Case Study

ROI for a Customer Relationship Management

Initiative at GST

Professor Robert J. Sweeney, Wright State University

Robert J. Davis, Teradata, a division of NCR
Professor Mark Jeffery, Kellogg School of Management
Case Study
ROI for a Customer Relationship Management
Initiative at GST

“Your new enterprise data warehouse combined with

analytical CRM solutions could significantly contribute
to top line growth.”
Overview
Professor Robert J.
Robert Davis of Teradata, a division of NCR ,
Sweeney of Wright entered the management conference room at
State University and GST Inc. and was greeted by Mark Johnson,
GST CFO. Johnson had a big smile and gave an
Robert J. Davis of
enthusiastic: ‘Hi Bob, good to see you.’
Teradata, a division
It was three years since the original data mart
of NCR prepared
consolidation pilot program was initiated. The
this case study in results of the pilot study originally proposed by
collaboration with Davis exceeded even the most optimistic fore-
cast. The documented ROI prompted GST to
Professor Mark Jeffery consolidate the remaining 45 data marts into
from Northwestern an enterprise data warehouse (EDW). The now
complete EDW had a documented return on
University's
investment of 65%, and had saved GST $27
Kellogg School of million in just one year. Johnson was eager to
learn from Davis how GST might further lever-
Management as
age the $32 million infrastructure investment
the basis for class to help grow top-line revenue.
discussion rather
Erica Kolks, Vice President of Marketing,
than to illustrate arrived at the meeting a few minutes later.
effectiveness of Kolks came to GST ten years ago shortly after
obtaining her MBA from the Kellogg School of
management. Some
Management. She joined the GST management
facts within the case team with an impressive background in mar-
keting and over 15 years of experience in the
have been altered
telecommunications industry. Through the
for reasons of years, Kolks had made several recommenda-
confidentiality. tions that helped GST better compete, especial-
ly in the growing wireless market.
Johnson remarked that Davis had some ideas
on how GST might maximize marketing
investments and improve sales revenues. Davis
explained that the natural next step for GST
was to leverage their new enterprise data ware-
house for top-line growth with Customer
Relationship Management (CRM) solutions.
Johnson suddenly looked perplexed. It was not
exactly what he had anticipated hearing,“We
already have CRM—the sales team sold me on
funding CRM some time ago, and I have no
idea what return we are getting on the $3 mil-
lion I dump into it every year.”
Kolks explained that four years ago, Jill
Newberg, Vice President of Sales Region #2 and
Dominique Arnold, Vice President of Sales,
Region #3 convinced Johnson that GST needed
CRM. That resulted in an updated call center
and a new sales force automation tool.
Kolks added that although the CRM
investments seemed to be worthwhile, it was
not what marketing needed. She needed to
identify which customers to best target for new
service offerings, cross sell/up sell the most
profitable mix of product offerings, and to
maximize return from their marketing invest-
ments. Kolks clearly wanted to analyze cus-
tomer behavior over time and more quickly act
on detailed customer information for
enhanced decision making.
Johnson did not want to acknowledge the CRM
investments had any payback, in spite of the
fact that Newberg and Arnold were convinced

EB-3104 PAGE 2 OF 14
Case Study
ROI for a Customer Relationship Management
Initiative at GST
that they recognized return. He declared,“Since
performance metrics to determine the ROI
were not established during the adoption
phase and have not been monitored through-
out the implementation, the calculation of ROI
at this point is pure speculation.”
Davis could sense the tension. It was obvious
that this was not the first time that the ROI of
GST CRM initiative was discussed. It was also
apparent that CRM was a topic of confusion.
Johnson looked at Davis. He wanted to focus
on discussing new possibilities.
“Actually,” said Davis,“I was thinking about
analytical CRM.Your new enterprise data
warehouse combined with analytical CRM
solutions could improve the take rate of your
important marketing programs and the reten-
tion of your most profitable customers, signifi-
cantly contributing to top-line growth.”
Johnson was skeptical, but he knew that Davis
had not disappointed him with the data mart
consolidation program. Kolks liked what she
heard and wanted to learn more. Johnson and
Kolks concurred, if Davis could demonstrate a
believable ROI, GST would be very interested.
Davis was excited with this response and start-
ed to map out the next steps. He believed that
the first step was to propose a detailed busi-
ness discovery. Once the business discovery
was complete, the ultimate question was “what
was the ROI and payback for the Teradata CRM
solution?” Davis knew his team had a lot of
work to do, but he felt confident that this new
project would be a success, provided that he
could convince Johnson and Kolks it was worth
the investment.
1
Telecom Meltdown, Peter Elstrom and Heather Timmons, BusinessWeek, April 23, 2001.
EB-3104 PAGE 3 OF 14 2
Tailwinds in the Telecom Tempest, Olga Kharif, BusinessWeek, June 20, 2001.
TELECOMMUNICATIONS
INDUSTRY
The explosion in the demand for wireless serv-
ices, deregulation, the elimination of barriers
in the European markets, and an ever-growing
Internet market characterized the telecommu-
nications industry as the millennium came to
a close. However, once attractive profit margins
were shrinking or disappearing altogether.
Consolidation had replaced expansion as the
industry practice, and the trend of almost
unlimited spending for new infrastructure had
been reversed. In 2001, many viewed the tele-
com industry as ‘melting down’.
Bankruptcies have been filed and many more
were expected. Experts believed the U.S. and
European telecom companies, burdened with
about $700 billion in debt, would either default
on, or force lenders to restructure, over $100
billion of this debt.1 The telecommunications
industry crisis was reminiscent of the real
estate debacle that befell the savings and loan
industry in the 1980s.
The promise of heightened competition
following deregulation was proving illusory.
Consolidation within the industry, coupled
with a dampened enthusiasm by Wall Street
limiting available capital for new entrants, was
negatively affecting everything from customer
service to spending on new technologies.
Although the number of telephone calls and
the amount of data transmitted were both ris-
ing, companies had found customers demand-
ing lower prices. This combination results in
modest revenue growth and a declining return
on equity. According to Lehman Brothers, Inc.,
the 5.9% return on equity in 2000 was down
from the 13.8% figure achieved in 1996.1
Analysts were not expecting the industry to
return to the earlier level of profitability for
several years.
However, there were bright spots in an otherwise
bleak picture. Wireless continued to be a high
demand item and revenue growth was expect-
ed in metropolitan markets. According to
industry analysts:
“The up-tick in wireless will also come in spite
of rapidly slowing spending on next-generation
(also known as 3G) designed to dramatically
increase the speed of moving wireless data.
Rather, wireless carriers will be spending on
hybrid wireless local area networks, a more eco-
nomical way to offer high-bandwidth wireless
data coverage in key areas. They’ll also spend to
expand current-generation wireless infrastruc-
ture and upgrade their networks to accommo-
date increased customer demand, ...” 2
With technologies coming and going,
mergers and acquisitions that blurred the
boundaries between service providers, and
fickle customers that had a countless array of
choices (both wireless and long distance), the
communications environment had never been
more challenging. The industry found itself in
the unenviable position of scrambling to keep
up with a technological explosion while mar-
gins evaporated and the regulatory landscape
changed. In addition, Telco’s faced these condi-
tions in the midst of the worst economic reces-
sion in a decade that had lessened Wall Street’s
willingness to pump funding into the industry.
Case Study
ROI for a Customer Relationship Management
Initiative at GST
As the telecommunications challenges had
evolved, so had their strategies for survival.
Fred Harris, vice-president for research, archi-
tecture, and design at Sprint succinctly
described the situation for the entire industry
when he said:
“We are in the business to make money, so
our investments follow where our customer
demand is.”2
SURVIVING THE STORM
To win in these new conditions businesses must
understand what their customers’ demand is
today and what that demand will become
tomorrow. It is not enough to understand what
happened.A successful communications service
provider must analyze detailed customer data to
better understand ‘why’ it happened and proac-
tively manage to better forecast ‘what will’ hap-
pen—and then make it happen.
For example, managers should ask:
how do you analyze a customer’s
propensity to buy new or addition-
al bundles of services? How do you
predict and respond to events that
may lure away current customers
to the competition? How do you
satisfy the customer and maintain
double-digit growth while control-
ling costs? How do you communi-
cate with your most valuable cus-
tomers to increase the depth of the
relationship and important wallet
share of that customer? In order to
answer these questions, a corpo-
rate commitment must be taken to
shift the entire organization from a
product centric focus to a cus-
tomer centric focus.
EB-3104 PAGE 4 OF 14 2
Tailwinds in the Telecom Tempest, Olga Kharif, BusinessWeek, June 20, 2001.
In addition, all resources of the firm must be
managed optimally to maximize value. These
resources include the operational aspects of
the firm—product supply chain management,
enterprise resource management, services sup-
ply chain management — as well as the man-
agement of the financial aspects of the opera-
tions. Decision-makers need a single view of
the enterprise in order to get the most out of
the resources of the firm. This integrated view
is made possible with enterprise data
warehousing (EDW) technology, and is
enhanced with Customer Relationship
Management (CRM) solutions.
CUSTOMER RELATIONSHIP
MANAGEMENT
Confusion in the marketplace seems to abound
about CRM, not only from the need to clearly
understand the potential return on investment
but also with basic definitions and the compet-
itive landscape of technology vendors that sell
Estimated CRM, eCRM, eBusiness Revenue ($B) =
Compound Annual Growth Rate for 2003
E-Business ($25B/34%)
ERM/SCM ($22B/34%)
Back-Office Operational Analytical
Enterprise Resource=
Management
Back-Office=
Analytical
Product Supply=
Chain Management
Services Supply=
Chain Management
Source: IDC. AMR, Teradata Team Analysis
Source: Tara Kaskocsak, Marketing Specialist, Teradata, a division of NCR
in this market space. CRM should be viewed
first and foremost as an organizational strategy
to understand and influence customer behavior
through continuous communication to
improve customer acquisition, customer reten-
tion, and customer profitability.
Another commonly used definition places the
focus of the strategy on identifying the right
customer with the right offer, at the right time,
using the right channel. Armed with this per-
spective, CRM should therefore not be consid-
ered “product point solutions” but rather, tech-
nology-enabled solutions and associated skills
that support the organizational strategy of
being customer centric.
In 2002, the market for CRM oriented solutions
has been estimated to be $3.6 billion dollars
with a compound annual growth rate of 37%
per recent analysis compiled from IDC and
AMR data. Exhibit 1 is a schematic of the CRM
and E-business market.
CRM ($3.6B/37%)
Front-Office Operational
Marketing
=
E-Commerce
Front-Office=
Analytical
=
Sales
=
Customer=
Service
1
Case Study
ROI for a Customer Relationship Management
Initiative at GST
Exhibit 2 provides more detailed insight into
what issues each of the available solutions
address and where specific vendors are posi-
tioned. For example, in the top half of the
exhibit, within the front-office operational seg-
ment, marketing automation solutions form
the hub of all customer understanding and
communications planning. Similarly, customer
CRM Segment Definitions and Business Objectives
Enterprise =
Portals=
=
Provide Enterprise-
View at Interface
Enterprise=
Resource Planning
Align Organization-
Around the Customer
Supply Chain=
Management
Shift to Demand Chain to-
Align Suppliers and-
Partners Around the Customer
OLAP
Own Reporting and-
Analysis Infrastructure
CRM Segment Definitions & the Competitive Landscape in January 2002
Enterpise =
Portals=
= through analysis and modeling of detailed data
Provide Enterprise-
View at Interface
Enterpise=
Resource Planning
SAP, Peoplesoft, Baan,-
Oracle, Epicor, Lawson
Supply Chain=
Management
Manugistics, Ariba, i2,-
CommerceOne
OLAP
Microstrategy, Brio,-
Cognos, Business Objects
EB-3104 PAGE 5 OF 14
service and support solutions provide real- oped based on perceived vendor activity at a
time customer understanding via the inbound point in time, January 2002. Note that if this
interactions. exhibit were recreated 3 months or one year in
the future, the players and the solutions would
Vendors within each of these spaces are identi- most likely be dramatically different.
fied in the bottom half of the exhibit. It is
important to note here that the solutions and As a framework for how technology enabled
the vendors are fluid. This exhibit was devel- solutions and vendors fit, CRM Solutions can
be separated into two segments: Operational
CRM and Analytical CRM.
-
Operational CRM
Marketing=
Automation
Sales Force=
Automation
Operational CRM Solutions are focused on col-
Form Hub of All Customer Own Front-office-
lecting and managing the interaction with the
Understanding and Channels and Customer
Communications Planning Understanding customer through the variety of touch points
E-Business ($28B/34%) Communications/=
Queuing
where a firm provides sales, service and sup-
ERM/SCM ($22B/34%)
Back-Office Operational Analytical
CRM ($3.6B/37%)
Front-Office Operational
Manage Integrated
port. These touch points include direct sales,
Communications Across -
All Channels the web, retail outlets, ATMs, call centers, direct
=
Enterprise Resource=
Marketing
Management
Customer Service= mail, email—fax, etc.
E-Commerce
Back-Office= Front-Office=
Product Supply=
Analytical Analytical =
& Support
Sales
Chain Management
Services Supply=
Chain Management
Customer=
Service Provide Real-time-
Customer Understanding- =
Source: IDC. AMR, Teradata Team Analysis
Via Inbound Interaction Operational CRM solutions are generally cate-
gorized to address marketing automation, sales
Modeling Analytics Personalization
force automation and customer service/sup-
Intelligent, Actionable, - Own Customer Understanding Manage Personalization-
Closed-loop Customer-
Understanding
& Support All Operational-
CRM Applications
Rules Across All Channels
port. Siebel is the most widely recognized ven-
dor of operational CRM systems.
- Analytical CRM
Analytic CRM solutions enable companies to
Marketing= Sales Force=
derive greater knowledge of their customers
Automation Automation
NCR, Xchange,- Siebel, Clarify,-
Chordian, E. piphany,- Vantive, Pivotal,- collected from various customer interactions
Unica Onyx
Communications/=
throughout the organization. In essence,
E-Business ($28B/34%)
Queuing
ERM/SCM ($22B/34%) CRM ($3.6B/37%) analytical CRM solutions provide clear
Nortel, Lucent, Alcatel,-
Back-Office Operational Analytical Front-Office Operational
Cisco, BEA, IBM customer insight enabling an organization
=
Enterprise Resource=
Marketing
Management
Customer Service=
to take action to strengthen their customer
E-Commerce
Back-Office= Front-Office=
Product Supply=
Analytical Analytical =
& Support
Sales
relationships and enhance profitability.
Chain Management
Services Supply= Customer=
Siebel, Octoane, Silknet,-
Focus is given to leveraging detailed data
Chain Management Service
Source: IDC. AMR, Teradata Team Analysis Clarify, Vanitive, Quintus =
via analytical modeling—this enables an
Modeling Analytics Personalization
organization to be proactive in serving their
SAS, SPSS, Unica Quadstone, KD1, MarketSwitch, Broadvision, atg, Vignette,-
i2, Broadbase, Accrue,- Net Perceptions customers by adapting to change as well as
Hyperion,Ithena
improving the effectiveness and efficiency of
2 operational CRM solutions.
Case Study
ROI for a Customer Relationship Management
Initiative at GST

invoked or “triggered” as a result of a significant

customer event or entry into a new segmenta-
Position of Teradata's Solution within CRM Space
tion threshold.
E-Business

ERM/SCM CRM Note that the competitive landscape of CRM

Back-Office Operational Analytical Front-Office Operational solution providers is ever changing. Companies
whose strengths had been in offering opera-
Enterprise
Resource= Marketing tional CRM solutions are attempting to address
Communications Management

Communications Management
Management
= analytic solutions and vice versa.

E-Commerce
Back-Office= Front-Office=
Product Analytical Analytical
Supply Chain
=
Management
Sales
= Exhibit 4 describes the linkages between the
critical steps in an effective CRM program:
Services Customer=
From analyzing customer profiles, to building
Supply Chain Service
Management predictive models, through to developing a
communication plan, to optimizing the deploy-
The red line denotes the Teradata Analytical CRM solution
ment of personalized offers resulting in more
3 timely interactions with customers with man-
Exhibit 3 shows the proposed Teradata CRM trum of operational and analytical solutions. aged feedback. The strength of the EDW is that
solution for GST. This CRM solution is posi- Teradata had therefore uniquely positioned their a single view of the enterprise allows a compa-
tioned in the analytical space and also touches analytical application to address event driven ny to better integrate analytical CRM and
upon marketing automation in the operational marketing by integrating with leading opera- operational CRM. This integrated strategy is
segment. tional CRM solutions. Event driven marketing more effective than if either CRM strategy were
enables pre-determined action to be taken, initiated alone.
According to Ruth Fornell, Teradata Chief
Marketing Officer, Teradata’s CRM
value proposition is in providing:
The Critical Steps in a Fully Integrated CRM Strategy

“Breakthrough CRM solutions

Analytical CRM
that drive intelligent, cross-channel
Analysis Communication, Personalization
personalization based upon a
common understanding of all
Personalization
customer interactions, resulting Business= CRM=
Intelligence Analysis Modeling Optimization Interaction Front-Office Operational

in enhanced customer knowledge

Reporting Marketing
and increased bottom-line profit.” Communication
E-Commerce

Sales
=
OLAP =
In order to implement effective
Customer=
solutions that support an organiza- Data Mining Service

tion’s CRM strategy, complementary

operational and analytical CRM
Enterprise Active Data Warehouse
solutions are required.As of January
This Exhibit shows schematically the linkages between an Enterprise Data Warehouse (EDW) and a fully integrated CRM strategy.
2002, it is difficult to find a single The EDW is essential to executing the CRM strategy

vendor that addresses the full spec- 4

1
Note that in some cases, you may want to use the next 30% or 40%
EB-3104 PAGE 6 OF 14 as the “Migration” segment.
Case Study
ROI for a Customer Relationship Management
Initiative at GST

Note that an effective CRM program

will result in maximum ROI only
with “better data.” The more com- Evolving the Decision-making Environment to Achieve Greater ROI
plete the data, the more complete
the analysis, and the more prof- Enterprise Data Warehouse=
=
itable the strategy. This complete Environment
set of data is obtained via the
ERP/SCM= CRM=
EDW. As Exhibit 4 shows, the EDW Back-Office Operational • Customer= Front-Office Operational
Relationships=

Customer Communications
supports the entire CRM initiative. Enterprise= • Demand Chain=

Operational Actions
Resource=
• Supply Chain= Marketing

Better, Faster=

Better, Faster=
• Financial=
Management Operations=
Exhibit 5 reinforces the importance

of the EDW. Not only does the
EDW facilitate better, faster com-
munication between the firm and
the customer, this exhibit high-
lights that the EDW helps to
improve the operations of the firm.
With a single view of the enter-
prise, and detail customer data, the
firm can create strategic and tacti-
cal plans to more profitably utilize
the assets of the firm and to create
ever-increasing ROIs.
TELECOMMUNICATIONS
INDUSTRY CUSTOMER RELA-
TIONSHIP BEST PRACTICES
Exhibit 6 contains industry averages and indus-
try best practices for some communication
service providers on several elements within the
CRM space . These areas include customer
acquisition, customer churn, revenue assurance,
network optimization, and data warehousing.
Following are definitions of important terms:
Take Rate
Within the context of marketing campaigns, take
rate is defined as the percentage of the total
recipients who accept or “do business with you”
as a result the targeted offer. For example, if you
E-Commerce
• Business=
Process=
Product= Management= =
Supply Chain= • E-commerce= Sales
Management • Industry-=
specific=
operations=
=
Services= = Customer=
Supply Chain= Service
Management • Single view of the business=
• Detail-level data=
• Unlimited growth=
• Strategic, tactical and event driven=
decision making=
• Significant cost savings=
=
5
target 100,000 individuals as a part of an acqui- advanced analytical modeling, you anticipated
sition campaign, and you realized a 3% take rate, a 100% lift or improvement to an existing base-
you will have added 3,000 new customers. line of a 2% take rate, the resulting take rate
would be 4%. Lift could also be viewed as a
Churn percentage increase in monthly spending.
Churn is synonymous with customer attrition.
More specifically, churn rate represents the Within the industry, customer acquisition pro-
percentage of active customers that voluntarily grams occur monthly, have approximately a 3%
choose to discontinue use of your service or take rate and very little is currently being done
product. For example, if you had a customer with analytical modeling. Best practice indi-
base of 2,000,000 subscribers with an annual cates that multiple acquisition campaigns are
churn rate of 25%, you would lose 500,000 run daily, the take rate averages 6.5% and
subscribers a year. This is a key metric for utilizing analytical modeling improves
measuring an organization’s effectiveness at the lift by more than 400%.
customer retention.
The average customer churn for wireless cus-
Lift tomers in the industry is 29%; best practices
Lift is viewed to be the percentage improvement experience customer churn of only 16%. Best
for a given metric. For example, if through practices result in an attrition rate approxi-

EB-3104 PAGE 7 OF 14
Case Study
ROI for a Customer Relationship Management
Initiative at GST

mately one-half the industry average. For long

distance, the industry average is 25% annually Industry Averages and Industry Best Practices
Telecommunications Industry
while best practice only loses 20% per year.
Business Driver Industry Averages Industry Best Practices
Customer churn for cable, on average, is 28%;
Customer Acquisition Campaigns
for firms demonstrating best practice, they a. Quantity of Campaigns a. Monthly (12/year) a. 20–50 per day
b. Take rates b. _ – 5% b. 5 – 8%
only lose 7.3% to attrition. c. Lift with analytical modeling c. n/a c. 442%
Customer Churn
a. Wireless a. 29% a. 16%
Revenue assurance statistics contained in b. Long Distance b. 25% b. 20%
c. Cable c. 28% c. 7.3%
Exhibit 6 refers to fraud management. On aver- Revenue Assurance
a. Lost revenue to fraud a. 5–6% a. 1%
age, the industry loses over 5% of revenue to b. Days: fraud detect-to-remove b. 90–120 days b. 2–3 days
fraud, takes 90-120 days to detect and remove c. Fraud % of bad debt c. 15% c. 2%
Network Optimization
fraud, and fraud constitutes about 15% of bad a. Data trending a. Every 30 days a. daily
b. Engineering reports b. Every 30 days b. daily
debts. Best practice, on the other hand, detects c. Customer complaints c. 50-100 per day c. 1–2 per day
and removes fraud in fewer than 3 days—this Data Warehousing
a. Organizations supported a. 1–2 a. Entire enterprise
reduces the percent of bad debts associated b. Average number of end users b. 5–20 b > 10,000
Average number of applications c. 1–10 c. > 100
with fraud to 2% and the percent of revenue 6
lost to fraud to 1%. Adapted from: “Communications Strategies and Best Practices” by Jack Knapp, Director of Marketing,
Teradata, a division of NCR, and Carol Martin, Marketing Specialist, Teradata, a division of NCR

The management of operational assets is also
compared for the industry and best practice.
The industry examines monthly data trends, gen-
erates engineering reports monthly and receives
50–100 customer complaints per day. Best prac-
tice in the same industry produces daily data
trends, daily engineering reports, and receives
fewer than 2 customer complaints per day.
Finally, considering the industry’s use of data
warehouses, on average, 1–2 operations are sup-
ported, fewer than 20 end users, and fewer than
10 applications. Firms that fully exploit their
warehouse typically handle more than 10,000
end users and run more than 100 applications.
A CRM STRATEGY FOR
GST INC.
A Single Integrated View of the Customer
As a result of the data mart consolidation proj-
ect, GST had made significant progress in
bringing together a wide variety of processes
and systems to achieve an integrated view of
their customers. End users and decision-mak-
ers no longer had to search for information
about its business, customers and competitors
in multiple data silos. One marketing manager
commented:
“With the new enterprise data warehouse I no
longer have to wait weeks before getting important
information on my largest corporate accounts.”
Several marketing mangers wanted to under-
stand how to take more complete advantage of
the customer information in the Teradata data
warehouse. With the EDW they could access
customer information quickly, but they lacked
the right analytical tools to improve take rates.
Davis knew that the Teradata CRM solution
could assist in this and other areas.
The Power of Analytics
Davis wanted to clearly position the Teradata
CRM solution. Operational CRM is typically
only effective when combined with robust
analysis and planning tools. These tools enable
managers to understand who the
customers are, patterns and trends in their
behavior, and to craft communications tailored
to individual customer needs.
Davis also wanted to position the value of
GST’s existing Teradata data warehouse
as the foundation to store all customer
information (transactional, external and/or
purchased data). The data warehouse would
therefore enable the development of new
creative approaches to better understand and
predict customer behavior. He knew that
GST’s EDW combined with Teradata CRM
solutions would enhance decision-making,
especially given the dynamic environment
that GST was forced to compete in.
Exhibit 1 and Exhibit 3 illustrate the CRM
landscape and an enterprise view of CRM
using the Teradata data warehouse. The EDW
would act as a bridge between operational
CRM (such as sales force automation tools)
and analytical CRM (predictive capabilities)
for improved business insights.

EB-3104 PAGE 8 OF 14
Case Study
ROI for a Customer Relationship Management
Initiative at GST
Davis planned to focus his recommendation
on the business benefits of CRM. With
appreciation for the internal battles
that Kolks might face, Davis prepared a
business discovery proposal (see Exhibit 7).
The business discovery was an important
starting point for GST’s analytic CRM initiative.
The proposal defined a business discovery as a
statement of work between Teradata and GST to
identify the “pain points” most critical to senior
management and to suggest a specific solution
based on the findings. During the
business discovery, Teradata professional
services would also collect current
financial and operational information
and develop a projection of the return
on investment (ROI) associated with the
proposed Teradata CRM solution.
BUSINESS DISCOVERY
Statement of Work
The Statement of Work (SOW) between
Teradata and GST, is included in
Exhibit 7. The SOW details, step by
step the process Teradata would follow
when developing a specific solution.
The exhibit describes the business
impact assessment as well as the
development and delivery of the
business impact model. In addition,
the project’s duration and the responsi-
bilities of the parties to the agreement
are detailed.
Kolks was successful in selling the
business discovery to her peers. Kolks
liked that the business discovery would
help enable buy-in across multiple
business units on the most critical
2
Note that marketing research studies may provide additional insights into what constitutes
a reasonable percentage increase in value.
EB-3104 PAGE 9 OF 14 3
This is where some thought will have to be given as to what marketing actions will be taken.
business issues. She also knew that Johnson in his final recommendation.
she would need assistance in defining metrics The main finding, described below, was
for the ROI. Teradata’s business discovery was that GST needed to embark on a targeted
appealing to GST senior management, since it acquisition campaign.
would assess GST’s standing within the indus-
try and propose a solution to help GST move A review of GST’s 5-year strategic plan by the
towards best practices. Teradata team discovered a growth target for
a portion of their customer base. Specifically,
Findings GST management believed the 13,000,000
The business discovery process uncovered wireless accounts should grow by 5% per year.
many facts, summarized in Exhibit 8, Furthermore, GST currently ran monthly
which Davis would present to Kolks and campaigns to acquire new customers.
Statement of Work Between Teradata and GST Inc.
This Statement of Work (“SOW”) between Teradata, a division of NCR Corporation (“TERADATA”) and GST Inc. (“GST”) is
for services to be provided to GST by TERADATA in connection with Business Impact Consulting.
1. Project SCOPE/Services
1.1 Scope. TERADATA will have its consultant(s) review and analyse GST’s current financial and operational results and will
facilitate a meeting to discuss TERADATA’s findings and make recommendations. TERADATA will interface with a
person appointed by GST to sponsor the work (“Business Impact Assessment Sponsor”).
TERADATA will provide the following:
• Business Impact Assessment
• Development and Delivery of Business Impact Model
1.2 Business Impact Assessment. TERADATA will interview a number of GST employees to collect current financial
and operational information and develop a projection of the return on investment (ROI) associated with the proposed
solution. TERADATA will provide a presentation of business impact assessment findings to GST.
1.3 Development and Delivery of Business Impact Model. TERADATA will leverage the knowledge gained from the Business
Impact Assessment task to develop and deliver a detailed Business Impact Report and a GST specific Business Impact
Model for further analysis and use. TERADATA will provide a presentation of the anticipated financial results and
overview of the business impact model.
2. Project Deliverables
TERADATA will provide a written report covering its findings and recommendations from the assessment services. The
report may cover areas such as:
Business Impact Assessment
• An Executive Summary
• Recap of Business/Operational Impact Findings
• Financial Impact Report
Business Impact Model
• Development of a GST specific business impact model based on TERADATA’s impact model(s)
• Restricted access to customer specific Business Impact Model (Microsoft Excel Version with access to formulas
locked)
3. Project DURATION
3.1 The parties anticipate that TERADATA service delivery will begin on 7th January 2002 (“Start Date”) and be
completed within approximately 4 weeks from the Start Date (“End Date”). Should the Start Date be postponed due to
a delay in the execution of this SOW, or non-availability of GST personnel, the End Date may be extended. GST will grant
this extension with no penalty to TERADATA.
3.2 GST recognises that any delay that GST may incur in providing to TERADATA the technological and human resources,
data, and necessary information for the execution of the objectives of this Service may, in turn, generate a delay in
TERADATA’s provision of services. GST also recognizes that the provision of information that is inexact, incomplete,
and/or different from specified requirements may generate similar delays. When these delays result in an increase in
Service cost, TERADATA will inform GST of any impact to cost, schedule, services, or Deliverables.
Continued next page
7
Case Study
ROI for a Customer Relationship Management
Initiative at GST
As an example, one targeted acquisition
campaign started with GST’s analysis
of their customer base and prospect
list (augmented by external information
on the household) for children
between the ages of 15 – 17 who were
celebrating a birthday. The offer was
made through direct mail to the par-
ent(s) with a special package on a pre-
paid wireless phone. For $99, the par-
ent could buy the phone and the initial
1,000 minutes of use. The customer
would then have the option of prepay-
ing ongoing required increments of
time with options available for $30, $50
or $100 with cost per minute being
lower as you buy larger “blocks” of air-
time. The value of the offer stressed a
“manageable plan” from a cost stand-
point that provides the added security
of being in touch with your ever more
mobile children.
The process for designing and execut-
ing other campaigns was the same
independent of the details of the offer.
The process began with analysis and
segmentation of targeted prospects for
increased probability of acceptance.
A personalized offer was then extended
through single or multi channels
(direct mail, telemarketers, and
email) — the results were tracked
for continued knowledge of customers
and prospects.
GST’s latest experience shows that the
cost to contact a single potential new
customer is $5. Approximately 3% of
the potential customers contacted
recently became new customers (3%
take rate). In addition, the average
monthly spending by a customer in the
EB-3104 PAGE 10 OF 14
Continued from previous page
4. RESPONSIBILITIES
4.1 TERADATA will provide the resource described in this SOW. GST will work with the TERADATA to provide the services
called for in this SOW and, as reasonably requested, will provide the required personnel to complete the services.
4.2 GST will provide TERADATA personnel and third-party vendors with safe and reasonable access, working space and
facilities (including heat, light, ventilation, electric current, and outlets), convenient fax access, local telephone extensions
(including outgoing analogue telephone lines for modems), computer space, and other necessary physical facilities for
TERADATA and third-party personnel.
4.3 GST is responsible for the identification and interpretation of any applicable laws, regulations, and statutes that affect the
existing GST application system or programs that TERADATA will have access to under this SOW. It is the responsibility of
GST to assure that the systems and processes meet the requirements of those laws.
4.4 GST is responsible for the articulation and approval of the business requirements driving the definition of this phase of the
service. Additionally, GST is responsible to provide all the necessary data elements (customer specific responses) required
to adequately assess the impact of the solution on their business.Any information provided regarding the return on invest-
ment of the Project is a non-binding estimate only.
4.5 The services to be provided by TERADATA include only what is expressly described in the SOW. The services and deliver-
ables excluded from the present contract include, but are not limited to, the solution of any problem originating from the
quality of the data used to develop the Business Impact Model.
5. Personnel
5.1 TERADATA and GST will assign personnel to execute the roles required for this Project. Such personnel will constitute the
Project Team. Actual individuals assigned to the Project may fill different combinations of roles. TERADATA and GST will
make available additional personnel as needed.
5.2 Roles required for this SOW are as follows:
TERADATA Roles:
• Business Impact Modelling Analyst
• Professional Services Consultant
GST Roles
• Business Impact Assessment Sponsor
• Departmental Level Executives
• Business Users
5.2 During the performance of this SOW, and for a period of one year thereafter, GST agrees to not employ, make an offer
of employment to, or enter into a consulting relationship with any employee of, or subcontractor of, TERADATA who is
directly involved with the delivery of services under this SOW, except upon the prior written consent of TERADATA, as
stated in the Addendum.
6. Payment
6.1 TERADATA will perform the services specified in this SOW for $30,000, made up of 15 days professional services at $2,000
per day. GST will be billed on a monthly basis.
6.2 This price does not include travel and living expenses or the price for products, software, Third-Party Deliverables, or
maintenance.
6.3 Travel and living expenses, including travel time to and from GST locations for TERADATA and its subcontractors, will be
invoiced on a monthly basis. GST will pay all invoices in accordance with the Master Agreement.
6.4 All taxes incurred and all duties assessed on the products and services, except for income taxes levied against TERADATA,
are GST’s responsibility.
6.5 The total amount billed to GST against this SOW, for both services and expenses will not exceed $50,000.
7. Change Control Process
Any changes to this SOW, including scope, services, fees, etc., will be made in a written document signed by both parties.
8. DELIVERABLE COMPLETION SIGN-OFF
8.1 Deliverables will be considered accepted upon delivery. GST Program Sponsor will complete a “Deliverable Completion
Sign-Off Form” for each Deliverable or billing milestone.
8.2 If GST requires rework or modifications beyond the scope of the Deliverable as provided in this SOW, TERADATA will
be entitled to an adjustment in price equal to TERADATA’s standard price for the additional work and a corresponding
adjustment in the Project schedule. The Change Control Process will be followed to determine the impact of additional work
required and both TERADATA and GST will agree to this work before it begins. Such rework or modifications may not be
limited to the affected Deliverable and may include items such as regression testing or integrating the affected Deliverable
into the overall solution.
7
Case Study
ROI for a Customer Relationship Management
Initiative at GST

ignored in this analysis. Typically,

Summary Findings from the GST Business Discovery firms initiating CRM activities for
Relevant to the Proposed CRM Acquisition Campaign the first time tend to experience a
Finding Values larger than average improvement
How many customers are considered relevant for while firms further along the CRM
13,000,000
the proposed CRM program? journey receive a less than average
What is the annual growth target for the relevant improvement. As a result of the
customer base embedded in the strategic plan? 5.0% work with Teradata’s Professional
How frequently does GST run acquisition campaigns? Monthly Services associates, it was deter-
On average, what does it cost GST to contact one customer? $5 mined that GST was in the early
Historically, what is the current average campaign take rate phases of CRM development.
3%
for acquisition campaigns by GST customers?

What does Teradata suggest as the anticipated improvement In addition, the report indicated that
5%
in the acquisition campaign take rate? with better data, firms could target
Currently, what is the average monthly revenue per customers likely to spend more per
$42
GST customer for the relevant customer base?
month than the average customer.
What does Teradata propose as the anticipated increase in For example, the data might indicate
20%
average monthly revenue per customer?
married couples with two phones
What is GST’s average incremental gross margin percentage
40% and children spend 20% more per
on the goods and services offered through the campaign?
month on average than does the
What is the appropriate tax rate for the analysis? 38%
typical customer. In addition, these
What is GST’s appropriate required return for the analysis? 16%
same couples exhibit an attrition
8
rate one-half the typical customer.
A targeted campaign would be
targeted group is $42 for the goods and servic- whom Teradata has worked, and propose a designed to attract more married couples with
es included in the proposed campaign offer. solution where appropriate. The original children. Similar campaigns can be designed
Teradata contract was for $120,000 per year for around single parents, couples without chil-
In order for GST to grow by 5% per year, the second and third years of the pilot program. dren, retired people, or company CEOs. If the
it must replace any customers lost to churn Davis estimates that one-fourth of the buying experience of a cohort of current cus-
throughout the year. Within the industry, the contract cost was linked to the CRM study and tomers is something the firm would like to
average number of customers leaving each year the remaining 75% tied to collapsing the replicate, better data makes that possible.
is 29%. For the metric “Customer Churn,” GST remaining 45 data marts into a data warehouse.
is considered one of the best in the industry Teradata suggested GST could expect an
losing approximately 18% per year. Therefore, Teradata’s experience with acquisition increase in average customer spending by the
in order to increase the customer base by 5%, programs in the communications industry had new group in the range of 10% to 32%. The
GST must acquire approximately 23% new produced an improvement in the underlying business discovery cautioned GST that while
customers each year. firm’s take rate in the range of 3% to 15%. The they might attract customers with increased
average improvement was 8%. While smaller spending habits, the competition for these cus-
During the data mart consolidation pilot pro- improvements and much larger improvements tomers is intense so that when GST signs a
gram GST had contracted with Teradata, in had been achieved, Davis suggested the obser- customer, it should highly discount projected
part, to study the characteristics of a subset of vations outside the range be tied to unique cir- revenue beyond one year.
GST’s customer base and to compare those cumstances within those firms and should be
characteristics with other companies with

EB-3104 PAGE 11 OF 14
Case Study
ROI for a Customer Relationship Management
Initiative at GST

Given the nature of the products and services The one-time and ongoing charges for hard- sulting, hardware maintenance and software
being offered (telecommunications) GST ware, software and Professional Services are maintenance. GST could shorten or lengthen the
should expect to begin receiving revenue from contained in Exhibit 9 for the CRM proposal contract at their discretion. The penalty for
any new customers in the month following the implementation. The immediate payment shortening the contract was a payment equal to

The process for planning, delivering and measuring ROI

is a science that requires discipline and consistency.
campaign. In addition, from past experience (T=0) for hardware and software for the one-quarters worth of the ongoing costs for
GST could assume the initial contract between Teradata CRM solution was $1,500,00 and hardware, software and consulting. The contract
GST and the new customer would be for one $2,500,000, respectively. Annual maintenance could be extended for a maximum of one year
year. For example, a campaign run in January and upgrades would be 12% of the list price at the same rate quoted in the original contract.
would produce a new customer in February for hardware and 18% of the list price for soft-
and this new customer could be expected to ware. These charges would be billed at the end Davis realized that for Johnson and Kolks to
maintain his/her level of spending through the of each quarter. Professional Services’ immedi- accept the ROI analysis, a detailed breakdown of
following January. The first acquisition cam- ate charge (T=0) for the implementation is the implementation project was not necessary.
paign would be initiated one month after the $1,000,000. The contract calls for an additional For the business discovery ROI analysis, it was
Teradata proposal was adopted. 20% of the original charge per year for consulting. safe to assume the up-front implementation costs
occurred at time zero, even though in reality
Billing for consulting would be monthly. The these costs would be spread over a few months.
GST FINANCIAL DATA contract between GST and Teradata called for The weighted average cost of capital for GST
& THE CRM PROJECT an initial commitment of three years for con- was 14%, however, for projects determined to
IMPLEMENTATION
COSTS
One-time Costs, Ongoing Charges and Cancellation/Extension
Fee for Hardware, Software and Professional Services
The Teradata Professional Services
One-time Costs – Payable at T=0 and Depreciated Using Straight-line Depreciation
team suggested which items to
1. Hardware (Nodes and Disk Array) 1. $1,500,000
include in the product service offer. 2. Software 2. $2,500,000
These items included: 500 monthly 3. Professional Services (Consulting) 3. $1,000,000
minutes of from anywhere to any- Ongoing Maintenance/Upgrade Fees – Billed at the End of the Monthly
where, 24/7, worldwide calling and 1. Professional Services (Consulting) 1. 20%/yr of one-time cost, paid monthly
1000 peak-time monthly minutes Ongoing Maintenance/Upgrade Fees – Billed at the End of the Quarter
of Internet access through the 1. Hardware 1. 12%/yr of one-time cost, paid quarterly
handset, laptop or television. 2. Software 2. 18%/yr of one-time cost, paid quarterly

Standard with any offer were call Cancellation/Extension Fees

forwarding, call waiting, instant 1. Cancellation Fee 1. payment at time of cancellation totaling
three months of ongoing PS, hardware
paging/instant messaging, and
and software charges
voice mail. Dan Wymer, CAO, deter- 2. Extension Fee 2. billed at current rates – maximum one
mined the gross margin on those year extension
items would be 40%. 9

EB-3104 PAGE 12 OF 14
Case Study
ROI for a Customer Relationship Management
Initiative at GST
be riskier than average, a 16% required return
was used. For projects determined to be less
risky than average, a 12% return was required.
The appropriate tax rate was 38%.
THE PROFESSIONAL
SERVICES TEAM MEETING
Davis convened the Professional Services team
meeting on Thursday morning with a rather
startling announcement:
“Well folks, we have a week. I have committed our
team to present the Business Impact Assessment
to Mark Johnson and Erica Kolks next Thursday
at 11AM ... I know we will be ready. We’ll be
ready or we’ll lose the opportunity!”
After a brief pause to make eye contact with
the team, he continued:
Davis needed his team to make a decision and be prepared
to defend their position in the meeting on Thursday.
“And by ready, I expect our analysis to be thor-
ough. We should be answering Mark Johnson’s
questions long before he has
had a chance to even think them up.
The business discovery process has been
completed. You have the results in front of you.
Now all that is left is to resolve the remaining
issues, calculate the ROI, and write the report.”
EB-3104 PAGE 13 OF 14
Davis went on to explain that he would like to
position the proposed acquisition campaign
within the context of an overall CRM solution
strategy that would include other key business
benefits. He wondered aloud to the team:
“Should the financial analysis account for
valuable cross sell/up sell opportunities facilitated
by the investment in the infrastructure for the
proposed acquisition program?”
Davis recognized that this was only one of many
additional benefits that the analytical CRM
investment could enable.Additional benefits
could include better evaluation of GST’s net-
work capacity, fraud detection, improved reten-
tion programs, etc. Davis asked the Teradata
Business Impact Modeling team for their sug-
gestions when evaluating these real options.
A second issue Davis highlighted for the team’s
discussion concerned the leads for the acquisi-
tion campaigns. Developing the profile of an
ideal new customer utilizing current customer
data was fraught with risk. GST would have
access to the demographic data of its existing
customers. Ideally, the data had been screened,
cleaned, and the appropriate information
obtained. This information provided a sense of
the kinds of new customers the firm would
like to attract. However, a big question was:
“Where does GST find the names and addresses
of potential new customers?”
At this point, GST was most likely relying on
the data reliability of a third party supplier of
mailing lists—sophisticated analytics are
worth nothing if the database employed is
incorrect. Davis wanted to know:
“What safe guards should be in place prior to
initiating a targeted campaign? How should this
knowledge of ‘data reliability’ affect GST’s
required return?”
The final issue that needed to be resolved by
the team was the appropriate time period for
the analysis. The team agreed that it would
take several months for the hardware and soft-
ware to be in place so clearly a one-year time
horizon from today was unreasonably short.
They could never expect such a quick payback.
On the other hand, the team also knew that if
the analysis continued far enough into the
future, the mathematics alone would
probably produce a rather decent ROI. Davis
needed his team to make a decision and be
prepared to defend their position in the
meeting on Thursday.
Case Study
ROI for a Customer Relationship Management
Initiative at GST

ANALYSIS

The following questions may help your analysis:

• What is the investment cash outflow

required to initiate the proposed
acquisition program?

• What are the monthly cash flows GST should

expect to realize from the new program?

• What is the expected ROI? Payback?

• How does the team’s decision to utilize

a three-year horizon affect the ROI? Payback?

• How should the team incorporate their dis-

cussion of data reliability into the Business
Impact Assessment?

• Why might using a higher hurdle rate

for risky investments be a good idea? Why
might it be a bad idea?

• Should Kolks and Johnson adopt Teradata’s

proposed acquisition solution?

• Are there any other factors Johnson and

Kolks should consider prior to making their
decision?

© 2002 by Mark Jeffery. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any for by means -
electronic, mechanical, photocopying, or otherwise - without the permission of Mark Jeffery. Teradata is a registered trademark and WorldMark is a trademark of
NCR Corporation. All other brand and product names appearing in this release are registered trademarks or trademarks of their respective holders. NCR continually
improves products as new technologies and components become available. NCR therefore, reserves the right to change specifications without prior notice. All fea-
tures, functions and operations described herein may not be marketed in all parts of the world. Consult your NCR representative for further information.

© 2002 NCR Corporation Dayton, OH U.S.A. Produced in U.S.A. All rights reserved.

www.teradata.com www.kellogg.nwu.edu

EB-3104 PAGE 14 OF 14