SaaS CASE STUDIES

CRM FOR THE MID-MARKET

Market Differentiation For Medium- Sized Firms Requires a Different Approach - By Geoffrey James

Conventional wisdom says there are two market segments for CRM software: "large enterprise" (generally shortened to "enterprise") and small-medium businesses (often abbreviated as "SMB"). That market segmentation, however, gives short shrift to mid-sized businesses, which face challenges that are profoundly different from either large enterprises or small businesses. Part One of this white paper explains why traditional CRM, as implemented for large enterprises or small businesses are entirely inadequate for mid-market firms. Part Two of this white paper provides a detailed case study of how a CRM product targeted at the mid-market was able to satisfy a particularly demanding set of requirements inside a mid-market firm.

PART ONE: THE CRM SEGMENTATION FALLACY

The classic segmentation of CRM into enterprise and SMB is not based upon actual market conditions, but rather upon the historical evolution of the software industry. It's often been observed that software tends to go through a simplification process. When new applications are introduced into the market, the problems they attempt to solve are usually not well understood, and therefore the solutions intended to address them tend to be complex, requiring significant customization and systems integration. As the problems that the software is supposed to solve become better understood, the solutions become more mature, better targeted, and easier to install and support.

This basic market dynamic causes software vendors to introduce new applications by selling early versions into large enterprises, because those are the only firms that have the financial clout to spend tens of millions of dollars on experimental IT projects. As these applications mature over time, they trickle down to ever-smaller firms, eventually becoming available to the very smallest companies, even sole proprietorships. For example, one of the early applications for the IBM mainframe was payroll, which in the mid-1960s was a big-ticket item. Today, however, anyone with a PC can purchase and operate a perfectly usable payroll package for a few hundred dollars. And that package is likely to have features that far outstrip the capabilities of the original payroll systems.

This process of "commoditization" determines the business model for most software vendors. Some firms (e.g. Oracle, SAP, IBM) primarily sell new, complex applications to large enterprises. Other firms (e.g. Microsoft, Intuit, Salesforce.com) primarily sell simplified, commodity-like products to a broad base, including everyone from large enterprises to sole proprietorships. As each application type becomes simplified, the only way that the enterprise vendors can compete against the broad-based vendors is by upping the ante and making the scope of application larger and hence more complicated. For example, word processing originally involved expensive, proprietary equipment, limiting its usage to a relatively small number of large firms. However, when word processing migrated to the PC, the vendors who had been selling those high-priced systems (like Xerox and Wang) immediately began repositioning their offerings as something more elaborate: document management and publishing respectively.

That's exactly what's happened in the realm of CRM. Back when it was called Sales Force Automation (SFA), CRM was basically an experimental application. Installing an SFA system entailed significant risk. More than half of CRM projects failed (according to Gartner), either because the technology was inadequate or it was trying to solve the wrong problems. Since then, however, CRM software vendors and the sales teams that use CRM, have made great progress in understanding what CRM needs to do, so CRM software has become correspondingly more streamlined. As one might expect, now that simplified CRM capabilities are available from broad-based vendors like Salesforce.com and Microsoft, the enterprise CRM vendors have upped the ante. SAP and Oracle, for example, are now repositioning CRM as one element of a grander Enterprise Resource Planning (ERP) strategy.

Because of the inner dynamics of the software business, enterprise CRM vendors and broad-based CRM software vendors alike tend to view the mid-market as a continuum that edges into their original target markets. The enterprise vendors want mid-market firms to embrace the ERP concept and retool their entire computing infrastructure. Similarly, the broad-based CRM vendors want mid-market firms to add customizations and "partner applications" to those vendors' vanilla-level implementations. Unfortunately for mid-market firms, neither approach is very effective. On the one hand, mid-market firms can't afford to install and support a massive (and risky) centralized ERP system. On the other hand, mid market firms generally have needs that are too complex to satisfy with the Tinker-toy approach that the broad-based vendors have to offer.

The root of the problem is this concept of the mid-market as being inside a continuum with the very largest firms at one end and the very smallest firms at the other. This concept is deeply flawed because mid-market firms are, in most ways, extremely different from both large enterprises and small businesses.

Consider: large enterprises, regardless of industry, tend to be similar in terms of corporate structure (hierarchical) and fiduciary structure (public ownership). Furthermore, within specific industries, large enterprises almost always have nearly identical marketing and sales models. For example, there is very little difference, in terms of general activities, between Toyota and General Motors and Volkswagen. In these environments, the value of automation is found in creating ever-deeper layers of integration in order to create an incremental advantage over the competition. That's why these behemoth firms are willing to invest in the ERP concept.

Small businesses are also similar in terms of corporate structure (little to none) and fiduciary structure (generally private and often family-owned). Within individual industries, small businesses are often quite different (because they sell very different things), but because they're small, their marketing and sales processes are, by definition, simplistic. In these environments, the value of automation is the ability to bring up some kind of a basic application that can add at least some level of automation - and then extend it piecemeal. That's why small businesses are willing to buy into the concept of simple customization via mix-and-match applications.

By contrast, mid-market firms enjoy a wide variety of corporate structures (networked, collaborative, consensus-driven, loose affiliations, etc.) and a wide variety of fiduciary responsibilities (venture capital, wholly owned subsidiary, private but planning to go public, public but planning to go private, etc.). Furthermore, mid-market firms always have sales and marketing processes that are both unique and complex. The reason is simple. If what a mid-market firm provides isn't both unique and complex, it is inevitable that a large enterprise will enter that market and use the power of its deep pockets to force those mid-market firms out of business.

For example, two decades ago, thousands of small chain stores erupted around the country that provided high speed copying services to small businesses. One of these chains, Kinkos, eventually achieved critical mass and used economies of scale to undercut the other local franchises, eventually driving them out of business. This was possible because providing reproduction services to small businesses is insufficiently complex and unique to justify the presence of a mid-sized firm. Because the service is all a matter of who can buy the equipment and paper cheapest, there's no reason for a mid-sized firm to exist, except temporarily (as when Kinkos was originally growing.)

By contrast, there are many regional banks throughout the country that offer financial services to small businesses. These regional banks continue to survive and thrive, even though they can't possibly compete head to head, in terms of financial resources or services, with giant international banking concerns like Wachovia or Bank of America. However, in servicing small businesses, regional banks do something that's complex and unique - assessing the value of a customer based upon personal relationships and local knowledge.

For example, to write productive loans to small businesses, a regional bank must make decisions based upon the sales rep's assessment of the reliability of the individual asking for the loan, and the validity of that individual's business within the local economy. International banks are simply not set up for this type of decision-making, because their centralized nature inevitably pushes decision-making up the hierarchy.

Obviously, the simplistic approach of the broad-based CRM vendors is wildly inappropriate for mid-market firms where the complexity and uniqueness of sales and marketing processes are the very reason that the firm survives. While the price for such systems does not create a financial burden, the "out-of-the-box" functionality is simply too inflexible and feature-poor to support the complex uniqueness of mid-market sales and marketing processes.

Similarly, the ERP approach taken by the large enterprise CRM vendors is equally inappropriate, not because the functionality isn't there to support uniquely complex sales models, but because mid-market firms typically can't afford to risk their entire business on ERP, which assumes a complicated redesign of the entire corporate computing infrastructure.

What the mid-market needs for CRM is neither a scaled-down ERP system nor a cobbled-together kludge of vanilla applications. Mid-market firms need CRM applications that are feature-rich and flexible without requiring the company to rewrite and rework its entire computing infrastructure. Fortunately, such applications are beginning to emerge now that a handful of CRM vendors are focusing on servicing these uniquely complex mid-market environments.

PART TWO: THE SYNOVUS CASE STUDY

The best way to illustrate how CRM can best address mid-market needs is to examine, in detail, a mid-market firm that's using CRM successfully. For this purpose, I've selected Synovus, a multi-service holding company headquartered in Georgia, which uses Aplicor to handle its sales and marketing processes. Synovus, which delivers banking, investment and asset management services through a network of banks and offices in the southeastern U.S., controls a little over $30 billion in assets. At first glance, that might not seem like a "mid-market" amount of money until one compares those assets with those of, say, Bank of America Corp., whose assets exceed $1.4 trillion.

As is typical for a mid-market firm in an industry where large industries dominate, Synovus is the antithesis of its larger competitors. Bank of America and its ilk are highly centralized, with worldwide branches that are as cookie-cutter as a Starbucks franchise. By contrast, Synovus consists of 43 separately branded banking institutions that operate autonomously within their respective communities through approximately 325 branch offices.

This decentralized concept allows Synovus's banks to continue to position themselves as locally-deployed, thus offering customers the responsiveness that comes with local decision-making. At the same time, being part of a larger organization allows those autonomous banks to offer a wide array of financial products that otherwise would only be available from a multi-billion dollar holding company. "We're trying to achieve the best of both worlds," says Joe Majestic, the chief technical officer for Synovus's Financial Management Services division.

Synovus is thus pursuing the classic mid-market strategy of offering services that are simultaneously complex (multiple financial services) and unique (delivering those services in a decentralized fashion). In doing so, however, Synovus faces some additional challenges. The banking industry has recently been subject to disruptive technology (such as Internet banking) that has damaged overall net margins. The overall decline of profitability in the banking industry as a whole forces all banks, regional and international, to focus not just on growing their customer base but on selling existing customers additional products and services.

To accomplish this, Synovus launched a new group, called Financial Management Services (FMS), which was mandated to offer specialized services, like trust management and insurance, that were outside the purview of most regional banks. This attempt to capture additional "wallet share" added an additional layer of complexity atop what was already a complex and unique go-to-market strategy. In addition to getting 43 banks (and 43 sets of executives) to work together, Synovus now needed to coordinate the sales activities of FMS with sales activities of the various banks. For example, to be certain that the banks would send customers to FMS to handle trust accounts, Synovus implemented a compensation scheme where the bank receives ten percent of the fees derived from that account as long as its on the books. This means that FMS needed to treat an institution (as opposed to an individual) as a compensated sales rep - the sort of weird idea that would be difficult to implement using run-of-the-mill broad-based CRM software.

As one would expect, Synovus had demanding requirements when it came to selecting a CRM solution to automate and improve the performance of an admittedly complex sales environment. To ensure that all the different parts of the company would perform smoothly and profitably, Synovus wanted to achieve a holistic, centralized view of its customers throughout its highly decentralized organization. Company executives also wanted automated workflow processing, extensive account reporting and analysis, as well as ongoing and accurate information about customers, markets and the company’s overall sales performance. “Essentially we wanted to make everything work together more quickly and more smoothly,” says Majestic.

To make matters even more challenging, Synovus needed to build this unique CRM capability atop a highly heterogeneous computing environment comprised of all the various systems that had been previously installed inside the banks that Synovus acquired. To bring a CRM system live, Synovus would need to convert data from many disparate systems into a single CRM application, and then supply both online and offline processing to local PC's and desktops. In addition, the CRM application needed to integrate with several outsourced mainframe systems that provided corporate-wide banking functionality, like check processing.

When Synovus looked for a CRM vendor, they quickly discovered that most software providers were either focused on small business or on large enterprises. However, they were able to find at least one vendor that was focused on the mid-market and seemed to understand their problem. “We did an RFP process and got bids from the usual suspects but we were attracted to what Aplicor had to offer,” says Majestic, “Our due diligence revealed that the Aplicor product had enough functionality to automate our relatively complex sales and marketing processes, at a price point that was reasonable for us.”

Rather than trying to reinvent the proverbial wheel and retool the entire computing infrastructure (the approach that Siebel Systems wanted Synovus to take), going with a mid-market CRM vendor allowed Synovus to focus its limited IT resources on the automating those portions of Synovus's business that were unique to Synovus - the company's sales and marketing.

Synovus used CRM to build better synergy between FMS and the banks, as well as between the various banks in the corporate family. For example, using the data from the banking records, sales reps for the FMS can now see a holistic view of a customer or prospect, and then use whatever contacts that have already been established to open doors into the account. Thus, if one of the banks is lending money to a commercial customer, the lending office not only provides the FMS with detailed knowledge of the customer relationship, but can actually provide an in-person introduction to the FMS rep on the next sales call.

The CRM system also allows Synovus to offer additional services to existing end user customers. For example, Synovus has done interest rate swaps with some of its larger customers, thereby providing them a lower rate on the money they've borrowed. Similarly, the small accounts unit in Synovous's trust department has used the information in the CRM database to consolidate trust accounts, thereby lowering administrative overhead. "The CRM system not only enables us to do the typical CRM stuff, like cross-selling, but it also helps us keep track of customers who might otherwise fall through the cracks," says Majestic, "We even have an early-warning system where events trigger specific sales activities." For example, if the commercial lender rep discovers that a customer is about sell a business, the CRM system cues the Synovus's insurance sales reps to make a sales call.

This is not to say that the implementation was a walk in the park. Because there were so many disparate systems involved, "the biggest milestone was just getting the data right," according to Majestic. The challenge here was creating a workable MCIF (Marketing Customer Information File) for each customer, even though some customers had their business account at one bank and their personal accounts at another. Resolving these data integrity issues was partly a manual process, but fortunately Aplicor supplied Synovus with some algorithms that helped identify and data problems and suggest fixes.

The positive impact of the CRM system has been significant, according to Majestic. The company has been able to generate more revenue per depositor than before because Synovus can offer its customers the kind of services typically available only in a gigantic financial institution, while still maintaining the local decision making. “From a speed to decision point of view, we can move much faster that a traditional bank,” says Majestic, “Our decentralized approach has given us a unique competitive advantage that leverages our strengths as a major regional bank.”

Perhaps the best measurement of the success of CRM at Synovus is the way that the local banks have embraced it. Because the banks are run as autonomous entities, Synovus's top management didn't want to force them to use the system. A heavy-handed approach proved unnecessary, though, according to Majestic. "Once we made people aware of the capability, it grew by word of mouth," he says, "We started with several of the larger institutions as pilots and. once the word was out about the demonstrable successes, we had no problem signing other institutions onto the program."

Synovus's experience with Aplicor strongly suggests that the CRM needs of the mid-market can be adequately met by a CRM application that's targeted specifically for the mid-market. CRM systems devised for large enterprises, while comprehensive, are too expensive and complicated for the mid-market. CRM system devised for the broad base of small businesses, while inexpensive, lack the functionality required to address the unique and complex aspects of mid-market sales and marketing processes.

ABOUT THE AUTHOR:

Geoffrey James is the author of the award-winning management book Business Wisdom of the Electronic Elite (Random House) and has had 25 years experience in software sales and marketing. In addition to writing feature articles for publications ranging from Wired to Men's Health, James has written extensively on the subject of CRM for SellingPower magazine.