Implementation Failures in Customer Relationship Management Software
 

Bulletin of Applied Computing and Information Technology Vol 2, Issue 1 (March 2004). ISSN 1176-4120.

Mathew Nicho
Auckland University of Technology, New Zealand
matnica2@aut.ac.nz

ABSTRACT

Customer Relationship Software (CRM) is the most widely talked about enterprise software in the business world today and at the same time it presents a scenario of contrasts. The future market for CRM looks bright where on the other hand many firms who implemented CRM had burned their fingers. High failure rates among the big users have lead vendors to target the mid- and small size business segment for further growth opportunities. This paper reports a study that analysed secondary data on the CRM market, the failures, and the causes of implementation failures.  Some measures are recommended to reduce the risks of implementation failure.

Keywords

Customer relationship management, CRM, CRM software, CRM implementation,  risk management

1. INTRODUCTION

CRM is an enterprise system that allows businesses to replace existing information systems, which are often incompatible, with a single integrated system, thereby allowing streamlining of data flows throughout an organization that in turn promise dramatic gains in a company's efficiency and bottom line (Davenport, 1998). The new model grew from the concept of one-to-one marketing whereby information about a customer (e.g., previous purchases, needs, and wants) is used to customize offers that are more likely to be accepted by the customer. By using information technology all of the corporate functions (marketing, manufacturing, customer, services, field sales, and field service) required to contact customers directly or indirectly become integrated. Two drivers outside of technology made CRM a reality - that is the differentiation of products due to increased competition, and secondly the move from a product centric view to a customer centric one (Davenport, cited in Mills, 2001).  Definitions of CRM are benefit centric. The business benefit is identification and targeting of profitable and best customers, real time customisation of products and services, tracking of when the customer contacted the company, and provision of a consistent customer experience (O’Brien, 2003).  CRM is a series of activities involving identifying the potential customer and the long term buyer, and maintaining them through a mutually beneficial relationship (Buttle, cited in Friedman & Blanchay, 2001).

An analysis of the above definitions reveals that CRM is a broad concept with the main objective to retain profitable customers. The CRM software market is one of the fastest growing markets in the world despite the fact that some of the organisations that implemented it did not get the expected benefits. A study by International Data Corp Inc predicted that CRM market would reach US $ 12.1 billion by 2004 (Evans, 2004). AMR Research projects that the market for CRM software and services will grow from US $ 5.4 billion to $ 16.8 billion in 2003 (Tan, Yen &  Fang, 2002). These predictions suggest that CRM is going to be the biggest market since ERP for enterprise systems (see Table 1). However, the track record for CRM implementations is not good. On the other side of the ledger it was reported that CRM projects are failing at a rate of 70 percent (Dunne, 2002). A Garner study estimated that 50 percent of the installed CRM systems don’t fulfil their promises (Fox, 2001).  The CRM market is yet to take off in New Zealand as it may be evident from the study done by Cap Gemini Ernst & Young (2000) on aspects of customer relationship management. It was reported that the application of computer technology in customer services in New Zealand is poor with 42% of departments reporting that they do not have any sort of customer handling systems. Also it was revealed that, only 4% of the respondents have the automated responses to mail system.

Table 1: Estimates of the size of CRM industry in US $ billion made during the period 1997 to 2000. Source: Gray & Byun (2001)

In this paper an overview of the CRM software market is given, and then the problem of failure is analysed on the basis of a secondary data search.  Recommendations for risk management are also made from literature analysis, and questions for the ongoing development of this study are raised.  A substantial CRM literature is attached in the reference section at the conclusion.

2. CRM VENDOR MARKET SHARE

The leading vendor in CRM software field is Siebel followed by PeopleSoft, SAP, Oracle and Clarify. Apart from these, there are a lot of smaller players and recently even Microsoft came up with a CRM product offering targeting small and medium enterprises (employing 500 or less people).

The table below gives the market share of the top five CRM software suppliers in 2002 and 2001.

Table 2: Market share of leading CRM vendors. Source: Gartner Dataquest (CRM Market Watch, 2003)

It is helpful to reflect on the current market flux whereby smaller CRM vendors are disappearing and large firms are taking over and consolidating their positions (Hensel, 2003).  Further market analysis shows that the retrenchment by the big users (many of whom did not realise the forecasted benefits of CRM) has left vendors with no choice but to approach the small to medium (SME) business segment to sell the benefits of CRM. The market leadership of Siebel has been recognised by many experts both from the revenue point of view and the installed customer base. It was estimated that Siebel has 3500 customers for its CRM software while SAP has 2000. (Weisman, 2003). The following two tables review current market leadership by revenue, market share, growth and reputation.

The table below gives the revenue, market share in US $ for the leading CRM players in the field.

Table 3. CRM revenue and market share worldwide for major players. Source: Siebel Systems (2003)

A study on the leading CRM vendors pertaining to the revenue of the top players in 2002 and their market share is given in the table below.

Table 4. Source: Guglielmo, Myron, Lisa & Schnieder (2002)

A further analysis of market shares shows that the market can be divided into categories and the relative competitive advantages assessed. Grey and Byun (2001) has a model to classify the CRM vendors into various categories. Out of these six categories of players, it is the enterprise - wide back end office players who are now in the forefront of CRM top list.  Another method of classification of CRM vendors was given by Klaber (2000, cited in CMPNet Team, 2000)) who classified them into four levels. The first level is the classic full service CRM suite of product vendors like Siebel and Sybase. The second level comprises of vendors that provide some of the CRM applications such as Onyx Software. The third level comprises of the ERP vendors such as SAP, Oracle and PeopleSoft and the fourth level consists of the e-CRM-specific-functions vendors such as BroadVision. The third level of ERP vendors are the ones who are very visible on account of mergers, acquisitions and takeovers. This group corner a major share of the CRM world market and is poised to get a greater share at the expense of the smaller ones, and through exploring and developing the small and medium size enterprise market.

Table 5. Classification of CRM vendors. Source: Gray & Byun (2001)

3. FAILURE RATES OF CRM IMPLEMENTATIONS

It has been estimated by the Gartner Group that 50 percent of the installed CRM systems don’t perform as expected (Fox, 2001). It can mean that the expectations of the companies that implement CRM are quite high or that the project is giving fewer benefits than the old system. It is difficult to define failure rate. Some terms that have been used to denote dissatisfaction with CRM implementations are “failure rates”, “fail to deliver measurable business value”, “failed to deliver on expected savings and business advantages” “not satisfied”, and, “doesn’t perform as expected”. The first term is purely negative and the other three terms may mean that the performance of CRM is slightly better than the old system but not as expected, given the nature of investment involved.  Another Gartner research has revealed that more than half of CRM projects fail to “deliver on expected savings and business advantages” (Dignan, 2002). Dignan is also of the opinion that most companies that installed CRM and considered their CRM implementations as success had problems with CRM.  Hall (2002) is of the opinion that having an integration road map is the best way to navigate through the implementation processes since CRM “failure rates” are as high as 50 percent.

A more conservative rate of failure is given by Berg (2001) who reports that according to industry data nearly 70% of CRM projects that are focussed on automating sales functions “fail to deliver measurable business value”. This may mean that there are certain areas in CRM that does fail and those that does add value. This brings to the conclusion that it is not appropriate to say that an entire CRM has failed to deliver, as there may be areas where CRM has succeeded. A very low success rate was given by an AMR Research study that shows that only 16 percent of CRM implementations have returned value (Ware, 2003).

The customer is the most important asset for any organisation. CRM is a critical step in making or breaking this crucial relationship, and yet more than 50 percent of the companies surveyed regard the CRM implementation as failures (Songini, 2003). Based on these surveys, the approximate failure rate of CRM installations can be estimated to be around 50 percent. In another study done by Merrill Lynch on Chief Information Officer’s (CIO) of large corporations, it was found that 45 percent of those surveyed were “not satisfied” with CRM installations (Dignan 2002). Most of these failure rates did not mention much about the specific areas where CRM failed or where CRM did not give expected results. Is it because of the high expectations of the organisation or the expectations given by the vendor? Or to be more exact, is it because of the integration problems? This is a question that has to be answered. Hence, the failure rate is quite ambiguous and organisations need to dissect the true nature of the failure.

4. REASONS FOR FAILURE

It has been emphasised by many experts that one of the main problems of CRM implementation or the reason for CRM to fail is that there is no proper integration between levels, functions and processes. Markus (1999) stated the fact that implementation of enterprise systems in large organisations carry high risk due to the huge investment involved and the tightly integrated structure with other systems that can carry over the failure like a domino effect.  This also includes integration with back end systems like ERP packages (META Group, 2001). Another reason for the high failure rate for CRM implementation is the lack of appropriate executive sponsorship for CRM projects where different lines of business compete for funds and implementation priority (META Group, 2001). King (2001) has given some reasons why CRM Projects fail:

• launching CRM initiatives without a strategy;
• CRM strategy not being an integral part of the overall business strategy;
• no proper integration of the CRM tool with the business;
• launching CRM without taking into account the customer interface;
• without customer input;
• without defined metrics and objectives;
• CRM being considered an IT project rather than a business processes;
• CRM being considered as a one time event rather than a continuous process; and,
• not getting employees on board CRM decisions.

The failure can come from non-technical factors as well. META Group (2001) research shows that 55% - 75% of the failure rates arise due to the lack of appropriate executive sponsorship for CRM projects.  Apart from failure, there are risks associated with CRM implementations that require management (Delong and Rockart, 1992; Cannon, 1994; Davenport, 1994; Barrow, 1994; Cavaye, 1995, cited in Corner & Hinton, 2002). These risks can be summarised as follows:

• the system user risk;
• the processes used;
• the speed of change;
• politics and vested interests;
• the need for mobility;
• over reliance on unproven methodologies;
• the need for rework; and,
• inadequate funding.

In addition, CRM and ERP belong to the category of enterprise systems software and hence some of the risks associated with ERP implementation can be found in CRM implementations. Some of the major risks reported by senior managers in ERP implementations are the failure to redesign business processes to fit the software, lack of senior management support, insufficient training and re-skilling, insufficient training of end users, lack of integration, lack of proper management structure, lack of an integrated technology strategy for supporting client-server implementations and insufficient discipline and standardisation (Sumner, 2000).

5. IMPLEMENTATION RISK MANAGEMENT

A company that has a 90% reliability in CRM and 10 million customers has 1 million dissatisfied customers (Paracha, Bukusu & Shepard , 2003). Implementing CRM in any organisation requires taking into account the factors that influence the company business framework.  The following Table summaries best practice for managing risk.

Table 6. Best Practice – Managing Risk

6. FURTHER RESEARCH

Progress in my research to date has located the significant literature on CRM, the problem areas and areas for risk management attention.  However, it is my intention to take the study forward and to delve deeper into beliefs about the success and failure of CRM implementation.  The following is a summary of the key questions and tasks for the next step in the study.

• Weightings: Some reasons have been cited for CRM failure, and there is a need to rank these reasons according to the severity of the situation as reasons for failure.
• Definitions: The term ‘failure’ or ‘success’ is subjective that can be affected by the expectations of the organisation, the investment made and the return on investment. A proper definition of failure of CRM is needed to know the extent of effectiveness of CRM. Markus et al., (2000) has stated that success in ERP implementation may mean different things to different people, like project managers regard success if the project complete on time, while people who use the system tend to regard successful implementation as a smooth transition to the stable operation with the new system.
• Integration: Integration has been defined ambiguously at various levels and in different systems and dimensions. Hence there is a need to find out the specific area of integration that is critical to the success of CRM functionality in an organisation.
• Levels of integration:  A total integration may not be possible or feasible. There may be some areas where more integration is needed and others, which require less. Finding a proper integration mix or an optimum level of integration may help an organisation to know how to prioritise integration.
• Customise or re-structure? When implementing a CRM package which is better for the long-term profitability of the organisation? To customise the software to suit the organisation or to re-structure the organisation to suit the generic software or, to do both? 
• Degree of customisation and/or re-structuring: If there has to be customisation of CRM software or restructuring the company, then what degree of customisation or re-structuring would be appropriate?
• Integration and effectiveness: Another question that had emerged from the study is the relationship between integration and effectiveness of CRM. Is there any correlation between these two factors and what level of correlation is present?

7. CONCLUSION

A major issue that has emerged in this secondary data analysis is the integration of the various components of most CRM implementation. Problems arise from technical, processes, organisational and resource variations and success is hard to come by.  In all the studies reviewed, integration problems have been cited as the main reasons for failure.  Despite the fact that more than half of the CRM implementations in the late 1990s and early 2000 failed, companies are moving towards implementing CRM, as the benefits that it gives far outweigh the probability of failure. Some of the benefits listed are faster response to customer enquiries, increased efficiency through automation, deeper understanding of customers, increased selling and marketing opportunities, identifying the most profitable customers, receiving customer feedback, and obtaining vital business information (Mills, 2001). These advantages to businesses outweigh the risk.

It has been mentioned in the paper above, that CRM touches all aspects of an organisation. Setting about field research into questions raised by the secondary data analysis lead to a study that requires the integration of a number of research techniques.  The use of both quantitative and qualitative methods can enhance the potential worth of findings and the recommendations that follow.  Some CRM failure issues cannot be quantified and a qualitative and quantitative study on all levels of the organisation especially on people who implement the system, use the system, operate the system and who make decisions about the system may be effective to get information from every perspective.  This multi-perspectival approach has been used by others in Information Studies and I intend to follow it through a triangulation of data types in order to make effective progress in the area of understanding implementation failure.

In the coming years the CRM industry may witness the emergence of a few dominant brands and a greater uptake of CRM in small and medium businesses.  It is hoped studies like these will reduce the failure rate and give business a chance to benefit from CRM potentials.

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Copyright © 2004 Mathew Nicho
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