What’s New with CRM, Social CRM and CEM? Inside Scoop with Gartner’s Ed Thompson

CustomerThink Founder/CEO Bob Thompson interviews Gartner analyst Ed Thompson about how CRM has evolved, the emergence of the Social CRM, and how CRM relates to CEM.  

Interview covers the following topics:

• How has CRM Evolved?
• Three Waves of CRM Technology
• Have CRM Success Rates Improved?
• What is Social CRM?
• What’s the Difference Between CRM and CEM?

You can also listen to the audio here:

Interview recorded Feb. 24, 2012.

Transcript

Bob Thompson:
Welcome to Inside Scoop. This is Bob Thompson of CustomerThink, and for this episode, I’m delighted to have as a return guest, Gartner analyst Ed Thompson. We had a great discussion way back in 2004 about the state of CRM and some of the misperceptions about CRM failure. This time, we’re going to chat about what’s changed in the intervening years. And in particular, I’m very interested to get Ed’s take on Social CRM and CEM — Customer Experience Management — and how they fit into the CRM picture.

Ed, welcome back. It’s great to have you on Inside Scoop again and to catch up with you.

Ed Thompson:
Thank you, Bob.

Bob Thompson:
OK, let’s start with you. What’s changed, in terms of what you do and how Gartner is covering CRM these days? Last time you mentioned that there were something like 18 or 19 analysts in a core team and another 10 or more people that covered CRM in industry sectors. How are things looking now?

Ed Thompson:
Well, how does Gartner cover CRM, I guess, is kind of underlying that. We went from, oh, in the peak – which would have been about ’99, 2000, we had about as you said, actually there were over 20 analysts. And it shrunk right down, steadily declined, until we ended up with about nine analysts, I think it was, about three years ago.

And we’re back now, I think, to 14 analysts. So, it’s interesting to see how it sort of declined. It’s slightly misleading because what happened also was some of the analysts moved out into other teams. So, we have analysts who specialize in industry-specific flavors of CRM. And we moved analysts out in from the CRM team. We’ve got analytics into more the BI team that still covers customer analytics, and another analyst into the master analytic management, so that was four master management analysts now. So, it’s kind of, guess the way I’d describe it is the headcount is probably about the same, but it’s more sort of fragmented, and the core team declined and then it has been rebuilt in the last three years, I guess, is how you describe it.

Bob Thompson:
And your job?

Ed Thompson:
Well my job, since 2004 – it was actually about the time we talked, my focus switched – well, it didn’t switch totally – but partially focused on customer experience management. So, that’s been my sort of primary task. But the other bit, I spend the other half of my time on kind of strategy and implementation inside of CRM. So, I still look at the service providers and how people are developing strategies and problems they have with implementation, those sorts of topics.

Bob Thompson:
I know that you’ve written quite a bit about customer experience management. I’ve seen some other interviews and articles and such. That’s great because it’s one of the key topics I wanted to get in with you today.

How has CRM Evolved?

Again, looking back over the last few years – when we spoke last time, we had a long discussion about CRM, that you said there really is something of a customer-centric business strategy in organizations. But when companies talk about CRM – and I’m quoting here – you say Gartner clients still “associate it with a bunch of technologies that support something, and that CRM is going to be associated with technology no matter what we do because of the marketing clout of vendors.”

So, there’s this kind of uncomfortable problem about CRM, is that it is and was a hot buzzword, it’s a huge industry, but people are still kind of confused about what it is. What’s changed in the last few years, in terms of how CRM is viewed?

Ed Thompson:
Well, I did a thing a couple of years ago where – or two things we did a couple of years ago – one, we decided to sort of kill off all our kind of core foundational CRM stuff, and it had a massive backlash at Gartner events, and we were shocked. We said, “Well, wait a minute. This has been around forever, CRM. Why’s everyone upset?” And what we found was somewhere, anywhere between 25 and 35 percent of the audience – and it didn’t matter which event we did, in which country, in which time – are new to CRM. We were surprised by it. In fact, in a couple of places we found it as high as 40 percent, but normally it’s 25 to 35, and it’s pretty consistently 25 to 35. And it’s not that companies aren’t new to CRM. It’s just they’re new to it, which kind of surprised us. So, we had to reinstate our kind of, here’s the basics of CRM and the foundations. And one of the things I did was a sort of history of CRM in one minute, and one of the points I made at the time was the start of it, it can be traced back to 1982. That’s the first use of the term – Leonard Berry and academics in the US in two or three different universities – and they’re still writing about it. But they talk about customer relationship marketing, and probably between ’82, ’83 and ’93 — for the first 10 years — it was really an academic subject or it was being now pursued by the management consultants.

So, then in ’93 is about the kickoff point where it started becoming new technology. And I would argue that ’93 to about 2000 really was about the coming together of sales marketing customer service, the shift, the steady shift, which is still going on from custom built to packaged software.

But it means there was two meanings to CRM. So it has the original academic customer-centric meaning and it has this technology meaning, and people flip between the two the whole time. I think the difference now to 2004 is people are more easy about that now. People were more stressed about it in 2004. Now I think people just come to settle on it has two meanings and we just have to be careful when we’re switching between them. People don’t like the term, CRM.

Bob Thompson:
I know in talking to some of my colleagues around the industry, and I’ve written about this, I say we really, since at the very least, it can mean something kind of strategic, and on the other hand, it can mean you’re talking about software, you really should not use the CRM term all by itself. You should say “CRM strategy,” and then define what that means. But say “strategy,” so people don’t assume you mean software or say “CRM technology.” Do you think that’s a reasonable way of approaching it?

Ed Thompson:
I think people do what they want and they’ll search between the term, trying to invent new things and call it customer management, customer strategies. Gartner events are now called Customer Strategies and Customer 360.

Bob Thompson:
Right, you’ve re-branded your annual conferences as Customer 360. Why did you do that?

Ed Thompson:
Well, actually ironically, or interestingly, the European ones are not called that. It’s called Customer Strategies. And interesting, we did big extensive surveys because we thought branding-wise, we want to keep the same name. So, once we renamed the US “Customer 360” – the idea of it was to find, get the 360 view, the multi-channel aspect to it, the kind of big, strategic side of it. I can’t remember exactly why we chose Customer 360, but interestingly, we tried that in Europe and it went down like a lead balloon. It was like if you’re going to choose one title, the only title we don’t want is Customer 360. So, we call it Customer Strategies in Europe, but I think we’ll keep experimenting with titles. And we’re watching what the big consultancies are doing like, Deloitte…

Bob Thompson:
…and in either case, you’re not calling it CRM. Why not?

Ed Thompson:
We’re not calling it CRM, yeah, to try and sort of differentiate between it. Yet, you’ll find the whole conference is sprinkled with CRM, particularly I talk about the technology side of it.

I think the kind of point you’re going for is what’s kind of changed in the last, since 2004. I think the big difference is up to 2004, we were just starting the second wave. We view CRM in three waves of technology anyway. The customer strategy thing I don’t think has changed at all. I think people still have the same core objectives, the same business goals. They’re still struggling with how you get people to work together in different departments.

It’s still interestingly, about 85% of the calls we get are departmental or specific to a particular division, so it’s like hey “we’re in sales and we’re trying to sales automation” or “we’re doing e-commerce, we don’t care about the rest of the big picture.” So, it’s only 15% of the core we get in are big CRM, joined up CRM multi-channels, single view, all that stuff. And everything else, I think we’ve kind of concluded it’s never going to change. Given the politics on it, it’s always going to be this battle. And it is up and down depending on economic conditions. So at the moment, ironically, interestingly, despite the economic conditions, the interest in this sort of big CRM is actually reasonably high. But it never really gets above sort of 15% of the calls.

Three Waves of CRM Technology

On the three waves of CRM technology, wave one was the operational stuff, still the biggest wave, but not very customer-centric. The first wave started in packaged software in about 1993.

The second wave started about 2003, and that was the shift, not to analytical CRM, not in the sense of dashboards and the reports. That’s always been there. It’s the use of predictive or next best action, that kind of analytical CRM. And that’s just been steadily going and going, in terms of the call volumes of interest. I know it’s very business to consumer, but does apply to B2B, as well. That’s the second wave.

The third wave is of the social stuff, which you could argue, if you said U.S., we’ve done that and done our first case study on something social CRM-like that was written in 2001 by Gartner. But the use of the term “social” really started maybe 2005 or 6. And for us, really, it took off in 2008 is when we started getting call volume through the roof. So, I can’t say that’s third generation. And that, interestingly and ironically, is properly customer-centric. So, the first time you’ve got CRM in everything customer-centric.

Have CRM Success Rates Improved?

Bob Thompson:
We had a long discussion about success rates and why things are succeeding and failing. The last time you really debunked the notion that 50, 60, 70% of projects are failure, that’s kind of been a popular sound bite in the press. And you said that success really varied depending on functional areas with field sales being the trickiest, and that it was much higher and much better in call centers and marketing and for, say, SMBs. Any difference in your point of view on success and failure now?

Ed Thompson:
All that you said I still stand by, and that sales automation is the still the highest failure rate of projects. And you can see it in the people desperately trying to replace one technology with another in the hope it will improve things. And you’ll still see some of the highest success rates are in the kind of electronic channel projects, the kind of self-service ones and…

Bob Thompson:
Ecommerce, things along those lines?

Ed Thompson:
Still, that’s all generally still true. And I would argue that success rates are improved a bit, and the key, I think is depending what you mean, a different way of looking at success is to say it’s on time, on budget, on scope. And I think in that area, the projects have got a lot better. Part of that is because we’ve shifted a lot more to agile style deployments. So, a lot of consultants talk about 6-week, 14-week deployments sprints, so much less of this that’s gonna along a whole two year, not much.

Bob Thompson:
Right, but you’re approaching it like an IT project. Did it actually get done on time and with the resources that it was supposed to?

Ed Thompson:

Yeah, and in that sense, I think people are a lot more wise than they were 10 years ago, and if you troll through the project, there are very few absolute meltdown disasters, but they do come up in the headlines, and they always will happen. But they’re kind of on time on budget and scope.

We did a bit of work, I think it was about three years back, looking back through reference customers for consulting companies. And we found, I think it was 90%. Now, of course they’re reference customers, so that’s going to be a biased sample, but nonetheless, 90% of them were on budget, on scope. They weren’t all on time. The average was about a month late, but the point was you’re never going to get to the disasters. Some of the bigger consultancy companies were getting 60, 70 reference customers to go check. And that would be, in some of their cases, a third or 20%, between 20% and 33% of their projects they’d done that year.

Of course, we get the horror stories coming in on our normal inquiry lines. We do hear the bad stories. But I think the general thing is there are less bad project managers out there, more people delivering on budget, on scope, on time. The problem is that’s not success from a business standpoint. And I think that’s why the challenge is still can we measure business value from the CRM project?

Bob Thompson:
Right, and do you feel looking at it from that standpoint that success rates have improved broadly speaking in the last few years?

Ed Thompson:
No. Maybe a little bit, but not much.

Bob Thompson:
A little bit?

Ed Thompson:
A little bit, but not much.

Bob Thompson:
Again, I don’t want to rehash everything we talked about, but you talked at some length about the need for metrics and having good process definitions, empowering people and incentivizing them. And these are the sorts of things that really made the difference, not technology. Is that still basically the case with CRM in your experience?

Ed Thompson:
Yeah, it’s pretty much the same. But the thing we tend to spend a lot time telling the people now at the start of it especially if they’re new to it in the start – and it’s going to be big, it’s multi-departmental, i.e., as opposed to narrow focus – we’re trying to focus on vision and data, customer data. That’s the start points. Almost before you start anything else, just focus on these two areas. I think it has a lot to do with who’s leading, who’s painting the vision, why we’re doing this, definitions of what we mean by CRM and scope. It’s who’s involved in the team, all that kind of stuff. And data side as well let’s get a handle on the data before we do anything here. And we find that companies who do that tend to be more successful, but really the areas that correlate with success are still metrics, organizational change and process definition.

And we did a nice piece of work about two years ago and again, not really published much. We didn’t put the data out because it didn’t show us anything new really, but it was looking at is there any correlation with the choice of technology vendor you picked? The answer’s no, none. Actually, you can pick anything you like, it’s going to make no difference really as to whether you’re more or less likely to be successful.

Bob Thompson:
Yeah, we found the same thing. We ran a study a few years earlier, and same conclusion.

What is Social CRM?

All right, in the time we’ve got left, I want to make sure we talk a little bit about social and about customer experience. So, Gartner’s been quoted as saying – and again, I’m kind of quoting what other people are writing about it, so it may not be correct – but Social CRM is or will be shortly a billion-dollar market.

Ed Thompson:
Yep.

Bob Thompson:
That you’ve put out a magic quadrant. It’s been criticized in some quarters, including me, just to be honest with you.

Ed Thompson:
Right, right.

Bob Thompson:
It just seemed like a collection of disparate solutions kind of put together in a magic quadrant. So, I wanted to ask you to clearly define what does Gartner define as Social CRM, whether it’s a concept or technology, whatever, and then can you talk a little bit about how big and what’s in this so-called Social CRM market?

Ed Thompson:
Yeah, I think the first thing to say is most of the technology is changing now, but most of the technology providers, they are not traditional CRM vendors. And there’s a huge number of them that come from social media monitoring space.

Bob Thompson:
Right. This would be like Radian6 and many, many others would be in that category.

Ed Thompson:
The numbers are somewhere, they’re varied, but somewhere between 200 and 500 social media monitoring vendors exist. The vast majority are less than million-dollar revenue, they’re usually less than $500,000 revenue, and not profitable. And huge numbers of them have a fremium style style model, and so they may have large number of users in some cases, but it’s all free. Its actual paid customers are tiny. And the biggest problem is they’re non-differentiating. Most of them don’t do anything really unique. If you took the Social CRM market and you’re right, it’s a hodge podge of different vendors doing different things that all use social technologies in some way to help sales.

Bob Thompson:
Another category is community solutions. And Jive and Lithium and others, many others.

Ed Thompson:
Yeah, the third bucket, I would say, which is less well-defined than the other two.. So the social media monitoring and analytic space, I think, is reasonably well-defined, the sort of community platform thing is reasonably well-defined, but again, it’s quite fuzzy around the edges.

But the third one is the sales technologies, whether that’s vendors like Artesian Solutions, NI3 or Nimble or InsideView. That’s probably the least consistent. None of these are very consistent in terms of comparatives. The reason we have a Social CRM MQ and why do you have one and what are we trying to do, when we looked at it, we said, well, social media monitoring, we looked at them and said, well, there are several hundred of these guys. There won’t be several hundred in a few years’ time. It will shake out. And what will happen at the end of them? And we conclude pretty quickly that what will be left standing are the ones who have the more advanced analytics. In other words, just listening, listening platforms are very low entry, hence there’s hundreds of entries in the market. And the advantage, where the stickiness will come is on the more sophisticated analytics in reporting and the action taken, based on the analysis.

So, we said, well if that’s the case, then we should see a lot of mergers and acquisitions. And on the other hand, a slightly harder, bigger barrier to get into for community platforms. And we took that to be a much more interesting part of the market, and we could see acquisitions already going on that started two years ago. We expected those two to go together at some point, and possibly the sales and solutions, as well. So, we said well this is all going to converge, and eventually we expect once it converges, that the more traditional CRM vendors will acquire it. So we said what we could do is try and paint three or four different markets, and so we’ll do platforms and we’ll do listening or social media monitoring and we’ll do sales — we’ll do three different ones. But the problem we had was when we looked at how they were being used, the use cases, we found that social media marketing is being used by marketing, by customer service, by sales. They don’t fit neatly into different buckets. And what we found was the use cases was what was interesting. And in fact, inside Gartner, you’ll find there’s a bunch of analysts who look at social technologies, mainly the collaboration team, you’ll find the HR guys looking at social and the project management guys looking at social and how it’s being added to their applications.

The reason these were most interesting was because we found 80% of the use of social was when we were looking outside the organization, was in marketing, sales and customer service. And, in fact, if you added it all up, you only got 4 or 5% were the sales side, and it’s only maybe 20% in the customer service. So, the big bulk of it is in marketing and particularly PR and comm. But the bottom line we said if that’s where it’s going, why create separate markets? It’s really where we expected it to emerge. Unfortunately, we got our timing wrong I think is the way I’d describe it. In other words, we thought this would shake out in two years.

Bob Thompson:
My analogy would be kind of like going into the earlier days of CRM when there were sales, marketing and customer service solutions that were all kind of separate, and if you put them all on the same grid, it would look a little strange, but maybe a couple years later, it would look perfectly fine.

How big do you define the social CRM market? Is it a one billion-dollar market?

Ed Thompson:
Yeah, everything is a billion. Well a billion end of this year and then a huge chunk of that is the social media monitoring stuff, if you add up all those tiny little vendors. If you take the big guys so Radian6 somewhere around the 40, 50 million-dollar mark is by far the biggest, now part of Salesforce.com. But if you get it down to the other guy like the BuzzMetrics, Affinium NetInsight, Symphony, Converseon, Attensity, Telligent, you get a lot of 7, 10, 15 million-dollar companies.

Bob Thompson:
Does that add up to a billion dollars of software or software as service revenue or is it other revenue you have in there?

Ed Thompson:
Yeah, a lot of it is subscription revenues really because most of it is SaaS based. It’s a long, long tale is what we found.

Bob Thompson:
I was surprised to see how big that number was, but I can see if you got hundreds of small vendors, even if they’re quite small, that it would add up.

Ed Thompson:
It could be bigger than that but that is the only the stuff we see. And we think there’s other even small vendors in other countries who pop up, but we’re not getting calls on that. We’re fairly comfortable with is how much is in North America and particularly the U.S. and Canada, I’d say. It’s somewhere around maybe three-quarters of it is spent by North American headquartered companies at the moment. So, at least you could measure that reasonably well.

And we’ve tried to test it different ways, trying to strip out professional service revenues associated with it because a lot of them do that. We’ve looked at head counts and average revenues per head count, all that, we’re looking, as well. It’s pretty difficult to measure, but it’s sort of rough and ready, but that’s about where we are the moment. $820 million end the last year, I think was what we said..

Bob Thompson:
So, this is additive to the CRM industry revenue, which is somewhere around $10 billion dollars, right?

Ed Thompson:
10 billion plus, that’s right.

What’s the Difference Between CRM and CEM?

Bob Thompson:
All right, we just have a couple of minutes here at most. I want to make sure I at least get a quick reaction to you on another key topic. You’ve been researching and writing about customer experience for the past few years. And I’m just going to do a little role-play here. Let’s suppose I am a business executive and I’ve heard about CRM, and maybe I think it’s technology, maybe I don’t, it’s irrelevant. But now I’m hearing about this new term called customer experience management. And I noticed that you’ve got as one of your [CRM] building blocks customer experience. That’s been in there for a long time. Why do we need another term for customer experience management when the customer experience is already part of the Gartner framework?

Ed Thompson:
I would say you don’t. Two things I’d say is because what we’re getting at here is the difference between CRM and customer experience.

Bob Thompson:
Is there a difference?

Ed Thompson:
Yeah, there is.

Bob Thompson:
Or is it something manufactured by the industry?

Ed Thompson:

No, I don’t think so. I think what happened was if I trace it back, where the term took off was about 2002. In fact, if you look in the books published in 2001 on the subject, there was almost nothing. There was a bunch of stuff on experiential marketing in 2001 into 2002. And then 2003, I think there was 24 books published in one year which used the term.

So suddenly, there was a consensus view, both by business journalists and academics and bloggers and everybody that this is the term to use. I would argue it was a bit of a backlash in the post 2001 to 2003 CRM downturn when people were trying to get back to the kind of core early and 1982 concept of being customer-centric. And they were using the term, “customer experience” to kind of differentiate between CRM and some technology really to do some things for customers. So I think that’s where it started.

Where it’s different, to kind of boil it down to say where it’s different, I’ve got a slightly longer definition. The way I tend to associate is to say it’s about roles and goals. And I would argue that CRM is quite narrow in terms of the roles. And most people would agree that CRM has something to do with sales, marketing, and customer service roles in an organization. In other words, the finance guys aren’t doing CRM. You could debate that, but it’s largely about those three departments.

But the goals are very long, and we typically collect every six months a list of about 40 to 50 “What are your goals, your CRM initiative?” So, it could be acquisition of customers, cross selling and up selling, lowering the cost of service, improving the campaign response rate. There’s a whole long list of things that people try to achieve.

Customer experience, I would argue that the goals are narrower, almost a subset of CRM. The goals are advocacy, satisfaction, loyalty.

Bob Thompson:
They sound more customer-centric to me.

Ed Thompson:
If you say “I’m doing cross selling,” that’s fine, but that’s not necessarily what the customer wants, customer-centric. It might be what you want, but if you way the customer is “cross purchasing,” that’s a different matter. So, I see it as a narrow set of goals, but the role is much wider. So, the roles are anybody in the company could be engaged in the customer experience.

Bob Thompson:
Anybody or any system or any interaction.

Ed Thompson:
Anything that touches, any interaction. It’s largely about the way we use the term in our industry, I think I would say we’re talking about interactions and emotions. There’s about four or five other meanings to it, the customer experience.

Bob Thompson:
So, is customer experience a subset of CRM or is it something that’s a different concept that’s a peer of CRM?

Ed Thompson:
Like a Venn diagram. Yes, adjacent, overlapping but different.

Bob Thompson:
OK, great, well for what it’s worth, that’s the way I’ve been looking at it for the past few years. It seems like there really is something different about the two ideas. There is some common ground, though, in terms of what makes them work or not and things like strategy and people. It’s funny how when I’ve interviewed CEM experts, they talk about a lot of the same things, in terms of what makes the projects work or not, but there are some key differences as well, as you’ve noted.

Well listen, I know you’ve got to go. I really appreciate your time, Ed, in catching up. It’s a lot of ground to cover in just a few minutes here. Overall, do you feel like things are looking up for the CRM and CEM industries and disciplines?

Ed Thompson:
Yes, very oddly. A discussion I’ve been having the past week or so with a couple of colleagues, which is that normally CRM spending on the technology correlates with economic growth. There’s been a simple pattern for about 15 years. But oddly enough at the moment, some of the industries that are spending the most and are the most excited and doing the most interesting things are media, public sector, charities, healthcare, some of the most stressed industries out there on the economic downturn. And yet they’re spending a lot of money on CRM and likewise, the customer experience initiatives.

There was a nice piece of work done by Beyond Philosophy just before Christmas where they picked out there are 8,000 individuals in the world with customer experience in their titles, and then 2,100 organizations. What’s very interesting is that number’s just kept steadily growing since 2007. You would have thought people would chop out wasted space job titles that didn’t mean anything in an economic downturn and that’s not the case. In both cases, both customer experience and CRM are both doing really well despite the economic downturn. I think we’re forecasting something like 9 percent growth in CRM spending for 2012 worldwide, and economic growth is nowhere near 9 percent, at least in Europe.

Bob Thompson:
Right, well it’s definitely a bright spot.

Ed Thompson:
So they’re spending above economic growth, yeah.

Bob Thompson:
All right, I appreciate your time. Thank you very much for your time on Inside Scoop, Ed.

Ed Thompson:
My pleasure and good talking to you again, Bob.

Further Reading: The Reports of CRM Failure Are Highly Exaggerated: An Interview With Gartner’s Ed Thompson (2004)