CRM falls from grace

The popularity of customer relationship management appears to be on the wane. Paul Bray looks at what went wrong for this potentially lucrative technology.

The boom in customer relationship management (CRM) is over, at least for now. In a market accustomed to triple-digit growth and large-ticket sales, researcher IDC reported European CRM market growth of 22 per cent in 2001, and predicts less than eight per cent this year, crawling up to 14 per cent by 2004.

Worldwide, Forrester Research forecasts a five per cent fall in CRM revenue this year, followed by an 11.5 per cent compound annual growth to 2007.

So what went wrong? The general economic slowdown aside, CRM's troubles stem largely from over-buying, over-selling, under-performance, and a woeful lack of business fit.

"Before branding CRM as an expensive flop, it's worth remembering that many CRM systems have actually carried out the job they were designed to do: collating disparate information from a myriad of channels and telling you how many people purchased a particular product," said Nick Bidmead, chief executive at predictive analytics specialist NCorp.

"The problem is in the way it has been over-sold by vendors as being capable of doing far more."

Chris Slade, UK managing director at CRM vendor E.piphany, added: "Monolithic CRM applications turned out to be inflexible, very expensive and focused on efficiency, such as sales force automation, and not the customer.

"But technology is only 15 per cent of the equation. Actually, 85 per cent of CRM's success depends on the company strategy, processes, politics, employees and so on."

The good thing about CRM is that it serves the needs of sales, marketing, finance and customer service professionals, providing unified information about individual customers, groups and the customer base as a whole.

The bad thing is that it won't work without the enthusiasm and co-operation of all these groups, as well as an understanding of the whole business process by whoever specifies, sells, installs and integrates it.

"In almost all cases, failures could be avoided if greater emphasis was given to an analysis of business requirements and verification that the business model does what it's supposed to," explained Tony Elia, a consultant at testing specialist TesCom.

What is CRM?
CRM's troubles are not helped by vendors' seeming inability to agree on what it actually is.

The big CRM players, such as Siebel and PeopleSoft, which have been doing rather well despite the slowdown, sell enough of the pieces of the CRM jigsaw that they can define it as 'what we do' without distorting the picture too much. But when smaller vendors follow suit, the result is confusion.

"The term CRM is being used to describe many products, from call centres to direct marketing, as each niche tries to repackage itself to generate renewed interest," claimed Michael Benson, director at independent consultancy Sapient.

A common problem is to confuse CRM with the much narrower disciplines of sales force automation or contact management.

In reality, CRM is more of a strategy than a product. It involves creating a complete picture of each customer: who they are, what they like, what they buy, what they do when it goes wrong and whether they pay their bills.

This information is instantly accessible to everyone in the business who needs it. It can be used to keep custom through excellent service, placate customers when they complain, give them self-service applications via the phone or web, target similar customers and, especially, sell more to them through efficient contact management and judiciously targeted one-to-one marketing.

With the addition of business intelligence, CRM can become a sophisticated analysis tool, revealing the mix of products and services people buy, the channels through which they buy them and so on.

It can help with conformance issues by tracking the history of the customer's interaction with the company, and enable the business to sell information about them to third parties, data protection issues permitting.

Cash concerns
Significantly, it can also save money. Some firms install CRM primarily to cut costs in the sales, marketing and support departments, with improved customer relationships as a bonus.

Steve Groom, business development director at input management software vendor Captiva, characterises CRM as "turning fragments of customer data into usable business intelligence about the customer".

"The fact that I'm married and own my own home is no use to a life insurance company unless it can be cross-referenced," he explained.

"Then they can target me by saying that it's risky for a married homeowner not to have life cover. If this can be cross-referenced to the fact that I have children, they have an even more compelling case."

Slade argued that CRM is typically used by three key areas of the business. "Marketing departments use CRM to understand their customers, segment them and target them with more appropriate communications," he said.

"Sales forces use it for contact management, to track and understand their opportunities and communicate better with their customers. Service centres use it to give better customer service."

CRM has such wide potential appeal that its use is spread across almost all sectors, but certain types of business stand to gain more than others.

"CRM only suits companies that can create truly differentiated, tailored offers for specific customers to keep them loyal and drive up their value to the business," explained Benson. "This isn't possible if you can only offer the same thing to everyone."

Wendy Hewson, principal at CRM analyst Hewson Group, said: "CRM will pay back if it builds on and reinforces an existing strength, advantage or core competence, for example skills in analytics and modelling, strong IT and project management skills, acquisition strategies, strong service cultures, or unique access to customer or market data."

So the main buyers of CRM include financial services companies, telcos, IT firms, manufacturers and online businesses. The public sector will be the market to watch in 2003, according to Hewson Group.

Large corporates predominate, but medium-sized firms are expected to follow, especially now that Microsoft has moved into the SME CRM market.

"Every company, regardless of size, can use CRM," insisted Jon Van Duyme, managing director at SME specialist vendor Sage CRM Solutions.

"Most firms are practising CRM, albeit limited and maybe not even on computer. As they grow, they need the full business picture."

The most successful CRM implementations generally start small and are extended gradually. Sometimes this is a happy accident, as the organisation targets the area of greatest 'business pain', such as an under-performing sales force, high customer churn rates, or a struggling help desk.

But it works as long as the chosen technologies can scale to support the rest of the company.

It also gives the vendor or reseller plenty of opportunity for repeat sales, and could represent a lifeline in straitened times.

"After the past 18 months of reduced spend, it's time for all vendors and suppliers to focus their attention on their existing customers which have invested in elements of a CRM strategy but have yet to achieve their vision," said Sarah Haskell, an analyst at Hewson Group.

A clear vision
Barry Wakelin, technical director at systems integrator and Sage reseller Panacea, added: "The companies that succeed are those that begin small and have a clear vision of what CRM can offer.

"The common success factor seems to be commitment to the project from senior management and daily users. Managers must agree to share corporate knowledge, and users must be committed to keeping data current."

Starting small is fine, but to obtain a full picture of the customer - the so-called 360-degree view - CRM needs to collect information from all the dusty corners of the organisation, and make the results widely available.

Integration is therefore the watchword, both between the component parts of CRM - very often assembled from multiple vendors - and with the legacy systems that contain much of the raw data.

The integration of enterprise resource planning is a particular issue, since it contains so many of the key feeder and support functions of CRM, from ordering and accounts receivable to manufacturing and despatch.

A 'one-size-fits-all' approach is dangerous. "The flavour of CRM depends on the type of business," said Alastair Trower, product marketing manager at CRM vendor FrontRange.

"A manufacturing company's CRM needs to revolve around opportunity management, whereas a retail bank needs a system that links all products and activities to individual customers."

A good vertical fit with the business, whether built into the product or achieved through tailoring, is therefore becoming a prerequisite for many buyers of CRM. But some solutions are easier to tailor than others.

"Many vendors claim to provide CRM solutions but, in reality, most provide a portfolio of applications focusing on specific functional areas," explained Conrad Hoe, strategic partner sales manager at browser-based CRM vendor Firstwave.

"The customer is forced to adopt the business processes deemed best practice by the software vendor.

"This shrink-wrapped approach provides the company with a dilemma: adopt without question those processes imposed by the application, or embark on a lengthy development project to change how it works."

Reseller opportunities
Integration and tailoring should be where resellers come into the picture, some experts believe.

"We believe that a channel approach is being reinforced by the need for systems integration between multiple applications and data sources that cannot be provided by the application provider," said Wakelin.

But most vendors believe that the average reseller will be out of their depth, and that the bulk of CRM sales, especially at corporate level, are still made direct.

The only channel companies that stand any chance of success are those with systems integration skills, CRM experience and vertical-market knowledge.

"Enterprise-strength solutions involve many hours of business analysis and legacy integration, requiring development resources and project management skills," suggested Hoe.

"Traditional resellers don't have the interest or the ability to do this. Systems integrators are ideally suited to these disciplines.

"They can offer an impartial view of the enterprise, its processes and associated issues, and map these elements to an adaptive solution."

Any chance for resellers to enter the CRM market has been further reduced, temporarily at least, by the vendors' response to the market slowdown.

"In the current market depression, vendors will respond to any opportunity of any size, and partner relationships are diminishing as vendors are less willing to give up service revenue," said Haskell.

If they are to make any headway, resellers must have first-hand knowledge of the product they are trying to sell, according to Matthew Coombs, sales director at Accpac reseller Peninsular.

"We used to use a contact relationship management system, but it wasn't until we started to use a full e-CRM solution that we really realised the benefits," he said. "If resellers are selling CRM, they should walk the walk as well as talk the talk."

What's so special about CRM?
Hewson Group defines CRM as "a business strategy focused on maximising shareholder value through winning, growing and keeping the right customers". The company suggests that CRM is new in that it:

Forrester Research has indicated that corporates will eventually extract value from their CRM investments by evolving through three phases of maturity.

Channel integration
Firms currently struggle with cleaning and synchronising data, and leading customers to the best channel for a transaction.

So they will build common data models, define initial process flows, and cleanse and synchronise customer data across offline and online channels.

Process redesign
Corporates will face the tough task of changing employee and customer behaviour to match revised business rules and process flows.

They will accomplish this by adjusting incentives across organisations for delivering a coherent customer experience, tracking customer behaviour and cost across channels, and establishing channel migration incentives.

Continuous optimisation
Firms will view their business as an updated portfolio of products and customers, continuously tuning their channel and customer mix by adjusting products, driving micro-segmentation with analytics, and adjusting customer interactions based on lifetime value.

CASE STUDY: Ultima Business Solutions

Rapid growth has its drawbacks, and when IT supplier Ultima Business Solutions grew from 50 staff to 180, it found it was losing the personal touch.

The firm already had sales force automation, a marketing database and Lotus Notes for its support people.

But these were standalone applications, and Ultima wanted a more cohesive, flexible and disciplined way for staff to talk to customers and each other.

So Ultima selected a £100,000 integrated solution from reseller Touchstone, including an e-commerce-enabled CRM system, Pivotal Relationship, integrated with Great Plains' Dynamics financial and accounting software.

"Touchstone understood our business and we were confident that it would fulfil its promises," explained Alan Thomas, Ultima's IT manager. "The Pivotal product offers true customer management, rather than just customer support."

Flexibility was a key criterion. "We expected our CRM package to exactly reflect existing business processes, so it had to be fully configurable, as opposed to us having to fit in with the usual 'out-of-the-box' system," said Thomas.

"We customised the software to our own very specific requirements, which included adhering to the precise procedures required by our ISO9002 approval."

The project was implemented in three phases, starting with the support department and help desks, followed by sales, marketing and financials.

"The system now provides all staff with comprehensive information to serve customers efficiently and professionally," claimed Thomas.

"They have at their fingertips a complete range of sales, marketing, support and customer accounting information on one system, all accessible at the point of need. Customer service improved significantly, very quickly after the Pivotal implementation."

Account managers, for example, can immediately view, in detail, any customer activity, including outstanding queries, service calls, orders, repairs or account information.

Supervisors automatically receive emails at pre-defined points to advise on the status of a given call. Customers will soon be able to monitor the progress of issues via the web.

Efficiency savings mean that half the purchasing department have been redeployed into more productive sales roles, and directors can get instant access to management information.

CONTACTS

Captiva (01483) 460 500
www.captivasoftware.co.uk

E.piphany (0118) 929 7700
www.epiphany.com

Firstwave (020) 8614 5300
www.firstwave.co.uk

FrontRange (0118) 938 7300
www.frontrange.co.uk

Hewson Group (01603) 879 191
www.hewson.co.uk

NCorp (01223) 488 500
www.ncorp.com

Panacea (01256) 305 050
www.panacea.co.uk

Peninsular (0870) 787 4892
www.peninsular-group.com

Sage (01753) 491 000
www.sage.co.uk

Sapient (020) 7786 4500
www.sapient.com

TesCom (020) 7022 6700
www.tescom-intl.com

Touchstone (020) 8275 3400
www.touchstone.co.uk

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