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David Braue

February 2000

Corporate IT

Submitted for Best Feature category

Increasing competition across virtually every business sector has turned the conventional rules of business success on their head. No longer can companies rest comfortably in the strength of the market monopolies they had enjoyed for so long; increased consumer choice has now given them the upper hand, and companies must work harder than ever to win and keep their customers.

This can be a big challenge for most companies, which more often than not never bothered to learn more about their customers than their billing addresses and credit card details. Fortunately, getting customer-wise is rapidly becoming easier with the availability of increasingly sophisticated customer relationship management (CRM) applications. By leveraging existing enterprise data into a complete record of the company’s interactions with each customer, CRM is fundamentally changing the way companies look at, and interact with, their customers.

Building a corporate memory
CRM is, in essence, to customer relations what enterprise resource planning (ERP) systems have been to internal business flows -- encompassing a broad range of functionality that helps companies treat customers within the whole of their interactions with the company. This broad-brush approach to helping companies maximise the value of their customers will rapidly turn even the most basic CRM initiative into a distinct competitive advantage.

CRM technology is seen as a key means of retaining the seven-million-plus customer base of Telstra, which has seen its customer numbers dwindle in recent years due to increased competition in the telecommunications market. The company is in the process of implementing CRM technology from Siebel to improve its customer handling and access to historical information about customer behaviour, but also recently began installing Prime Response’s Prime@Vantage technology to improve the accuracy and effectiveness of its marketing campaigns.

"This whole business of large marketing runs is very outmoded, and we needed to be able to get down to much narrower market groupings and segments," explains Alison Bertwistle, customer information manager with Telstra’s Consumer & Commercial business unit. "Even though our customer database was relatively sophisticated, pulling data from it was a very slow and complex manual process using our programmers. Not having an intelligent front end to design campaigns and pull lists was holding us back -- but because it relied on human beings remembering a lot of very complicated code, we would have a lot of mistakes in our marketing."

Using Prime@Vantage will help Telstra more effectively target its most profitable customers with service offerings that reflect their unique circumstances or preferences they may have expressed in the past. "We’re all learning to adapt to the concept of one-to-one marketing," says Bertwistle, "but all of our processes are geared to lots of people having the same sorts of services. The big challenge for us is to be able to deliver a campaign to a very small target market. We’re a long way from where we want to be, because we’ve been geared to the masses for almost a hundred years. To ensure the health of our brand and keep our business healthy and growing, we need to employ many strategies which will come straight out of the CRM books."

Given its potential to improve the bottom line, the market is expected to experience tremendous growth in coming years. Analyst firm AMR Research, for one, has predicted sales of CRM software and services will grow at 49% annually from some $US3.7 billion worldwide last year to be worth $US16.8 billion by 2003.

A November survey of 198 Australian companies confirmed CRM’s growing importance within corporate IT strategies, with nearly 65 percent of the respondents naming CRM as their most or second-most important investment over the past year.

In another survey, conducted by Com Tech Communications among 120 delegates at its annual user conference last August, 66 percent of respondents said improving customer service was a primary motivator for increases in e-business expenditure. Marketing and sales, by contrast, were named by just 37 percent and 30 percent of respondents.

Many sides to the story
Recognising the potential revenues to be reaped from the hoardes of companies now determined to meet the new customer imperative, vendors are falling over each other to rush out products purporting to be complete CRM solutions. While providing the market with tremendous choice, however, vendor hype over CRM has completely muddled many companies’ perception of what CRM really means – as well as perpetuating the very dangerous notion that CRM can be achieved through technology alone.

Companies evaluating potential CRM suppliers should maintain a healthy dose of scepticism when weighing up vendor claims. Virtually every vendor is moving into CRM from another area in which they were originally playing, which means that their definition of CRM will be biased by their own historical competencies.

Remedy, Vantive, Clarify, Aspect Telecommunications and POINT information Systems, among others, see CRM from a call centre-centric point of view; Siebel, SalesLogix and Multiactive Software believe it’s more as an offshoot of sales force automation; high-end database providers such as NCR and Sybase will point out the importance of effective data warehousing and data mining; and Prime Response, Pegasystems, and Acxiom are among the companies who will tell you CRM is primarily a marketing-driven exercise.

UK-based research company Infact Research’s CRM Vendor Directory (www.infact-res.co.uk), for one, lists dozens of CRM vendors in 41 separate and very different categories. Almost all of these vendors have their own particular take on CRM, and the tricky thing for potential customers is that they’re all correct.

Customers interact with an organisation in many ways, and every company has to carefully consider how its own business processes can best reflect those interactions. Sales force automation, automated marketing, call centre support, Internet and kiosk-based self-service, contact management, online procurement, business partner communications, business intelligence and enterprise reporting are just a few of the many areas that can potentially be integrated together into a total CRM solution.

Many of these will also leverage off of the systems discipline imposed after major ERP implementations. "We’ll see a blurring of the boundaries as ERP vendors acquire CRM-capable solutions and dovetail them into their own offerings," says Dr Norm Pidgeon, e-solutions group manager of corporate development with CRM consultancy SMS Consulting Group.

"CRM and an Internet front-end will be the things that start to release some of the capability and control that’s embedded in ERP systems – which have become a starting point. It’s only when you can reach customers and capitalise on that through CRM that you’re starting to get the opportunity to get return on [ERP] investment."

CRM can, it should be said, be implement irrespective of any ERP platform that has been installed. However, recognising that integration with ERP systems will provide a much richer data set and stronger enterprise capabilities, ERP vendors have been working to position themselves within the growing CRM market – whether through acquisition or the more difficult development approach.

In 1997, Baan became the first major ERP vendor to move into CRM after spending around $US250 million to buy CRM vendor Aurum. A year later, SAP and Oracle each announced initiatives to develop their own CRM offerings in massive development projects that are only now beginning to bear fruit. SAP, for example, recently shipped the first six modules of its Customer Relationship Management application and will release an additional ten modules throughout the rest of this year.

Last October, Baan ERP competitor PeopleSoft took its own shot at CRM by paying $US433 million for Vantive, a week before telecommunications giant Nortel spent $US2.1 billion to buy Clarify, whose technology will augment Nortel’s own PABX and call centre equipment. Not to be outdone, Nortel competitor Lucent Technologies now offers its own CRM framework called CRM Central 2000, which wraps Lucent-developed professional services, workflow and intelligent business systems around CRM technology from Siebel Systems.

Joint efforts between CRM vendors and service providers have become commonplace, with companies such as Graham Technology and Logica joining forces to promote CRM solutions. The big-five consulting companies, too, have variously allied themselves with several leading CRM vendors as they work to secure their own niche in the market.

Partnerships are a key driver for growth for Siebel, which already has such a commanding market share that it’s been referred to as the SAP of CRM. Determined to make it on its own, Siebel has premised its growth on strategic partnerships with Lucent and the likes of global service provider IBM, financial systems vendor Great Plains Software, e-procurement supplier Ariba, and ERP supplier J.D. Edwards.

Combining its own offering with Siebel’s will help customers smoothly transition from ERP to CRM without complicating the CRM market further, says Great Plains Australasian managing director Rob Kirkey. "Over the past five years, people have been very introspective in their systems, which is why ERP was king of the hill," he explains. "But it wasn’t maximising revenue, a lot of people are now focusing on how they can change the way they do business from inward-looking to outward-looking. To do this, you really need to have a fully integrated solution that provides both the front and back-office technology."

Avoiding ERP déjà vu
Despite their late start, research firm Ovum Research believes the largest ERP vendors will eventually get up to speed with CRM as the market consolidates around no more than six major players. Ovum also suggests that smaller vendors who don’t get purchased in the meantime will have to dominate their niche markets and partner with larger players to remain viable.

Yet ERP vendors will still face considerable scepticism from the many companies who were burned in the past because they took ERP vendors’ claims at face value. Recognising that it can’t depend on such blind faith the second time around, even SAP – which has built its business on trying to be everything to everyone – has opened up its strategy by designing its CRM solution for integration with other major ERP platforms.

The fact that CRM vendors are still finding their feet will do nothing to make life simpler for corporates, who may accept the need for CRM but can easily be caught off guard by the mishmash of vendor opinions. Furthermore, vendors promising complete CRM solutions may well be making the whole process seem too easy -- which has led many analyst firms to conclude that CRM will initially be a miserable failure within a majority of the companies that pursue it.

META Group, for one, recently warned that most Global 2000 companies face a "serious risk of failure" after analysing the plans of 50 major CRM customers in the US. Most companies have failed to develop adequate CRM business plans and are underspending on CRM, warned the firm, which could force many companies to spend up to $US250 million more by 2003 in order to realise returns on their CRM investments.

As with ERP, much of this extra spend will come from having to address previously unconsidered issues such as integration between legacy systems and the need to monitor CRM effectiveness. Even more catastrophic is the perception that CRM is simply a technology-driven initiative instead of a gradual business process that is aided by technology.

"The mistake that’s being made by many companies is overreaching and trying to do too much," says Pat O’Sullivan, president and CEO of CRM vendor SalesLogix, which recently expanded its core sales force automation solution by buying Symantec’s ACT! contact management tool.
"Companies look at all the various ways they touch their customers and their customers touch them, then set out to automate all of those. Whilst that is admirable, the cost and time to do those things becomes very difficult; they get this big, monolithic implementation that really is of questionable benefit."

CRM’s generally modular design means companies can – and should – approach CRM as a series of smaller projects rather than undergoing the pain of changing their entire business at once, as was necessary for ERP. By carefully reviewing customer-facing business processes, companies can match appropriate CRM components to their needs and focus on integrating them -- with existing legacy systems and other CRM point products -- as necessary.
"We have to get customers to think big but start small initially," says Brenton McPherson, Asia-Pacific managing director with CRM consulting firm SPL WorldGroup. "By keeping phases in 3 to 6-month timeframes, they don’t lose sight of their goals. We can then look at the outcomes; if the project is successful, it becomes self-funding over time."

Amway of Australia, which sells a broad range of products through some 200,000 distributors nationwide, held a number of internal workshops with SPL consultants to nut out its CRM requirements before even beginning to think about technology. The review -- occasioned by Amway’s first-ever direct customer relationships in the form of services built around its Watch 24 home security service – helped the company formulate its customer interaction strategy and ultimately choose the Onyx CRM platform as a key business platform for its 250 head-office employees.
"We knew that if we were going to hit the retail market we needed a far more sophisticated way of managing the information we were accumulating about these retail customers," says Amway IT manager Bob Buiaroski. "We didn’t want to rest on our laurels and think that the way we were doing business would be ongoing."
"The way we approached our business processes was very much to challenge the core of where we were at," he continues. "We didn’t do it because we had problems; we did it to make sure we were doing the right thing. Onyx will make the whole relationship a lot easier for us by taking away the mountains of paper and administration we would typically need, and making sure we offer the best service possible."

Wheat from the chaff
While CRM implementations can help companies get a better hold on their customer-facing business processes, they also set the stage for far more radical change by supporting the creation of a completely new automated customer support channel based exclusively on the Internet. Banks have been leaders in this trend, but over time companies in virtually any market will find ways the Internet can help them identify their most profitable customers and service them better.

Although one overriding premise of CRM is ostensibly to win and keep customers, the technology can also help companies eject those customers that are taking more than they give. Telstra, for example, drew considerable flak last December after changing the pricing structure for its Big Pond Advance cable modem service based on an analysis that showed a small number of customers had transferred up to $400,000 of data that had to be subsidised by raising prices across the board.

While Telstra’s changes did weed out the unprofitable customers, hundreds of customers ultimately abandoned the service after Cable & Wireless Optus announced a cheaper service that kicked off intense competition between the two cable providers. But with its worst customers shed from the service, Telstra is now in a much better position to compete with Optus since it can offer prices free of subsidies for high-volume users.

A similar approach, applied in other industries, will help companies hone in on their most profitable customers while providing alternative services for the rest of its customer base.

"What you’re after at the end of the day is customer wealth," says Grant Greentree, managing director of CRM consulting company james martin + co. "These days, 2 percent of your clients represent 98 percent of your value. Therefore, you’re going to have to overservice the value clients you’ve got and enable the Internet to service the rest."
"[We recommend that companies] take your existing business – Goliath – and create a fast, nimble, quick-on-its-feet David that uses the Internet as its only channel. You then overservice your customers to the point of paranoia. The key driver of CRM is looking at your ecosystem; if you can control and be the brains of that ecosystem, you have an enormous competitive advantage."

Companies pursuing an Internet channel strategy need to be careful they maintain service levels that are consistent with other contact methods, such as the telephone. Many companies have developed nice-looking interactive customer front ends, but without the back-end integration that allows Internet customers to enjoy similar levels of service. If Internet customers have to wait any longer for a service online than they do off – for example, if they can’t get an insurance quotation instantly as they can on the phone – the effect can be disastrous as Internet customers can easily switch to competitors with better online service.

"One needs to think carefully about what sorts of customers and services they will deliver by that channel, where they’ll add value to the client and deepen their relationship," says SPL WorldGroup’s McPherson. "If they can’t answer questions about how they’ll deepen their relationship using an online strategy, they really have to question what that strategy is."
"We’ve seen a lot of people start off early with online services, but then later realise they’ve given it lip service and haven’t made enough of an investment. There are a lot of disasters because people don’t understand, and they set CRM up as a technology project instead of a business project. But these are not $300,000 projects; they’re $3 million projects, and the commitment for resources comes from the top. If the CEO and senior executive team aren’t absolutely 100 percent behind it, there is a high chance of failure."

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SIDEBAR: Companies still learning the CRM way

Analysts warn that companies still have a long way to go in their deployment of CRM. One study of 50 major CRM users in the US -- conducted last October by analyst firm META Group and its affiliate IMT Strategies – found most companies lag in several key areas:

Perception
78% describe CRM as mainly customer-driven;
22% see it as technology-driven

Implementation:
More than 80% of companies have at least one operational CRM application in place;
Just 33% have invested in analytic CRM applications;
Only 50% have launched customer collaboration initiatives;
Fewer than 30% have begun to integrate operational and analytical CRM environments

Payback:
64% have no way of measuring the business value of CRM;
Fewer than 10% can measure a tangible return on their CRM investment;
Despite the market focus on Web customer service, online selling still accounts for less than 5% of revenues
Source: META Group/IMT Strategies
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With so many different perspectives on just what comprises CRM, the last thing most corporate IT strategists want is more acronyms to deal with. But that’s just what a number of analyst firms have provided, in an attempt to distance the concept of full enterprise-wide CRM from oversimplified perceptions of the technology as spruced-up contact management.

META Group, for one, believes CRM’s competitive potential will come through the evolution of CRM into what it calls ‘customer lifecycle management’ (CLCM). CLCM, says the analyst firm, is "a business process designed to cover the full spectrum of customer interactions – to engage, transact, fulfill, and service the customer based on an extensive customer pattern or profile." Such customer-centric systems involve the customer in the entire selling process.

Ovum Research, on the other hand, believes the consolidation of front-office, back-office and data analysis technologies will grow today’s segmented CRM solutions into ‘universal business applications’ (UBAs). Fully mature UBAs, which Ovum believes are at least a year off, will only come after vendors competing in different segments of the CRM market have overcome their differences; within five years, the firm argues, these various solutions will have coalesced into six or fewer major UBAs. Despite the appeal of such integrated solutions, however, Ovum recommends companies wanting the benefits of CRM begin deployments now but plan carefully to allow for future developments.

Forrester Research has yet another perspective on CRM’s eventual maturity, arguing in its recent report The Demise of CRM that the growth of dynamic online trading relationships will prove difficult to handle for today’s CRM products, which focus on managing customer records instead of ongoing relationships. Instead, Forrester espouses the idea of eRelationship management (eRM), which it defines as "a Web-centric approach to synchronizing customer relationships across communication channels, business functions, and audiences."

The term is quite similar, in fact, to another notion of ‘enterprise relationship management’ (ERM) now being promoted by some CRM vendors. By leveraging back-end data stores and integrated front-end interfaces, both eRM and ERM allow companies to maximise profits by providing complete customer histories with every interaction; the ability to seamlessly share relevant customer data with key business partners; and a renewed focus on Web capabilities that allow companies to improve online customer support and seamlessly extend customer information sourcing and delivery across the Net.

Such applications, Forrester believes, will emerge by 2001 as vendors focus on creating a dynamic customer context, generating custom responses based on that context, and distributing personalised content from a content directory.

David Braue

Freelance Journalist

(03) 9587 9410

braue@optushome.com.au