Customer relationship

	Companies claiming a good single view of their customers Source: Detica

management (CRM) has an image problem. The software has acquired a reputation for being costly to implement and many CRM projects have failed to produce the expected returns.

Despite this, however, analysts expect an improvement in the fortunes of CRM

	Companies implementing CRM systems in 2002 Source: Datamonitor

vendors in the coming months. More than one in four companies in Europe are investing in CRM software in 2002, according to Datamonitor. The market research company says that 40% of companies in Scandinavia are planning to implement CRM software in 2002, compared with 38% in Italy, 33% in Spain, 29% in both France and the UK and 16% in Germany.

Merrill Lynch, following a survey of European and US chief information officers (CIOs), is providing vendors with further reasons for hope. The US investment bank has found that CRM is one of the CIOs’ three leading priorities, along with enterprise resource planning software and security and disaster recovery products.

There is some disagreement about the industries that will be the source of the biggest growth opportunities, however. Datamonitor believes vendors should focus on the telecommunications and consumer goods sectors; the

Global services automation software market 2006 Source: Datamonitor

Netherlands Association for Direct Marketing, Distance Selling and Sales Promotion (DMSA) says a survey of its members found those in the financial services, insurance, automotive and publishing industries to be the most enthusiastic about CRM; while IDC prefers the deregulated utilities market, which, the research group says, is “a copy of the telecommunications market in the early 1990s”. It expects that recently privatised companies in this sector will explore new ways of maintaining customer loyalty, leading to increased CRM spending.

Financial services companies, the early adopters of CRM, also remain key users. According to Datamonitor, 42% of European retail banks are increasing their spending on CRM in 2002. CRM is, in fact, the most significant area of growth in IT spending for banks this year, with only 17% of those surveyed saying they will not raise their spending in any area of IT in 2002.

“It is surprising to see banks still ramping up CRM investments,” says James Adams, a Datamonitor analyst. He believes this shows that many financial institutions have yet to derive full value from their existing CRM investments, “and feel more work is needed before the full potential of the investment they have already made is realised.”

Implementation problems

That feeling that CRM has failed to deliver the expected results is, in fact, still widespread. DMSA members, for example, reported that 80% of CRM projects fail. The association is now working to improve the implementation of CRM systems amongst its members by creating a team of CRM specialists, including users and vendors, to organise discussions of common problems and issues.

Analysts, meanwhile, say that the CRM services market – incorporating planning, implementation,

	CRM services revenue Source: IDC

operations management, training and support – will grow in importance. IDC, for example, says that the European CRM services market was worth $6.4 billion (EU6.8bn) in 2001 and will increase to $15.5 billion (EU16.4bn) by 2006. And, given the anecdotal evidence that many companies would rather pass on the risk and troubles of implementations and systems maintenance to third parties, IDC believes that hosting service providers can experience high growth in CRM services over the coming years.

Rasika Versleijen-Pradhan, a senior analyst at IDC, suggests CRM services companies develop the appropriate methodologies and tools to “check the viability of the RoI [return on investment] parameters throughout the implementation.” They should also establish data protection business rules and implement CRM systems with an incremental methodology, as opposed to the ‘big bang’ approach.

	SME opportunities The market for business applications software targeted at small and medium-sized enterprises (SMEs) in western Europe is “extremely attractive”, according to market research company Datamonitor. Datamonitor forecasts that SME expenditure on enterprise resource planning (ERP), supply chain management and customer relationship management (CRM) software will more than double from $2 billion (EU2.1bn) in 2001 to $4.6 billion (EU4.9bn) in 2005.   Global service automation software revenues Source: Datamonitor     The low penetration rates of these applications among SMEs means that vendors view this market as a lucrative source of additional revenue. This contrasts with the saturation of these applications at the high-end of the market. Also, SMEs typically have fewer existing legacy applications, which eases the deployment and integration of new technology. The greatest opportunity in the SME market lies in CRM software, according to Datamonitor. ERP, meanwhile, tends to be the first investment SMEs make in enterprise software, as they realise the need to automate payroll and other financial applications. Revenues for CRM in the western European SME market will grow to $1.9 billion (EU2bn) in 2005, compared to $580 million (EU611.6m) in 2001, according to Datamonitor. This represents a compound annual growth rate of 23%, compared to 13% for ERP over the same period. However, Datamonitor warns that vendors should be prepared to fight hard to gain market share among small and medium-sized businesses. “The SME sector is marked by intense competition between both large vendors and incumbent mid-market players,” it says.