Trends in CRM for 2007

by William Band

June 28, 2007

Organizations are feeling the heat to improve their customer experience and drive top-line growth –which in turn is fueling worldwide growth for CRM solution providers.

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Experience-Based Differentiation Fuels
Demand for CRM Solutions

The intense pressure on organizations to
improve their customer experience and drive top-line
growth drives sustained demand for CRM software
solutions. Although the CRM application market
has been in some turmoil during the last 24 months,
Forrester estimates worldwide revenues for solution
providers reached $8.4 billion in 2006, and will grow
to $10.9 billion by 2010 (see Figure 1).

Customer Relationship Management Drivers

What’s behind the growth curve? Findings from our
surveys and interviews with customer-oriented business
and IT executives highlight the business imperatives
spurring continuing investment in CRM solutions.
Requirement to Foster Innovation and Top-line Growth
A recent survey of CEOs by Accenture Consulting
confirms that driving growth and innovation are critical
concerns for chief executives. Their top four priorities
were: acquiring new customers (53 percent of
those surveyed picked this as top priority); increasing
customer loyalty and retention (49 percent); increasing
revenue from current customers (49 percent) and
increasing customer service capabilities (39 percent).
Revenue growth is achieved through attracting new
customers, selling more to customers and retaining
these customers longer.

Drive to Improve the Customer Experience
Customer-facing managers are taking a harder look at
how new processes and services affect the end-customer
experience. In a recent survey of senior executives at
176 large firms in North America, we found that 60
percent felt it was “critical” and 36 percent felt it “very
important” to improve the customer experience. As companies
add more interfaces to their growing portfolios
of products and services, they touch customers’
lives more every day – and create an opportunity to
weave those touches into an overarching, branded
customer experience that sets their offerings apart
from the competition. CRM initiatives are refocusing
on creating experience-based differentiation –
integrating experience as a feature within the
design of products and services.

Re-engineer Customer-facing Business Processes
Customer demand, market dynamics and technology
are driving CRM functionalities to more easily
integrate with the enterprise resource management
(ERP) and supply chain management functions.
The result: better support for end-to-end business
processes, even those originating from customerfacing

Boost Productivity of
Customer-facing Workers
Sales, customer service and marketing
executives want application user
interface and work flow designs that
align with the working practices of
day-to-day users, driving interest in
CRM application upgrades as vendors
make better user interfaces (UIs)
available in new releases.

Market Size, 2003 to 2010:
The Evolving Solution Providers Landscape

Executives must cope with tumult in the CRM
applications vendor space that is changing the
solution landscape. Larger players have acquired
smaller vendors to gain access to customers and fill
in product gaps and disruptive technologies, such
as software as a service (SaaS). New spending decisions
on CRM must take into account:

New offerings from leading vendors. Oracle
completed its acquisition of PeopleSoft in early
2005 and then swallowed Siebel in early 2006.
SSA Global acquired Epiphany in August, 2005
and was in turn acquired by Infor Global in mid-
2006. M2M Holdings (now Consona) acquired
Onyx in August of 2006. Meanwhile, SAP
continues its drive to become the CRM market
leader through functionality enhancements and
aggressive marketing to the SAP user base.
Lastly, Microsoft’s launch of Microsoft Dynamics
CRM 3.0 marks a renewed effort to win a bigger
piece of the enterprise applications market.

Growing acceptance of SaaS for CRM. and RightNow Technologies have
posted impressive sales gains as buyers increasingly
adopt software as a service deployment. Other
CRM vendors have responded with their own SaaS
offerings like Siebel’s – now Oracle’s – Siebel
CRM On Demand and SAP’s new CRM SaaS
offering. With frequent upgrades, lower risk and
lower up-front costs, customer demand for this
deployment option shows no signs of abating.

Midmarket players pushing for more
enterprise deals. CRM vendors who have
traditionally served midmarket organizations are
leveraging modern architectures and business
process management (BPM) capabilities and
offering new deployment options to gain a stronger
foothold with enterprise-class organizations.
Examples include Onyx, who offers flexible,
business process-centric architectures, and
RightNow and, who are pioneering
CRM SaaS deployment. Microsoft is also trying
to exploit its desktop applications hegemony
advantage in large enterprises and promote its nowmore-
robust business applications to this sector.

More choices for midsize organizations.
Although midmarket CRM vendors are pushing
up into the enterprise market, all vendors are
giving more attention to small and medium-size
businesses. The SMB segment – organizations with
fewer than 1,000 employees – accounts for about
one-third of the CRM market now, and many tech
vendors view it as an area of growth in an otherwise
mature IT market. We expect the SMB share of
vendor revenues to expand from 32 percent of the
market in 2003 to 38 percent of the market by 2010,
reaching $4.2 billion. As a result, vendors such as
SAP, by improving UIs, and Oracle, through its
Siebel CRM Professional Edition and Siebel CRM
On Demand products, are tailoring their products to
better meet the needs of smaller organizations.

Specialty tools still required to fill the gaps.
Notwithstanding the trend toward consolidation of
CRM vendors into suite solutions, specialty players
continue to innovate by offering new functionality
for special requirements. For example, BlueRoads
offers partner channel management through the
SaaS deployment model. And, in the contact center/
eService sector, KANA, eGain and Talisma offer
unique capabilities.

CRM Trends to Watch in 2007

We see business and IT executives
responsible for improving customer
interactions paying more attention to:

Getting more value from
previous CRM investments.
We surveyed 94 business and IT
executives about their satisfaction
with CRM applications. Fewer than
50 percent of the executives that
we surveyed felt that the business
benefits achieved met their expectations or stated
that they were able to quickly realize value from
the applications, with CRM decision makers
clearly feeling that they have more work to do to
unlock capabilities still latent in previous CRM
investments. There are five fundamentals for
successful CRM deployment: Define the right
metrics, focus on improving business processes,
place a high priority on supporting user adoption,
plan for effective data management practices early
in the project and ensure executive sponsorship is
highly visible in support of the initiative.

Coping with the rise of social computing. We
think user-generated content and communication
are fundamentally changing the rules of business –
in a big way. Technology and social changes
are creating a potent mix of forces that will
transform the way all businesses operate, create
products and relate to customers. Social computing
encompasses fast-growing peer-to-peer activitites.
As organizations evolve their experience-based
differentiation strategies, those who sell products in
a social computing environment will need to learn
an additional set of tools and strategies to harvest
insight from an active community of buyers. This
is forcing enterprises to become trusted participants
in an ever-more-connected “society” of
users, and suppliers.

Supporting increased demands
for end-user mobility. Leading
firms are embracing mobile CRM
to improve productivity, increase
CRM system adoption and enhance
customer experience. Mobile CRM
is now a must-do for many field sales
and service organizations because it
allows reps to access and update CRM
information anywhere they can use a
mobile device, such as a BlackBerry.
Firms that we talk with cite several key benefits,
including improved service scheduling; more
professional sales interactions; and shorter cycle
times in areas such as quote generation, incident
resolution and order fulfillment.

Capitalizing on new business process
management solutions. Buyer interest in BPM
solutions is high, as evidenced by the rapid growth
in spending in this sector. We forecast that business
process management suites’ revenue from software
vendors will grow from $1.2 billion in 2005 to
over $2.7 billion by 2009. In addition, the rapid
consolidation of the enterprise applications vendors
during the last few years has enabled companies
to go to a single vendor to buy cross-enterprise
enabling functionality based on a single data source.

Resolving customer data management
dilemmas. Information and knowledge management
professionals have explored several
approaches to managing customer data across the
enterprise. Some suggested that data warehouses
would become “real time” sources, yet enterprises
continue to have data access issues. Others thought
CRM applications themselves would provide
companies their “single customer view.” Instead
multiple instances, disparate ERP systems and poor
data integration leave enterprises with “yet another
view.” Still others believed business intelligence
applications would provide the focal point to
customer intelligence across multiple data sources.
In this scenario the integration required to achieve
insight remains costly to maintain. Meanwhile,
others used trusted data sources to augment and
cleanse customer data only to see the accuracy of
their freshly scrubbed data quickly fade.

Adapting to global CRM standards and
SOA. In recent years most vendors began to
deploy Web services technology primarily as
an extension of existing platforms, applications
and tools, not as a foundation technology for
completely new applications and environments.
However, Web services and service-oriented
technology will become more central in both the
users’ and vendors’ platform architectures, and
such Web services environments will become
the focal point for most application development
and integration.

Align for Success

What should you do to take advantage of the evolving
CRM ecosystem? Here are five guidelines:

  1. Spend selectively on upgrades. The
    imperative to deliver unique customer
    experiences via optimized customer-facing
    processes continues to be acute. Despite the
    relative maturity and parity of many CRM
    solutions, buyers should review new offerings
    from vendors and adopt specific enhancements
    to create a competitive edge. For example, new
    capabilities in the areas of e-service, analytics
    and reporting, industry-specific business
    process management solutions and better UIs to
    increase user adoption warrant a second look.
  2. Spotlight customer-process optimization. Today CRM-oriented solutions are offered
    primarily in four categories of functional
    capabilities: marketing, sales, service, and
    customer data and analytics, forming the
    traditional basis for software vendor feature/
    function comparisons. However, CRM solution
    buyers should move away from
    this framework and evaluate CRM
    capabilities using a customer process
    management perspective. Companies
    shopping for CRM software should
    determine which vendor best supports
    the business processes being addressed
    by current initiatives as well as how
    well the vendor solution can support
    business process improvements
    anticipated for the future.
  3. Think about new deployment
    As enterprises mature their
    deployment of customer-facing solutions,
    they seek to bring smaller business units and
    new geographies into scope. Because SaaS
    for CRM has become more proven and is
    becoming available from all major solution
    providers, buyers should explore hybrid
    deployment models (a mix of on-premise, onpremise-
    hosted and SaaS) that provide a better
    solution tailored for all parts of the business.
  4. Demand support for solution investments
    made in the past
    . Notwithstanding the
    consolidation among vendors, buyers should
    insist that acquiring vendors supports the
    considerable investments buyers already have
    in the acquired CRM solutions infrastructures.
    The majority of buyers are satisfied with their
    past choice of vendor CRM solutions. IT and
    business executives should demand that this
    investment will be protected by the “new
    owners” of their particular brand of CRM.
  5. Be mindful of the consequences of vendor
    ecosystem commitment.
    Buyers are
    increasingly anchoring their IT strategy with
    one of the “Big 4” (IBM, Oracle, Microsoft,
    SAP), but desire to maintain some degree of
    competitive leverage with their vendors. Do not
    commit to promising new features too early, and
    do not commit to inflexible or outdated terms.
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