CRM and Data Warehouses Need Each Other

We have seen the future of data warehousing, and it is in support of customer relationship management (CRM) systems. But it is unclear if the two technologies will form a blissful union or a marriage made in hell. The answer may be answered within the next 12 months, as pent-up demand is unleashed following the Y2K lockdown. Not that the lockdown has slowed these technologies down a lot -- investment in data warehouses has been growing by 46 percent per year; investment in CRM has grown by 25 percent per year.

While 2000 is projected to be a huge spending year for new CRM and data warehousing initiatives, neither will survive and prosper without the other. CRM -- which encompasses profitability analysis, customer contact, customer profiling, loyalty, performance, campaigns, and sales applications -- requires access to customer data from multiple channels, including e-commerce, call centers, direct mail, and face-to-face sales. Large companies invest close to $4 million a year in CRM systems, from which it is difficult to demonstrate hard returns on investment, says Aaron Zornes, executive vice president at Meta Group (www.metagroup.com). "There's a lot of money invested in systems that have no ROI at all. Every CFO will gag when they look at these numbers."

Companies need to integrate CRM efforts into an overall business performance management (BPM) approach, Zornes says. "Data warehouse and BPM are basic investments for building and operating a customer-centric business."

Large-company investments in data warehouses and marts have jumped to almost $2.5 million a year, and it appears the bugs in these systems have been worked out. A survey from Cutter Consortium (www.cutter.com) finds that 78 percent of companies surveyed report some success with their data warehousing efforts. Only 4 percent report that their data warehousing efforts were unsuccessful. Analysts say the main obstacle to successful data warehouse design is a lack of clear understanding of the decision-support applications -- such as CRM -- that are supported by data warehouses.

Although companies appear to have a handle on data warehouse construction, CRM initiatives are a different story. About 50 to 70 percent of all CRM implementations -- particularly in sales automation -- fail, Zornes says. "The biggest reason is cultural," he notes. "It's not a technology issue, but a business issue." These systems need to more accurately address the customer lifecycle, a funneling process that Zornes breaks down into "engage, transact, fulfill, and service." With the automation of the customer lifecycle from marketing to shipping products, the system "fails to capture gaps based on tribal knowledge."

The success of CRM also extends to the data warehouse, in terms of a company's capabilities to integrate, cleanse, and rationalize data from various applications, Zornes says. The great technical challenge to the process is data quality, or the implementation of tools to clean up and rationalize data in disparate data warehouses or marts -- such as names and addresses. But in a survey of 500 data warehouse sites, Zornes found little evidence of data quality efforts.

In fact, Meta Group has said most large companies' current CRM initiatives are in serious risk of failure. Many enterprises do not have adequate CRM business plans in place and are underspending on CRM projects. Of the essential components of a comprehensive CRM ecosystem, major firms demonstrated material progress in the deployment of operational technologies. These include customer-facing applications integrated among front, back, and mobile offices. By contrast, major firms demonstrated weakness in customer collaborative applications, which facilitate post-transaction relationship building between customers and organizations.

More than 80 percent of respondents to a recent Meta Group survey have at least one operational CRM application in place. Leading CRM deployers, however, have only started to make progress in the analytical area of customers data analysis, which uses data warehouses to generate customer- and product-data repositories. Only one-third have invested in analytic CRM applications, the study finds.

Vendors are now bringing to market solutions that more tightly integrate data warehouse and CRM solutions. For example, Ardent Software Inc. (www.ardentsoftware.com) recently announced an agreement with Hyperion Solutions Corp. (www.hyperion.com) to develop middleware that integrates Hyperion's Essbase OLAP server with data coming from CRM, ERP, and e-commerce applications.

Some analysts are skeptical about the power of CRM to help a business compete in the e-business marketplace. "Companies have a long history of throwing technologies at problems that can be solved only by changing hearts and minds," says Martin Butler, chairman of Butler Group (www.butlergroup.com). "Many businesses are just not customer-oriented, and installing a CRM system will provide them with little advantage." Plus, the growing commodization of some products may make CRM irrelevant. "Customers will go for the best deal, no matter how much you try to CRM your relationship with them. Large corporations may sniff the vapors of CRM opium to ease their fears, but it doesn't change the basic equation: If you don't provide the best deal, you won't get the business."