Can software be both a suite and highly modular? CIOs from a number of industries are saying yes, at least when the software is intended for customer relationship management (CRM) applications.
CRM was supposed to be one of the major pillars in Web-based networking and e-business, alongside enterprise resource planning (ERP) and supply chain management (SCM) suites. But even within its own cosmos, CRM was to be the glue between sales force automation, marketing, ordering, inventory, and customer care, providing visibility from the front end to the back end.
"One of the biggest problems was that the CRM industry advertised it as a magic pill and a lot of people believed that,” said Jim Prevo, vice president and CIO of Green Mountain Coffee Roasters Inc., Waterbury, VT. The company’s grand design for a large suite of CRM capabilities with extensive hooks to other e-business functions has been scaled back substantially. And cost was not the primary reason.
“We could have gone more broadly, but then it becomes a change management problem. People are more successful when they focus on a smaller number of things and get them up and running,” Prevo explained. “When you spread yourself too thin, you tend to pay the penalty of lost time.”
Cost and complexity are the two most prominent reasons a more modular CRM approach has taken hold with IT executives. But newer CRM products have been redesigned so that data models are identical within the suite of capabilities and to other packages such as ERP or SCM. Theoretically, this should make integration a lot easier and encourage the use of best-of-breed products for specific pain points within an organization.
In addition to more homogenous data models, the “Rent An App” option has taken hold with outsourced CRM. Application service providers such as Salesforce.com and RealMarket are finding a receptive customer base, and a stagnant economy may attract even more. According to a recent survey from the Aberdeen Group, 24 percent were already using some form of hosted CRM, while more than 50 percent of IT executives and staff said they’d consider it.
CRM vendors and service providers have had to be more resourceful as IT spending across the board has declined. While the U.S. market for CRM hardware, software, and services was growing annually at more than 30 percent in the late 90s, the $15 billion market is now creeping along at about 3 percent, according to Denis Pombriant, vice president of CRM research at Aberdeen.
Nice, but not necessary
Part of CRM’s flattening is the growing recognition among enterprises that it’s nice to have but not essential. CRM is secondary to something like ERP and its financial and accounting packages, or SCM and its hooks into daily operations that are strategic in nature—inventory, purchasing, and order flow, among others.
“CRM would replace things that are already in place and work well enough. It would make us a better organization, but it’s not totally critical to our business operations,” said Robert Moon, CIO of ViewSonic Corp. While CRM might make it easier to consolidate many of marketing’s databases, that alone isn’t a powerful enough ROI to proceed with implementation, Moon added.
Contrast that with the accounting package the company got with its Oracle11 ERP suite. “We used to be two months behind on closing the books, and now we can do it in three days,” Moon said. That’s an attention grabber for any enterprise’s executive officers. “The ROI isn’t as clean and clear on front-office applications as it was for the back office.”
ViewSonic is using Oracle’s CRM package but only for its online store, where it sells accessories and overstock. “That didn’t require a large investment, maybe $100,000, but we did $600,000 in online sales last month,” Moon said, adding that the goal is to boost that to $1 million per month. Not bad for a $100K bet.
More revenue, less overhead
Pacific Coast Feather Co. in Seattle implemented CRM for a similar reason: It wanted to tap a new revenue base without additional overhead to support it. For Pacific, that challenge was magnified since the customers it was targeting were small and medium-size businesses, many of which still use fax and phone orders, a costly way for Pacific to operate, according to CIO Gwen Babcock. The company needed a package for Web-based self-servicing for this new customer base.
“As we looked at possibilities for what software was required, there were many aspects of CRM applications that we didn’t need: marketing campaign management, mobile sales force management, customer profiles, and targeting. Even the call center was not part of the phased approach for us here,” Babcock explained.
Pacific already had an ERP deployment using SAP’s R3 product, so the vendor suggested adding the requisite CRM elements to that system rather than building a new CRM infrastructure. “We could add this Internet selling component and have all this integration straight out of the box, with R3 to the sales and distribution and inventory management systems on the back end,” Babcock said. When it goes live in August 2003, the Pacific Web site will accommodate order entry and order status inquiry as its two main functions, with electronic invoicing to follow soon after.
“The Internet selling application is only a subset of SAP’s full-blown CRM suite,” Babcock said. “When we’re ready to add another piece—like call center or marketing campaign management—we can keep the work we’ve already done and just upgrade it to a broader capability.” It’s the cafeteria-style approach to customer relationship management.
Why go modular with CRM?
- It’s cheaper than licensing the full suite.
- It reduces overall complexity.
- It’s easier to manage internal change, rather than overwhelming users with weeks of training and stacks of manuals.
- Revamped data models promise easier integration with other vendors' products and to your own databases and servers.
- Options such as hosted CRM apps have emerged and are proving viable.
Another reason the modular CRM approach is catching on is that vendors realized a few years ago they had to move away from the client-server model they used for their CRM applications and rebuild them to be more Web-friendly and use fewer server resources, said Aberdeen’s Pombriant. Client-server just couldn’t handle the number of simultaneous sessions that a robust CRM implementation requires.
But data models for databases were also changed around the same time, so that they were more congruent within a vendor’s product line. “When you start modularizing your applications that way, customers can then go to a single spot for integration to other applications,” Pombriant said. “Before, you had to hit lots of different applications and make subtle changes every time the business needs changed.” That made each piece of software more brittle, he added.
Sherly Kingstone, senior analyst for the Yankee Group, a Boston consultancy, cautioned IT executives that this modularity and ease of integration is not nearly as far along as some vendors might claim.
“These componentized architectures have come around in the last year, but it will be 18 to 24 months before it’s mature enough,” Kingstone said. She said the number-four vendor, Oracle, is well on its way toward this more modular design with its products. But CRM market leader Siebel Systems Inc. and SAP still have a lot of work to do before their CRM products are truly modular in their design, she said.
As enterprises look at the modular options for CRM, they have another choice that didn’t exist when CRM first hit the market in the mid-90s. Service providers that offer hosting are carving out marketshare in CRM and may herald a new era of pay-as-you-go software from the leading vendors.
In the meantime, ASPs such as Salesforce.com are trumpeting first-year cost of ownership figures of $300,000 for 150 seats, about 80 percent less than a comparable implementation from Siebel costing $1.5 million.
There’s also a third option—developing all the capabilities in-house, said Jamie Holcombe, senior vice president of operations and CIO for Web hosting company Globix Corp. But since his company had already done a fair amount of its own development work, it realized the money pit that homegrown CRM might prove to be.
As a result, Globix spends about $6,900 a month for 60 seats with Salesforce.com that are built around integrating multiple “silos” like calendaring and customer contact, Holcombe said. In addition, Globix is using Salesforce.com’s API and its XML interface for integration with other Globix systems. Holcombe said he’s already used open-source software to integrate Globix’s pricing with Salesforce.com’s catalog function, creating a price quote tool for the Globix sales team.
“We’re creating a lot of the glue ourselves for the business processes that make us unique,” Holcombe said. That permits Globix to create whatever hybrids it desires, using its own databases and acquired knowledge, Salesforce.com’s functionality, and in-house development, when warranted. “We see no need to reinvent the wheel” every time some new function is added to the Globix CRM mix, Holcombe added.
Regardless of how it actually is implemented, the newly improved, modular CRM is proving popular with enterprises. “We definitely see people going back to the mentality of ‘Buy what we need and install it.’ And users are getting more comfortable with the idea of buying one module at a time, even if it’s from different vendors,” said Pombriant.
He cautioned potential new CRM customers to make sure they have a clear picture of their own business needs. “Talk to a vendor too early, and they’ll help you define your problem in terms of their solution,” he said. Keep the CRM options open and make sure that modularity is built in from the start.
Tips and caveats
- Know your business and your requirements so that the vendor doesn’t define your problem in terms of its solution.
- In the modular route, consider your enterprise’s pain points, but also keep a more holistic view of the enterprise and its medium- to long-term strategic objectives.
- Take baby steps. One set of capabilities with some prominence and the ability to generate decent ROI can be put into operation first, while subsequent capabilities are planned and activated.
- Ask about the solution’s data architecture to ensure the product has sufficient openness to other vendors’ products alongside your primary vendor’s CRM suite. Demand customer references to verify claims of seamless interoperability and cost-effective integration.
- Compare the upfront and ongoing costs of an in-house CRM deployment with an outsourced option. The savings might surprise you, and the 24/7 maintenance and high reliability may save you and your staff.
- Ask what it costs to use a vendor’s API and XML interfaces, whether stand-alone or hosted, in the event you want to integrate the vendor's solutions with your databases and servers. If you use Java 2 Enterprise Edition or some other development tool for server-side applications, make sure your vendor supports it inside its CRM, ERP, and SCM products.
- If you already have ERP or SCM suites, you can leverage attractive discounts for CRM from the existing software vendor. This should ease integration between CRM and the vendor’s other products.