Companies are in business to make money. CRM, if it is a successful business strategy, should help your company grow profitably and create a competitive advantage. But the linkage between CRM implementation and business success has been the subject of much research and controversy over the past few years. In short, media/analyst reports tend to exaggerate the failures and vendors, the success.

The "truth," based on comprehensive CRMGuru research conducted over the past three years, is that 65 percent to 70 percent of CRM projects are in fact "successful," if you measure success by ROI or customer perception. However, the study also reveals that many CRM projects tend to deliver more tactical benefits and fall short on realizing full strategic advantages.

Taking the Long View
As discussed earlier, companies like Southwest have profited from relationship-based differentiation, creating a positive spiral of profitable referrals. But this is not tied to any IT-specific CRM program. Quite the opposite. When CRMGuru interviewed Southwest management, we learned that Southwest spends conservatively on technology and doesn't use the term "CRM" to define customer-focused initiatives. CRM is, in fact, integrated into the very fabric of how Southwest does business; it doesn't need to put a label on it.

Other researchers have studied the benefits of more formally defined CRM programs. In 2002, Werner Reinartz, associate professor of marketing at INSEAD in France, published the report, Measuring the CRM Construct and Linking It to Performance Outcomes. He found that CRM activities did have a positive impact on a company's performance. Is CRM a competitive strategy, such that companies can attain a real differentiation? In a CRMGuru interview earlier this year, Reinartz answered, "Yes, absolutely. I'm convinced about this, and I've seen quite a few examples of companies doing it very well vs. not very well, and you can see the differences."



What benefits are customers expecting from their CRM projects? As indicated in this chart, a CRMGuru online study of more than 1,000 projects found the top four expected benefits were increasing loyalty, gaining a competitive advantage, increasing sales and increasing profitability. Improving productivity and executive decision-making ranked lower, and cutting costs/expenses was dead last.

As you'll see later in this section, actual benefits have a distinctly different profile.

Theory versus Reality
CRMGuru (in conjunction with High-Yield Marketing and Mangen Research Associates) conducted a detailed study of 448 CRM projects in 2002. Projects varied in external investment, from zero (internal process changes or training only) to millions of dollars in software and integration services for large enterprises. Overall, 51 percent of projects received a payback in 18 months or less, and about 32 percent gained payback in less than a year.

As you might expect, this study found a distribution of success, not a clear demarcation of absolute success or failure. Measuring by ROI attained, results varied from little or no success in about one-third of the projects, to average success in another one-third, to superior-performing projects in the remaining one-third. Success measures were developed by analyzing common CRM benefits, such as reducing churn rate, increasing share of wallet, increasing customer satisfaction, increasing customer acquisition rate and reducing front-office staffing costs.

Our conclusion was that about two-thirds of CRM projects are successful, because they are delivering an average or better ROI. Customer perceptions matched this finding closely; about 70 percent said they felt their projects were successful.

We also analyzed project activities and found four broad factors were driving ("explaining" in a statistical sense) 72 percent of the ROI.

Customer-centric strategy. Higher ROI was related to companies that tended to listen to their customers in a variety of ways, such as using customer satisfaction data, analyzing churn or attrition data and getting customers involved in the planning process. This is a good example of how a listening process, done effectively as one element of a CRM program, is extremely important if you want to get a measurable ROI. 

Frontline training and support. Successful companies provided new skills and training to employees, explained the value of the CRM program, in terms of both the technology used and the other aspects of the customer relationship process, and ensured employees were on board with the program. 

Organization change. The companies that attained higher ROI changed the roles and responsibilities of how people did their work and the design of the workflow and the organization structure—or they changed the way they motivated employees. Frontline training and support and organization change are closely related, in that both pertain to the people side of CRM. 

Appropriate use of metrics. The companies that measured their current performance and their achievement against their specific CRM project goals tended to perform better than those that used much more informal types of assessments of their progress. 

The Hunt for CRM "Failures"
The media has covered the issue of CRM "failure rates" extensively over the past few years. The source dates back at least to 2001, when Gartner famously predicted that CRM failure rates would rise from 65 percent in 2002 to 85 percent in 2004, then drop back to 50 percent in 2007. Since then, these figures have taken on a life of their own. I've read numerous articles and reports that start with a sentence like this: "As we all know, CRM projects fail at the rate of 50 (percent) to 80 percent," quoting sources from Gartner, MetaGroup, Accenture and elsewhere.

More recently, Gartner was reported to predict that over the next five years, 55 percent of all CRM projects would fail to meet their objectives. A recent Wall Street Journal article said, "Some studies show that half of CRM projects never work out, despite the hundreds of millions of dollars companies sometimes spend on them."

These numbers are very hard to pin down, given that in our research, we haven't found a consistent definition of success or failure. Customer satisfaction numbers are tossed around casually in the CRM industry with vendors, analysts and other third parties working from their own sets of statistics. The unsolved mystery: How can most vendors report satisfaction rates in the 90th percentile or above, when 50 percent or more of projects are failing? The numbers just don't add up.

The only conclusion that I can reach is that the parties involved are spinning the numbers to serve their own vested interests. Nothing sells research reports, or catches the reader's attention, like reports of catastrophe: "CRM fails again: Film at 11." And no vendor has an incentive to admit that all installations didn't go well, because it would lose the game of "liar's poker." This leaves business leaders and IT buyers with the impossible task of sorting out fact from fiction.

CRMGuru's position is that if you measure success in terms of ROI, or by customer perception of success, the success rate is nearly 70 percent. While 30 percent failure is hardly cause for celebration, it's a solid conclusion reached after studying over 1,000 projects during a three-year period. Furthermore, we have found that about 50 percent of projects are achieving a payback in 18 months or less. Should we label all the rest failures?

Strategic Promise Unfulfilled
As discussed earlier, we asked survey takers to rate potential CRM benefits. Later in the same survey, when we asked respondents to describe the types of benefits they were actually receiving, the results were quite interesting, because they were far more tactical than the strategic benefits outlined above.



For example, improving executive decision-making was the top actual benefit, picked by nearly 20 percent of respondents, yet it was near the bottom of the list of potential benefits. Improving productivity and cutting costs also were rated higher as actual (vs. potential) benefits.

More strategic benefits, such as gaining a competitive advantage, reducing churn or increasing profitability in various customer segments, ranked a bit lower. The difference may explain some of the discontent with CRM programs; although they're viewed as strategic initiatives, they're delivering tactical benefits, at least in the short run.

Impact of Application Type and Deployment Option
One other element we addressed in the research was the types of applications that tend to drive a higher ROI. We assessed this by asking what kind of benefits marketing, sales and service applications provide. When we looked at just the responses for major performance improvements, we found that marketing, sales and service all showed a wide range of benefits across seven different benefit areas. But sales, by and large, had a slight lead over the other two in terms of the value that people believed the application was generating for the company. The most obvious benefit was increased sales revenue, but respondents also saw improved internal productivity and an increased ability for executives to make decisions.

These three areas are not easily separated. Marketing processes have to flow into sales, which must flow into service. Academic research (Reinartz) has found that companies that get the most value out of their CRM programs viewed CRM as one strategic initiative and worked hard to integrate functions across marketing, sales and service, to generate a 360-degree view of the customer. From a systems point of view, that's what being customer-centric is all about.



One increasingly popular CRM deployment option in the last few years has been the Application Solution Provider (ASP), generally defined as using another company to provide the systems and applications for use over the Internet. Digging a little deeper into our 2004 survey data, projects involving these "on-demand" solutions scored significantly better in success ratings, business performance improvement, payback period and software vendor satisfaction. This is growing evidence that ASP vendors are delivering a better ROI, in a more customer-centric way. I believe this is in large part because of the nature of the subscription-based ASP model, which gives more control to the customer but also more real-time feedback to the vendor on how its solution is being used.