Measuring the Value of CRM

In the past, small businesses have trembled in the face of customer relationship management (CRM).

Presented by powerhouse vendors like SAP, Oracle and PeopleSoft, customer relationship management software has seemed beyond the reach of most entrepreneurial ventures.

But times are changing. As the price of technology drops, new CRM vendors are entering the marketplace with an eye on the middle tier. This has proven to be good news for many smaller businesses that now find themselves able to afford the competitive advantages CRM brings to the table.

“We have gained higher efficiencies, better communications and an ability to react to changes in the industry much more rapidly,” said Dave McGrath, director of sales and marketing at manufacturing company Senior Flexonics in Grand Terrance, Calif.

With 250 employees, Senior Flexonics uses CRM on the sales side, synching up quotes, inquiries and order information every two hours. Before technology came to the rescue, “everything was paper, which meant there was a higher chance of losing information,” said McGrath. “There was also a requirement for a lot of manual communication, passing information back and forth either verbally or by faxing.”

If this firm has moved beyond the old paper days, it is more the exception than the rule. In October 2003 Gartner analyst Wendy Close told CRMDaily.com that CRM applications were present in only five percent of small businesses and 20 percent of mid-sized companies.

Those numbers likely will change in the coming years, as CRM sales begin to ramp up. Gartner estimates the worldwide demand for CRM will grow by an average of 16 percent a year, making CRM a $47 billion business by 2006.

Small businesses are adopting CRM strategies for much the same reason as are larger businesses: In an effort to make their sales efforts more efficient and ultimately more productive. In its essence, CRM technology broadens the act of selling, connecting the individual salesperson into a broad information-gathering mechanism within the company. That data then is used to build customer loyalty and increase customer value over time.

This kind of functionality is especially useful for companies in growth mode, according to Peter Callaghan, vice president of sales and marketing at Maximizer Software, whose products have helped Senior Flexonics stay on top of its information flow.

“As a company grows, your head sales manager has to take his hands off the day-to-day interaction with the customers, but he still wants to see what deals are being worked and what the holdup might be in closing any particular deal. He needs to drill down quickly into that kind of information,” Callaghan explained.

A business of up to 100 employees can get started with Callaghan’s basic product for under $200 as a way to get contract management and direct marketing functions under control. For many small businesses, any effort in this direction will be an improvement. “Right now they are trying to do it with Outlook or maybe Excel, and you end up with a disjointed system. You get part of your communications in one form and part of them in another form,” Callaghan said.

Or else you get no information at all.

“Salespeople are not going to go out of their way to do good business practices. They are going to get on the phone and try to make that next dollar,” Callaghan said. “So you need a system that is going to be as easy to use as possible.”

While CRM may be easy to use, however, there are some who question whether it can deliver as promised.

In December 2003 AT&T released a study in cooperation with the Economist Intelligence Unit. In spite of million of dollars invested in the technology, the report indicated, users had seen only modest gains in revenues.

Only 29 percent of the 237 top-ranking global executives who responded to the survey said they were satisfied with the quality of their companies’ CRM systems. The report went on to note that more than half of all CRM programs are failing to deliver a significant return on investment.

The report said that CRM initiatives often fail to meet the needs of end users in marketing, sales and customer service. Companies also said that in spite of CRM, they still lack effective tools to measure the state of their customer relationships. Executives said they want to see better analysis of customer behaviour and better analytical tools.

In spite of such concerns, McGrath remains a staunch advocate. He says his firm needs the technological edge of CRM in order to keep driving forward.

“Business by its nature is driven by a ‘survival of the fittest’ kind of competition,” he said. “Every business needs to improve its performance, and today CRM has become a key part of improving sales performance.”

Adam Stone writes extensively on business and technology issues. He makes his virtual residence at inkbiz@yahoo.com and his physical home in Annapolis, Md.