Always-On People

A big part of running a real-time enterprise will be managing relationships.
Ludwig SiegeleFebruary 1, 2002

Many pets already wear implantable biochips so they can be tracked. Will people be next? A search on the Internet yields a worrying several hundred finds, but a closer look reveals that most of these are websites maintained by overly sensitive souls who are bothered that the biblical “mark of the beast” might soon become reality. Others fret that a national ID card in America might one day be replaced by implanted ID chips.

It is unlikely that these kinds of tracking devices will soon become part of the real-time economy. But this does not mean that information about people will not play an important role. On the contrary: such data will be central to improving business relationships, be they with customers, partners or employees. In fact, “relationship management” software, in particular for customers (CRM for short), is among the few segments of the software industry that are still growing strongly. Siebel Systems, the market leader in this field, is weathering the economic storm better than most IT firms.

Relationship management is something of a fad, just as enterprise resource planning (ERP) was in the 1990s. Yet there is a real need as well. It is not much use speeding up your information flow if your customers defect to the competition, which they appear increasingly ready to do. And now that the supply chain is becoming more and more standardised and optimised, finding and keeping the most profitable customers and perhaps even dropping some of the loss-makers looks like the best way to improve margins.

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The idea of relationship management is in some ways a throwback to a time when the world was still easily encompassed. A small-town shopkeeper, for example, knew that a certain customer always bought a bottle of beer on the way home from work, and could be talked into buying three on a Friday. He knew which farmer delivered consistently good-quality vegetables. And he knew which of his employees was good at dealing with which customers.

An Intimate Relationship

To recreate this intimacy, relationship-management software pulls together information from different departments of a firm. CRM systems collect data from any point where a customer “touches” a company (such as a store, a call centre or a website), and combines them with information from other sources (such as credit ratings or driving records). These data can then be used to improve a firm’s service, for example by relieving people of the tedious business of having to fill in a home-loan application. More complex uses include giving customers different levels of service, depending on how rich they are: if they have only $100 in their account, they might end up being told a dozen times that “your call is important to us”; if they are millionaires, a real person will probably pick up the phone right away. The highest art of CRM is to come up with a personalised offer, say a combination of a home loan and a college savings plan, that a customer is likely to accept.

As the examples suggest, banks and other financial firms have again been the early adopters. But other industries are catching up fast, including some that may not look like obvious candidates, such as casinos. In fact, Harrah’s Entertainment, the world’s second-largest gambling company, was a CRM pioneer. As early as 1997, it started capturing data about members of its Harrah’s Total Gold programme, including their gambling behaviour.

This huge amount of information now allows Harrah’s Entertainment to predict how profitable a customer might be, even after only a few casino visits. The data are also an excellent basis for launching fine-grained marketing campaigns. For example, to counter the sharp drop in occupancy rates at its main Las Vegas hotel after the terrorist attacks on September 11th, the company sent out thousands of finely targeted e-mails to potential customers. As a result, its rooms quickly filled up again.

CRM systems also proved their worth to other firms in the wake of September 11th. They allowed Hewlett-Packard, a computer maker, quickly to compile a list of all its customers in the World Trade Centre, complete with the PCs, servers and printers they had bought, and match this information to the closest HP supplier with the equipment in stock. This gave HP a head start once Wall Street firms started ordering replacements.

Harrah’s, HP and others rely mainly on a technique called data mining—trying to find patterns in consumer behaviour by using clever software to sift through huge piles of historical data. But some CRM firms such as E.piphany now offer tools that analyse the data in real time. Customer-service representatives at Bell Mobility, the wireless unit of Bell Canada, can make instant offers based on a customer’s calling patterns, his age and the way similar customers have reacted to such offers.

On the minus side, CRM can cost a firm millions of dollars, and it is no panacea. Indeed, it is going through the same cycle of hype and anti-hype as ERP has done, only much faster. Only last year the trade press and market-research firms were celebrating this class of software as a godsend. Now the general mood is much more sceptical. One sobering study recently published by Gartner suggested that customers considered more than half of all CRM implementations a failure.

Such gloom may well be as overblown as the promises made by many vendors. But it is clear that CRM is at least as difficult to implement as ERP. And as with ERP, the biggest challenges are not technical, but organisational and political. Senior managers buy these expensive software packages without consulting their troops, who then refuse to use the system. And the marketing, sales and customer-support departments, which usually see themselves as enemies, often fight over the integration of their respective IT systems.

What is more, CRM is a process as well as a product. Firms must learn how to use the complex software. One clear danger is that they may alienate customers, who will welcome better service but may be more doubtful about uses of the technology such as finely segmenting the market or targeting customers individually. Amazon, a leading online retailer, has a cautionary tale to tell: in September 2000, after angry protests, it pulled a test in which it had charged different customers different prices for the same DVDs.

Whatever Next?

The software industry is not leaving companies much time to digest CRM before coming up with the next thing. One is partner relationship management, or PRM, which in essence is CRM for dealers or distributors. More interesting is employee relationship management, or ERM, pioneered by Extensity. The basic idea is to digitise and streamline the “life cycle” of employees—how they are hired, trained, managed and retained.

Because it does away with tedious tasks, this kind of software has so far proved quite popular with employees. It allows them, for instance, to file their expense reports online and be reimbursed within days. But they are unlikely to be enthusiastic about the latest feature, which involves posting and tracking personal objectives. Siebel now offers this as part of its ERM suite and is using it itself. On the first day of every quarter Tom Siebel, the firm’s founder and chief executive, posts all his objectives for the next three months, for all to see. The following week all the senior managers do the same. Within two weeks all employees follow suit.

Some trade-union representatives wonder when firms will start implanting chips in their employees to track their every step. It seems only a matter of time until the technology will be available. WhereNet already offers a personal tracking device the size of a wristwatch. And several start-ups have said they are working on a prototype of an implantable chip that contains a miniature global-positioning-system (GPS) receiver and can broadcast its position.

Other than people in danger of being kidnapped, such devices seem unlikely to find many takers. And there may be no need anyway. Even without them, people are becoming more and more trackable already. For example, they use online offerings that indicate their whereabouts, such as instant messaging. Several firms now offer services that can identify a web surfer’s location. And wireless devices are getting smart enough to know where they are. Microsoft even wants to launch a web service called myLocation, which will provide information on where people are.

Tracking people may interfere with their privacy, but it has economic attractions. For instance, it could allow much better use to be made of service technicians, by combining information on where they are with other data, such as their skills and the spare parts in their truck, to decide where to send them next. Software doing just that, developed by researchers at IBM’s Watson Research Centre, can reduce the time the firm’s technicians spend to repair a broken computer by a factor of five.

Nor will it be only technicians who will have their next service call and even their lunch break scheduled by an optimisation algorithm. Now that we have real-time information from a lot of sources, we can use it continuously to improve all kinds of economic activity, explains Baruch Schieber, senior manager of IBM’s new “Optimisation Centre”. To him, a prime candidate is the service industry, where productivity has always lagged behind that of other sectors. But first the algorithms that he and others are developing are being put to use somewhere else: in supply-chain management.

Copyright © 2002 The Economist Newspaper and The Economist Group. All rights reserved.