CRM from Scratch

Five years ago, the Internet was still somewhat of a novelty, enterprise resource planning (ERP) was the technology of the moment, and Dell Computer was working on a new blend of technology and process.

The Round Rock, Texas-based company and CIO-100 honoree hatched a concept to let customers design and order systems over the Internet. As orders came in, Dell tracked the customer information. In doing so, Dell was one of the first companies to hit on the concept that is now called customer relationship management (CRM).

Fast forward to today: CRM strategies and technologies have become the next big thing. Vendors are trying to capture and sell the type of functionality Dell created and still uses. While CRM has recently become a hot market category, some of the companies that have successfully automated customer relationships have done so by rolling up their sleeves and developing applications in-house.

The point of CRM is to automate and ultimately improve a company's relationship with its customers. If customers know and trust a company, they tend to come back. If a company can create a system that recognizes and serves customers through multiple channels -- the Web, call centers and in person -- it can drive revenue by creating a loyal customer base.

Refining the customer interaction process is the first critical step in developing a CRM strategy. Some companies have tried-and-true methods of attracting and retaining customers and simply need to create a framework for CRM implementation. Others may need to rethink customer interaction if it hasn't been successful in the past. Ultimately, a CRM implementation should be more about a culture of customer service than it is about technology. The technology is there to automate existing processes.

John Loranger, vice president of information services at clothing retailer and CIO-100 honoree Lands' End in Dodgeville, Wis., says CRM technology alone is not enough to successfully maintain customer relationships. A company's customer culture -- developed throughout years of service -- must drive the technology. Loranger's company has developed a system called Lands' End Live that lets customers click a link on a website and talk directly to a Lands' End representative via the phone or a text-based chat session. "Technology can be of tremendous assistance," he says, "but CRM as a philosophy? The business leaders have to decide what the philosophy is." The technology typically comes as a package of applications, including database, e-mail response automation and customer tracking. When it works, these systems help sales representatives sell additional and higher-end products -- called cross-selling and upselling -- and services to existing customers. While those additional sales opportunities provide an immediate impact on the bottom line, generating customer loyalty is the key benefit.

Time is of the essence right now, because companies that establish CRM infrastructures are getting a jump on developing loyal customer bases. "People are scooping up customers now," says Peggy Menconi, research director for e-business relationship management at Boston-based AMR Research. "Where the money's coming from is the loyalty thing. The loyalty is [a] bigger piece than the cross-sell and upsell." Despite the glut of packaged CRM applications, however, some large corporations have chosen to develop CRM applications in-house. Several such projects have already produced notably successful results. For instance, Dell now hosts more than 40,000 webpages customized for customers of more than 20,000 companies in 40 countries. These sites offer self-service applications that take workload away from Dell salespeople and help customers solve problems without picking up a telephone. More important, Dell pulls in $US40 million per day in Internet sales, the majority through its customized pages.

CIO-100 honoree Staples Inc. is using its CRM applications -- also developed in-house -- to track customer activity across its multiple sales channels: catalog sales, retail stores and the Internet. The Framingham, Mass.-based company did track sales by channel before realizing its best customers shopped through multiple channels. Now, Staples is working to integrate information resulting from customer interactions and online marketing initiatives into its Customer Management Information System (CMIS) to help the company target specific customers with new products without the risk of annoying them by repeatedly feeding them the same information. Staples can also analyze customer contact and activity in ways it could not have imagined before.

With CRM software's potential for increasing revenues and improving customer relations comes a potential for disas-ter. Unlike ERP, which focuses on internal processes and resides behind the corporate curtain, CRM is designed for customer interaction. Every system glitch is in your customers' full view.

Therefore, as much as CRM promises to help retain customers, it also risks confusing them. "You don't want something popping up on an agent's screen that the customer doesn't need to know," Menconi says. "Your website has to be friendly or people won't come back." The potential pitfalls of packaged CRM systems are many, especially given the relative immaturity of the CRM market. Although CRM vendors promise customer-winning packages, some CIOs and analysts doubt those claims. CIOs at large corporations are leery of sinking millions of dollars into a relatively unproven technology. CRM is, after all, still a new marketspace.

"You have the cost, the ongoing maintenance, the implementation -- that's [just] to get you started," says Mark Froseth, vice president of IS for sales and customer service at CIO-100 honoree Kraft Foods in Northfield, Ill., of the costs of signing on with a CRM vendor. "When you upgrade to the next version, there can be considerable cost in that" as well. Brian Light, executive vice president and CIO at Staples, says his company broke a standard practice by developing CMIS in-house, initially in 1996. The system was revamped in 1998.

"That [strategy] is inconsistent with what we have historically done," Light says. "We didn't feel good about the options that were available. We felt that the [CRM] space was very immature, and to a certain extent it still is." So what is driving CIOs to in-house development? What do CRM systems lack? For starters, experts say, CRM packages do not offer adequate tools for ERP integration. Without that level of integration, critical data like financial information cannot flow back and forth between ERP and CRM systems. The result is that companies could have difficulty creating customer profiles that include information like shipment performance and customer spending habits.

"What the CRM vendors fail to discuss and what they fail to deliver is the integration tools into non-CRM systems," says Barton Goldenberg, president of ISM, a CRM consultancy and research company in Bethesda, Md., that publishes a comprehensive guide to CRM applications and vendors called Guide to CRM Automation. "The vendors sell you the package, and they fail to tell you what can and can't happen with that software." The problem can extend beyond CRM-ERP integration, Goldenberg says. Often, components within a CRM system are not even integrated with each other. That problem arises when CRM vendors add new functionality by acquiring other technology vendors. For instance, he says, a vendor may buy a marketing automation tool and integrate that technology with the original system by creating a middleware layer. That same vendor might then integrate a customer service application the same way. If the middleware layers connect the new tools to the core system but fail to connect new tools to each other, the resulting CRM system ends up with tacked-on components that don't share data. Ultimately, that can lead to confusion for customers or call-center agents who, as end users, cannot move smoothly from module to module.

To get around the integration problem, Goldenberg suggests creating a data structure with a publish-and-subscribe architecture to pipe data from various sources into the CRM system. That method helps expedite CRM implementations that might otherwise get bogged down in the integration process, he says. After setting up a data structure, IT staff can turn to the time-consuming work of building direct interfaces from CRM to other applications.

CRM's shortcomings don't end with integration problems, however. CRM vendors face the same challenge that has stumped large ERP vendors: developing Internet-based applications. Several of the most successful in-house CRM implementations, including those at Dell and fellow CIO-100 honoree Cisco Systems Inc., have relied heavily on Internet components to let customers order products, handle service requests and maintain accounts.

The lack of Web functionality in packaged applications has played a role in some CIOs' decisions to build CRM applications in-house. Earlier problems with client/server software in other categories has led to skepticism of how well the fading technology will work in a CRM scenario. "We built just about everything that is customer facing," says Peter Solvik, senior vice president and CIO at San Jose, Calif.-based Cisco. "Our experience with legacy client/server companies has not been positive." These experiences led Cisco to develop in-house. The key benefit of strong Internet functionality, Menconi says, is that it lets CRM systems track customers regardless of the channel they use to buy products. She also feels that new technologies such as voice recognition and Web-telephony integration will drive Internet-based CRM system development. Goldenberg adds that the increasing popularity of handheld computers and other non-PC devices will lead to investment from CRM vendors in Internet and wireless technology. Both Menconi and Goldenberg agree that for now -- and for companies needing to jump on the CRM train before their competitors do -- Internet-based CRM technology from leading vendors is not what it should be.

Perhaps the greatest drawback to packaged CRM software, however, is that vendors are still learning how to adapt their software to business processes and customer relationships. Tailoring software services to entice customer loyalty can be far more challenging than developing process software. "In finance, a company is legally bound to create reports in certain ways," Goldenberg says. "It's a science. In CRM, there are absolutely no rules. What's the best way to keep a customer happy and loyal? There is no best way. It's an art." Dell chose to practice that art by adapting its own customer-related best practices to its CRM software. When Dell considered the vendors' lack of understanding of business processes and its own carefully honed customer expertise, the company made the strategic decision to develop CRM applications internally, according to Randall Mott, Dell's senior vice president and CIO.

"[Vendors] are trying to understand how you develop [CRM] systems and set up [customer] relationships; Dell has been doing both for 16 years," he says.

In-house CRM implementations have been successful largely because CIOs and their staffs have been able to avoid the problems inherent in packaged applications. Keeping a project in-house also makes it easier for a company to infuse its culture into the technology. In some cases, individual companies got a jump on vendors themselves in CRM development. In others, IT departments outsourced portions of a CRM system but didn't buy into large CRM packages.

For those companies that saw the need for CRM technology early on, the rewards have been significant. Dell's Premier Pages, launched in 1996, are customizable websites that let customers order products, troubleshoot, and customize products and shipments. Meanwhile, Dell tracks all customer activity. Dell built Premier Pages in-house and found the technology challenges took a backseat to the challenge of breeding acceptance of the system among customers and salespeople. Since the target users for Dell's site are often not technology professionals, developing self-managing, simple tools for customers has been important.

"We've made the [user experience on the Premier Pages] very consistent," Mott says. And that has helped the learning process. As we've added functionality, [customers] haven't had to learn new things," he says.

The results for Dell have been notable, and not just because of the revenue haul the company takes in through its CRM program. Because Premier Pages give customers automated ordering capabilities, sales representatives are able to have more sophisticated, high-level contact with customers. Premier Pages have drastically reduced phone calls related to simple processes like checking on orders.

Mott believes Dell's program has succeeded because the company let it evolve according to user comments. The company is constantly tweaking interfaces and adding functionality based on user requests. Therein lies another advantage of an in-house project: Dell controls its own system using its own business processes and customer data without having to rely on upgrades or service from a vendor. Because Dell built the system, it is Internet-based and linked to Dell's back-end systems. Staples' Brian Light says keeping CMIS in-house allowed his company to control application design. CMIS was designed as a central repository of customer information, including customers who were part of the company's Dividends frequent buyer program.

The goal, he says, is to create a central collection point for tracking customer information resulting from all transactions, regardless of the channel.

"We need to maintain relationships on an enterprisewide basis rather than on a channel-specific basis," Light says. "We've tended to operate each of [the company's] different business units very independently. Our best customers are those who shop multiple channels." The project hasn't been easy. Light's team has faced challenges in determining what data should be tracked for each customer and how to format databases to store and serve that data. Staples used technology and integration services from Boston-based xChange to sort out those issues and build CMIS, much of which is now complete. Staples also plans to integrate its in-store kiosks with its e-commerce website by 2001. The company expects most of its 900 U.S. retail stores to have kiosks providing customer access to www.staples.com.

Staples also uses e-mail management technology from Palo Alto, Calif.-based Kana Communications to communicate with customers and feed relevant information into CMIS.

Despite the success of these in-house CRM developments, CIOs and analysts recognize the fact that not every IT department will have the necessary resources to develop CRM internally. They also urge caution in selecting CRM vendors. For instance, AMR's Menconi says vendors that suggest companies scrap legacy systems to implement CRM are probably not good choices. "[If you encounter] anybody who tells you you can't leverage your current investments, show them the door," she says.

Cisco's Solvik stresses customer- and Web-centric design as key architecture points. Many early systems were designed with employees in mind, he says, but customers are the real targets. Ease of use and efficiency are critical. "As you Web-enable those CRM applications, you're asking customers to do business the way employees do business," Solvik says. "If you satisfy the customer and move to the Internet, your cost [of doing business] is going to go down." Solvik, whose system lets more than 80 percent of customers resolve questions and product problems online, also notes that open standards are important.

Vendors that offer open data standards will ease the Web development and integration process.

Nevertheless, with the risks inherent in buying a CRM package, Goldenberg suggests finding a vendor that will take responsibility for an implementation.

Too often, he says, vendors and systems integrators point fingers at each other when an implementation goes bad -- and the company with the faulty system is the loser. Companies that can't develop in-house should look for vendors that will enter into a contract to provide services and iron out glitches in the system. "Who should own a successful implementation?" he says. "The vendor has to own the success. The vendors are beginning to understand they really have to guarantee success." Built any of your own CRM applications lately? Tell Lee Pender all about it at lpender@cio.com.

HONOREES IN THIS STORY

Cisco Systems, San Jose, Calif. www.cisco.com Dell, Austin, Texas www.dell.com Kraft, Northfield, Ill. www.kraftfoods.com Lands' End, Dallas www.landsend.com Nortel Networks, Brampton, Ontario www.nortelnetworks.com Staples, Framingham, Mass. www.staples.comERP vendors are now trying to take a piece of the CRM market.

CRM vendors are trying to horn in on this hot market. Siebel Systems, headed by former Oracle Corp. executive Tom Siebel, got a jump on the market in 1993. Now the acknowledged market leader in the CRM space, Siebel Systems raked in more than $790 million in revenue last year, twice the company's 1998 revenue.

Siebel now faces increasingly stiff competition. Oracle Corp. has a CRM package to complement its ERP applications. ERP kingpin SAP has also begun to play in the CRM space, as has fellow ERP vendor PeopleSoft, which bought CRM vendor Vantive Corp. last year. Non-ERP players are also hoping to cash in on the CRM craze -- last October, communications company and CIO-100 honoree Nortel Networks Corp. bought CRM vendor Clarify.

In a market still so young, CRM offerings come in all shapes and sizes. While ERP vendors like SAP and Oracle have moved from creating larger ERP packages to developing CRM applications, vendors like GoldMine Software Corp. have moved from the less sophisticated world of contact-management software by expanding upon smaller applications and entering into technology agreements with third-party vendors.

ISM lists details on offerings from 30 CRM software vendors in the eighth edition of its Guide to CRM Automation. With the market still maturing and some vendors falling behind the sales curve, consolidation is likely in the CRM space. For now, though, CIOs have a bevy of choices when evaluating CRM software -- if they don't choose the in-house option.

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