Keeping control over the buying process should help you choose the right customer management application to fit your business. Mark Broatch finds out how.
Let’s face it: some of your customer management IT projects are going to fail. If there’s any truth in what analysts have found raking over the coals of dead technology exercises, there are many more failures to come that will break the budgets of chief executives and the hearts of IT managers.
Analyst firm Gartner predicts that by 2003 the CRM (customer relationship management) project failure rate will increase to 70%, up from 55% last year.
The good news is that those companies that have yet to decide on their plans for CRM — the pursuit of profit by enabling customer-focused operations — can learn from those which have already jumped in. The bad news is that unless you keep control of the software evaluation process, you will become one of the casualties even before you’ve started.
Software vendors are often better at evaluating you and how to get money out of you than you are at evaluating them. They can oversell simplicity and functionality because customers let themselves be oversold. Buyers go through the process maybe two or three times in their careers — and even though the purchasing team may have set detailed requirements, created bulletproof metrics and worked out ROI charts — the negotiating skill of vendors, company politics and sheer gut instinct on the part of company executives may undo all the strongest will and best practice in the world.
We’ve all heard of companies, particularly in the early days of the large application suites, choosing packages too large for their needs, then paying endless integration bills for years to scale the product down, and ending up owning pieces of software they simply have no use for.
Getting the basics right
Before an organisation gets to the RFI/RFP process, it should of course get its CRM focus sharp. Everyone we spoke to stresses one point: CRM is a business strategy that includes enabling technology, so CRM deployments should be driven by a team balanced between business and IT. Too often the IT unit manages the entire project or assumes a disproportionate role, say analysts, hence user acceptance is lower and business needs may be subsumed. Gartner Australia analyst Kristian Steenstrup says his personal observation is that the IT selection process is no different from the ERP approach — but it should be. The selection should be more in the hands of the call centre, marketing and sales groups than the IT groups, he believes.
Tony Bullen, head of CRM vendor Stayinfront, agrees. “CRM should not be an IT decision. If the sales and marketing organisation isn’t properly involved and on-board with the decision, don’t proceed.” But IT should still be involved. “Because CRM involves complex technologies and integration, the solution you choose should fit your IT strategy and support infrastructure,” he says.
RD1 IT general manager Rick Grocott advises dictating your requirements, which vendors should then follow in their presentations. “If he values me as a customer he can go through my selling process, not his.”
However, Grocott accepts it’s harder to dictate terms if you’re not spending “$1 million, $3 million or $10 million”, and it’s also important not to stifle responses by tying vendors down too much.
Grocott suggests getting indicative pricing early on, though some vendors are touchy about being nailed down to a price too early in the process. Paul Roussell, a director of Wellington-based SalesLogix CRM specialist The Integrators, believes customers shouldn’t be asking for fixed-price proposals at the proposals stage. Organisations seldom know exactly what they want and requirements are often couched in very loose terms, he says. Unless customers have a detailed idea of what they want their screens to look like, a vendor can’t cost a proposal, he says.
Roussell also thinks customers should pay vendors once they get to the “preferred” stage, even if at a discounted rate, because of the average couple of weeks involved in the meetings and responding to the RFP.
Consultants or no?
Grocott is personally less inclined to use the Big Five accountancies or large consultancies (he alludes to the possibility of new graduates coming into those companies for three months and using the organisation’s impressive documented procedures to produce polished reports with no substance), and admits finding truly independent advice is “very difficult”. Nevertheless, his organisation recently did this with a point of sales system, and the overall experience was “pretty good”.
The no-consultant view is backed by some vendors. “Don’t engage a consultant unless you really feel you have too — within the CRM space they are rarely independent,” says Bullen. He says that if you do, make sure they have some knowledge of CRM. “Many of today’s CRM experts were ‘ERP’ experts last year and had to switch to another area post-Y2K.”
New Zealand King Salmon (NZKS) finance and corporate services general manager Bryce Gilchrist, in a presentation to an Australian audience last year on selecting a large application suite, was more even-handed. He notes that consultants aren’t ever likely to understand your business well enough, certainly not as well as you, but they may “give you the confidence” to proceed with a software suite purchase.
Nevertheless, consultants do have a wealth of experience. Deloitte lead CRM strategist Karen Thomas, for example, offers the advice of focusing on specific customer needs one at a time. This, she says, will change the perspective of the purchaser in terms of what system capability they are specifically seeking, and provide them with a stronger position from which to deal with vendors who can “dazzle their clients with unnecessary features”.
Understanding customers
Gilchrist’s presentation, entitled “Enterprise Application Selection — A Practical Approach”, detailed the 18 months the Nelson-based fish farmers spent looking for an overall business system that had to have good CRM functionality (see Service with a smile). The presentation is a detailed plan of objectives, business case scenarios and assessing and testing methodologies, and appears a case study in purchasing best practice. Vendors were even allowed to visit the company’s processing units, sea farms and hatcheries. But even given this level of scrutiny, some compromise is essential. Gilchrist admits Intentia’s Movex, which was eventually chosen, didn’t score highest in every category “but by far [offered] the best fit to our overall needs”.
Gilchrist says his experience with vendors was on the whole positive.
“When we undertook our initial investigations salespeople weren’t too overzealous. At the front end they didn’t know how serious we were as we were investigating well in advance [12 to 18 months] of making any commitment. I guess we would have had a different reaction if we were a larger organisation and been seen to be a big win publicity-wise,” he says.
He says the fact that NZKS was open about the long timeframe up front also “enabled plenty of time for potential prospects to get to know us/me and how we worked. It also meant that others from their team were involved, such as consultants and managers, so from within their own team there was an element of constraint on the sales guys.”
Grocott’s experience of vendors is that they are universally trying to understand what customers want, though he has found that they differ in their ability to scale up and down to the customer’s needs.
Nevertheless, CRM is not a well understood concept, he says.
“It’s still something of an art.” How the product is sold to a customer will depend to some degree on the purchasing executive’s understanding, he believes.
This understanding may involve what Grocott calls “little CRM” and “big CRM”.
Big CRM entails big applications built around the customer, of which a company has a single, unified view; whereas little CRM involves a transactional approach whereby customer information can be accessed from “real” applications.
“You can know everything you need to know about your customer, but if you can’t send out statements and process cheques, then you’re a highly sophisticated failure.”
The transactional approach is good for “toe in the water” CRM projects, such as one where RD1 was involved with the locally developed Brains. The organisation is a large user of Oracle applications, which include CRM capability.
Doing the groundwork
Accumulate empirical data about implementations by such organisations as Gartner or Forrester is a good starting point for a CRM purchase, says Deloitte’s Thomas.
PeopleSoft Asia-Pacific product marketing manager Ray Kloss, who has been on both sides of the bargaining table, says the critical first step for the purchasing executive and his or her team is to have a clear understanding of the business problem they are trying to solve.
“This lets the team focus on the solutions which will have the highest intended impact, rather than getting caught up in the ‘emotional’ sell of exciting products.”
Kloss, who has swapped between working for IT vendors and customers over the years for such companies as General Motors, IBM, HP and Lend Lease, says the team should understand the intended business processes, the specific data and any required integration involved.
The second step, when moving into selection, is to ask competing vendors to model and demonstrate the key business processes, using subsets of the live data and outlining how integration will be enabled. This “test under fire” will give the evaluation team an opportunity to validate vendor claims and see the CRM applications being used in “anger”, he says. This is an appropriate and common request says Kloss.
The third step, he says, is to speak to reference sites that are performing similar types of processes or support similar integrations. Then cut the selection process down to two viable solutions as quickly as possible, and begin the in-depth analysis, commercial negotiations and final selection.
Other vendors, such as Roussell, even suggest not making it into a formal RFP if possible; CRM vendors are partners rather than someone to beat down, he suggests. “Let the vendor into your heart.”
When choosing vendors, Roussell recommends the executives holding the purse-strings narrow it down to one or two vendors through “market intelligence” — local press, analysts, newsgroups and “talking to your mates”. Roussell recommends as mandatory reading for vendors Mahan Khalsa’s book Let’s Get Real or Let’s Not Play, which details the “dysfunctional” relationship between customers and vendors.
Deliberations usually involve more than just rational negotiation. “It’s a very emotional process, and the vendors carve into those emotions,” Marvin Balliet, finance chief of Merrill Lynch & Co’s technology division in New York, has noted.
“When we moved retail [financial services] to the internet, emotions carried our decisions. That led to suboptimal technology decisions which we’ve since fixed because emotions don’t necessarily lead to the most efficient processes or decisions.” And the vendors know this, adds Balliet.
“I know executives make emotional decisions,” Grocott says. Sometimes this is based on the first number quoted to them, or the first to convince them they need to be customer-centric. But that’s not to say they don’t back it up with solid groundwork, he says.
Paul Bayne, a US salesman who has sold both ERP and CRM packages, is the most realistic. “Part of [a buyer’s] gut instinct is just really good marketing.”
Taking control
On the whole, NZKS’s Gilchrist found vendors professional, though felt in some cases they misread where the client was coming from. “Different industries and different parts of the country have different approaches and ways they want to do business and vendors should recognise this.”
He says there were elements of the process where NZKS took total control, such as setting the agenda, questions and timeframe, and made sure it was in a position to objectively compare vendors and their solutions.
“There were also other sections of the process where we allowed the vendor total freedom to present what they wanted, that way we made sure each vendor had the opportunity to present their product in its best light.”
Vendors were aware that NZKS was recording answers to questions. “We were quite pointed about specific issues and often reconfirmed with them their response. They were therefore very careful with their answers and where we felt we had perhaps been fobbed off we would always go back to the point to ensure we were happy with their response, often asking to see it demonstrated. They also knew from our approach that we would be very specific when it came to contractually defining specifications and performance criteria.”
However, he acknowledges that with such an undertaking, building levels of trust and confidence, both in the product and the vendor, is vital.
“This runs both ways; if the vendor has confidence that the client is going to be a successful implementation they are going to try harder. It gives them the reference sites they need. Everyone wants to be successful with this. With an ERP system we are talking about building a relationship that is going to last seven to 15 years,” he says.
Bullen advises not taking the vendor’s word for everything. “Ask to talk to sites or where the product is new, view a proof of concept system. A local reference site is more valuable than an offshore site as you can better measure support, ROI and cost models as well as technology.”
He notes that the training needed is usually underestimated. “You probably need to triple your training budget, even if that is at expense of hardware or software,” says Bullen.
And there’s even more good news for wannabe CRMers. Other analysts say because some CRM vendors are struggling to capture new business, buyers will benefit when it comes to licence negotiation. Gartner advises considering CRM suites, even if you’re only looking for a point product. Some CRM software vendors are willing to unbundle packages to sign a new account. But spend some time looking at the long-term prospects of vendors, given the global downturn and September 11.
“Many software vendors have viability issues because of economic constraints and are open to potential merger, acquisition or even demise,” Gartner notes gloomily.
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