CRM market trends: what buyers need to know

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There are a number of trends that are presently characterising the CRM market, including vendor consolidation, market spread and growing acceptance of Software as a Service CRM. But how are these trends impacting CRM buying decisions?

By Volker Hildebrand, SAP

In its recent white paper, The Forrester Wave: Enterprise CRM Suites, Q1 2007, Forrester Research forecasts that expenditure on CRM solutions will show strong growth through to 2010. This was no surprise to me - even though there was a lot of talk about failed CRM implementations in the past. It is true, whilst some organisations have achieved increases in revenues and customer satisfaction, other companies have experienced disappointing results.

But the number of firms that have successful CRM implementations is increasing and companies are learning from the failures of the past. In particular, businesses are understanding that CRM technology won’t automatically improve customer relationship management. The technology is only an enabler and if you don’t have the vision, the right strategy and an execution plan, it is not going to work – no matter what kind of software you are buying. We have always said that CRM is a journey; you don’t just implement technology and you are there.

But the growth and renewed interest in customer relationship management is not only because of the rise in successful software implementations. It is also because organisations are looking at new ways to grow their business, and whether this is retaining existing customers, penetrating underserved segments, developing new channels, introducing new products/services or reaching out to new customers, they all require customer relationship management in some way. Therefore, companies are needing to invest in their customer relationship management capabilities as part of their focus on growth, and in many areas software can help drive this growth.

However, there are several CRM market trends occurring that buyers should be aware of.

CRM expands

The first of these is the consolidation in the industry. There are two aspects to this. Firstly, business needs often span so many areas that there is hardly a single application out there that fits every need. One way to meet your business needs is to look at all the different pieces that are available in the market from different vendors and try to stitch it together. This, however, results in high integration costs while full integration may never be achieved.

On the other side, this consolidation could mean that it will be easier to make a decision on CRM software purchases as there will be fewer vendors to consider. Of course there will always be areas of innovation and business models that may not necessarily work for larger vendors. But as these specialist areas begin to fulfil a broader need, larger vendors will typically invest in developing functionality that caters for this need or fill the gap through acquisitions. For buyers, this means really looking at the viability of specialist vendors.

So firstly, ask yourself what are your business needs and is there a single vendor that can meet your needs? And then, what are the specialists in specific areas to fill the gaps, and what is their viability? Also, you should ensure that your primary CRM platform is flexible enough to add any additional components or simply build on top of it.

photo of Volker HildebrandIt is true that some companies have experienced disappointing CRM results. But the number of firms that have successful CRM implementations is increasing and companies are learning from the failures of the past.

Volker Hildebrand, SAP

At the same time as this market consolidation, we are also witnessing a market spread. Forrester’s report highlights that there are midmarket CRM players pushing for more enterprise deals, and a growing focus on the mid-market by companies such as SAP. In the short- to mid-term this is going to mean more options for buyers to choose from – which from a buyer’s perspective is good to have. But it remains to be seen how well the vendors will do in this market.

If you look at the breadth of the solutions, the needs of medium-sized organisations are not necessarily that much different from those of larger organisations – they also have a salesforce, they need to provide services and so on. Just because they are a smaller company it doesn’t mean they don’t need to sell! But the question is how the vendors are going to be able to actually serve those customers.

At the end of the day, it is not only the product that sells – it is also the service. And from an enterprise perspective the question has to be: does this meet my business needs, both from a product and service perspective? This kind of market spread is not unique to the software industry, however, and you can see vendors moving from one end of the market to another in many different industries.

Differentiating yourself from the competition

The final significant trend is the growing acceptance of Software as a Service (SaaS) CRM. The SaaS concept is to provide software that is not only easy to use, but also easy to get, easy to implement and maybe even easy to pay for. One of the most successful areas for SaaS so far has been salesforce automation, primarily because usability and ease of use of a software application for a sales rep is critical – perhaps the most important area in an organisation. SaaS has really raised the bar in terms of usability.

With many of the SaaS solutions out there, however, there are still limitations with regards to customisation integration. If you really want to differentiate yourself as an organisation it is probably going to be hard to do this with a SaaS offering.

But it has also provided a way to bypass IT. From a line of business perspective and a head of sales perspective you don’t have to ask for an IT budget or wait until there is a slot free in the IT team’s schedule to get the software installed for your salesforce. You just go out and buy a service. It bypasses IT and it is easier in financial terms and doesn’t require a specific budget and these factors have helped SaaS break through and become very popular.

With many of the SaaS solutions out there, however, there are still limitations with regards to customisation integration. If you really want to differentiate yourself as an organisation it is probably going to be hard to do this with a SaaS offering. But if you just want your salesforce to be more productive and reduce costs and standardise some specific areas and there are no big integration needs, SaaS is definitely a very attractive option.

Indeed, a recent survey by the Economist Intelligence Unit on behalf of SAP revealed that 85 percent of respondents didn’t care about the deployment mode – whether it was CRM software or CRM SaaS. All they cared about was whether or not it met their business needs. So if you are a head of sales and have 100 sales reps out there that need to get up and running immediately and your CIO tells you that they are in the middle of an ERP upgrade and that it is going to take another 12 months before he can help you, then the business need may call for a SaaS solution so that you don’t have to wait. The important thing is that whatever decision you make, it has to be aligned with your long-term vision and strategy.

Spending decisions

So what do these factors mean for the average company which is looking to make a spending decision on CRM? Whether or not it is a good time or a bad time to buy CRM always depends on your business needs. But if you look at the options that are out there, and if you look at the maturity of CRM software and the fact that CRM applications have come a long way, then yes it is a good time to be looking for CRM solutions.

CRM is going beyond its traditional users. As companies are looking to their customer-facing processes as an area where they can differentiate and gain competitive advantage they recognise that CRM is not just about the front office.

In fact, CRM will perhaps grow even more than what is predicted by Forrester. Partly this is because the CRM applications market is still fairly immature; there are still so many custom-built CRM solutions out there and very few – about 30 percent – packaged applications. So for an applications software vendor this means there is an untapped opportunity.

Enterprise services-oriented architecture is paving the way for firms to be able to leverage customer interaction channels as important sources of differentiation, providing more flexibility and allowing companies to use a packaged software application as a baseline for their needs instead of building everything on their own.

But the other reason CRM should show strong growth is that CRM is going beyond its traditional users. As companies are looking to their customer-facing processes as an area where they can differentiate and gain competitive advantage they recognise that CRM is not just about the front office. Through end-to-end processes, companies can harness the efforts of their entire organisation to make the customer experience better.

An increased focus on customers and customer experience will further fuel the shift from point solutions to comprehensive integrated solutions in the years to come. CRM solutions will expand well beyond traditional CRM categories with users across and beyond the organisation, and comprising technologies to meet increasing communication and mobility needs and to better integrate the web as a channel and a community.

Volker Hildebrand is vice president of CRM product management at SAP.

Click here to download The Forrester Wave: Enterprise CRM Suites, Q1 2007.

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