In the mainstream, but facing fresh challenges

Customer relationship management (CRM) software has been around for a few years now. It arrived in the happier days of the dotcom boom, when there was plenty of money around and people were happy to spend it.

And it was hailed as the answer to every organisation's problems in the new customer-centric world that had been ushered in by, among other things, the move to e-commerce and the web.

But then the inevitable disillusion set in as high-profile projects hit the wall and analysts such as Gartner started issuing depressing data saying that, for example, more than 50 per cent of CRM projects would fail to live up to customers' expectations.

CRM's growing pains
So where are we now? Has CRM moved beyond the initial growing pains into mature adulthood, or is there still some way to go before it will be ready for the mainstream?

According to John Radcliffe, vice president and research director at Gartner, the market is well past the early adopter stage, and applications are now starting to be implemented by early, and even late, majority users such as government.

"We're 'x' number of years into CRM, and there's a lot of mature functionality out there and a lot of implementations and experience gained," Radcliffe explained.

"Majority users are still coming into it, but they have a good level of understanding and are learning from the mistakes of others."

Early adopters who introduced the technology three or four years ago are on the second or third version of their systems and wrestling with issues such as how to upgrade, standardise or consolidate implementations, he added.

Nick Rhodes, principal consultant for consultancy Extraprise, said that CRM is starting to move into the mainstream.

"It's gone beyond the usual early adopters, such as financial services and IT firms, and is being adopted by more conservative firms in areas such as manufacturing. The majority have probably thought about it, and between about 25 and 50 per cent are making the move," he said.

"It won't be long before it becomes a pre-requisite, particularly at the consumer level. As more companies use CRM to provide a service, people start expecting that level of service from everyone, so it has a snowball effect."

Varying adoption rates
Adoption rates vary not just across vertical markets, but according to the size of an organisation.

According to Elsa Lion, managing analyst at Datamonitor, the high end of the CRM market, which in Europe refers to companies generating revenues of more than $250m, is almost saturated.

"People are mainly doing CRM at the high end and it's certainly mainstream there," observed Lion.

"Implementation rates are low compared with software, such as enterprise resource planning and human resources. But the market is getting there - you can tell by the number of companies developing software for mid-sized companies.

"Packages are becoming more affordable to the mid-range and if that continues, uptake will be quick. In five years' time, CRM will be widespread here - it's certainly mainstream in people's minds, they just need to buy the software, it's a question of price at the moment."

A large portion of the market is using custom-built software, Lion said.

Last year, the CRM element of large enterprise software suites, such as those sold by SAP and Oracle, accounted for only 22 per cent of total CRM expenditure worldwide, added Radcliffe.

The big selling point in this space is, he said: "If you have wall-to-wall SAP, for example, in the back office, the supply chain and front office, you can keep to a relative level of simplicity in the number of vendors and types of technology you have.

"If you're looking to integrate your processes across the entire company, it makes sense to go for an enterprise suite."

But a further 30 per cent went on stand-alone CRM suites from vendors such as Siebel, Pivotal and Onyx. These are usually deployed in firms such as telcos that are more interested in functionality and have declined to invest in large enterprise suites.

Instead they use home-grown or specialised back-end systems to automate their core business, and have less reason to stay with a single large supplier.

A further three per cent of the global budget last year was taken up with the purchase of CRM frameworks from suppliers such as Chordiant.

These appeal to organisations such as banks, particularly in the UK, said Radcliffe, that "want to retain control of their architecture because they've spent the last 20 years working on their business processes and are happy with them.

"They don't want to build applications from scratch at the J2EE level or be constrained by packages that will force them to change their processes."

Radcliffe expects the situation to change by 2006, as the market continues to mature and customers opt for vendors likely to remain financially viable into the long term.

By then, 45 per cent of all money spent on CRM will go on enterprise suites, and only 20 per cent on CRM suites as the market consolidates.

This means that some vendors will go to the wall, while others will become best-of-breed, niche players - although expenditure on this product type will fall to only 15 per cent of the total.

Changing focus
Frameworks will become popular, but build-it-yourself products will decline because of the expense and effort involved in support and maintenance.

"As the market matures, the focus will be on processes and integration," predicted Radcliffe.

"The two go together because users need to integrate their processes across different systems. One of the attractions of the mega-suites is that everything fits together, when integration can take between 30 and 35 per cent of the cost of an application project."

Kevin Coulson, CRM practice manager for consultant Salmon, argues that although many organisations have introduced SFA packages or sorted out their call centre, "few have dealt with all the customer touch-points of their organisation, or have more than a single customer channel joined up, which means they are not leveraging customer information as well as they might".

Over the next year, Coulson expects many firms to adopt analytics software as they move away from the idea of introducing operational CRM to reduce costs.

Instead they will deliver on the real promise of CRM - improving relationships with customers, to ensure they remain loyal and keep coming back for more.

CASE STUDY: BOLTON WANDERERS FOOTBALL CLUB

"There's no point having a CRM philosophy if you don't have the right tools: the people, processes and systems," said Gareth Moores, commercial director at Bolton Wanderers Football Club.

"CRM isn't just about database marketing systems or clever marketing activities; it's about every interaction you have with your customer."

Premier League club Bolton embarked on its CRM journey about three years ago.

Although it needed to compete with the bigger Premiership clubs, its fan base was smaller, which meant it wouldn't be able to generate enough money from football alone. It had to find new revenue streams.

"We command a loyalty in football that the Coca-Colas of this world can only dream of, but some people say you don't have to work to maintain it because fans will remain loyal no matter what," claimed Moores.

"But if you treat your customers badly and give them a bad experience, they'll remain loyal to the brand, but they'll do it from the comfort of their armchairs, which doesn't maximise revenues."

The club introduced its CRM strategy in the shape of a smartcard-based system from TeamCard, which it piloted during the 2000-2001 season, and went live the following season.

The aim was to ensure access to the stadium was more secure and efficient, but more importantly, it became the basis of a customer loyalty scheme.

Fans use the card to obtain points not only for buying tickets or club merchandise, but for buying goods and services in High Street chains such as Safeway, Allders and Toni & Guy.

These points can be redeemed at the club for tickets, goods or hospitality at the stadium hotel, which is run in association with the DeVere hotel group.

"The loyalty scheme has generated significant revenues for us and has delivered a return on investment in two years.

About a third of our income is generated from non-football activity. Three years ago, 97 to 98 per cent came from football," Moores said.

The next step was to introduce a datawarehouse from Team Notes to consolidate customer data held in disparate systems across the business.

The aim was to understand customers better to provide goods and services geared to their requirements and improve marketing campaigns.

"CRM is a process of continuous improvement and you can't implement it overnight," he explained.

"It's about changing the culture of the business and instilling a customer philosophy throughout the organisation.

"For us, it's been very much a staged process, rather than a big bang - we're spending a lot of money on this, and it can be a costly mistake if you get it wrong."

CASE STUDY: 3M

"CRM is not about technology. It's more of a strategy, with technology support," explained Neil Roberts, market development manager for 3M's Occupational Health and Environmental Safety (OH&ES) business unit.

"A long time before any applications hit the desks, you need to get the organisational structure right and ensure you have management and staff buy-in because you'll need everyone's support to make it work," he added.

3M is a $16bn multinational company based in St Paul, Minnesota, and operates in sectors ranging from healthcare to electronics and telecoms.

The OH&ES unit, however, manufactures respirators and head protection products and sells to customers through third party distributors.

The UK arm of OH&ES has been putting a CRM strategy in place since 1996 when it first commissioned a feasibility study, but the rationale for its move is complex.

"We recognised that the business could be more efficient in its customer contact strategy, and that customers could be served on a lower cost basis.

"A sales visit is not always the best way to interact, but that was our traditional model," recalled Roberts.

The market was also becoming more mature, and competition, which had been practically non-existent for many years, was intensifying.

"There was a recognition that if we wanted to continue doing well in the market, we couldn't do it by just doing what we did in the past," he said.

So the following year, OH&ES started changing its management team to make it more CRM-friendly.

Corporate marketing and IT started working together to plan the introduction of an outward, rather than purely inward-bound, call centre.

The project was sold to senior business managers as a way to cut costs and increase market share.

"We initially made the case to reduce or redeploy headcount by rationalising our external sales force, but we ended up increasing the headcount in the call centre by the same amount," Roberts explained.

"The business case was cost savings because it's less expensive to have internal, rather than external staff."

By 1999, personnel had been trained to adopt a customer-centric view of the business and a new incentives scheme was introduced.

The management team, which comprised five people, also became 'super-users' to train their teams - both external sales personnel and internal call centre staff - on how to use the CRM Sales module that OH&ES had purchased from Siebel Systems. The software finally went live in the middle of 2000.

"The super-users became champions of the system, and they had to familiarise themselves with the software before implementation, rather than wait for IT to train them. So by the time it was introduced, they were experts," said Roberts.

This was key to encouraging staff to use the new applications. "In an organisation where up to 30 people need training, you'll find that some are keen and some aren't, but people found it reassuring that the management team got to know the system and became competent quite quickly."

The applications have since been rolled out across most of the European business units in the industrial group, of which OH&ES is a member, to allow them to share and support customer data.

"This is no longer risky technology to implement, but it does need work. You need to do your homework and choose the right software to fit in with your strategy," advised Roberts.