CRM loses focus
Customer relationship management is no longer a recession-proof goldmine, writes Guy Matthews.
Until recently, customer relationship management (CRM) was the IT solution that recessions couldn't touch. It seemed to have effortlessly sidestepped the post-dotcom trapdoor down which countless technologies have disappeared in the past two years.
With economic uncertainty hurting IT budgets everywhere, products aimed at the improvement of customer relations seemed, if anything, to be growing as a corporate priority.
But now CRM's status of sacred cow looks in danger of being rescinded. Some serious questions are being asked. How come so many big-ticket CRM projects seem to end in recrimination and failure?
Why is the market so crowded with suppliers? In current market conditions, is there much real demand for a solution whose success is so difficult to define?
And now a new question: what on earth will be the impact of Microsoft's entry into such a shaky market? The world's most powerful software vendor has already entered the CRM applications space in the US and is preparing a European product for later this year, to be marketed by its new Microsoft Business Solutions (MBS) division.
When asked to elaborate on the timing of the European version, and indeed the whole logic of the company's market entry, Dean Carroll, business development director at MBS, told vnunet.com's sister title CRN: "Our CRM product will launch in the UK and Europe in the second half of 2003.
"I'm afraid I can't be more specific than that at the moment. A lot of work is being done to localise it. We are very sensitive to local requirements, and we need to ensure that we've got the right support and the right channel in place."
Carroll appears unconcerned that Microsoft is entering a market many are already calling too crowded. "Crowded? I'd say fragmented is a better description," he argues.
"Our part of the market is going to be medium-sized companies, roughly between 50 and 1,000 users. Both our research and [analyst] IDC's research says that less than 10 per cent of such companies currently have CRM. We've taken time to really explore what organisations like this really need."
Microsoft is clearly at pains to avoid involvement with the high end of the market, where so many six-figure projects have been engulfed in controversy and cost overruns.
Carroll says: "We want our CRM product to be easily deployed and managed without a lot of extra consultancy costs. With the Exchange engine at the heart of it, there will be no problem integrating it with the back office, which is what a lot of medium-sized companies are worried about."
Room for one more
There is no reason why other CRM players should be concerned at the arrival of such a powerful force, he maintains. "Our arrival will open a lot of people's eyes to what is possible. This is a market that is going to grow, and our presence will help to endorse it."
There are plenty who rate Microsoft's chances of success as a late CRM entrant.
John Griffith, director of consulting at Compusys, which operates exclusively among public sector clients, says: "The weight of the Microsoft brand, and the pedigree of products such as Navision and Great Plains, will mean many potential users of CRM will consider the company's CRM offering from day one.
"Microsoft has shown it is not afraid of late market entry and is able to earn share on a fast-track basis, like it did with Internet Explorer. It will be a good fight."
Others agree that Microsoft will have no difficulty making its presence felt in the market. Geoff Gudgion, chief executive of enterprise software developer Quantiv, observes: "It is a very crowded market but the arrival of any player with the strength of Microsoft is bound to have an impact."
Many of those more directly in Microsoft's chosen path are sounding a more defiant, even sceptical note.
David Pinches, marketing director at Sage CRM Solutions, claims to be unconcerned that Microsoft's offering is positioned and priced at a part of the market that is currently occupied by his company's own SalesLogix range. Indeed, he sees little threat from any other vendors in the middle of the market.
"I don't believe corporate players such as Siebel and PeopleSoft are making any headway in this market at all," Pinches says. "We rarely come up against them in competitive bids.
"Microsoft's arrival may raise the bar for established players but it is a business sell, not just technology, and it will have to develop a wide and deep reseller community to make a success of it. This is something that Sage has worked on for many years."
Others are even more dubious about Microsoft's CRM prospects. Mark Carlile, managing director of Pivotal, warns: "I think Microsoft is going to be well behind the curve.
"A good CRM tool needs to increase revenues, identify new customers and drive existing customer relations, and I don't think it has something that can do that. At the moment PeopleSoft is the only CRM company with a true soup-to-nuts offer."
Is history against Microsoft?
Clive Longbottom, service director at consultant Quocirca, believes history may be against Microsoft.
"It has done well at the operating-system level, at the Office suite level, at the database level, at the messaging level and the web-server level, but its occasional forays into trying to give anything above this at the solutions level have floundered," he says.
Longbottom believes the big players in the market need to fear Microsoft only if they are trying to push down into the SME market. "Siebel is already beginning to reposition itself as a bespoke CRM reseller," he says.
"PeopleSoft, SAP and Oracle are coming from a different environment, and Microsoft's CRM strategy should not bother them. The likes of Onyx and Pivotal are the ones who will be hurt. They are both Microsoft spin-offs, and Pivotal in particular has made great play of how Microsoft-centric it is."
There are those who view Microsoft's entry not in terms of its impact on individual vendors, but in terms of end-user demand for CRM as a whole.
Fergus Gloster, vice president of marketing and business development at online CRM provider salesforce.com, believes that, on the plus side, Microsoft's entry into the market will bring big brand presence, leading to increased appreciation and acceptance thanks to the force of the firm's marketing machine.
But this could create problems for an already partly discredited CRM market if it backfires, Gloster adds. "Will Microsoft be able to deliver on its promises and change the application's reputation for the better?
"With a pedigree in personal productivity tools, will it be able to deliver enterprise application software that actually gets implemented? If it can, it will be one step ahead of many of its new rivals. If it can't, it's one more nail in the coffin of traditional CRM software vendors."
Gloster argues that the SMEs Microsoft wants as customers would be better off avoiding software and going straight for web-based CRM, which provides faster, more cost-effective results, he claims.
The effect on resellers
Others are worried about the effect Microsoft's entry will have on resellers of CRM products. John Sharman, channel sales manager at address management software vendor QAS Systems - whose products are sold as part of many CRM solutions by a range of reseller partners - says he doesn't regard Microsoft's entry into the market as totally unexpected.
"I think most people have seen it coming for a while. How its product affects resellers will depend a lot on exactly how it is positioned, whether it's out of the box and mainstream, or whether it's more tailorable," Sharman notes.
Graeme McKenzie, channel strategy manager at Remedy, says Microsoft resellers at least should see the vendor's move in a positive light, but says they would be naive not to expect to face significant additional costs if they attempt to capitalise on it.
"As well as cross-training technical skills, they should consider investment in business consulting and consultative solution-selling skills to take on the other players in the market who employ these selling techniques," he says.
Microsoft or no Microsoft, there are many who have long believed the market is due for consolidation. "CRM is crowded in the mid-market, with big vendors coming downmarket and lots of small ones trying to go up. I would say there's bound to be some consolidation over the next few years," predicts Sharman.
So for resellers fearing the backlash of such consolidation, is there an as-yet untapped sweet spot in the market that might act as a refuge? Some analysts have already identified the public sector as CRM's next big opportunity.
Sharman says: "We sell to both public and private sectors, and I think CRM is of similar value to each. In hard economic times, the public sector becomes a lot safer for resellers and system integrators."
As a public sector specialist Compusys is similarly optimistic. "We have noticed a wake-up call among local authorities and police especially that CRM is a necessity," says Griffith.
"We don't talk about CRM as a piece of software, more as a culture change. The management of the relationship with citizens, as opposed to customers, touches bill payment, Council Tax, housing stock management and much more."
But there are some with words of caution based on hard experience. "We made a move on the public-sector market early on but found it was too much of a long haul. I think we are seeing an upsurge in public-sector CRM at the moment. Local authorities are all looking for a way to track and measure people's satisfaction," warns Carlile.
But public or private, CRM is no longer immune from the big question currently facing all IT products: how soon will it repay its cost?
ROI demands force CRM to adapt
Miles Galliford, vice president of business development at Transversal, believes the clamour for return on investment (ROI) has forced CRM to adapt to survive the downturn.
"Previously, complex CRM implementations were expected to achieve a positive ROI over a number of years. As the economy takes a fall and costs are scrutinised, CRM purchasers are now expecting a positive ROI on CRM investments within 12 months," he says.
This is easier said than done, cautions Carlile. "It's not easy to measure the ROI on CRM, mainly because so few people take a proper snapshot of what it was like without it, so they have nothing to measure against.
"I say focus on total cost of ownership instead, which leads to ROI in the end," he says.
A final piece of advice is offered by Chris Hill, director of marketing at Onyx Software, concerning resellers and their part in the increasingly complex CRM market. Hill believes resellers should effectively make CRM a part of their offer, not the whole offer.
"Choose a product that is reseller-friendly and which supports the concept of embedded CRM," he advises. "Most resellers don't need a full-blown CRM suite to support their particular applications. They need segments of these applications - ideally as web services - to embed within their own solutions using their domain expertise."
There is clear logic behind Hill's view. CRM's most likely future is not as a big monolithic application to be viewed in isolation and milked for all it's worth by vendors and their partners. It is a necessary and logical part of other applications - important but subordinate.
After years of frenzied expectation, perhaps CRM will from now on be viewed with proper perspective, thereby realising some of its early promise.
Why does CRM go wrong?
CRM's reputation among end-users is in the balance. Too many high-profile projects have failed spectacularly for any adopter, at the high end at least, to view it without a degree of suspicion.
But why do CRM projects fail so often? Technology marketing consultancy Rainier says that its Miscommunication Index shows data integration difficulties often lead to problems with CRM.
It says that, of 50 FTSE 100 firms examined, 49 failed to provide simple information consistently on vital business statistics. Twenty per cent of enquiries received no response and 62 per cent of questions could not be answered.
Results per company varied dramatically, with the poorest performers achieving a total rating of just 16 per cent, while the best company, Abbey National, scored 95 per cent.
Stephen Waddington, managing director of Rainier, said: "Corporate Britain is a victim of CRM schizophrenia, even with its own data. Most companies we surveyed were unable to provide even the most basic information about themselves.
"How can a company present itself effectively to its customers, suppliers or investors, let alone move into new markets or change business models?"
Nigel Jones, business development manager at Alcatel, says the CRM solution itself is often improperly aligned with the business processes it is working alongside.
"Research by Alcatel has found 95 per cent of contact centres do not have CRM software properly integrated," he points out. "This has resulted in failure rates of up to 70 per cent, which has made enterprises nervous about CRM investment.
Consequently, enterprises looking for quick return on investment have become disillusioned with CRM, which has made it an uphill struggle for resellers hoping to target the market, he adds.
"Probably one of the worst things any distributor or dealer can do when talking contact centres and CRM with a prospect for the first time is to talk about technology. The focus should be on understanding the prospect's business drivers, what needs fixing and how CRM can help."
Clive Longbottom, service director at consultancy Quocirca, believes many CRM implementations have been too ambitious. "For the usability side of CRM, most big projects have suffered due to that one fact: they have been big projects," he says.
"If the companies had successfully prioritised their CRM issues and had then decided which ones should be dealt with first, the rapid implementation of solutions would then provide the funding for the next stage, and so on."
Contacts
Alcatel (0870) 903 3600
www.alcatel.com
Compusys (01296) 505 125
www.compusys.co.uk
Microsoft Business Solutions (0870) 6010 1000
www.microsoft.com
Onyx Software (01344) 322 000
www.onyx.com
Quantiv (0161) 927 4000
www.quantiv.com
QAS (020) 7498 7777
www.qas.com
Quocirca (0118) 948 3360
www.quocirca.com
Sage (0800) 336 633
www.sage.com
Salesforce (01344) 397 121
www.salesforce.com
Transversal (01223) 723 388
www.transversal.com