Is CRM all it's cracked up to be?

Studies released in the last few weeks show that a large number of such projects fail to deliver on stated goals, and dissatisfaction with completed customer relationship management software projects runs high within executive ranks.

Analysts said it would be easy to blame the software providers such as Siebel Systems, Oracle and PeopleSoft for the failure rates, but there's plenty of blame to go around. Companies are spending money on CRM software without thinking about their own business strategy or processes, analysts said. To have any chance of success, companies need to organize their internal data so it's easier to find, and to set measurable goals.

Moreover, analysts and CRM customers say, companies need to remember that CRM isn't just software: It's a complex process that's useful only if companies know which problems they're trying to solve.

"The problem is that the targets that are set often aren't quantified by numbers," said Michael Maoz, an analyst at Gartner. "Things like sales efficiency and customer service are...often hard to measure."

CRM has become the must-have enterprise software for many large companies in the past few years. The software is intended to streamline customer service, give sales staff the customer information they need to close deals faster, simplify marketing and sales efforts, and help companies find new customers and generate more revenue from existing customers.

Using software applications to record customer interaction with sales and customer service personnel, CRM applications can provide an elusive "360-degree view" of a business 24 hours a day, which can boost revenue and keep customers happy.

A credit card company can use CRM to track customer spending and payment habits to help tailor marketing plans. Or a bank might use CRM to help identify that a customer has a large checking account balance, a mortgage and two car loans, and therefore probably deserves better-than-average customer service.

That promise is driving sales. Surveys from industry research firms and Wall Street brokerages show that installing CRM software remains a top priority for big companies. A Morgan Stanley survey of 225 CIOs released last week showed that 80 percent of them planned to start new applications projects in 2002, and many cited CRM as a priority.

In addition, a recent research report from ABN AMRO concluded that the CRM market is expected to reach $3.36 billion next year, up 25.8 percent from 2002.

Such projections have attracted software giant Microsoft, which plans to launch a CRM package in the fourth quarter, initially focused on small businesses.

It's popular, but is it practical?
Despite CRM's popularity, though, many CRM implementation projects fail to meet their initial goals. Gartner research shows that more than half of CRM projects fail to deliver on expected savings and business advantages. And a recent Merrill Lynch survey of CIOs at large companies found that 45 percent of those surveyed were not satisfied with CRM installations.

Finding companies willing to come clean about their CRM problems is difficult, however. Most companies are unwilling to disclose details of a failed or flawed project since doing so might incriminate IT departments or customer service organizations, or, worse, worry shareholders and customers.

Nonetheless, most companies that have installed a CRM system have had problems--even those that consider their CRM implementations a success.

Lisa Harris, CIO for Gevity HR, a large human-resources outsourcing company with $3.2 billion in revenue last year, said her company's CRM installation was on time and on budget, but there were a few potholes along the way because of internal politics and technology problems.

"The bigger you are, the more business rules and processes you have," she said. "Everyone has to compromise and work together because you are changing processes and the culture."

On the people front, there were departments that had never had access to customer data and had to be trained in how to work with it. Internal bickering was common; some departments didn't want to share data with others.

Maoz argues that the failure rate for CRM installations isn't much different from that in the early days of enterprise resource planning installations, which he said historically flopped somewhere between 50 percent and 75 percent of the time in the 1980s and 1990s. CRM installations so far have been the domain of what Gartner describes as "Type A" companies, or leading-edge businesses. "Type B and Type C enterprises (late adopters) are still debating whether they should undertake such initiatives," the company said in a report.

Success requires planning
If companies fail to properly plan a CRM installation, the failure rates surge, analysts and technology buyers said.

Yankee Group analyst Sheryl Kingston said many companies have rushed to adopt CRM technologies without much thought and have dropped lots of dollars on applications that haven't worked. "The biggest mistake is that companies don't spend a lot of time or energy on the data," she said. "Without the data the apps may be great, but they don't work."

CRM software is only a small part of an equation that includes changing business practices to focus more on customer needs and reorienting databases so customer data is more easily found, analysts said. Big CRM software makers like Oracle and Siebel concede that point.

"The big question is whether a company is implementing technology or a strategy," said Herb Hunt, chief technology officer for Siebel. "For CRM to be a success it is critical (that) customers have a strategy."

Gartner surveys back up that assertion. Roughly 75 percent of CRM projects that fail through 2004 will do so because of poor business decision-making, Gartner concluded.

Kingston said CRM projects run into trouble when customer data is scattered across multiple divisions and is stored in incompatible formats. "Information is (stored) in all these different areas, spreadsheets, databases, the sales guy's head," Kingston said.

Companies also fail to streamline business processes and train employees to use the new CRM gear, creating new pitfalls, Kingston said. Large companies have a harder time prepping for CRM initiatives than do smaller ones, she added, due to their more complex information systems and sometimes Byzantine organizational structures.

Successfully implementing a CRM system within a large company is "a profoundly difficult thing to do," Maoz said.

Technology glitches
Harris said Gevity HR has used Oracle for its CRM applications since 1999, when it chose to use the software company's products for front- and back-office uses. The company has upgraded Oracle's e-business software a few times and has managed by tackling CRM in small pieces.

"A lot of these things fail because companies try to do everything at once," Harris said.

She said some problems were related to Oracle's software release schedule. "We went through beta testing with Oracle, so there were some normal bumps," she said. "We were thinking the software could do things it couldn't."

Specifically, some of the field names in Oracle's CRM application didn't apply to Gevity HR, leaving the company to tell customer reps to ignore certain areas.

Meanwhile, just because Oracle's e-business software was integrated didn't mean everything was tested. She said there were glitches with Oracle's ERP, human resources and payroll applications that had to be fixed. "In some cases Oracle did a patch right away, and for others we had to wait for the next release," Harris said.

Technology integration is a common problem, said CRM veterans. Mike Overly, Hewlett-Packard's Global CRM manager, said the company had to integrate more than 200 of its older CRM applications to set up its new CRM system. The company used CRM tools from PeopleSoft, Siebel, Epiphany and a host of others. "We had every tool you could think of," Overly said.

HP chose to use Oracle as a framework for CRM and took the job in phases as it tried to connect various departments across the globe. The company said it has cut down on the silos of customer data and is beginning to measure the payoff.

Of course, Overly may have more work ahead if HP's merger with Compaq Computer takes place. Compaq has its own customer data and largely uses Siebel for its CRM applications, he said.

While large companies sometimes struggle with CRM, smaller businesses can approve new processes and integrate CRM applications much more rapidly.

TidalWire, which distributes networked storage products, eluded many potential pitfalls largely because it's a company of 25 employees.

The company, based in Westborough, Mass., began installing Siebel CRM applications in summer 2000 in preparation for being spun off from Akibia, its former parent company. Since TidalWire was starting from scratch, it didn't have to worry about older applications and changing processes, said Greg Augustine, vice president of information systems and applications.

"Our history was minimal, and no CRM tool was in place beforehand," Augustine said. "The processes were basically coming from nothing, so we were at an advantage. We also didn't have to get approval from a bunch of managers."

TidalWire says its CRM efforts have cut quote requests from 24 hours to four, boosted follow-up activity, and cut shipping mistakes by 15 percent.

Vested interest
CRM software makers have a vested interest in their customers' success, of course. At Siebel, it has become increasingly important to help customers develop a CRM strategy, Hunt said. It doesn't do Siebel any good if its customers don't succeed, especially since Siebel and other companies want customers to keep spending on CRM upgrades and additional products. "Your CRM journey is never done," he said.

Siebel has instituted a group to help companies cook up CRM strategies and another division that provides "effectiveness reviews," targeting customers that may not be getting the most bang for their buck.

CRM executives said they expect failure rates to subside as more companies spend time on the strategy behind the software, a focus that has been forced because of a weak economy.

"Things are totally different in this space now compared to 18 months ago," said Robb Eklund, vice president of CRM product marketing for PeopleSoft. "Eighteen months ago resources were plentiful and CRM was the Holy Grail. Now organizations are being more methodical."