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These Are the Times of CRM Vindication and Validation - Part 1

Written By: Predrag Jakovljevic
Published On: January 22 2010



Some previous TEC blog posts have discussed the benefits (but also the inevitable caveats) of white papers, including the all-too-common vendors’ self-serving marketing fluff and buzzword verbiage, and about their (un)intended audiences. As part of my daily routine of doing research on vendors and their strategies and offerings, I’ve read a ton of white papers in the last decade or so.

And yes, these have ranged from blatant and flamboyant bragging about a vendor's capabilities (a la the “Every man thinks his own geese are swans” proverb) to some exceptional ones that were quite educational and established someone’s expertise in something. Other latter examples (in addition to my previous post on Arena Solutions’ white paper on the pitfalls of manufacturing outsourcing) would be the following two white papers:

  1. “Customer Relationship Management: The Winning Strategy in a Challenging Economy,” authored by Microsoft Dynamics CRM, and

  2. “Maximizing CRM Effectiveness During Lean Times,” authored by Oracle CRM


Why? Well, when I read them, many things therein rang true to me from my own research and findings (e.g., the ongoing success of Salesforce.com, Oracle CRM, NetSuite, Microsoft Dynamics CRM, RightNow, Sage CRM, SugarCRM, and SAP CRM as well as ongoing TEC’s end-users’ inquiries), even though I was cognizant of Microsoft and Oracle intentionally touting their “astute CRM features” in respective documents. The fact remains that in 2009 customer relationship management (CRM) became a recession-proof enterprise application category as organizations scrambled to retain and mine existing clients for new opportunities, while superior customer service remains a differentiator in these times when lower prices and higher quality are a given.

In an ever-increasing competitive environment, the window between product conception and innovation on one hand, and commoditization on the other hand, is getting ever smaller. This phenomenon increases the need to differentiate around customer service to distinguish any organization from its competition. And, as a matter of course, customer experience can transcend every touch-point on the company’s front line including its sales, marketing, and service teams. The customer-facing front line also includes the company’s programs, campaigns, and promotions in all these areas, as well as its Web-based service channels and storefronts.

Not the Time to Be a Shrinking Violet

In a growth economy, everything seems straightforward: businesses typically work hard to expand their customer base and spend aggressively to fire up the growth engine. But as soon as revenues begin to dwindle during challenging times, many companies respond by aggressively cutting staff and budgets, particularly those in the IT department.

The conventional wisdom is that in the face of an economic downturn, rationalization, consolidation, cost-cutting, hiring freezes, etc. become the name of the game. Everyone tends to spend less on IT and only invest in those technologies that enable the organization to meet its most basic operational requirements.

In other words, companies tend to cut the IT budget to the bare bones needed to support building and delivering their products and/or services. But while this knee-jerk response is understandable, is it necessarily the wisest one?

Unfortunately, when it comes to managing customer relationships, this behavior could be both a short- and long-term detriment to business success. In fact, an article in The McKinsey Quarterly from September 2008 entitled “Managing IT in a downturn: Beyond cost cutting” cites the risk of making wholesale reductions in IT spending:
“Simplistic cuts, applied across the board, may endanger critical business priorities from sales support to customer service.”

McKinsey has also found that investments in “technology-enabled business processes” deliver far more impact than reducing costs. While the natural reaction for many companies in challenging times is to become inwardly focused and concentrate on conserving working capital, history has shown that it is in these critical times that savvy organizations have a significant opportunity to outflank their competition.

“A downturn is a terrible thing to waste.” This quote in The Wall Street Journal (WSJ) article from mid-2008 came from one Home Depot supplier, and it reinforces the bold premise of investing for growth when times turn tough. In fact, a March 2008 study conducted by Bain & Company found that during the last recession more than a fifth of the companies in the bottom quartile jumped to the top quartile in their industry and more than a fifth of “leadership companies” fell to the bottom quartile.

Forward-looking companies maintain their unwavering focus on investing in and optimizing existing assets throughout both good and bad times, coupled with a concerted effort to exploit operational efficiencies. A study by the McGraw-Hill Laboratory of Advertising Performance (LAP) shows that companies who continued strategic spending during a recession outperformed non-spenders and experienced revenue growth of 275 percent during the first full year of recovery.

It’s All About the Customer

And the key asset that lies at the center of every business is the existing customer base. By protecting and investing in this single most important asset companies can establish the foundation for a sustainable business.

Cost-cutting is certainly important when revenues shrink and push the company toward or into “red-ink territory.” Indeed, cost-cutting is often a quicker route to improving the bottom line than increasing sales (the top line). While a dollar saved carries straight to the net income (the bottom line), revenues have to grow by multiple times that amount to accomplish the same effect.

Therefore, the trick is to reduce costs without harming sales and service and alienating customers. And while there is no magic pill or panacea, appropriate CRM solutions can provide the foundation for sustainable growth and enable organizations to survive (and possibly even thrive) in these uncertain times.

For many companies, the biggest near-term challenges are survival related: shoring up existing customers and regaining profitability by cutting costs (without negatively impacting revenues). This brings to light another fundamental question: when the economy turns around, as it will (to quote Abraham Lincoln, “And this, too, shall pass….”), how will any organization be poised to take advantage of the next expansion?

There are also indications that in 2010 investors will be looking much more (with the “show me” attitude) for companies’ ability to grow revenues. Their ability to maintain profits by merely cutting costs (i.e., in a “cost cutting to prosperity” manner) will be regarded as “so 2009.”

OK, But Why Invest in CRM in a Challenging Economy?

The term “CRM” denotes a set of enabling technologies and tools that allows organizations to track and leverage every customer interaction to maximize revenue opportunities and improve customer loyalty. But CRM products must do much more than just track customer interactions by going beyond the traditional realm of “operational CRM.”

Namely, CRM tools play an important role by significantly boosting the efficiency and productivity of sales, marketing, and service people. These solutions can help organizations optimize their operations by automating routine tasks and standardizing best practices. Ultimately, CRM must allow organizations to better acquire, manage, serve, and extract value from their customers while improving operational efficiency.

As indicated earlier, when money is tight, existing customer relationships grow in importance as organizations seek a cost-effective way to nurture customers and thus maximize the value of every existing customer relationship. Needless to say, customers are crucial to business viability, and typically it is much less costly to retain existing customers than it is to acquire new ones. Maximizing the return on the company’s investments in sales, service, and marketing is critical in today’s economy.

Therefore, leveraging technologies that help organizations increase the effectiveness of their customer loyalty programs is a key way to increase customer affinity and share of wallet (SOW), and improve overall profitability. Unfortunately, at many companies loyalty program effectiveness is hindered by fragmented data, isolated point solutions, and inflexible and costly legacy systems. This makes it difficult to gain an accurate holistic view of key customers and their behaviors, bring differentiated incentives and rewards to market quickly, and ensure a superior customer experience.

Customer defection has many causes, but a common one is that fragmented account information prevents coordinated action across sales, service, and other operations. Warren Wilson of Ovum puts it well in his recent research note entitled “The Case for Enterprise Applications in a Recession”:
“Without up-to-date information, salespeople may miss cross-sell and up-sell opportunities, or might not know what delivery dates they can realistically promise; service people may not know that a customer has just bought a new product and deliver consumables for the old one.”

In a nutshell, fragmented customer information prevents a company from speaking with one voice. Unifying such information is the province of the CRM software category, and the need for unification is the reason why CRM is often one of the first significant enterprise applications deployed by growing companies.

Current competitive challenges call for prudent strategic IT investments that enable better decisions and better execution with near real-time visibility of all customer-facing processes and the necessary business agility to act. Visibility requires real-time access to multiple data sources (such as sales, customer support, engineering, operational, and financial data) and the ability to rapidly analyze that data to identify patterns and trends. For its part, business agility is the ability to quickly adapt to changing conditions, such as new threats (competitors or regulatory requirements) or opportunities (new localized offerings or new markets), or to speed-up successful new product introductions and dial back those that are not succeeding in the market.

What Has Changed for CRM Since the Early 2000s?

Whether it’s through increasing sales effectiveness, better managing the sales pipeline, building loyalty, improving marketing results, or reducing customer service costs, the two abovementioned white papers assert that CRM can provide a vital boost to any company’s top and bottom line in an adverse economic environment. But some of us with longer memories might point to the fact that CRM was already touted as a “killer application” a decade or so ago.

Like its enterprise resource planning (ERP) counterpart at the time, CRM had quickly earned a reputation of a costly technology with dubious results and value (being deployed as a mere customer record system). Most of once high-flying on-premise client/server CRM players (remember Aurum, Clarify, Vantive, Siebel, Pivotal, Onyx, Epiphany, etc.?) are no longer in business as independent companies.

It appears that a new crop of CRM providers, most of whom offer their applications on-demand, have avoided the mistakes of their predecessors. These vendors have taken a variety of steps to make their offerings more affordable, more flexible, and easier to use. Simplicity had much higher priority than supporting every possible bells and whistles. Thus, compared to setting up a new manufacturing plant, aggressively hiring new sales and customer service representatives, or raising capital to acquire other companies, CRM is a technology that can today be implemented rapidly with relatively limited costs.  

Gartner has recently outlined several technology trends that have been changing CRM products, starting with cloud computing and subscription-based software as a service (SaaS) deployments that result in lower initial costs, faster implementations, and quicker payback. For dispersed sales teams in particular, modern on-demand CRM solutions are fast-to-deploy and easy-to-use while fostering collaboration. They also provide an entry into the realm of CRM at a low initial cost that can be applied as an operational expense (rather than a capital expenditure).

CRM: Getting Analytic, Collaborative, and Social

Then comes the benefit from embedding business intelligence (BI) and analytics capabilities within CRM suites. World-class CRM systems build data warehousing directly into the analytic process by providing analytics capabilities embedded into the application that work hand-in-hand with “live” transactional data. This concept was explained in TEC’s article "CRM Analytics Brings More Profitability."

The ability to perform historical and comparative trend analysis and match it to current information enables sales managers to anticipate changes quickly. This capability is delivered in a near real-time dashboard that displays key analytical data (performance indicators) graphically and can be customized to meet an individual sales manager’s needs. For example, a manager can view current and historical results of his/her accounts and can overlay that with reports by sales rep, geography, industry, and other relevant data.

To that end, Microsoft Dynamics CRM [evaluate this product] analysis capabilities are built on the Microsoft SQL Server Analytics Services (SSAS) foundation that provides a vast array of BI and data visualization technologies. For its part, Oracle Siebel [evaluate this product]  has long featured strong embedded BI and analytic capabilities, which today constitute a major part of the overall Oracle BI Enterprise Edition (OBIEE) offering. SAP CRM [evaluate this product] has done similarly with Business Objects, while other CRM providers’ moves have been along similar lines.

Related to this trend is the shift from “operational CRM” to “social CRM,” which was also indicated in TEC’s article "CRM Is Busting Out Of Its Britches: Operational, Analytical, and Collaborative CRM Are Born." Social CRM consists of the following three areas, according to Gartner:

  1. Internal collaboration tools

  2. Internal communities (that are hosted by the business)

  3. The monitoring of outside social networks, such as Facebook and Twitter


2009 was a year in which some businesses began experimenting with social CRM, but it was also the year when CRM vendors jumped on the "social" bandwagon. Oracle Social CRM Applications have been a major theme in Oracle’s CRM roadmap, in addition to long-awaited features such as running Oracle Siebel in Microsoft Outlook. RightNow recently acquired HiveLive to round out its social customer service offering, NetSuite partnered with InsideView to “socialize” its CRM and ERP applications, and Salesforce.com added integration to Twitter via its Service Cloud.

On Microsoft's side, streamlined connectivity with Microsoft Office SharePoint Server (MOSS) allows Dynamics CRM users to get collaboration, document management, and search capabilities. Microsoft's upcoming SharePoint 2010 release for the enterprise will reportedly add the following social media features: social profiles, an actual wiki, activity streams, status updates, presence status, social bookmarking, tags, blogs, ratings, etc.

Part 2 of this blog series will continue with analyzing the latest trends and developments that are making CRM solutions more attractive these days. In the meantime, what are your views, comments, opinions, etc., about CRM? I would appreciate you sharing your experiences with the CRM offering and the provider as well as your current appetite towards the software category.
 
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