Investment in customer relationship management (CRM) is set to decline as companies look to get more business value from existing implementations, according to a new report by analyst Forrester Research.
The technology binge of the late 1990s, corporate downsizing and the general economic downturn mean that the total CRM market, including services, is set to fall by 5.4 per cent in 2002 to $42.8bn before assuming a modest compound annual growth rate of 11.5 per cent, reaching $73.8bn by 2007.
"Firms hoping that CRM apps would provide customer relationship magic face the stark reality of languishing apps, lousy data and dysfunctional organisations. But the CRM disappointment won't last," the report said.
Meanwhile companies will seek to squeeze value from existing systems by improving channel integration, redesigning processes and using front-office applications to control quality by continuously tuning the channel and customer mix.
Companies still start by cleaning up data across online and offline channels, but changing employee and customer behaviour to match revised business rules is a much harder nut to crack, the analyst warned.
The decline in CRM sales also highlights a much deeper malaise and ongoing user disillusionment with CRM investments.
Forrester's predictions reiterate projections by rival analyst Gartner that more than 50 per cent of CRM projects will have failed by 2006, and the majority will have underestimated costs by between 40 and 75 per cent.
CRM consultant Neil Robertson explained that end user confusion about what CRM is, and what it can realistically achieve, had fuelled the disillusionment.
"Under the surface there are a lot of companies that haven't derived as much benefit as they would have liked from CRM," he said.
The combination of massive consultancy fees and total business reengineering means that most companies have found CRM very difficult to digest, Robertson added.
He predicted that the price of CRM systems would continue to drop as customers move away from highly tailored designs and build projects based on packaged applications.
The reduction in CRM investment is predicted to result in a significant shake up of the market as CRM software suppliers turn to web services as a delivery mechanism, and subscription-based applications in an attempt to smooth out revenue streams.
Forrester also predicted a shift towards offshore CRM development, which it says can save companies up to 40 per cent on US prices.
And while concerns about over-selling among the supplier community could be justified, end user organisations must shoulder at least some of the blame for CRM's under performance.
Although three quarters of projects are driven by customer satisfaction objectives, only two in five directors with marketing and customer management responsibilities in major companies actually measure customer satisfaction, according to a Mori poll published this month.
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