The State of CRM in Russia: Five Key Trends

In January, CRMGuru.com founder Bob Thompson published his predictions [1] for the year for the CRM industry, including the emergence of corporate performance management and a push for on-demand CRM and customer analytics. Things are a bit different in Russia, where the building blocks of CRM have been laid down—but have not developed into full-blown structures. Here Russian CRM expert Andrey Pavlov proffers his own predictions on key trends in his country.

Russia has entered its fifth year of CRM development, with a steady increase in adoption. According to Gartner Dataquest, the Russian CRM market accounted for $5 million in 2001, $11 million in 2002, $35 million in 2003. In 2004 it was estimated at $50 million (for comparison, consider that the Chinese CRM market amounted to $37 million). Financial and telecommunication sectors with thousands of users remain the largest segments of the CRM industry. Eighty percent of them are small implementation projects for 15 to 30 seats (with the majority at "pilot" stage), and 20 percent are for large-scale projects embracing hundreds of users.

The estimated implementation price is $1,000 to $5,000 for one user, so the market potential amounts to tens of millions of dollars. According to META Group, the worldwide CRM marketplace will account for $20 billion. Though analysts differ in their specific estimates of the market, they all agree: Russia constitutes 0.3 percent of the worldwide CRM market. Since Russia is playing an essential role on other markets worldwide, I assume that its CRM niche cannot but expand rapidly in the coming year or two. In other words, the Russian CRM market will continue its successful development in medium-term perspective, whipped up by the EEC "phantom" and growing competition, which will force organizations to consider serious changes for the sake of future viability.

In the recent conferences—the Russian CRM Forum, CRM Russia and CIS 2005—many speakers predicted that 2005 would be a successful year for the vendors as well as their customers. I cannot share this opinion completely. To my mind, the number of implementations that fail will grow ahead the overall growth in CRM projects.

In Russia, businesses will only be more disappointed in the adequacy of vertical CRM solutions. Nevertheless, I think that some of them will settle down and even prosper in the local market. Many vendors launched their vertical solutions, because they are vital in the financial, insurance, pharmaceutical and real estate sectors. It is clear that resellers of international vendors offer almost the same products. Therefore, to push up sales in the industry, they have to compete in price and sometimes even dump prices. These efforts will hardly result in the increase of the resources allocated for the services to the client's stuff, or for an adequate customization of the solution. Thus, the final result could hardly comply with the client's expectations.

Here are five points about the state of CRM in Russia:

1. Without an overall C-level motivation, businesses will have an uphill battle.
   
   Every CEO is facing the dilemma of ensuring operational effectiveness (tactical issues and routine) and strategic focus (creation of long-term competitive advantage) for the organization. Robert Kaplan and David Norton state in their books that 60 percent of the companies do not reinforce their strategy with the budget; in 70 percent of organizations, there is no correlation between motivation of management and the achievement of strategic goals; and 85 percent of CEOs hardly allocate one hour a month for the strategy discussion.
   
   Because evolutionary changes are conducted from top to bottom, it is necessary to tie key indicators of strategic direction with the bonus payment of the management (responsible for the "front office") and, thus, shift the weight of responsibility from the operational issues to the strategic outcome. Practical experience proves that for successful CRM implementation, it is necessary to include the "fifth dimension"—"infobasis" in the Russian "C-level" bonus system. At present, when the first CRM systems are being implemented, these indicators of progress in the development of software must gain adequate priority (in order to ensure capabilities in these technologies, which we must develop for certain).
   
   
   
   
   
   
   
   
2. The Application Service Provider model won't catch on.
   
   As yet, we have seen almost nothing about ASP in the Russian market. Many of the conference speakers gave their thoughts on why this was so, stemming from poor bandwidth, the cost of traffic and "last mile" issues. Because of Russian cultural "security concerns," I doubt that the ASP model will gain recognition in Russia. The main barriers are probably the fear of losing customer data and the nuances of the client relationship. Of course, we cannot ignore the cost and the question of how customizable the service is as factors. If you compare the cost of ownership with the cost of an ASP solution, the ASP solution is just not interesting.
   
   For example, the cost may be $65 to $100 a month or $780 to $1,200 a year, which is comparable to the cost of purchasing an SME-type CRM license. In addition to that, Russia's large pool of inexpensive IT specialists negates any benefit from a rented solution. National bonus systems have their own specifics, i.e. the bonuses are awarded depending purely on the economic amounts. The shareholders' capital is not taken into account, the notion of EVA is familiar to a very small number of organizations, which supports it with advanced measurement systems in place. This means that, for top management, it is much easier to prove the need to invest in CRM implementation (especially now, when it is fashionable), than to increase operating expenses with an ASP solution. And finally, Russian businesses won't consider ASPs when they have such a strong need to integrate email and enterprise resource planning systems.
   
   
   
   
   
   
   
   
3. Russian businesses need to lower their overall CRM goals and concentrate on the operational level.
   
   According to AMR Research, only one-third of 100 companies that implemented CRM used modules that were specially created to improve the effectiveness of the sales managers. Other research pointed to the fact that development failure, which meant that the sales force wasn't even managed well, harmed the reputation of CRM. Before they consider marketing analytics and other CRM enhancements, wouldn't it be reasonable for Russian players to first focus their efforts on reducing implementation failure, so they can really help the sales force and improve "front" and operational processes? The right time for marketing analytics is after the business has successfully implemented a complete CRM solution, which will ensure the depth and the adequacy of the client data.
   
   Sometimes you hear that a client's IT department has sought more functionality, under the assumption that "the more functionality, the better," so the company has it in case it needs it. This is the result of uncertainty in business target-setting and failing to fully appreciate how easily client managers can be coerced when they are trying to adapt to new and alien business logic. It is clear that in such situations, one of the vendor's main tactics is "negative motivation" or putting pressure on the client.
   
   But excessive CRM functionality demands huge investments, and there's a real possibility that you'll wind up with additional tools that are not only expensive but also interfere with the smooth implementation of the system. The better approach, therefore, is "sufficient functionality" with thorough customization. You've reduced your risk by deliberately limiting the functionality and by adapting to the client's unique business process. This lets you develop your own unique business solution, fortified with a real competitive advantage.
   
   
   
   
   
   
   
   
   
   
4. So far, the only vendor that has seriously put down roots in the Russian CRM market is SalesLogix, owned by Best Software.
   
   There have been more than 3,000 SalesLogix licenses in more than 60 projects, with its success primarily in financial sphere. Major clients include such top-50 "gorillas" as Alfa-Bank, AlfaInsurance, Vneshtorgbank, TRUST, MDM, NOMOS, BIN and Severnaya Kazna banks.
   
   In fall 2004, there were high expectations for Microsoft's entry into the Russian market, with the first orders for MS CRM. But those expectations fell when Microsoft delayed the release of Version 2 until fourth quarter 2005. Moreover, Microsoft's Russian partners have not had enough time to develop vertical solutions, while SalesLogix' partners already have them in hand.
   
   Consider Siebel the Rolls Royce of the CRM. Transitioning to the most complex CRM solution is easier in the West, where there have already been two or three generations of CRM and, therefore, lower risk in the move. If anything happened in the implementation, a business could continue to use the previous version while it worked out the bugs. In the Russian market, the situation is different. We did not have CRM before, and we do not have generations of trained salespeople. We are buying our first "family car" (we need Nissan X-Trail to go to the office and to the country). As a result, priority in pilot projects is on enhancing operational interaction among organizational divisions, as well as control issues. Considering the history of aggressive MS CRM and SalesLogix campaigns, I can forecast their rapid and strong counterattacks (probably in the form of a two-tier distribution model) to Siebel's first attempt to secure the beachhead in the Russian market.
   
   The general shortage of CRM specialists, on the one hand, and Siebel's partners' ability to painstakingly tailor solutions to the individual needs of every customer, on the other, will define how the CRM market plays out in 2006. The key factor that will limit local market penetration will be potential clients' perception of the total price of ownership. In other words, whether they consider it worth it when Siebel says, "You can have this functionality if you buy the full suite."
   
   
   
   
   
   
   
   
   
   
   
   
5. Large enterprise CRM players can't count on the Russian mainstream market.
   
   Siebel has begun promoting its Professional version, which is equivalent to a "specially reduced" CRM solution. However, functions are not concentrated in three-five modules (as they are in SalesLogix, for example) but are dispersed into the numerous sub-modules of a complex enterprise solution (at times at a higher price). Siebel's and SAP's claims on hundreds of built-in business practices must be carefully evaluated, as the "recipe for happiness" in business is still unknown. Otherwise, all CRM customers would be the same (in an operational sense) and would "inflate" their competitive advantage.
   
   Sometimes you hear that a client's IT department has sought more functionality, under the assumption of "the more functionality, the better," so the company has it in case it needs it. This is the result of uncertainty in business target-setting and failing to fully appreciate how easily client managers can be coerced when they are trying to adapt to new and alien business logic. It is clear that in such situations, one of the vendor's main tactics is "negative motivation" or putting pressure on the client. But excessive CRM functionality demands huge investments, and there's a real possibility that you'll wind up with additional tools that are not only expensive but also interfere with the smooth implementation of the system. The better approach, therefore, is "sufficient functionality" with thorough customization. You've reduced your risk by deliberately limiting the functionality and by adapting to the client's unique business process. This lets you develop your own unique business solution, fortified with a real competitive advantage.
   
   The "rule of thumb" is: The more problems international corporations have in their main markets, the stronger their interest is in the Russian market. Judge for yourself. According to IDC, in 2003 Siebel lost nearly 27 percent of its market share. As a result, its stock fell to 11.9, and the return on the share price became the lowest since 1995. In the second quarter of 2004, Siebel closed 15 deals for $1 million each. In the previous quarter, there had been 29 deals. In fall 2004, Siebel opened a representative office in Russia and announced of its aggressive plan to capture nearly two-thirds of the Russian CRM market. Obviously, this was because Siebel had saturated the international corporate market, and many mid-market companies in the West still cannot afford to pay for such an expensive CRM solution. (It is worth remembering that a company that turns over a half-billion dollars a year may be considered upper mid-market in the West but large in Russia. There are quite a few mid-market companies in Russia that equate to thousands of CRM seats.) It is interesting to note that during the same period, SAP's stock increased by 6.9 percent. Conversely, SAP achievements in the Russian CRM market are not so as impressive (in full compliance with the statement made earlier).
   
   It is scary to imagine such monsters as "OracleSoft" and, probably, "SieBM". The emergence of a duopoly rarely leads to price reduction. If MS Siebel ever appears, you won't have to worry about large and mid-market companies, because the market already has been waiting to see how Microsoft will manage CRM Navision and MS CRM, not to mention new acquisitions.
   
   One can suppose that the quantity of newly recruited Microsoft BPs will force them to exploit the old sales push approach (already proven erroneous): that customers just have to install the new IT system (not the whole solution!) and the problems will disappear. Despite the key message from Russian CRM experts, that technology is only a small piece of the CRM implementation process, in their drive to eat the largest slice of the Russian market pie, the newly founded monsters may repeat the mistakes they already made in the West. If they follow the slogan, "large functionality is the key success factor," they may ignore the real business needs of Russian businesses, leaving CRM implemented in organizations that have not "done their homework" and are hardly ready to use powerful strategic capabilities. We'll see how the Russian CRM market handles it.