Select CRM Applications Carefully to Get Maximum Benefits

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1 Strategic Planning, B. Eisenfeld Research Note 19 February 2003 Select CRM Applications Carefully to Get Maximum Benefits Enterprises pursuing the advantages of a customer relationship management strategy should target specific CRM tools. According to our December 2002 surveys, all CRM applications do not produce the same level of benefits. Core Topic Customer Relationship Management: Creating Business Value for CRM Key Issue How can enterprises control the investments and quantify the benefits of CRM? Strategic Planning Assumption Through 2007, enterprises that carefully select the most-appropriate CRM applications and match them to the benefits they are seeking will see a 15 percent to 30 percent faster payback on their CRM investments than enterprises that blindly implement CRM applications (0.8 probability). Customer relationship management (CRM) can be rewarding for many enterprises. A business strategy that is enabled and supported by many technologies and applications, CRM is designed to integrate these technologies and applications with optimal business processes across sales, marketing and service, while balancing and optimizing the number of channels (such as field, telephone and Web) that customers use to conduct business. Of course, the underlying premise of CRM is the ability to provide value to both parties: for the enterprise, the aim is to optimize profitability, revenue and customer satisfaction, and for customers, it is to satisfy their requirements. As enterprises pursue CRM strategies, they soon realize that the benefits, as well as the costs, can be significant. This recognition results in the requirement to quantify the value of CRM. Strategic initiatives as broad as CRM are difficult to justify via the measurable and tangible benefits of the strategy itself. Often, it takes a long time to fully realize benefits, because strategies are broken down into individual projects that are executed tactically. Gartner is often asked by clients to cite the benefits of implementing CRM, but this is the wrong question. Rather than looking at CRM technology as a single "thing," the question that enterprises should be asking is, "Which of the many CRM applications should we be implementing when pursuing a CRM strategy?" The answer will depend on the enterprise's response to the broader question, "What are the goals that the enterprise hopes to achieve?" In a recent series of surveys conducted by Gartner's CRM team, respondents were asked questions about 14 different CRM applications. For each application, we asked if the respondent's enterprise had achieved or expected to achieve benefits in the categories of 1) lowered costs, 2) improved efficiency, 3) Gartner Reproduction 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. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 improved effectiveness and 4) competitive advantage. Here, we present the stack ranked results for the various CRM applications in each of the four benefit categories, along with the number of respondents for each survey. Lowering Costs Lowering costs is the most-common benefit cited by enterprises for nearly every implementation of a CRM application. The reason is simple: It's the easiest metric to measure. Lowering costs (cost savings or cost avoidance) involve benefits that contribute to a reduction in the cost of operations or a decrease in the cost of future operations (such as a postponement or reduction in hiring.) In analyzing the applications and comparing which tools lower costs more than others, two of the newest additions to the CRM family of applications are cited by respondents as having the best effect on lowering costs: customer relationship optimization (CRO) and marketing resource management (MRM) tools (see Table 1). The comments provided by the responding enterprises center around reducing the number of business hours people are spending inputting and analyzing data. Several companies have been able to use less-specialized (hence less-costly) personnel to execute and run campaigns, as well as reduce the costs of acquiring lists and pulling information from them. 19 February

3 Table 1 Stack Rank of CRM Applications for Lowering Costs CRM Application Lowered Costs Survey n CRO 76% 46 MRM 72% 32 E-Service 69% 75 Partner Relationship Management (PRM) 63% 79 E-Marketing 62% 34 CRM Analytics 61% 31 E-Commerce Sell-Side 58% 52 Sales Configuration 57% 95 Field Service 57% 42 CRM Sales Suites 56% 54 Direct Sales 55% 38 Incentive Compensation Management (ICM) 55% 33 Call Recording and Monitoring 51% 39 Consumer Goods Sales Force Automation (SFA) Source: Gartner Research 37% 41 These enterprises cite the automating of previously manual activities as the biggest savings. Although many of the other applications listed reduced costs, some of the more "traditional" CRM applications such as SFA, which is specific to the business issues in the consumer goods industry, and call recording and monitoring systems, which are important in driving other benefits should be carefully reconsidered if they're being implemented to lower costs within the enterprise. Action Item: Enterprises pursuing CRM strategies aided by the implementation of CRM technologies, should consider CRO and MRM applications, because these tools significantly help enterprises reduce costs, as compared to the other CRM technologies that may be considered. Improving Efficiency Efficiency is the ability to produce things or bring about results quickly. Efficiency benefits can best be described as those that address performing or operating quickly and accurately in ways 19 February

4 that are the least wasteful. When comparing the various CRM applications, many of them help to improve efficiency (see Table 2). This is not surprising because, when well implemented against a good process, technology-assisted "anything" can generally outperform manual or people-intensive processes. Table 2 Stack Rank of CRM Applications for Improving Efficiency CRM Application Improved Efficiency Survey n MRM 94% 32 Field Service 93% 42 E-Service 92% 75 Call Recording and Monitoring 92% 39 CRO 91% 46 PRM 90% 79 Consumer Goods SFA 90% 41 E-Commerce Sell-Side 88% 52 E-Marketing 88% 34 ICM 88% 33 CRM Analytics 87% 31 Direct Sales 84% 38 CRM Sales Suites 80% 54 Sales Configuration 79% 95 Source: Gartner Research MRM and field service applications scored high. Because the marketing function has remained one of the least automated, it is not surprising that enterprises deploying MRM cite significant improvements in efficiency. Respondents cite the ability to execute marketing activities more rapidly. Field service applications enable enterprises to better use certain resources and streamlined and standardized processes in the field, such as reporting billable actions to corporate headquarters. One respondent cited "a drastic reduction of internal phone traffic," and another said it enabled "virtual elimination of manual backend processes." However, the most-impressive comment that demonstrates the power of efficiency brought about through field service applications is, "We were able to decrease the contract creation process from 72 to 12 steps." Coming in third was e-service. Applications supporting e-service enable the automatic routing of messages, greatly increasing 19 February

5 enterprise ability to respond to new questions, attain service-level agreements (SLAs), improve average handle times and enable speedier resolution of customer requests, and improve the overall service experience for customers. One respondent reported that "average response time has been reduced from 48 hours to 12 hours." Overall, improving efficiency ranks as a top benefit cited by most enterprises, as evidenced by the relatively high percentages in nearly every category of CRM application. Action Item: Enterprises with business strategies that call for a high degree of efficiency should continue to look at the CRM applications to help achieve these goals. However, increased efficiency alone may yield benefits that exceed the cost of implementing these technologies. Improving Effectiveness Effectiveness is the ability to bring about results. Effectiveness benefits are best described as those that address performing or operating in the most-impressive or extraordinary manner to produce intended results. Table 3 stack ranks the CRM applications. PRM applications, as long suspected, go the furthest toward improving effectiveness. "Information that was previously distributed, but 'lost' is now logically organized and instantly available," according to one respondent. These applications have enabled enterprises to reduce order error rates one reported a decrease of more than 80 percent with the result that customers and partners were more satisfied with the processes. 19 February

6 Table 3 Stack Rank of CRM Applications for Improving Effectiveness CRM Application Improved Effectiveness Survey n PRM 95% 79 CRO 93% 46 Call Recording and Monitoring 92% 39 E-Marketing 91% 34 Field Service 90% 42 Consumer Goods SFA 90% 41 CRM Analytics 90% 31 E-Service 88% 75 ICM 85% 33 Direct Sales 82% 38 MRM 81% 32 E-Commerce Sell-Side 79% 52 Sales Configuration 78% 95 CRM Sales Suites 74% 54 Source: Gartner Research As a result of PRM, another enterprise reported that its customer service department could now spend more time being proactive with its customer calls and could conduct upsell and cross-sell activities, rather than handling inquiries. CRO again rises to a top spot in another benefit category. Effective routing of leads to the proper sales representatives and closed-loop tracking were reported as benefits. These tools enable enterprises to test campaign elements and make improvements in real time, while enabling the creation of sophisticated, multichannel, customerspecific bundled offers and the development of daily eventtriggered campaigns. Call recording and monitoring applications enabled respondents to offer customers a smoother call flow, respond to customer calls more quickly and train new agents to be more effective. Action Item: Enterprises looking to improve their effectiveness will deploy CRM applications to their sales, marketing and service personnel to enable them to better assist customers, and should consider deployment of PRM applications to improve channel effectiveness. 19 February

7 Gaining Competitive Advantage Gaining competitive advantage has long been a favorite benefit cited by enterprises implementing CRM during the dot-com period. However, now that the hype around the Internet has subsided, the real benefits are starting to be proved. Table 4 shows that CRM sell-side e-commerce applications provide the biggest returns in this benefit category. Respondents cited the benefits being "big impact" in online inventory being available to customers, freeing up service representatives to focus on crossselling and upselling. Other enterprises cited benefits here by pointing to competitors that had yet to offer this enhanced service to customers at the time of initial implementation. However, the advantage was "short lived," because others now offer it. Table 4 Stack Rank of CRM Applications for Gaining Competitive Advantage CRM Application Helped Gain Competitive Advantage Survey n E-Commerce Sell-Side 81% 52 PRM 77% 79 Call Recording and Monitoring 72% 39 E-Marketing 71% 34 Field Service 67% 42 CRO 65% 46 E-Service 64% 75 Direct Sales 63% 38 CRM Analytics 61% 31 CRM Sales Suites 59% 54 MRM 56% 32 Sales Configuration 55% 95 Consumer Goods SFA 51% 41 ICM 33% 33 Source: Gartner Research PRM takes a top position in yet another benefit category. The benefits cited included being recognized by top customers as the best in the industry; however, one respondent conceded that this benefit is difficult to measure, although it gives the perception of being proactive and visionary. Another enterprise cited leadership and the need to "stay ahead of the times" as the main benefits. However, tangible benefits, such as faster access to 19 February

8 lead information by channel partners and marketing campaigns using the tools have shown a positive return on investment (ROI). Others cited lowering costs and improving communication with dealers and suppliers, which produces an advantage over the competition. Action Item: Although no truly hard metrics were cited in this benefit category, improving relationships with customers and partners is a long-term strategy and one that often takes many years to assess. Enterprises will need to identify metrics such as customer profitability and evaluate them long term (that is, put systems in place to measure these over a number of years) to prove benefits from competitive advantage. Acronym Key CRM CRO ICM MRM PRM ROI SFA SLA Customer relationship management Customer relationship optimization Incentive compensation management Marketing resource management Partner relationship management Return on investment Sales force automation Service-level agreement Bottom Line: Enterprises that implement the correct customer relationship management (CRM) applications claim real benefits. Through 2007, enterprises that carefully select the mostappropriate CRM applications and match them to the benefits they are seeking will see a 15 percent to 30 percent faster payback on their CRM investments than enterprises that blindly implement CRM applications (0.8 probability). In addition to evaluating the potential benefits from these applications, enterprises should consider implementation complexity, probability of success, risk of failure and costs, all of which are components of a more-complex decision. However, choosing CRM applications that match an enterprise's overall goals will lead to greater CRM program success than these other factors. 19 February