What is CRM?

The concepts of customer relationship management have been in the air ever since one caveman had a choice of buying an arrowhead from either Og or Thag, but CRM as a term gained currency in the mid-1990s. Market analysts squabble over the exact figure, but all agree that in the next few years companies will pour billions of dollars into CRM solutions—software and services designed to help businesses more effectively manage customer relationships through any direct or indirect channel a customer opts to use. So why, with the market for CRM technology exploding, is the most common question asked at CRMGuru.com "What is CRM?" Probably because if you ask three CRM experts, you'll get five different answers.

We put the question to a panel of CRM experts—the "gurus" working with CRMGuru.com—to weed out idiosyncratic spin and whittle CRM down to its essence:

Customer relationship management (CRM) is a business strategy to select and manage the most valuable customer relationships. CRM requires a customer-centric business philosophy and culture to support effective marketing, sales, and service processes. CRM applications can enable effective customer relationship management, provided that an enterprise has the right leadership, strategy, and culture.

There you go. Simple question, simple answer, right? Ah, what is simple is not always easy. As many business executives and CRM project managers can attest, effective CRM is about as simple as the answer to how to lose weight-eat less and exercise more-and just as easy to do.

Customer-Centric: The Starting Point

Let's spread that definition of CRM out on the table here. How exactly does a company create a "customer-centric business philosophy and culture?" Hint: Not with a software package.

CRM—at least the successful, useful and profitable kind—always starts with a business strategy, which then drives changes in the organization and work processes, which are in turn enabled by information technology. The reverse never works. Never. Flip a pyramid on its head and what happens? We'll send you a case of champagne for every company you can find that automated their way to a new business strategy. Projects that focus on technology first, rather than business objectives, are destined for failure, according to both extensive best practices research and the sob stories at O'Malley's Happy Hour. A customer-centric business, however, is perfectly poised to reap significant benefits using CRM technology.

Now, the strategy part of CRM isn't new. Savvy business executives have always understood the importance of focusing on customers with the best potential for sales and profits and providing good service so they'll come back again and again. Notice that you need techno-toys for none of this. Consider a successful small business: the business owner and the staff work hard to provide personal, high-quality service, building a loyal customer base over time. Computers optional.

So why has CRM bulled its way to a billion-dollar industry? Bottom line: Power has shifted to customers, who stand astride three powerful currents:

The failure of enterprise resource (ERP) planning systems to bestow a lasting competitive advantage for companies. Your back office is fully automated? Nice. So?

The cycle of innovation-to-production-to-obsolescence has accelerated, leading to an abundance of options for customers and a shrinking market window for vendors.

Internet-surfing customers have a far easier time collecting information about competing suppliers, and can switch to another vendor at the click of a mouse.
With product advantages reduced or neutralized in many industries due to increased "commoditization," the customer relationship itself is the focus of competitive advantage. For larger businesses, the neighborhood boutique—"Hello Mrs. Watkins, how's Ryan's broken arm coming along? I saved some of the gingham I thought you'd like, it's under the counter here..."—approach is impractical. CRM technology enables a systematic way of managing customer relationships on a larger scale.

The Customer Relationship Lifecycle

Traditionally—defined as "before you realized what the Internet was all about"—enterprise employees were the primary users of applications designated "CRM." Then e-business or—a buzzword flavor of the month—"eCRM" applications were introduced to allow enterprises to interact directly with customers via corporate Websites, e-commerce storefronts, and self-service applications. Starting in 1999 partner relationship management applications hit the market, designed to support channel partners and other intermediaries between an enterprise and its end customers.

These applications support the following business processes involved in the customer relationship lifecycle:

Marketing. Targeting prospects and acquiring new customers through data mining, campaign management, and lead distribution. Remember, the emphasis here is on long-term relationship value, not quick hit.

Sales. Closing business with effective selling processes using proposal generators, configurators, knowledge management tools, contact managers, and forecasting aids-all without uttering The Eight Words That Kill A Sale: "Let me get back to you on that."

E-commerce. In the Internet Age-welcome to it-selling processes should transfer seamlessly into purchasing transactions, done quickly, conveniently, and at the lowest cost. All customers should have one face with your company, no matter which touchpoint they choose to use.

Service. Handling post-sales service and support issues with call center applications or Web-based customer self-service options. We said "handling," not "sloughing off to an inadequate FAQ page."
CRM is a business strategy to create and sustain long-term, profitable customer relationships. Successful CRM initiatives start with a business philosophy that aligns company activities around customer needs. Only then can CRM technology be used as it should be used—as a critical enabling tool of the processes required to turn strategy into business results.

Bob Thompson is CEO of CustomerThink Corp., an independent customer relationship management (CRM) research and publishing firm, and founder of CRMGuru.com, launched in 2000 and now the world's largest CRM industry portal, with more than 200,000 members. Thompson specializes in CRM strategic planning and research. Since 1998, he has researched the leading industry trends, including how CRM concepts can be applied to extended enterprise relationships. He is frequently published and quoted in industry publications such as BusinessWeek, InformationWeek and Computerworld and speaks at conferences and seminars worldwide. Throughout his career, Thompson has advised companies on the strategic use of information technology to solve business problems and gain a competitive advantage. Before starting CustomerThink, Thompson had 15 years of experience in the IT industry, including positions as business unit executive and IT strategy consultant at IBM. Email Thompson at bob@crmguru.com.