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The Truth About CRM

The Truth About CRM

It's expensive, hard to implement, time consuming and it may not work. It's time to forget the hype and take a hard look at the reality of CRM.

Reader ROI

See how CRM software can be difficult to implement.

Learn how CIOs are rethinking their CRM investments.

Understand how the CIO can get squeezed between vendors' sales pitches and the CEO's expectations.

During the Thanksgiving holiday of 1998, Monster.com took a million-dollar gamble. The Massachusetts-based job listings site, which had roughly 300 employees, rolled out a high-end software package to provide its telephone sales force with instant information on prospective customers, thus boosting the company's chances for rapid expansion around the world.

Instead of helping the sales force do a brisk business, however, the new system, Siebel Sales Enterprise, was so slow that telephone reps were unable to help customers. Salespeople working on laptops in the field were locked out of the company's customer database - and remained so for a full year. "The entire sales force - and everyone here - was very upset," says Ned Liddell, Monster.com's vice president for business applications development. "Our business was hurt. At the time, no one understood how complex these systems can be."

Liddell, who places much of the blame on the consultancy that installed the initial package, is far from alone. In Monster.com's case, the local consultancy was inexperienced, and eventually, developers from Siebel Systems returned to help Monster.com rebuild the application.

In the end, the initial failure resulted in millions of dollars in added expenses and months of effort to get the application to work. "CRM is not for the weak spirited," says Liddell. "It requires a lot of management and money."

As vendors and consultants selling CRM software rake in growing profits, companies are struggling to implement the complex systems they peddle. Like Monster.com and other small and midsize start-ups, most Fortune 500 companies are involved in some sort of CRM project, experts say, and many multimillion dollar initiatives have quietly stalled or failed as executives search for business benefits and salespeople shy away from technology they say won't help them. In one example, a large telecommunications company rolled out a major CRM application to more than 1000 sales reps in late 1999, at a cost of $US10,000 per user, only to find a year later that fewer than 100 were using the system, according to one CRM consultant. Software vendors aren't always at fault; in fact, analysts say the software packages are adding more useful features while slowly becoming easier to use. And it's often true that companies jump into CRM projects without clear strategies or support from top management. But those embarking on CRM projects need to be wary of slick marketing messages because, so far, there is no one end-to-end package that can provide an easy CRM fix.

And stuck in the middle of the confusion are CIOs, pressured on one side by CEOs desperate for a quick CRM fix, on another by vendors falsely promising customer service Nirvana and on yet another by cranky users who are often slow to adopt the precepts and technology of CRM.

"It's pretty endemic out there that there is a lack of satisfaction with the CRM programs to date," says Peter Grambs, principal in the IT group at Booz-Allen & Hamilton in New York City. "People are reticent to say my $US100 million project is a failure. But when you're looking for returns, you can see they're not there."

Simply put, CRM software is designed to help companies keep track of their customers and boost revenues by increasing customer loyalty (see "Jane's Adventure in CRM Land", May, 2000). The customer-facing applications range from sales and field-service automation to call centre and customer-database management. Ideally, the new systems work to develop customer loyalty and sales per customer, thus increasing the bottom line.

Unfortunately, that simple goal is proving tricky to accomplish in many cases, in large part because some sales and marketing teams are reluctant to adopt the new, automated CRM systems. The stakes are high, considering that companies are investing up to $US70 million in a CRM launch and millions more during a multiyear rollout. In order to avoid career-threatening, million-dollar CRM failures, CIOs need to look back to the bad old days of ERP, when some high-profile disaster stories taught IT leaders to carefully examine vendor hype and work closely with top management to ensure successful implementations.

CRM Hype.

Warnings from consulting companies that up to 70 per cent of CRM projects don't produce measurable business benefits - according to Howard Berg, president of Berkeley Enterprise Partners, a Boston-based consultancy - have done little to deter most companies from jumping in. Meta Group predicts that the CRM craze will only intensify, with the market growing from $US20.4 billion this year to $US46 billion by 2003. One of the chief beneficiaries of this hot market is Siebel Systems, which clearly leads the CRM vendor pack boasting a 121 per cent rise in revenue last year to $US1.8 billion and profits of $US123 million, up from $US56.9 million the previous year. And while Siebel dominates the market for software that helps companies manage sales staff, customer service and call centres, competitors including Clarify, Epiphany, Onyx Software and Oracle are also making tidy profits as companies rush to woo customers and boost revenues.

Business strategies that focus on coddling the customer have been around as long as the corner drugstore. When Internet shopping came along, giving customers more power but less personalised service, companies began to look for innovative ways to search for newly fickle clients and analyse shopping patterns. Vendors jumped at the opportunity, coming out with new software packages that automated sales and marketing departments, as well as call centres and systems that promised to link the front of the organisation with back-office systems.

Despite the criticism that CRM systems are hard to implement, Siebel claims that the vast majority of its customers are happy with its product. According to David Schmaier, Siebel's executive vice president, a recent outside audit by Satmetrix Systems (Siebel is a minority owner of this company), showed the vendors' customers boosted revenue by using Siebel software and also reported a 21 per cent increase in customer satisfaction levels.

Still, many who work with companies involved in CRM projects say those figures mask a widespread level of confusion. David Dobrin, president of B2B Analysts in Massachusetts, says he has visited six Fortune 500 companies during the past two years to examine large-scale CRM implementations and described the projects as either "moribund" or used in a way that didn't match initial expectations. "The scope and the benefit are far less than what has been talked about in CRM vendor sales pitches," Dobrin says.

Adds Liz Shahnam, a senior analyst at Meta Group: "Within the next 12 months, if the vendor community doesn't respond, people are going to start holding them accountable."

Schmaier admits that some projects fail, but he argues that's due largely to the fact that sales and marketing departments aren't used to the automated systems that have made finance and manufacturing hum for years. The trick is to work with qualified and certified systems integrators, he notes. Siebel, which certifies consultants to implement its software, also has its own group of systems integrators who work with 15 per cent of its customers. In a typical CRM implementation, 28 per cent of the total cost goes to buying software, while 38 per cent of the cost goes to services such as software customisations, application integration and training, according to Wendy Close, a research director at GartnerGroup (US). Hardware makes up 23 per cent of the cost, while telecommunications expenses make up the remaining 11 per cent.

But when a CRM project does run into trouble, CIOs are often the ones who suffer the most. "It happens all the time in this field," says Evelyn Follit, CIO and senior vice president at Texas-based RadioShack, which is now evaluating CRM vendors for its initiative. "After the Internet, CRM is the next silver bullet. There are heightened expectations that IT folks are going to deliver something." However, if the company's CEO and top sales and marketing executives aren't actively involved, the tricky task of imposing new systems on the workforce can easily fail.

"There's a tremendous squeeze on CIOs with CRM because there's such a corporate need," says Berg. "The vendors are selling the CEO, saying they can just plunk it in."

In order to cut through vendor hype and ensure that those within the company will use CRM applications, CIOs need to partner with business executives to promote company-wide training programs and effectively sell the new systems internally. "CIOs have got to turn this around and make it an end-user project, not an IT project," says Jim Dickie, managing partner at Colorado-based Insight Technology Group.

Selling to the Sales Force.

Bob Ogdon is one of those who learned the hard way about the importance of selling CRM to those who are supposed to use it. At first, the promise of CRM was enticing for Ogdon. With a $US300,000 investment, his sales force would be equipped with the latest technology to follow sales leads, acquire new customers and boost the bottom line.

But Ogdon, CEO of Colorado-based Mshow, which produces training and marketing programs to companies via the Internet, saw his hopes quickly dashed. After a months-long implementation of Siebel Systems Mid-Market Edition software in 1999, his 50-member sales force refused to use it. "Spending the money and not getting a result was a huge disappointment," says Ogdon. "We paid for our education."

Ogdon blames the initial CRM blunder both on the company's failure to articulate its needs and the consultancy hired to implement the system. For remote salespeople, access was slow and data was unavailable.

Companies large and small are finding that fancy new tools for those who don't want to use them are often left untouched - even if they do work. "A typical member of a field sales force is independent," says Berkeley Enterprise Partners' Berg. "They don't adopt or accept easily." Indeed, many CRM projects are stumbling because the sales force needs to be sold on the idea. Even Microsoft, one of Siebel's largest customers, has gone down a long, hard road in its bid to get its 19,000-member sales and marketing force to use the new software, according to several consultants familiar with the project. Microsoft declined to comment on its Siebel implementation. When asked about difficulties with large implementations such as those with Microsoft and IBM, Siebel's Schmaier says: "In any IT project there's always bumps in the road."

At Mshow, executives decided on the second go-around to go with a point solution designed by SalesLogix specifically for use in smaller companies. Ogdon stresses that the company's failed CRM implementation made it easier to do research the second time. "The first time, we went out and bought technology and then a consultant," he says. "We should have done it the other way around." And he notes that salespeople are now required to use the system.

Others who have run into problems with CRM projects stress the importance of focusing on the users throughout the process, letting them test different programs and creating an incentive plan to encourage use of a new CRM system. "Salespeople are nomads scouring the landscape. If they aren't taken care of, you're in trouble," says Rodolphe Kirk, director of IT at CopperCom, a DSL provider headquartered in California. CopperCom abandoned a $US500,000 CRM project last year after an ASP failed to provide adequate support for the complex new system. Now implementing a new, smaller scale application, CopperCom has created an incentive plan and is "nurturing" the sales force with a newly formed support centre. "It will take another three to six months of hand holding," Kirk says.

So Many Vendors, So Little Time.

When the word got out that Blockbuster was looking for campaign management software, a parade of vendors began to approach the Dallas-based company. As the stream of CRM vendors made their appearances and their pitches, those working on Blockbuster's project began to scratch their heads. "The vendors started to create a lot of confusion in the organisation," says Augie MacCurrach, principal and CTO at DiaLogos, a Boston-based consultancy working with Blockbuster. "They're good at getting the CIO cornered and making them believe that if they don't choose them, they'll fail," he says.

Barclays Global Investors, the San Francisco-based asset management arm of Barclays, examined the top 15 vendors two years ago when looking to augment contact management capabilities for its sales force. "Every vendor told us they could do everything," says Bill Drobny, manager of strategic projects and Web. "They all wanted to walk us into multimillion-dollar software exercises."

CRM consultants stress the importance of educating yourself before meeting with CRM vendors. "The vendors are trying to make a sale, and they'll do whatever it takes," says Renee Sommer, managing partner at Semeron, a Seattle consultancy. Blockbuster, which built an Oracle data warehouse four years ago, is still in the process of fact finding technologies that will help it deepen its knowledge of its customers. And Barclays Global Investors, after testing different packages with its sales force, decided to go with an application called Worldtrak, from the Minneapolis-based software company of the same name, which sits on top of the Microsoft Outlook platform, already familiar to salespeople at the fund company.

Sommer notes that many of her clients want to go with the big name vendors because they perceive it as less risky. In fact, she says, companies are better off analysing their business needs and then looking at whether several vendors may be better than one. Fingerhut, a Minnesota-based cata-logue company, has spent the past five years looking for ways to best use its data warehouse containing more than 7 million active customers. Eventually, IBM helped the company devise a system that includes using Torrent Systems' Orchestrate software to quickly troll through the database to determine which customers will receive which catalogues. The company tested the system on 10 per cent of its customer list for a year before the full-scale implementation. "We designed our solution and looked for the pieces instead of trying to fit our problem into some pre-packaged software," says Randy Erdahl, Fingerhut's director of business intelligence.

Siebel and Oracle both claim to offer complete CRM solutions. However, Gartner's Close argues that no vendor covers all of the areas a typical Fortune 500 company would need in a full-scale CRM initiative. In a recent Gartner rating of top CRM application suites for large enterprises, Siebel scored the highest, but only delivered 51 per cent of the sales lead management, call centre and marketing components necessary to get a complete view of the customer, Close says.

Small Is Beautiful.

The question, when choosing a CRM system, is whether to go big or start small. Siebel Systems says that Fortune 500 companies should focus on large-scale rollouts instead of smaller-scale pilot projects in order to get the maximum benefit from CRM software. According to Schmaier, a "phased approach", in which companies commit to a large rollout and proceed in stages, allows Siebel customers to get "maximum benefits quickly", instead of getting involved in cumbersome RFPs and pilots. For example, IBM is deploying Siebel's software to 55,000 employees, Schmaier notes, and other large businesses are getting benefits from similar company-wide implementations. Oracle also stresses the benefits of large CRM projects and promises to reduce failures by providing integration into legacy systems and making such installations easier to use.

But while vendors may encourage large CRM investments, experts advise companies to instead consider pilot projects. Behind the scenes, many consultants say that starting out small with pilot projects may be the best alternative right now given the problems that some companies have had with massive rollouts.

Chastened by past brushes with failure or stories of CRM struggles, some companies approaching CRM are taking a more measured approach. At RadioShack, Follit is in the midst of developing a "CRM road map" that will include several pilot projects. "We don't do anything unless there is a pilot project," she says, noting that the company's ERP project was completed in "bite-size pieces". And at Barclays, Drobny says the company initially rolled out the software to just 20 people and plans to add sales forces gradually. Those who have botched ambitious CRM initiatives shouldn't throw in the towel, however. The fight for customer loyalty is on, and a well-thought- out CRM strategy can boost a company's stature and revenues. At Monster.com, the 1998 failure pushed the company to assemble a team of experts who work continuously on updating the company's CRM strategy. Liddell warns that companies need to do their own careful due diligence when choosing both a CRM package and the people who will install it. Monster.com fired its initial developer and went on to successfully install Siebel for a second time in 1999, spending another $US1.5 million with a new team of internal and external experts. While Liddell calls the CRM initiative worthwhile, he warns that others in his place should do careful research and build a strong internal team before going with a CRM package. Without good information shared between sales forces, Monster.com couldn't have grown, says Liddell, whose team has since worked with Siebel developers as well as with Akibia, a Boston-based consultancy focused on CRM.

And having learned from experience, Liddell and his colleagues will be listening more to each other and their carefully chosen consultants, rather than just to vendors trying to make a sale. "The more complex these solutions are, the greater the risk," Liddell says. "The main thing we have learned is ‘buyer beware'. Don't just accept sales and marketing pitches. It means hard work. It may mean putting pieces together rather than buying one complete solution."

Take Me to Your Leader

CRM gurus push for a new title: chief customer officer.

While companies continue to pour millions of dollars into software packages designed to keep track of customers, few are taking the time to measure the return on these investments. In a recent survey of 250 senior marketing, sales and customer service executives, Cap Gemini Ernst & Young found that 42 per cent don't have a clue about their CRM initiative's ROI. In order to get a clearer picture of CRM investments and results, some CRM gurus are recommending that companies create a new executive role: the chief customer officer. "Appointing a CCO could help combat one major problem in CRM initiatives today: lack of leadership," says GartnerGroup (US) research director Wendy Close.

In addition to tracking ROI of CRM investments, a CCO should focus on competitive intelligence and the administration of customer satisfaction surveys, Close says. Liz Shahnam, an analyst at Meta Group (US), also advocates for the CCO role, stressing that a viable candidate for the role should have business background and "a real IT savvy".

So far, CCOs are few and far between. But some expect the trend to gather steam. "Companies are recognising they hold some responsibility" with CRM, says Shahnam. And by creating a program management office for CRM and appointing a CCO, Shahnam adds, they are taking further steps to protect themselves from failure.

Don't Let It Happen to You.

Tips from the CRM trenches.

Before choosing and implementing a CRM system, keep the following steps in mind:

Determine what functions you need to automate before calling in the vendors. "Automation is no substitute for sound business strategy," says Barton Goldenberg, president of ISM, a Maryland-based CRM consultancy. "And it doesn't correct bad management behaviour."

Use a systems integrator with a proven track record in CRM implementations. Beware of consulting companies that have contracts with one vendor.

Get business units involved in the project early. Across the board, CRM gurus say complex CRM initiatives are doomed to failure unless CEOs and/or senior marketing executives are committed to the project.

Start with pilot projects. Some vendors will encourage large CRM investments and massive rollouts, but CRM consultants and companies that have run into problems strongly suggest building a prototype.

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