A year-long CRMGuru study of CRM technology projects revealed that the industry is healthy. About two-thirds of projects are reasonably successful, based on payback and customer perception. But the study also showed that the full potential for CRM driving strategic business benefits is falling short of customer expectations.
Through an online survey, we collected data on approximately 2,500 CRM technology projects from June 2004 to May 2005. We used this survey, in part, to identify the best CRM software vendors serving different segments of the market. But it also revealed some interesting data about CRM success and failure for tech-focused projects.
Mind you, the focus of this study is on CRM software solutions, and faithful CRMGuru readers know that technology is just an enabling tool.
The truth about CRM success
Our survey compiled statistics from our worldwide community of small, medium and large businesses. The "truth," if I could be so bold, is that about two-thirds of CRM projects are successful, but CRM success is not a case of black and white.
CRM projects come in all shapes and sizes. Success, no matter how you might define it, has as many shades of gray as your physical health. Imagine that you went to your doctor and ran through the most extensive battery of tests that money could buy. Do you think the doctor would just send you the bill marked "Healthy" or "Sick"?
There are numerous health indicators, of course, that together would give you and your doctor a more detailed picture, and identify areas for improvement. For example, you could check whether your weight is within norms for your height and gender. In my last checkup, I had to stare at a BMI (Body Mass Index) chart for 10 minutes while waiting for my doctor. The news? Don’t ask. Other tests might assess your blood pressure, cholesterol levels or physical fitness.
Unless you’re Lance Armstrong, you’ll probably find some physical shortcomings in one area or another.
My point is that complex things are not easily summarized into a single pass/fail measurement. But that’s just what many analysts have tried to do with CRM success or, more frequently, failure rates. How they come up with these numbers is questionable, given that analysts tend to study only the big enterprises that can afford their services. Yet, most of the world is a collection of small businesses.
The media, always looking for a good sound bite, is partly to blame. Media coverage of CRM "failure rates" dates back at least to 2001, when Gartner predicted that CRM failure rates would rise from 65 percent in 2002 to 85 percent in 2004, then drop back to 50 percent in 2007. Since then, these figures have taken on a life of their own. As recently as 2004, a Wall Street Journal article said, "Some studies show that half of CRM projects never work out, despite the hundreds of millions of dollars companies sometimes spend on them." How many businesses do you know that spend hundreds of millions of dollars on anything?
Not only is there no common definition of success or failure, but also CRM industry players (vendors and analysts, primarily) toss around statistics with vested interests. The unsolved mystery: How can vendors report satisfaction rates in the 90th percentile or above, when 50 percent or more of projects are failing? Riiiight. It’s all the other vendor projects that are failing.
Maybe it’s not such a mystery. Nothing sells research reports, or catches the reader’s attention, like reports of catastrophe: "CRM fails again: Film at 11."
Analysts fail to disclose (or the media fails to report) that their studies are usually confined to their clients, which creates a bias toward very large enterprises. And, of course, no vendor has an incentive to admit that some installations didn’t go well, because it would lose the game of "liar’s poker."
This leaves business leaders and IT buyers with the impossible task of sorting out fact from fiction. Until now.
CRM works. Really
Let’s start with the basics
Too simple? Let’s dig a little deeper.
We then asked survey respondents to assess the degree of success on a scale of 0 to 10. From the point of view of management, only 19 percent rated their CRM project in the range of 0 to 4. I feel fairly safe in calling all or most of these failures, because a "5" rating is a tepid "somewhat successful." Moving up the scale on the success-o-meter, 42 percent rated their projects from 5 to 7, and 36 percent rated it an 8, 9, or 10.
That’s 78 percent who say their project is at least "somewhat successful," but clearly those in the 5 to 7 group could stand for some improvement.
How about payback on their IT investment? In all, 69 percent said they did get a payback. However, the time to payback tells the more complete story. Nearly 60 percent said they got a payback in 24 months or less, with 39 percent claiming a payback in 12 months or less. Still, it was troubling to find that 31 percent didn’t know and 11 percent said the payback period exceeded 24 months.
I don’t think you have to wear rose-colored glasses to reach a conclusion that the majority of CRM projects are successful to some degree, somewhere in the range of 60 percent to 70 percent. And isn’t it interesting that the more finely tuned measurements tend to support that simple question about CRM success, to which 66 percent answered, "Yes." Maybe CRM customers aren’t so dumb after all.
By the way, our conclusions were consistent with the findings of a 2002 study of 448 CRM projects by CRMGuru, High-Yield Marketing and Mangen Research Associates, which found that 65 percent of projects were successful, using a very sophisticated methodology. Success measures were developed by analyzing common CRM benefits, such as reducing churn rate, increasing share of wallet, increasing customer satisfaction, increasing customer acquisition rate and reducing front-office staffing costs. Results varied from little or no success in about one-third of the projects, to average success in another one-third, to superior-performing projects in the remaining one-third.
Don’t pop the champagne just yet
But even a 30 percent failure rate for CRM IT projects is no cause for celebration. Furthermore, we found that projects tended to achieve fewer than expected strategic benefits, such as gaining a competitive advantage, reducing churn or increasing customer profitability.
A more tactical benefit, "improving executive decision-making," was the top actual benefit, picked by nearly 20 percent of respondents. Yet, it was near the bottom of the list of potential (expected) benefits. Improving productivity and cutting costs also were rated higher as actual than potential benefits.
Tactical gains are great for justifying CRM programs, but our survey shows that strategic objectives are not being met as expected. This may explain some of the discontent with CRM programs; although they’re viewed as strategic initiatives, they’re doing a better job delivering tactical benefits.
Does it matter which vendor you choose? Maybe
We did find some differences in vendor performance by segment. In general, SMB (small-medium business) vendors performed better than those primarily targeting large enterprises, and specialist vendors outperformed the multi-function generalists. Our scoring methodology took into account ratings of the vendors solution, along with indicators of customer satisfaction, loyalty and project success.
It’s not just about the difference in customer requirements, as some vendors have suggested in the past. In other words, the large enterprise vendors tend to say that their customers are "tougher." Seems logical, but it doesn’t explain their relatively poor performance with mid-market customers. Large enterprise multi-function CRM vendors (Oracle, SAP and Siebel) also sell into the mid-market. But SMB-focused vendors like Microsoft, Onyx and Sage outperform the Big Three for mid-market customers.
On-demand (or ASP) solutions have become an increasingly popular deployment option in the last few years. RightNow and salesforce.com earned some of the highest scores with a balanced performance of solution quality, loyalty and project success ratings. However, specialty vendors like SPSS and Unica also scored well, so it may just be that niche solutions have happier customers, no matter what the delivery approach. I do think that a subscription-based model, which gives more control to the customer, also helps vendors monitor adoption and usage trends.
Have you had a CRM check-up recently?
So what is the health of your CRM initiative? If you have customers, you’re doing CRM in some fashion, whether you have a technology project under way or not. Just as you would with your physical well-being, you can never stop "working out" when it comes to improving your customer relationships and maintaining a competitive edge.