If any one software application has come to symbolise the boom – and the subsequent bust – in the IT industry, it is customer relationship management (CRM).

Software companies grew rich by selling CRM technology in the late 1990s. But by 2002-2003, many buyers had become disillusioned with software they saw as expensive, overly complicated and all too often unable to deliver its promise.

But vendors over-promising what they could deliver was not the only reason projects suffered; buyers of CRM also had unrealistic expectations for what software alone could do to address more fundamental business problems.

According to Gartner, the industry analysts, technology is only the seventh of eight critical building blocks for a CRM deployment. In other words, the success or failure of a CRM project depends less on the merits of a particular piece of software than on the soundness of the business process that a company wants to automate.

This realisation – both on the part of CRM buyers and software vendors – is prompting executives to look again at the role of CRM in their businesses. And it is just one of several factors behind renewed interest in the software technology.

“Companies are looking to improve customer satisfaction, improve loyalty and customer retention and reduce churn,” says Ed Thompson, a vice-president at Gartner. “But they also want to support growth, including acquiring new customers, cross-selling and upselling.”

CRM, though, is less about deploying a single piece of software than about providing a toolkit that, used properly, should help companies improve the way they deal with their customers across the lifetime of the relationship. CRM includes technologies for tasks as diverse as loyalty management, sales force automation, marketing campaign planning and running call centres.

According to Mark Woollen, senior vice-president at software vendor Oracle, in the last couple of years there has been a shift of emphasis away from so-called operational CRM, with its heavy emphasis on cost cutting, towards projects that are more focused on business growth.

Although businesses are still using CRM software to help move customers from expensive branch or phone-based services to self-service over the internet, he is seeing more emphasis on managing end-to-end business processes. “Companies are looking at areas such as managing opportunity to cash, or at becoming more effective in areas such as new product or service development and how they monetise new ideas,” he says.

Mr Thompson at Gartner points out that in 2002 their surveys of senior executives found that cutting costs was the top priority, after improving customer service. But by 2005, the emphasis had switched strongly to promoting growth. “Many businesses realised they had cut as far as they could,” he says.

In turn, this has prompted a rather different approach to CRM software projects. Instead of the large, company-wide programs that were in vogue several years ago, companies are more likely to embark on smaller, more manageable projects with a tightly defined set of objectives.

This could include areas such as more streamlined processes for dealing with customer complaints, mobile access to the field service system for engineers, or improved sales analysis so that marketing departments can track the impact of promotions on individual product lines. In Europe and North America, there is a particular emphasis on systems that help companies improve customer loyalty, as it is much harder to grow the business purely from new customer wins.

As a result, Gartner estimates that just 5-10 per cent of CRM projects now involve large-scale implementations designed to give a single view of the customer. This trend has favoured vendors offering smaller-scale systems or those with a specific set of features, such as Microsoft Dynamics or Salesforce.com’s online offerings. It is also prompting CIOs to look more closely at integrating CRM and business intelligence tools.

The CRM software business does, however, have work to do in order to shake of some of the scepticism that has built up around the technology, and especially large projects. Boards are rightly wary of committing large sums of money to projects that will take years to complete, or which lack clearly defined objectives.

Nor do such large-scale projects have a particularly good track record of delivering the promised savings or efficiency improvements.

“There are cases where CRM has added lots of value and cases where it has merely produced shelfware,” says Marc Singer, a CRM expert with management consultants McKinsey. “There is no doubt that CRM has been a success in call centres: they would not work without it. But we are seeing more of a shelfware epidemic in sales and marketing.”

This is one area where a tightly defined set of project goals will help, even if a company still prefers to opt for a broad-based platform for the CRM technology itself. But businesses also need to give serious thought to how the technology will work in day-to-day use. One common factor in many disappointing CRM projects is that too few staff use the system, or only use it to record the bare minimum of transactions.

A survey of one company’s business processes by Microsoft found that of 2,200 interactions with a customer, just 12 found their way into the CRM system. “The first generation of CRM products were designed for people with a PhD in CRM, not for the average person at a large bank or manufacturing company,” says Brad Wilson, general manager for CRM at Microsoft Dynamics.

Paying close attention to workflows and to making it easy for employees to record any transactions, orders or calls is key to building up the Holy Grail of CRM: a single view of the customer.

In successful CRM projects, the technology plays a supporting role to the business processes, rather than serving as an end in itself.

“CRM is about supporting what we do as a business with technology,” says Jan Devereux, CRM consultant at the IT integrators Morse. “If you think it is about buying and implementing software you have it wrong. You may implement it and find it is never used.”

She adds that to succeed, any CRM project needs to be designed with input from the people who will actually use the systems, and have support at the most senior level in the company. With these elements in place, even unfashionable, large-scale CRM systems can be made to work: at Mr Woollen at Oracle points to BT’s CRM implementation where even executive compensation is tied directly to sales results.

But businesses that want to use CRM to drive growth or improve efficiency also need to be prepared for quite deep changes to the way they operate.

“You have to start with an understanding of where the value creation potential lies in your business,” says McKinsey’s Mr Singer. “What business processes need to change if you are going to take the insight you have gained about your customers and act differently?”

But he cautions that answering these questions will not, in themselves, guarantee success. Aligning the lines of business and IT might be something of a cliché, but it is vital if CRM is to work.

“If the IT people are not coming to the board with the business people, then you simply don’t have a proposal to implement,” he says.