Six mistakes that will sink your CRM

In the past six to eight months, there's been a lot of discussion about customer relationship management (CRM) failures.

The Gartner Group found that approximately 55 percent of all CRM projects failed to meet the company's expectations. In a Bain & Company survey of 451 senior executives last year, CRM ranked in the bottom three categories among 25 popular tools evaluated for customer satisfaction. Bain discovered that one in five users reported that his company's CRM initiatives not only failed to deliver profitable growth, but had also damaged long-standing relationships.

In spite of these failures, enterprises are expected to spend more money on CRM technology relative to other IT purchases. A February report from Jupiter Media Metrix indicates that more U.S. businesses will spend $500,000 or more on CRM technology over the next 24 months than they will on other large-scale infrastructure initiatives. The Meta Group expects the market for CRM software to more than double, from $20 billion in 2001 to $46 billion by 2003.

Enterprises spend between $60 million and $130 million to implement a typical CRM program, according to Forrester Research. And it's not just money that enterprises are investing--it's also time. Contrary to vendor claims of 90-day implementations, CRM projects are more likely to take a couple of years to implement.

With so much at stake, it's important to understand why other companies' CRM projects have failed so that your company can avoid repeating their mistakes. (To learn more about what makes CRM projects succeed, see "Prescription for healthier CRM.").

Like most new technologies, CRM has been lathered with hype. Vendors have marketed CRM aggressively, creating unrealistically high expectations on the part of customers. Enterprises are purchasing too many features that don't apply to their specific customer management requirements. All too often, vendors drive CRM purchases rather than customers first defining their needs and requiring vendors to deliver tools that meet those needs. According to Dick Lee, principal of High-Yield Marketing in St. Paul, Minn., "It's true that vendors are guilty of overaggressive selling. But you have to give some complicity to customers. The track record on CRM is so clear now--if you pick the software first, you are going to fail."

Surprisingly, most CRM projects don't fail because the technology is inadequate. "Very few CRM initiatives fail because the software didn't get implemented," says Erin Kiniken, vice president of CRM at the Giga Information Group. It's much more common for CRM projects to fail because of a lack of alignment with the business goals, inadequate organizational preparation, and other problems arising from ineffective business planning and management.

One of the biggest sources of failure arises when enterprises put CRM tools in place before forging a clear customer strategy. This is the tail wagging the dog. CRM tools can be used for a variety of purposes so companies need to identify their goals before buying software and implementing it willy-nilly. Do you want to reduce the costs of handling customer inquiries? Do you want to acquire new customers? Do you want to concentrate on retaining valued customers? Do you want to sell more products or higher-value products to cultivate more valuable customers? Without answering these questions companies usually pick the wrong CRM tools.

Some enterprises have a customer strategy, but it's far too broad. Overreaching CRM projects usually fail. "Some companies suffer from a galactic project problem where CRM projects try to serve so many different interests," says Kiniken. "Even if they could finish solving the business problem it would change before they could finish the project." Companies can avoid failures by establishing carefully defined short-term business objectives.

Although project objectives should be highly specific, they must still fit into an overall strategy. When they are administered as isolated "stove pipes," CRM programs usually fail. "Most people implement CRM as a bunch of projects but they aren't fully integrated or thought-out as a whole," says Beth Eisenfeld, research director at the Gartner Group. Individual CRM projects need to be coordinated and project leaders need to communicate with each other.

Even enterprises that develop a sensible customer strategy will still fail in their CRM efforts if they don't modify their organizations to reflect that strategy. A CRM rollout must shape appropriate employee attitudes and behavior before the technology is deployed. Enterprises must first communicate customer-oriented values, develop new processes, train employees, and update job descriptions and compensation plans, along with managing a host of other issues related to delivering on a customer strategy.

A common misconception about CRM is that it deals only with superficial processes due to its customer-facing nature. To be successful, CRM requires deep change within an organization. "When CRM is done successfully, it is like a giant jackhammer that knocks down internal walls," says Lee.

The depth of change required to implement CRM is one of the biggest challenges to its success. A recent survey conducted by CRM Forum found that 87 percent of the respondents listed change management problems as the primary cause of failure for CRM projects.

Considering how deeply CRM affects an enterprise, getting buy-in from upper management is critical. "The No. 1 killer of CRM projects is the lack of CXO involvement," says Lee. "Given the scope and type of changes that CRM requires of an organization, only the CXO level can push it through." Only executive leadership has the necessary stature and authority to set CRM's strategic direction and effectively communicate it to employees. Because they sit at a level high enough in the enterprise to modify the organizational structure, executives can break down barriers between departmental silos, redefine performance incentives, and hold recalcitrant middle managers' feet to the fire.

However, it's not all a matter of exercising authority. Once executives get employees to buy in to CRM, an organization must have proper training programs in place so that employees develop the necessary skills to make effective use of CRM programs and technology. Executives must also make sure that whoever supervises the CRM initiatives--whether IT managers or line managers--has the proper project management skills.

The best-laid CRM plans can go rudderless without establishing proper metrics. Only 30 percent of the companies surveyed by the Giga Information Group have, or are in the process of implementing, a measurement strategy for CRM. In the same survey, 55 percent plan to measure CRM benefits but have no concrete strategy to do so.

Even when enterprises use metrics, they often use them improperly. For example, if an enterprise's customer strategy is retention but it only measures the number of customers it processes through its call centers, the metrics don't support the strategy. Companies should measure their customer management performance prior to implementing CRM initiatives and technology so that they have a baseline to determine the program's relative success or failure, according to Senior Analyst Kevin Scott of AMR Research.

Performance indicators are not the only kind of metrics companies should employ to reduce the odds of failure. Giga's Kiniken recommends that enterprises also use diagnostic metrics to ensure that employees are making adequate and correct use of the CRM system. Diagnostics measure things like repeat visitor rates, the number of employees using sales applications, and the number of customer addresses in the database.

One of the ironies of CRM is that enterprises sometimes forget that the "C" stands for "Customer." Surprisingly enough, many companies don't collect and evaluate customer input before devising their CRM strategies and programs. "The term 'CRM' implies that you can manage customers. Companies are automating a whole bunch of processes, but they're not creating systems that delight customers," says Kiniken.

More often than not, enterprises use CRM to improve the efficiency of their operations rather than to improve their effectiveness with customers. The two are not the same thing. For example, call-center staff are usually pushed to handle as many customer calls as possible rather than making sure that customers' concerns are really dealt with effectively. "They're saving money on telephony but they're not measuring how many customers are fleeing out the door," says Lee. He points out that customers often equate enterprise CRM with the frustrating experience of being put on hold and navigating labyrinthine voice-mail systems.

Partially due to the focus on efficiency, enterprises mistakenly assume that technology is always the best answer for handling customers. "You don't need technology to do CRM right. Local merchants used to know their customers quite well," says Gartner's Eisenfeld. Enterprises may be disappointed in the results of CRM programs because they aren't really using these programs to create customer satisfaction.

Perhaps enterprises are beginning to learn from all the failures. Lee says he is witnessing two encouraging trends. An increasing number of CIO and CTOs seem to understand that CRM is primarily a business strategy that requires a shift in organizational behavior. At the same time, an increasing number of business executives seem to understand that CRM is not just a technology initiative.

However, many enterprises are still operating with mistaken assumptions about CRM. That means we'll probably continue to hear about failures until more companies learn from the mistakes of the past.

Adrian Mello, Tech Update's e-business columnist, has covered the technology business for nearly two decades and is a former editor-in-chief of Line56, Macworld, and Upside.