SURVEY: THE REAL-TIME ECONOMY

Always-on people
Jan 31st 2002
From The Economist print edition

Part I
Part II
Part III
Part IV
Part V

Websites Siebel Systems is the market leader in "relations management" software. A company press release describes its partnership with IBM in delivering CRM solutions. E.piphany offers tools to analyse CRM data in real time. Gartner publishes research on CRM. Extensity is pioneering employee relationship management (ERM). See also IBM's Watson Research Centre.

A big part of running a real-time enterprise will be managing
relationships

MANY pets already wear implantable biochips so they can be
tracked. Will people be next? A search on the Internet yields a
worrying several hundred finds, but a closer look reveals that most
of these are websites maintained by overly sensitive souls who are
bothered that the biblical “mark of the beast” might soon become
reality. Others fret that a national ID card in America might one
day be replaced by implanted ID chips.

It is unlikely that these kinds of tracking devices will soon become
part of the real-time economy. But this does not mean that
information about people will not play an important role. On the
contrary: such data will be central to improving business
relationships, be they with customers, partners or employees. In
fact, “relationship management” software, in particular for
customers (CRM for short), is among the few segments of the
software industry that are still growing strongly (see chart 4).
Siebel Systems, the market leader in this field, is weathering the
economic storm better than most IT firms.

Relationship management is
something of a fad, just as
enterprise resource planning
(ERP) was in the 1990s. Yet
there is a real need as well.
It is not much use speeding
up your information flow if
your customers defect to
the competition, which they
appear increasingly ready to
do. And now that the
supply chain is becoming
more and more standardised
and optimised (see article),
finding and keeping the
most profitable customers
and perhaps even dropping
some of the loss-makers
looks like the best way to
improve margins.

The idea of relationship
management is in some
ways a throwback to a time
when the world was still easily encompassed. A small-town
shopkeeper, for example, knew that a certain customer always
bought a bottle of beer on the way home from work, and could be
talked into buying three on a Friday. He knew which farmer
delivered consistently good-quality vegetables. And he knew which
of his employees was good at dealing with which customers.

An intimate relationship

To recreate this intimacy, relationship-management software pulls
together information from different departments of a firm. CRM
systems collect data from any point where a customer “touches” a
company (such as a store, a call centre or a website), and
combines them with information from other sources (such as credit
ratings or driving records). These data can then be used to
improve a firm's service, for example by relieving people of the
tedious business of having to fill in a home-loan application. More
complex uses include giving customers different levels of service,
depending on how rich they are: if they have only $100 in their
account, they might end up being told a dozen times that “your
call is important to us”; if they are millionaires, a real person will
probably pick up the phone right away. The highest art of CRM is
to come up with a personalised offer, say a combination of a home
loan and a college savings plan, that a customer is likely to
accept.

As the examples suggest, banks and other financial firms have
again been the early adopters. But other industries are catching
up fast, including some that may not look like obvious candidates,
such as casinos. In fact, Harrah's Entertainment, the world's
second-largest gambling company, was a CRM pioneer. As early as
1997, it started capturing data about members of its Harrah's
Total Gold programme, including their gambling behaviour.

This huge amount of information now allows Harrah's Entertainment
to predict how profitable a customer might be, even after only a
few casino visits. The data are also an excellent basis for
launching fine-grained marketing campaigns. For example, to
counter the sharp drop in occupancy rates at its main Las Vegas
hotel after the terrorist attacks on September 11th, the company
sent out thousands of finely targeted e-mails to potential
customers. As a result, its rooms quickly filled up again.

CRM systems also proved their worth to other firms in the wake of
September 11th. They allowed Hewlett-Packard, a computer
maker, quickly to compile a list of all its customers in the World
Trade Centre, complete with the PCs, servers and printers they
had bought, and match this information to the closest HP supplier
with the equipment in stock. This gave HP a head start once Wall
Street firms started ordering replacements.

Harrah's, HP and others rely mainly on a technique called data
mining—trying to find patterns in consumer behaviour by using
clever software to sift through huge piles of historical data. But
some CRM firms such as E.piphany now offer tools that analyse
the data in real time. Customer-service representatives at Bell
Mobility, the wireless unit of Bell Canada, can make instant offers
based on a customer's calling patterns, his age and the way similar
customers have reacted to such offers.

On the minus side, CRM can cost a firm millions of dollars, and it is
no panacea. Indeed, it is going through the same cycle of hype
and anti-hype as ERP has done, only much faster. Only last year
the trade press and market-research firms were celebrating this
class of software as a godsend. Now the general mood is much
more sceptical. One sobering study recently published by Gartner
suggested that customers considered more than half of all CRM
implementations a failure.

Such gloom may well be as overblown as the promises made by
many vendors. But it is clear that CRM is at least as difficult to
implement as ERP. And as with ERP, the biggest challenges are not
technical, but organisational and political. Senior managers buy
these expensive software packages without consulting their
troops, who then refuse to use the system. And the marketing,
sales and customer-support departments, which usually see
themselves as enemies, often fight over the integration of their
respective IT systems.

What is more, CRM is a process as well as a product. Firms must
learn how to use the complex software. One clear danger is that
they may alienate customers, who will welcome better service but
may be more doubtful about uses of the technology such as finely
segmenting the market or targeting customers individually.
Amazon, a leading online retailer, has a cautionary tale to tell: in
September 2000, after angry protests, it pulled a test in which it
had charged different customers different prices for the same
DVDs.

Whatever next?

The software industry is not leaving companies much time to
digest CRM before coming up with the next thing. One is partner
relationship management, or PRM, which in essence is CRM for
dealers or distributors. More interesting is employee relationship
management, or ERM, pioneered by Extensity. The basic idea is to
digitise and streamline the “life cycle” of employees—how they are
hired, trained, managed and retained.

Because it does away with tedious tasks, this kind of software has
so far proved quite popular with employees. It allows them, for
instance, to file their expense reports online and be reimbursed
within days. But they are unlikely to be enthusiastic about the
latest feature, which involves posting and tracking personal
objectives. Siebel now offers this as part of its ERM suite and is
using it itself. On the first day of every quarter Tom Siebel, the
firm's founder and chief executive, posts all his objectives for the
next three months, for all to see. The following week all the senior
managers do the same. Within two weeks all employees follow suit.

Some trade-union representatives wonder when firms will start
implanting chips in their employees to track their every step. It
seems only a matter of time until the technology will be available.
WhereNet already offers a personal tracking device the size of a
wristwatch. And several start-ups have said they are working on a
prototype of an implantable chip that contains a miniature
global-positioning-system (GPS) receiver and can broadcast its
position.

Other than people in danger of being kidnapped, such devices
seem unlikely to find many takers. And there may be no need
anyway. Even without them, people are becoming more and more
trackable already. For example, they use online offerings that
indicate their whereabouts, such as instant messaging. Several
firms now offer services that can identify a web surfer's location.
And wireless devices are getting smart enough to know where
they are. Microsoft even wants to launch a web service called
myLocation, which will provide information on where people are.

Tracking people may interfere with their privacy, but it has
economic attractions. For instance, it could allow much better use
to be made of service technicians, by combining information on
where they are with other data, such as their skills and the spare
parts in their truck, to decide where to send them next. Software
doing just that, developed by researchers at IBM's Watson
Research Centre, can reduce the time the firm's technicians spend
to repair a broken computer by a factor of five.

Nor will it be only technicians who will have their next service call
and even their lunch break scheduled by an optimisation algorithm.
Now that we have real-time information from a lot of sources, we
can use it continuously to improve all kinds of economic activity,
explains Baruch Schieber, senior manager of IBM's new
“Optimisation Centre”. To him, a prime candidate is the service
industry, where productivity has always lagged behind that of
other sectors. But first the algorithms that he and others are
developing are being put to use somewhere else: in supply-chain
management.