Catching up with customers

Gartner and AMR Research—two leading analyst groups covering business applications in manufacturing and supply chain—both predict growth in the customer relationship management (CRM) applications space in coming years. AMR says CRM will grow even faster than both ERP and supply chain management (SCM).

Customer management is, however, to date, a significantly smaller market than that for ERP or SCM, and during the general market decline of the last several years, it fell further than those two categories. According to Gartner, CRM suffered a 30-percent decline in license growth in the first half of 2003 over the first half of 2002. ERP grew 2 percent in the same period, while supply chain apps shrank only 5 percent.

Nevertheless, in the latest figures coming out of its spring executive conference, AMR predicts for CRM nearly 8-percent cumulative annual growth through 2008.

To achieve that kind of a comeback, independent software vendors that sell CRM—and enterprise vendors selling CRM modules—will have to surmount some serious hurdles—perhaps most especially the oversold expectations of the bubble era. In addition, to succeed in manufacturing, vendors will need to supply more functionality specific to makers of products.

In a survey taken last year by The Economist Intelligence Unit of more than 370 senior-level and C-level managers, a majority found CRM "useful" but not "critical," and less than 15 percent of those surveyed claimed to have had success with the application. According to the study's author, Steve Lavalle of IBM Business Consulting, technology wasn't the problem. Instead, it was either the companies' inability to achieve a business consensus using the system, or to demonstrate its ROI (see sidebar, CRM success elusive).

One way to get a bead on what vendors are doing to attain the growth that analyst firms have set for them is to look at the product plans of some CRM market leaders. In the last quarter, two leading vendors, PeopleSoft and Siebel Systems—the one an enterprise suite vendor and the other an independent software vendor (ISV)—announced significant CRM offerings that are at least in part aimed at manufacturing.

Siebel is the largest independent CRM software vendor. In March of this year, Siebel introduced Siebel 7.7, the latest version of its flagship solution.

All told, Siebel 7 encompasses 23 industry-specific applications. New and enhanced functionality in Siebel 7.7 specific to the high-tech and industrial manufacturing industries includes design opportunity management, special pricing authorization and claims management, and market development fund management support.

"Siebel competes in manufacturing sales primarily against ERP vendors like SAP and Oracle," says Erin Kinikin, a VP and research director at Forrester Research, Santa Clara, Calif. "SAP also has built some specialized functionality for [working with customers on designed products], so this is really about which vendor can make the most compelling case—with the references to prove it," says Kinikin. "There's no clear winner yet, but introducing specific functionality for manufacturing is key for Siebel to compete with ERP vendors for manufacturing CRM."

The starting point for the intersection of CRM and manufacturing typically is considered to be the product configurator, used internally by sales reps to specify product purchases, or externally by customers via a Web site. Design opportunity management builds on product configuration by simplifying working with distributors on multilevel, multicomponent projects, while also impacting demand management, recognition of additional sales opportunities, and collaboration with marketing.

Kinikin says version 7.7 is an opportunity for Siebel to show it can overcome a perceived weakness—softness in integrating to back-end order and fulfillment systems. The multiparty design module facilitates collaboration between sales, consultants, engineering, and fabrication during the sales cycle.

For example, says Kinikin, "In the semiconductor business, the sale goes to the company that can best meet the engineer's need for specific functionality—requiring input from technical resources during the sales cycle. Win in the design phase, and you get all the revenue for all the resulting products the company sells."

Steve Fioretti, a senior product director at Siebel, says the design opportunity manager is aimed squarely at manufacturing companies looking to leverage as adeptly as possible designs already in-house for attracting new business, citing Siebel customer SKF Timken, a Canton, Ohio-based ball bearing supplier that uses the module in bidding on work with tiered automotive and OEM elevator makers.

Special pricing authorization also is meant to support complex manufacturers in winning customer design programs in competitive sales situations, while reducing costs by streamlining quotes and routings processes. Market development fund management allows setting up and managing special program accounts. Both should prove useful to manufacturers, says Analyst Sheryl Kingstone of Boston-based The Yankee Group.

"Many organizations are not able to automate exceptions very well without a strong workflow/rules engine," says Kingstone. "Past Siebel users would have had to customize the application to achieve this."

Aftermarket sales are a big driver for CRM, says Bob Parker, an AMR analyst. Looking at just one sector—aerospace & defense—Parker says CRM spending will grow to 14 percent of all 2004 software buys from 6 percent in 2003 because companies are looking to get more service and aftermarket sales.

Siebel 7.7 includes new and enhanced functionality for field service—specifically, configurable dispatch board, modularized invoice engine, primary/secondary/tertiary assignment, and location-based fulfillment.

"There's renewed interest in CRM for manufacturing, especially in modules that focus on forecasting service after-sales. That's where the market has wanted to be for a while," explains Barbry McGann, VP of CRM products at PeopleSoft, describing its updated CRM solution shipping at the end of June.

Announced at PeopleSoft's 2004 Leadership Summit held in May, Enterprise CRM 8.9 is said to be the most significant CRM release in the vendor's history. It includes enhancements in usability and analytics, customer portfolio and partner relationship management products, as well as—of course—industry-specific solutions, including updates to its high-tech and manufacturing verticals.

Steve Bonadio, a META Group analyst in Stamford, Conn., says the PeopleSoft offering can act as a cure for what ails CRM.

"Companies have become cynical about the potential benefits of CRM," says Bonadio. "For the most part, they're using the technology to automate customer service processes, rather than to understand their customers and provide service based on that understanding."

Enterprise CRM 8.9 makes customers better understood through use of analytics that not only identify customer behavior, but also convert that sense of understanding into actionable information.

In other words, the framework is capable of assessing a wide range of customer behaviors based on key metrics, leading to company actions that generate the most appropriate customer response. Companies also can define their own custom application triggers to support enterprise-specific business processes.

More specific to manufacturing, McGann explains that the prescriptive features in release 8.9 can, for example, alert a company during the order process not just that there is perhaps insufficient inventory, but also perform a calculation that factors in things like capacity. At that point, says McGann, "You're looking at aggregated figures that say whether you can meet the order."

Customer portfolio management drives action in another way. It lets companies determine the value of each customer, designate "segments" based on that value, develop plans that address that segment, and share that knowledge across marketing, sales, and services.

A 2004 report from Gartner says the depth of functionality in CRM modules continues to improve. Because supporting relationships outside the firewall remains a challenge, the architectural foundation of a CRM suite is a key decision.

Other leaders in the "CRM B2B Large-Enterprise Suites" space include SAP and Oracle Corp. All these vendors are tapping into a deepening trend. Enterprises realize that many core sales and service processes require tight integration with ERP, SCM, and legacy systems. At the same time, Gartner says PeopleSoft is the only vendor that can be both a complete enterprise player and a best-of-breed suite provider.

Siebel, according to Gartner, remains the leading vendor for CRM B2B suites, based on functional breadth, demonstrated scalability, reference accounts, and system integrator approach.