Is CRM Software Worth It? IDC Says Yes

One need only look at the Fortune 500 list and see Wal-Mart at the top to realize that SCM (supply chain management) software, which automates and integrates the functioning of a company and its suppliers into a collective whole, and which can wring extra profits out of that supply chain, to know that such software is worth it. The case for CRM (customer relationship management) software is more subtle, and vendors are always dragging out case studies to justify the expense and pain of installing and using CRM software.

The analysts at IDC have just completed a study of CRM implementations to try to get a handle on whether CRM pays. That study, called “The Financial Impact of CRM,” shows that the return on investment for CRM projects varies, depending on the company and the situation. The study also discusses why anyone would want bother with CRM in the first place.

“Companies are seeking to create a transparency that masks internal divisions and complexities, enabling their customers to feel that they are dealing with one organization,” said Mary Wardley, vice president of IDC’s CRM applications research team in a statement accompanying the announcement of the report. “The road to transparency begins by attending to the data infrastructure–the rationalizing and centralizing of customer information for use throughout an organization–and extends to integrated customer processes.”

The further you are from the best practices created by the leaders in any market, the more you have to gain by adopting a new technology and the more pain and cost you have to go through as you try to catch up. This is, I believe, one of the major reasons why the return on investment of CRM projects ranged from a low of 16 percent to a high of 1,000 percent in IDC study.

But analyzing the value of CRM software is more complex. “The net impact on an organization can at times be subtle and distributed throughout the enterprise,” said Wardley. “Cost savings and productivity enhancements can be evidenced in saving a sales person 20 minutes per week in writing activity reports or answering four times the volume of Web-based services requests in the same amount of time.” It is not a simple case of saving money on IT by having an integrated database for customer-facing users and back-end systems. IDC found that technology-related savings that can be realized through integrating databases and their supporting systems have an average return of only about 7 percent. In the study, IDC found that the rate of return on increases in productivity and business process enhancements was 51 percent and 42 percent.

The data IDC is using is somewhat thin, but this stands to reason, given the nature of the in-depth analysis involved, and what IDC can charge for such studies. IDC says that interviews with more than 30 companies in North America and Europe were the basis for its CRM analysis. The median up-front investments for CRM applications among those surveyed was $426,000, including all costs associated with installing the software (presumably meaning extra server and storage capacity and such). The median total cost of CRM installations was $1.2 million over five years. This would imply that IDC only talked to big midrange and large enterprises. But don’t despair. The numbers are still useful. Midrange shops will probably have about the same ratio between initial costs and costs over a long haul for CRM implementations.

The payback for CRM software is more than numbers, to be sure, but IT managers need numbers to justify CRM projects. Everything these days is contingent on the analysis of return on investment, no matter how speculative the assessment. So, without further ado, here are some numbers. IDC says that 19 percent of those companies who took part in the survey had a return of 50 percent or less, 52 percent had between 51 and 500 percent, and 30 percent had a return in excess of 501 percent. This implies that companies, in general, have a tough time treating their customers well with their existing systems and software. About 58 percent of companies surveyed had a payback on their projects in a year or less, with 35 percent getting payback in one to three years and 8 percent taking more than three years to get their payback.