Booming Market Seen for Customer Interface Software

By Richard McCaffery, Staff Writer

The next wave in business software for the federal government will focus on the interface between agencies and citizens and integrators are racing to assemble partnerships and business units to prepare for the rush.

An application that focuses on the customer interface, called a customer relationship management system, or CRM, is the latest buzzword in the enterprise software arena. Analysts and company officials are predicting explosive growth in this market over the next five years.

"I definitely see big dollars going toward it," said Maryann Hirsch, senior vice president of consulting at Federal Sources Inc., McLean, Va. In the government market, "it's definitely going to be the next wave after ERP [enterprise resource planning], though we're still riding that out."

Look for civilian agencies that work directly with the public to lead the pack: the Department of Veterans Affairs, Health Care Financing Administration, Internal Revenue Service, Social Security Administration and the U.S. Postal Service, officials said.

Federal Sources has not estimated yet the market potential for CRM in the government sector, but Hirsch expects it to grow quickly into a billion-dollar market, on par with the federal enterprise resource planning market, she said.

Consider Computer Sciences Corp., the giant integrator from El Segundo, Calif. In January, CSC rolled together four business groups to form a CRM practice as part of its consulting group in Waltham, Mass. The company now has 1,000 integration engineers and consultants focusing on CRM across all of its markets.

Customers on the commercial side include Bass Hotels & Resorts of Atlanta, the parent company of Holiday Inn Hotels, and Perrier, the carbonated water company from Le Cheylard, France.

CSC plans to boost its CRM revenue from $100 million in 1998 to $300 million this year and expects its CRM practice to grow in excess of 40 percent annually over the next few years, according to Alex Black, a partner at CSC and managing director of CustomerConnect, its CRM group.

CSC does not have a unit dedicated to CRM in the federal space, but does have consultants pursuing business in that area, Black said. "I think there are enormous opportunities in government," he said.

CSC is not alone. Keane Inc. of Boston, and Oracle Corp. of Redwood Shores, Calif., also are focused on CRM in the government and commercial markets.

"This represents a very significant opportunity for us in the federal marketplace," said Steve Perkins, senior vice president and general manager of Oracle Federal.

Basically, customer relationship management falls into three areas: sales, marketing and services. All of these areas have an IT component. CRM applications include sales-force automation products, call center and customer profitability systems, data warehousing and Web site development tools.

Many of these applications are not new; companies like CSC, Keane and Oracle have had various CRM applications, such as Web site development tools, for several years. But it is only now that companies are knitting the pieces together to form practices to offer customers a complete CRM package.

"The government has identified the need to improve connections with citizens," said Mac Nachlas, director of business development at Keane Federal Systems in Rockville, Md. "The government used to be focused on process. Now it's focused on service. That's a quantum leap."

One of the major drivers behind CRM is the Internet, which enables companies to interact with customers in a whole new way. It also has customers and citizens demanding more from suppliers.

Another factor is the success of the enterprise resource planning market over the last five years. The term is used to describe the giant applications that businesses use to automate internal systems, such as accounting and financial processes, human resource management and supply chain management. These systems, considered back-office applications, have been adopted widely by companies and used increasingly by government organizations.

Customer relationship management is considered a front-office application, and as such it goes hand in hand with ERP, officials said. This explains why companies like Oracle are eager to compete in the CRM market. By adding CRM products to its ERP offerings, Oracle can give customers a complete suite of front-office and back-office applications.

AMR Research Inc., a Boston research organization that focuses on enterprise applications expects the worldwide CRM market to expand at a compound annual growth rate of 56 percent over at least the next five years. AMR estimated the 1998 market at $1.8 billion and forecasts it hitting $11.6 billion in 2002.

Keane, the $1 billion system integrator, established a CRM practice in March and has bought two companies in the last 12 months to bolster its offerings. In addition, Keane formed a partnership in October with CRM vendor Siebel Systems Inc. of San Mateo, Calif., Nachlas said.

Keane does not yet have a separate organization to pursue CRM opportunities in the government. Nachlas said he is not aware of any contracts specifically for CRM in the federal space. Most agencies are focused on year 2000 compliance and security software issues, he said.

But Nachlas expects that to change soon. As a result, Keane focuses on CRM in the course of consulting with its government customers.

"We believe a few years down the line, any new government program will have to consider CRM needs at the earliest stages," Keane said. "In every conversation we have now, we ask, 'How are you going to handle the interface with the citizen?' "

Meanwhile, Oracle formed a dedicated division called CRM Solutions July 14. The company appointed Craig Brennan, formerly of Deloitte Consulting, senior vice president of the unit.

Oracle, which has sold various customer relationship management applications on the commercial side for two years, has been migrating such tools into the government market for the past 12 months, Perkins said. Oracle has acquired five companies in the last year that had CRM components, said Perkins.

He noted that Oracle grew its fourth-quarter CRM license revenue 138 percent over the same period last year. It is the company's fastest growing unit, but Perkins declined to disclose specific numbers.

Oracle does not have a dedicated federal CRM unit, but Perkins said the company has 150 consultants working in that area across all of the company's targeted industries. In addition, Oracle is in discussions with major systems integrators and the Big Five consulting companies to establish CRM partnerships for the government, he said.

"We'll be coming to the market in the next few months with partnerships in the CRM market," Perkins said.

Officials from Keane, CSC and Oracle see opportunities at the Defense Department, particularly at agencies that serve as supply centers for other Defense Department customers.

Opportunities exist in departments such as the Defense Logistics Agency, the Defense Information Systems Agency and the Defense Finance and Accounting Service.