Over the past several months, we have analyzed what it takes to become a demand-driven manufacturing organization. In this installment of ManagingSMB, we review the role of customer management processes,and examine how SMB manufacturers are re-calibrating these processes to get closer to and begin to shape and influence product demand. Clearly, demand-driven manufacturing begins with customer interactions: contract manufacturers need to respond quickly and efficiently to their upstream partners. Responding to customer requests for quotes is essential for success. OEM and brand owners need to be able to effectively "design for supply" -- establish effective integration between customers and design functions so customer requirements can be translated into product designs, and those requirements can quickly be communicated to manufacturers and supply chain partners. Speed, accuracy and the ability to flexibly accommodate the increased volume requirements of a growing business are essential. Too often, however, SMB performance on these metrics is mediocre. Trying to manage key business processes with manual methods is a typical root cause of poor performance in areas like inquiry-to-order management, pricing and order entry, reporting and visibility on channel sales and sales management. But demand-driven manufacturing continues to place new performance requirements on manufacturers to improve these customer-facing business practices. Amid the generally positive economic climate, SMB manufacturers are now investing in customer-facing practices to support these new requirements. A framework for understanding these investments includes four essential trends: Trend #1: SMB manufacturers' priorities have shifted from cost reduction to revenue-generation. Following the same trends observed in many larger organizations, SMB manufacturers have shifted their IT investment focus from technologies that help to reduce costs, like Web self-service and field service, to investments that support top-end revenue growth. When asked to rate the importance of customer-facing business processes, SMB manufacturers place a high priority on activities like lead management, pipeline/opportunity management, service-level differentiation and price management. This is in marked contrast to results from similar studies conducted in 2001-2003, in which call center outsourcing and consolidation and reducing sales and marketing campaign costs were top priorities. (Charts 1 and 2) Trend #2: Customer management investments are aligned with business strategies. Becoming a demand-driven manufacturer begins with understanding an organization's role in the value chain. Demand-driven metrics are defined differently for a contract manufacturer or B2B supplier compared with an OEM or brand owner responsible for the product's ultimate success or failure in the market place. For contract manufacturers, or companies that provide parts, assemblies or components to upstream suppliers, managing the demand signal requires better responsiveness and integration across order management and sales configuration technologies. Note that 21% of these organizations consider E-Commerce (inquiry to order) as their most strategic investment in 2005-2006. In addition, contract manufacturers are twice as likely to consider investing in customer service-related technologies as a strategic priority in 2005/6. This includes applications like Web self-service processes, field service management, email management, and service-level differentiation and segmentation tools. Brand owners and OEMs are more likely to consider demand shaping and marketing technologies as their most strategic investments over the next 12 months. These business processes typically involve applications such as marketing/campaign management, customer analytics-intelligence, trade promotion management and price management. (Chart 2) Although technology is seldom the sole solution, it is also not the impediment to improving strategic business process. Most organizations indicate that the real impediments to improving performance of customer-facing business processes tend to be people or process-oriented issues. Step one is to tackle and re-align business processes to better meet the needs and requirements of customers or channel partners. Note that customers who are in the process of evaluating customer-facing technologies for the first time view process-related issues as bigger impediments to project success -- they are often coping with process-related changes for the first time. Once process-related issues have been resolved, the focus shifts to building the right set of internal skills to perform effectively. Almost half of current customer relationship management (CRM) system users (currently operational or in the process of deploying) indicate that people-related challenges are the biggest hurdle to business process improvement. Technology related issues are consistently cited behind both process and people as the most significant hurdles to business process improvement. Although technology and process automation can help workflow, aligning goals and agreeing on processes across sales, service, marketing and operations can pose a bigger challenge than the application deployment itself. (Chart 3) Trend #3: Business managers are taking a more active role in customer management application and technology deployments. CRM deployment is increasingly driven by business management and not the traditional, centralized IT organization. Although many organizations participate in defining the scope of the typical customer-facing project -- no surprise, as technologies like order/inquiry management touch so many different organizations within a company -- the final decision regarding technology selection is being made by executive management (36%), sales (25%) or marketing (20%). IT owns the final decision in approximately one-fourth (27%) of projects. In addition to the selection decision, almost half of customer-facing technology projects are funded by sources other than the traditional IT organization. In many cases, business managers in customer service, sales or marketing are directly funding these projects. The result of these changes in ownership and funding has generally been favorable from a performance standpoint. As business management has taken a larger ownership role in customer-facing technology deployments, there has been a renewed emphasis on attaining the expected business results, and improved ROIs have been achieved. In addition, this shift in ownership has boosted the adoption of hosted, or Software as a Service (SaaS), solutions, which typically offer quicker implementations and require few, if any, IT resources. (Chart 4 and Chart 5) Trend #4: Traditional license deployment models are shifting to hosting, on-demand and SaaS. AMR Research estimates that the market for hosted or subscription-based CRM applications doubled in 2004. The SaaS model has changed the whole perception of customer management with faster implementations, quicker time to value and easy customization. In this most recent study, roughly one-third of companies indicated that they currently use, or are evaluating, some type of hosted application software service. In fact, 34% of surveyed companies that are adding to their existing CRM deployments will be considering a hosted solution. Applications commonly considered for the SaaS model in 2006 include marketing analytics, online sales/ eCommerce, Web self-service and sales force automation (SFA). (Chart 6) CRM investment among SMB manufacturers is a great example of what AMR Research describes as spending "at the edge" of the organization. This describes the phenomenon of spending driven by business managers who can most appropriately prioritize how and where technology investment makes the most sense to support business strategy. Another facet of spending "on the edge" is that it is taking place outside or peripheral to an organization's existing IT architecture. It allows companies to go beyond the capabilities of their existing application architecture, often to connect or integrate with customers, partners and/or suppliers. It is this type of targeted business-driven investment that is enabling demand-driven capabilities. Dave O'Brien is Vice President, Quantitative Research at AMR Research Inc. (Boston); Robert Bois is a Research Director in AMR's customer management practice.