What has CRM ever done for us?

The past 10 years of customer-relationship management projects are illuminating, says Ed Thompson — particularly in these recessionary times.

It is 10 years since Gartner's first European Customer Relationship Management Summit. So it seems the right moment to look back over the past decade, which holds important insights for organisations trying to navigate the next 10 years.

Acquiring, developing and retaining customers, and reducing costs, are timeless goals — and CRM remains as associated with these goals as it was in 2000. Those objectives came to the fore during the economic downturn of 2001-2003, and come to the fore again today.

My first observation relates directly to business goals. Typically, organisations have about six of them. But to retain focus on the top priorities, they should restrict the number of goals for CRM to three or four. That simplification also helps in communicating objectives to employees.

Assessing financial returns
Measuring the return on investment (ROI) of CRM has always been a challenge and is likely to remain so. Perceptions of CRM project failures are primarily due to a failure to understand that CRM is a strategy, not a technology. About 20 percent of CRM projects involve no deployment of technology.

The increasing maturity of CRM in many organisations will help reduce this perception over the next decade but concrete ROI is still difficult to calculate, particularly in field sales and truly cross-departmental transformational projects. In 2000, most organisations did not expect CRM to deliver business benefits; today, most firms expect CRM projects to succeed.

A decade's experience means CRM projects have become less risky and more predictable, but on-time and on-budget projects remain constant at around the 70 percent mark, even with all the experience that has been built up in project management.

Of course, macroeconomic factors alter CRM too. During tough economic conditions, the number of transformational projects dropped to only two percent of all projects; during good economic conditions that figure rose to 10 percent.

Since 2006, CRM projects have started to polarise. With the rise of software-as-a-service (SaaS) CRM applications, projects have been faster — often completed within six months — and the resources needed in many cases are just two or three consultants. At the same time, the increase in multichannel CRM programmes has led to very large projects that often take more than two years and more than 100 external consultants. That polarisation is set to continue.

However, since 2000 the biggest change to technology-enabled CRM projects has come because of offshore external service providers. The shift to using offshore resources for CRM applications has reduced implementation costs in most cases.

More than 80 percent of CRM application implementation projects in the US and the UK now involve some form of offshore resource. In France and Germany, this figure is less than five per cent, but in the next decade the use of offshore resources for these types of CRM projects will rise steadily in these countries.

Strategic processes
Outsourcing has been under-utilised in CRM because organisations typically view sales, marketing and customer service as too strategic to outsource or as a strategic differentiator. However, outsourcing should not simply be a cost-cutting exercise. Companies should outsource customer processes of low value and retain high-value processes linked to brand values and competitive differentiation.

Along with scope, the lifespan of CRM applications has increased. Companies should plan for a major investment in a CRM application to last an average of seven years, but should assume that one CRM application will not meet all the organisation's needs.

CRM application pricing has changed dramatically over the past 10 years with organisations commonly paying less that $1,500 (£1,100) per licensed user in 2009, compared with over $3,000 at its peak in 2000. The effect of SaaS on pricing means that, on average, organisations are paying $800 per user per year in 2009.

The shift to SaaS now means nearly 50 percent of all salesforce automation applications are delivered in this way compared with less than one percent in 2000. The most common pricing model is...

...still per user, but process-based pricing, fuelled by service-oriented architecture (SOA) and SaaS, is likely to appear and become commonplace by 2020.

In terms of architecture, CRM applications in the main have shifted from client-server, but there is a notable lag between availability and adoption. Fewer than 10 percent of organisations run the latest version of their CRM suite providers' technology.

From a market point of view, the CRM application market is not saturated. Fewer than 10 percent of small businesses in North America and Western Europe have packaged CRM applications in place in 2009, and only a small minority of large organisations have attained a single view of their customers.

Gartner estimates that total revenue for CRM software, including licences, maintenance and subscription revenues, in 2008 was more than $8bn worldwide. CRM consulting and system integration revenues will remain steady, at three times larger than the software revenue.

Recessionary focus
During the economic recession, the focus on customer experience and customer-centricity will drop as organisations switch focus to short-term, cost-reduction goals. After the downturn, the focus on the customer experience will continue to increase as the quantitative evidence catches up with the anecdotal, customers gain more choice and social networks become advocacy networks. Customer loyalty dramatically increases when an organisation does the right thing for its customers at times when those customers are suffering the most.

Furthermore, the vendor landscape has changed dramatically and is likely to change beyond recognition. The number of vendors disappearing through mergers is greater than newcomers, so acquisitions will outpace the number of new entrants. As a result, the market will continue to gradually consolidate. In addition, CRM applications will shift from a primarily operational approach to be more analytical and have a more social and collaborative focus.

Ed Thompson is a Gartner vice president and senior analyst. Gartner analysts will further discuss the lessons of the past and look to the future during the Gartner Customer Relationship Management Summit 2009, 3-4 March, at the Royal Lancaster hotel in London.