Their reputations have taken a battering in recent years, but customer relationship management packages can be an essential element in maintaining business performance, especially in tough economic times. How can you ensure that your CRM project avoids the disaster zone and delivers real return on your investment?
Everyone's heard the CRM horror stories--billions of dollars poured down the drain on expensive software packages and high-priced consultants with nary a customer service improvement to show for it. In the worst cases, entire systems have simply been abandoned, this being deemed more economical than attempting to fix them.
Industry watchers are quick to assign blame, and CRM software vendors always cop their fair share of it. "What was sold was a concept that was surreal," says James Brooks, managing director for Genesys Australasia. "Expectations were set incorrectly."
But the vendors aren't the only ones copping a serve. Others blame IT departments for jumping on the CRM bandwagon without checking with the rest of the company. In some cases, this has led to a strong counter-reaction. "We don't even talk to the IT department until the company is ready to commit," says Paul Rahme, managing director of vendor Astea Asia Pacific.
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HIGHLIGHTS CRM: 12 reasons for failure  CRM is not doomed to failure and organisations must take heed of early warning signs which can predict eventual failure. CIS projects: lessons learnt Utility companies should never lose sight of two things--due diligence and leadership--when implementing large-scale customer information systems, says Meta Group's Michael Zammit. Sydney Water-PwC:A question of accountability Approximately AU$61 million will be written off after Sydney Water's CRM project ran dry. It's amazing how the utility giant has managed to dodge vituperative attacks by taxpayers--that's one skill no CRM application can teach you. |
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In truth, the blame can probably be laid on both sides. "While there is a lot of good CRM software around, CRM has received a bad reputation because many implementations didn't provide real returns on investment," says Marc Englaro of enterprise consultancy si2. "In many cases this is because the company didn't have a clear idea of what it was they were trying to achieve with a CRM system. It's not good enough to say that you want to improve your relationships with clients, and then expect a piece of software to deliver results."
Most agree that the biggest problem with CRM implementations has been inflated expectations and a lack of planning. "A lot of CRM implementations were not effective because people simply took a leap of faith," says Kristian Steenstrup, research vice president for business applications at Gartner. "You can almost get away with patchy ERP systems because it's internal, but with CRM it's much more difficult. Customers are quick to notice."
"So many of the companies that were first into CRM didn't think about the needs of their specific business and their customer strategies," says Richard Batterley, regional strategy and planning director for Carlson Marketing Group, which advises businesses on how to build effective relationships.
Of course, the rejection of CRM in many quarters is not an entirely unfamiliar phenomenon. "What's happened with CRM is typical of the IT hype and reality cycle," says Ian Poole, CEO of CRM integrator Integ. "It always precedes actual deployment."
Despite those problems, enthusiasm for CRM remains, and may even be on the rise. A recent Aberdeen Group study concludes that spending for CRM will actually increase in 2003. "Although many people find CRM solutions are challenging to deploy, they continue to purchase these solutions because, they find, the long-term benefits reward their efforts," the study concludes.
"CRM application suites provide a valid and compelling means of jump-starting a broad range of CRM technology initiatives," says META Group analyst Steve Bonadio.
But if enthusiasm remains, so do the risks. How can you make sure that your CRM project has real business benefits, and doesn't quickly become a bottomless money pit?
It's a vision thing
The overwhelming consensus is that the most important element of a successful CRM project is a very clear vision of what you're trying to achieve. Merely spouting vague ideas about "enhanced customer relationships" simply won't cut it now (and shouldn't have cut it even back in CRM's brief "glory days" period).
Effective CRM involves more than simply automating the collection of customer data, or the creation of individual campaigns. "One specific system might be used to do a mailing campaign," says MIP's Hitchman. "But that's not CRM, that's marketing. Proper CRM is understanding how your customer interacts with your company."
"It really boils down to the basic bread and butter fundamentals of business," says Astea's Rahme. "Customers always think about prospects, but it's not about that. It's about service management for existing clients."
That distinction is being recognised in a number of industry sectors. "Telecommunications companies in increasingly competitive markets are less focused on acquiring new customers, and more interested in customer profitability leadership, where they can extract maximum value from their existing customers," says David Peters, CEO of Emagine.
Gartner's Steenstrup divides CRM projects into two categories: efficiency based (which aims to reduce costs while maintaining the same or better levels of service) and effectiveness based (which aims to increase revenues through increased focus on customer relationships and enhanced levels of service). "We have seen a transformation from effectiveness based to efficiency based," he says.
The halcyon days of an unlimited budget for CRM are well and truly over. "Competition for funding for CRM competes with buying new tractors, or opening new branches, or whatever else the business needs," says Rob McGregor, Australian country manager for CRM giant Siebel Systems.
The shift to a more cost-conscious model isn't surprising, but even if the approach is more basic, that doesn't obviate the requirement for detailed planning. "You need to have that vision of what your customers will see you as," says Steenstrup.
"One of the really strong starting points--and we don't see it in enough customers--is that they have a clear understanding of what they're trying to do," says Siebel's McGregor. "Without that central understanding, they're going to have trouble getting value."
Early CRM systems often lacked flexibility to adapt to business needs, but that criticism has become less relevant with recent releases. "The technology typically isn't an issue--it's the alignment of the organisation," says McGregor. The technology should support behaviour the business is trying to encourage, and the behaviour should be in line with the overall business value being offered."
That makes planning your own customer relationship strategy even more essential. "Your customer strategies are your starting point," says Carlson's Batterley. "Plan your journey before you select your vehicle. However, in developing customer strategies it's important to understand the capabilities and options available to you. It's no use developing a strategy that simply cannot be implemented using the tools realistically and cost effectively available."
Businesses are gradually moving in the direction of more effective planning. "We're seeing much more rigorous attention to efficiency-based, bottom-line results," says Steenstrup. "Those give you a better return on investment in a shorter time frame. And sometimes you see growth results as a bonus."
All this might seem exceedingly obvious, but it has apparently failed to sink in with many large enterprises. Gartner estimates that even by 2006, only 35 percent of businesses will be adequately defining the total cost of ownership, potential benefits and overall business case before embarking on CRM projects.
Another important factor in wringing returns from CRM is to make sure that there is full commitment to the project across the entire enterprise. "You've got to get commitment right across the organisation," says Integ's Poole. "You need to get 100 percent commitment from management prior to rolling out--80 or 90 percent is not enough."
"To be a resounding success it is essential to have the complete and continuous commitment from the most senior management," says John Thompson, managing director of integrator Point. "Support from a small band of enthusiastic middle management may produce some early positive results but without senior management support it is doomed to fail."
That's not to say this will always be an easy task. "Too often, politics and departmental rivalries cause problems," says Steenstrup. While this kind of problem isn't exclusive to CRM--any large IT project can founder through a lack of support--customer-linked projects are particularly vulnerable, since they involve every level of the organisation.
"Relationships are people to people," says Batterley. "So while technology may support the people delivering your relationship to your customers, in the long term if all the people in the organisation don't embrace your customer relationship strategy, no matter how good the technology is, the relationships won't be as effective as they should be."
Speaking of people, one widely advocated approach to ensure faster returns is to use the most experienced staff available. "Use people on the project team who've done customer facing applications before," counsels McGregor.
To ensure the project has maximum support, set up a project team which includes people from throughout the enterprise, including management, the IT department, and existing staff with customer facing responsibilities. This should ensure that the project has appropriate scope, but isn't in itself a substitute for having a dedicated CRM project manager and champion.
Such an individual is likely to come from the business management side of the company. "It's typically a line-of-business person that drives it," says Rahme. "Quantifying business issues is the key."
Keep it clean
A more technical issue which can ensure better returns is to make sure that all your data is cleaned and verified before you begin the project. "Until you've got all your data solidly profiled, there's no way you can do proper CRM," says Hitchman. "Data from all your channels must be fed into your CRM system. The only way to do that is to get all the data in one place and ensure its integrity. Yet people buy a CRM system and don't even think about the fact they've got siloed data."
"The way to do it is to spend a lot of time getting the data correct before implementation," says Poole. "Complete as much of the preparation work as you can before buy."
This won't necessarily be a simple or quick task. "The large data migrations are where things go wrong. You're migrating data from multiple sources, and that's just about the hardest thing in computing," says Hitchman. "You've got to build a data warehouse, and you need to have an open data platform. Don't buy your CRM software until you've got a customer-centric data store." (If you've already bought it, you should hold off on implementing it.)
While it can be tedious and appear costly, ensuring data integrity is generally worth it. "One of the major problems associated with CRM is integration," says Brooks, who estimates that for every dollar in direct software costs, CRM projects generally incur three or four dollars in integration costs. Better organised data helps reduce integration costs.
A similar cleaning approach can also be applied to your business processes and existing customer relationship patterns. "Companies need to listen to their customer and understand what they are asking for from the relationship before they decide what and how they're going to sell," says Batterley. "All too often companies just keep on selling what they've always sold without a thought to what the customer wants today."
"You need to get the processes fine-tuned before the rollout," says Poole. "The technology is flexible enough to match the processes. It can do whatever you want it to do--and that's a double-edged sword."
One way to ensure the sword doesn't slice you to ribbons is to keep your CRM plans within reasonable limits. You'll be far from alone in doing so. "Asia Pacific IT organisations are eschewing multi-million-dollar CRM projects in the current economic climate, with the biggest slowdown occurring in the most mature markets such as Australia," says Michael Barnes, vice president of integration and development for META Group Asia Pacific. "Where spending is still being approved, resources have shifted to project-focused initiatives that provide a more demonstrable return on investment [ROI] in shorter time periods--typically three to six months."
This marks a major shift in approach, borne in large part from problems with earlier CRM ventures. "Organisations are now cautious about big bang approach projects," says Peter Scott, business development manager for Business Objects. Instead, a new methodology has emerged: "Take chunks. Do a piece at a time and make sure it works," as Poole puts it.
"There's no doubt that people are still buying, but they're looking at the steps rather than the whole thing," says McGregor. "There's a lot more rigour and reality checking going on."
Sometimes, the "chunk" approach is driven by limiting the project to a specific department. "Customers are saying that they want to be able to deploy CRM in a contact centre environment, because that's their main point of contact," says Poole. "When they've got the main customer contact sorted properly, they'll roll it out everywhere else."
Another approach is simply to cut the budget. "One of the best ways to make an investment pay for itself more quickly is to reduce the size of the investment," says Andrew Templer, APAC managing director for RightNow Technologies. "Start small and target the investment at areas where costs can be reduced and efficiency gains leveraged."
Having a defined time frame is also essential. "As soon as the rollout takes too long, your ROI goes away," says Poole. "If you do it in just one area, you can get some quick wins."
"It is becoming more aggressive," concurs McGregor. "Few business cases get up for CRM where the return is more than 18 months away, and it tends to be in the same financial year."
There are of course limits to how much you can compress the rollout schedule. "Customers would like to see it faster, but you've got to be realistic," says Astea's Rahme.
Having a small project with defined goals should make it easier to directly measure ROI, but this isn't always the case. "In many cases, it is not clear what the savings will be until the system is seen in action, either at reference sites, in demo labs or in a pilot or proof of concept," says si2's Englaro. "Even once the savings have been identified, it's important to pay close attention to these key factors during the rollout, as in many cases decisions made during the project that may impact this key business objective, and result in an implemented system slower than what you started with."
Having well-defined measurement metrics is obviously essential to ensuring a return. "Ongoing measurement systems must be put in place to ensure that benefits are achieved," says Gartner analyst Beth Eisenfeld.
"Measure the results of everything you do," says Batterley. "If you don't measure them, you have no idea if they're providing you with the required level of return on investment."
Never-ending story
One overarching problem with measuring return on investment for CRM projects is that such calculations imply a clear finishing point. Most CRM systems, however, don't have such neat-end points. Even if a small initial rollout isn't followed by expansions into other departments, it is likely that the original project will need regular refreshes to stay abreast of changing market conditions, shifting customer expectations and newly-emerging models of best practice.
"You're always going to find a better way of doing something," says Poole. "There's no way you can say ‘It's done now, it's finished.' You've always got to look for ways to do things differently, and you need to be aware of the future rollout in the organisation."
"At any stage, there are always options to improve things," says McGregor. "CRM can always be done better." McGregor also highlights one of the inherent problems with providing a dramatic improvement in customer service: "Every time they provide these functions to their user communities, the expectation of what they can provide goes up."
"The one constant in business is that there is no constant," says Business Objects' Scott. "There will always be change. Understanding the customer is an ongoing process."
That emphasis on behaviour serves as a useful reminder that the success or failure of a CRM system can rarely be attributed to the technology alone. "Good CRM is a combination of people, processes, and technology," says Brooks.
Properly planned, CRM will lead to enhanced relationships, reduced costs and the potential to improve profits. If there's a lack of planning, however, then no amount of technological smarts can make up for it. As Englaro puts it: "Having a clear idea of how a business chooses to manage its relationships with its clients is far more important in the long term than the software they choose to implement."
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