Use These Guidelines for Making Better CRM Consulting Provider Selections

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1 Research Publication Date: 7 July 2006 ID Number: G Use These Guidelines for Making Better CRM Consulting Provider Selections Matthew Goldman, Ed Thompson, Lorrie Scardino Gartner sees many inconsistencies between the business objectives for CRM initiatives and the criteria used to evaluate and select CRM service providers. Use this guide to define the issues important to your organization and the appropriate criteria for evaluating service providers. Reproduction and distribution of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although Gartner's research may discuss legal issues related to the information technology business, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The opinions expressed herein are subject to change without notice.

2 WHAT YOU NEED TO KNOW Beware of misalignment between the financial business objectives of your CRM project and the selection criteria used when evaluating consulting and systems integration providers to help with the project. Use these guidelines as a starting point for aligning the financial business objectives more closely with consulting and systems integration provider selection criteria. ANALYSIS At the most aggregated level, there are two primary financial drivers for implementing CRM solutions: organizations aim to save money or sell more products or services: Save money The objectives include initiatives that target operational improvement efforts, such as reducing sales costs, increasing profit per customer and increasing profit margins. These objectives are more reflective of operational improvements than they are of revenue enhancement. Sell more These objectives include efforts that are directly (for example, increased sales revenue) and indirectly (such as increased customer satisfaction) linked to growing revenue. Most businesses are interested in both objectives, and most projects have goals to achieve both. To achieve these goals, businesses will often decide to contract out consulting and systems integration (C&SI) services with external service providers (ESPs). In this effort, they often do an adequate job of stating the primary business objective. However, qualitative and quantitative research of buyers of CRM services suggests that the criteria used to evaluate CRM ESPs are misaligned with the primary business objective pursued by the business. The criteria outlined in Table 1 enable buyers to better identify ESPs whose capabilities are in line with the stated project objectives. Table 1. Recommended Top Five Criteria for Evaluating CRM ESPs, by Business Objective Save Money Sell More 1 Business Acumen Overall Thought Leadership in CRM 2 Overall Thought Leadership in CRM CRM Vision 3 Industry Expertise Industry Expertise 4 Prior Experience Prior Experience 5 Project Management Skills Business Process Skills Gartner believes that the most common selection criteria used to pick CRM C&SI providers are misaligned with the financial business objectives of these initiatives, in many cases. In addition to the factors mentioned here, there are several areas of criteria that need to be considered. For more detail and the broader evaluation and selection of CRM service providers, see "Experience and Relationships Are Crucial to Selection of a CRM Provider." Gartner recommends using the following guidelines as a starting point for the ranking and relative weighting of the selection criteria, depending on the primary financial business objectives of the CRM project. Although there is no absolute definition of selection criteria and relative importance for CRM projects, these guidelines will help organizations clarify the project scope and business objectives, and align them with the most important selection criteria. Publication Date: 7 July 2006/ID Number: G Page 2 of 8

3 As an example, in an effort to improve customer satisfaction and sell more products, a manufacturing company was evaluating a CRM ESP to help redefine customer service processes and implement a supporting software solution. A post-selection review of the company's evaluation found the primary criteria used to choose the provider included technical skills, price and prior experience. Given the project's focus to improve customer service, had the business aligned its project goals with its evaluation effort, we would expect to see customer service process expertise, CRM vision or other thought leadership characteristics at or near the top of the list. This points to one of two things: The requirements are not reflective of the objectives that are important to the organization. The objectives that are important to the organization are not reflected in the evaluation criteria. These circumstances could be a result of poor communication of changes to corporate objectives, disconnected procurement processes that operate under different directives than the business unit pursuing the objective, or a limited understanding of how evaluation criteria can be used to make more-effective selections. No matter the situation, organizations need to align their business objectives and selection criteria upfront, before a request for proposal is issued or an ESP is chosen, to ensure they make the most appropriate selection. Sell More vs. Save Money Gartner recently collected 295 project feedback surveys from clients of CRM ESPs across the globe describing details of their initiatives (see Figure 1). Included in this survey were questions about the client's intended primary business objective for the project and the evaluation criteria the client used to select an ESP. Of the 295 total project surveys, 82 percent (or 243) indicated a primary business objective for their CRM project. From this study, the project objectives were categorized as driving one of the two aforementioned primary financial drivers: save money or sell more. Although some business objectives could fall into either category, for this analysis, assumptions were made to highlight the dominant distinctions between the categories. Overall, 67 percent of respondents cited a primary project objective that aimed to sell more, as opposed to 33 percent that intended to save money. Publication Date: 7 July 2006/ID Number: G Page 3 of 8

4 Figure 1. Primary Business Objective for CRM Project Increased Sales Revenue Increased Customer Satisfaction Reduced Sales/Service/Marketing Costs Increased Profit per Customer Increased Customer Retention Reduced Other Operational Costs Acquisition of New Customers Enhanced Cross-Sell/Upsell Opportunities Increased Customer Loyalty Increased Profit Margins Increased Asset Utilization Count Sell More Save Money N = 243 Save Money Gartner then looked at the evaluation criteria most frequently used to evaluate service providers by organizations with the primary goal of saving money (see Figure 2). The purpose was to determine how well organizations align their business objectives with their CRM ESP selection criteria. Publication Date: 7 July 2006/ID Number: G Page 4 of 8

5 Figure 2. Top 10 Most Frequent Evaluation Criteria for "Save Money" CRM Projects Save Money Thought Leadership in CRM Technical Skills Price Project Management Skills Industry Expertise Prior Experience Resources Proposed for Project Business Process Skills Software Package Expertise Methodologies 0% 10% 20% 30% 40% 50% Count N = 79 Surprisingly, the most commonly cited selection criterion for those where the primary goal was to save money was thought leadership in CRM. Less surprising was the focus on technical knowledge and price. We would expect to see methodologies, software package expertise and prior experience to have occurred more frequently, as "save money" projects would often include consolidation of existing solutions or process re-engineering skills. To further examine the alignment of evaluation criteria and stated business objectives, Gartner reviewed the relative importance of the evaluation criteria as indicated in the client surveys. Specifically, Gartner asked clients (buyers of services from CRM ESPs) to rank, by importance, the top five criteria for their project. The data was segmented to reveal the top five criteria for "save money" and "sell more" projects. The results for "save money" projects are shown in Table 2. Table 2. Top 5 Most Important Criteria for "Save Money" Projects Rank Criteria 1 CRM Vision 2 Software Package Expertise 3 Business Acumen 4 Overall Thought Leadership in CRM Publication Date: 7 July 2006/ID Number: G Page 5 of 8

6 Rank Criteria 5 Project Management Skills It appears that organizations have some misalignment between the most-important criteria and the financial business objectives of their CRM projects. We would expect to see more consideration given to industry skills and prior experience of working with a service provider. Both of these criteria are important attributes when organizations aim to reduce costs (process improvements) through industry-specific variations to an existing function, or to leverage a provider's familiarity with an organization and its approach to more quickly identify and extract potential savings. Given that thought leadership in CRM and CRM vision are among the top five (in frequency and importance) for "save money" projects, buyers of CRM C&SI services seem to place less importance on the attributes that will have more impact on selecting a capable and qualified source. This is likely a result of some clients mistakenly believing that CRM vision or thought leadership offer new, yet pragmatic approaches to support cost reduction efforts. It appears, in these cases, that project business objectives and source selection criteria were not well-aligned prior to the selection process. Sell More Similarly, Gartner looked at the evaluation criteria used to select service providers that were most commonly cited for those projects with the goal to sell more (see Figure 3). Again, the purpose was to determine how organizations align their ESP sourcing selection criteria with their business objective. Figure 3. Top 10 Most Frequent Criteria to Support "Sell More" Projects Sell More Technical Skills Prior Experience Project Management Skills Software Package Expertise Price Resources Proposed for Project CRM Vision Business Process Skills Industry Expertise Methodologies 0% 10% 20% 30% 40% 50% Count N = 163 Publication Date: 7 July 2006/ID Number: G Page 6 of 8

7 Equally surprising was that the most commonly cited selection criterion for those where the primary goal was to sell more was technical skills; less surprising was the focus on prior experience and project management skills. We would expect to see domain expertise (in sales and marketing), prior experience, thought leadership in CRM, business process skills, industry expertise and project management skills to receive higher importance, as "sell more" projects often focus on sales processes, lead management, cross-selling/upselling, targeting, and segmentation of customers and accounts. By examining the leading criteria, as determined by relative importance, the following criteria emerged (see Table 3): Table 3. Top Five Most Important Criteria for "Sell More" Projects Rank Criteria 1 Overall Thought Leadership in CRM 2 CRM Vision 3 Prior Experience or Relationship With Provider 4 Technical Skills 5 Project Management Skills Although the criteria, when ranked by importance, appear to be closer in line to support "sell more" objectives (than in the "save money" category), there still appears to be some misalignment in the most common criteria and the financial business objectives of the CRM project that organizations are using. Gartner would expect to see greater emphasis around business and industry skills, once again, as these areas lead to new and differentiated approaches to leveraging CRM investments that grow revenue. Not surprisingly, overall thought leadership in CRM and CRM vision are the top two criteria of importance. These criteria help to separate those providers that understand how best to apply process and technology to meet customer demands today and tomorrow. Tactical Guidelines Clarify and confirm your CRM project business objectives What are you trying to achieve? Determine which criteria best align with your stated business objective Are we evaluating the right factors? Maintain focus on your objective Don't lose sight of your project's primary goal RECOMMENDED READING "Experience and Relationships Are Crucial to Selection of a CRM Provider" Acronym Key and Glossary Terms C&SI CRM ESP consulting and systems integration customer relationship management external service provider Publication Date: 7 July 2006/ID Number: G Page 7 of 8

8 REGIONAL HEADQUARTERS Corporate Headquarters 56 Top Gallant Road Stamford, CT U.S.A European Headquarters Tamesis The Glanty Egham Surrey, TW20 9AW UNITED KINGDOM Asia/Pacific Headquarters Gartner Australasia Pty. Ltd. Level 9, 141 Walker Street North Sydney New South Wales 2060 AUSTRALIA Japan Headquarters Gartner Japan Ltd. Aobadai Hills, 6F 7-7, Aobadai, 4-chome Meguro-ku, Tokyo JAPAN Latin America Headquarters Gartner do Brazil Av. das Nações Unidas, andar World Trade Center São Paulo SP BRAZIL Publication Date: 7 July 2006/ID Number: G Page 8 of 8

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