Traditional CRM - Customer Relationship Management

Customer Relations Management Definition

CRM is a philosophy and a business strategy supported by a system and a technology designed to improve human interactions in a business environment.

Paul Greenberg, CRM Magazine, October 2003

When I created that global definition of CRM 1.0 in 2003, I had no idea that the social dynamics of the era and the technology transformation to Web 2.0 would require a change to it within roughly four years. This particular definition, as broad as it may seem, is defined primarily by traditional CRM an operational, transactional approach to customer management that was focused around the customer-facing departments—sales, marketing, and customer service. The entirety of the first three editions of this book was based on that premise. How do process modification, culture change, automation through technology, and the use of data for customer insight support the management of customers so that it can meet a corporate objective? Those objectives might have included increases in revenue, higher margins, increase in “selling time” or campaign effectiveness, reduction in call queuing time, or really hundreds of other metrics. The core value proposition was a potential increase in customer acquisition or higher rates of customer retention, with loyalty a bonus.

CRM has been a program for externally facing operational excellence. Once you developed a strategy and were able to plan appropriate programs, applying the newly defined or redefined processes and a well-chosen technology would support your ability to manage those relationships. The customer’s benefit, theoretically, was better service, attention, and support from the company—and, if the company used a sophisticated enough system, optimized deals that were personalized to the customers likes, which of course, led to more and higher value purchases by the customer.

In theory, it was great. In practice, despite notable failures, as it matured and the thinking about it became clearer and the tools better, the success rates increased. The numbers supported that. But it didn’t start out that way. In 2002, when CRM was immature and still trying to find its legs, Gartner found that failure rates were apparently between 55 and 70 percent. This was a shocker that became a buzz that became a constant noise. It was the industry naysayer’s mantra. The irony, ofcourse, is that CRM was in its toddlerhood and as far as I know, you don’t ask a two-year-old why he doesn’t have a $75, 000 job yet.

There were reasons for the failures;they didn’t occur in a vacuum. User adoption was always difficult, accounting for 47 percent of the reasons given for failure, according to an IDC study in 2004. The earlier CRM applications and programs, while customer friendly, were not employee friendly. For example, the sales tools were typically aimed at opportunity management or pipeline visibility across a company. What did this do for a salesperson? Not a lot. For a sales manager it was great—they could more accurately forecast revenue, provide a clearer analysis of lead-to-close rates, etc. But there was little to no benefit for the salesperson. What it did more frequently than not was to take away the one leverage point the salesperson felt he had in his dog-eat-dog, high pressure environment—his relationships.

Think about this. ACT!, the contact management application, was wildly popular with over 2.5 million users in 2005 and yet, SalesLogix, the SFA application designed by the very same creators of ACT!, had serious adoption issues. Why? Because ACT! had a flat file database and wasn’t network friendly. What that means, practically, is that an individual copy resided on the desktop and was only visible to the “owner” of the desktop—the salesperson. Their managers didn’t have access to the contact/account databases. With SalesLogix, this was not the case. The database was relational and, back then, a client/server network made it available to sales managers at their leisure. SalesLogix could accumulate the data the managers needed to compare one salesperson’s performance against others. Why in the world would a salesperson be interested in that? The short answer was (and still is), they wouldn’t and weren’t. Thus the 47 percent.

But by 2004, CRM strategies began to mature and the tools got better. The perception of CRM changed so that it was seen as a key tool for administering the connections with customers and the performance of the customer-facing staff. The tools were improved so that, for example, in the case of sales force automation (SFA), the sales component of CRM, tools that would aid the salesperson were added, such as Oracle’s 2004 addition of a quoting tool for salespeople who were on the road with their customers. There were more tools to support the staff in their never-ending effort to sell to customers.

That is led to a remarkably robust industry despite the economic downturn. CRM is still projected by analysts to continue to grow, maybe even be recession-proof. Even recession-inspired. What is the most important thing you can do in a recession? Keep your existing customers and encourage them to continue to buy from you.

This translates to some staggering numbers for what is primarily the CRM 1.0 applications and services market. In July 2008, the noted analyst firm AMR Research released their Customer Management Market Sizing Report, 2007–2012. ”Their estimate for the CRM software revenues in 2007 alone topped $14 billion, a 12 percent jumpover 2006 revenues. They didn’t have the final numbers at the time they released the report. More amazing was the prospectus—again this is just for software. They projected a market size of more than $22 billion in 2012, a 36 percent growth rate—with a poor economic outlook floating everywhere. If nothing else, this shows you the enthusiasm that CRM engenders—even the traditional operational side. Slightly less optimistic but still staggering were the Gartner July 2008 numbers, which said that the 2007 CRM software license revenues were $8.8 billion and projected to be $13.3 billion by 2012. Either number is very large, n’est ce pas?

Throughout this book will be discussions of the core of CRM 1.0 as it is included in a Social CRM context. If you want a big and pure CRM 1.0 book, look at the third edition of CRM at the Speed of Light it is 671 pages of CRM 1.0 goodness. The concepts, as we will see, remain intact. Some of the data is clearly outdated, since it came out in 2004. But it will give you a comprehensive look at CRM 1. 0 probably well beyond where you want to see it. This fourth edition is all about Social CRM. But let’s continue on to see how we got to Social CRM in the first place.


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