Where is CRM heading?

An update on the state of CRM. Why is it now called eCRM and how well is CRM suited to the ASP model?

An update on the state of CRM. Why is it now called eCRM and how well is CRM suited to the ASP model?

What is CRM?
The aim of customer relationship management (CRM) is to identify, attract and increase the retention of profitable customers. It works best when it is part of an overall customer-focused strategy. However, even if CRM does no more than increase the effectiveness of a company's customer-facing processes, it will still make an important contribution to almost every company.

CRM has become synonymous with software from companies such as Siebel, but, in theory, you could "do" CRM without CRM (or indeed any) software; in practice, this is not practical once you have more than a few dozen customers.

CRM software manages customer relationships in the sales, customer service and marketing domains. Two key aims of CRM software are to give any staff member dealing with a customer a 360-degree view of the company's interactions with that customer, and to enable that person to act as a single point of contact for all those interactions. However, to gain a complete view of the relationship, links to enterprise resource planning (ERP) systems are also needed. Furthermore, customers need to be analysed both individually and en masse, which normally means using data warehousing and sophisticated analysis tools.

Although some CRM software vendors have been successful (and the most handsomely rewarded has been the market giant, Siebel), many are struggling.

User choice has now reduced to "Siebel or someone else" - such is the dominance
"Excessive on-hold waiting times, representatives that don't know anything about the products they are selling, and multiple calls to get a problem resolved are so commonplace"
Source: Ovum
of Siebel. The real beneficiaries have been the systems integrators, from heavyweights such as Accenture to niche integration players. CRM software has list prices of around $5,000 (£3,378) per user (although deals can be negotiated), but systems integration costs will typically be five times this, and potentially more.

How CRM software developed
In its early stages, CRM software vendors focused on integrating the three principal domains of activity - sales, service and marketing.
"Every one of us suffers appalling customer service at some point in both our private and professional lives"
Source: Ovum
Initially, all these systems had separate software that had difficulty "talking" to each other - and separate systems do not constitute CRM. Vendors also focused on providing these capabilities for two principal channels - face-to-face and via call centres. For face-to-face channels, this meant developing a "detached" client that would run on a laptop and that could be synchronised over a dial-up line; for example, from a hotel room. This is no mean feat when you consider the likely size of customer databases.

The next stage was to improve the integration of external systems, especially integration of CRM and ERP, so that customer information was unified. But both ERP and CRM systems like to "own" the customer data model, which made integration difficult.

Arguably the best approach is for the two systems to be combined - indeed, ERP vendors Oracle and SAP achieved this by launching their own CRM tools, and PeopleSoft (another ERP vendor) is currently integrating the formerly independent CRM vendor Vantive into its system. However, this also has serious disadvantages; most notably, it severely restricts the choice of different departments to select the best tools to fit their needs.

However, that is not all. Organisations with very large numbers of direct customer relationships typically have several customer-facing departments, and each department has often independently selected its own CRM system. This leads to banks, telecoms operators and (to a lesser extent) utilities owning one of everything. Integrating all these to back-end systems, and keeping any new changes in sync, is a continual nightmare for internal IT departments.

CRM flavours
Current fashions in CRM software are:

  • Analytics - that is, analytical capabilities already integrated into the CRM software. Particularly hot - though by no means new - is the ability to "push" intelligence into the customer interface; for example, in a sales process, spotting good but non-obvious up-sell opportunities or, in the service process, spotting good customers that may be likely to defect, which therefore need extra attention to keep them loyal


  • Partner management - offering the capability to use the system in interactions with distributors, external service organisations and so on; typically downstream organisations


  • Verticalisation - versions of the core product that are ready-customised for specific vertical markets.


Some of these innovations are genuinely helpful, but in trying to reach substantial markets, they are trivialised. In particular, verticalisation is often superficial. For example, many vendors include telecommunications operators, media companies and other content producers in a single communications vertical sector, but these companies are very different from one another.

CRM and the Web
At first, the trend towards Web-based business wrong-footed CRM vendors. Their business models were strongly based on people-to-people contact, whether through the call centre or sales or service "road warriors". Most still struggled to support the historical self-service medium of interactive voice response (IVR).

However, CRM vendors quickly realised that the Web was a valuable customer interaction channel, and one that they needed to address. They scrambled to come up with initiatives, ranging from building their own Web capabilities to partnerships with leading Web commerce players. Some even wrote books about Web commerce. Then, before you noticed, CRM magically became eCRM.

Many vendors have already rewritten their clients into formats that can run in a browser window, and the rest are following. Siebel will be among the last major vendors to do this later in 2001. Arch-rival Oracle, though late to launch a CRM offering, went straight to a browser-based client. Also, it will not have escaped your attention that a browser-based client is rather convenient for ASPs that want to offer CRM services.

CRM is a fad and its benefits are over-hyped - right?
True, CRM has undeniably been a fad and, true, stories of its benefits are all too often over-hyped.

The hype is steadily being reduced by the slowdown in the US and elsewhere. Few people noticed - and Siebel did not draw attention to it - but in the first quarter of 2001, Siebel's product revenues declined for the first time quarter-on-quarter. (Siebel's overall revenues still rose, however, due to continued service revenue growth.)

But CRM remains a corporate imperative. Companies that merely do a competent job of CRM will win out over those that do not do it at all. We do not need market research to know that the general standard of customer service is bad - every one of us suffers appalling customer service at some point in both our private and professional lives. Excessive on-hold waiting times, representatives that don't know anything about the products they are selling, and multiple calls to get a problem resolved are so commonplace as to be completely unremarkable.

Is CRM a good fit for e-services?

Pros
There are several reasons why CRM suits e-services (especially the ASP model):

  • Most products have, or are acquiring, a Web-based front end, making them easy to offer as a service.


  • Managing CRM systems is a particular challenge for end-user companies, as the systems have grown big and absorb a great deal of support staff time and resources


  • CRM systems are expensive, especially when you count the integration costs. For medium-sized companies, the expense of buying and integrating their own systems may be well out of reach, and using a service is a potential alternative.


  • Services that already offer ERP should strongly consider also offering CRM, as there is a strong fit between the two.


  • Systems require large amounts of customisation and integration - in other words, they provide opportunities to increase the margin of the service. If ASPs can develop their own skills in this domain (or have a good relationship with a professional services partner), this could be lucrative - remember that the systems integrators charge five times the software cost for doing this.


  • Siebel has become the dominant player in this market. It is therefore possible to cover a large share of the market by offering services based on a single vendor's product set.


Cons
However, there are some important reasons that reduce the fit of CRM, at least for many e-service players:

  • The volume of customisation and integration will make CRM an impossible challenge for many ASPs without very strong professional services capabilities. Smaller customers may be prepared to accept a "vanilla" CRM offering for a while - but not in the long term.


  • Although increasing verticalisation of the products will make it easier for ASPs to offer services that fit their clients' needs, the verticalisation is often superficial and therefore reduces the customisation required only slightly. Expect the verticalisations to get better, but not any time soon.


  • Data protection issues will be of high importance, because CRM necessarily works with some of the most precious data a client company owns. Until ASP vendors collectively develop a strong reputation for integrity, this may be an insurmountable problem.


  • There is a requirement for a roving client that can be carried around on a sales or service representative's laptop, and which can be used when a connection is unavailable. This is not a good fit for the ASP business model. Roll on the days when high-speed wireless Internet is everywhere - but don't hold your breath!


www.ovum.com

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