CRM is the fastest growing software categories that in enterprise software. CRM has been forecasted by Forbes to surpass ERP in revenues by the year 2017. If that occurs, that will be a fantastic accomplishment as this is the first time that any other category of enterprise software has even come close to ERP sales since ERP was introduced back in the 1980s.
This is good news and bad news regarding CRM. First, the good news is that CRM has been the test case for SaaS delivery of enterprise software. If it had not been for CRM and specifically for Salesforce, SaaS would have taken considerably more time to take hold. It should be remembered that the conventional wisdom was that no one would trust or use SaaS because it required giving up too much control – and then Salesforce went and proved everyone wrong. This is just another example of where the experts that cover enterprise software have been wrong. However, the bad news is that CRM is probably not worthy of being the next big enterprise software trend for reasons that will be explained shortly.
A Short History of CRM
CRM is an interesting software category because, before SaaS, and Salesforce, on-premises CRM had one of the failure rates of any category of application. Siebel was, of course, the market leader (Siebel was acquired by Oracle in 2005, and as is standard is now an irrelevant application), and then other companies like SAP and Oracle developed CRM applications. All of these applications failed in implementation at very high rates, and now most of the CRM market is delivered by SaaS, and it is the only category of enterprise software that is delivered this way. Why? Some have argued that CRM is a natural fit for SaaS delivery because it is a more straightforward application, and requires little in the way of computation. CRM is after all just an input-output application. However, while this is a tempting line of logic, we don’t think this can be the only reason. One could run some of the most complex and processor heavy enterprise applications in the cloud, as the server is in any case remote from the user regardless of whether the application his hosted internally or externally. For instance, if we look at DropBox – a cloud-based data hosting solution, it has a better search capability than any operating system search we have ever tested – and this is a combination of both specialized hardware as well as software for searching.
Persistent Data Quality Problems
CRM has shed much of its image as a widow maker for IT; however, when we sit with marketing and sales personnel as they show us their sales data, we see continuing data quality issues. These sessions invariably end with a statement from the marketing or sales director we are sitting with say something like “much of this data is out of date.”
We would caution buyers not to get caught up in the hype of CRM. The number one problem with CRM is getting quality sales data, and this continues even with all of the advancements in CRM technologies. All manner of data quality issues has lead to software vendors that have products that clean CRM systems such as Talend and Data Cleaner (although the focus of these applications is more on the low-level quality issues such as duplicate records).
Many companies are happy with how quickly they can get a CRM system operational, but a detailed review of the data quality is almost always disappointing. This is a greatly deemphasized topic by both consulting companies – particularly the major consulting companies as well as the CRM software vendors as if clients knew the real average quality of sales information in CRM systems, it would put a severe damper on CRM software sales. Of course, no one that stands to make money on CRM is going to kill the party by declaring that CRM systems offer dubious payback. Both of these entities can get away with doing this because buyers often are fooled by the participation in the CRM system or the amount of data that is within a CRM system as a measure of the success of the implementation.
The Sales Forecast Problem
A significant problem persists with the quality of forecasts that are entered into CRM systems with the vast majority of companies not adjusting these sales forecasts for bias. The bias of Sales in forecasting generally is so well known that the software vendor Right90 has developed its primary application, as well as a CRM “plug-in” that is run from the Salesforce.com platform and Oracle CRM on Demand (and can be integrated to other CRM applications as well) which is centered on managing the bias of sales forecasts. Few buyers buy this plugin or address their persistent sales forecast bias.
Bias is a constant in forecasting regardless of the forecasting environment (supply chain and non-supply chain), yet few buyers are willing to see the forecast bias inherent in judgment methods as anything beyond a cognitive bias (that is an unconscious bias or error in cognition). Forecast bias is a tendency for a forecast to be consistently higher or lower than the actual value. Forecast bias is distinct from forecast error in that an estimate can have any level of error, but still be completely unbiased. For instance, even if a forecast is fifteen percent higher than the actual values half the time and fifteen percent lower than the actual values the other half of the time, it has no bias. But forecast which is on average fifteen percent lower than the actual value has both a fifteen percent error and a fifteen percent bias.
Bias can exist in statistical forecasting or judgment methods. However, it is much more familiar with judgment methods and is one of the significant disadvantages of judgment methods. The fact that different groups in a company have different incentives is well documented. These incentives can cause the forecast to be set higher or lower than they rationally would be. Considering today’s level of technological sophistication, it is baffling that most companies don’t know the effect of the bias of different areas of their company on their forecast, much less the effect of the bias of different individuals.
On the other hand, many vendors don’t emphasize bias detection in their applications, so in many cases, companies are required to build custom reports to determine forecast bias. It is rare for software vendors to make bias identification a focal point (although consensus forecasting vendors seem to be ahead of the curve on this topic). Therefore, most companies lack software with an internal dashboard that allows the company to adjust for bias. This is where custom report building comes into play.
Companies will often implement a CRM system, but not analyze how their internal sales incentives affect the quality of information placed into the system. Measuring individuals on sales volume and service level, without measuring them on inventory or forecast accuracy will promote a natural inclination to over forecast. This is because over forecasting provides the ability to meet a higher sales volume with service level and sales volume Over forecasting is so common in this scenario that its technical name is “hedging,” which is..
“Used so that “the factory will have stuff when I want it.” This game may be played by salespersons or customers, especially when capacity is tight or for new products.” – Sales Forecast Game Playing:Why It’s Bad and What You Can Do About It
Is CRM Improving Sales Forecasting or Customer Service?
One of the interesting features of CRM that we have yet to see discussed is if CRM applications are really helping companies, why are we not seeing improvements in forecast accuracy in companies that have a CRM system? This is not a question that CRM salespeople are interested in answering.
There is little doubt that CRM systems improve visibility, but how does that visibility translate to financial benefits? It is estimated that roughly 90% of CRM systems are implemented without “significant business gains.” CRM systems are ostensibly designed to provide all types of customer information at sales, customer service, etc.. individuals fingertips. That is the hypothesis. However, two more important questions should be asked:
- Is CRM improving the customer experience?
- Is CRM customer service improving generally?
The answer to this question is easy to determine, customer service is widely acknowledged to have precipitously declined right as CRM implementations have increased.
One may question whether this is a correlation (the two just happened to be related) or causation (bad service is causing CRM implementations, or CRM implementations are leading to bad customer service) and we do not know which is the right answer. However, we do know that no CRM solution or other technology can improve customer satisfaction if the company has decided to no longer take care of its customers. For instance, Sears, once a service leader that has been in great decline in great part because of policies that wiped out its customer service, began providing iPads to sales associates – thinking this could help overcome poor pay and poor training and other incentives (that is another reflexive rule of the terminally uncreative – add iPads). This is what we refer to as Technology as Band Aid Syndrome, where technology is used to cover up bad management practices. Technology can be a good thing, but if it simply becomes a crutch for a management that is completely self-centered and is playing to Wall Street’s biases, technology can be a negative. Technologies like CRM are often used to mask the fact that the pay level for many of those that provide customer service is low and even worse to feel as if they can place enough information into the service system that they can deskill the position of customer service and outsource it or cut wages. This leads to high turn over, and moral problems. The discrepancy between what salespeople get paid (and also how much goes to advertising), versus what customer service people get paid continues to widen.
Customers have noticed. Secondly, the differential between what they are promised – both by sales, but particularly by advertising is often a yawning chasm – as advertising feel it is their right to engage in any type of deception in order to make sales go up. Again, this is not something that CRM can help solve.
Research on CRM Based Business Improvement
We were unable to find any research on CRM applications improving sales, forecasting or customer service – the types of things that CRM is supposed to improve. The CRM market is overflowing with promises but has precious little evidence to back up the claims that are made for it. This is the premise of the book Why CRM Doesn’t Work: How to Win by Letting Customers Manage the Relationship. In the book, it is explained that CRM projects often seem to become about the efficiency of processing customers rather than analyzing the sales or service process. CRM applications are often sold as Band-Aids by consulting and software vendors alike. And that beyond simply covering up sales and service policy and incentive problems, CRM is used to manipulate and extract from customers (Customer Relationship Mangement). One CRM vendor, Base CRM actually writes on this topic. In their blog post 5 Ways your CRM is Decreasing Your Productivity Base CRM author Laura Licata points out the following:
- Data entry is turning your reps into robots.
- Duplicate data is making a mess of your system.
- It’s so complicated that your reps get frustrated and stop using it.
- Inaccurate reports are causing your to make bad business decisions.
- It can’t keep up on mobile.
The software vendor Base CRM is attempting to get companies to buy its software, by proposing that they aren’t like standard CRM, but the information it is providing on this topic also happens to be true. Many CRM applications are not designed for everyday usability.
This brings up a very rarely asked question with regards to any software category. Normally a software category is measured on its ability to provide a positive return on investment. Some applications, like tier 1 ERP have a negative return on investment, which simply means the application will not pay back its total cost of ownership. An ERP application may have a 7 year TCO of $20,000,000 and only pay back $18,000,000 thus having a negative ROI. However, CRM is the only software category that we analyze where the question comes up if CRM actually worsens the company’s position.
CRM’s Low Average Software Quality
CRM easily has the least impressive applications of any enterprise software category we cover. The applications that impress us are normally never the big brand names – however, in most software categories we come away impressed with the thought that went into the design of the application. We are software enthusiasts and love good software. However, it was infrequent that when we were testing any of the CRM applications and came away impressed.
Nailing Down What is CRM
CRM is morphing into something that no one expected – an overall marketing platform. In just a short span of time CRM has turned from the enterprise software category one of the highest failure rates, that had the modest goal of accepting and reporting on sales information into a software category with high rates of success and which does so much more than just accepting and reporting on sales input. Most of this is due to Salesforce. They showed what was possible, and created the credibility that CRM has with companies presently. It turns out that putting CRM into the cloud-enabled all of the other functionalities that have since been added to CRM to flourish.
Software Category Summary
When purchasing something that has so little in the way of evidence that it will help your company, it makes sense to limit the expenditure to the good, but inexpensive applications. This leads to a follow-on point. This is the natural conclusion based upon the low potential of CRM systems.
Its difficult for us to see many of the CRM applications that we reviewed could make much of an impact to a company’s bottom line. There is far more potential in other software categories, and applications in software categories with a much higher potential ROI – such as PLM/BOM management software are underinvested upon. We are one of the few information sources on enterprise software that actually helps buyers prioritize their software purchases.
MUFI Rating & Risk
See the MUFI Ratings & Risk below for all of the applications we cover.
Nguyen, Bang. Simkin, Lyndon. The Dark Side of CRM: Advantaged and Disadvantaged Customers. Journal of Consumer Marketing. 2013.