, claiming they will automate the delicate and sometimes mysterious process of repelling low-margin customers and luring high-margin ones. CRM can indeed do that, but only after -a traditional customer-acquisition and retention strategy has been conceived of and implemented. The reason?

Effective customer relationship management is based on good old-fashioned segmentation analysis. Moreover, it is designed to achieve specific marketing goals. Implementing CRM without conducting segmentation analyses and determining marketing goals would be like trying to build a house without engineering measures or an architectural plan.

Still, most executives mistake CRM technology for a marketing strategy. That is, they allow software vendors to drive their approach to customer management. Or, just as often, they retrofit a customer strategy to match the CRM technology they’ve just purchased.

To make matters worse, they then delegate customer relationship management to their CIOs. It’s mostly technology, isn’t it? It partly is-and therein lies the problem. Technology that affects customers must always be aligned with an overarching strategy if it is to work (and that includes both business and marketing strategy).

Threat 2: Rolling Out CRM Before Changing Your Organization to Match
Installing CRM technology before creating a customer-focused organization is perhaps the most dangerous pitfall. If a company wants to develop better relationships with its more profitable customers, it needs to first revamp the key business processes that relate to customers, from customer service to order fulfilment.

Having a strategy is not enough: A CRM rollout will succeed only after the organization and its processes- job descriptions, performance measures, compensation systems, training programs, and so on – have been restructured to better meet customers’ needs.

It’s also important to evaluate existing departmental, product, or geographic structures. Believing that CRM affects only customer-facing processes, however, executives often do not see the need for changes to internal structures and systems before investing in CRM technology.

Threat 3: Assuming that More CRM Technology Is Better
Many executives automatically assume that CRM has to be technology intensive. It doesn’t. Customer relationships can be managed in many ways, and the objectives of CRM can be fulfilled without huge investments in technology simply by, say, motivating employees to be more aware of customer needs.

Merely relying on a technological solution, or assuming that a high-tech solution is better than a low-tech one, is a costly pitfall that companies with well-functioning CRM programs do.

An essential part of CRM technology which is almost ignored by executives is the data mining function which allows you to carry out customer segmentation, customer profiling, and campaign measurement.

Threat 4: Stalking, Not Wooing, customers

If your best customers knew that you planned to invest X amount to increase their loyalty to your products, how would they tell you to spend it?

Would they want you to create a loyalty card or would they ask you to open more cash registers and keep enough milk in stock? The answers depend on the kind of company you are in and the kinds of relationships you and your customers want to have with one another.

Such relationships can vary across industries, across companies in an industry, and across customers in a company.

Unfortunately, managers tend to ignore these considerations while using CRM, with disastrous consequences. They often end up trying to build relationships with the wrong customers or trying to build relationships with the right customers the wrong way.

To infer, successful CRM depends more on strategy than on the amount you spend on technology. Strategy is about allocating scarce resources to create competitive advantage and superior performance. The only way you can make CRM work is by taking the time to calculate your customer strategy, which helps employees understand where they are going and why, and to align your business processes before implementing the technology.

You’ll also need to effectively lead and manage change, showing CRM support teams how to achieve their goals through new processes. Employees must be equipped with the tools necessary to succeed.

Indeed, while technology is a powerful facilitator in the process of customer relationship management, that’s all it is: a facilitator. And the moment companies forget that CRM will turn into a tool that, instead of building loyalty, does just the opposite.