It was 1997 when a monster last terrorized IT town. ERP (enterprise resource planning) was loose, and corporate clients were smarting under high costs and lengthy engagements that characterized the replacement of financial and other back-office systems with new distributed applications from the likes of SAP AG, Oracle Corp., and PeopleSoft Inc.
But the job got done, and complaints that vendors, consultants, and systems integrators had fleeced their customers were drowned out by the roar of an economic boom. The monster had seemingly vanished before the angry mob could muster a torch or pitchfork. Things are quieter now. The silence is almost deafening as CTOs everywhere try to read the economic signs. Is it merely a lull, or is it the beginning of something far more serious? No one is predicting the return of ERP. Rather, the fear is growing that we are already in the midst of a sequel: The Bride of ERP, also known as CRM (customer relationship management).
Whether or not CRM turns into the next IT monster is still a matter of opinion, but analysts all agree on one thing: It walks among us. A recent study by Forrester Research Inc. in Cambridge, Mass., showed that 45 percent of companies surveyed are considering CRM projects, either full-blown or pilots, and 37 percent have installations under way or complete. "These are Global 3500 firms," says Bob Chatham, an analyst at Forrester. "Our study also shows a typical firm in this category will spend US$15 [million] to $30 million per year on software and services to enhance the customer conversation."
With numbers like these it is no surprise that software vendors are pushing hard with CRM solutions. And this may be one reason for some of the grumbling.
"You do have vendors overselling customers on [CRM] technology," says Joanie Rufo, research director at AMR Research Inc. in Boston. "The technology may be quite good, but that isn't the problem."
The problem, she explains, is a now familiar one: "You need a business case to support the technology. And superior technology often requires a highly developed business case."
In fact Rufo says it is far preferable to embark on a CRM project with mediocre technology backed by a solid business case than to try it with excellent technology and a muddled sense of what it all means.
Getting what you pay for
Erin Kinikin, an analyst at Giga Information Group Inc. in Santa Clara, Calif., says the failure to make sense of CRM before you start playing with the technology is the biggest cause of CRM project failures.
"Our [research] shows that half the companies who implement CRM have no way to measure the results. This means they have no way of knowing whether the projects are successful or not," Kinikin says.
The advice to technology executives is clear: Arm yourself with metrics. Chatham says these metrics should show the customer profitability that is directly attributable to the CRM project. "Our research shows that the majority of firms today cannot do this," Chatham says.
One reason for this is the nature of the beast. "CRM is similar to ERP in one sense: Both are enterprise software," says Mike Gorsage, vice president and CRM practice leader at A. T. Kearney Inc., a strategy consultancy in Chicago.
But Gorsage says companies make a big mistake by regarding CRM as just another ERP enhancement. "CRM is about increasing revenue, the top line," he explains. "This is very different from ERP, which was mainly about the bottom line, cutting costs."
This means that the IT executive charged with implementing CRM must be more business-savvy than ever. "Cutting costs is the easier side of the equation," Gorsage says. "Understanding how technology can increase revenue through better customer interaction is far more difficult. This is a CEO/board-level issue."
Rufo says a recent AMR survey shows that more than two-thirds of the companies questioned do think the ROI goals of CRM have been achieved or are on track to reach that point. But there is a telling footnote to this rosy statistic. "The bulk of the CRM benefits realized so far are still in reducing the cost of supporting customers," Rufo says. "So far there isn't much in the way of increased revenue." In other words, many companies are not getting what they paid for: top-line growth.
You can find some success stories, however. Jim Stahulak, manager of database and Internet marketing at Bridgestone/Firestone Inc.'s retail division in Rolling Meadows, Ill., says a recent CRM project has helped his company increase business at approximately 1,500 stores. About two years ago, Stahulak helped install a campaign management software package from NuEdge Systems LLC, a CRM software vendor in Waukesha, Wis.
The product, called Campaign Manager [formerly known as Archer], has a feature that makes it easy to get a handle on its effectiveness. "[Campaign Manager] lets you identify the customer you want to communicate with," explains Stahulak. "It also automatically sets up a control group of customers with a similar profile. By comparing the two groups we can get a good measure of lift."
Lift, a term commonly used in retail, identifies the revenue change directly attributable to a specific marketing initiative. Until recently these initiatives were primarily limited to such techniques as direct mailings or loyalty-card promotions.
But technology, in this case Campaign Manager, has given retailers a lot more to play with. Bridgestone/Firestone, for example, can automatically remind a customer when it is time for an oil change. "We can then tailor the notification to that customer's profile -- how the person shopped during the most recent visit," Stahulak says.
So far the lift numbers look good. "The system is paying for itself," Stahulak says.
Light on the other side
Figuring out how to apply CRM in a business context rather than just jumping in early helped a small winery through the perils of CRM.
Elliot Stern, director of marketing and sales operations at Franciscan Estates in St. Helena, Calif., says his company decided four years ago that a CRM strategy was essential for their success. "We knew we needed to better understand our customers, and we knew we needed a Web-enabled system," he says.
Franciscan chose San Mateo, Calif.-based E.piphany Inc.'s software to make it happen, but the process was neither easy nor cheap. "When we first started using E.piphany about three years ago, it was first-generation software," Stern says. "We had to bend it to do things it was never designed to do."
That was one of the easier problems to solve. "We quickly learned that we did not have the infrastructure to support this kind of system," Stern says. "We had to create an IT department, and we also had to find a way around the lack of adequate telecommunications support here. In the heart of California wine country, Napa Valley, there aren't a lot of technology professionals, and we are known for vines not T1 lines."
Approximately 16 months ago, Franciscan hired Interelate Inc., based in Minneapolis, to host its CRM software, thus solving the communications problem. Then, nine months ago, the company hired a director of IT, a data analyst, and an information coordinator.
The winery overcame other hurdles as well. "We made a classic mistake after we got the software up and running," Stern says. "One day we just turned off a sales application that our people were comfortable with and gave them a brand-new system. We hadn't really thought about training programs or even manuals."
Discovering that you need to create a new IT department, find a suitable place to run your software, and that you have alienated your sales force sounds like a formula for disaster. And Franciscan would have been another CRM casualty statistic were it not for an important detail: "We knew what we wanted to do," Stern says. "Our customers are retail outlets, distributors, and, ultimately, the consumer. We simply wanted to get a clear view into these channels so we could tailor our communications to fit our customers' needs."
Franciscan had one other key factor going for it: executive-level buy-in. "The mandate to do this came from our CEO," Stern says.
Now he says the company can see what is happening at approximately 650,000 outlets in the United States. "We can plan our promotions and campaign management programs around this information," Stern says.
Stern says it is difficult to pinpoint ROI numbers, but offers the following as evidence of real value. "We are about to complete the acquisition of Ravenswood, another small vineyard. By the end of July, when we have them integrated into our CRM system, we will have more information about their sales and depletion than they have ever had.
"We believe we have fought the CRM battle and emerged on the other side into the light," Stern says.
Even success stories can highlight one of the most common CRM complaints: isolated data systems.
"We are grappling with the information silo issue right now," Bridgestone/Firestone's Stahulak says. "We have ERP systems with sales information that isn't tied to the customer at all. This is data that should relate to our CRM software."
Stern says the issue is about to get very big at Franciscan. "When I got here we had 11 different databases that didn't talk to each other. Now we also have CRM and would like to tie it into our ERP systems."
Stern hasn't taken action yet because in 1999 Franciscan was acquired by Constellation Brands, and the new parent company is toying with the idea of getting one big ERP system to service its four subsidiaries. "Our director of information systems is on the committee at Constellation that is looking into this right now," Stern says.
Isolated silos of data have been the bane of IT almost since its inception, but, as Scott Nelson, an analyst at Gartner Inc., explains, CRM really exposes the problem. "It is typically the case that a company's Web-channel customer data is not integrated with its catalog or brick-and-mortar information. So company representatives end up having to explain to customers that a simple problem can't be resolved because 'that's the way our software works.' CRM in this environment simply fails the acid test."
Whose CRM is it anyway?
In sorting through all these issues it is easy to lose sight of what CRM is supposed to be about in the first place.
This is best exemplified by the biggest CRM success story. "The call center has shown the highest returns for CRM," Giga's Kinikin says, "but this has been primarily through cutting costs and better resource allocation, not from looking at things from the customer's point of view."
Nelson concurs. "Firms tend to organize around departments, products, and geographies -- not around the customer. In this kind of environment CRM can easily turn into a battle over who owns the customer," he says.
The result can be what Nelson calls "Marketing Alzheimer's." Despite CRM automation tools, every time the customer comes in contact with a company, the company acts like it has never seen that customer before.
Vicki James, director of consulting services at NuEdge Systems, puts it this way. "It has to start with customer relationship building. CRM, as it is today, often leaves that part out," she says.
That may be the primary reason for so much grumbling about CRM. "If [CRM] is just there to manage a particular pain point, like lowering the cost in your call center, then it is not about long-term customer relationships, and it really isn't CRM," Nelson says.
Although CRM may not turn into a monster, it will probably be disappointing since, as James points out, "You can't manage a relationship that doesn't exist."
Keys to CRM success
-- Focus on business rather than technology implementations.
-- Design process to help the customer, not simply to automate the back end.
-- Align CRM programs with the business strategy.
Components of CRM
Customer acquisition[->SFA (sales-force automation) and marketing.
Customer retention[->Data warehousing and analytical tools; customer service: call center and contact center.
Improved customer value[->Marketing automation and campaign management for cross-selling and up-selling; data warehousing and analytical tools.
Source: Giga Information Group.
CRM companies debate value of outsourcingWith all the difficulties inherent in implementing a CRM (customer relationship management) solution, it is no surprise to see so much interest in outsourcing it. Mike Gorsage, vice president and CRM practice leader at A. T. Kearney in Chicago, says it makes sense as long as you are discriminating about it. "Many companies are choosing to outsource the tactical parts of CRM like call centers," he explains. "But I think most will want to keep the strategic parts in-house. This is the stuff that contains all your sensitive customer data and allows you to mine it for real value."
Of course, it depends on the business. Time Warner Cable of New York City was already outsourcing customer billing functions to CSG Systems in Englewood, Colo. "About three years ago we started looking into ways we could add more CRM functions to this system," says Cesar Beltran, vice president of information systems at Time Warner Cable.
CSG, a company which prides itself on having provided CRM solutions since 1982 (long before they were cool), worked with Beltran to do just that.
The result is software still primarily hosted by CSG, but the unfriendly green screens have been replaced by thin-client, Sun Ray terminals from Sun Microsystems. "Our customer service representatives love it," Beltran says. "They have single-point access to almost all the information they need in near real time."
Beltran's CRM strategy tends to reflect the nature of his industry: For communications companies CRM has evolved primarily through billing applications which are often outsourced.
The outsourcing strategies of both Jim Stahulak, manager of database and Internet marketing at Bridgestone/Firestone in Rolling Meadows, Ill., and Elliot Stern, director of marketing and sales operations at Franciscan Estates in St. Helena, Calif., are somewhat different.
"NuEdge is currently hosting our campaign management system," Stahulak says. "They have the database, Web servers, and application servers."
But not for long. Stahulak says his company chose outsourcing as a way to get the system running quickly. "We had our hands full with other IT projects, but now that we have those done we plan to bring the CRM system back in-house by the end of the year."
In Franciscan's case only the basic infrastructure is outsourced. The winery maintains control of the systems.