As the economy cuts into CRM spending, companies are looking for ways to move ahead without breaking the bank.
Reader ROI
- See why a small-step implementation adds up to big RIO.
- Learn why patching together different software solutions can work.
- Find out when outsourced models may be the answer.
David Billings, senior vice president and CIO at Airborne Express, didn't plan on skimping when he set out to replace the company's 5-year-old sales-force automation system. But as he surveyed the vendors at the beginning of the project a year and a half ago, he realised that cost would play a part in the selection. Billings ended up with just what his Seattle-based company needed: a targeted sales-force automation package from Onyx Software, a midsize CRM vendor, for $US3 million - half of what he says he would have paid for a full CRM suite from a market leader. What's more, Billings implemented the new sales-force automation package in only six months.
Until recently, the term customer relationship management was buzzing around every corporate executive's suite as the IT panacea that could transform a company from laggard to trendsetter by boosting customer loyalty, sales figures and, ultimately, profits. Then the worrisome reports started to trickle in: most CRM projects, dogged by poor planning and user resistance, were not producing measurable benefits. Costs were sky-high, with major corporations shelling out anywhere from $US60 million to $US90 million for large-scale CRM implementations. CIOs were clearly getting burned.
Then an interesting thing happened. The booming CRM market of yore started to exhibit signs of strain. Independent CRM software vendors showed a 15.7 per cent drop in third-quarter revenues in 2001, according to Boston-based consultancy Aberdeen Group. And Gartner predicts that CRM spending will remain flat in 2002 after falling 8 per cent in 2001 (that's compared with growth of 89 per cent in 2000). Gartner does expect spending on CRM software to rebound by 10 per cent - but not until 2003.
Sounds like companies are pulling the plug on their CRM projects. But that's not the case. According to a recent CIO (US) exclusive survey, "CRM: Are Companies Buying It?"companies such as Airborne Express have just learned to implement such projects in easy-to-take baby steps (64 per cent) rather than in one scary giant step (only 36 per cent).
As the US economy officially dipped into recession and IT spending came under increased scrutiny, the scaled-down CRM project was seen to provide a quicker path to ROI. And the new trimmer version doesn't have to break the bank to be successful. Like Billings, most CIOs are going with more targeted, incremental CRM investments. Others are taking the chance and patching different systems together when it saves money. And a few are turning to outsourced, hosted services that provide customer-facing technologies. All three strategies work to the same end: providing fast CRM relief with equally fast ROI.
Step by Step
Airborne Express's experience reflects a caution that many CIOs are displaying when it comes to dealing with expensive and expansive IT projects. "Some of those solutions are more comprehensive, and that can be an advantage,"says Billings. "But it can also be a disadvantage if you're paying for more than what you're going to use in the near term."
Sentiments like that have not gone unnoticed by the big-name vendors. Oracle, PeopleSoft, SAP and Siebel Systems are reacting to buyers' scaled-down demands. Barton Goldenberg, president and founder of ISM, a Maryland-based CRM consulting company, recounts the story of a bidding war between Siebel and another vendor. The vendor, whose software is considered best in class, "offered a bid of $US650,000 for a package that only covered marketing and sales-force automation", he says.
"Siebel came in with $US1.6 million for its integrated CRM suite."When the battle looked lost, however, Siebel came back with a more targeted version at a better price - and won the contract. And that's how things are going to be "for the next six to 12 months", says Goldenberg.
For example, Group Health, a nonprofit health insurance company based in New York City, has gone from very basic technology in its 100-member sales department to implementing a successful slice of CRM in two short years. Last year, it implemented Siebel's sales-force automation software in three months, for an initial cost of about $US500,000.
Now Group Health is working on implementing Siebel software that automates the RFP process. Though future modules have been planned, the company is holding off on further investments for the moment because of concerns about the economy. "It will be more difficult to get financing of other modules and more difficult to justify [them] through ROI,"says David Henderson, the company's senior vice president and chief marketing officer, who worked with the IT and sales departments to choose the CRM technology. According to Steve Mankoff, Siebel's senior vice president of technical services, Siebel customers are looking for "quick win"solutions. Mankoff maintains that Siebel, the current CRM software leader, has encouraged a phased approach to implementation from the beginning and is now seeing more of a focus on ROI. For its part, Oracle is offering subscription and nonsubscription services over the Web for customers who want a cheaper, faster CRM fix. "The goal is to offer customers lots of options through both online and conventional implementations, and to get it up and running quickly,"says Lisa Arthur, Oracle's vice president for CRM marketing. She concedes, however, that "You can't do all of CRM quickly."
But "all of CRM"is not the goal for many companies. International Speedway, the Florida-based company that sponsors Nascar and other motor races at 12 venues around the US, took a targeted, slower track to CRM. When Craig Neeb joined the company as its first CIO two years ago, he immediately focused on areas that were key to boosting revenue: installing ticketing systems, and promoting sales and merchandise over the Internet. Neeb looked at a wide array of CRM vendors and chose Vertical Alliance to rebuild the company's Web site and set up a fan loyalty program. The budget for software, re-architecture and implementation, which took about two months, came to $US1.5 million for International Speedway, which has annual revenues of roughly $US500 million. "You have to find the best fit for your immediate objectives,"Neeb says. "We have a fairly simple operation. Why add complexity? Our plan is to move slowly and add to the system over time."
Adam Honig, president of Akibia Consulting, a Massachusetts-based consultancy that specialises in CRM, says companies should focus on quick wins: analyse their situation for two weeks and then implement a small piece of a package. Then, they need to establish ROI before they can move on. "We've always looked at CRM as small, tactical and progressive,"says Honig. "The 18- to 24-month implementations are a myth created by the large consulting firms."
Patching Things Together
Companies are often finding that no one CRM vendor can address all their customer-related needs. They're willing to take on the headaches of patching systems together to get exactly what they want.
When FedEx bought the transportation company RPS in January 1998 and set out to merge the sales and IT departments, Scot Struminger, a vice president of IT for corporate headquarter systems at FedEx Services in Memphis, started looking for a sales-force automation system that he could install quickly for the company's 2000 salespeople. He selected CRM vendor Youcentric (recently bought by J D Edwards) primarily because he wanted to save time and money. While packaged CRM applications often require companies to load and maintain customer data within the application, Struminger notes, Youcentric and some other, more flexible vendors let customers plug in to pre-existing back-end databases. The result, he says, is that companies can save money because they don't have to build a brand-new data mart, as they do with some of the larger CRM vendors.
FedEx Services is in the process of integrating its sales-force automation application with its PeopleSoft ERP system, a sales compensation application from Trilogy and call centre software from Clarify, all using Tibco software to pass information among the different packages. "We decided to go with multiple vendors in order to find the best in each area,"Struminger says. "Piece by piece, we have implemented them all gradually."
In FedEx's case, patching together software from different vendors has helped avoid major problems. For example, when FedEx Services first implemented its Youcentric CRM system, the company underestimated the difficulties some field reps would have in accessing the Web-based system. Struminger and his team were able to modify the system by making changes to the server during a weekend. If FedEx had installed CRM software on all the laptops, "it would have been a costly nightmare", he says, noting that larger CRM packages he had looked at required that type of installation.
Denis Pombriant, research director in CRM at Aberdeen Group, calls this modular approach to CRM the wave of the future. For example, if a company chooses a vendor that uses Java architecture, it can also develop Beans (reusable software components written in Java that can be used by a Java development environment) that will integrate into a legacy system. "In this way, it's entirely possible to mix multiple vendors,"Pombriant says. "I call this best of breed on steroids'."
CRM for Rent
For those who don't mind forgoing the ability to customise CRM applications, or for small companies that need only a targeted application such as sales-force automation, ASPs can be an alternative to putting off CRM ambitions. Vendors such as 3-year-old Salesforce.com, with offices in US, Europe and Japan) and 4-year-old Upshot (US offices only) offer rented CRM applications, with a focus on sales-force automation that can be less expensive than what a major CRM vendor would charge for a year.
Such nipping at the heels has prompted the top dogs, such as Oracle, PeopleSoft and Siebel, to also offer outsourced CRM packages. For those who need more personalisation and control, there is the managed service provider (MSP), which offers consulting services and some customisation in addition to a hosted application. Consulting companies such as Cap Gemini Ernst & Young and IBM Global Services also offer MSP CRM packages. (US CIO's publisher, CXO Media, holds an investment stake in Salesforce.com.) Rodric O'Connor, CTO at San Francisco-based investment bank Putnam Lovell Securities, decided to take the risk of going with an ASP. The economy wasn't yet in retreat in early 2000, and Putnam Lovell was still growing. O'Connor had to decide whether to add to his six-person IT staff in order to build a bigger infrastructure and maintain complicated software installations. As the boutique bank grew, IT requirements were starting to become unwieldy. Nine separate databases held customer information, and each division had its own contact records.
"It was a nightmare, and there was pain involved,"O'Connor says. Customers were routinely receiving duplicate research reports, even holiday cards - or none at all. O'Connor looked at vendors including Siebel and Onyx, but he decided outlays of up to $US2 million were too much to swallow for a small bank, even with its expected growth.
"We were close to going with one of those vendors but were concerned about ROI,"O'Connor says. Instead, Putnam Lovell signed on with Salesforce.com, which charges a set subscription fee of $US65 per user, per month. The ASP's sales-force automation application created a single database and allows 134 users at the bank to track client relationships by sending out e-mails automatically and automating the delivery of research to clients. O'Connor says the client research mechanism is saving the company $US200,000 a quarter and, according to his calculations, outsourcing has reduced the total cost of ownership by 57 per cent.
Despite the cost advantages, many shy away from ASPs because they fear the consequences to their business if the hosting company shuts down. O'Connor combats that worry by regularly speaking directly to Salesforce.com's CFO. Hosted CRM software also suffers from a lack of customisation capability, as well as integration problems. However, some of those integration difficulties are getting resolved as ASPs come out with XML interfaces that allow users to pump data from one outsourced application to another. Still, companies need to look carefully at how much customisation they will require when deciding to outsource a CRM application. "When the scope is limited, a hosted ASP model is quite good,"says Jocelyn Young, program manager for CRM services at IDC (US). "But if a company wants a more comprehensive solution that would allow for the integration of customer data with marketing campaigns, then an MSP model might be more effective."
Kevin Scott, an analyst at Boston-based AMR Research, adds that while ASPs aren't the right choice for all companies - if you have more than 1000 users, such solutions may not be scalable - they could be a good option for a division head who wants to get a project up and running quickly. Using an ASP, he says, doesn't preclude investing in a CRM software package when the economy picks up. "Is it worth it to do a cheaper, rented application for a year then throw it away?"Scott says. "In some cases, it's not a completely wrong choice to make."
As O'Connor and Airborne Express's Billings found out, CIOs are now in the CRM driver's seat. Implementations can be shorter term and relatively painless. What's more, as O'Connor says, "CRM doesn't have to be expensive".
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