The CRM Spending Paradox

By Kimberly Hill
CRMDaily.com
October 31, 2001

'While you can put your IT department on an austerity budget, you can't put your customers on austerity service,' Meta Group executive vice president Howard Rubin said.

When economic times get tough, companies need to cozy up to their customers. That's the advice of many consumer business experts, including Dr. Howard Rubin, executive vice president and research fellow with Meta Group. Rubin told CRMDaily.com that this is why those companies that have invested in CRM infrastructure and applications will continue putting money into CRM even during the current recession. "The people who have bought are expanding," he said.

The Meta Group recently released its yearly IT spending report, "Worldwide IT Trends and Benchmarking Report 2002." The research showed that IT spending worldwide will decline an estimated 2 percent to 5 percent next year. However, Rubin said that CRM spending made the strongest showing of the application categories, remaining just about level. ERP, on the other hand, showed the sharpest drop. No category showed a predicted increase.

Early Adopters Stay the Course

According to Meta Group's research, IT spending peaked in 2000 at an average of 7.5 percent of companies' gross revenue. This year, Meta Group predicts that IT spending will end up at about 3.9 percent of revenue -- nearly a 50 percent drop. Fortunately, companies with foresight put a good portion of last year's expenditures into CRM systems that will serve them well in the current, highly competitive economic situation.

"People are trying to hold onto their customers," Rubin said. "They may be a little cautious about increasing their investment. But, while you can put your IT department on an austerity budget, you can't put your customers on austerity service."

Lean and Mean, But Customer-Friendly

Thus, predicts Meta Group, CRM will hold steady during a year when 40 percent of chief information officers (CIOs) said that they intend to cut their budgets by more than 20 percent. In addition to operating costs, 53 percent of CIOs said they are cutting staff.

Not surprisingly, pay rates for those staffers are up only 9 percent this year. However, the biggest jumps came for folks likely to work on CRM-related projects -- project leaders, business analysts, and metrics specialists.

Latecomers View the Field

According to Rubin, companies that had not begun CRM projects before the recent economic downturn are unlikely to do so until well into a recovery. "This will create a pent-up demand among late adopters," he said.

Those companies are sitting on the CRM sideline, doing their research and measuring their competitors' CRM outcomes. While they may be comforting themselves with high-profile stories of projects run amok and huge CRM implementation cost overruns, Rubin thinks they will come around soon enough.

"CRM is probably a bad investment to put on hold," he said. "In a tight economy, how you are going to compete is by getting tight with customers. People think that the solution is cost-based, but it's really service- and value-based."

On the bright side, Rubin believes that the pent-up demand created by this IT spending hiatus might mean better CRM applications for those who wait. "It might be better in some way," he said. "They'll hit the market when it's ready for prime time."

So, it is a catch-22 for those who believe in the competitive power of CRM, but have delayed investing and are now caught in the cost-cutting crunch. Rubin summed it up this way: "Companies have put themselves into a CRM paradox."