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CRM TakesPriority Among IT Investments

  |  February 25, 2002   |  Comments

More U.S. businesses will spend $500,000 or more on CRM technology over the next two years than they will on other large-scale infrastructure projects, but a report by Jupiter Media Metrix questions whether all this spending will really improve customer service.

More U.S. businesses will spend $500,000 or more on CRM technology over the next two years than they will on other large-scale infrastructure projects, but a report by Jupiter Media Metrix questions whether all this spending will really improve customer service.

When asked which types of IT projects they would spend $500,000 or more on in the next 24 months, 26 percent of the companies said CRM; 23 percent said content management; and 19 percent mentioned supply chain management. According to Jupiter, the percentage of service contacts made online will quadruple from 2 percent in 2001 to 9 percent in 2006. At the same time, CRM spending in the United States will rise to $16.5 billion in 2006 – up from $9.7 billion in 2001.

It would seem that organizations are recognizing the need for CRM applications and are planning to allocate their resources appropriately. But Jupiter's analysts believe that, although most companies plan to increase CRM spending, few realize the benefits of improved customer intelligence.

"The overarching theme spurring CRM investments is the desire of businesses to cost-effectively improve customer satisfaction," said David Daniels, Jupiter senior analyst. "However, businesses must realize that investing in CRM technology does not alone ensure that they will be able to implement the organizational changes needed to gain a competitive advantage. To execute a CRM strategy effectively and strengthen relationships with customers, businesses must appoint a senior-level CRM guru who reports to the CEO and coordinates all CRM activities."

According to Jupiter, growth in CRM technology for operational contact centers – which makes up 54 percent of CRM spending – will remain fairly constant over the next five years, but will slow in 2006 as the market matures. Spending on analytical CRM software, which includes marketing-centric applications, will grow from $5.2 billion in 2001 to $8.7 billion in 2006 and will ultimately account for 53 percent of the CRM market. Organizations in the market for analytical CRM applications will also benefit from a consolidating vendor landscape, which Jupiter expects to bring improved standard features at slightly lower costs.

Almost all (97 percent) of respondents to a Jupiter Executive Survey said that they are planning on boosting their CRM spending across online and offline segments of their business within the next 24 months, but only 7 percent indicated that their planned spending increases are aimed at improving profiling and targeting of their customers. More than one-quarter of companies (26 percent) expect that heavy short-term investments in CRM will lead to long-term cost savings.

While 36 percent of executives responding to Jupiter's survey said that integrating CRM technology into existing applications was a challenge, they said that the top issues that businesses face in regard to their CRM implementations center on cultural issues and corporate politics. More than half (58 percent) said they have difficulty justifying the ROI of CRM systems to the rest of their organizations.

Financial services firms, which will spend $3.1 billion on CRM technology in 2001 and $5.4 billion in 2006, will be the single largest market for CRM systems, Jupiter found. Twenty-five percent of financial services companies said they had budgeted more than $1.5 million for their operational CRM infrastructure in the next 24 months. Jupiter analysts credit consolidation within the financial services industry with spurring large projects, which often require new investments in common systems and platforms. Other sectors planning to spend on CRM in 2006 include retail ($3.2 billion, up from $1.7 billion in 2001) and telecommunications businesses ($2.9 billion, up from $1.9 billion in 2001).

"While the high-tech, telco and financial services industries were early adopters of CRM systems, more than half of the companies in these industries have yet to deploy their operational CRM infrastructure completely," Daniels said. "Jupiter analysts caution that many companies are still missing opportunities to capture their intellectual property, such as product information and answers to routine service questions, and automate the sharing of it with customers. Businesses must adopt a roadmap to implement CRM incrementally."

Jupiter's singling out of the financial services industry echoes findings from TowerGroup, which found that investment in CRM technologies by retail financial institutions will drive healthy growth in the CRM market through 2005. Geographically, TowerGroup found that North American financial institutions would take the lead in spending on CRM spending, driving an expected compound annual growth rate of 6 percent for the category between 2001 and 2005. TowerGroup estimated that worldwide IT spending on the customer knowledge side of CRM (including data warehousing, analytics and knowledge distribution) in retail financial institutions for 2001 was $4.3 billion. Of that, just over 50 percent was expected to be spent in North America.

One gets the sense that while companies are putting money into CRM applications because they're being told to, they aren't entirely sure how to use them. Research by Gartner found that 40 percent of enterprises that have already installed CRM solutions will rethink them, with an emphasis on balancing privacy with increasing pressure to support personalization.

"Adequately addressing privacy concerns will be a top business priority. This is going to require rethinking of how information is gathered, how customers can access and control that data and how enterprises can safeguard it from parties that might want it but shouldn't have it. Legislation will force this anyway, but in 2002, customers are increasingly going to be demanding it," said Scott Nelson, vice president and research area director for Gartner.

Gartner found that the recession caused enterprises to scale back their CRM initiatives and shift their CRM projects' goals from revenue enhancement to cost reduction. Through 2002, Gartner expects there will be a return to tactical projects that will hurt the large suite vendors and breathe new life into the best-of-breed players, but only temporarily. In the end, enterprises will gravitate to the large suite solutions.

"One change in 2002 is that much-needed, large-scale CRM successes will begin to emerge. Many enterprises have very quietly overhauled their dealings with their customers, and in 2002, we will see their case studies come to market," Nelson said. "This will provide the validation this space requires, and in the end, maybe the most important event in CRM this year. As the big 'wins' emerge, the rest of the industry will gain the justification they need to sell this business strategy to skeptical management."

To this point, enterprises have focused mainly on the technology aspects of CRM, but Gartner analysts expect that in 2002, enterprises will worry more about how to ensure that the entire workforce can use these tools effectively, how to institutionalize best practices and how to export high levels of customer support to their extended enterprise, including partners and affiliates. Gartner also expects to see new vendors emerging in this area, offering both software and services to assist enterprises in handling this difficult problem.

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