The Bottom Line of CRM: Know Thy Customer

Customer relationship management (CRM) is a must-have technologyfor many companies. But confusion reigns over exactly what CRM is, how to best implementit, and what role it should play in enhancing the interaction between companiesand customers.

A CRM undertaking should not be taken lightly. Some analystsestimate that full-fledged CRM initiatives are running 25 percent more than ERPprojects, long considered the mother of all IT budget-busters. "[CRM] willbe the biggest IT initiative of your life," states Aaron Zornes, vicepresident at Meta Group. Plus, a overwhelming tide of solutions is flooding amarket where just about every vendor is claiming to have some form of CRMcapabilities. "There's a lot of confusion about what CRM is," Zornessays, citing recent interviews with 125 early adopters of CRM. "Most don'tknow what the return on investment (ROI) is on CRM. They’re making big,expensive, politically risky blind faith investments."

ROI issomething that many companies have not figured out how to track beyondanecdotal evidence. “ROI on CRM systems is hard to track, because what you're lookingat is information you didn't have to help you make business decisions, and howdo you value information that you never had before,” says Steven McIntosh, vicepresident of information technology at Sega of America. “It helps you to makebusiness decisions, but doesn't actually save you money to the bottom line. Itmay give you the opportunity to make more money, but it's hard to quantify.”

Estimatesderived by Andersen Consulting predict a typical $1 billion business unit couldadd $40 million in profit by enhancing CRM capabilities by at least 10 percent.

Not only is ROI an inexact science with CRM, but the estimatedfailure rates for CRM projects is stunning -- even for an IT world accustomedto disruptions. Analyst groups project that a vast majority -- up to 70 percent-- of CRM projects will fail. The reasons vary. Michael Moaz, analyst atGartnerGroup, for one, says many of these efforts will fail because they willnot fully leverage and integrate all potential customer channels.

Many CRM failures may not even be related to technology. "Thebiggest reason is cultural," Zornes says. "It's not a technologyissue, but a business issue." Such systems need to more accurately addressthe customer lifecycle, a funneling process that Zornes breaks down into"engage, transact, fulfill, and service." As businesses automate thecustomer lifecycle from marketing to shipping products, they "fail tocapture gaps based on tribal knowledge."

Many companies lose sight of the fact that CRM is not a technologyat all, adds Bill Brendler, president of Brendler Associates, and a speaker andauthor on CRM. “Shifting a mindset away from a product-centric focus to thecustomer-centered focus is a major shift for companies,” he notes. “When youget to that point, CRM becomes a lot more complicated than ERP. ERP tiestogether the supply chain of the company, and it's all back office focused.It's easier to deal with back-office systems than it is to deal with thecustomer."

Brendler evokes memories of the total quality management (TQM)movement, in which organizations poured considerable resources and billions ofdollars in the late 1980s and early 1990s. "The companies that had a verydifficult time with TQM looked at TQM as a ‘thing.’ They put up signs andPareto charts, but they didn't focus on the people and the CEO was not involvedin the process. TQM didn't work, except in the companies that focused TQM fromthe people side.” After TQM came ERP, which often failed for the same reason,Brendler explains. “Now we're hearing about the large percentage of CRMimplementations that have not worked."

Likewise, CRM information that doesn’t help customers defeats thepurpose of CRM, says Nicholas Wheeler, managing director of Charles TyrwhittShirts, an online retailer. “We want to use the information we gather to serveour customers better. In the past, sometimes we've used it to serve thebusiness better,” Wheeler says. “We want to build customer relationships, notcustomer databases. I think a lot of people build the databases and see thatalmost as CRM in itself.”

The bottom line is that there is no single approach to successfulCRM, but a multitude of strategies. Every successful implementation has adifferent focus. CRM itself is not a single application, but an umbrella termcovering four categories of applications: Sales force automation, marketingautomation, customer service and support, channel and partner management.

Sales force automationconsists of tools that improve the productivity and amount of informationavailable to sales professionals. Such tools include contact management,calendaring functions, forecasting tools, and configuration models.

Marketing automationprovides marketing departments with campaign management, lead generation, anddata mining tools. A category referred to as Web-based enterprise marketingautomation (EMA) integrates or enhances sales, marketing, and customer servicesystems by automating Web and traditional marketing campaigns, processes, andoperations.

Customer service and support coverstools and technologies designed for leveraging and managing information incustomer contact centers. This may overlap with sales automation tools, butmore specifically integrates with call-center systems such as voice responseunits. This category also may include internal helpdesk systems.

Channel and partner management,which is often referred to as partner relationship management (PRM), employsthe same core technologies as CRM, but supports and tracks activities withsales channels, distributors, value-added resellers, and retailers.

Ultimately, an integrated approach that encompasses all theseaspects of CRM is critical. Increasingly, vendors are packaging their offeringsas CRM solutions, rather than as standalone sales automation or contact centersolutions. CRM vendors are launching Internet portals to facilitate Web-basedcommunities of supply-chain members, providing connectivity betweenrepresentatives, partners, and customers. Overlaying this new customermaintenance architecture are knowledge bases that capture all customer orpartner data into centralized repositories.

Analysts urge companies to look at CRM as one integrated whole.For example, a standalone call center that does not have access to informationfrom other parts of your organization will fail miserably. “If you do CRM on apiecemeal basis -- just do sales automaton for example -- you will miss theboat," Zornes says. Without a vision, companies risk “squandering theirCRM technology investments.” CRM technologies on the market today can linkfront offices directly into back-end systems that handle manufacturing,inventory, distribution, finance, and accounting. CRM derives data frommultiple points inside and outside the organization, including the Web, callcenters, retail outlets, trading partners, and market research suppliers.

"We see companies in the last couple of years really tryingto assemble a CRM ecosystem," says Steve Bonnadio, program director ofapplication delivery strategies at Meta Group. "But they're struggling withthe best ways to do this. Over time, if you look at integrating across theenterprise, companies are finding that it's very difficult to do. In fact, 60percent of project costs are attributed to application integration."

To date, CRM has been more of a build than buy solution."Unfortunately, vertically diverse marketplaces demand business logic andrules too complex for existing packaged applications," says Gartner’sMoaz. Necessary components include some form of electronic document interchangeor XML for data transformation, trading engines, legacy integration, andintelligent agent technology. The most comprehensive CRM offerings will consistof packages composed of front-office application suites, Moaz says.

The leading vendor in the CRM market is Siebel Systems. Lastspring, Siebel released Siebel eBusiness 2000, which includes new salesautomation functionality, such as wireless access support and analysis tools.The heavyweights of the ERP/ERM market -- Oracle, PeopleSoft, and SAP -- aremoving into the market in a big way. Other leading sales force automation/CRMvendors include Nortel Networks/Clarify, FrontRange Solutions, Onyx Software,Firepond, SalesLogix, and TeleMagic.

Goin’ Mobile

CRM packages are increasingly being bundled with multi-channelsuites that also cover sales automation, contact centers, self-service Webinterfaces, and kiosks. These applications are also increasingly takingadvantage of the mobile clients, such as those used by salespeople and otherfield force workers. Meta Group predicts that within five years, 75 percent ofsales and service professionals in the field will have a range of mobile orwireless technologies.

Mobile sales representatives usually carry contact managementdatabases in their PCs or laptop computers, which enable these representativesto enter or bring up information on the customer. A database replicator canprovide updates to the representative's local database.

Mobile devices “will significantly alter the CRM market,” predictsJack Gold, analyst with Meta Group. The widespread use of wireless and remotetechnologies will require CRM applications to have multiple entry points and beup on a 24x7 basis. “This will significantly affect internal end-user clientrequirements and the way organizations do business with both internal users andexternal customers or partners. The CRM chain will be substantially altered ascustomers find new ways to network and conduct business -- through phone, cablemodems, DSL, and wireless services. Furthermore, different client form factorsand user targets will require multiple interfaces.” This includes setting upseparate order screens for internal sales versus order screen for externalcustomers, and support technician interface versus consumer self-helpinterfaces, Gold adds.

Many CRM applications are not yet enabled for these newer classesof devices, Gold continues. He predicts that most major vendors will supportthese devices within the next one to two years. The most daunting challenge forvendors is providing localized storage and data synchronization capabilitiesbetween the remote devices and centralized CRM repositories. “We expect CRMvendors to solve the localized storage and data synchronization problem in thenext one to two years with specialized mobile databases, such as Oracle Liteand Sybase UltraLite, and changes to data schemas and replication models,” Goldsays. He warns, however, that plugging these devices into the system willrequire considerable design and testing, “and not simply assume an HTMLbrowser-based implementation will work universally, as many vendors now claim.”

The Web Channel

The Web channel is becoming crucial to CRM efforts. A robust CRMsite requires interactive chat, browser and application sharing,personalization, e-mail and content management, and strong customer servicecapabilities. CRM also depends upon the integration of Internet technologies,legacy systems, telephone services, front and back office solutions, and otherapplications. Gartner's Moaz also warns that "a serious disconnectthreatens current CRM vendors -- Siebel Systems, PeopleSoft, Oracle and Clarify-- unless they can prove their capabilities in buy- and sell-sideapplications."

That was the issue for Charles Tyrwhitt Shirts, which has soughtto aggressively expand its Web-based business to achieve a worldwide presence.When the company went live on the Web in 1998, it quickly learned that more wasneeded than a simple Web site, Wheeler says. “We learned a lot of lessons,” herelates. “When you set up a site, you have to get it absolutely spot-on firsttime. You don't get a second chance. People will remember your site for howeverlong. And if you don't get it right, they won't come back.”

Charles Tyrwhitt Shirts has attempted to leverage its data frommail-order operations for a number of years, Wheeler says. “We use what is ahell of amount of information that we gather to serve those customers better,and we try and focus on the true value drivers of the business.” On the systemsside, the shirt retailer has “bought various CRM packages that we've usedindependently, which in themselves are good packages. We have retail outlets,we have the mail-order side, and we have the Web. They're on three differentsystems, and bringing them all together is being proved virtually impossible.”

Plus, Charles Tyrwhitt Shirts’ original site “didn't reallyconvert enough of the browsers to buys,” Wheeler says. The site was “unable tolink to properly with legacy systems, which obviously meant the customers got aless-than-good service,” he says. “Also, we had a site where we were unable toreplicate all those different offers that we identified with all thosecustomers needed.” A relaunch in December 1999 employed CRM functionality,including predictive technology to review each transaction. “We fed in 250,000customer transactions into the database, and looked at them over time,” Wheelersays. “We stripped them back. So we withheld the information, and then lookedat the results Neugents forecasted, than actually had the benefit of looking atthe real result. We found 90 percent accuracy.”

The CRM tools -- including Intelligent CRM, Jasmine ii database,and Neugents from Computer Associates, helped Wheeler sift through more than 10years worth of information on customer buying patterns. “It's the only waywe're going to get ahead of our customers, it's the only way we're going tobecome what we plan to be, which is a global shirt brand,” Wheeler says. “Thatis actually learned from all that information we've gathered over the past 10years. Every customer transaction, every customer record is to learn from thatinformation and give those customers exactly what they want -- real one-to-oneservice. But doing that without the right tools, without a tool that can take thebusiness as a whole, is virtually impossible.”


In other cases, especially for companies that are removed fromtheir customer base and work through channels, CRM provides an opportunity tounderstand customers. At Sega of America, a major electronic games distributor,the challenge was to try to understand the unseen end users who buy from anetwork of distributors and retailers, Sega’s McIntosh says. “Right now, information gets back on how much[retailers] sold, but not exactly who they sold it to. We'd like to get closerto the end user so we have that information that we can actually get,” he says.

Sega’s CRM system, from E.piphany Inc., was piggybacked on top ofan existing SAP system that helped provide the necessary data elements, McIntoshsays. The company was able to get its CRM system up and running within sixmonths, thanks to "several years and several million dollars" ofprevious work installing SAP R/3. McIntosh notes that installing the CRMsolution "was a lot less expensive than SAP, and it took a whole lot lesstime." The software, E.piphany, is a repository that extracts informationfrom other applications. "SAP required a lot of the work to developworkflow and work rules," McIntosh says. Installing a CRM was "muchless disruptive."

Sega's CRM system runs on an IBM Netfinity server, and extractsinventory data from an SAP database running on HP-UX servers, as well asinformation from the company's market research department. "Previously, wehad consultants preparing that kind of information," McIntosh says. Whileit's still to early to establish the ROI of the CRM system, an immediatesavings in no longer having to retain the services of consultants, he notes."We needed something more consolidated, that could extract information outof our SAP system for our inventory and selling information and buyerinformation that our market research people collected, as well as provide uswith a single repository for all that information, that we can report on aweekly or ad hoc basis."

Finding customer information from beyond retail partners was alsothe challenge for Motorola, which has begun to deploy CRM technology to trackpreviously unseen cell phone customers. “We only knew 150,000 of the 150million customers who use our products," says Tom Dwyer, director ofe-commerce at Motorola. One factor that became apparent as the company trackedcustomer purchasing is the churn rate -- the company loses 12 percent of itssubscribing customers each year.

"We spend $1.275 billion buying back the US market alone eachyear. And it's a thousand times worse outside the US. We've been mediated outof the marketplace," Dwyer points out. "The intensity of ourrelationships with end users is relatively low." First, there's aninformation mediation strategy, where Motorola is working collaboratively withdistributors to develop a single e-commerce infrastructure, and "figureout how to standardize exchanges throughout the industry,” Dwyer says. Byworking proactively with its partners on e-commerce initiatives, Motorolaintends to evolve into a more consumer-driven organization. The company hasalso launched an e-business collaboration initiative with its distributors andagents, with the hope of more clearly understanding the dynamics of itscustomer base.

A key area of CRM is analytical CRM, which will involve heavydeployment of OLAP and other analysis tools, many of which are readilyavailable in Microsoft environments. Such intelligence is being deployed at EMIMusic Distribution (EMD). Previously, the company had only limited knowledge ofcustomers' buying behavior, according to Mike Hillerman, director of projectsand relationship management at EMD. "We didn't feel like our sales andmarketing staff had a big-picture view of what their goals were with ourexisting reporting systems" he says. "We were looking for a betterway of measuring marketing plan effectiveness." Motivating sales andmarketing people to use such a reporting system was another challenge, he adds.

EMD developed a system built on software from SAS Institute,running on an IBM Netfinity Windows NT server. Using OLAP, end users can viewdata on product lines, market teams, customers, and product or titles. WithOLAP technology, end users can use the system to find the most profitable customersand calculate their lifetime value, determine the best candidates forcross-selling opportunities, and decide whom to target as new prospects. TheCRM system’s database sits at a “hub” and provides the same data to allapplications.


More integration of CRM into mainstream business processes layahead. "The real cool stuff is going to happen in 2002-2003, when we'restarting to coordinate all our technologies and the creation of a hybriddelivery system that can interact with customers across multiple channels andtouchpoints," Meta Group’s Bonnadio says. "Clearly, electroniccommerce is going to become part of that. The e-channel is another channel,another touchpoint. We're going to converge on this single customer view, wherebusiness planning's going to be a prerequisite for CRM evolution, and wheremarkets are better going to define all the requirements necessary to do so. Thebottom line is that effectively managed hybrid selling systems will befundamental to realizing value from CRM programs."

[Infobox] CRM Forecasts

By the Year 2002:

83 percent of companies will implement data warehouses

70 percent of companies will revamp their customer processes.

53 percent of companies will aim to use electronic commerce totransform relationships with customers.

49 percent of companies will organize by customer type.

Source: Andersen Consulting



Andersen Consulting,Chicago,

Brendler Associates Inc.,Houston,

Charles Tyrwhitt Shirts,London,

Computer Associates International Inc.,Islandia, N.Y.,

E.piphany Inc., SanMateo, Calif.,

EMI Music Distribution, LosAngeles,

GartnerGroup Inc.,Stamford, Conn.,

Meta Group Inc.,Stamford, Conn.,

Motorola Corp.,Schaumburg, Ill.,

SAS Institute Inc.,Cary, N.C.,

Sega of America Dreamcast Inc., SanFrancisco,

Siebel Systems Inc., SanMateo, Calif.,

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