Interrogation: CRM

A management team at a top U.S. carrier recently discovered it had underestimated the installation costs of a new sales force automation system by at least $7 million. Unfortunately, the execs based their projections solely on software and minimal integration costs. They later discovered the need for additional integration work. Data from the company's legacy databases had to be reformatted to match fields in the new system.

The execs had failed to do their homework and had relied on the feedback of only one systems integrator. Now they had to request more money for the project, which caused embarrassment and project delays.

This experience isn't an anomaly. According to analysts and consultants, businesses routinely underestimate the costs or overestimate the returns of CRM projects.

In September, the Gartner Group predicted many businesses would underestimate CRM project costs by 40% to 75% over the next five years.

Jupiter Media Metrix said 59% of corporations' e-business ROI studies generate false positives. According to Jupiter, corporations often err by trying to measure “soft” returns such as improved customer relationships rather than relying on hard-dollar metrics.

Elusive Benefits & Costs

The term CRM covers an array of software functions, ranging from database analytics and call-center applications to knowledge bases. Regardless of function, CRM vendors typically claim their software helps businesses improve customer satisfaction — the ultimate “soft” benefit.

Leaping from the soft to hard returns, however, isn't always easy. Suppose, for example, that a year after installing new call center software, your churn has fallen 1%.

“The difficulty is understanding what element of your churn increase or decrease actually has anything to do with this product or that product,” said Jim West, U.S. Cellular CIO.

About four years ago, U.S. Cellular was looking for a new billing and customer care system. Faced with vendor claims about churn-cutting, sales-boosting software, the company's execs decided to focus on desired product features and implementation costs.

They tallied expected software-license costs, hardware costs, human-resource costs for training and systems operations, set-up costs and 5-year operational costs. Ultimately, the company selected Amdocs' billing and customer care system.

Last winter, another U.S. Cellular executive team gathered to decide whether the company needed additional CRM software. The execs first sought a common definition of CRM. They concluded CRM meant differentiating customers by their preferences to better serve them.

The team then met with several CRM vendors.

“We found that a lot of the CRM vendors out there claim everything is in their package,” West said. However, many of those vendors' packages only would integrate data collected by the carrier's existing systems.

U.S. Cellular execs decided they didn't need software to integrate customer data across the enterprise.

“We felt that we could get a lot of those benefits with the systems we have in place,” West said. “We looked at the business cases (vendors) made and the ideas that they had about what would provide return on investment, and we felt that those were overblown.”

U.S. Cellular does, however, plan to purchase CRM software in the future. The company expects to extend many of its existing customer applications to the Internet and will need software that enhances online customer service. U.S. Cellular also plans to evaluate data-analysis and call center flow-tracking software next year.

What the company will need most from vendors, West said, is realism and an awareness of the costs involved in implementing and using the software, not only physical costs but what West calls change costs.

“The hidden cost is the cost to your business, the disruption, the retraining, the changes in processes that go with major implementations,” West said. “Those are the biggest costs.”

Singular Benefit?

Cingular also considers less tangible implementation costs when calculating ROI.

“Some of the (CRM) tools require that you re-engineer an existing process to get the benefit out of the tool,” said Steve Mullins, Cingular vice president of customer experience. That's something he scrutinizes.

It's Mullins' job to find ways to improve the experience of Cingular's customers. He tracks things such as the number of customer calls typically required for problem resolution and customer churn. Then he sets goals for improvement.

Mullins said the goal of customer satisfaction is not as elusive as it may seem. There are ways to measure how “enabling software” improves customers' experience. Knowledge base software, for example, is designed to enable uniform responses across the enterprise. Tangible benefits of the software include first-call resolution of customer problems and reduced training costs.

However, Mullins points out, knowledge bases also harbor elusive costs. For instance, a carrier would have to develop or hire knowledge engineers to load data into the application and would incur the ongoing cost of paying them to maintain the system.

“If you can't maintain it easily, if you don't keep it up, you're not going to get the benefit out of it,” Mullins said.

Myths & Magic

In addition to assessing CRM's costs and benefits, identifying CRM myths and misconceptions can avert ROI projection disasters. One big myth is that CRM is a customer satisfaction panacea.

“It's the magic part that gets me,” U.S. Cellular's West said. “You just blink your eyes and twitch your nose. I think (vendors) typically underestimate the effort and the difficulty.”

“One of the biggest things you hear about CRM is that it's a solution. It's not,” said Cingular's Mullins. “All it is a tool. You've got to re-engineer your business to make that tool as beneficial as it can be. If you don't change your processes and get your people to buy into that, it will not be successful.”

Since purchasing a Siebel sales force automation system, Cingular has had to change its sales department's modus operandi. One example: the company required sales reps to use the system.

Another myth is that software alone will create desired business improvements.

“This isn't a ‘plug this in, and you'll win the CRM lottery,’” said Lawrence Byrd, Avaya CRM evangelist. “It takes hard work to analyze and understand the business and identify what's important and what's less important and to build a business case. CRM ultimately is not any particular technology; it's a business philosophy about putting the customer at the center of your enterprise.”

Pam Parisian, Cingular vice president of IT business strategies, concurs.

“We really want to make sure that the business is driving our strategy and not the systems aspect of it,” Parisian said. “So we start with what our business objectives are, and then we look at what the key capabilities would be in the CRM area to support those.”

For instance, Cingular wanted to improve its ratio of closed sales, to improve sales reps' performance, and to raise the company's customer-retention rate. Ultimately, the company concluded a Siebel sales force automation system would help them achieve those goals.

Unfortunately, not every company lets its business strategy dictate CRM spending, said George Bordo, Danet vice president for enterprise solutions.

“People say, ‘We're on board with the CRM strategy. We bought Siebel and implemented it in our call center,’” Bordo said. “First of all, that does not guarantee that you're going to get any ROI. It probably just means you're going to spend a lot of money on a software product and make it work like your existing software product.”

Bordo said if one of his clients wanted to buy new call center software, the first question he'd ask would be why. Sensible reasons include: to improve responsiveness to customers and to provide additional services such as priority alerts when cell sites are down.

“Companies are sold on buying new products because of all of the bells and whistles, when in fact, they haven't thought about how they'll use it,” Bordo said.

“When people think of CRM benefits, they think about how to get value out of their customers,” said Jim Novo, Drilling Down consulting firm owner. “The truth is: If you have customer data, you can accomplish a lot of those kinds of analytics and marketing test programs without any special software.”

Novo recommends carriers conduct pre-CRM analyses using traditional analytics packages that run on legacy mainframe systems. He said this software typically costs less than newer analytic software, because the traditional software requires less integration work.

“If your premise is that by installing CRM you're going to all of a sudden have all of these tools to prevent customer defection, it would be a good idea to prove to yourself that you can really do that first,” Novo said. “If you know, for example, that with a simple program, you can save $100,000 worth of gross margin or cash flow a month, then you start to get an idea of how much you can spend on a CRM package.”

ROI Specifics

• 17% of companies have hired one or more external firms to conduct or oversee their ROI studies.

• 39% of companies that conducted in-house ROI studies report a somewhat positive result; 20% found a significantly positive result.

• 50% of companies that used a do-it-yourself ROI approach have either not completed their assessment or haven't reached a conclusion.

• Only 5% of in-house ROI studies have shown a negative result.

Jupiter Media Metrix, Executive Survey results (2001)

CRM in Brief

Large businesses can spend between $30 million and $90 million over a 3-year period to invest in CRM-related technology, labor, consulting services and training.

• Many companies blindly pursue costly CRM initiatives without understanding the challenges and costs involved.

• CRM initiatives can be successfully managed with a combination of four CRM project-management tools: a holistic view of IT costs across the enterprise, benefit projections, ROI projections, and work plans for CRM technology implementations.

Gartner Group