Business Value

By Gary Bolles  |  Posted 11-02-2002

Technology: CRM

 

The Technology

The Technology

The labels are fuzzy—and so, usually, are the requirements.

"Customer relationship management" may be the most monumentally inaccurate software label the tech industry has yet conceived. CRM initiatives often don't have much to do with customer relationships, and they're certainly not always about management. Are they at least about the customer, then? As it turns out, even that's not always true.

The litany of CRM applications cited by different vendors runs the gamut from business intelligence to online customer self-service, and more offerings are piling into the category by the month. Because nearly every vendor seems to be climbing onto the CRM bandwagon, some analysts try to unify these products by calling them "customer-centric technologies," or CCT. But the last thing the arena needs is yet another acronym.

The result of this confusion is a classic "blind men and elephant" problem: "CRM has often meant something different to everyone—the vendor, the technology buyer, the business buyer," says Sam Kapreilian, partner for CRM solutions at IBM Business Consulting Services. Some companies want nothing more than to improve their internal processes by making their sales processes more efficient. Other companies are looking for better information that can help maximize revenue from customers, and they don't care whether that data will ever mean better value for customers. And for some companies, a CRM initiative might actually mean a customer could get better service.

Because perceptions about CRM are all over the map, users are finding they can't even agree on the goals of their CRM efforts in the first place, much less on how the success of such projects should be measured. That lack of alignment, in turn, leads to a raft of implementation problems, such as cost overruns and applications that don't live up to expectations. In fact, Gartner Inc. claims that up to 50 percent of all CRM implementations in the next three years will be failures.

It's easy to point the finger at the technology—and, in fact, vendors need to shoulder some of the responsibility. Analysts and users claim that vendors have hyped CRM's capabilities far beyond what's being delivered, and that since so many customers didn't know what they wanted in the first place, many CRM implementations should never have been sold.

But it seems that a lack of clarity plagues all but the most tightly defined CRM initiatives. "It is the user's own fault for not being aware enough and not doing enough to know how to succeed," says Bruce Guptill, senior program director at Westport, Conn.-based Saugatuck Technology.

Yet does that lack of definition inevitably lead to failure? Although every user's definition probably varies, analysts point to three typical characteristics of "failure," any one of which can lead to problems with CRM systems: The implementation didn't provide any clear benefits, either to the company or to the customer; it didn't resolve the problem it was designed to resolve; or there were no clear metrics in place to determine what success might have looked like if it had been attained.

It shouldn't be this hard. Every function of a CRM system is trying to accomplish one or more of three things: reduce customer- related costs, maximize customer revenue and increase customer satisfaction. If users make sure they have a laser-sharp focus on the specific value to the business or to the customer they're trying to create, it should be a fairly straightforward task to focus CRM efforts on driving at least one of these results. "At the end of the day," says Scott Nelson, vice president and research area director for CRM at Gartner Inc., "CRM is a business strategy, not a technology strategy."

Ask Your Business Managers:

What is the most critical customer-related capability that the organization needs today?

Ask Your Vendors:

Which applications that you offer can deliver what my business managers are looking for?

Tell Your CEO:

We have to get our act together to decide what we want to accomplish before we can hope to choose where to apply CRM software.

Business Value

Business Value

Calculating ROI for CRM is tricky—and it may not always be meaningful.

What company doesn't want to know more about their customers, or make them happier? But when it comes to defining value to the business or to the customer, users are finding it's very difficult to nail down how predictably a CRM initiative can bring home the bacon.

Part of the difficulty comes from a lack of reliable metrics. Not many companies, for example, can say precisely what a percentage-point rise in customer satisfaction means in terms of sales.

And too often, business and IT are looking at very different methods for justifying costs. The few tools available for calculating CRM's value are provided by vendors, which inevitably tilts the field in their favor. "Every mid-level [business] manager we've talked to relies heavily on vendor-provided ROI tools to help justify the payback of the product," says Saugatuck's Guptill. "[But] every CIO we've talked to laughs at the very narrow nature of these vendor tools."

Finally, inflated expectations about what CRM can deliver too often result in a letdown—even if the software runs as advertised. Says Gartner's Nelson, business customers tend to think that customer analytics are like "something from a Steven Spielberg movie. 'I'll put it in, and suddenly I'll get all this magical information that will tell me what to do.'" Yet organizations continue to move forward with CRM projects. "Every senior executive we've talked to sees these types of implementations as necessary for the company's strategy," says Guptill.

Ask Your Business Users:

Exactly what kind of business results do you want from our customer-related initiatives?

Ask Your CFO:

Can you help me define as many concrete methods for assessing CRM's business value as possible, even if we can't guarantee clear metrics in every case?

Ask Your Vendors:

Can you demonstrate objectively that your application will produce these results?

Standardization

Standardization

Where's the biggest need to standardize? It's not the applications, it's not the business processes, it's the data.

Many users insist that the goal of CRM is to get a "single view of the customer." But that's probably a bigger bite than most companies of any size can reasonably take at once. Few businesses of any scale have really thought through what it would take to get a consistent taxonomy of the labels used for customer information, much less how to get all of that information into one usable location.

When they do take on what Saugatuck's Guptill calls "one big grunt of a project" to centralize data, the benefits are compelling. IP telephony provider Avaya Inc. recently centralized its database of 4,500 resellers under a partner relationship management application from Siebel Systems. "All of our data is in one place," says Robin Doherty, IT technical manager. "We can see where our partners are, what they're selling and what they say they're going to sell."

Some analysts believe that what will differentiate CRM in the future will be the ability to connect CRM software to Enterprise Resource Planning backbones. That would seem to sound a warning bell for stand-alone CRM application vendors, and give traditional ERP manufacturers such as SAP and PeopleSoft Inc. a leg up, thanks to their advantage in building strong connections among their own large-scale programs.

As always, though, it comes down to what you're trying to do: If your long-term goals include integrating all your customer-centric information and processes, you'll probably want to simplify your systems, and for some companies that will mean single-vendor relationships. But if your business goals lean more toward nimbleness and flexibility, independent applications that you stitch together yourself, from vendors such as Siebel and Amdocs Inc., may still be the way to go.

Ask Your Data Guru:

Where do we keep data about the customer?

Ask Your Integration Team:

Is it better for us to pull customer information into a data warehouse?

Ask Your Systems Architect:

What does your gut say we'll have to do in three years—continue to go best of breed, or consider single-vendor alternatives?

Deployment

Deployment

Most of CRM's ills can be fixed using "ERP 101": focus tightly, define clear goals, iterate rapidly.

If you haven't yet begun a CRM implementation, take a page from the failures of many ERP implementations in the 1990s. Establish a long-term vision so you have a roadmap for the kinds of business and customer value you want to create. Then make sure everyone's on the same page by setting expectations with the business side that clearly define the project's business goals. "The business case has to be the guidepost," says IBM's Kapreilian.

At times, those goals can be as explicit as "increase sales per customer by 2 percent in six months." But more likely, you'll be relying less on financial goals than on more generalized analyses that aren't quite as concrete. According to Saugatuck's Guptill, "Most of the metrics people are using are nonfinancial." Dave Martin, senior vice president of finance planning and analysis at Charles Schwab Corp., says his company's CRM focus is simple: "What do we need so we don't sound stupid to the customer?"

Next, focus down to something doable. Make sure you report the results you get, good or bad, to everyone concerned, so that business-side stakeholders can reset their expectations if necessary. Work what you've learned into the project plan, update your metrics, and roll out the next set of features.

If your company has already kicked off a CRM implementation and it's going awry—or worse, if you're through with a project and it's not providing the value you expected—you need to shoulder the responsibility of stopping the madness. That may mean sustaining some political damage in the short term. Still, says IBM's Kapreilian, "the only hit bigger than that is allowing the chaos to continue, instead of being asked about it by your board after you've spent millions of dollars." Reset expectations by going back to the original business case, and make sure everyone is back on the same page. Focus on delivering something of value to the business or to the customer rapidly, then roll out additional features in waves, measuring as you go.

Ask Your Business Constituents:

Do you want to keep throwing good money after bad, or are you willing to accept a much narrower set of near-term deliverables?

Tell Your CRM Project Leaders:

Go back to the drawing board and tell me what it's going to cost to salvage this project.

Ask Your Vendors:

You sold it to me, so we're in this boat together. What are you going to do for me in terms of support services to get back on track?

Strategic Profile

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Strategic Profile: FWMurphy

In 2000, FWMurphy, a Tulsa, Okla.-based manufacturer of controls for gas compressors and industrial engines with $50 million in 2001 revenues, had licensed a Siebel Systems Inc. sales-force automation application from Siebel partner J.D. Edwards & Co. The goal: to support better sales forecasting. But the new system didn't allow easy data exchange with Murphy's ERP software from Edwards. So when Edwards developed its own CRM offering, Murphy decided to re-evaluate.

CIO Mitch Myers, vice president of operations

problem The initial Siebel system was installed several years ago. Though the company knew it wanted better information about its customers, "we didn't have a vision of what it was going to do," admits Myers.

goal Gain more flexible ways of gathering customer information, and better sales projections. Myers wanted management to understand "who's the customer, and what is he saying are the opportunities in that business."

strategy Switch to an end-to-end offering from one vendor in hopes of more easily moving data back and forth between CRM and ERP.

challenges No major issues. The only hiccup was the need to allow salespeople to input hunches about sales based on historical customer relationships—a function that Myers says J.D. Edwards didn't support. "Within 15 hours, we had a solution."

ROI No formal ROI calculated, but according to Myers, the company believes it has far more accurate information about impending demand.

assessment "I would beware of the situation where you've got a partner relationship between ERP and CRM vendors, instead of an ERP vendor that has a very vested interest in its CRM [offering] because it owns it, develops it, etc.," says Myers.

Sound the Alarm

CRM implementations

Sound the Alarm

CRM implementations blow up for predictable reasons. Among the most common:

1 No fixed agreements with business managers and other constituents about what they need from the system.

2 Unanticipated need to support additional devices such as hybrid PDAs.

3 No clear idea of how to pull all of the disparate sources of customer data into one place to provide a single view.

4 CRM connections to ERP applications don't support the ideal transfer of data.

Diagram by Jack Harris/Adapted with permission from Sienna Solutions, www.siennasolutions.com