Skeptics might call 2002 CRM's annus horribilus. Reports ran rampant about botched implementations; the economy slumped; the market leader and other companies saw stock prices slide. CRM vendors and buyers alike enter this New Year with lessons learned and hopes for a fresh start. One thing is clear, according to Joe Davis, vice president and general manager of CRM at Pleasanton, Calif.-based PeopleSoft Inc.: now more than ever, customers are demanding a clear return on their investments. In a conversation with SearchCRM.com, Davis shared his thoughts on ROI, emerging trends and the debut of Microsoft's CRM software.
What are the top priorities for CRM customers in 2003?
Davis: It's very clear that the No. 1 thing customers are talking about is positive ROI. They're telling us that they need to make sure that they can prove the value of their CRM investments, particularly around implementation. That's been the Achilles' heel. It's so darn expensive to put these systems in place, so customers are telling us, 'you'd better make this a lot easier for me.' Average deal size came down a lot in 2002, partly due to the economy and partly due to the end of big bang deployments. People went departmental or just bought one piece of the CRM suite. That's a trend we expect to see continue [along] with strong demand for ROI.
Are the underlying 'soft' ROI benefits of CRM being lost in the shuffle due to the slumping economy?
Davis: Soft versus hard ROI is different across the individual segments. In [the] call center, you can actually get pretty good hard ROI numbers because you can look at how many people are on the phone and how many calls they handle. You can see your abandonment rate, or how many customers you were able to drive to self-service. The product mix for CRM is shifting. The demand for sales force automation has dropped because it makes for the most challenging ROI measurement. In a world where people want positive ROI, how do you measure if your sales force is more effective? And the economy has to figure in to any calculations. Marketing is somewhere in the middle. You can tie it to deals and track some ROI. People are going to continue to focus on the hard ROIs. The soft ROI is in there, but it's not the main effort.
Will there be more of an industry-wide effort to provide CIOs with ROI calculation tools that really paint an accurate picture?
Davis: Without a doubt, every vendor is scrambling to get either third-party vendors to work with them to provide tools or develop them. It's an economic function. When the economy goes down, every CIO has to work a lot harder to develop ROI studies. Look back four to five years during the boom and no one even measured this stuff. People just blindly bought into CRM. There weren't the necessary measurements. This has caused a lot of the negative perceptions, like you saw in the Nucleus Research report on [market leader] Siebel [Systems]. Even people who know that CRM can help save money in the call center haven't always done sufficient research to know what the harder number might be.
In this regard, has CRM gotten a bad rap? Is that the media's fault?
Davis: It definitely has gotten a lot of negative publicity. Some of it was deserved and some of it was not. I think [CRM] was incredibly overhyped as the Holy Grail for making customers more profitable. People just went out and bought [technology], which led to so many of the failed implementations. There was a deserved rap there. On the down side, I think a bigger challenge may be that people confuse the market with the market leader. When you've got a market that's really driven by one company and that company, in this case Siebel, stumbles, people lump the whole industry in with them. In that regard, I think the reputation is undeserved.
Analytics seems to be hot these days and has actually thrived in the down economy.
Davis: Analytics is probably the Holy Grail of the whole effort. I think Scott Nelson at Gartner said that companies who use CRM to automate business process without first making those processes better are destined to fail. All they do is automate a broken process, so all you end up doing is alienating your customers faster with CRM. The challenge for most companies is that they're not ready to do it. A lot of them haven't gone through basic automation, and you can't effectively use analytics without doing so. If I can be on the phone with a customer and see how valuable they are, that's a huge benefit.
We're still at the stage where our companies are still taking baby steps. The challenge for the vendors is to make our analytics easier to use. If it's going to require a rocket scientist to use analytics, that's a challenge. Analytics will only become more important. We see analytics being sold with a higher percentage of deals every quarter.
No conversation on CRM would be complete without touching on Microsoft. How do you think it will impact the CRM market at large?
Davis: There's definitely a disconnect between what Microsoft does and the product they're releasing. They're saying they're only interested in the low-end market. When I look at the market, it's not about the size of customers, it's really about technical sophistication. Do you have a large IT staff to manage an application, or are you merely using Excel? The market Microsoft talks about going after are people who want Outlook on steroids. They want to take ACT out of the market. But that's a $100 price point product, and that's not where Microsoft is pricing their product.
[Microsoft's] biggest advantage, aside from all their money, is that they own the interface. Most people use Outlook, and that's a huge advantage if they can tie CRM to that. That's the biggest competitive threat to us. But it really only helps them in the sales force. In a call center, people use different applications. But all that said, they're a good partner of ours. But I wouldn't let them into my building and let them look at how we build CRM. I think that was a big mistake for Siebel.