Executive Summary

Since 1993, Insight Technology Group (ITG) has conducted an annual research project to tap into the pulse of what started as sales force automation (SFA) and has now evolved into Customer Relationship Management (CRM): the reengineering of how we sell to and service customers. January 6, 1998 marked a major milestone, as we surveyed our 1000^th sales reengineering initiative.

Over the past five years the CRM marketplace has changed dramatically. The sense of urgency surrounding projects has increased as companies look for new ways to increase revenues, maintain margins, shorten the sell cycle and increase customer satisfaction to remain competitive. The scope of initiatives has broadened from just focusing on the individual salesperson to now include everyone involved in the CRM process: sales, marketing, support, R&D, finance, management, channel partners, and even customers themselves. The technical complexity of projects has increased as companies seek to integrate front office and back office systems, and give access to that information to all appropriate users across the enterprise.

To assess where the market is currently headed, ITG reviewed an additional 295 CRM initiatives from September 1997 through January 1998. Once again, we surveyed the sales, marketing, support and information systems professionals ultimately responsible for these projects. Through this effort we uncovered a wealth of insights into what the critical success factors are for generating meaningful results from sales reengineering investments. This white paper is intended to share some of the major trends we see occurring in the CRM marketplace, so companies can better align their business and technology strategies to deal with the sales and service challenges they currently face.

Research Project Background

Of the 295 initiatives reviewed, 70 companies reported that while they started their reengineering efforts with the serious intent of redesigning their sales and support operations, their projects were now on an indefinite hold. The reasons behind why these initiatives fell by the wayside is an interesting story in and of itself. But for the purpose of this white paper, we will be using only the results from the reviews conducted with the 225 firms that continued their reengineering initiatives.

These 225 companies were divided nearly equally into two groups. The first was those firms who were in the implementation process – defined as organizations just starting to review their operations and technology, all the way up through those firms that were in a pilot phase. The second were those companies who had implemented a project – defined as organizations having rolled out their system into full production. Of these companies, 48% were manufacturing firms, 36% service organizations, 9% distributors, 4% retail firms, and 3% other (government agencies, charitable organizations, etc.).

Information for this research project was gathered by initially asking participants to fill out a survey form. For projects that had completed their rollout phase, phone interviews were then conducted to get more detailed perspectives on the organization’s project experiences. In cases where companies had hard performance numbers for their projects, onsite meetings were then held. Survey participants were told that their individual project results would be kept confidential, and used only to create the summary analysis.

CRM Project Trends

One of the first issues we explored with each of these firms was what were the business objectives driving their projects. Their answers, as seen in figure 1, reflect two interesting shifts from prior years. Five years ago, when we first conducted this survey, most firms were primarily focusing on dealing with issues associated with sales efficiency: increasing selling time, decreasing paper work, reducing administrative burdens, etc. Now companies are now focusing on increasing effectiveness as well.

Figure 1

Today, sales organizations are realizing that in order to achieve their business objectives, increasing efficiency alone is not enough. This understanding was best articulated by the vice president of sales for a manufacturing firm who stated, "I don’t want to just improve the efficiency of my reps. If I only make them more efficient, that just means my average rep can now make more average sales calls. What I need is to have my average rep make world-class sales calls." That becomes an effectiveness issue, and CRM teams are now exploring how they can empower their people versus just automating what they do.

The second shift in project goals is an increased focus on improving customer satisfaction through CRM initiatives. Few companies reported that they had a dominant product advantage in their marketplace. Instead, many stated it was not what they sell, but how they sell to (and service) customers that helped them establish long-term business partnerships. They are therefore focusing more CRM resources on improving the vendor/customer relationship.

The technology choices companies are making mirror these project goals, as the inclusion of CRM tools which address effectiveness and service objectives are on the rise. We continue to see a transition from simple systems to more complex. The number of companies including applications such as opportunity managers, marketing encyclopedias, proposal generators and configurators, as part of their CRM systems, has increased substantially over the past five years. The importance of leveraging the Internet as a platform for sales and service has also skyrocketed. Figure 2 shows the variety of technologies companies are integrating into their CRM solution sets.

Figure 2

When we asked CRM project teams to review the specific technologies they were evaluating and purchasing, a significant market shift emerged that is worth noting. A shakeout of CRM vendors appears to be at hand. Today, there are still over 500 sales and service automation tool developers, with new players still entering the market. While two years ago there were no real market leaders, this is now changing. Through the course of our recent interviews, twelve CRM players were mentioned significantly more than the rest.

This maturing of the market should have two results. The first is that the general CRM market will continue to be taken over by fewer and fewer larger players. This will force the smaller companies to change their business focus in order to survive. They will either need to select a single market niche to focus on, as some players are already doing in vertical segments like pharmaceuticals, insurance, advertising, etc., or they will look to be acquired by back office system vendors looking to broaden their product line. Those firms who fail to move with this trend could easily fail. We could start to see a significant reduction in the number of CRM industry players as early as 1999.

Another trend that emerged when we surveyed firms on their investments was a reduction in the costs for implementing a CRM system. We asked companies who had fully deployed their systems to share how much they spent on hardware, software, system customization, training and support. For the first time in five years that number went down from the previous year. The new average investment per rep came in at $10,385 vs. $13,039 last year. A cost breakdown is shown in figure 3.

Figure 3

The major cost changes from our 1997 survey occurred in two areas. The first was the cost of the sales and service automation software. The competitive nature of the CRM market has resulted in software costs going down from $3,800 per seat last year, to a current figure of $2,180 as some vendors use price as a way to win deals. There is the potential for those costs to continue to come down a bit as the vendor shakeout occurs.

Customization costs also went down. The leading edge CRM vendors continue to significantly enhance the robustness of their systems, which is reducing some of the need for major customization. In addition, they are now also providing new development tools to assist in streamlining the implementation process. This has helped reduce the cost of customization from $3,800 per seat to just under $2,500, a trend that should continue into 1999.

It should be noted that these figures represent the average investments companies are making in their systems. Specific project costs varied greatly, from a low of $1,800 to a high of $38,300 per user. The CRM initiatives generating the best results have a significantly higher price tag than the average. As companies integrate some of the more complex sales and service tools into their CRM systems, and invest in additional training on new business processes, the investments can easily come in at around the $17,000 per rep range.

CRM Project Success Factors

This most recent marketplace review showed a significant improvement in the results that CRM projects are achieving. Past projections from industry groups and analysts have shown failure rates as high as 80% for sales force automation initiatives. But organizations are now starting to crack the code on how to successfully reengineer their sales and service operations, as is reflected in figure 4.

Figure 4

In reviewing the projects that met all expectations, seven critical success factors emerged. We encourage organizations starting, or restarting, a sales reengineering program to see how they match up against these traits common to successful initiatives.

• Executive Sponsorship: Universally, successful projects have a CSO (Chief Sales Officer) as the project champion. This executive sets the initial goals for the initiative, ensures the project stays on track, and busts through any barriers that get in the way of success.

• Commitment to Process: These projects understand that technology is an enabler, not a solution by itself. They therefore invest the time to correct flaws in their sales and service strategies prior to doing anything else.

• Intelligent Use of Technology: Their technology choices are directly tied to helping solve a specific business problem. They look for technology that supports their processes, versus expecting their processes to change to accommodate technology.

• Assemble the Right Team: These organizations realize that these are complex projects and shore up any project team weaknesses. They invest in outside resources for process redesign, customization, system integration, training, or support, if they lack the skills in-house.

• Take People into Consideration: They understand that ultimately their success is dependent upon people. They never forget that they can have the best processes in the world, support them with the latest technology, and still have the project fail if they do not get user buy-in.

• Make the Proper Investments: They determine the potential ROI a project has first, and then make the right level of investments in hardware, software, customization, training and support to ensure their initiative achieves its full potential.

• Realize Less is More: They have a long term vision of where they want to be in three to four years, but they break that vision up into bite-sized pieces so that they do not overwhelm their organizations with massive changes all at once.

Summary

Our latest study shows that CRM projects are becoming more and more mission critical to an organization’s future success. In analyzing the 21% of projects that "met all expectations", we saw revenue increases of up to 42%, sales costs decreases of as much as 35%; sell cycle length reductions of 25%; margin improvements of 2%, and customer satisfaction rating increases of as much as 20%.

Two years ago, we summed up the importance of the CRM movement by reflecting on a magazine ad one of the phone companies ran in the early 1980’s. That image is worth revisiting. In an attempt to show the state of business in the world, the ad depicted a group of cowboys racing down a hill, dirt clouds kicking up all around them. The tag line at the bottom of the ad said simply "If you don’t make dust, you eat dust!" Nothing could be truer for sales reengineering today. Companies that do not find ways to dramatically improve how they sell to and service customers over the next year, will find themselves eating the dust of a competitor who has.

While success is still not guaranteed, it can be achieved. Hopefully the insights shared in this white paper will help your organization better target your sales and service strategies to be the firm that changes the way business is done in your industry. We encourage you to continually remember if you don’t do it, someone else will.

About Insight Technology Group

Insight Technology Group (ITG) is a research firm that specializes in analyzing how companies are reengineering the way they sell to and service customers to remain competitive. For further information on this study, or ITG’s sales reengineering workshops on how to optimize your company’s CRM initiative, contact Jim Dickie, Managing Partner, Insight Technology Group, (303) 530-6930 or jimdickie@aol.com.