How Customer Relationship Management systems can be of benefit to your business

Knowing, understanding and predicting what your customers want - and will want in the future - is vital to the success of small to medium-sized enterprises. And CRM is the key

Any business is highly dependent on its customers. Traditionally, smaller businesses were thought to be better able to understand their customers' needs, simply because their size made it easier.

If you're a corner shop, say, it's much more straightforward to serve your local customers than if you're a supermarket chain. You know what your customers want because you see them on an almost daily basis and can speak to them face-to-face, rather than having to organise surveys and questionnaires. There's also a much shorter chain between the person dealing with the customers and the one making the decisions. Indeed, they are often one and the same person.

It's this knowledge and understanding of customers that big companies were trying to replicate when they started to invest in customer relationship management (CRM) a few years ago. The concept is essentially a fancy management consultant way of talking about getting to know customers better and using that knowledge to serve them better.

Because developments in technology made the collection of data like this relatively straightforward for large organisations, such as banks and supermarkets, the concept became bound up with information technology. But, as Business Link, the government-supported advice network for small to medium-sized enterprises (SMEs), points out: "It is more of a business philosophy than a technical solution to assist in dealing with customers effectively and efficiently".

That said, while CRM can't be seen purely in terms of technology, it also can't be successfully introduced into an organisation without at least some technology. After all, only technology enables one of the key aspects of CRM: the integration of all the means by which companies communicate with their customers (telephone, e-mail and the internet) in writing.

Even basic attempts to find out more about customers and their needs should help companies serve their customers - and it may be that many small businesses feel this is all they can do.

In the early days of CRM, the lack of sophistication led to financial services companies being offered services they already had with the same supplier, for example. Similarly, companies that were analysing their customers on where they lived, rather than on what they spent their money on, would find themselves offering gardening products to people who lived in gardenless flats.

Things have moved on markedly since then. And there are signs that the companies that are using the more sophisticated developments in CRM technology are seeing more benefits than those that settle for the more basic data collection approach. In particular, business analytics applications, which enable organisations to analyse customers' past behaviour with a view to anticipating future trends, are becoming especially popular with forward-thinking executives.

In their new book, Competing on Analytics: The New Science of Winning, Thomas H Davenport and Jeanne G Harris write: "Many companies in a variety of industries are enhancing their CRM and SCM [supply chain management] capabilities with predictive analytics, and they are enjoying market leading growth and performance as a result."

The authors point out that there are certain challenges to this. In particular, companies need to be prepared to break down boundaries between activities that had once been kept segregated, namely CRM-type processes such as sales and marketing, and SCM processes, such as procurement and logistics. The idea is that businesses align supply and demand more accurately and so make themselves more responsive.

Many companies produce statistics along the lines of average revenue per customer and average order size. But those that are using analytics go further. They might, for example, use predictive modelling to identify the most profitable customers - or the least profitable. Utilities went down this route several years ago when they introduced different prices for different customers.

Alternatively, they might integrate data they have generated themselves with that gathered elsewhere to build up a better picture of their market. Or they might test different situations in their supply chains to identify in advance potential hold-ups and other problems. They might also analyse historical sales and pricing trends, as this enables them to set prices that maximise their yields from each transaction. They might also use experiments to test the effect of advertising and other marketing activity.

The good news is that what was once the preserve of large corporations is now available to growing businesses. CRM systems, like other aspects of technology, have been available in outsourced form via the internet for some time. While possibly not as cheap as buying an off-the-shelf solution, this is a good way of obtaining the application quickly and also avoids having to have an extensive in-house technology team.

A form of this is the on-demand solution offered by Oracle. Daryn Mason, European head of solution consulting for Oracle CRM On Demand, says: "The software is extremely low cost. For the first time, organisations can afford to implement [this technology] without a large upfront capital expense. It's a message that the market is waking up to. The cost per user is comparable to an average mobile phone bill."

This has certainly been the experience of Netstore (see case study). Marketing director Alan Edwards negotiated a competitive cost per user per month deal for the company. And the fact that the Oracle On Demand system is easily scaleable meant he didn't have to sign up for too many users in anticipation of growth, but could just expand the user base as the business developed and other operations were acquired.

Oracle's Mason says a particular benefit of the analytics approach to CRM is that it enables businesses to better predict demand. Many SMEs are now trading over the internet and seeing for themselves the truth in the maxim that the Web makes everybody the same size. But they can run into trouble if they suddenly experience a rush for their product or service and can't fulfil it.

"Even if there's over demand, you can use analytics to show which customers should be better served," Mason says, adding that he and his colleagues talk of using the technology to turn "victims of success" into "victors of success".

He agrees with Davenport and Harris that obtaining the real benefits requires breaking out of traditional thinking. Pointing out that even operational and analytical CRM were often in "separate silos", he says: "You had people in the field collecting information and then it was sucked out and the analysis took place. There was some level of insight, but it didn't give you the ability to go straight from insight to action. It didn't allow you to drill down and go to the root cause of the problem."

"Insights" is the word of the moment in consulting circles. Everybody seems to want that extra little bit of information that gives them an advantage over its rivals. Much has been made in recent years of how, for example, Tesco seems able to anticipate warm weekends and get the right amounts of beer and barbecue supplies into its stores while its rivals sell out. It's largely down to analysis.

Similarly, the internet search engine Google has, in part, been successful with advertisers because of analytics. It uses algorithms that are constantly analysing such things as the efficacy of keywords, placement on the page, the creative material and so on.

Nor is such thinking restricted to web-based advertising. Davenport and Harris quote Sir Martin Sorrell, chief executive of the advertising and marketing group WPP, as saying: "There is no doubt in my mind that scientific analysis, including econometrics, is one of the most important areas in the marketing-services industry".

Netstore: CRM in action

Netstore, a UK-based provider of managed information technology services and security for organisations that have outsourced their IT, used to be a typical small business. "We were very reactive and did things day-to-day," acknowledges marketing director Alan Edwards.

Then, two years ago, it took the decision to take customer relationship management (CRM) seriously, "as part of the process of growing up", as Edwards puts it. Until then, the company, which had been growing rapidly through acquisition, had relied on a system that was not well used, partly because it was difficult to use. Most salespeople had their own independent spreadsheets, which made it difficult to see the business as a whole and so to forecast.

Netstore decided to go for an on-demand system because it didn't have the high initial costs traditionally associated with such systems and because the company could use it and expand it when required. Also, because the company didn't have a large IT team, the system meant it wouldn't have to staff up or take the expensive route of using a provider's consultants.

Having examined the market, Edwards and his colleagues opted to acquire a system from Siebel, the market leader in CRM and then still independent, but now part of Oracle.

"The service they had was similar to that of others, but there was one area where they stood out," explains Edwards. "That was in its historic analytic capability. The data is kept in a warehouse and is a potentially powerful business indicator to get historic analysis."

Netstore initially signed up for 25 to 30 seats to cover the immediate sales force, but since them it has acquired three companies. This was when the investment in an on-demand service really paid off, as customer data was easily transferred from various databases to a single system. Indeed, the speed with which different sales teams have been brought together has been a great help in integrating the new businesses. "It underpins a large plank of our growth strategy," says Edwards.

As well as acquiring businesses, Netstore is keen to grow organically, and here the fact that the sales team has knowledge about their customers and potential customers at their fingertips is a great help.

Netstore currently has 85 licensed users and has just bought a further 20 seats. It sees a consolidated CRM system as being so valuable to the business that users are increasingly not just among the sales team but also drawn from the commercial and financial teams.

A key benefit of the system is that users only need a minimum of training to be able to use it. The fact that it can be accessed easily and from anywhere makes staff much more inclined to use it than they were the old system, which, of course, makes it more valuable.