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Here Today, Gone Tomorrow
Consolidation is continuing. Here's how to protect your investments if your CRM vendor gets acquired.
For the rest of the June 2002 issue of CRM magazine please click here
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As if there is not enough weighing against the success of a CRM implementation these days, there is another bottleneck that largely remains out of your hands: the consolidation of CRM vendors. On the surface it may seem to have little effect on your organization, but if your CRM supplier gets acquired you may be forced to abandon your existing CRM initiatives. Steve Pratt, CRM team leader at Deloitte Consulting, based in New York, sees it all too often: A company implements a CRM solution, and shortly after is faced with the surprise that its CRM vendor of choice has been acquired, leaving that customer with millions of dollars invested in what could eventually become worthless software. That is when Pratt is called to clean up the mess. Pratt recalls one recent situation in which one of his clients spent nearly $10 million on a CRM vendor's solution and is now faced with scrapping the entire project. The reason? The CRM vendor that his client bought the software from has recently been acquired, and the acquiring vendor plans to discontinue support for the acquired product in 2004. This scenario is only one of many, Pratt says. Already the CRM industry has witnessed a slew of mergers and acquisitions over the past few years involving such once-prominent enterprise software vendors as Baan, Vantive Corp., and Aurum Software Inc. If these acquisitions are any indication of what is to come then brace yourself, because consolidation is continuing. Likely furthering this phenomenon is the increasing competition from large newcomers into the CRM market, such as Microsoft Corp., which recently unveiled its intention to compete in the small- and medium-business CRM market [see "Microsoft CRM: Friend or Foe?" in the May 2002 issue of CRM magazine]. Understandably, customers' reactions to a merger or acquisition can often be dramatic. "Most customers feel a mix of defiant, angry, and abandoned when the company they bought software from is acquired, and it's probably for a good reason," Pratt says. "In a lot of cases the customer purposely did not select the acquiring company."
If your CRM vendor is acquired there can be a lot at stake. Depending on where the customer is in the CRM implementation, the cost to transfer to the acquiring vendor's solution can actually cost more than the original implementation--as much as 150 percent more, Pratt warns. Naturally, he says, the best position to be in when your CRM vendor has been acquired is one in which you have paid for but not implemented the solution yet and the acquiring company offers to implement its software instead, at no extra charge. In that situation "you can do a swipe modification to your functional design and implement the new software," Pratt says. "The worst-case scenario is one in which you just finished with the design and building process of your CRM solution and your CRM vendor is acquired. At that point, you're forced to ask yourself: 'Do I implement a lame-duck software solution?'" Despite the inherent frustrations, do not hit the panic button right away if your CRM vendor has just been acquired. An acquisition could be good news. Do It Yourself In some cases it may be a relief to learn that your CRM vendor has been acquired. For the CRM team at EDS Corp., it could not have happened at a better time. EDS had the misfortune of grappling with two CRM turnovers since it bought an Aurum Software sales force automation solution nearly seven years ago. "At that time Aurum was the vendor to pick. It had the best install-base, even bigger than Siebel, and Aurum also had a good track record," says Michael Petersen, technical delivery manager for the global sales organization at EDS. In 1997 Baan acquired Aurum, and in an effort to stay current EDS upgraded to the sales force automation tool Baan offered at that time. However, due to some corporate restructuring measures at EDS, the Baan solution sat on a shelf at EDS for a year. All the while Baan's financial troubles began to surface in the press, causing concern among the EDS CRM team about Baan's long-term viability. Nonetheless, after spending $3 million for the Baan solution the EDS CRM team opted to wipe the dust off of the shelved Baan application and in early 2000 began the installation, which was completed in May 2000. Only a few months after it completed the project, however, Invensys unveiled its intent to acquire Baan. Fortunately, after hearing about Baan's well-publicized financial troubles, EDS decided to "insulate itself from a bad marriage with Baan," Petersen says. At the same time EDS's top priority was to migrate to a Web-based architecture, which Baan did not have at the time. Unlike most CRM customers, EDS has its own developers to turn to. And it did. The EDS developers migrated from the Baan client-based sales force automation tool and set out on its own to design a Web-based architecture--a move that proved to be ahead of its time. "Invensys was behind us. If we had waited six months we would have been in lock-step with the company, but we began to separate ourselves," Petersen says. He adds that the relationship between the two companies changed from a vendor/client relationship to more of a partnership in which each company shared ideas on its CRM strategies. "We still have a very good relationship with the Baan and Invensys people," Petersen says. "Maintaining an open relationship with your contacts is important. Invensys was very open and amenable to my suggestions." "In hindsight, Baan's acquisition by Invensys was actually a good thing, because people were asking, 'Is Baan going to be around?'" he says. That a financially stronger company was acquiring Baan quelled some of the concerns on Petersen's team. "Invensys was an EDS-like company--a cash rich, solid company with a very good balance sheet," Petersen says. The latest solution is already showing EDS an overwhelming return. "The new application has paid for itself more than 100-fold since the implementation," Petersen says. Through the use of the intelligence provided by EDS's latest CRM solution, the company was able to provide cost-analysis information to a competitor's customer that indicated EDS's service was less expensive than the competitor's service for a particular project. This convinced the customer to switch to EDS. "The intelligence we provided won us the deal and about $1 billion," he says. Vendor Support The technological prowess at EDS easily gives the technology consulting company an unfair advantage over other CRM customers faced with CRM merger melees, but what about other CRM customers that do not have the same technological expertise? Can a CRM acquisition be beneficial even to the nontechnical customers of the acquired CRM vendor? According to Craig Berkson, chief information officer of the Portfolio Solutions Group at Thomson Financial, the answer is a resounding yes. In fact, PeopleSoft's acquisition of Vantive in 1999 provided his organization the ability to take advantage of cutting-edge technology. "Vantive was probably the number one support vendor in the mid-1990s. We were thrilled with our solution from Vantive. We believed in the products and had a large investment in them. The products were solid, but it was the company's financials that were in question. Vantive was starting to lose some people and its product was suffering. Its survival was dependent on an acquisition. Vantive was not going to be viable at its size in its place in the market, because Siebel and Clarify were big and rising. Being acquired by PeopleSoft would breathe new life into the organization," Berkson says. For Berkson, the first order of business, after hearing the news of the acquisition, was to learn about PeopleSoft's CRM strategy. "PeopleSoft didn't have a presence in the CRM space. PeopleSoft said CRM was a very strategic piece in the overall puzzle--that was a good message to us. You can see that it made sense combining CRM with PeopleSoft's products," Berkson says. Due to PeopleSoft's financial strength, it was able to provide some security and benefits where Vantive could not. PeopleSoft kept a lot of the original Vantive staff to preserve many of the existing business relationships. To foster new relationships between PeopleSoft and Vantive customers, PeopleSoft also hosted a Vantive-only conference for Vantive customers. These acts convinced Berkson that PeopleSoft was supporting its new Vantive customers, so he opted to stay with the company. After the launch of PeopleSoft 8 CRM last year, Berkson was faced with another issue: Should Thomson Financial switch to the latest PeopleSoft application? "PeopleSoft is committed to fully supporting the Vantive Product line for another two years. So there's no sense of urgency, but at the same time the new technologies are very appealing," Berkson says. "The Internet architecture was key, because it eliminates client-side costs and a lot of network issues. The searching capabilities are much better. And it's a much more useable application, because the data model is more robust." Additionally, he says, his sales group is planning to use PeopleSoft's latest mobile technologies. Once Berkson and his team decided to go with PeopleSoft 8 CRM, the conversion, he says, was seamless. "PeopleSoft made an entire conversion [to PeopleSoft 8 CRM using] migration tools, difference reports, and screen design tools," Berkson says. The success Thomson Financial has had with PeopleSoft 8 CRM has convinced Berkson he made the right choice. "PeopleSoft buying Vantive was probably the best-case scenario for us. In 2002 I don't think you'd see Vantive as a real viable contender," Berkson says. "We now have a very new and very solid technology." At press time, Thomson had PeopleSoft 8 CRM in three offices. Berkson expects a dozen or more Thomson offices to be running PeopleSoft 8 CRM by the end of the year. Technology Handoff Although certainly not the antidote, such open architecture technologies as Java, XML, and XSL can help dull the pain of integration woes. "The whole concept of modularity is to help in this kind of situation. It makes a best-of-breed approach to building a full suite more tenable. Historically, if you had a client/server architecture with different infrastructures it would be difficult to integrate with other platforms. With tools like Java, XML, and XSL, it's easier to share data and make the look and feel common across the applications," says Denis Pombriant, an analyst at Aberdeen Group Inc. He warns, however, the integration only helps if what you're moving toward is capable of accessing data through Java-based adapter modules. For The Staubach Co., a Dallas-based international real estate firm, started by former Dallas Cowboys quarterback Roger Staubach, Java helped to facilitate its CRM vendor handoff. Employees at the $180 million real estate company had been using a sales force automation tool by Moss Software Inc. when they learned E.piphany Inc. had signed an agreement to acquire Moss in February 2001. As a precautionary measure Staubach examined some solutions from competitors, including SalesLogix and Pivotal Corp. The costs of competing solutions, however, were approaching $1 million for the first year alone, whereas E.piphany's one-year cost for an upgrade totaled one tenth of the competing solutions, says Steven Hills, director of application development at Staubach. "All three vendors had solutions that matched our long-term business needs. Based on price, however, SalesLogix and Pivotal were a wash," Hills declares. E.piphany credits Java's open standards-based technology for the seamless integration on the back end. "Because they are implemented in an open standard and use standard protocols such as SOAP and XML, any E.piphany service can interoperate with any other service--whether that's provided as part of the E.piphany product or by another company. The result is an aggressively open view to enterprise integration," says Ed Gory, senior product line marketing manager at E.piphany. "It would have been difficult if [Staubach] was still on a standard legacy application, COM-based architecture. With that architecture it would be difficult to upgrade to new versions, as well as the metadata. Java made it a very easy process for them," Gory says. Additionally, he says, J2EE is an emerging standard in IT environments, which means there are more people available who know Java. "So the amount of resources required to convert a customer is less than it would be to hire someone to customize a COM-based, Win32-application using proprietary software," Gory says. Safety Tips Although EDS, Thomson Financial, and The Staubach Co. have been successful in converting their CRM software, Deloitte Consulting's Pratt maintains many have not been. But, he says, there are precautionary steps to take if your CRM vendor gets acquired. Like Thomson's Berkson, the first priority is to try to understand why the acquiring company actually bought the acquired company, Pratt says. "There are usually two reasons: The [acquiring] company likes the technology [of the acquired company] and will merge systems. That's better for the client; however, that's typically not the reason it happens. Typically, it's a competitive threat, and the acquiring company wants to eliminate the competition, or the competition has some good design engineers the acquiring company wants," he says. When a CRM vendor is acquired it is going to cost its customers, Pratt says. "After a software company acquires a competitor, most say they'll support your existing application, but the reality is that customers are forced to upgrade pretty quickly," he warns. But customers do not have to let the acquiring company force them to upgrade, he says. Pratt has four tips that may help if your organization is faced with an upgrade due to an acquisition. First, before selecting a CRM application look for a vendor with staying power. "There are certain thresholds you should have before buying from a company: The company should have been in business for more than two years, or it should have more than $50 million in revenue, or be profitable," Pratt says. Second, if you have already purchased an application, "don't be in a hurry to convert to the new software," Pratt says. "You can tell the acquiring vendor 'You're not going to force me to upgrade. I picked my original technology for a reason and if you force me to switch, I'm going to move to another company's technology.'" A third strategy is to negotiate with the acquiring company. Look for free software exchanges, free conversion tools, and free training on the acquiring vendor's software. Additionally, if the acquiring company tries to cross-sell your organization by encouraging you to switch, negotiate for free seats to test out the new software. Finally, seek help. One key reason to do so is that conversion tools can be iffy at best. "The reality is, most of them don't work," Pratt affirms. In that case it may help to seek advice from a consultant who can offer advice on when to upgrade and which path to take. There are a lot of customers buying software from companies that are not likely to be around, Pratt warns. However, that does not mean you should shelve your CRM plans. Customers can still move forward with their CRM plans and still control their own destiny. "Customers of an acquired company are not powerless," Pratt says. "The big leverage point they have is, they don't need to upgrade to the new company's software. If all of the customers of a company say they'll go somewhere else if they don't get credit on conversion services, then collectively they are powerful." --CRM SideBar The Do's and Don'ts of Managing Through Your Vendor's Acquisition As the customer, you should
  • Learn the impetus behind the acquisition
  • Communicate concerns to the new vendor
  • Negotiate for free software and training
  • Consider talking to a consultant about upgrading your CRM software But, you should not
  • Select a financially weak CRM vendor
  • Rush to convert to the acquiring vendor's software
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