CRM - A Missing Link in SMEs Growth


By

Jyoti Batra
IT Faculty
ICFAI  National College
IDPL Complex, Old Delhi Jaipur Road, Gurgaon
 


Abstract

Small Medium Enterprises (SME)  the  catalyst  in   economic growth  &  development, are facing  stiff  competition market  place  and  in establishing themselves  as credible supplier of quality product and services. In India they are producing 8000 different products with 40% share in overall industrial output. Though SME's are moving forward by using different technologies, but they seriously lack structured use of information.

CRM can fulfill this gap and complete their business chain for higher growth.  CRM is becoming    strategic intent for  SMEs  to compete  with large  organization. This article talks about CRM  as a  tool to obtain  definitive  customer  strategy,  product outline and culture changes.

CRM A MISSING LINK IN SMEs GROWTH

INTRODUCTION

Small and medium Enterprises (SME) are one of the few sectors in the economy that has a distinct global advantage in terms of cost and quality. Since 1951 Government has earmarked a special role for SMEs in Indian economy. From year 1991, government has provided special protection to SMEs with adoption of liberalization and globalization policies, but still SMEs are not fully developed. These are established in almost all major sectors in India industry such as food Processing, Pharmaceuticals, Leather industry, Home science, Financial, Computer software, Textile & Garments etc.

The main objective of SME is to give high impetus to domestic production with small startup capital investment requirement. SMEs are also known as small and medium business, Small and medium sized enterprise etc. SMEs can be small companies with turnover below certain limits or having a limited number of employees. SME have not   only successfully managed challenges posed by large organizations at market place , but have also have transformed in to large scale organizations. SMEs are no threshold of playing a crucial role in world economy by harnessing technology and structure.

The easiest way for SME to play larger role in international space is by embracing strategic advantage of adopting information technology driven supply chain management (SCM) and Customer Relationship management (CRM) , While 80 % of SMEs are using SCM component of e-business, but it has given only compartmentalized support into  business development as many of them have not implemented CRM.SCM helps in reducing inventory of raw material & finished goods and reduce supplier lead time. It leads to increase in operational efficiencies of the organizations.

Though SMEs realize the importance of adoption of CRM technology, but they still have not started using at large scale and also are not developing them in-house. SMEs have also ignored the research and developing and of CRM technology .This paper discusses core issue related to adoption of CRM and its benefits with Indian SMEs.

Customer Relationship Management ( CRM) in SMEs

The Hidden Factor

Each coin has its two sides. SMEs on the positive side of e-business are using updated technologies. On the other side SMEs have not fully adopted the powerful tool CRM. Customer is the king of today's market and the business environment are becoming more & more demanding. Analysis made by different consulting firms showed that less than 20% of global SMEs have CRM implementation. About 5% of Indian SMEs have adopted CRM. CRM market for SMEs is grown by 21% per annum. Three million Indian SMEs account for 50% of Industrial output, which shows the tremendous scope for using CRM.

Now, the question arises, "Is the CRM a tool that can perform optimization of core function?" SMEs do not understand that to build capital value they must create a business which consumes less time to deliver. High level of customer service and high profitability in reduced time and cost has improved possibility of finding CRM as most appropriate tool. Many case studies show that SMEs still lack a strong awareness of good CRM practices. The generic process that SME follows is:

Supplier       ------->        SCM         ------>        Company        ------>   Customer

Though SMEs have their own information system, but they lack poor management and often have old outdated systems and practices for maintenance. Besides the above, SMEs are doing well in their businesses with complete strategy from planning to implementation, but they lack in smart business solutions. Due to ineffective relationship marketing policies & practices, SMEs often use multi pronged interaction with their customer's thereby using higher time and cost. There is a need of greater emphasis on CRM in SMEs, but constraint of resources restricts them from growing beyond threshold this point.

There can be significant growth in organization's sales performance and improvement in winning rates if SME use CRM. Though SCM increases the number of customers of SMEs, but it is only for one time. Without CRM it is difficult to retain the original or old customers. Suppliers are considered as upstream and customers are considered as downstream. The flow of information goes from downstream to upstream. SCM can take care of buyer side whereas CRM helps in selling side. SCM is a business discipline whereas CRM is a core business strategy. So SME should migrate from generic process depicted above to more comprehensive business chain as below : 

Supplier     ------>     SCM      ------>     Company   ------>  CRM       ----->    Customer
                                      Buy side                                                    Sell  Side

SMEs do not focus on nature of customers and do not measure the customer satisfaction in any great detail. They can not differentiate who are their prospect and more profitable customers. SMEs do not maintain any systems for monitoring marketing cost against customers won. They focus on the direct revenue per customer and fail to measure the satisfaction per customer. Above stated problem can be solved by implementing CRM.  Satisfaction to customer actuates them to be the potential customers. They bring more business to SME. We know that 80% of our business is generated by 20% of potential customers.

CRM creates the benefits management by tacking performance and also creates effective business forecasts for top management. Early avatar of CRM was designed for management to centralize their customer data. Salesperson / Customer support staff can do the same task in outlook and excel. New CRM software's can as a clone of sales  support staff and change the shape of business by continuously maintain and develop the relationship with customer. The increase in treatment of information leads to enhanced knowledge about current and potential customers. It has seamless & continuous real time flow of information between customers and enterprise's executive. they can reveal a picture of revenue generation and can manage the fixed administrative expenses by knowing the type of transaction . It provide customer with high level and value added personalized product and service.

"Oracle is expecting over 100 per cent growth in India for its CRM business on the back
Of increased technology awareness and need for cost-effective customer servicing."

                                                                                                Business Standard Feb 08

CRM can be more focused if combined with the Internet. Study done by Sybase shows, traditional direct mail generate only 0.5 to 1 % response, data ware house increases responses to 6 to 8 %, but CRM data warehouse the responses to 50 % and also create direct communication line with each customer. It is this scalability of CRM that poses huge potential future business growth.

CRM differentiates between desire and necessity of customers by increasing the satisfaction level and optimizes customer's life cycle in organization. It subjects data to regression analysis to check the customer's potential to purchase. Because CRM come after SCM, it results in reduction of sales cycle leading to increase in sales. It lets their sales personnel to prioritize activities, helps them to monitor sales progress during busy schedules without regular interruptions. CRM provides transparency into sales cycles, with healthy pipeline for current and future year. It's design shows the sales person what deals are in pipeline and where each one stands.

CRM also provide some indirect benefits to salespersons. The most obvious is lead management. It prevents favoritism and eliminates the embarrassing mistakes of assigning the same lead to two different sales persons. CRM based software offers a built-in data ware to give insights into historical trends of customers .These trends help to make better marketing decision and in product development also. Higher is the percentage in lead generation, higher is the sales which leads to higher commission to sales persons. It reduces the data entry which is considered as necessary evil. It reveals the complete cycle from order received from customer to cash received. It provides them average weighted cost transaction made by customer. Direct cost is the purchase made by customer whereas weighted cost is the product of purchase made and time used by customer to complete a transaction. CRM makes sales manager proactive to diverse sales metrics and monitor sales performance.

Technology Used In CRM

Most business are shifting from product centric to customer centric. Moving towards customer centric approach is a multi prolonged efforts that requires transformation of process, culture and strategy from top level to every individual employee. Technology has a crucial role in providing tools and infrastructure to support this. CRM supports SMEs in their business customer loyalty. Most CRM software is developed using J2EE architecture which is accessible from any web browse. It has feature of Multilanguage and Multicurrency to support global business. Customer can also view their touch point used by enterprise .It reduces the customer support cost and increase the up sell/ cross sell of SMEs. Routing, Switching, wireless and Internet telephony are expected to be beat cost competition with high operational efficiency. Cisco has come up with such solution in stock market, health care and manufacturing sector. It has started network wheels to create awareness among SMEs. As business grows, the business processes become very complex then it is very difficult to ensure customer satisfaction. CRM as solution help in retention and get repeat business from the same customer to generate additional maintenance revenue. The process is as follows:

* Analyze history of every purchase made by customer.
* Make record of response rates.
* Communicate the list of customer and product scores to application system.
* Generate the campaign result based on scores.

Indian Scenario

CRM in Asia is forecasted to grow at a compounded annual growth rate of 18'9% between 2006 and 2011 to reach $846.4 million total software revenue. Data monitor report predicts that SMEs will increase their expenses.

                                                       Source : csi-india.org

The graph gives the breakdown of Indian GDP of 800 billion US$(est. in FY06-07). Asian Market has huge potential to grow in competition with adoption of CRM software. Indian SMEs are considered to be more important member within supply chain.  If we do SWOT analysis of the Indian SMEs, we will find export market expansion and technological innovation are the biggest strength of Indian SMEs. These have vitalized Indian brand to the world. Indian SMEs are looking at a 100% year on year growth. These have opportunity to again from WTO regime and support technological up gradation to grow in domestics and international markets. Despite of their strength, SMEs are facing threats of distrust between them and financial institution. Due to high inflation rate also cost of operation of SMEs increase. Developed countries also create a non-tariff barrier for SMEs giving them undue advantage.

Indian SMEs have poor adaptability to changing trends. Indian SMEs are facing competition problem with new design, products with higher performance and variety and better service to customers. Different CRM model is developed for technological innovation in SMEs which are suitable under different conditions.

Hosted CRM model is most suitable as per Indian business environment as it focuses on customer service rather than technology. Faster implementation of hosted CRM realizes more benefits than licensed model. This model helps Indian SMEs to get an immediate ROI. Licensed model is more suitable for SMEs with multiple processes and complex transactions. Hosted CRM is more preferred in Indian with growing demand of customer services especially in banking, Insurance and financial services.

Hurdles in Adoption of CRM

The major problem with CRM is its implementation cost. Without CRM application SMEs are having poor flow of information which indirectly cost them high. As SMEs are of small size, they lack in formalization of procedures. This affects the adaptability of employees towards CRM. Employees still want to use their contact books and schedule lists as it easy to maintain. But to keep the complete track of potential customer is troublesome. Therefore, employees take CRM as more complex than their good practices.

Financial constraints also abhor SMEs for present investment in CRM. They need not implement complete CRM. They can use hosted CRM hybrid model which is modular in design. It generates flexibility and also provides more recovery benefits. These models are easy to deploy and cost effective. Complete CRM project can cost a lot more but hybrid model CRM can cost much less and effectively solve problem of customer acquisition, retention with cost effective service.

National Australia Bank represents a good example of implementing CRM strategy for over ten year and has won numerous awards. Easy track CRM, Gold mine CRM, Lotus notes, Saas, Pivotal, Sage, Sibel, ASP, are some of good software used by SMEs Sibel    is leading with market share 29% in north America ACT is the CRM software that has invaded into Asian countries with estimates to grow at rate of 61% till 2010. Even though the ratio of deployment of this application in big companies and SME's is 31% : 22%, SMEs seldom take right decision to analyze the correct metric of customer and ultimately use the incorrect one. Therefore CRM starts failing in midway.

SMEs focus on return on their investments in CRM. It dose not pay them at once. Study shows that 75% of project fail due to high expectation of ROI, but actual failure rate because of problem with CRM is only 5% CRM shows them clear cost savings through sales force automation. These benefits are not quantifiable in terms of cost in short term.  CRM is viewed as a means of management control rather than an effort to facilitate the scale. Employees should see the immediate values from using CRM. They should take CRM as a system with transparency and making their current processes to be comfortable. CRM provides the solution according to requirement without being too complex. These measurements alleviate CRM problems.

Conclusion

It is very difficulty for SMEs to say afloat in this competitive business world. However with the right CRM practices they can attain maximum growth and great success. CRM empowers employees to get customer's insight. Their best practices increase customer acquisition and loyalty. CRM organizes the data of customer in such a way to make it accessible to all employees of organization. The needs of CRM become more important when more than one salesperson deals with customers.

The cost of implementation may be high but a successful implementation of CRM not only depends on technologies but on working culture and rules in the organization. The best result is obtained by identifying the structure of SMEs. SMEs should remember that sustainable customer relationships are worth more than mere sale of product. SMES can implement incremental CRM --- a developing CRM application at one department and slowly expand it to other department and finally in to entire enterprise.

Selected References

Online journals and article

1.  www.oracle.com/aaplications/customer-relatioship-management.html
2.  www.mgt.ueaac.uk/research/qrrq/res/currentres/probssmes.html
3.  Andy bose, CEO Amipartners2003
4.  www.strategy-business.com/resiliencereport/resilience/rr00009
5.  www.ameinfo.com/87163.html
6.  www.livemint.com/articles/printarticles.aspx
7.  www.unece.org/indust/sme/review95.htm
8.  www.ecustomerserviceworld.com
9.  www.laghu-udyog.com
10. http://j-net21.smrj.go.jp/expand/kokusai/oecd/1_3software/upadhyay.pdf

Books

11. Luis Carnerio etal:Methodology for the implementation of e-business solutions in
     sme's,Porto Apartado 4433,4050-497 Porto,Portugal
12. Kharbanda V.P. February , 2001,Facilitating Innovation in Indian SMEs- The role of clusters,urrent Science, Vol80, No3
13. Newell Frederick(2003), Why CRM doesn't work: hhow to win by letting Customers manage the relationship, Kogan Page
14. Phhilip Kotler(2003), marketing Insight from A to Z : 80 concepts every manager needs to know, John Wiley and Sons
 


Jyoti Batra
IT Faculty
ICFAI  National College
IDPL Complex, Old Delhi Jaipur Road, Gurgaon
 

Source: E-mail March 9, 2009

          

Articles No. 1-99 / Articles No. 100-199 / Articles No. 200-299 / Articles No. 300-399
Articles No. 400-499 / Articles No. 500-599 / Articles No. 600-699 / Articles No. 700-799
Articles No. 800 to 899 / Back to Articles 900 Onward / Faculty Column Main Page