During the past decade, customer relationship management has become increasingly relevant to businesses looking to improve the bottom line. But what of the next ten years? Gartner vice-president Ed Thompson looks at the growth trends that will affect business.
As the Gartner European Customer Relationship Management (CRM) Summit celebrates its tenth anniversary this year, looking back at the past decade of CRM highlights some important insights that can help organisations successfully navigate the next ten years.
The goals to acquire, develop and retain customers, reduce costs and grow profits are unchanging, and CRM will remain as relevant to meeting these ambitions as it did in 2000. These goals came to the fore during the economic downturn of 2001-03 and will again in 2010.
Typically, organisations have around half a dozen CRM goals. To stay focused on the top priorities, they should have only three or four. This helps to communicate the aims of the company to employees.
An ongoing challenge since 2000 has been measuring the return on investment (ROI) of CRM and this will continue to be an issue. Perceptions of project failures are primarily because of a lack of understanding that CRM is a strategy, not a technology, despite approximately 20% of CRM projects not using technology. The increasing maturity of CRM within 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, whereas the majority of organisations viewed CRM as unlikely to deliver business benefits, in 2009 they expect CRM projects to succeed. A decade's experience means CRM has become less risky and more predictable, but on-time and on-budget projects remain constant at approximately 70%.
Macro factors
Macroeconomic factors still have an effect on CRM. During tough economic conditions the number of transformational projects dropped to only 2% of projects, while during good economic conditions this rose to 10%. Since 2006, CRM projects have started to polarise. With the rise of software-as-a-service (SaaS) CRM applications, the associated projects have been faster (often within six months) and in many cases the only resources needed are two or three consultants.
At the same time, the increase in multi-channel CRM programmes has given rise to large projects, which run over two years with more than 100 external consultants. This polarisation is set to continue.
However, since 2000, the biggest change to technology-enabled CRM projects has been offshore external service providers. The shift to using offshore external resources for deploying CRM applications has reduced implementation costs in most cases. Over 80% of CRM application implementation projects in the US and the UK involve some form of offshore resource. In France and Germany, this figure is less than 5%, but the next decade will see the use of offshore resources for CRM projects steadily rise in these countries.
Outsourcing has been underused 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 keep high-value processing linked to brand values and competitive differentiation in-house.
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 assume that one CRM application will not meet all of its needs.
CRM application pricing has changed dramatically over the past ten years with organisations commonly paying less than $1,500 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.
The shift to SaaS means nearly 50% of all sales force automation applications are delivered in this way compared with less than 1% in 2000. The most common pricing model is still per user, but process-based pricing, fuelled by service-oriented architecture and SaaS, will likely become commonplace by 2020.
Up to date
In terms of architecture, CRM applications have transitioned from client to server, but there is a notable lag between availability and adoption. Less than 10% of organisations are running the latest version of their CRM suite providers' technology.
From a market point of view, the CRM application sector is not saturated. Less than 10% of small businesses in North America and Western Europe have packaged CRM applications in place, and only a small minority of large organisations have attained a single view of their customers. Gartner estimates that total revenue for CRM software in 2008, including licences, maintenance and subscription revenues, was over $8bn worldwide. CRM consulting and system integration revenues will remain steady, at three times the size of software revenue.
During the downturn, the focus on customer experience and customer-centricity will drop as organisations switch to concentrate on short-term cost-reduction goals. After the downturn, the focus on the customer experience will increase as the quantitative evidence catches up with the anecdotal and social networks become advocacy networks.
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 and, 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.
