By now, it's become a veritable pledge of allegiance for Corporate America: The customer is always right; the customer comes first; customer service is key; we exist for our customers. If there's a mission statement out there that doesn't exalt a company's commitment to its customers, it would probably fetch a good price on eBay. And this explosion in customer-centricity goes beyond mere lip service. In 1999, customer relationship management (CRM) software vendors took in some $12 billion in revenues, a figure expected to rise 40 percent annually, according to technology advisory firm Gartner Group Inc., in Stamford, Connecticut.
Software is not the entire story, of course. Companies are also adding staff in customer-facing positions. For instance, E-Trade made headlines in May when it announced it would augment its online financial advice with actual financial advisers; they even make house calls.
Still, as companies intensify their focus on the customer, most of their activity centers on trying to decide which software products to buy and how best to use them. Applications vendor Siebel Systems Inc., formed in 1993, is widely credited with galvanizing the growth of the CRM market, along with such rivals as Vantive Corp., Clarify Inc., and Trilogy Software Inc. Today, hundreds of vendors sell CRM products, including enterprise resource planning (ERP) makers Oracle, SAP, Baan, and Epicor. Companies can choose from hundreds of applications that address every facet of customer interaction (or "touch point"), from sales leads to E-commerce to call-center support, and everything in between.
But success requires more than simply writing a check for a piece of software. Choosing from among the expanding array of products may not be easy, but the true difficulty lies in balancing short-term data needs against long-term strategic goals. One school of thought holds that companies should focus on a critical "pain point" and buy whatever software product meets that immediate need. Proponents of this approach say it provides immediate ROI and leaves a company free to develop a broader CRM strategy down the road, when the technology has matured and the current spate of vendor acquisitions and alliances has quieted down.
The Case for Integration
Others maintain that the fundamental aim of CRM — to achieve a single or unified view of the customer — requires a range of software that is tightly integrated, both within the realm of CRM applications and with back-office technology. They warn that companies that follow the pain-point strategy risk being stuck with a grab bag of incompatible systems, leading to inferior customer service, or worse.
Lisa Harris is firmly in the integration camp. Senior vice president and CIO of Staff Leasing Inc., a Bradenton, Florida-based, $2.7 billion provider of human resources, payroll, benefits, and related services to small businesses, Harris says that 18 years of experience has shown her that "systems integration is the most difficult task an IT department has to take on. So when you can avoid it by buying a suite of integrated products, that's the way to go."
Staff Leasing opted for a full suite of Oracle CRM software, even though Harris readily admits that "in certain categories, there were better products out there." Since the company already used an Oracle database and various back-office applications, tapping the vendor for its CRM suite was a natural move. The company was able to get up and running in 100 days with software that handled everything from telephony to business analytics, reports Harris. " [Oracle] sold us on the dream of a seamless, Web-based family of products," she says. "And so far, we're happy."
Most of Staff Leasing's customer contact is via telephone. Clients call in for any number of reasons, from the simple (adding or removing an employee) to the complex (tax matters, legal questions about discrimination, or other hiring issues). The newest component of Oracle's CRM product suite allows Staff Leasing to script responses to these questions, ensuring that accurate information is dispensed quickly. In the past, phone reps often had to track down the information and get back to clients. If the client had a follow-up question, the process was repeated.
But Staff Leasing wants its CRM software to do more than provide automated responses. "By analyzing all these calls," Harris explains, "we can segment our business and provide better service — for example, by allocating resources more efficiently." Beyond that, the company can get a handle on just which parts of its business are most profitable. "We serve companies that have between 5 and 200 employees," Harris says. "That's a huge market, with only 2 percent penetration by HR outsourcers, so the opportunity is enormous, and CRM will help us understand just how to pursue it." An integrated set of CRM products that can capture customer concerns, respond to them, then analyze them for hidden sales potential ("up-sell" and "cross-sell" are the hottest bywords in CRM sales literature) was paramount for Staff Leasing.
There is evidence that big investments in integrated CRM suites can result in almost immediate payback. Harris says her company's multimillion-dollar Oracle installation should pay for itself in about 12 months, maybe less. On the other hand, analysts say no single vendor can provide everything a customer might need. Vastly different requirements from one company to another make that almost impossible. "CRM poses a huge integration challenge," says Bob Chatham, an analyst at Forrester Research Inc., in Cambridge, Massachusetts, "because unlike ERP, which is fairly standardized, each CRM implementation will reflect the personality of the corporation."
Best of Breed
Even companies that long for stem-to-stern integration, therefore, often begin with a tactical deployment of CRM and tie it to other systems with third-party software. At Excel Communications Inc., for example, Joe Pignatello, vice president of IT strategy and architecture, says the company had two clear goals in mind for CRM: get information about prospective customers to sales reps, and get a picture of who their customers are.
That's critical for Excel, because the $1.2 billion Dallas-based telecommunications firm, which initially concentrated on discount long-distance service, has "relaunched" itself with a new focus on local markets, E-commerce, wireless communications, and other services. That means that new and different sorts of customers will emerge. Excel faces a challenge in getting to know them, however, because it sells its services through thousands of independent sales reps. "We need to get to know our sales force," says Pignatello, "and, through them, our customers."
Toward that end, Excel bought CRM software from Siebel that supports the telecom industry, and which accommodates Excel's "MLM" (multilevel marketing) approach. "We can take orders, configure services for different kinds of customers, and begin to analyze who our customers are and what additional services they might be interested in," says Pignatello.
To do all that, Excel had to integrate the Siebel software with an Oracle database and back-office software from a number of suppliers. It turned to E-business infrastructure-software firm CrossWorlds Software Inc., of Burlingame, California, for a variety of integration tools that provide nearly instant linkage between those systems. It's a fundamentally different approach from that taken by Staff Leasing, and one which Pignatello says provides several advantages. "We wanted to go with best-of-breed software for each function," he says. "Once a vendor starts offering everything, I get concerned that it will lose its focus and offer mediocre products."
Addressing Pain Points
Many companies prefer to start small with CRM, implementing targeted solutions that solve an immediate need and putting integration issues on the back burner. At eMarquette Holdings, the online subsidiary of Marquette Financial Cos., both of Minneapolis, the goal was to better target its marketing efforts by understanding more about its customers. The company's commercial clients buy insurance, investment services, and other financial products. But until it began using CRM, eMarquette had no way of knowing just how many of its products a client was or wasn't using. "We couldn't see our customers across those different silos," says COO Margaret Murphy, "so we had no way of seeing how they clustered, or if they fell into certain affinity groups that might respond well to a certain marketing message."
Earlier this year, Murphy's company tapped Interelate, an Eden Prairie, Minnesota-based company that concentrates on customer analytics, assembling and analyzing data on customers in order to get a clearer view of their wants and needs. Interelate works on an ASP (application service provider) model, essentially renting software to eMarquette on a per-user, per-month basis. The monthly fee for a client starts at about $20,000. "We needed a tool we could use now," Murphy says, "at low cost and without a time-consuming installation and training process, something to give us a dynamic view of our customers."
Murphy acknowledges that at some point eMarquette will need a full suite of CRM products, but she sees a compelling value proposition in this limited approach. "With the data we now have about our customers, we can serve them better, retain them, and tap lots of up-sell opportunities. And we can distribute the insights we gain from Interelate over the Web to our sales force and customer-service people, which is a huge step forward."
Murphy doesn't believe this huge step forward will necessarily entail a big step backward when eMarquette decides to take CRM to the next level. "Certainly our business processes will have to change," she says. "We're looking at that now. But the technology is advancing so fast that I don't think integration is going to pose a major hurdle."
While eMarquette recognizes the need for process change with CRM, many companies don't, say analysts. Scott Nelson of Gartner Group says that too often technology is thrown at the customer-facing side of the organization without a clear plan for what it will accomplish. "Technology becomes like a rocket ship in the garage," he says. "It's powerful, but what are you going to do with it?" There's more to CRM than worrying about how all the applications fit together, Nelson points out; "there is also strategy, skill sets, and business processes to think about."
Most companies haven't made a significant change to business processes that affect customers in years, asserts Nelson. "Ideally, companies would rebuild themselves around how a customer wants to do business," he says. Unfortunately, most CRM products don't provide that flexibility. "They're designed around existing processes, which is constraining," he says.
Integration Through Consolidation
Further limitations come from the highly fragmented nature of the CRM marketplace. There are almost 50 subcategories of CRM products, and a company using CRM typically relies on products from nearly a dozen vendors. But that's one piece of the integration puzzle that may resolve itself, because vendors are consolidating or teaming up at a rapid pace. Last fall, for instance, PeopleSoft Inc. bought Vantive. In March, telecommunications giant Nortel Networks completed its acquisition of Clarify, while E.piphany Inc. acquired Octane Software Inc. In April, Kana Communications Inc. finalized its acquisition of Silknet Software, bringing together two leaders in E-CRM, which focuses on E-commerce and Web-based customer service. And in May, SAP announced a partnership with Nortel/Clarify, hoping to keep pace with Oracle and PeopleSoft.
With vendors merging in order to expand their product suites and with CRM hot enough to attract the attention of ERP providers, might CRM become mired in the same problems associated with ERP — namely, high-cost, complex implementations, and elusive ROI? "There's no doubt that CRM will have elements of the ERP problem," answers Chatham of Forrester Research, "but the real barriers won't involve technology, but corporate behavior."
Peggy Menconi, research director in E-business relationship management at AMR Research Inc., in Boston, agrees. "To some degree, ERP has shown us what not to do, and CRM may be easier to deploy because we've learned from those mistakes. And unlike ERP, every company needs CRM, which means the market is huge and will inspire a lot of innovation."
Clicking with Customers
Another critical factor, of course, is the advent of the Internet. While CRM could certainly play a role at the oldest of old-line firms, it's no coincidence that its rise has paralleled perfectly the rise of E-everything. Indeed, the Web has become so critical to business — Staff Leasing's Harris says that in 12 months, her company went from zero Web contact with customers to handling 25 percent of all queries online — that for many, CRM and E-commerce are almost synonymous.
When drugstore giant CVS/pharmacy bought Soma.com in June 1999 and rechristened it CVS.com, a search for CRM software was an immediate priority. "We spent a long time looking for the right products," says David Zook, strategic alliance manager for the company's online unit, "and our search was made tougher by the fact that our needs kept changing as traffic to the site increased."
Initially, the company simply wanted a tool for "clickstream analysis," capturing data on how customers moved around the site and which pages they visited most frequently. (For more on clickstream analysis, see "Panning for Internet Gold.") But CVS.com soon saw that the site would need to provide personalized customer service, and that achieving higher sales would require a better understanding of a customer's overall experience. "We didn't necessarily need a full, integrated suite of products," Zook says, "but we wanted to be sure that if we used different software packages, they could communicate with each other."
So CVS.com turned to Quadstone Inc., a small predictive-marketing software firm in Boston, to capture, analyze, and suggest changes based on customer data. The payoff was almost immediate. "We had noticed that many customers began to order prescriptions online but didn't complete the process," Zook says. "But we weren't sure why, or what to do about it." The data from Quadstone pinpointed trouble spots in the cumbersome order process (to fulfill prescriptions online, merchants must gather a lot of data about a customer) and helped CVS.com develop new screens that streamlined the process. As a result, completed orders doubled.
"We devote a lot of our efforts to integration," says Mark Smith, Quadstone's president, suggesting that it's the vendor's responsibility. And he says integration will become paramount as "companies try to maintain a single view of customers across channels."
Few companies are there today. Despite its success with CRM, CVS.com, for example, still lacks an understanding of just how its customers regard the Web site in relation to the store. "We know the average Web sale is four times higher than an average in-store purchase," Zook says, "but whether customers use us to augment a trip to the store, or replace it completely, or some combination [of the two], we don't yet know."
Given that 80 percent of the Fortune 500 have yet to tap CRM at all, there are many questions still to be answered, and many connections still to be forged. Great customer service may not, at bottom, be about technology, but odds are it will come to depend on it more and more.
Virgin Gives It Away
With customer "touch points" all the rage, what better way to embrace the trend than to give customers something they can actually touch? In May, Virgin Entertainment Group America began a pilot program in which it gave away 10,000 "Internet appliances" to consumers who met certain demographic criteria, in the hope that customers would use them to order CDs and other merchandise from Virgin's online store. With a carefully selected audience placing orders from a specialized device, the company will be in a perfect position to analyze shopping behavior and preferences. If all goes well, Virgin will extend the program to a virtually limitless number of consumers.
The appliances, and much of the marketing strategy behind them, come from Internet Appliance Network (IAN), a New York-based start-up marketing and media services firm that not only supplies the hardware (a compact PC, dubbed a Webplayer, which comes emblazoned with a client's logo or any other customization that might enhance a marketing message), but also designs the user interface, helps companies identify the most promising recipients, and then monitors how consumers use the machines so that its clients can improve sales and service and build customer loyalty. Virgin customers can use the Webplayers free of charge during the first year, then pay $50 per year after that, all the while enjoying full Internet access.
"Despite the hardware component," says Glen Ward, president and CEO of Virgin Entertainment America, "this is actually a cost-effective way to recruit customers." Ward points out that "pure-play" Internet companies routinely spend $200 in marketing for every customer they land, but low margins in the music business render that level of spending untenable. "With IAN, we pay between $30 and $40 per customer," he says. Since the Webplayers cost about $500, IAN can't make a profit based solely on what it receives from Virgin, but the company also sells online ads and charges a commission on sales made via the Webplayers. Ward admits that this approach is experimental, and that Virgin must also find ways to reach the millions of consumers who already have PCs. "We call our strategy V-commerce,'' he says. "Virgin will give its customers choice and convenience in whatever ways it can."
Virgin is contemplating additional marketing channels, including mail order and record clubs — touch points considered hopelessly passé. Then again, so were vinyl records.
A War Room of One's Own
Like a good sales pitch, CRM is endlessly adaptable. Already, it has spawned a healthy submarket in PRM (partner relationship management) software and now a new company, Kovair Inc., is offering SRM, or strategic relationship management. The company's VIPCenter product provides an online meeting place — Kovair co-founder and CEO Krishna Subramanian dubs it a "war room" — in which companies can provide their most important business customers with various forms of communications and customer service. Eventually, Kovair sees these VIP Centers acting as portals in which partners will not only communicate critical information about product design, distribution, and other elements of the business relationship, but also conduct a full range of transactions.
"It's a twofold value proposition," Subramanian says. "You improve your 'stickiness' with your customers, and you move a lot of mundane administrative tasks online, which saves everyone time."
Indeed, Aberdeen Group senior analyst Harry Watkins says that while VIPCenters are sold most often to vice presidents of sales, it is the sales support staff that will make the greatest use of them, posting to the sites sales data, product specifications, shipping schedules, and all manner of details that today are usually communicated via E-mail, phone, and fax. "Kovair focuses on those complex sales relationships in which there are multiple people on each side of the buyer-seller team," he says. "It's a way to address those handful of key strategic relationships you have with other companies."
Kovair did not pioneer the idea. In 1996, Dell Computer Corp. created Premier Pages for its most important business partners — Web sites that address much of the same functionality that Kovair concentrates on. But Kovair has brought the idea to market, making it widely accessible via an ASP model.
One of the first customers was Chip2Chip Inc., a San Jose, California, maker of network infrastructure semiconductors. Mike Ofstedahl, the company's vice president of sales, says his firm has created multiple VIPCenters to facilitate communications with its independent sales reps as well as major clients, including Cisco Systems Inc. "It's almost viral," he says. "Once people start using it, they love to pass it on." Ofstedahl says his company uses the VIPCenters to collaborate on product-design issues, and hopes to conduct transactions through the sites later this year.
Kovair has competition: Promptu, Conjoin Inc., and others offer similar services, although to date they have focused more on a client's marketing needs than on strategic relationship management. But Watkins predicts imminent convergence, with Kovair moving to address a greater range of its clients' internal needs, and its competitors expanding their products to address the needs of a client's business partners.