CRM: From evolution to revolution

Starting this issue we will run a series of articles on e-business. The first of the series talks about Customer Relationship Management, (CRM) and why it is important in today's business environment.

It is 10.30 in the morning. Kate, a young woman living in Boston, is waiting for her appointment with her doctor. She has been feeling unwell. The beaming doctor, after a check-up confirms her pregnancy. Jubilant, she rushes home to break the news to her husband.

10.45, the same day, Robert meets Jake, Kate's husband, at his office. He shows to a bewildered Jake, his company's brochures for baby cradles. Jake protests that he neither has a child, nor was expecting one. Just then the phone rings and Kate announces the expected arrival. Needless to say that Robert walks out with a plum order.

Smith is a busy business manager. On his trip to London, he finds time to buy the birthday gift for his fiancée living in Paris, from the supermarket chain. He likes the gold watch, but would like a different strap and his name etched on it. Moreover, he would like the gift to be delivered to his fiancée's home. On reaching back to his home in New York, he calls the local number of the supermarket chain, ready to give the details of his purchase, and enquire if the gift was delivered. When the phone is picked, the operator, without asking for any introduction, greets him "

Good Morning, Mr. Smith. Your gift was delivered yesterday. Thanks for doing business with us". Mr. Smith is bewildered but, of course very happy, wondering how on earth did the operator 'recognize' him.

If you are surprised, don't be. Welcome to the world of Customer Relationship Management, the management mantra of the new millennium.

CRM-What is it all about?
Broadly speaking, Customer Relationship Management or CRM is a web enabled marketing, sales and service application integrated across all customer contact points.

It is a tool that seamlessly integrates into the enterprise information system. The Internet has revolutionized
the way business is done and has virtually taken the enterprise information system within the reach of the
customer. It can be accessed through the call centers, through the Internet and increasingly through mobile devices. See Figure 1.

Market size and key players
The worldwide CRM market consists of two broad segments: The CRM products and the CRM services. Both the segments have shown astronomical growth during the past couple of years and as per the projections of the leading market research companies, CRM products and services will grow, over the next five years with a Compound Annual Growth Rate (CAGR) of 49 per cent and 29 per cent respectively, well above the overall expected CAGR of the IT industry of 11 per cent.

AMR Research, Inc, predicts the Customer Relationship Management (CRM) market will reach $16.8 billion by the year 2003, CAGR of 49 per cent over the next five years.

The firm also predicts that the European CRM market will grow to $4.3 billion in 2003 from $500 million in 1998, with a compound annual growth rate of 53 per cent, exceeding the 44 percent CAGR expected in North America over the same period.

Total Customer Relationship Management Revenue, 1998 - 2003 (Forecast)
1998 1999 2000 2001 2002 2003 5 Year
CAGR
$2.3 B $3.7 B $5.4 B $7.9 B $11.5 B $16.8 B 49%
Source: AMR Research, 1999

The Aberdeen group forecast that the CRM product market (Independent Software Vendors) to grow to close to US$ 13 billion by 2003.

The top vendors, based on 1998 total company revenue, were Siebel, Vantive, and Clarify. ERP vendors are beginning to have a tremendous impact on the CRM market, with Oracle and Baan capturing two of the top five
positions in overall CRM revenue. The marketplace has become even more fragmented with Peoplesoft's acquisition of Vantive and success of a number of other players.

IDC forecasts that the total worldwide market for CRM services will grow from US$ 34.42 billion in 1999 to US$ 125.2 billion by 2004.

US and Worldwide CRM Services Revenue,
1999 and 2004 ($M)
Country 1999 2004
United States 18,845 63,854
World Wide 34,420 125,205
Source: IDC, 2000

The CRM services consist of six major segments:
1. Consulting services (IDC projects growth from US$2.2 billion to US$ 7.1 billion by 2004 at CAGR of 26per cent, compared to CAGR of 12per cent of IT & Business Consultancy)
2. Implementation services: This makes the second largest segment of the CRM services and will grow from 19per cent in 1999 of the market to 25per cent of the market in 2004 (as per IDC's forecast).
3. CRM Outsourcing services: IDC forecasts that this market will grow from US$ 23 billion to US$ 75.1 billion by 2004.
4. Training services: The CRM training market is forecasted to grow from US$ 2.2 billion in 1999 to US$ 9.1 billion by 2004 at a CAGR of 33per cent.
Bulk of the revenues would continue to come from USA while Latin America is likely to be the fastest growing
market.

The evolution of CRM
It is not suddenly that the business managers have realized that the customer is supreme or the need to render personalized service. However, it was not possible to address the preferences of a massive group of widely dispersed individuals. Neither the tools nor the technology was available. The smart business managers did the next best thing, which was to conduct a market research and classify the market into broad segments with different preferences. The product managers would (and still do) then position their products catering broadly to these segments.

The information systems have evolved tremendously over the last three decades and so have the communication systems, as shown in Figure 2. While ERP, the management mantra of nineties offered the means to optimize resource planning at the enterprise level encompassing every area of the enterprise on a real time basis, there was still no means to connect to the customer. The customer had just too many locations.
The commercial penetration of Internet into the homes changed everything. It provided the means to take the integrated enterprise information system to the customer's living room. He could buy, sell or bank sitting there, while uniquely identifying himself.

This has led to the evolution of CRM, which uses the Net to integrate the customer contact points directly with the enterprise. It provides the means to interact with every customer individually (thereby interacting with million or even billions of customers). The interactions over a period of time create history that is available to the field sales/support personnel at the touch of a button.

Doing business in the CRM era
CRM has revolutionized the way the business is transacted. Customization and personalization has been radically redefined. There was a time when companies could do business by making a range of products, and the customers could choose from the available product range. Now the customer demands 'Merawala ………'. And the companies have to gear themselves to deliver the 'Mera wala' products to the customers.

CRM is the great enabler that makes it possible to achieve this level of customization in a cost effective manner. Right from a highly focused marketing to the transaction and after sales support, CRM provides a cost effective, easily accessible and cost effective interface.

By enabling the direct customer interaction, CRM has changed every sphere of activity. The products must have modular designs that can be easily customized. Even the warehouses are changing from being just storehouses to those having the facility for 'Assemble to Order'. The customization increases the product variety multifold and it may not be economical to store such huge variety. The intelligent warehouses, as they are popularly known as, stock the knocked down modules and assemble them on the receipt of order. The interaction cycle using CRM is shown in Figure 3.

If fuel efficiency was the selling proposition for automobiles in the seventies, sportiness in the eighties and safety in the nineties, customization is the selling proposition of the new millennium. The e-sales concept is increasingly becoming significant in volumes for most American and European manufacturers. The interactive e-Store front of the manufacturer permits the customer to configure his own automobile the kind of upholstery, music system, accessories, etc.

The customer preferences which were captured
through the earlier interaction automatically create work orders and the customized product is delivered.
Even though the product is highly customized, there is hardly any additional cost involved. More companies
are focusing their growth strategies around direct sales through the Net.

Most affected industries
Travel and transportation industry has been almost revolutionized by CRM. For them CRM makes the difference between being in business or out of it. Financial services, insurance, investment banking, education and utilities are the other large scale adopters of CRM in the services sector.

The concept of retailing has been redefined with CRM. Product industries are using it for marketing as well as after sales support. Increasing number of product manufacturers are able to retail directly, thanks to CRM.

Why should you adopt CRM?
CEOs are realizing those who are not able to come up with effective CRM strategies risk being edged out of business. Customer is the king and the business strategies must be built for ensuring customer loyalty. It costs six times more to create a new customer than retain an old one.

Increased sales revenues.

Increased responsiveness

Ability to respond to changing customer preferences in real time. Reduced left over stocks, reduced business risk and zero budget planning.

Increased win rates

Increased margins

Reduced cost

Decreased costs

Current trends in CRM

As CRM matures, distinct trends are emerging.

Hosted solution: Enterprises are increasingly showing an interest in the buying a hosted solution from the ASPs.

This trend is likely to increase as the enterprises would prefer to concentrate on their core businesses and let the ASPs provide updated solutions.

Integrated solution: There is an increasing trend to integrate the CRM activities with the supply chain, manufacturing and B2B market places. This trend is likely to increase.

Evolution of marketing and branding services: Internet marketing and branding is a different paradigm with different set of rules. Specialized services, with the convergence of marketing and CRM professionals are fast emerging.

Data warehouses: Even as enterprise rush to warehouse their own data captured at interaction points, data has become a commodity. It can be bought, sold, shared and leased. There are companies whose only business in data transactions.

CRM in India
Software is to India what oil was to Gulf. It is therefore no surprise that the Indian companies are jumping into the CRM bandwagon to seize a chunk of the global market, both products as well as services.

With is vast talent pool; India is fast becoming an important development base of major CRM companies. This trend is likely to increase in the future. Call centers, catering primarily to the American and European markets are coming up in and around the metros. With the easing of infrastructure constraints, India is likely to emerge as a significant player in this segment.

Adoption of CRM by Indian companies is at an infancy stage. The CRM enabled companies include Modi Xerox, Tata Telecom, TVS Electronics, HP India, Tata Infotech, Carrier Refrigeration, Tata Teleservices, Satyam Infoway, Planet M, and Epicenter Technologies among many others.

India even has a CRM Foundation in New Delhi, founded with the purpose of assessing and improving CRM practices. Founding members include Tata Telecom, Escotel, Modi Xerox, Global Groupware, AC Nielsen, Carrier Aircon, and Motorola India, among others.

Critical success factors
A CRM solution is not a stand-alone solution that could be implemented in isolation to the enterprise information system. It marks a shift of the focus from product centric planning to customer centric planning. A prudent CRM strategy is essential for a successful adoption of CRM. Some of the critical success factors that must be evaluated are:

1. Identify the mission, objectives and goals: Technology has radically changed the business environment. A detailed business strategy analysis lays the foundation for engineering an information system for the enterprise that will fulfill the current and the future needs of the organization.
2. Identify and prioritize what functions need to be automated: A CRM automation audit shall help create a roadmap to complete automation. There may be processes that are inefficient and automating them without re-engineering is not a desirable solution.
3. Gain Top Management support and unequivocal commitment: No CRM strategy can ever succeed unless the top management is totally committed to its success.
4. Employ technology smartly: Technological obsolescence is a real threat. A long term vision and prudent planning is a must. As a thumb rule, look for open architectures, scalability, and integration into existing systems, reliability, and support etc. Evaluate options and take an informed decision. Keep in mind that it may be too expensive to reverse this decision.
5. Involve users early: Involve the likely users early in the process. They know their needs best and can best help define the new system, for they are best aware of the old one. It is important to make then participate in the process and 'own' the solution.
6. Prototype the solution: Deploy the solution on a smaller scale and test all the functions, instead of jumping to the 'big leap'.
7. Training: The paramount importance of training cannot be over emphasized. This is one of the single most prevalent reasons for failures/incomplete success. A smart manager would realize that training costs more than the combined hardware/software cost over the solution lifecycle.
8. Allocate responsibility: It is important to ensure maximum uptime and reliability of the system so that the users may not loose faith. Make one department/person responsible for the CRM system.
9. Cross department management team: Form a committee with people from sales, marketing and service departments apart from the information systems department to monitor the CRM project.
10. Keep the employees motivated: Technology usually breeds fear and insecurity. It is desirable to 'sell' to system internally before implementing it to avoid non co-operation/resistance.
Enterprise managers are more obsessed with the product. However, experience shows that even the best product fails to meet the desired end goals if the implementation is improper or the training inadequate. Rushing to implementing a CRM system without a prudent evaluation and audit usually results in a failure. The choice of an experienced and able consultancy organization is usually very critical.

The Road Ahead
Technology has been a major driving factor for CRM and is bringing radical changes. The developments in several technological areas are likely to have a major impact on CRM. Some of the areas are listed below:

Biometric sensing: passwords continue to be the least user friendly and the most un-secure link in the CRM chain.

However, advancement in biometrics will soon make it possible to make a foolproof recognition through voice, live fingerprint or image. The system would automatically identify (and not just verify) the user. Peoplesoft has already announced that it is working on voice recognition.

M-commerce: There has been an enormous advancement in this area. Rapid developments in the mobile computing and data access devices are likely to be a major growth area for CRM. The global marketplace is all set to shrink to a palm top.

Digital signatures and secured identification technologies.

Integration with B2B marketplaces: Many argue that online marketplaces will drive sales in the coming decades and branding will no longer be important. Even if such a postulation is far-fetched, there can be little doubt that enterprises will integrate the CRM solutions with B2B market places. NM

Chetan Agarwal, team leader, Quark Systems, Chandigarh. He can be reached on cagarwal@quark.stpm.soft.net

Disclaimer: The contents of this article are the author's own and expressed in his personal capacity, without any association whatsoever, expressed or implied, with his employer.