The slings and arrows of CRM

Cath Everett looks at why so many customer relationship management projects fail.

Customers will complain until 2006 that more than 50 per cent of their customer relationship management (CRM) projects have failed, and the majority will underestimate costs by between 40 and 75 per cent, according to Gartner.

Shocking reading by anyone's standards. So what's going on? And why are users' expectations not being fulfilled by a sector that has been one of the most hyped and lauded of recent times?

Some of the problem is down to vendors' marketing departments promising too much and not being able to deliver, especially with regard to the Holy Grail of customer retention, explained Jennifer Kirkby, research director for CRM at Gartner.

"This is not about the failure of technology, but people feel very disillusioned that vendors have not delivered what they wanted," she said. "In many cases, they were sold expensive systems, with wonderful words about improving customer retention and better marketing campaigns, and none of it came to fruition."

CRM failing to impress

As common sense would dictate, this is because simply putting in new technology does not suddenly create a customer-focused organisation. Technical problems are responsible for between 12 and 15 per cent of projects that don't work, while a huge 55 per cent are considered failures as a result of expectations not being fulfilled, according to Gartner.

A key element of the problem is cost, with many organisations significantly underestimating how big a chunk such initiatives are likely to take out of their IT budgets.

Services, including implementation and integration with existing systems, can amount to as much as three times the licence fee, while introducing cultural change within the organisation can ratchet up costs as well.

But what does the average CRM project actually consist of, and who is undertaking them in these cautious days of IT fatigue and economic uncertainty?

Most organisations could benefit from improving their customer service, but the ones that tend to engage in such initiatives are those that can identify individual customers and have their account numbers or names and addresses, said Ian Campbell, director at Fujitsu Consulting.

"Unless they can do that, they're unlikely to benefit much," he explained. "For example, McDonald's is unlikely to get as much benefit from CRM as BAA because it has very few personally identifiable customers at the technology end, although they may be recognised by people serving them if they come in regularly."

The sectors most active in implementing CRM these days are healthcare and insurance companies, said Suzanne Keers, senior vice president of operations at Akibia, a consultancy that specialises in systems from CRM giant Siebel.

The hi-tech organisations and more general financial services companies that were busy in this field over the past couple of years are now relatively mature in CRM terms.

Customers tend to become involved in one of three initiatives, explained Keers.

Areas addressed by CRM

When starting out on the CRM path, most IT user organisations tend to go for projects that can increase efficiency or reduce costs because they are the easiest to justify and there is an obvious return on investment.

Examples include systems that can reduce the amount of time agents in call centres need to spend on each phone call, or tools that can help salespeople close deals more quickly.

Next in line are initiatives that can help stimulate revenue growth by winning new customers, or assist staff in up-selling or cross-selling products and services. These tend to be marketing related, with a focus on increasing the effectiveness of such campaigns.

The most difficult category to justify, because it is more nebulous, contains projects designed to improve the value provided to customers or to increase their loyalty. This is about analysing customer data to better understand it, and it's where CRM analytics tools come in.

The latter is by far the trickiest area to address, according to Erin Kinikin, a vice president at Giga Information Group.

"Companies that succeed in CRM are looking at the optimisation of systems, such as customer analysis or introducing business rules and workflow, so they can finally offer the right service to the right customer at the right time," she said.

"That's always been the promise, but you can't have optimisation until you have at least some internal processes and infrastructure to communicate with the customer, and that takes time. The problem is that many people think customer retention is the first step to aim for and it's not. It's the end result."

Campbell agreed. "The problem with CRM is that it's a strategy for business and it's not enough just to improve your enterprise processes and do the technology well," he explained. "The value comes from the customer relationship itself and the point of technology is to assist enterprise processes in improving that relationship.

"But developing good relationships takes time. A lot depends on the type of customer, but a large company can expect to wait two or three years before it sees the benefit of enterprise CRM."

Why do projects fail?

There are many reasons why CRM projects tend to fail, and none of them relate to technology, according to Campbell.

One reason is inertia within a company, another is the failure to appoint a senior sponsor who recognises that, for a CRM initiative to succeed, customers need to be treated consistently across all areas of the organisation, whether that means sales, marketing or support.

"Where a company doesn't have someone at board level who is responsible for business strategy, it's difficult to make a CRM project work," said Campbell. "If you try to do it from an organisational silo, it's doomed to failure because a proper CRM strategy involves walking across traditional functional silos."

Another frequent problem is a lack of shared understanding within the organisation of what CRM means and how to go about achieving it.

"The ironic thing about the front office is that sales, marketing and support don't really like each other, but with CRM you're asking them to work as a single co-ordinated team for the best interests of the customer," said Kinikin. "Often, however, they can't even agree on a definition of who the customer is."

Another cause of CRM failure is the difficult issues surrounding organisational change. "Change management is a huge subject and takes time," insisted Campbell.

"But it doesn't matter how wonderful the technology is, if the person answering the phone is having a bad day and is rude to the customer, your CRM strategy won't work."