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Customer relationship management has stumbled, but the next round of products may produce better results.
Peter Krass, CFO IT
March 17, 2003
The three letters "CRM" stand for customer relationship management, but given all the recent bad press CRM has been receiving, one might imagine they stand for "costly, rotten mistake."
How did we get here? CRM software, sold by a long list of vendors that includes Siebel, SAP, PeopleSoft, Onyx, Pivotal, and, most recently, Microsoft, promises to automate and integrate the ways a company relates with its customers — essentially, sales, marketing, service, and support.
Yet despite billions of dollars spent on CRM products and services, as many as 12 percent of all CRM implementations are complete failures, according to AMR Research Inc., meaning the systems never even go live. Worse, AMR adds, only 16 percent of all CRM installations have actually improved business performance in a measurable way. In other words, roughly 85 percent of all CRM users cannot quantify any benefits at all. In today's tough, "show-me" economy, that simply won't fly.
Yet there's hope, say CRM users, vendors, consultants, and market analysts alike. They see companies that use CRM entering a new, more-advanced phase, one that could bring greater competitive advantage and return on investment.
Huge challenges remain, to be sure, and the need for CFOs to get involved is great. "The CFO plays a critical role," says Frederick Newell, a consultant and author of the book Why CRM Doesn't Work (Bloomberg Press, 2003). "The CFO represents the heart of the corporation and can be a real facilitator of CRM."
Of course, no one expects CFOs to create measurable value from CRM alone, but they do carry plenty of C-level clout with the companies that sell CRM software. And given the dismal times in the market — money spent on CRM products and services grew by only 2 percent last year, according to Aberdeen Group Inc., and many vendors posted substantial losses — an executive who knows how to drive a bargain can make a major contribution.
The spate of CRM failures has revealed some fundamental flaws that vendors and consultants are now racing to fix. One development to watch: greater integration of CRM software components, many of which today operate as stand-alone, "point" solutions.
Early CRM implementations focused on the front office: sales, marketing, and support. But with so few companies finding measurable benefits, the current thinking is that companies must now automate the back office (fulfillment, for example), create customer-information databases, and link it all up in a way that lets them treat different customers differently.
"The next step is about driving customer information and tailoring back-office activities around service levels for different customers," explains Darius Vaskelis, a vice president at consultancy Inforte Corp. "We're talking about injecting that customer and demand information into decision-making."
Survey research firm and software supplier Walker Information Inc. argues that the basic approach of CRM will shift to an emphasis on customer loyalty. The company uses surveys and business models to place customers in one of four loyalty categories, ranging from truly loyal to at risk. The idea is that once you understand a customer's loyalty, you can respond appropriately, kowtowing to the loyal and making nice to the disaffected. "There's a remarkable movement afoot called 'win-back,' " says Jeffrey Marr, group vice president at Walker. "Sectors and markets have matured to the point that if I have somebody I know is leaving, I want to win them back."
Software Isn't Everything
Better software may not be the complete answer. Some experts believe the true value of CRM will emerge only when the companies that use it change their business practices. One approach, says David Campbell, partner for financial services at IBM Business Consulting Services, is to "pull together your data in one place, aggregate it to get a consistent view, and then start to mine it for information that would better allow you to serve and sell to your clients."
That may be as useful as it is potentially expensive. Less costly, but not easy, is a greater focus on teamwork. Most experts believe that in its next phase, CRM will require disparate business units — sales, marketing, IT, and others — to work together in ways that previously have been unimaginable.
"The untold story is that CRM requires a substantial and broad transformation of the enterprise itself," says Claudio Marcus, research director for CRM and business technology at Gartner. "Being customer-centric requires a great deal of collaboration across different functional and product areas, since most customers view themselves as having relationships with the enterprise, not pieces of it. That's a big challenge."
David Goudge will attest to that. The senior vice president of marketing at office-products supplier Boise Office Solutions, in Itasca, Illinois, helped initiate a system successful enough to win Gartner's 2001 CRM Excellence Award. Yet he is quick to admit that getting Boise's business groups to cooperate was — and still is — tough. "For the first time in our culture, the lions and the lambs sat down together," he says.
It seems to be paying off. Boise has completed new infrastructures for inbound customer service and support as well as outbound sales, including a Web site that will let customers interact with the company while it collects that interaction data.
Still in the works is a sales-force automation (SFA) system to provide the sales team with data from other units. Now being tested, the SFA system will help Boise salespeople receive alerts when a particular customer places an order, or have a sequence of E-mails and marketing materials sent to each new customer, among other things.
On the horizon, says Goudge, are Web pages that automatically pop up on customers' computers when they submit an online order; systems that can spot purchasing trends (say, an order for printer toner on the third Thursday of each month), then send E-mails to the customers that link them to an ordering Web site already configured with their information; and handheld devices for delivery-truck drivers that would allow them to relay information on competitors and customers back to the sales team.
"The whole idea," says Goudge, "is to be easy for the customer, be different from the competitors, and somehow add value."
Ay, there's the rub. Even Goudge acknowledges that showing a financial return on CRM is incredibly difficult. "For a while, being the first might give you an advantage," he explains. "Well, how much? How much did you pay for it, and was it a real advantage? That's the challenge."
Such talk bothers author Newell. "I'd like to see the CFO be the guy who blows the whistle and says, 'Time out! Let's start at the beginning, and you tell me how I'm going to get an ROI out of this,'" he says. Newell believes companies should define measures of success at the start of a CRM project, not halfway through.
The irony is that if enough companies get CRM right, there's a risk that it could become little more than a cost of doing business. "I would argue that three years from now, all the stuff we're doing will be just tickets to get in the game," says Goudge. "Everybody will be able to do it."
Therefore, add another irony: the technology's inherent complexity is actually a selling point, at least for now. "Since realizing an effective CRM strategy is so challenging, it provides an important differentiator and a sustainable competitive advantage," says Gartner's Marcus.
What's Shakin' (Out)?
Complexity will remain a factor in another way as well: the universe of companies selling CRM software will likely be in tumult this year.
One reason is the emergence of Microsoft. The company began shipping its first CRM package earlier this year, and some industry watchers expect that to galvanize the market, particularly in the midmarket. "Microsoft has an understanding of how to make a product easy to use," says Kevin Scott, senior research analyst at AMR. "Plenty of people out there are looking for something simple they can get up and running."
Despite some stutter-steps, the ASP model (in which companies pay someone else to host and/or manage the software for them) could also give CRM a boost. Such companies as Salesforce.com Inc., SalesNet Inc., and others are aggressively marketing this approach. Bob Chatham, principal analyst at Forrester Research Inc., says that in an ASP model, customers pay about $100 per user per month; by comparison, the major CRM vendors charge a flat license fee of roughly $3,500 per user.
Many CRM vendors have closed facilities, laid off staff, and implemented other forms of cost-cutting, but analysts predict a continuing shakeout. It seems that knowing what customers want and how to best serve them isn't easy, not even for companies that make the software designed to do just that.
Where does that leave CFOs? Make sure your company is committed to making whatever organizational changes are required to better serve — and sell to — your customers. Define and track specific measures of success from CRM, such as ROI or improved retention of your most loyal or profitable customers. Push your vendors to deliver value. And remember: just because the customer is always right, doesn't mean the CRM is.
What's Behind CRM's Bad Press?
Percentage of companies achieving various levels of success.
Source: AMR Research
|Failure: Started, but failed to go live.||12%|
|Implemented: Went live, succeeded in the technology aspects, but business change and adoption failed.||47%|
|Adopted: Succeeded in both adoption and systems, but could not quantify a business benefit.||25%|
|Improved Performance: Reached the promised land — it measurably improved business performance.||16%|
What Is CRM, Anyway?
Everyone agrees that CRM stands for customer relationship management, but after that, it's anyone's call. Everything in the following list may be part of a CRM implementation, project, or product. Knowing just what your company means by "CRM" is vital to keeping projects aligned with strategy.
Source: AMR Research
Campaign Management: Tools that help plan, execute, and evaluate promotional campaigns. May help define segments, select target samples, plan multistep and multichannel communications, track responses, and analyze results.
E-marketing: Interactive marketing applications that facilitate E-commerce, digital direct marketing, and other Web-based interactions. May include modules for Internet advertising, coupon campaigns, and similar efforts.
Other Marketing Automation: Tools to help marketing planning, research, product management, collaboration, and asset management.
Sales-force Automation: Provides salespeople with customer information and tools to aid sales and improve time management. May also include tools for managing contacts and opportunities, generating proposals, processing sales, tracking customers, analyzing performance, and forecasting sales.
Call/Contact Centers: Tools for inbound customer support and outbound sales and marketing. Uses telephone-based as well as multichannel systems. May also address interactive sales coaching and presentations/proposals.
Demand-chain Management: Software to extend the supply chain to customers, including product-information management, online-catalog creation, demand forecasting, and pricing optimization.
Partner Relationship Management: May include applications for partner administration, lead distribution, channel compensation, and forecasting.
Customer Service and Support: Tools for call centers or Web-based services. May include call-center management, integrated Web-E-mail communications, call logging, and customer self-service.
IT Help Desk: Automatic integration with network-management applications. May also include end-user self-service.
Field-service Management: Logging and dispatch, logistics, inventory control.