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RSS feedsResearch has predicted that the success story of the decade will be customer relationship management (CRM). As global competition increases, businesses are more desperate than ever to win, retain and understand customers. Improvements in areas such as efficiency, quality and distribution mean that most businesses now operate on a level playing field. Sales and marketing are the only differentiators, and CRM will be crucial in enabling businesses to stay ahead.
The market for CRM systems is mushrooming and the UK is one of the leading markets in Europe. CRM could be worth six times as much as enterprise resource planning (ERP), which runs conventional back-office functions such as accounting, manufacturing and payroll systems.
This is not just because there are more potential users in customer-facing roles, and therefore more licence revenues, but because CRM is all about opportunities where the sky is the limit. By contrast, back-office automation is usually blinkered by efficiency and cost-cutting.
New terms for old
According to Paul Gant, a director at CRM consultancy Market Elan, CRM is a relatively new term. "It came about two or three years ago. Before that it was called sales automation or call-centre automation," he said. "But this didn't sound right and vendors wanted to say that they have comprehensive systems, so they coined the term CRM. It's really the successful bringing together of a host of small functions."
These functions include sales force automation, internet and ecommerce support, field sales and telesales, marketing automation, direct marketing, call centre services, help desks, field service automation, service history, analytics, sales compensation and contracts. Underlying technologies include workflow, databases, business intelligence, data mining and datamarts. Not surprisingly, many businesses mix and match the bits they need rather than take complete solutions.
Matthew Burley, European marketing manager at CRM vendor Pivotal, said: "CRM means everyone in your front office is accessing and sharing the same information. Customer interaction is managed consistently, regardless of who deals with it." This includes trading partners, or even customers, accessing information directly via a website.
But CRM is not just a product, said Simon Bates, business development director at consultancy and services company ECSoft. "We see CRM as being primarily about business change, processes, organisation and culture, though of course there is a role for technology to facilitate those," he said. "It can involve a two- or three-year programme of change for a company, from being channel or product-centric to becoming customer-centric."
The allure of CRM is so great, especially with the rise of ecommerce and one-to-one marketing, that IT vendors are jumping on the bandwagon. Market analyst Gartner has counted more than 500 in Europe alone, although many offer components rather than complete solutions.
Serious CRM vendors can be divided into three classes. In the corporate arena is market leader Siebel, which has done most to define and publicise the CRM concept, and rivals Vantive, recently bought by ERP vendor PeopleSoft, and Clarify, now under the Nortel umbrella. Each has its strengths: Siebel in large-scale sales force automation; Vantive in service and support; and Clarify in telecoms and call centres. But all have very high functionality which is matched by their price and complexity.
The mid-range market includes vendors such as Pivotal, Onyx, SalesLogix, Point, Applix and Great Plains. Most have typical mid-range products that are functionally similar to the big three, but less scalable, and cheaper. The low end is served by products such as GoldMine and Multiactive's Maximiser. These can be ideal for SMEs that are outgrowing out-of-the-box sales automation packages such as SalesLogix's Act.
Traditional ERP vendors are the newest CRM entrants, muscling in - rather belatedly, say observers - on what they perceive to be both a convenient adjunct to their existing core functions, and also a meal-ticket as the profitability of 'boring' back-office systems dwindles.
Other than ERP vendors, no-one seemed to be much impressed with CRM's progress to date. Oracle has made the most noise about CRM, claiming a significant market share and promising more features in its 11i release. But analysts are sceptical about its progress.
ERP vendor SAP has similar functionality but has been slow to market, while JD Edwards is simply partnering Siebel. Baan is no longer seen as a significant force. PeopleSoft probably has the best deal so far, if it can integrate Vantive into its core offering.
Going with the flow
The problem for these vendors is that, although in theory the two should dovetail well, CRM is entirely different from ERP, which is aimed at improving efficiency and importing best practice, and can be implemented in one big bang. CRM is all about relationships that can be fluid and unpredictable. It is seen as a differentiator where businesses want to define their own best practice. Rigid, pre-cast systems are often inappropriate.
Most CRM users implement it in stages, beginning with the most problematic areas such as a struggling sales force, an under-performing call centre or an inefficient field service operation, and extending to a series of small projects once the system has proved its worth.
There is no real pattern of CRM usage, although big companies lead the way and users tend to have a large number of complex customer relationships. Financial services, telecoms, IT and dotcoms are among the main markets. Manufacturing, media, retail and pharmaceuticals markets are also strong. Even government organisations are taking an interest.
Many users are upgrading from simple PC based sales force automation packages. Because CRM is so new, few have coherent strategies, said Nick Hewson, CRM expert and head of Hewson Group. "Architecting strategic solutions is still quite difficult. Most businesses are still trying to solve tactical problems," he said.
This presents resellers with a conundrum. On paper, CRM's rewards are high. Software licences for small business packages start at about £400 per seat for basic marketing functions. Mid-range software can cost £1000 a seat, while high-end packages rake in between £2000 and £3000 per user. Margins are usually above average.
Added-value extras such as consultancy, integration and support add between 100 per cent and 200 per cent to the bill. Because CRM systems are built up gradually, and clients' needs can change quickly, the amount of repeat business is high. For some vendors it increases by more than a half.
Rates of return can be remarkable, said Richard Hardie, strategy partner manager for servers at Bull, Vantive's systems integrator partner. "Return on CRM investment can be proven very quickly. It can be as short as three months but six months is quite common."
The demand for CRM is outstripping supply and resellers are being currently rushed off their feet. "CRM is becoming easier to sell, especially in ecommerce where there is panic among users," said Hewson. "The demand is considerable, even if people don't know exactly what they are demanding."
So why aren't more resellers making a mint? Because so few are qualified to sell CRM. One of Hewson Group's services is finding channel partners for CRM vendors, a mission which is proving difficult. CRM is probably the most difficult application for the channel to sell, said Hewson. "That's partly because users don't really know what they want. It's also a challenge for the channel to understand the business rules and the technicalities of stringing together different components. Many vendors have been selling direct, partly because of the difficulty of finding partners."
PeopleSoft/Vantive has only two resellers in the UK and the Irish Republic, and it took nine months to vet and accept them. James Eddo, alliance manger at PeopleSoft, said: "It's difficult to find resellers with the necessary skills and experience."
Many three-tiered vendors such as GoldMine and Multiactive are mainly channel based. Pivotal sells mostly indirect, Great Plains is exclusively indirect, and Onyx wants to build up its channel from its handful of resellers. Samia Rauf, marketing director at Onyx, said: "I think the opportunities for the channel are huge as markets converge."
Gaining trust
Smaller vendors are happier to take on new resellers, but they face an uphill struggle competing against big brands, especially in corporate accounts, said Steve Moss, managing director at StayinFront, a Great Elk VAR until it bought Great Elk late last year. "The hardest thing for a reseller is gaining the trust of customers. If you choose a less well-known product, you can be flattened by the sheer marketing muscle of the major players."
Businesses still do not understand what CRM is about, so resellers have to do a lot of educating before they can pitch. Robert Fleming, CRM marketing director at Oracle, said the biggest issue for resellers is integration, with anything from state-of-the-art web based ecommerce to legacy ERP systems. "Integration between CRM and back-office applications is very important in achieving the full benefits."
Colleen Amuso, analyst at Gartner, said: "The big challenge for resellers is to implement CRM and integrate with an existing infrastructure." Resellers are obliged to partner with vendors or system integrators, and risk being squeezed out of the market later if the vendors and integrators decide to go it alone. Resellers have voiced concerns, although it isn't happening as yet.
CRM resellers have graduated from selling components such as sales force automation or call centre systems. Some come from ERP, others from the accounting and financial services world. CRM is still nascent, and not fully understood, by buyers or sellers. There will be teething troubles, and horror stories are bound to emerge, as over-hyped, over-sold technologies fail to deliver, as happened with ERP.
But the business impetus towards customer-centric operations is so strong, and the number of potential users so huge, that no-one in the IT industry will be able to ignore CRM. If resellers don't have a view about it, they should get one now.
- CRM is the art of winning, satisfying and understanding customers, often requiring several integrated technologies and sweeping business changes.
- The CRM market is huge yet largely untapped. It could dwarf back-office functions such as ERP.
- Demand is outstripping supply. The major brakes for CRM are ignorance among potential buyers and a lack of experienced resellers.
- Vendors of CRM products are looking for more channel partners.
- CRM can offer resellers a meal-ticket for life, as users implement it in stages and business pressures often necessitate updates.
- CRM is a difficult market for resellers and requires a strong mix of business, vertical and technical skills. But potential rewards are great.
See also:
Customer relationship management systems have been touted for some time now as the latest holy grail to solve a company's every ill. We look at the reality behind the hype, who the major players are and what the key is to success. 28 Sep 2000All IT Management
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