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CSO Insights

End-user firms need to explore the buy cycle of the CRM equation – the process they use to select the right solutions to solve their specific problems.

This year, the debate over the true value of CRM technologies rages on. Supporters cite that companies that successfully implement CRM systems are experiencing significant operational improvements. Our own benchmark studies over the past year documented significant ROIs resulting from the use of CRM applications, including revenue increases of up to 41 percent per rep, decreases in the length of sales cycles of more than 24 percent, lead conversion rate improvements of 312 percent, customer retention improvements of 27 percent, decreases in sales and marketing costs of 23 percent, margin improvements on orders of more than 2 percent.

But all that glitters is not gold. Skeptics of CRM have their own data to back up their claims that technology is failing miserably at truly impacting business. Numerous studies have reported project failure rates of 50, 60, even 70 percent. In our own two most recent CRM project benchmark studies, the percentage of firms surveyed that, after implementing a CRM system, could point to specific significant improvements in their operations as a result of their technology investments were 24.3 percent and 26.7 percent respectively.

So which side is right? Is CRM the answer to all the sales, marketing, and support challenges we face, or is it yet another highly over-hyped technology fad? Based on our review of more than 2,700 sales, marketing, and service excellence projects over the past ten years, I have come to the conclusion that it is both, depending on how you approach your initiatives.

In the late-’80s and even into the mid-’90s, the cause of high failure rates being reported by companies implementing CRM systems could often be associated with the technology itself. At that time, the CRM industry was in its embryonic stage, and the applications were often not robust enough, scalable enough, or extensible enough to meet the expectations companies had for the tools.

Today, however, technology is rarely the primary reason for project failure. The core software applications have been significantly enhanced over the past few years, noticeable improvements have been made in the way applications integrate with each other, the personal computers and servers these applications run on are more powerful, communication bandwidth is faster, and the networks more stable. So if technology is not the main issue anymore, what is?

One of the major differences that I see between companies that succeed or fail with the CRM projects is not the technology they buy, but rather the steps they go through to make those purchase decisions. Companies that take a more structured problem/solution approach to manage their initiative consistently generate better results.

Vendors often talk about their sales cycles — the process they go through to get a prospect to buy what they have to sell. The buy side of the CRM equation — the process that an end-user firm uses to pick the right solutions for their specific problems — needs to be explored.

In our most recent review of CRM projects, we surveyed the sales, marketing, support, and IT professionals ultimately responsible for managing their organization's initiative. During the course of this benchmarking work, we got down to the step-by-step process these firms used to determine their needs, evaluate various offerings, make their final vendor choice, build the ROI model to justify the investment, and roll out the application to the various user communities.

From this effort, we generated a wealth of insights into how the buy cycle for CRM can best be structured to help maximize the success of a project, and I would like to share some of those insights here. For our study, we separated projects based on their primary operational focus: sales, marketing, or support. For the purposes of this paper I will focus on the replies we got from sales organizations, but the methods that will be suggested should hold true for marketing or support-based projects as well.

The first question we asked each of the firms we surveyed was what the objective(s) was that caused the firm to start to look at CRM? We feel it is key to have an understanding of what a company is trying to accomplish at the start of its initiative. Figure 1 shows the responses we received from executives as to the primary goals they had for sales-excellence-focused projects.

Most of the companies we talked to could easily give us this level of detail regarding the intent of their project. At the 30,000-foot level they knew they needed to increase the effectiveness of their organization, improve margins, or decrease costs.

Any of these objectives is a valid reason for starting a CRM initiative, but to maximize your chances of achieving that goal, the next step in your buy cycle is to dig deeper and determine what operational improvements will need to take place for the company to achieve its initial goal. To accomplish this, you need to assess how you are performing specific business tasks today so that you can flush out the areas that need improvement. For example, since a large number of the firms we surveyed stated that increasing sales effectiveness was their top business goal, we did a follow-up survey with 144 firms to determine exactly what that meant. To accomplish this, we gave these firms a list of 32 functions that sales organizations typically perform and we asked them to rate their current level of effectiveness on a 1-to-5 scale, with 5 being world-class and 1 being dismal. Figure 2 shows a summary chart of 13 areas where these firms, on average, rated their performance as less than 3.

At this level of specificity the vision for what you are trying to accomplish starts to become much clearer than it would if you stayed at the 30,000-foot level. Now we are dealing with specific problems that need to be solved, such as getting new reps up to speed, doing a better job of introducing new products, and improving customer loyalty.

Getting down to this level of problem definition is crucial since companies have so many potential solutions available. We have 427 companies who supply various CRM technologies in our database, and we continued to get three to five business plans from new entrants into the market each month. Complicating this level of choice is that some of the robust CRM application suites are made up of as many as 150 separate functions.

If you are going to make any sense out of the multitude of options for consideration, you need to really understand the base problem you are trying to solve so that you can quickly focus on the specific solution types that address those issues.

Once the performance challenge areas are adequately defined, you are ready to start looking at technologies. But where is the best place to go for advice and information on potential solution providers? In the course of our surveys we asked CRM project teams to tell us what they found to be the best initial sources for information on technology solutions (Figure 3).

The most reliable source for accurate information is clearly word-of-mouth. This can come from a variety of places. No. 1 on the list is input from consultants. Here, what first may pop into your mind are opinions from technology

analysts such as Gartner, Yankee, and Forrester. While these are valuable, the individuals surveyed also said they valued the input from other consulting firms they dealt with such as system integration firms like Accenture, Deloitte Consulting, and Extraprise; sales methodology companies such as Miller Heiman and Sales Performance International, or business process re-engineering organizations.

Reviewing case studies, talking to existing technology users, and relying on firsthand experience with tools were other word-of-mouth sources that were also highly rated. Leveraging the Internet is another option, as most of the CRM solution developers have very extensive Web sites that often include testimonials. This can be a great source for people to call to get real world experiences before you talk to the vendors.

With an understanding of the problems and a preliminary list of vendors who specialize in dealing with those issues, you are ready to move onto the education step in the buy cycle — developing a sufficient understanding of each of the offerings so that you can prepare your short list of vendors to evaluate in detail.

There are a variety of tactical steps you can take to educate yourself on what vendor offerings really do and do not do. In the course of our CRM project benchmark surveys, we asked the participants to list the specific steps they went through to educate their teams and also to rate how useful those tactics were in helping them get up to speed on the problems vendors’ solutions solved and, more importantly, how. Again, we used a 1-to-5 scale, with 5 being extremely valuable. The sidebar shows the most commonly cited tactics along with the average value ratings. The top two pieces of advice given to us by the study participants were: to invest the time to get under the hood and see what these technologies are all about; and to see which vendors are willing to work to earn your business. Notice that reviewing product collateral and sitting through a standard product presentation or demo get satisfactory, but not great ratings.

To really understand what the tools do and how they will help your firm meet your project goals, you and the potential vendors need to spend some time together. When you select a solution framework on which to build your CRM system, you are making a key partnership decision. Look early on for which vendors are willing to invest the effort to understand your existing business processes to surface the weaknesses in your present operations, and then have them do a customized demonstration of what their solution could mean to you.

You would never let a doctor start prescribing drugs to you for an ailment without first diagnosing your symptoms. So if a CRM vendor starts prescribing how his system works without taking the time to truly understand your operational pains, you should tell them to stop and learn about your business or drop them from consideration.

You can go through the above steps with a vendor fairly quickly and still get a solid idea of which technologies justify further investigation, and which do not. Once you can pare down your options to the three or four vendors on your short list, you are now in a position to move on in the buy cycle and do a detailed evaluation of those few players.

Again, there are a number of ways you can evaluate vendor offerings, but based on our survey, certain approaches seem to be more effective than others. The sidebar shows the most commonly used tactics the survey participants utilized and their effectiveness rating on the 1-to-5 scale.

The purpose of the buy cycle's evaluation phase is to address two fundamental questions: Should I buy anything and then, if so, from whom? The most common process used is issuing a request for proposal (RFP) to the short list vendors and then reviewing their proposals. From the comments made by the interviewees, this is clearly not enough.

A concern voiced by many firms was that the traditional RFP process was not always an effective method for differentiating products. Often vendors can match each other feature for feature on the surface level. The real issue many CRM project teams cited was that it is not really an issue of a CRM product doing something, but an issue of how they do it.

The most highly rated tactics for evaluating vendor offerings will add time to the effort, but they will also help you recognize problems that could slow down or derail your project altogether somewhere down the road. Working with the vendors to develop a detailed implementation plan that outlines the features to be implemented over a determined period of time was seen as a key method to help ensure that both parties are thinking similarly.

Based on having the scope of work tightly defined you should also be in a position to work with the vendor candidates to quantify what benefits will occur at each phase of the project. In today's tight economic environment, having a solid business case for a projected ROI is usually required to get approval to proceed with the initiative.

Lastly, the old military adage of "trust, but verify" applies here. The firms we surveyed highly recommended taking the time to visit existing customers to have them comment on your plans. Customers can provide key insights into whether your plan is too aggressive, whether the technology can really meet you functional needs, and whether the vendor lives up to their promises.

Also, conducting a meeting with the senior executives of your potential vendors will allow them to validate their claims that they can deliver their promises. Meeting face to face and gaining executives’ personal commitments can go a long way towards building a true partnership for your success. When all the data gathering has been completed, establishing final-choice criteria will become the next priority in your buy cycle (Figure 4).

A couple of items are worth noting in figure 4. Clearly, one of the key issues that should be considered is if the application has the functionality required to deal with the specific operational issues previously uncovered. But you need to go beyond that level of comparison. The next issue is to understand how you can customize the applications to fit the way you do business, versus expecting what will change how you work to fit within the structure of the system architecture.

If you are convinced that the building blocks are all in place, then consider how easy it will be to do all the necessary work for implementation, and then how easy it will it be to use, so that you can ensure user acceptance. To really understand these issues, have your IT team assess the tools in terms of ease of implementation, maintenance, and enhancement. Also, get end users involved to give you frank assessments on how easy to use they think the systems are.

In further discussions with the study participants, we found that price was so highly rated because some vendors focus heavily on the issue. Significant discounting of CRM systems is rampant in the marketplace today as vendors fight tooth and nail for every deal. In retrospect, though, most of the firms we talked with feel that price should be the tiebreaker, versus one of the key initial evaluation criteria. If you get an incredibly low price on a solution that is feature-poor, hard to customize, time-consuming to implement, or is difficult to use, you will have made a very poor choice for your organization and significantly increased the chances that the project will ultimately fail.

So you have discovered your business needs, weighted various options for solving them, picked your vendor(s) to partner with, and with them you have built an implementation plan and ROI business case. Is your buy cycle complete? Not by a long shot! Just as a sales cycle doesn't end with the close, neither does the buy cycle. You need to move on to the next phase — implementation.

Up to now you may have felt like going through the buy cycle in the manner we suggested sounds like a great deal of work. It is. But the effort is well worth it. By doing a comprehensive job up-front, you will set the foundation for dealing with a multitude of challenges.

If you have done the homework of analyzing your existing operations, you will have already surfaced your process flaws. If you use the concept of solving these problems as a major factor when you evaluate vendors, you will have likely picked tools that already provide solutions for your problems. If you then use the tools to solve the key challenges that your marketing, sales, and support staffs are dealing with, you will win their support and find that they are already motivated to learn how to make the systems part of their daily workflow. The effort you invest in during the buying process can help minimize your challenges.

I often get asked, "If CRM success rates are so low, why is it so important?" My answer, "Because the ROIs are huge when it does succeed." As soon as any player in any industry successfully implements CRM solutions to increase the efficiency and effectiveness of the customer-facing teams, they set a new standard for performance that all competitors must meet. The real debate is not if you should implement CRM, but rather how quickly must you successfully implement it to remain competitive. Investing a few extra weeks to do the buy cycle process the right way can save you months or even years of additional effort down the road and take you a long way toward the success you have to achieve. Hopefully, the insights we have shared will give you a solid framework to manage your own buy cycle.