In theory the business case for customer relationship management (CRM) systems is compelling. The average company loses between 20 and 50 percent of its customers in churn every year, according to studies. Companies often find it hard to retain their best customers, so if CRM technology can reduce customer churn, firms will buy it because they can quickly recoup their investment.
However, in practice there are many CRM systems that have failed to justify their costs. The difference between a good CRM system and a costly mistake often depends on the quality of project management. It is essential to set out clear objectives and obtain the backing of managers and staff before the main work begins.
The global slowdown has forced firms to review spending priorities, and put projects that do not have an immediate return on investment on the back burner. CRM's cause has been undermined by anecdotal evidence that suggests that many companies that have implemented CRM systems in the past are continuing to lose customers nonetheless.
Cheaper solutions
Over the past year, these difficulties have driven some CRM vendors out of business, while others are consolidating. This has resulted in some instability within the CRM market.
But the situation may not be as bad as it first appears. There have also been many stories of successful CRM implementations, causing some to declare that the problems of CRM have been greatly exaggerated. And the economic slowdown has a silver lining for corporates because it has forced some CRM vendors to lower their prices and focus on solving critical problems for customers, rather than developing gimmicky features. The result is that CRM packages are now better and less expensive than before.
A recent study carried out by merchant bank Bain & Co shows that many firms could boost revenues by as much as 85 percent if they could retain only five percent more of their best customers. A CRM package, in other words, will often pay for itself during its first year, if it can improve retention by five percent.
Some analysts say that more than 80 percent of European CRM implementations and nearly half in the US are failures. This is a very high proportion, and poses difficulties for firms when complete CRM installations can cost millions of pounds.
The figures are depressing, but it is likely that the bulk of this money has not been entirely wasted. One reason for this is that the definition of a CRM failure is often ambiguous. Many analysts, for example, say a project is a failure if it fails to complete all of its principal objectives. CRM implementations often consist of dozens of interrelated goals and projects. A failure to achieve a few of these goals may attract disproportionate criticism, even if the implementation works closely to plan as a whole.
The lesson is clear: when outlining the objectives of a CRM project, companies need to be realistic. It is also crucial to prioritise the CRM goals so that the most important ones are accomplished.
Of course, that is not to say there is no such thing as a CRM failure, and the root causes can often be traced back to those at the top of the organisation. When companies rethink the way they do business and consider CRM systems, board managers often put the priority on increasing corporate efficiency Ã, without considering how these plans will affect customers. CRM vendors often speak directly to these business leaders, providing technological solutions for the tasks required. However good CRM systems require coordination and input from a range of disciplines across the company Ã, otherwise a solution may be purchased that increases efficiency in one area but loses custom elsewhere, or is technically much too difficult to implement well.
Successful CRM implementation depends heavily on good management and good planning by staff.
The following scenario describes a typical CRM failure. The chief executive, perhaps working with the IT director, purchases a CRM solution and sets down the corporate goals. Because CRM packages are usually sold in conjunction with service agreements, outside temporary staff are brought in. Unfortunately, the in-house IT workers are not in a position to drive the project forward. They do not understand the corporate goals because they were never included in the earlier discussions.
The CRM Forum, an industry body, lists several key reasons for CRM failure: poorly managed organisational change, internal politics, a lack of the right skills, insufficient enterprise-wide understanding, and poor planning. CRM consultancy Peppers & Rogers Group argues that at least 40 percent of the entire budget of corporate CRM projects should be spent on tackling these issues.
Phased rollout
Such arguments reinforce the view that technology alone is unable to deliver a successful CRM implementation. This is exactly the opposite of what many vendors would have businesses believe.
Suppliers tend to promote their own technology as the only element of a CRM implementation that is necessary for success. But this is rather like an ironmonger claiming the pots and pans it sells can turn its customers into great chefs.
In order to be effective, a CRM implementation will usually require a firm to change its practices, and this may change the way that some staff work. This development may upset some employees, though some may find their jobs become more rewarding. The solution is to anticipate problems and deal with these issues up-front, establishing clear channels of communication.
Examples of recent CRM successes include clothing retailer The Limited, which has seen sales rise as a result of cross-selling using SAS Institute's analytical CRM software.
Meanwhile, in the automobile industry, Ford Motor Company has seen good results from Siebel Systems' Call Centre software, and has plans to implement other Siebel technologies.
Clear trends are emerging in CRM. Companies are demanding faster implementations, quicker returns on investment and lower prices. The current economic slowdown has led many vendors to drop prices, and should strengthen the hand of buyers when they negotiate. However, obtaining a faster return is more problematic. Firms considering CRM must realise that no CRM system can solve all their problems.
While many CRM systems can deliver quick results, these may not be enough to solve a firm's most pressing problems. For example, some CRM packages can only deal with tracking email and phone calls. Others are useful for generating mailing lists for cross-selling opportunities. Choosing a product that can deliver the quickest possible results will rarely give rise to a lasting competitive advantage.
The limitations of many CRM tools have led to another trend: the emergence of packaged CRM suites. A firm can implement individual modules of a CRM suite to solve some problems rapidly. If the firm is pleased with the results, it can then install the rest of the suite at a later date. The advantage of this approach is that firms avoid the difficulties of trying to integrate individual best-of-breed tools. But unfortunately, most CRM packages are restricted in the way they interoperate with other important enterprise systems, such as supply-chain management tools.
Integration difficulties are likely to diminish over the next few years as standard protocols for the sharing of business data Ã, such as the Extensible Markup Language Ã, become more established. In the meantime, organisations that buy CRM suites should ensure they are covered by a comprehensive service-level agreement.
Another common trend involves the rewriting of CRM packages using more open Internet architectures.
This process began several years ago, when CRM specialist PeopleSoft bought Vantive and then merged the Vantive CRM platform with the PeopleSoft Internet Architecture. The result was an Internet-based, hosted CRM package that was scalable, easy to use and deploy.
