CRM, the Latest Fad, or an Opportunity to Excel in the Marketplace?

(Originally published in the September/October 2002 issue of AFSMI's Sbusiness.)

By William K. Pollock, Leo A.P. Moerkens, and Scott Cabral

Is CRM a Fad?
Most industry analysts believe that CRM is not a fad - in fact, Gartner Dataquest forecasts the worldwide CRM service market to virtually double over the next four years, growing from an estimated US$25.3 billion in 2002 to US$47.0 billion by 2006 (Figure 1). Whereas annual growth in worldwide revenues from 2000 to 2001 was only 10.6%, the forecasted annual growth rate through 2006 is expected to be nearly 17%.

Figure 1

Further, while many of the larger enterprises may have already embraced the concept of CRM, and have at least taken the first steps toward implementation, one of the key reasons why future growth is still expected to be strong is that the midsize market has only just begun to move forward with their respective CRM strategies. Gartner cites "integrated enterprise architectures, new solution delivery models, and an overall reduction in prices for application software" as further contributors to a wider acceptance of enterprise CRM solutions, "especially by the upper midmarket".

However, as CRM acceptance continues to grow, one thing is clear - the model for acquiring CRM is likely to change significantly. For example, Gartner suggests that "through 2004, field service solutions will be assembled, not purchased, as application vendors work to deliver complete systems for service process management". The analyst firm defines Service Process Management (SPM) as "a concept that describes how businesses will deliver customers the highest operational performance of their product or service at the lowest cost to the enterprise."

According to Gartner, "Currently, 90 percent of businesses deploy piecemeal and homegrown field service systems based on older technologies that are poorly integrated and do not allow for process flows. The result is that businesses squander opportunities to improve customer loyalty and capture information that is critical to the product life cycle." As such, the firm believes that "field service will evolve as a central channel to discover sales leads and improve the image of the company", and as it does, there will be even more opportunities for services organizations to embrace CRM more strongly.

Another facet that Gartner believes will increase interest in - and acceptance of - CRM in the foreseeable future is its belief that "through 2005, innovation in the CRM market will come less from large CRM suite providers and more from best-of-breed solution vendors that offer strategies to differentiate their products from those of the market leaders". As such, not only will CRM continue to grow in actual service expenditures, but it will also grow in terms of the number of solution providers as well. The more providers that begin to offer viable segment-specific and/or niche CRM solutions, the more likely smaller enterprises and other niche-market organizations will also be to embrace - and implement - CRM. Similarly, as 85 percent of all CRM projects presently require the use of an "outside consulting or integrator resource", as more professional services organizations ramp up the learning curve with respect to CRM, they are also likely to stimulate revenue growth even further.

If CRM Is Not a Fad, What is It?
Although the discussion of CRM has been going on for quite some time, it is often difficult for some managers to figure out exactly what it is and how, if at all, it can help their respective businesses. Depending on whom you talk to, what conferences you attend, or what you read, you can get totally different definitions of concept and scope that only create more confusion.

However, by going back to the basics and addressing the origin of the CRM philosophy, some things become more clear. CRM essentially started out as a shift from an internal focus to a customer focus. In the face of ongoing changes in the general business (and services) environment, coupled with an ever-changing and intensifying competitive environment, many businesses found that by focusing primarily on the customer, they could build a competitive edge that would allow them to grow their businesses while maintaining (and growing) their margins. This started a shift in business practices that ultimately led to the introduction and proliferation of more innovative business tools and application software. At the same time, the developments in technology - especially the Internet - opened up new possibilities to facilitate business growth and management. This allowed businesses to fundamentally rethink how to approach their customers, facilitated by the ability to utilize information that was never available before.

The key element in facilitating this shift over time was most likely the result of changes in the information infrastructure. The older systems were most often based on the business' financial systems and typically evolved around the newer, efficiency-oriented, software that allowed them to lower cost and control the internal resources. While we are all familiar with the Enterprise Resource Planning (ERP) systems that were used to integrate the business' so-called back-office functions, these systems were, by nature, internally focused and, thus, the front-office functions had to be controlled via independently developed software packages designed to support the Sales and Services functions of the business. This created a "silo effect" in the Information, Communication and Technology (ICT) environment since the front-office and back-office systems were independent from one another, and information was very hard to combine because of conflicting definitions of information elements and non-compatible systems that were very hard - if not impossible - to link (Figure 2).

Figure 2

The result was that the organization's business functions were forced to operate independently from each other, thereby sub-optimizing the total business processes. Friction between the Sales and Service functions was quite common, and it was most likely the customer that was caught in the middle. This, in turn, created the need to integrate the front-office functions more and take a closer look at the customer to ensure that all of its needs were being met, and that customer satisfaction and loyalty (as well as company profitability) were being built.

Based on this need, the Enterprise Resource Planning (ERP) - now CRM - software companies began to develop software functionality that could be used to integrate an organization's front-office functions (primarily through either internal development and/or mergers and acquisitions). At the same time, advances in technology allowed an easier integration of information from different sources, and communication via the Internet. This had the desired effect of speeding up the processes, and allowed businesses - sometimes for the first time - to operate in a close to real-time mode, dependent generally on their respective connectivity via either land lines or wireless applications.

CRM Is a Tool that Provides an Opportunity to Excel in the Marketplace!
Based on research conducted jointly by our three consulting organizations, we have drawn the conclusion that CRM is truly "real" and not merely a "fad" - and if applied correctly, can help your business to excel in the marketplace. So, what are the opportunities that CRM can bring to the table?

The biggest opportunity will come from shifting the focus of every aspect of the business to the customer, and take an integral look at the information that had been "scattered" throughout the organization in the past. By doing so, managers can begin to make more educated decisions in support of their organization's business processes, thereby eliminating the risk of sub-optimization. As a result, organizations will be able to react faster and more effectively to changing customer needs and, at the same time, adjust and fine-tune all of the support activities required to optimize its internal efforts, and eliminate redundancies and waste. Supply Chain Management (SCM) has already empowered organizations to do this for their internal processes, and CRM is a logical extension focused on the customer.

CRM will also allow an organization to keep its Service Personnel continually informed with respect to all of the customer-focused activities that are going on at any time, as well as which customer contracts and/or deals are pending. In this way, they will be able to adjust or modify their respective activities to support these ongoing efforts - or, in otherwords, adjust their specific activities to support the organization-wide customer-focused efforts.

Similarly, CRM will allow the organization to keep its Sales personnel up to speed with respect to what Service activities are going on so they can support their customers' sales need in concert with their service needs (all within a single Sales/Service context, rather than in an all-too-common "Sales vs. Service" scenario). It also allows managers to quickly transfer sales opportunities and leads from the Service function to the Sales function, so they may be acted on as quickly as possible. The Marketing function can then design its advertising and promotional campaigns based on specific customer information that is complete, accurate and up-to-date - coming from both the Sales and Service functions (rather than solely from the Sales side of the equation). Through CRM, new sales opportunities, replacements, upgrade/migration programs, contract renewals, etc. can all be coordinated from a single base of up-to-date information.

In general, the greatest opportunities provided by CRM are manifested through the effective use of data and information, from a companywide database, to improve and integrate the front-office functions and, thus, gaining the ability to quickly identify and react to opportunities that are presented on an ongoing basis. How well any organization will be able to capitalize on these opportunities will be primarily dependent on its specific management capabilities, and how they are applied and executed. While the businesses processes and applications that are available are very different by industry segment and organization, the philosophy behind the CRM-based concept will be the same.

The Four Key Elements Required for Implementing CRM
There are basically four key elements required for implementing CRM, including:

  • Philosophy
  • Business Processes
  • Organization
  • Information and Communication Tools
Philosophy
Like all business change processes, philosophy and vision is critical for success. If management at the top is not convinced that CRM is necessary to improve the business and build customer loyalty, all efforts will be doomed to fail, as the necessary investments in dollars, personnel, time, and ICT tools will not happen. For the CRM effort to be successful, an absolute focus on the customer must be the driver that aligns all of the business processes, and this must be supported from the top down. SCM has done that for the manufacturing process, and CRM will do it for the front-office functions.

Management must be counted on at all levels to make it happen, and to give direction to every activity in the organization. This is the leadership role that senior management has to perform, and the success of the organization's entire CRM effort will be heavily dependent on the effectiveness of this leadership role.

Business Processes
Once the philosophy and vision is communicated and accepted in the organization, a closer look must be taken at the business processes, which historically have been relatively independent from each other. From this "hard" look (i.e., an Operations Audit, or Assessment) specific opportunities for improvement can then be identified and implemented. This will ultimately lead to the establishment of more integrated Sales and Service processes, as well as the formation of targeted "customer teams" that can effectively take care of customers' needs. Each of the organization's front-office functions need to understand the others' business processes, and what their needs are to effectively deliver the desired results to the customer. In time, this will also evolve and gain the necessary momentum to foster an environment for realizing - and maximizing - the benefits of CRM.

However, it is important to realize that this may require a shift from the "old" compartmentalized way of thinking to a more integrated way of thinking, which in most organizations will take some time to attain.

Organization
Based on the implementation and utilization of more integrated front-office business processes, organizational changes are usually inevitable to improve the effectiveness of the organization. In recent years, the services industry (and, in fact, all business segments) has experienced a shift from narrowly-defined, vertical business functions that operate relatively independent from each other, to more broadly defined functional organizations that are responsible for the complete business processes. The principal front-end functions are typically comprised of teams of Sales and Service personnel that work together, and are solely focused on the customer. They, in turn, are supported by central support functions that provide the necessary tools, and deliver them, to the front-line functions. Most of these functions already exist at this moment, although not all organizations have yet evolved to a centralized (i.e., global) level (Figure 3).

Figure 3

The information infrastructure will allow accessibility to data and information from any location in a close-to real time mode. This will make the functions very effective, and facilitate tying everything together into a single, large team that focuses on a common goal (i.e., the customer).

Information and Communication Tools
Needless to say the information and communication tools are the critical catalyst to make this all work. However, despite the ongoing technological developments in the software world and the growing functionality of standard application software packages, this is the area that still requires the most work. The organization's business processes will continue to evolve gradually, and will remain dependant to a large degree on the creativity of its support teams to stay ahead of the industry's software developments.

As a result, it will be in the organization's best interests to clearly define its specific and unique business needs, as well as what data and information will be critical for it to embark on - and complete - this journey. If this is not successfully accomplished, there will be a great deal of money, time and effort wasted, and the organization will get only a very minimal return on its investment (if any at all).

The key to CRM success is to clearly define the business processes and information elements that are necessary to effectively gather the required data, based on the organization's unique vision and specific business environment. Once this is done, the organization can move to select the appropriate software package and configure it to its specific needs (providing customization, where necessary). The integration of communication is also critical, and most packages already have tools built in to move information around effectively. Successful choices in communication, untethered functionality and systemwide discipline within the organization will all be crucial to the ultimate success of the CRM initiative.



"CRM, the Latest Fad, or an Opportunity to Excel in the Marketplace?" is also the topic of the one-hour Power Panel session the three co-authors of this article are presenting at the 32nd AFSMI S-Business Education Summit and Expo in Atlanta, October 6 - 8, 2002.

William K. Pollock is president of Strategies For GrowthSM, a services consulting firm specializing in strategic business planning and customer satisfaction research. He may be reached at 610-399-9717 or via e-mail at wkp@s4growth.com. Meet Bill at the Strategies For GrowthSM booth, #720).

Leo A.P. Moerkens is president of Hands-on Management Consultants, Inc., an international management consultancy firm that assists clients in developing and implementing business improvement programs. Leo can be reached at 203-888-1671, or via e-mail at LMoerkens@hands-onmc.com. Meet Leo at the Hands-on Management Consultants, Inc. booth, #722).

Scott Cabral is president of Peritum Consulting, Inc., a firm specializing in CRM solutions design and implementation. Scott can be reached at 858-259-1414, or via e-mail at scott.cabral@Peritum.com.


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