Dishing the dirt on CRM

The past few years have seen "CRM" join the ranks of other IT industry acronyms that initially promised loads of filthy lucre and ended up as dirty words that decimated IT budgets and raised executive management hackles.

In fact, early last year virtually every IT industry research house had already pointed out that up to 80% of all customer relationship management (CRM) initiatives had failed to deliver on their promises. While embarrassed executives are understandably loath to disclose just how much they`ve already spent on implementing CRM systems, it`s common knowledge that - globally speaking - this figure runs into many, many millions.

But with customer and supplier interactions now taking place across an increasing number of channels - such as call centres, fax machines, e-mail, Web sites and intranets - few corporates can ignore the need for a workable and sustainable CRM solution. So, which pitfalls should they avoid in order to prevent any further pain and how do they go about choosing the correct solution for their particular business?

CRM "victims" and vendors alike have opinions on why so many initiatives have failed. "Garbage in means garbage out," says Tracy Newman, MD of CRM solutions provider FrontRange Solutions. "In order to obtain any meaningful information from a CRM system, companies need to decide upfront what information they are looking for and who this needs to be delivered to."

Figuring that out, states Newman, is extremely difficult for management teams that refuse to recognise that CRM is a long-term commitment. Newman believes the high rate of CRM failures can largely be attributed to very few companies having developed three to five year strategies. This, she says, isn`t surprising given that many listed companies are now being managed on a quarter-to-quarter basis, due to pressure being exerted in terms of shareholder expectations. "At most, they`re being managed on a six-month timeframe, as they no longer have the luxury of missing numbers."

How then, she asks, can IT managers make the decisions required to facilitate long-term growth, when they are - in fact - working without an horizon?

Peppers and Rogers Group, a management strategy firm that specialises in customer-focused business strategies and solutions, echoes this comment in its white paper, entitled "Damn the technology hurdles. Full speed ahead", which it released last year. The white paper says companies should recognise that "the greatest return from a CRM investment will be long-term in nature". There are, however, some "quick wins", it says. "For example, CRM can provide immediate 'cheap growth` just by uncovering opportunities to reallocate sales resources from customers who are less likely to buy to those who are more likely to buy."

Like everything else, however, even "quick wins" depend on two "must-haves". Says Newman: "CRM has to be handled through a multi-channel approach and a consistent message and tone has to be used." These requirements alone demand a close, on-going relationship between a company`s overall future vision and its supporting IT infrastructure - right across the business and all its various relationships. And this supports her underlying contention - CRM implementations need to be aligned with medium- to long-term business strategies.

Garbage in means garbage out.

Tracy Newman, MD, FrontRange Solutions

Ron Swift, VP of strategic customer relationships at NCR Corporation`s Teradata division, cites a lack of senior management understanding of what CRM really is all about as one of the primary reasons for previous failures. NCR is represented locally by National Data Systems.

"Many executives do not understand that CRM goes far beyond campaign management, call centre information connection, sales force automation, and revenue measurement. Executives who initiate and support CRM desire to put the customer first, drive intelligence into their people`s hands and minds regarding their customers, facilitate much better types/relevancy of communications with their customers and suppliers, and fulfil the needs of the customer by `knowing the requirements and the potentials` for each customer and their position in the business cycles." He adds that many people involved in CRM initiatives forget that it is about relationships and "not about just sales or revenues".

Tony Cross, marketing communications manager, System Integration and Business Intelligence at ICL, believes a lack of integration is the main culprit behind most CRM failures. ICL is SA`s sole supplier of Information Builders` iWay and WebFocus integration and business intelligence tools.

"Integration is the key. Few companies have achieved truly integrated information systems in the mainframe world, the client/server world, and even the ERP [enterprise resource planning] world. Processes are usually built around collecting data and transactions, then later worrying about analysing the information."

He says that one of the biggest challenges is the difficulty in defining usable information. "Most organisations have deployed separate and non-integrated information systems that serve very specific functions. These stovepipe information systems keep customer information in departments, making it difficult to achieve a panoramic view of the overall workings of the enterprise.

"You end up with a constantly shifting, disparate environment. Somewhere in there is usable information to help make decisions, assist managers in meeting quotas, and enable engineers to advance the company capabilities. The challenge is to simplify the process of getting it and sharing it with people both inside and outside the organisation."

Cross believes that over 50% of companies that have CRM systems do not access all available data within their enterprises, primary due to a lack of integration.

Now, many corporates and vendors alike are moving towards getting CRM right - by embracing it as a company-wide strategy aimed at optimising profitability, revenue and customer satisfaction by organising around customer segments, fostering customer-satisfying behaviours and implementing customer-centric processes. Instead of yesteryear`s approach which advocated the "tacking on" of CRM applications to existing infrastructure, today`s solutions are far more of a "big picture" view which encompass core intra- and inter-company business processes and procedures.

And the IT industry research houses are starting to remark on the progress being made by vendors in assisting corporates to achieve CRM successes.

In a recent Web & Collaboration Metaspectrum evaluation of CRM application suites, entitled "CRM market update: Not so 'suite` yet", the Meta Group says it identified significant improvements in collaborative CRM capabilities among CRM suite vendors.

The challenge is to simplify the process of getting it [information] and sharing it with people both inside and outside the organisation.

Tony Cross, marketing communications manager: System Integration and Business Intelligence, ICL

"Major CRM application suite vendors have recognised the need for collaboration among customers and suppliers, and have either built their own collaborative services into their products or have integrated collaborative services from third-party vendors of customer interaction technologies," says the evaluation.

It rates Oracle`s collaboration functionality second behind best-of-class solution Kana, but significantly ahead of other application suite vendors SAP and PeopleSoft.

"Efficient and contextual collaboration among partners, employees, customers and suppliers reduces cycles times, increases intimacy, and is required to achieve true customer lifecycle management," says the evaluation. Overall, it rated the collaborative CRM application suite leaders in descending order as E.piphany, Kana, Oracle, Pivotal and Siebel.

As far as analytical CRM is concerned, Gartner - in its first North American CRM Analytics Suite Magic Quadrant report, released in March - rated E.piphany and SAS Institute as early leaders, and NCR and SPSS as among the visionaries. The report says that a number of other vendors are beginning to compete in the visionary and niche player spaces.

It points out that the CRM analytics space is diverse, with a number of vendors claiming - with some justification - to offer a solution here. It adds, however, that this market is relatively immature and most vendors are still making efforts to round out their solutions. "Even the vendors with a more-complete vision or ability to execute have significant gaps in their functionality or product positioning that may make them a poor choice for automatic inclusion in a shortlist. Similarly, some of the niche players have outstanding functionality in some discrete areas but lack the broad functionality of a suite."

The report says E.piphany probably does more than any other vendor to drive the importance of CRM analytics to the market; its solution is nicely packaged and broad in scope, although it lacks some of the analytical depth that some of its competitors with a deeper background in data-mining and analytics bring.

Even the vendors with a more-complete vision or ability to execute have significant gaps in their functionality or product positioning that may make them a poor choice for automatic inclusion in a shortlist.

Gartner, North American CRM Analytics Suite Magic Quadrant report, March 2002

SAS, says the report, has a long track record in the broader analytics and data-mining markets and is well positioned to translate that position in the CRM analytics suite market. "SAS tends to be the analytical partner of choice for most of the other CRM application vendors. It is increasingly focused on making its solution easier for 'power` users to take advantage of SAS`s depth and experience at performing most types of CRM analysis."

PeopleSoft, says the report, has put a great deal of attention into its analytical solution. Its CRM analytics suite provides measurement and reporting via the CRM warehouse and customer scorecard. Customer behaviour modelling provides a framework for data-mining through pre-built integration with PeopleSoft`s partners Unica and Angoss Software.

SAP, it says, has begun to offer an analytic solution as part of its renewed focus on CRM. "SAP`s initial focus has been on offering a wide range of basic capabilities, which places it in a good position to support the initial needs of its established customer base, while deepening its offerings over time."

The bottom line, says the report, is that the challenge for enterprise evaluating vendors in this space is to reconcile CRM vision with analytical depth.

Both the Meta evaluation and the Gartner report are rather heavy reading, but each underscores points raised by Newman and Cross: successful CRM solutions are those that allow companies to gather the internal and external information they require, turn it into business intelligence and deliver this to the right people - both within and beyond the company.

When asked for his comments on why so many CRM initiatives have failed, Nigel Rayner, VP of product and industry marketing at PeopleSoft Europe, Middle East and Africa, emphasises the importance of transforming information into business intelligence while taking the need for business process management into account.

"Too often, companies maintain the 'traditional` separation between sales, marketing and support functions, which means implementations of CRM software are unlikely to deliver real business benefits. Even those committed to process changes fail to appreciate that CRM solutions are about processing transactions and true customer information can only be obtained by implementing an analytical CRM layer," notes Rayner.

"People who want to find out how their businesses are doing and which are their most profitable customers need to recognise that analytics are required to transform transaction data into business intelligence."

Previously no ERP vendors, says Rayner (and he includes PeopleSoft here), provided an adequate business management solution within their ERP offerings. Which meant, at the end of the day, that while ERP installations were facilitating the flow of transactions across an enterprise, they weren`t delivering sufficient business intelligence.

He says the more advanced vendors (and he includes PeopleSoft here too), now realise that analytic applications - supported by a robust data warehouse infrastructure - are needed to address this challenge. He maintains that PeopleSoft`s solution in this area, Enterprise Performance Management, now delivers advanced analytics across all functional areas backed by an enterprise data warehouse infrastructure.

People who want to find out how their businesses are doing and which are their most profitable customers need to recognise that analytics are required to transform transaction data into business intelligence.

Nigel Rayner, VP of product and industry marketing, PeopleSoft EMEA

Rayner points out that while there is some merit in the way some companies are currently implementing CRM modules to address specific business issues (the tactical approach), companies wanting to leverage CRM initiatives across their enterprises should consider the need for integration throughout their ERP systems. However, given the current economic climate and the challenge of large-scale CRM deployments, he says that tactical purchasing of CRM modules is understandable.

Asked where his company ranks in terms of its CRM offerings, Rayner says PeopleSoft can offer customers core back-office ERP solutions, a CRM application suite, an enterprise performance management solution and the necessary data warehousing component. This, he says, includes everything required to deliver analytical CRM to business managers.

He admits that in some global markets, PeopleSoft is not as "powerful" as others in the CRM/ERP space. "But we`re definitely striving for a number one rating in the areas where we are strong."

Locally, the company will focus on selling its CRM, enterprise services automation and enterprise performance management offerings through its local sales and marketing representative - activ8 - and concentrate on the services industry sector.

Addressing the CRM take-up among SA companies, Paul Mather, MD at activ8, says: "Local companies previously have been looking for either transactional CRM or analytical CRM but rarely for both." He maintains that companies are now becoming aware that some vendors have both transactional and analytical CRM solutions that are integrated and work off a common platform.

"The subsequent demand for integrated transactional and analytical CRM solutions leads companies away from the old 'best of breed` silo solutions," says Mather, adding that he believes many companies will acquire CRM solutions from the same vendor as their existing ERP solutions in order to facilitate integration. His company believes that CRM represents a significant share of revenue in the local market in the years ahead.

In Europe and SA, a lot of companies are going back to basics, opting for an entire ERP installation, including CRM and supply chain management.

Joel Reed, director of CRM and SRM product marketing, JD Edwards & Company

JD Edwards is another ERP vendor that has added CRM functionality and applications to its existing offerings, is concentrating on the services industry sector, and believes CRM sales are on the way up.

Joel Reed, director of CRM and SRM product marketing at JD Edwards & Company, echoes Rayner`s comments about the two types of CRM buying strategies emerging at the moment: the tactical approach that addresses specific business issues and a "start from the beginning" approach.

"In Europe and SA, a lot of companies are going 'back to basics`, opting for an entire ERP installation, including CRM and supply chain management," says Reed.

"The services market is already large and growing. In the US this is a big market and it`s growing in the UK, Europe and SA." He claims that CRM sales are running at about 15% of total company revenue.

One of JD Edwards` most recent moves in the CRM space was the announcement at its annual user group conference, held in Denver in June, that it would offer CRM applications built on a Linux-based infrastructure from IBM. The Intel-based solution will include IBM DB2 database and WebSphere Application Server software for Linux running on the IBM eServer xSeries.

Announcing the new offering, Dave Siebert, group VP at JD Edwards, said: "Over the last several months, more and more customers have expressed interest in Linux-based solutions."

At its annual user conference, held in Paris in June, SAS announced the addition of activity-based costing functionality to its existing customer intelligence solutions. This will allow companies to get an accurate picture of the cost of servicing customers, allowing them to accurately measure customer profitability. It will also allow them to better assess the cost implications of activities undertaken to increase customer profitability.

Speaking at the announcement, Chris Pieper, VP at SAS`s performance management group, said: "Our customers are using SAS software to get deeper intelligent insight into their customer base. But we discovered that if they don`t have true profit information derived from mapping the cost back to the actual activities they do, then the information they are basing their decisions on is less than accurate. SAS is integrating all of the functionality of activity-based costing into all of our offerings so that our customers get quality information about profit from everything they do."

Andre Zitzke, chief technology officer at the local SAS operation, says the company expects its analytical CRM solutions to generate "big" revenue. "Some of our larger customers have already embarked on this [analytical CRM] and have already seen serious benefits. I think there are many other customers who are only now starting to move in a similar direction."

[TABLE]Expanding on the difference between customer profitability and customer lifetime value, Zitzke says: "Looking at customer profitability gives you a view on what customers have spent with you in the past and what they`re spending now. Customer lifetime value allows you to start predicting what a customer will spend with you across all your offerings in the future. This is what analytical CRM is really good at and this is what the current leaders in various industry sectors are busy implementing now."

Teradata`s Swift is positive that the CRM market is already beginning to deliver value for certain companies and will continue to do so. "Many small and large corporations have implemented the changes to facilitate the infrastructure to support processes that drive real CRM.

As more and more managers become aware of the requirement for a strong centralised/enterprise approach to CRM, there will be a deluge of software sales and services in the CRM analytical arena.

Ron Swift, VP of strategic customer relationships, NCR`s Teradata division

"To give just a few examples in different industries, CRM is being performed at Continental Airlines, National Australia Bank, Sam`s Clubs (a wholesale division of WalMart Stores), Nationwide Insurance, travelocity.com, Office Depot, Royal Bank of Canada, and many others. The hallmark of these successful CRM implementations has been the structuring of a data warehouse as the 'info-structure` to support the creation and use of `customer knowledge` by having a 360-degree view of the customer, actions, resources, processes and potential improvements in all areas of the CRM activities.

"These organisations," he says, "have also made a major investment in driving their new `intelligence` to create marketing programmes and communications which are relevant to each customer, timely to their needs and business cycles, and by `personalising` their offers and prices for each customer interaction."

Swift believes that the market for CRM software, consulting and integration services is growing rapidly throughout the world. "As more and more managers become aware of the requirement for a strong centralised/enterprise approach to CRM, there will be a deluge of software sales and services in the CRM analytical arena. Then the front-end operational CRM software and services will become more successful."

All of which suggests CRM won`t stay a dirty word forever.