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A CRM business case can ensure success post-implementation

Businesses that take the time to build a business case and carefully measure ROI have better success with their CRM projects, according to Gartner.

A CRM business case can lead to more than just funding for your CRM project; it can help to ensure CRM success, according to one Gartner Inc. analyst.

CRM has been tainted by the specter of failure for years, but that's a common fear with IT projects, Michael Smith, research vice president with the Stamford, Conn.-based analyst firm said at Gartner's recent CRM summit.

"Roughly 50% of all IT initiatives struggle to achieve their originally stated objective," Smith said. "Often, it's not because of the technology. There's a lack of understanding among common stakeholders about what the objectives are."

Despite this lack of understanding and fear of failure, businesses are ready to spend on customer-focused initiatives. Gartner, Boston-based AMR Research, and Cambridge, Mass.-based Forrester Research Inc. have all predicted an  increase in CRM spending over the next several years. But with their "softer" goals -- such as becoming more customer-centric or focusing on customers because a company is in a growth mode -- CRM projects are more difficult to quantify.

"The problem of soft benefits is they're subject to interpretation," Smith said.

For more on CRM success:
See why Gartner thinks CRM success relies on post-implementation management

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But Gartner research has found that companies that do quantify and measure their CRM projects are more successful with their initiatives. According to a survey of 251 clients who have implemented or are in the process of implementing CRM; 71% said they have calculated effective total cost of ownership or estimated project costs; 60% reported having measured the benefits; 17% have performed an ROI analysis; and 5% have done a formal post-project review.

According to the survey, the more measurement companies do, the more success they report. Of respondents that have created only a project plan, 50% reported a successful implementation, 60% of those that did an ROI analysis reported CRM success, and 70% that did a post-project review saw success, according to the survey.

But establishing ROI and measuring performance requires a carefully prepared business case. Gartner recommends an eight-step process:

Eight steps to building a business case

  1. Develop a CRM strategy to support your business strategy.
  2. Select business metrics to support your CRM strategy.
  3. Establish a baseline for these selected metrics before the project begins, and if possible, benchmark performance against industry peers.
  4. Describe the capabilities of the CRM application.
  5. Negotiate targeted improvements using the baseline metrics.
  6. Convert the targeted improvements into financial results.
  7. Develop the TCO.
  8. Calculate the ROI.

Organizations also need to differentiate between a business case and a project plan.

"They are two very different things," Smith said. "The business case includes the project plan, but the business case is more about why are we doing this. The project plan is how we are going to do this."

Metrics are often a difficult step for organizations assembling a business case. You don't need hundreds; four to six metrics that measure CRM strategy will do, Smith said.

An organization hoping to increase revenue from existing customers, for example, might seek to improve its close rates in sales. CRM buyers then need to establish their current close rates and how a new CRM application might affect that, a process that then becomes a negotiation, according to Smith. IT might suggest that a new application would improve close rates from 30% to 35%, while business owners may push back and say they could get to 33%. Organizations should arrive at three scenarios: the best outcome, the worst outcome and the most likely. From there, CRM buyers should assign a level of confidence to each and then include finance departments to determine how that will affect revenue.

"The primary purpose of doing a business case is the benefits achieved and the distribution of costs," Smith said. "That's all you really need to do. Turn those over to the finance people, and they will translate that into cash flow techniques."

One Gartner client, for example, determined it was 90% certain that a new CRM system could improve close rates by 1.5%, 75% certain it could improve rates by 2% and 50% certain it could improve close rates 3%. With its finance department helping to show how each change in close rates would affect revenue and earnings and then factoring in the confidence level, it could arrive at a defendable position.

"That's how a CRM project is transformed from an IT project to a sales improvement project or a customer retention project," Smith said. "It's very important to go through that."

Determining total cost of ownership should be simpler. Organizations need to look at direct costs -- hardware, software licensing and maintenance -- and soft costs, such as the impact on staff, how much training will be required, and whether the company needs to hire temporary help or outside consultants. According to a recent Gartner survey of organizations that had completed a CRM project, external service providers (ESPs) and licensing costs are areas where businesses overspend.

Spending advice

CRM software vendors, particularly those selling full suites, encourage bundled licensing by offering extra seats or modules beyond a company's immediate needs in exchange for a discount.

"We caution you against that," Smith said. "Buy what you need for now. You never know down the road if you're going to want to look at an alternative."

Survey respondents also said they overspent on ESPs and became overly dependent on them to implement the system and train staff.

"We suggest you do more training up front before you begin an implementation," Smith said. "Take people who are using the solution and get them trained. Rather than have the ESP do implementation work, have those people who are running it do the implementation, then backfill with people to do their jobs. At the end, you have people who are trained and understand how the system works."

Overall, building a business case should take about 15 weeks, Smith said. Once in place, organizations should revisit the business case to monitor and manage the CRM project throughout its lifecycle. One Gartner client, for example, chose four metrics and created a dashboard that reflected its performance based on these goals, then shared it with the implementation team.

"It takes a lot of work, a lot of effort," Smith added, "but we've seen a significant increase in success with companies who have gone through this process."

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