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CRM - At What Cost?

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Posted May 1, 2001 By Craig Liddell     Feedback

Customer relationship management (CRM) is being rapidly embraced as a key strategy for business in the Asia Pacific region, according to a new report. However, a similar report from another researcher asks, at what cost?

Customer relationship management (CRM) is being rapidly embraced as a key strategy for business in the Asia Pacific region, according to a new report. However, a similar report from another researcher asks, at what cost?

According to a report by Frost & Sullivan, CRM is being adopted for two key reasons. First, as a tool for companies to "create a standing of individuality by differentiating themselves," and, secondly, to adopt a "360 degree view of the customer, aimed at retaining them with customised, personalised services."

'The Asia Pacific CRM Software Market 1997 - 2007' report predicts that revenues will exceed US$5 billion by 2007 at a steady compound annual growth rate of 54.7 percent. 

The study revealed that the regional market is at various development stages with the greatest market growth between 2001 and 2002.

Australia joins Japan as lead runners in CRM, accounting for almost half of the region's activities during the ten-year period of the report.

CRM software markets in India, Hong Kong and Singapore are already in the growth phase and expected to peak between 2000 and 2003.

According to Frost & Sullivan's Enterprise Communications Industry Manager, Moaiyad Hosenally, market growth will be spurred by technology trends, including the migration of conventional CRM systems to fully integrated web based solutions (e-CRM) that are targeted at building profitable interaction channels. "e-CRM strategies are expected to be highly evident in Singapore, where businesses are up against competition from global forces," he says.

As cost and functionality gaps between products narrow, a company's competitive edge would lie in its service offerings, the report adds. With the increasing mergers and acquisitions, as well as liberalised marketplaces, competition will escalate as the need for improved CRM arises.

One of the main drivers for the uptake in CRM strategies is the focus on retaining customers and, as a result, contact management software which embodies customer care and customer service applications, will continue to dominate software revenues (between 40 and 60 percent throughout the forecast period).

One of the major challenges for CRM implementation is the difficulty in measuring its impact on the bottom line, Frost & Sullivan suggests. One likely reason for this is the unrealistic expectations from end users, who should instead place achievable targets on their investments.
Earnings and return- on-investments (ROIs) cannot be churned overnight. Instead, a typical CRM solution would take a course of 1 to 2 years before results are reflected in bottom lines.

A similar report ('CRM: At What Cost') by Forrester Research, predicts a typical Global 3,500 (G3,500) firm's three-year spend on CRM will top US$75 million. Firms must harness CRM technologies now to keep customer service costs from skyrocketing, the researcher adds.

"Firms feel pressure to build CRM solutions for many reasons including competition, customer complaints, or the pursuit of profits. But poor organisational readiness and a chaotic market create the potential to drive costs skyward and set the stage for a new corporate horror flick: 'CRM, Son of ERP'."

Firms must instead create an enterprise CRM budget, Forrester suggests.
"Business leaders face intense pressure to articulate a CRM strategy while avoiding the cost overruns associated with grand-scale initiatives like ERP. To perform this high-wire act, CRM leaders must share a vision for implementing customer conversations that are proactive, informed and continuous."

In order to estimate what G3,500 firms should budget for CRM, Forrester built a detailed cost model, assuming a baseline of zero investment, of the technology and services required over a three-year period to build, maintain and provide content for customer conversations.

The researcher developed scenarios for three typical G3,500 firms from different sectors with diverse multi-channel CRM requirements that peg CRM costs in the range of US$60 million to US$130 million.

"Action CRM leaders can advance their agendas best if they realise that
CRM technology is a platform, not just an application, enlist CFOs to track CRM expenditures across business units and set a personal best for software discounts," Forrester concludes.

Frost & Sullivan's Hosenally suggests, "as the IT development in each Asia Pacific country are at different stages, it is imperative that vendors identify country-specific market and product strategies."

He adds, "they must take advantage of opportunities created by emerging technologies. Many vendors have already embarked on parlaying the use of CRM. As the market becomes increasingly aware of the key benefits of CRM, the region is likely to witness ubiquitous growth over the forecast period."

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