The truth hurts: Why CRM is still growing but still gruelling
A cursory glance at the headline statistics for the CRM marketplace demonstrates a sector that is apparently in rude health. And in purely financial terms, this is undoubtedly the case. A multi-billion dollar industry forecasting robust growth in the coming years, CRM is creeping its way up the agenda of CEOs and CIOs. Even the global economic downturn couldn’t dent its progress, during which it was one of the few software markets that continued to thrive.
But if you scratch beneath the surface of these statistics and forecasts, the CRM sector is not all sweetness and light. And while it has progressed far from its problematic early days of aborted implementations and expensive zombie systems, there are still challenges underpinning a large proportion of CRM projects.
It’s time to shed some light on the world of CRM.
CRM gathering pace
Worldwide CRM software revenue topped $18 billion in 2012, up a healthy 12.5% from the $16 billion reported for 2011, according to Gartner. And the market for enterprise CRM appears to be accelerating.
The Q4 2012 Forrsights Software Survey reveals that still only about half (47%) of the North American and European enterprises questioned have implemented a CRM solution in the form of a marketing, sales or customer service application. 13% reported that they planned to adopt a CRM solution within the next 12 months, while a further 12% indicated that they were planning for CRM implementation in the longer term. Elsewhere, of those that had already implemented CRM, a quarter said they were intending to spend more to upgrade their systems.
Indeed, despite the challenging global economic landscape, investment in CRM has continued to be strong, even when other software markets toiled. And it has also attracted increasing attention at the upper echelons of business in recent years.
'For years CRM wasn’t in the list of top things that CIOs said they prioritised in our surveys. But then in the last three years it has gone from nowhere to 7th in the list of technology projects that would support their goals for the business,' says Ed Thompson, VP and distinguished analyst at Gartner Research. 'Clearly it hasn’t gone away as an interest for companies on the whole, but it has really risen to the top of the agenda again amongst CIO and CEO level.'
He continues: 'Probably a lot of this is the fact that growth has picked up again – GDP growth is the best indicator of whether people are going to be spending on CRM. But the other factor is that a lot of organisations are concluding that they want to differentiate by having a superior customer experience, and therefore they are looking for technology that will help them with their customers. And that tends to be CRM.'
Bill Band, VP and Principal Analyst at Forrester Research, is in agreement. 'Everyone’s got a customer, and ensuring that those relationships are effective is a perennial challenge,' he explains.
'In our last survey amongst senior business leaders, we asked them what were the top priorities going into 2013 and into 2014 and the top three issues that were identified as critical or very critical were growing the business, improving customer satisfaction and responding to changing customer needs. Things like cost reduction and supply chain and those kinds of things were way down the list. Why is that important? Everybody’s trying to grow their business and that’s a top priority.'
Richard Boardman, Founder of Mareeba Consulting, elaborates on the reasons for the growing interest in CRM. 'If you’re not using some sort of central technology like CRM then you’re probably trying to run your business off a series of Excel spreadsheets – and while you might get away with that with one or two customer-facing staff, if you try to do that with larger number it is just manifestly inefficient. People implement CRM technologies because it allows you to run your business a lot more efficiently.'
And he adds: 'The other element, and probably the reason why it’s gathering pace, is that increasingly sales people see it as a tool for their job that they must have. And in many cases it is quite difficult to attract sales people if you are if you are not running a sensible CRM set-up. Some potential candidates will see it as a big negative if you are not using CRM, or if you are using something developed in-house rather than a well-known brand.'
Changing the image of CRM
But not everybody thinks that the CRM industry’s financial growth equates to a successful tech sector. Mike Muhney is a true CRM pioneer, the co-creator of ACT! software, credited as the catalyst for the customer relationship management industry, and now CEO of mobile relationship management business vipOrbit. He believes that the CRM market needs to be put into perspective.
'A recent commissioned study by SugarCRM revealed that there are only 14 million people in the world using CRM. Compare that number to the mass market combined with mobile device ubiquity that exists and it changes the overall image of CRM's impact to the entire global business community,' he notes. 'Gartner on the other hand has also indicated in many previous research studies about CRM implementations that 50% fail from the perspective of the person being surveyed in the enterprise, typically the CTO or the CIO.
'I do not believe that you can take at face value therefore what looks to be an overwhelming success rate ubiquitous in the business world given those failure rates as well as small user base limited only to a small number of enterprises that exist in the world. Compared to the overwhelming population of SMB businesses as well as individuals who themselves could benefit from better relationship management technology and availability, CRM is barely successful from a user-base standpoint - but of course is successful from a financial standpoint by CRM vendors because of the enormous cost of CRM and the support ecosystem surrounding it.'
Gartner’s report on CRM’s high failure rate, dating back to the beginning of the last decade, has been a blot on CRM’s copy book for many years. 'We said the majority were failing to meet expectations but got misquoted a bit as it was shortened to just outright failure,' corrects Thompson. Nonetheless, the report reflected an industry predominantly characterised by cumbersome technology being implemented by businesses that had little idea how to integrate it into the company’s wider technology, processes and strategies.
'The technology in those days was a lot less flexible than it is now, and a lot more time-consuming to develop in, which meant there were some pretty serious project overruns, or projects that failed to deliver what was anticipated,' says Boardman.
'There was a lot of sales and marketing hype, and few case studies for companies to learn from, so there were some major expectation bubbles out there destined for the pin pricks of operational reality!'
And unfortunately this is precisely what happened. Many of these adopters were soon to find that simply investing in CRM technology would not address ineffective business process, dirty data, misaligned key performance indicators or missing strategic plans.
'Ten years ago people typically wanted a ‘point solution’ to solve a specific problem within one department, such as sales force management, and did not think about the company-wide need for CRM,' explains Duncan Wood of Swiftpage.
'There was also an assumption that by simply installing CRM software into a business it would solve the firm’s problems. In reality, CRM needs to be closely aligned to the strategic aims of the company if it is going to realise the technology’s potential to maximise profitability, revenue and customer satisfaction. Implementations that failed tended to be the ones where the company did not obtain buy-in from top-to-bottom, and as a result were ill conceived and with little commitment from staff.'
Unsurprisingly, confronted with myriad problems, CRM’s reputation suffered. But things have matured considerably since then, both from a technology and strategic standpoint.
'Today’s firms are continuing to look beyond their own business, there is a growing appreciation for the software and services that can empower organisations to get closer to their customers. This shift in thinking has meant that businesses have begun to adopt a far more strategic and joined-up approach to managing their customer relationships through CRM,' suggests Wood.
'Where in the past, CRM was merely perceived as a tool to aid the sales force, it is now being utilised more strategically, helping firms get a much more holistic view of their activities across marketing, finance, customer services and sales, and ultimately enabling them to make better and more informed decisions.'
'A lot of companies at that time were very immature and the products were also immature in terms of usability and implementing them,' says Band. 'The products weren’t as feature-rich as they are now, and many companies made the classic mistake of grabbing a bright, shiny technology but not really knowing what to do with it. Most of the failures could be laid at the feet of the people that were trying to implement them because they didn’t do business cases, they didn’t define metrics, and they didn’t think about culture change and all those good things.
'These days a lot of buyers are on their second and third rounds of CRM, and nobody I know has just thrown out CRM and gone back to spreadsheets – that’s ridiculous. And there are a number of reasons why expectations are being met more readily. Certainly the products are a lot better. There are vertical versions, they’re easier to use, the user interfaces have improved, and software-as-a-service solutions have come on strong in the last four years that have helped companies overcome the challenge they had in terms of being able to deploy the solutions a lot more quickly. So Cloud has really improved user adoption and made it quicker and easier for people to get value out of the solutions, which has really contributed to the higher perceived success rate.'
But regardless of these improvements, to suggest that it’s all plain sailing these days would be grossly inaccurate.
'There are two ways of perceiving you succeed on a CRM project – type one is delivering the project on time, budget and scope; and type two is getting some value from the project,' explains Thompson.
'On the first type, that has changed dramatically from 10 years ago. The project management skills have got better and people know how to better estimated the costs and how long it is going to take and how many resources they need and so on. Whereas most projects were late and often blew the budget 10 years ago, now around 80% of projects are delivered on budget and scope, and perhaps just a bit late. They are pretty successful. So on that measure things have improved dramatically.
'But on the other side of it – are we getting business value from it – that has maybe improved a little bit, but not much. You have to say that even now people really struggle to demonstrate this thing really helps the business. They can anecdotally. But proving it – saying we spent this much and the return was that much or the internal rate of return was X%.... they can’t do that. That is difficult.'
Boardman adds: 'I don’t actually think things are necessarily better these days. There are fewer outright failures, and less situations where people don’t get the system they purchased. But I think there are still a lot of situations where people spend a lot of money and not get a lot out of it. There are still a lot of zombie systems that tick away in the background but actually very few people use them for anything meaningful. Businesses have spent the money on CRM but it is not actually doing anything much of any great value. And I don’t think that has changed markedly.'
So what are the most common reasons that CRM projects still come unstuck?
Bill Band surveyed some 150 companies to highlight the problems they experienced with their CRM initiatives. The findings concluded that the most common difficulties were:
- Creating a CRM strategy – 18% of respondents reported problems relating to strategy, including inadequate deployment methodologies (40%), poorly defined business requirements (25%) and a lack of alignment on objectives (18%).
- Re-architecting customer-facing processes – over a quarter (27%) of the problems reported related to difficulties with business process management, including technical/integration difficulties in supporting company processes (48%) and poor business process design (31%).
- Selecting technology – a third of problems were related to technology deficiencies, such as perceived shortcomings in vendor solutions (30%), a lack of skills needed to implement the solution (23%) and system performance shortfalls (19%).
- Implementing customer-centric behaviours – 22% of problems reported related to ‘people’ issues, including slow user adoption (49%), poor change management and training (36%) and difficulties aligning culture with new ways of working (15%).
Relating to adoption, Muhney notes: 'What has been an ongoing difficult, perhaps insurmountable, obstacle is the mindset of the intended user of CRM, that being the sales person whose perspective of it is being a management big brother tool. To sales people, knowledge is power and their value and it is not easily shared because it would devalue them by doing so. So, what you have is more of a psychological and emotional barrier that significantly contributes to CRM implementations not realising their full intended capability.'
Meanwhile, Thompson flags up measurement as a particularly troubling issue.
'The problem is that if you put in the technology, and sales do go up by 10% in a year when they had been growing by 1% a year before, you’d think you could say the CRM system helped growth… but no. Because when you ask the sales organisation they say they worked really hard, hired some new guys, fired some bad guys and changed their pricing strategy and bingo it all took off. Did the CRM have anything to do with it? Nothing. I’ve never met a Sales Director who’d say yes that project caused sales to go up by 10%. So that’s when you end up with just anecdotal evidence – we put something in, things got better, we think it was because of CRM but we can’t be sure.'
Elsewhere, Boardman points to the fact that many businesses are simply unaware of the discipline that is required to make a success of CRM.
'If you use CRM in a very basic way, and it is a tool for people to use if they want to, that is pretty easy to do. That is not hard to achieve,' he explains. 'If you want to use CRM in an advanced way, where you really do need everybody using the system in a structured way, that is quite difficult to do, because it takes a lot of resources and it requires a lot of discipline from organisations. And a lot of organisations don’t have that discipline to use these technologies well. It is just not in their DNA to have that focus that is required to get the best out of technology. That is the problem a lot of times.
'And I’m not sure that the CRM vendors help that either – they are keen to sell you some software but not so keen on being candid and helping you gear up for a CRM project. If they told their customers what was really involved in using CRM systems well they probably would buy a lot less software, so it has not necessarily been in their interests.'
In the coming weeks, MyCustomer.com is going to turn the spotlight on CRM and explore how to negotiate the main obstacles that your project can encounter, including strategic, technological, people and process issues. From building a strategy to choosing the most appropriate solution, and from implementing the most valuable metrics to measure performance through to ensuring adoption by your sales team, we’ll be covering the lot.
It's high time that businesses enjoyed the profits of CRM, without the pain.