Online and On Demand

Never have sales managers had more choice when it comes to CRM. Implementing a CRM solution used to involve dealing with a small handful of vendors, all of whom expected your company to buy the software, the computers to run that software and the Information Technology (IT) staff to support the software. Today, however, sales managers can choose from a variety of online CRM solutions where the sales team merely rents the software, while the vendor takes on the burden of supporting the software and the hardware. These on-demand CRM systems have proven so popular that even the traditional CRM vendors are expanding out of the “on premise” model that was their mainstay for so many years.

This is not to say that on-premise CRM is dead. Far from it. In terms of dollar value, there is much more money spent upon on-premise CRM solutions than on-demand ones. And many CRM users are more than happy with their on-premise implementation. The challenge for sales managers today is deciding if (and when) to move to an on-demand solution. Since CRM implementations for even a moderate-sized sales team can end up costing hundreds of thousands of dollars, sales managers need to make the right decision, right out of the gate. With that in mind, here is a brief questionnaire that will help you understand the issues as you consider whether the time is right for you to move to an on-demand CRM solution.

1. How important is a short-term ROI inside your company?
[ ] 1. What’s an ROI?
[ ] 2. ROI can be achieved over a long period.
[ ] 3. The CEO lives and breathes short term ROI.
[ ] 4. Don’t know.

2. How much experience does your sales team have with CRM?
[ ] 1. We could teach the CRM vendors what to do.
[ ] 2. We are generally familiar with CRM technology.
[ ] 3. CRM is something that other sales teams use.
[ ] 4. Don’t know.

3. When do you need your CRM system to be up and running?
[ ] 1. Don’t know.
[ ] 2. Eventually.
[ ] 3. Within six months.
[ ] 4. Yesterday.

4. How risk averse is your top management?
[ ] 1. They’re afraid of change.
[ ] 2. They take calculated risks.
[ ] 3. Don’t know.
[ ] 4. They’d bungee-jump out of the board room for free publicity.

5. Which is more important: a friendly interface or back-end
integration?
[ ] 1. We have to be tightly linked to our in-house data systems.
[ ] 2. They’re both important.
[ ] 3. If it’s not easy to use, we won’t use it.
[ ] 4. Don’t know.

6. How well do you get along with your in-house IT group?
[ ] 1. We’re buddies who work together every day.
[ ] 2. We have a distant but cordial relationship.
[ ] 3. Those propeller-heads drive us nuts.
[ ] 4. Don’t know.

7. How experienced is your IT group with system maintenance?
[ ] 1. They’re the best in the business.
[ ] 2. Our in-house systems seem pretty stable.
[ ] 3. Our systems are up and down like a yo-yo.
[ ] 4. Don’t know.

For scoring, add up your responses and compare the total to the following table:

7-14 – Don’t even think about going on-demand. You have an IT group that’s capable of handling an on-premise solution and you have the kind of corporate culture that’s likely to be able to make it work well.

15-21 – Your company and sales team could work effectively with
either an on-demand CRM solution or an on-premise one. To make
the final decision, go through the list of questions and put an asterisk
next to the three questions that are most important to your firm.
Add the total of the responses. If it’s greater than 6, consider an
on-demand solution, if less than 7, consider an on-premise solution.

21-28 – On-demand is clearly your best choice. An on-premise
solution would be too expensive and too complex and likely to cost more than it’s worth.

Question #1
Short-term ROI
Background: As a general rule, on-demand CRM implementations have a much smaller up-front cost than on-premise ones, in exactly the same way that it’s usually cheaper to rent an apartment than to buy a condo. Over time, however, that cost advantage diminishes until eventually the on-demand system becomes more expensive than the on-premise solution. According to several studies, the “break-even” point between the cost of on-demand and the cost of on-premise is about five years. On-demand vendors point out that five years is a long time for a CRM application to be in place, but that may be because so many CRM implementations have failed in the past rather than a prediction of how long today’s implementations will be in place. However, because the up-front cost of on-demand is typically much lower than on-premise, it’s easier to build a short-term case for ROI. In some companies, the window for an ROI might be as short as a year; other companies are more far-sighted.

Question #2
Team readiness
Sales teams that have had little or no experience with CRM aren’t likely to know exactly what they want and need in a CRM system. Such companies are well advised to look at on-demand as a interim step, according to Tara Spalding, director of marketing at SugarCRM. “Some companies need a guaranteed solution that will work immediately because they’re doing business triage and need CRM to get them back on track,” she says. “But companies that aren’t in that position and are deploying a solution for the first time may not know how much functionality they really need.” In this case, an on-demand solution offers the opportunity for a company to get its feet wet and figure out what expanded features and functionality might be able to provide the most benefit in their particular situation. However, companies in this situation should be wary of investing too much effort in a system that may just be a waystation on a longer-term strategy. “If they don’t have a major need for customizations and modification, it may make more sense for them to try an out-of-the-box solution,” says Spalding.

Question #3
Time to implement
Customizing a CRM system to match your needs and training your sales reps on that system is going to take time. In general, on-premise solutions have a longer deployment time than on-demand solutions. There are several reasons for this. First, an on-premise solution may require the purchase, installation and test of additional hardware. Second, an on-premise solution may need to be tightly integrated with existing applications or infrastructure. Third, some on-premise solutions are based upon older technology that is more difficult to customize than comparable on-demand products. Because of this, it’s not unusual for an on-premise solution to take six to nine months to deploy in full, according to Peter Dunning, vice president of field operations at RightNow Technologies. By contrast, it’s not unusual to see a customized on-demand solution go live in 30 to 45 days. “With on-demand, getting the software running isn’t the challenge – it’s making sure that everyone can use the system effectively,” says Dunning.

Question #4
Risk aversion
CRM, like any other complex business endeavor, entails a certain amount of risk. According to noted CRM guru and pundit Barton Goldenberg, there are three kinds of risks that must be managed. The first are technology risks, which include lack of scalability, inappropriate security procedures, difficult data synchronization and lack of data quality strategy. The second kind of risk involves problems with end users, including bad or inappropriate training leading to an inability to properly utilize the system, or users that don’t perceive CRM value. Finally, there are management risks, including a lack of management commitment to CRM or lack of management support for CRM. Management attention may move from CRM to a more attractive initiative. Goldenberg counsels that the complexity of CRM automation must never be underestimated and that jumping into the deep end of automation, without careful planning, can be a costly mistake. “Automation cannot be thrown at the users in the belief that this will deliver measurable business benefits,” he explains. Because on-premise implementations involve greater complexity, there’s more risk to be managed. Therefore, risk-averse organizations are generally better off with an on-demand solution.

Question #5
Friendly interface versus back-end integration
Every computer program and implementation involves trade offs. CRM systems tend to be optimized either for connection with corporate systems (which generally means an on-premise solution) or optimized for ease-of-use (which generally means an on-demand solution.) While it’s possible to achieve both, chances are that if your CRM system does one well, it will do the other poorly. Please note, though, that the people who use software have very different ideas about what constitutes ease of use. A sales rep for a high- tech firm, for example, may want a CRM system that allows reps to access multiple databases through the corporate infrastructure. For that rep, “ease-of-use” may mean having a high level of integration. A sales rep for an office furniture company, by contrast, might want a CRM system that simply configures different types of furniture orders using a single screen. “Sales managers need to be able to take the basic application and, perhaps with some expert help, meld that application into something that makes sense for their organizations,” says Dunning.

Question #6
Relationship with the IT group
CRM usually involves changing the way that the sales reps work on a day-to-day basis. That’s especially true if the CRM system has been designed to reinforce a new sales methodology. Anyone who’s tried to do this kind of organizational change knows that it can be a daunting task, even with a very easy-to-use system and a commitment to thorough training. A major benefit of on-demand CRM is that it allows the sales manager to focus on the organizational aspects of change, rather than on the mechanics of bringing the technology in-house, working with the IT group to ensure that it’s running correctly, and wrestling with the IT group’s priorities when it comes to adding necessary customizations. “One of the most valuable characteristics of CRM is that it can accelerate positive change within a sales organization,” says Steve Stein, CEO at NetSales.com, “You may want to focus on the aspects of that change that are unique to your organization, rather than the technological trivia that’s inherent in owning and operating a data center.”

Question #7
System maintenance
When sales managers look at an on-premise CRM solution, they don’t always figure in the cost of maintaining the software. It’s a truism among software gurus that maintaining software – keeping it upgraded and in sync with other programs on the system – is far more costly than the cost of the software itself. (Some estimates run as high as $5 of maintenance spent for every $1 of software licensing cost.) The problem is even more serious if you’ve done significant customization to your system. In that case, each upgrade of the software may require a major effort to bring your customizations forward to run on the new version. Unless your organization has IT resources to spare, you’ll need to figure lots of extra expense into the overall cost of the system. However, with most on-demand applications, maintenance is not a separate or unexpected cost, but is folded into the cost of the monthly rental. “Ideally, with on-demand you have an infrastructure in place so that you don’t have to worry about software upgrades and regular maintenance. You also have some assurance that your customizations will integrate smoothly with the newest version of the basic CRM system,” explains Mini Peiris, senior director of product management at Netsuite.
– Geoffrey James