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Gartner, Inc.

Research conducted by Gartner, Inc. suggests it’s best to ignore vendor hype and to adopt technology based on actual need.

Many enterprise executives think that CRM is all about technology. The reality is that it is a complex interplay of five related areas (see Figure 1). Enterprise executives that understand this interplay find the balance necessary to be successful in their CRM implementations. CRM is not a technology, nor is it a particular vendor solution. CRM is a popular management discipline that puts the customer at the heart of the business. And, it's a discipline that applies to pretty well any kind of business, and to business customers as well as consumers. CRM is a business strategy designed to optimize profitability, revenue and customer satisfaction.

To realize CRM, organizations must foster behaviors — and implement processes and technologies — that support coordinated customer interactions throughout all customer channels. The result of this definition is the realization that to achieve CRM, enterprises need to look at five distinct, but equally important, pieces:

Strategy

It can sound redundant to say that enterprises need a strategy for a business strategy, but an important point exists here. Because CRM is a business strategy, it will evolve differently at different enterprises depending on what strategy is developed. Thus, enterprises need to determine what they want their organization to look like once CRM is in place. A strategy to become a customer center — and support multiple channels — requires different solutions than a strategy designed to maximize the lifetime value of the customer through forming close relationships between the customer and the enterprise with independent agents. Both are valid, but the results will be different. Therefore, the first step is to develop an appropriate CRM strategy to coincide with the enterprise's business strategy.

Processes

The third area is internal processes. Most enterprises have sales, service, and marketing processes in place that have not changed in 50 years. Much is done because of a problem that occurred once, years ago and long forgotten. Enterprises forget that if they have a bad process in place, and they automate it, they now have an automated bad process. Therefore, enterprises need to re-examine their processes to adjust to the strategy and tactical decisions made above. In addition, new processes may need to be implemented (e.g., data capture processes needed to keep a customer database accurate and usable).

Tactics

Tactics are the daily components of the strategy. Once the strategy is in place, enterprises need to determine how CRM will manifest itself on a daily basis to the customers. Will it be apparent that the enterprise has a unified view of the customer, or will the customers feel that they are dealing with distinct entities within the firm? Will every customer contact person be a generalist, or will there be specialists? Is the website designed for marketing, sales, service, two of those three, or all three? Once these questions are answered, the enterprise needs to develop tactics to implement its CRM strategy.

Skill Sets

Simply buying technology accomplishes nothing without ensuring that the skill sets needed to use it are present. This is true for employees and customers. Everyone touching the technology has to understand how to use it, what it can and cannot do, and what is expected of them. In addition, the technology must have real value to the person using it. For example, many sales force implementations fail because they were brought in to solve senior management's reporting needs; not the needs of the sales people who have to use them. From the customers' viewpoint, many CRM technologies provide little or no value to them. A good example is the call center solution that requires lengthy sequences of buttons to be pushed before getting to a person, only to have to give all the same information again to the agent. Thus, it is important for enterprises to make certain that everyone who is a stakeholder in CRM — internal and external — has the right skill sets to use the technology effectively.

Technology

Once the other four areas are understood, technology takes its rightful place as an enabler. However, it is not a panacea. Enterprises have not "done" CRM because they installed a software package. The key is aligning the other four areas with this fifth area to ensure a valuable solution. Ultimately, many successful CRM implementations have mediocre technology, and many failed CRM implementations have great technology. The reason for this is that CRM is not about the technology. The key to minimizing the chance of failure is to put technology in its proper place. That place is as the enabler of the other four areas: strategy, tactics, processes and skill sets. Once that is accomplished, the issue of what technology or technologies to acquire becomes much clearer and less daunting.

Once these pieces are understood, enterprises will find that CRM is an iterative process.

Figure 1 — The Five Areas of CRM (Source: Gartner Research)

CRM Is Iterative

Understanding the five areas in Figure 1 is a good beginning. The rest of the picture becomes clear when enterprises realize that these five areas all are connected to each other (i.e., technology can drive strategy; processes impact skill sets; tactics can be developed to utilize technology). As such, the interplay of the five areas will be iterative. This means that successful CRM practitioners tend to keep updating all five areas as circumstances change. The Web presents an effective illustration of this iterative interaction. For example, an enterprise may start with a strategy to use the Web for marketing. It buys a personalization package to create a new website, and its clients start to use it; however, complaints come in that they cannot receive self-service on the website. The enterprise adjusts its strategy to provide more support. Initial coverage is provided by a packaged "e-service" solution. Then, after six months, the package is updated to allow for live chat and email response management. This enables the enterprise to serve the customer in a different way, illustrating the point that processes need to be updated (e.g., the call center operators need new skills). The enterprise will get better at CRM when it allows the five areas to work together and drive each other.

The Range of Vendors for CRM Projects Is Hard to Narrow

During the mid-1990s, there was a burst of activity around Enterprise Resource Planning (ERP) systems. At the same time, innovation in the area of customer service was reaching an apogee, and customer loyalty and retention figures were dropping. As the majority of efficiency was being squeezed from back-end systems (e.g., logistics, manufacturing, HR, and financials), enterprises turned to cost and revenue challenges in the demand chain (e.g., sales, marketing, and service). This resulted in rapid growth in the number of vendors writing and implementing software for this market, which came to be known as CRM.

More than 800 vendors claim CRM solutions. Yet, no single vendor — even a highly regarded vendor such as Siebel Systems — offers a sufficiently comprehensive enough CRM application suite to cover all the functionality required for a large enterprise to support CRM (see Figure 2).

Figure 2 — The Achievement of CRM is to optimize revenue, profits, and customers' needs and satisfaction.
(see Larger Image)

The likely scenario will be a suite at the core, integrated with multiple additional technologies. Knowing CRM vendor categories will save time and money in early project stages, as eight to 12 technology vendors and three to five external services providers (ESP)/systems integrators (SI) are needed for a complete CRM solution (see Figure 3).

Figure 3 — Baseline Criteria and Weightings

With the evolution and expansion of business and technology models — mainframe to client/server to Internet devices and business-to-business (B2B), to business-to-consumer (B2C) to B2B2C — CRM software categories have significantly expanded. As the number of categories grows, the percentage of vendors that will fail, merge, be acquired or leave the market has blossomed to 65% every 36 months. This trend will accelerate, rather than slow down as two forces take hold: 1) business demands for broader application capabilities from a single vendor, and 2) an aggressive wariness of unprofitable software start-ups on the part of users. As a result, selecting applications to enable a CRM strategy will become increasingly difficult.

Software Partner Selection Criteria

Organizations often conduct evaluations that focus on just tactical considerations, such as product functionality, the technical architecture of an application and cost. Typically a combination of these three perspectives would dominate 90% of the attention of the due diligence process. However, many decision-makers are discovering that selecting a functional or architectural market leader does not guarantee project success. Due to the immaturity of the CRM market and the demanding nature of many CRM initiatives, project teams and stakeholders have been compelled to investigate and weight strategic issues, such as a vendor's services capabilities and a vendor's viability as well as vision, before making significant investments in packaged applications (see Figure 3).

Enterprises should select products using six high-level criteria that address functionality, technical architecture, cost, services, vendor viability, and vision. A baseline weighting scheme should comprise the following: Functionality should be 24.2%, Technical Architecture should be 16.2, Cost should be 14.1, Services should be 20.2, Viability should be 17.2, and Vision should be 8.1% (see Figure 4 ).

Figure 4 — Functionality Criteria (Source: Gartner Research)

Caution, Rather than Paralysis, Will Guide CRM Application Selection

Enterprises must evaluate three factors more carefully in the current investor climate: 1) the technical fit of a product; 2) the likelihood that the software provider will survive the time frame within which an implementation will occur; and 3) the availability of resources to install the product. Vendors that have solid products built with modern application development tools present fewer risks to enterprises, as their products will either be purchased by a larger vendor or retain their usefulness for 18 months from deployment, even if discontinued.

External Services Provider Selection Criteria

Rapidly evolving business processes and technology are challenging the CRM ESPs, making vendor selection more complex than ever. Before beginning the ESP evaluation process, enterprises should examine and document the CRM program's scope, planned resource shortfalls, the role of the business unit in the project and its IT management style. Successful enterprises will select an ESP based on its ability to perform business needs assessment, middleware integration and customization in line with organizational goals, within a clearly articulated context of CRM and with a track record of demonstrated ROI and delivery of process innovation enabled by technology. The program management role of the ESP becomes more crucial as consultancies are increasingly required to drive an overall vision of how disparate departments and systems can eventually form the ideal CRM ecosystem. However, enterprises should not underestimate the risks inherent in bringing a CRM strategist into the organization without a senior member of management on board who is able to co-develop a CRM program with the ESP. Enterprises must also be aware that large ESPs will not bid for mammoth, open-ended global CRM projects because most are canceled or drastically recast. We advise enterprises to assess their ability to absorb change and consider scaling back multiyear projects, and then to seek ESPs that best meet the scope requirements of the recast project.

Conclusions

Outstanding CRM requires a multivendor strategy. Enterprises will rely on vendors in four separate classes; applications, con-nectivity middleware, channel infrastruc-ture, and external services providers. No business will be safe from new competitors that offer better responsiveness, a lower-cost infrastructure and new, Web-enabled business models. Prioritize new CRM tech-nology adoption based on business needs, not vendor hype. Organizations with the discipline to track specific CRM project benefits will measure a 3% to 5% improve-ment in earning per share within 36 months of implementation. Achieving this organizational and technical integration will take two to three years of incremental change and new organizational and archi-tectural infrastructure models.