Where's the Fire??

Despite "fire sale" prices, META Group advises against rushing into CRM technology spending

Stamford, CT  April 12, 2001  Companies considering investing in customer relationship management (CRM) technology in 2001 should not necessarily rush to take advantage of current discounts from software vendors, according to consulting firm META Group.

META Group is predicting that CRM purchases will likely be deferred until the second half of the year (third or possibly fourth quarter) as current economic uncertainties lead CRM "fast followers" to focus more attention on generating hard return on investment (ROI). The resulting longer sales cycles for CRM technology vendors are spurring increased discounts on software licenses to boost current period spending.

But META Group foresees these discounts returning later in the year. "The discounts will likely be offered again at the end of both the third and the fourth quarters, so organizations should not get caught up in the vendor 'fire sale' hype," said Liz Shahnam, vice president and director of META Group's CRM Infusion program. "Even with discounts skyrocketing to 60 percent to 70 percent, savvy organizations should still evaluate the opportunity cost of not making CRM investments impulsively, because implementation and integration expenses, not the license fee, represent the bulk of CRM spending."

Mike Gotta, vice president and service director at META Group, emphasized the importance of CRM for corporate survival in a down economy. "While CRM frameworks are being challenged in terms of ROI," Gotta said, "the end result is not a move away from CRM, but rather a rational, phased approach where ROI strategies drive investments toward the CRM needs that are imperative to customer retention and acquisition."

According to META Group, early adopters that spent significant amounts for CRM software in 1999 and 2000 without a rigorous business plan and financial justification are giving way to more pragmatic "fast followers" with an increased focus on measurable ROI. For the remainder of 2001, META Group urged organizations to infuse reality-based economics and models into their CRM strategy.

"More than 90 percent of META Group's clients are examining (or re-examining) the financial justification for CRM, and many are taking a step back in their CRM approach to develop hard business cases," said Shahnam. "There is a need to show actual ROI, but organizations must also be realistic in their ROI expectations."

META Group has predicted that ROI for complete CRM will be difficult to demonstrate in advance of a program. Because the CRM end state is often unknown, both CRM spending and customer impact decelerate.

Consequently, META Group said that it is advising its clients to take a "guerilla" approach. The consultancy reports that while it continues to believe in a holistic approach to CRM, the current economic climate warrants smaller deployments to generate early successes and demonstrate initial business value. These "credibility tokens" are needed to support a more comprehensive CRM plan that can be rolled out throughout the year, META Groups asserts.

"Guerilla CRM is characterized by a lack of executive buy-in to the idea that CRM is indeed a business strategy, and is forcing business-savvy CRM teams to go underground and use smaller technology successes to sell the value of CRM to executive management," said Shahnam.

META Group advises clients to balance CRM vision and business reality for a successful CRM program. "There is such a thing as 'too much CRM.' Businesses must determine the inflection point for diminishing returns and spend accordingly," says Shahnam. "The bottom line is that organizations must recognize and value CRM as a strategic investment in an uncertain world."