CRM: Once More, Without Reeling

Customer relationship management has stumbled, but the next round of products may produce better results.

The three letters “CRM” stand for customer relationship management, but given all the recent bad press CRM has been receiving, one might imagine they stand for “costly, rotten mistake.”

How did we get here? CRM software, sold by a long list of vendors that includes Siebel, SAP, PeopleSoft, Onyx, Pivotal, and, most recently, Microsoft, promises to automate and integrate the ways a company relates with its customers — essentially, sales, marketing, service, and support.

Yet despite billions of dollars spent on CRM products and services, as many as 12 percent of all CRM implementations are complete failures, according to AMR Research Inc., meaning the systems never even go live. Worse, AMR adds, only 16 percent of all CRM installations have actually improved business performance in a measurable way. In other words, roughly 85 percent of all CRM users cannot quantify any benefits at all. In today’s tough, “show-me” economy, that simply won’t fly.

Yet there’s hope, say CRM users, vendors, consultants, and market analysts alike. They see companies that use CRM entering a new, more-advanced phase, one that could bring greater competitive advantage and return on investment.

Huge challenges remain, to be sure, and the need for CFOs to get involved is great. “The CFO plays a critical role,” says Frederick Newell, a consultant and author of the book Why CRM Doesn’t Work (Bloomberg Press, 2003). “The CFO represents the heart of the corporation and can be a real facilitator of CRM.”

Of course, no one expects CFOs to create measurable value from CRM alone, but they do carry plenty of C-level clout with the companies that sell CRM software. And given the dismal times in the market — money spent on CRM products and services grew by only 2 percent last year, according to Aberdeen Group Inc., and many vendors posted substantial losses — an executive who knows how to drive a bargain can make a major contribution.

The spate of CRM failures has revealed some fundamental flaws that vendors and consultants are now racing to fix. One development to watch: greater integration of CRM software components, many of which today operate as stand-alone, “point” solutions.

Early CRM implementations focused on the front office: sales, marketing, and support. But with so few companies finding measurable benefits, the current thinking is that companies must now automate the back office (fulfillment, for example), create customer-information databases, and link it all up in a way that lets them treat different customers differently.

“The next step is about driving customer information and tailoring back-office activities around service levels for different customers,” explains Darius Vaskelis, a vice president at consultancy Inforte Corp. “We’re talking about injecting that customer and demand information into decision-making.”

Survey research firm and software supplier Walker Information Inc. argues that the basic approach of CRM will shift to an emphasis on customer loyalty. The company uses surveys and business models to place customers in one of four loyalty categories, ranging from truly loyal to at risk. The idea is that once you understand a customer’s loyalty, you can respond appropriately, kowtowing to the loyal and making nice to the disaffected. “There’s a remarkable movement afoot called ‘win-back,’ ” says Jeffrey Marr, group vice president at Walker. “Sectors and markets have matured to the point that if I have somebody I know is leaving, I want to win them back.”

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