By Lisa Miller As customer-relationship-management (CRM) software emerged in the 1990s, major corporations gobbled it up, along with so many of the other "must have" products offered by IT vendors in those heady days. Amid promises that it would provide a 360-degree view of customers and their buying habits, CRM was mistaken by some for a magic talisman. If you listened to its wilder-eyed advocates and promoters, it could seem that the mere act of loading the software was enough to prompt a revolution in enhanced profitability.
Alas, reality intervened. After the hype came the disappointment, as outfits struggled to integrate CRM into their existing business structures -- all too often without success. Meanwhile, small and midsize businesses (SMBs) remained mostly on the sidelines, congratulating themselves for not getting caught up in the excitement in the first place.
How times have changed. Today, CRM is evolving, and SMBs are well-positioned to benefit this time around. When big companies shut their wallets after the tech bubble's rupture, IT vendors rushed to tap the underserved SMB market, with varying degrees of success. And, while SMB spending has helped keep the tech industry as a whole afloat, small outfits have remained reluctant to adopt CRM. Fewer than 28% of U.S. businesses with less than 500 employees used CRM applications in 2003, according to a Yankee Group survey.
TECH FOR ALL. CRM vendors are keen to boost that number. Accordingly, they are developing new products designed specifically for smaller outfits -- an important shift in approach. While customer relationships have long been of vital concern to SMBs, CRM offerings have tended to be either "too simple, or too complicated," says Helen Chan, a senior Yankee Group analyst. Contact-management software, for example, offered to little, but moving to the next level often entailed buying complex software applications that most SMBs simply didn't need. Now, with more vendors paying attention to what smaller outfits want, products are being tailored accordingly.
Hosted applications also are on the rise, and they tend to attract SMBs more than larger players. With hosting, users pay an application service provider (ASP), such as Salesforce.com, a monthly fee based on how many employees access the service. This approach gives outfits the flexibility to add or remove "seats" as their workforces expand and contract, while allowing them access to advanced CRM solutions they might not have the infrastructure to run out of their own offices. Hosting will account for 13% of the CRM software market by 2007, up from 3% in 2002. According to Tom Topolinski, a Gartner Research vice-president, this growth that will come largely from the SMB side of the market.
"The SMB market is now being catered to," says Topolinski. Worldwide, he estimates that SMBs will spend a total of $966 million on CRM in 2007, up from $741 million in 2002. (North America and Europe account for about 85% of the global CRM market; Gartner defines North American SMBs as businesses with under 1,000 employees, and European SMBs as those with up to 250.) At the same time, larger enterprises will reduce their CRM spending somewhat, from $2.07 billion in 2002 to $1.97 billion in 2007.
Though large firms will still account for the bulk of CRM revenues, Topolinski stresses that the SMB segment offers "huge potential" for growth. Vendors, he says, "have to participate, or be left behind."
TAKE AIM. This is good news, because smaller outfits stand to reap major benefits from the targeted use of CRM. The key word here is "targeted."
Despite the influx of SMB-friendly products, businesses can still blow it if they don't think things through before buying. "The problem with CRM, is that it has been equated so much with tech," says Douglas Turk, executive vice-president of Inforte, a consultancy, and co-author of a new book, CRM Unplugged: Releasing CRM's Strategic Value.
CRM newbies should first define overall business strategies and goals, figure out how a functional approach to support those goals, and then craft customer strategies. Only after taking these steps should they start stocking up on CRM software, Turk says, adding: "Your CRM should support the key aspect of your business that is most important to your customers."
GOLD DETECTOR. Besides helping outfits treat customers right, CRM can also help to identify which customers are the most lucrative -- and the most costly. With this information, SMBs can target their markets in much more sophisticated ways. In one extreme instance, an Inforte client discovered that 40% of its profits were coming from a mere 2% of customers. Meanwhile, about 90% of clientele actually had a negative impact on earnings.
Businesses might not want or be able to drop their less-lucrative customers, but they can seek out more profitable ways to serve them. "Your customer service rep, your sales rep, your marketing person only have 8 hours to 10 hours in a day," Turk points out. "If they're not prioritizing their activities on those customers that are creating the highest value, then your company will not create the highest value."
This type of profit-enhancing insight is why CRM generated so much hype in its younger days. Unfortunately, the folks buying the software back then didn't always do their homework. Of failed CRM projects, most flopped because businesses "skipped the strategy side," says Gartner's Topolinski.
TOO MUCH OF A GOOD THING. Even after setting a strategy, outfits have another pitfall to avoid: simple overenthusiasm. CRM software can do so much, it's easy to get distracted by its many fancy features. Not only can it tie each customer's information together all in one place -- making it easy to track complaints, billing problems, order changes and the like -- outfits can also set it up to monitor trends, such as shifts in buying patterns in different regions. The temptation is to try to do it all.
Turk recalls fighting "like hell" with a client about the need to use certain features in its new CRM system. "In the end, they insisted they would have these alerts that would pop up whenever there was a status change on certain orders, or a status change on activities, and things like that," he says.
The alerts were duly set up, but Turk's misgivings soon came to pass. "A week to the day after the rollout, we shut down all the alerts," he recalls. With each person in the 400-strong outfit getting roughly 25 alerts nearly every hour, employees were overwhelmed. Turk cautions: "CRM technology and functionality can be very sexy, but you've got to be careful, because if it's not supporting your business, you're not going to be happy about it." Miller covers small business for BusinessWeek Online