2001 May 01
Crossing the CRM Reality Gap
David M. Raab
DM Review
May, 2001

Customer Relationship Management has now reached the awkward stage in its adoption cycle where the concept and its benefits are widely accepted, but few complete implementations are in place. The resulting “reality gap” leads some skeptics to question whether the whole idea is truly worthwhile, or merely the creation of vendors, analysts and consultants looking for something to hype.

The phenomenon is familiar: the data warehouse industry went through a similar period of doubt a couple of years ago, and falling stock prices suggest the Internet industry is going through one right now. But even though the cycle is well understood, it is still dangerous. If the skeptics actually convince enough people that CRM is a meaningless bubble, further development could be halted. So it’s worth taking stock of what has been accomplished so far, and what remains to be done.

The good news is that the general principle of CRM–that companies should treat each customer to optimize the value of the relationship–is well understood. Of course, like any successful buzzword, the “CRM” label now appears on many products far removed from its core principle. But overextended buzzwords are a part of life in the technology industry; if we rejected every concept that was abused in this way, we’d still be counting on our fingers. So the broad acceptance of CRM theory is a positive step.

What’s lagging is CRM practice. Even vendors of the most sophisticated systems acknowledge that their clients rarely do more than a partial implementation. In fact, it is nearly impossible to find a truly complete CRM installation–one that applies coordinated treatment strategies in real time to all interactions across all customer touchpoints, drawing on a central customer database and comprehensive, integrated analytics. Current deployments tend to be departmental, or limited to one touchpoint, or applied to one customer group, or run just a handful of special-purpose campaigns. There is nothing wrong with this from the practical point of view. In fact, it makes perfect sense as a way to gain experience and immediate returns from CRM tools and techniques. But CRM skeptics see these partial deployments as detours away from full CRM, rather than paths leading towards it.

If the CRM industry were stagnant, the skeptics might be right. But the industry continues to mature in ways that will eventually lead companies to replace their partial solutions with proper CRM implementations. Key developments include:

– a richer understanding of CRM deployment requirements. Just as the data warehouse industry went through a painful period of repeated project failures before its practitioners learned effective techniques for warehouse development, the CRM industry must also learn from its early mistakes. Interestingly, the key lesson so far has not been technical, but organizational. CRM experts now consistently stress the importance of organizational change for successful CRM execution. Business processes, reward systems, reporting structures, training methods–all must be adjusted to place the focus on customers rather than product lines, geography or functional specialties. This is a significant contrast with the data warehouse industry, where most lessons related to appropriate technologies and design methods. While CRM certainly poses technical challenges (just as data warehouses involve significant organizational issues), the difference in emphasis is important. Among other things, it implies that technologists has even less control over the ultimate success of a CRM deployment than over a data warehouse initiative. On the other hand, the largest pieces of CRM are transaction-oriented operational systems like customer service applications. These are more familiar to technology staff than the analytical systems used a data warehouse.

– a new stress on Return on Investment. Early CRM efforts, like early data warehouse projects, were nearly always based on faith–or, to use the rational-sounding euphemism, “strategic imperatives”. But as the results from initial projects become available, it is possible to quantify actual improvements in both the cost and revenue. These gains still tend to reflect the small, tactical nature of the early projects rather than the grand strategic advantages promised by CRM theory. But they still illustrate the transition of CRM from an unproven vision to a conventional business investment. This is ultimately a more secure foundation for a project that involves the cost and pain of major organizational realignment.

– more mature products. Major CRM systems now have several years of production experience since their initial release. Simply put, this means there is a better chance they will actually work as advertised. Horror stories of failed deployments are still common, as both vendors and implementers learn what does and doesn’t work. But growing numbers of success stories are available as well. CRM systems have also added the refined functionality, administrative tools, security, scalability, documentation, training and other supporting capabilities that are usually missing in the initial release of a system. This makes these products suitable for enterprise-wide deployment in ways that they previously were not.

– vendor consolidation. As CRM products mature, winning vendors begin to emerge. These vendors expand their capabilities through internal development and, increasingly, through acquisition of complementary products that have not been able to reach critical mass in the market. While this consolidation simplifies the purchase decision and promises simpler implementations, the actual benefits do not accrue until the new systems are fully integrated. Specifically, integration means sharing the same customer database and promotion definitions. Such integration can be a long time coming, particularly when the acquirer is a small company trying to grow quickly. The limited technical resources of such vendors may be so overwhelmed that not only do the new products remain separate, but even improvements to their original systems are indefinitely deferred. On the other hand, the vendors who do integrate new systems successfully can make enterprise-wide CRM significantly easier to achieve.

– extended products. Once core CRM functionality is in place and products have reached a reasonable degree of maturity, vendors can further extend their products to meet advanced CRM requirements. These would include capabilities to integrate with other vendors’ touchpoint systems; content management, administration and work flow; and sophisticated algorithms to automatically identify and deploy optimal customer treatments. Few CRM systems have yet reached this stage, so these functions are still typically provided by stand-alone packages from independent vendors. But this will change in the next year or two.

– deeper pool of experienced implementers. As small-scale CRM projects become more common, the number of people with hands-on CRM experience grows geometrically. In addition, the major systems integration consultancies have hired and trained large numbers of CRM specialists over the past two years, both in response to client demand and to compensate for declines in ERP and Y2K projects. The major consultancies will play a particularly important role because they bring not only technical skills, but the critical help with organizational change management.

These developments all point to a slow but steady increase in full-scale CRM implementations, despite their current rarity. This is reassuring for people with a vested interest (or vested options) in CRM’s success. More important, they provide some guidelines for how to manage your own CRM projects during this transitional period. Here are some suggestions:

– build with enterprise implementation in mind. Even though your current projects are probably limited in some way or other, you can expect that they will be asked to expand quickly after initial success. (This is another lesson from the data warehouse world, incidentally.) So be certain to select technologies and products that you are confident will scale successfully. This means handling not just larger databases and transaction volumes, but also more complex marketing programs and greater numbers of connected systems.

– look under the hood of “integrated” products. Components of a system built through acquisition may share little than a sales force. Because a full-blown CRM system has a great many moving parts, it is critical that these mesh smoothly. Be certain you understand the architecture of any vendor’s solution, and exactly how different pieces work together.

– don’t expect a single solution. Even if a suite meets all of today’s requirements, you can bet it will be missing something you need tomorrow. So be sure that whatever solution you buy is designed to integrate easily with external products. Standards like XML and COM help immensely, but only if all the pieces you buy work with the same ones.

– plan on more industry consolidation. Barring a miraculous stock market recovery, many of today’s small CRM vendors will soon be out of business or merged into larger companies. This means you need to pay closer attention than ever to a vendor’s financial position. It may still make sense to buy from a small vendor if its system uniquely suits your needs. But consider carefully what would happen if the vendor vanished and you needed to maintain the product yourself. This requires both a technical assessment and negotiating appropriate legal protections such as escrowed source code. It also means you should almost never buy a product based on features promised for future delivery–because that particular tomorrow may never come.

In sum, this is a perilous time for the CRM industry–if it stumbles while crossing the reality gap, it may never recover. But the promised land of true CRM gets closer every day. So persevere, and watch your step.

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David M. Raab is a Principal at Raab Associates Inc., a consultancy specializing in marketing technology and analytics. He can be reached at draab@raabassociates.com.

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