The following is an excerpt of Dennis Pombriant’s analysis of CRM in the latest Aberdeen Group Perspective: After years of being labeled as a solution that didn’t quite work, solid evidence from a variety of quarters is painting a very different story about e-business and customer relationship management.
Over the last few years, CRM both its vendors and the solution set drew significant heat from the industry’s self-appointed CRM gurus for lacking evidence of benefits, which has usually meant ROI (return on investment). Although they were generally sincere, many pundits failed to cover their bets with primary research, preferring instead to recycle each other’s hand- wringing opinions about how many CRM implementations would likely fail. Now, the evidence is rolling in and it tells a very different story. In May 2003, BusinessWeek magazine and others published special sections on e-business, CRM and related topics. And Aberdeen has published the first comprehensive study of a large CRM client base. Documented in each case is the wisdom one should acquire in Business 101 you can’t build a $15 billion industry out of something that doesn’t deliver value.
The cover story describes the progress of a variety of e-business solutions, of which CRM is an important component, and finds benefits where, a few years ago, many observers found only problems. It has taken a while for the benefits to become clear, mostly because implementing e-business, CRM, and many of the new Web based business solutions that grew out of the late 1990s technology bubble, require changes to an organization’s underlying business processes. Change is difficult, especially in business. A company’s business processes are the “secret sauce” that each organization uses to make money and deliver shareholder value. For that reason, organizations are loath to change processes unless and until the change can be concretely demonstrated to, as Hypocrates advised long ago, “first, do no harm.”
That advice makes good sense, because it can be a long time before the effects of change can be documented and quantified. For example, Cisco Systems CEO John T. Chambers told BusinessWeek that the productivity benefits from their new business processes and technology accelerate a full four to six years after new system implementation a long way from the six to nine month ROI expectations set in CRM.
Aberdeen CRM research from January 2003 supports Chambers and BusinessWeek’s contention fully. When Aberdeen asked CRM buyers what benefits they expected from CRM, the number one response was increased revenue, followed by productivity, cost control and better business analysis. However, when we asked existing CRM users about the benefits they actually realized, the categories were the same but in nearly reverse order. Existing customers of CRM said their primary benefits were productivity related and revenue enhancement lagged a distant fourth, prompting us to declare an “expectations gap.” Far from an indication of CRM’s failure, though, the expectations gap simply charts a course all CRM-implementing organizations must navigate to increase revenues and improve margins.
Aberdeen research shows that CRM’s biggest benefits are driven from productivity gains getting more outputs from the same or fewer inputs. Want greater profits? Then analyze your business and get more people to do the right thing more of the time. Your costs will fall and your customers will appreciate the difference in your business and reward it with loyalty. The result will be greater revenues.
Aberdeen research concretely proves this point. In a recent survey of Siebel customers (Does CRM Work? Compelling Evidence from the Siebel Customer Base, April 2003), Aberdeen documented this relationship between productivity and profits. Siebel customers documented double-digit productivity improvements in sales (17 percent), marketing (12 percent) and customer service (16 percent), which resulted in smaller but still double-digit improvements in areas such as customer retention (10 percent), increased revenue (10 percent) and customer satisfaction (14 percent). In addition, most customers showed a greater than 10 percent reduction in operating costs (-10.4 percent) at the same time.
Although some may say that such improvements are a drop in the bucket, keep in mind the Cisco Systems experience productivity payoffs accelerate fully four to six years after implementation. Nevertheless, a 10 percent improvement in customer retention alone, for many companies, can be enough to pay for the CRM system well inside of a year. In the real world, all of the observed opportunities for improvement act in concert, some above average while others operate below. Each company’s benefits will reflect its unique use of CRM. But, as Cisco Systems’ Chambers points out in BusinessWeek, productivity improvement may rise to as much as 5 percent annually from a current base of 1 to 3 percent.
Want greater profits? Then analyze your business, get more people to do the right thing more of the time. Your costs will fall and your customers will appreciate the difference in your business and reward it with loyalty.
There can be little doubt now that CRM and many of the other e-business innovations spawned in the Internet boom of the 1990s provide real and measurable benefits for companies that have implemented them. Those companies can largely be categorized as “early adopters” organizations that take on new technology to gain a competitive advantage. But Aberdeen estimates that early adopters make up only about 20 to 25 percent of the potential CRM users. Whole areas of the economy, such as health care, have barely begun their involvement with CRM. Mainstream users are coming into CRM in increasing numbers, but they will not purchase CRM exactly as the early adopters did. They will not use CRM the same way, either. One clear example of the difference is the growing popularity of hosted CRM solutions. However future companies choose to access CRM, one thing is clear: the long period of uncertainty about CRM’s benefits is now far behind us.
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