CRM on the comeback trail

The CRM market looks to be finally coming out of it slump. What are companies doing differently to bring this about? Anthony Plewes explains.

Throughout the technology boom, customer relationship management (CRM) swept all before it. There is no wonder it was popular; CRM software was designed to give large corporations a single view of the customer and help treat all of them as individuals.

Unfortunately, many deployments did not live up to this theory. A report from analysts the Gartner Group in 2001 reflected this malaise; it claimed that 65 per cent of CRM projects were failures and predicted this number would rise to 80 per cent within two years.

The crux of the problem was that many companies were deploying the software without clear business objectives. This made it very hard to prove the return on investment (ROI) of CRM projects.

CRM software vendors are still not out of the woods. According to Gartner, CRM software sales have continued to decline. In 2003 global licence sales were down 16 per cent to $2.4bn.

Gartner analyst Fabrizio Biscotti said at a recent CRM event in London: "The slow economy, combined with buyers' behavioural changes and priorities, has had a large impact on new licence revenue for CRM software vendors. Smaller deals, tactical projects, longer sales cycles and competition have caused vendors to struggle. The high growth of past years is now a memory."

However, he believes the market has bottomed out and will return to positive growth in 2004.

While customers' requirements have not changed over the past four years, companies are approaching CRM in a different way. Greg Gianforte, CEO of CRM software maker Rightnow, says: "There has are been a move away from CRM as an enterprise-wide top-down project."

Paul Trefonas, VP of sales and marketing at CRM software company Onyx agrees. "The approach has changed," he says. "In the past there was a rush to sell the product across the entire enterprise but companies discovered that it was very hard to calculate return on investment on these enterprise-wide, multi-year projects."

CRM vendors are being asked to prove ROI by rolling out projects in more manageable chunks. "It is much easier to measure ROI if you do one department or stage at a time," says Trefonas. "For example in a call centre, you may roll out service, then knowledge and finally sales tools."

This is reflected in the CRM spending figures from Gartner. "Spending has shifted away from 'high-ticket' CRM applications and applications that might require substantial process redesign," says Gartner's Biscotti. "It has shifted toward applications that deliver a quick return on investment, such as email marketing, e-service, and incentive, compensation and marketing resource management."

Some companies are taking the bite-size CRM strategy even further. Onyx, for example, says it sells components of its packages to companies to enable them to build their own applications. "For example NTL has embedded components of our CRM product into its billing system to make it customer-centric rather than order- or product-centric," says Onyx's Trefonas.

The delivery of CRM in the longer term might also be shifting, as the hosting model continues to gain traction. Gianforte says CRM software has become too complex, which is why it often fails, and its complexity feeds the legions of professional services companies who are required to install the software. "All of the traditional enterprise software systems have attracted these parasites who feed off the complexity of the products," says Rightnow's Gianforte. "On-demand software eliminates complexity and speeds deployment."

Many vendors are pinning their hopes for sales growth on developing vertical versions of their software packages. Siebel, for example, is developing more that 30 versions of its CRM package. All vendors continue to train their efforts on the public sector. Neil Morgan, VP of marketing EMEA at Siebel, says the public sector is its fastest growing area and might even eventually replace financial services to become its largest.

However, buyers should beware vendors may be spreading themselves thin by developing many vertical products, and it is inevitable that some vertical products sets will be better supported than others. However, the rationale for vertical customisation is sound, as it allows companies to deploy projects more rapidly as part of the customisation is already complete.

Companies also need to recognise that CRM projects affect a wide range of users. "Companies need to look at change management as part of the project," says Trefonas. "It is important to spend time analysing the business process before implementing the project."

Existing business processes should not be automated without thorough examination, because automating a bad process could actually be detrimental to your customer relationships.

Jason Goodwin, head of customer intelligence solutions at SAS UK, says: "If you are doing a bad thing more effectively then it will damage your relationships even further."

Most of the early CRM work was centred around deploying operational CRM. This was typically a front-office solution to support call centre agents dealing with customers. These systems allow organisations to collect reams of customer interaction data, which is a valuable source of customer intelligence. This has meant analytical tools have been a growth area for many CRM companies throughout the slump.

Andy Sleath, marketing manager at call centre software maker Aspect Communications, says: "Nobody likes receiving a general email blast or a cold call that's irrelevant to their needs. And when that call comes from an existing supplier, the frustration felt can be even greater." Outsourced contact centre operator Garlands, for example, uses data analytics to predict the points along the lifecycle curve that customers are most likely to churn and hence forecast which groups of customers are most at risk.

SAS's Goodwin says companies should segment and profile their customers based on a range of factors including their behaviour.

The increasing use of analytics reflects the maturity of the CRM market. A recent report from the Global Future Foundation (GFF) said customer service will increasingly become a market differentiator ahead of price in the long term. However, GFF report author David Jackson warned that companies have already experienced how difficult it was to build a truly customer focused organisation. "Change has to go to the heart of the company's culture if excellence in customer service is to be achieved and sustained."

Companies appear to have learned their lesson and are treating CRM more cautiously that before. The big-ticket CRM project may well be part of history but companies continue to use these technologies to improve their customer relationships.