CRM: Big bang theory explodes

If you listen to some of the companies selling customer relationship management (CRM) software applications, you could get the impression it is an all-or-nothing proposition needing to be implemented big-bang fashion.

The problem with this approach is that the era of disruptive, large-scale information technology projects with headline-grabbing budgets is very much in the past.

These days, if firms are spending anything on IT development, they choose smaller projects. Typically, these will take three to six months and deliver modest, but real, benefits from day one. New projects are usually fully integrated with existing systems.

Larger technology programmes are not unknown, but nowadays they are generally implemented piecemeal in small bite-sized chunks. Each incremental step has to deliver usable functionality and often needs to be justified in terms of a quick and demonstrable return-on-investment before further stages are implemented.

This contrasts with some of the noise coming from CRM vendors. They often ask prospective customers to rebuild their entire IT infrastructure in order to accommodate the software packages that allow firms to forge closer customer ties. At the same time vendors may argue that a CRM software implementation also requires sweeping business process changes across an entire enterprise.

It’s ironic that there should be such an apparent contradiction between the way companies selling CRM applications approach the market and the way real world firms actually roll out new technologies. After all, CRM is supposed to be all about getting closer to customers, understanding customer needs and delivering beyond their expectations.

In practice there’s less of a contradiction than it may seem. Rod Bryan, PwC Consulting’s Asia Pacific leader for CRM Solutions says that while CRM is definitely an all-or-nothing proposition, that doesn’t make it an all-or-nothing technology proposition. The all-or-nothing part is about committing to a way of doing business, not to a set of tools. The key to success lies in the strategy, not in the software.

He says, “It’s absolutely not about technology. Technology just happens to be a valuable piece of the equation. You just need it to realise the strategy.”

Bryan emphasises just how wide the gulf is between CRM technology and strategy. For example, he says, “You can have two competing organisations, let’s say they are banks, they might be exactly the same size and have more or less the same product set and customer base. The two banks might both go and install exactly the same CRM technology, but if they are using different CRM strategies they will get very different results. Buying CRM systems does not take away the responsibility for setting that strategy.”

This view jars with the way CRM technology vendors peddle their wares (see other story). Their marketing often confuses the strategic aspects of CRM with the delivery mechanisms. Not surprisingly brochures, advertisements and PowerPoint presentations show software enabled workers delivering great customer relations.

Bryan says the vision is good, but something often gets lost along the way; the idea that firms need to make the technologies work for them rather than the other way around.

Gartner research director, business applications Kristian Steenstrup says in reality there’s less dissonance than you might expect between the vendor approach to CRM and the pigeon step development now favoured by most firms.

He says, “You need to have a vision of how you view the market and how you would like to be seen by the market. Then once you have this in place, you can start implementing the various reorganisation and training programmes along with the technology projects that help work towards that vision.”

Steenstrup says there’s no technical problem adopting the piecemeal approach; companies can simply undertake their smaller projects within the framework of a bigger plan. He says that it is possible to roll-out a series of smaller three to six month projects that each deliver various CRM functions and reach various return-on-investment milestones.

The only real difficulty with this approach lies in the way individual projects are justified. He says, “It was always easier to do this with ERP (enterprise resource planning) projects because 90 percent of them delivered measurable efficiency gains. There still are efficiency gains with CRM, but 80 percent of the gains lie in effectiveness – for example you might want to get a better yield from your customer base.”

Another trap in the short-term gain approach to rolling out CRM is that successful implementation often requires an in-depth planning process that might stretch beyond the attention span of senior managers expecting three-monthly progress reports. Rick Clark, director of strategic consulting for MSI Business Solutions, Australia’s largest home-grown CRM player, says, “You should never be in too much of a hurry to implement CRM”.

Clark thinks the piecemeal development approach makes a lot of sense, but he warns that there needs to be a lot of spade work done before any projects are started. “It’s vital to get the information architecture correct from the beginning. A number of CRM programmes have failed because the firms got halfway through developing their systems only to find that the data isn’t structured correctly.”

In his view the danger is that a company shoot a few short-term small-project goals, only to find further progress is impossible.

He says organisations often fail to spend enough time defining the business problems before starting, he says the pressures to show quick returns means they can end up implementing systems rather than solving problems.

For example, they might start out worrying about getting a single customer view or building applications that help provide opportunities to up-sell to individual customers. “In fact they should start by asking themselves what kind of relationship we have with customers and what kind of relationship do we need, how can we increase the value of each customer.”

The danger here is that by looking for a quick return-on-investment a company might interpret the idea of increasing customer value as ‘let’s sell them another product’. Clark says it can work, but in some cases a ham-fisted attempt to sell an existing customer an extra product might draw the wrong kind of attention to the firm and cause them to put their business elsewhere.

This is what Clark calls ‘a moment of truth’. He says, “Most valuable customers can be lost for ever in a single moment of truth. For example, you might be happy to continue doing business with a bank that treats you badly for year after year. They might make a lot of money from you. But the moment they bounce a cheque or hit you with an unexplained charge, you’ll move your account.”

He says it’s not uncommon for companies to rush into a CRM programme and quickly build a system that gives a single view of the customer. This might provide information about which products each customer has purchased. The list is then handed over to a telesales department who are asked to fill in the blanks, up-sell or cross-sell more products to people. When this doesn’t work the company concludes that CRM doesn’t work, but the truth is such as system is simply managing customers and that’s not the same as managing relationships with customers.

This brings us back to the mismatch between the way CRM vendors approach the market and the way companies actually implement and use the tools. The all-or-nothing and big-bang aspects are real enough, but they apply to CRM in its broader sense, not the technology. There’s no inherent problem with a piecemeal approach to developing technology and rolling out systems, but it’s important not to be in a hurry and neglect the initial planning stages.

This story was published in the Australian Financial Review in July 2002.