Filing Information

December 1999 IDC #21130 Volume: 1 Tab: Competitive Positioning and Strategies

Customer Relationship Management Services Bulletin

A Competitive Landscape of the Evolving CRM Services Market
Analysts: Rasika Pradhan and Katrina A. Menzigian

IDC Opinion
As the customer relationship management (CRM) services market continues to evolve, who is competing in this market, and how are they positioned within the context of the broader CRM solutions landscape? CRM solutions will increasingly encompass a broader array of activities within the framework of a clients overall business. As a result, CRM service vendors will experience increasing competition from a variety of existing and emerging players that are moving away from their traditional business lines to capture new opportunities in the CRM space. The key to success for CRM service providers will be their ability to provide technology solutions that address and enhance the clients overall CRM ecosystem while addressing the ultimate business goal.

Introduction
Business solutions such as CRM illustrate the changing role that information technology is increasingly assuming in the world of business and the global economy at large. The use of technology is steadily shifting away from its past focus on the products and services in and of themselves and the efficiency gains they offer. Rather, society will soon adopt views that perceive technology as a merging of products and services that seamlessly enable new approaches to business activities and redefine how people work and interact with each other. Excellent examples of this trend include customer relationship management, enterprise relationship management, supply chain management, and ebusiness. Although in the future we can expect to see less clearly defined distinctions between what we today consider products and services especially in relation to business solutions these distinctions continue to characterize current markets. In studying the area of CRM, for example, two camps of players can be clearly identified: those that offer products and those that offer services. This bulletin examines the current competitive landscape for CRM services and provides an overview of the types of players that are active in this market segment.

The Holistic CRM Ecosystem

The holistic CRM ecosystem shown in Figure 1 is a graphical representation of how CRM can be viewed as the missing link between back-office activities (including integrated enterprise relationship management, supply chain, and business intelligence) and front-office activities (including sales, marketing, customer support, and ebusiness). For example, a contact center with varying interactive channels, such as the Web, email, phone, and fax, collates customer information that can be directly fed into a customer-centric data warehouse. The data can then be extracted from the data mart and translated to serve marketing, sales, or customer service goals. By using more information, customers can expect to be offered customized products and services while simultaneously building interactive relationships with the company. This goal can be achieved only if the right enterprise relationship management and supply chain tools are in place, as the entire customer experience must travel through the enterprise supply chain to achieve the desired effect. CRM has mainly been associated

Quoting IDC Information and Data: Internal Documents and PresentationsQuoting individual sentences and paragraphs for use in your companys internal communications does not require permission from IDC. The use of large portions or the reproduction of any IDC document in its entirety does require prior written approval and may involve some financial consideration. External PublicationAny IDC information that is to be used in advertising, press releases, or promotional materials requires prior written approval from the appropriate IDC Vice President or Country Manager. A draft of the proposed document should accompany any such request. IDC reserves the right to deny approval of external usage for any reason. Copyright 1999 International Data Corporation. Reproduction is forbidden unless authorized. For additional copies please contact Cheryl Toffel, 508-935-4389.

Check us out on the World Wide Web!

21130 -2-

Printed on recycled materials. 0

http://www.idc.com

A International Data Corporation

with front-office enterprise applications, but it is critical to extend this view because the CRM arena encompasses a broader array of activities. Back-office applications such as data marts and business intelligence are critical elements and will continue to play an important role in the enterprise supply chain. However, analytical tools need to go deeper and analyze buying behavior, using predictive measures and thus gaining a fuller understanding of customer needs and desires.

Figure 1 The Holistic Customer Relationship Management Ecosystem

Consulting
Customer Relationship Management Web Email Fax Phone

Front Office

Customer Interaction Channels Marketing Sales Customer support Data transfer

Outsourcing

Front Office
BI

Integration

Integrated Client-Facing Applications

Back Office

Supply Chain Management

Integrated ERM

Order mgmt.

Logistics

Materials mgmt.

Operational

HR

Customer-Centric Data Warehouse

Analytical

Data marts

Mfg.

Customer Knowledge Management

Training
Source: International Data Corporation, 1999

To track the CRM services marketplace, IDCs CRM services programs focus primarily on customer-facing activities, which include sales, marketing, Web-based customer service, and contact centers. Our research also addresses the points of intersection

A International Data Corporation

-3-

Back Office

Finance

21130

between front-office and back-office activities, such as the integration of CRM and enterprise resource management (ERM) applications and processes. This approach aligns with CRM initiatives currently underway at many companies. Typically, companies begin enhancing their customer service processes by addressing these front-office activities, viewed as the customer touch points. IDC believes that although the holistic CRM ecosystem presented in Figure 1 is a more advanced model, it reflects how companies will approach CRM in the near future. At the same time, consulting, integration, training, outsourcing, and support in all the facets of the CRM solution will become more sophisticated, and the end-toend delivery model will reflect the maturity of the market.

Definitions
IDC defines the CRM services market as follows: The consulting, systems integration, outsourcing, training, and support required to design, build, and operate customer care processes and systems that help companies attract, retain, service, and expand relationships with customers in order to generate business benefits and to improve the consumer experience. These systems and processes typically involve customer contact centers, sales force automation, marketing automation, and Web-based customer service. Following are definitions of the competitive service categories that apply to the CRM services market:

N CRM consulting. This involves system design, contact handling

strategies, product evaluation and recommendations, benchmarking, operational optimization strategies, change management, process redesign, knowledge management, architectural design, site selection, and others.

N CRM systems integration. This involves the design and

implementation of new facilities/systems, upgrading existing facilities/systems, consolidation of facilities, networking of disparate facilities/systems, design and implementation of computer telephony middleware solutions, installation of and training on front-office software applications, design and implementation of online customer care functionality and systems, development of data warehousing/data mining systems, integration with enterprise resource management (ERM) systems, and others. the complete or partial transfer of a clients actual customer care operations, systems, and processes to specialized service providers. While the more established segments of this market continue to grow rapidly, newer models of CRM outsourcing are emerging to influence market dynamics. Examples of CRM outsourcing include the following:

N CRM outsourcing. CRM outsourcing typically involves either

21130

-4-

A International Data Corporation


Complete contact center operations, including building,

staffing, operating, and managing contact centers and customer interaction processes on behalf of clients. Typical areas of support provided by these companies include sales, customer service, billing, and technical support. companies emerging that specialize in handling only email and Web-based customer interaction on behalf of clients. company retains its own contact center facilities and staff and outsources only the centers operations and management to an outside service provider. emergence of service providers that are pre-integrating and hosting various components of CRM solutions, including front-office applications and call and email routing technology. These companies primarily focus on technology outsourcing and do not assume responsibility for the operations of contact center staff and processes.

Email and Web-based customer contact, with newer

Insourcing or operations outsourcing, whereby a client

Technology outsourcing, whereby the CRM market sees the

CRM training. CRM training services primarily focus on the training of the end users of CRM front-office applications and processes (e.g., customer service representatives and sales professionals). This segment involves training in the following areas:

Business/professional skills
Technology skills
Client products and services
Market Forecast
CRM services represented a $33.2 billion opportunity on a worldwide basis in 1998 (see Table 1). Increasing at a compound annual growth rate of 22%, the market will reach $89.7 billion by 2003. (For more details, see The Global CRM Services Market: Major Players and Market Forecast, 19982003, IDC #20207, September 1999.) It is important to note that CRM outsourcing represents the largest portion of the forecast, accounting for roughly 75% of the market in 1998. IDC expects CRM outsourcing to remain in this dominant position, representing 65% of the market in 2003.

A International Data Corporation

-5-

21130

Table 1 Worldwide Customer Relationship Management Services Revenue by Region, 1998, 2001 and 2003 ($M)
1998 Worldwide United States Europe 33,182 17,259 9,412 2001 59,921 31,794 16,479 2003 89,700 48,314 23,897 19982003 CAGR (%) 22.0 22.9 20.5

Key Assumptions: N Worldwide acceptance of CRM systems will be most pronounced in those countries that have existing investments in enterprise resource management systems. N The growing ebusiness environment will fuel demand for more robust customer support processes and systems. Messages in the Data: N By 2003, the CRM services market opportunity will have grown over 2.5 times since 1998. N The United States and Europe on a combined basis represent 80% of the total worldwide CRM services market.
Source: International Data Corporation, 1999

Competitive CRM Services Landscape

Figure 2 illustrates the various players in the CRM services market. IDC categorizes the players into the following seven categories that typically reflect the companys heritage:

Consultants

Business consultants
IT consultants N N N N N N
Technology owners Telecommunications service providers/carriers Systems integrators CRM outsourcing providers Training vendors The emerging players responding to CRM and ebusiness opportunities

Europe is experiencing intense merger-and-acquisition activity and, due to the expansion of service offerings within the region, some of the firms no longer fit entirely into their respective categories. To avoid confusion, IDC identifies companies by their heritage or the services and skills that represent their primary line of business.

21130

-6-

A International Data Corporation

Figure 2 Players Within the Customer Relationship Management Services Landscape

Business Consultants
Booz, Allen & Hamilton McKinsey

IT Consultants
Andersen Consulting Arthur Andersen Deloitte Consulting Ernst & Young KPMG PricewaterhouseCoopers

Systems Integrators
Cambridge Technology Partners Cap Gemini CSC debis Systemshaus EDS ICL Logica Origin Unisys

CRM Outsourcing
800 Support Affina APAC Atos Centrobe Convergys ICT Group PeopleSupport SITEL Sky Alland Sprint Telecenters SPS Teleservices Stream Sykes Synchrony Talisma TeleTech UCMS West Teleservices

Emerging Players Addressing the CRM and eBusiness Market

Answer Think eLoyalty Emerald Solutions Extraprise Inforte Keane Quick Start Stonebridge Tanning Zamba

CRM Services CRM Services Market Market

Technology Owners
Cisco Compaq HP IBM Lucent Oracle Nortel Siemens

Training Vendors
Emerging market opportunity

Telecom Providers
Ameritech AT&T BT Cable & Wireless Deutsche Telecom France Telecom Sprint MCI

Source: International Data Corporation, 1999

The Technology Owners IDC refers to companies that have a heritage in the IT product side as technology owners. Companies in this category include those that provide infrastructure and front-office applications as well as those that specialize in contact center technology. Companies such as IBM and Oracle originally began their operations selling computer products. They have since expanded to include significant services businesses. Likewise, companies such as Lucent and Nortel, leaders in the automatic call distributor (ACD) market, have expanded their product portfolios and have begun offering some consulting and systems integration services around the contact center.

A International Data Corporation

-7-

21130

The Consultants The consultants can be split into the following two groups:

Business consultants deliver the strategic business model and focus more on solving underlining business issues. In terms of CRM, they determine the best practices and commitment required to achieve a feasible CRM goal, whether through technology, company education, or a combination of both. IT consultants deliver all of the above, but they are more technology driven in terms of being able to meet the technology delivery criteria. These companies have competencies in identifying business strategies and integrating CRM technology into the business model.

Consulting firms that deliver CRM services include Andersen Consulting, PricewaterhouseCoopers, Deloitte Consulting, Ernst & Young, Arthur Andersen, KPMG, McKinsey, and Booz, Allen & Hamilton. The Systems Integrators Systems integration companies traditionally began with client/server projects, but now they have a broader coverage, including CRM services (e.g., Cambridge Technology Partners and debis Systemhaus). Systems integrators provide competencies in integrating complex systems of different platforms and technologies, including packaged software. The Telecommunications Service Providers/Carriers Companies with a telecommunications heritage tend to be most involved with contact centerfocused services. In the past, these companies were a primary source for call center technology and services, especially in the area of call routing and switching technology. Today, telecommunications providers affect contact centers in two ways: toll-free phone service and intelligent networkbased call routing and management services. The latter is often accompanied by systems integration and consulting services. CRM Outsourcing These companies represent a combination of large and small teleservice and contact center outsourcing players that provide clients with focused industry-specific or functional offerings. Both large and small players are quickly modifying their business models in response to the emerging ebusiness environment. This model typically involves moving beyond the handling of just voice-based customer contacts to include multichannel support (i.e., email, text chat, co-browsing, and, eventually, voice over IP). Larger market players have varying degrees of international coverage and specialize in handling high volumes of calls and/or customer contacts.

21130

-8-

A International Data Corporation

The Emerging Players Responding to CRM and eBusiness Opportunities Typically, these companies include niche players that focus on building expertise in both CRM and the integration of ebusiness solutions. The majority of the listed companies are active in the U.S. market, but vendors such as eLoyalty and Tanning continue to expand their services in Europe.

IDC Analysis
Several major developments in the IT services industry are impacting the evolution of the CRM services market. These trends are not only fueling the demand for more robust customer support processes and systems but are also impacting how CRM service providers organize their practices, identify their competitors, and select their partners. These trends include the following:

The growth of ebusiness. Growth of the ebusiness environment has meant a correspondingly strong growth for key CRM segments, especially contact centers. Companies that have come to market as .coms, or those that are creating Web-based business units, are relying on contact centers as a means of supporting their ecommerce activities and bringing human interaction back into their relationships with customers. CRM service providers, including both systems integrators and outsourcing providers, are heavily targeting this emerging market opportunity. In particular, we see the emergence of niche service providers that are targeting their services at integrated ebusiness/CRM solutions. The maturity of the ERM market. As the ERM market matures, it is impacting the CRM services market in two ways. First, service companies are finding that their installed base of ERM clients are increasingly seeking CRM solutions, thus providing CRM services providers with a ready prospect list. Second, as the ERM services market matures and as its growth levels off, service providers are transitioning their ERM-trained professionals into their expanding CRM practices, thus leveraging valuable skills and supporting the integration of front- and back-office enterprise applications. In some cases, smaller service providers that were formally focused primarily on ERM now view CRM as the next major growth opportunity. These companies are transitioning their entire business to compete in this market. The increasing sophistication of CRM outsourcing services. The teleservices industry of the past is quickly transforming itself into the CRM outsourcing market of the future. This transformation involves service providers that offer more robust outsourcing services, such as consulting and multichannel support, as well as those that take a proactive approach to the management and use of customer data. Outsourcing service providers are modifying their business models in order to become an increasingly strategic component of a broader CRM

A International Data Corporation

-9-

21130

solution. This emerging role for CRM outsourcing service providers means that systems integrators are now taking notice of the outsourcing providers and, in some cases, developing relationships.

The evolution of CRM-related technology. Over the past two years, the market has seen a proliferation of various types of software that address different aspects of CRM solutions, anywhere from computer telephony integration and workflow management for the call center to marketing automation and email management and routing. These products address very specific aspects of CRM, are not yet integrated into complete solutions, and can be very complex to tie together and implement. Given this environment, CRM service providers can offer their clients value by understanding not only these applications but also understanding how to bring these applications together to properly address their clients business needs. Although this is a formidable challenge, CRM service providers are also in the position to exploit a rapidly growing market opportunity.

Conclusion and Recommendations

The ongoing management of customer relationships, and the leveraging of these relationships, contributes to the continuing need for service vendors that can provide expertise in delivering CRM services. Consequently, a clearer picture emerges whereby technology is increasingly being perceived as the seamless integration of products and services that enables new approaches to business activities and remodels the ways in which people work and interact with one another. At the same time, as the CRM market begins to mature, companies will need to approach CRM in a more holistic manner, encompassing all the elements depicted in the CRM ecosystem. As CRM encompasses a broader array of activities, services vendors will experience increasing competition from a variety of existing and emerging players that are moving away from their traditional business lines to capture new opportunities in the CRM space. The key to success in this marketplace will be the ability of CRM service vendors to integrate technology solutions while not losing sight of the ultimate business goal. IDC believes the following recommendations are both applicable and critical for all categories of CRM service providers:

Remember that the ultimate objective of any technology implementation is the achievement of a desired businessimpacting outcome. Therefore, it is important not to lose sight of the business objective and to demonstrate and deliver value in addressing clients business goals. CRM solutions are an intertwined combination of technology and business processes. In order to be effective, CRM service providers will need a balanced understanding of both products and services. Technologists and strategists alike should have - 10 A International Data Corporation

21130

their sights focused on the CRM whole and not just its parts.

At the same time, it is vital to have deep expertise in not only CRM technology but also customer service processes. Expertise in particular vertical industries further strengthens the competitiveness of CRM service providers. With the proliferation of various types of hosted technology solutions, expectations around standard implementation time frames will increasingly shorten, placing additional pressure on service providers that are implementing on-site CRM solutions. The use of repeatable or preconfigured CRM tools will assist in reducing implementation times and costs. The speed at which CRM service vendors can integrate CRM solutions with ebusiness and back-office activities will become critical as companies transform their businesses to address the new economy. The technology lease-or-buy argument will become increasingly relevant in the CRM marketplace, whether in reference to packaged front-office software applications, ebusiness hosting, or network-based call center services. In order to compete, service providers will need to assess how best to incorporate these approaches and options into their own portfolio of offerings. The ability to help clients develop a strategy around these choices will also grow in importance. Change management strategies are necessary and integral parts of CRM-related activities. Service vendors that offer these services as part of their overall CRM portfolio can facilitate the adoption rate of CRM within organizations. The main issues will focus on people and processes and how to marry these two with new CRM technologies that have an overall impact on the business.

Document #: 21130 Publication Date: December 1999 Published Under Services: Customer Relationship Management Services; European Customer Relationship Management Services

A International Data Corporation

- 11 -

21130