How do we decide whether to use a hosted or on-premise solution?
Posted May 5, 2003
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The perpetual question -- at least in the world of CRM -- is whether to select a licensed or hosted model. Although everyone has strong feelings one way or the other, there are four areas of importance that every C-level executive should weigh against their business model and selection processes before coming to a decision. They are: solution pricing, vendor performance, solution fit, and maximizing user productivity. Solution Pricing Cost is always an issue, especially in today's harsh economic climate where limited cash flow is the norm. CIOs who require the CFO's signature need proof that the higher upfront cash outlay required for a licensed solution will deliver ROI faster -- and guarantee a lower overall total cost of ownership (TCO) -- than the smaller and theoretically more predictable outlays associated with hosted CRM solutions. CIOs should answer the following questions, based on the current state of their business: Given the length of time I expect to have this system, what is the long-term cost of the solution versus the short-term cost? What is the impact to my business if my business changes? What is the financial impact if I need to make changes to my hosted solution? According to the Yankee Group, a Web-based (or hosted) solution may have a lower TCO on the surface, but contractual limits on technical support and storage may be too restrictive for a growing business. Those seeking CRM solutions should look at the vendor's flexibility, and that of the proposed contract, to determine whether the hosted solution can reasonably accommodate changing business needs. Overage charges associated with technology upgrades, technical support, and storage should be forecast and taken into account in case of expected growth periods. And if business needs fluctuate, the hosted-model contract should allow for relative decreases in pricing to reflect the changes. Vendor Performance Risk is a given in any software deployment, so when evaluating the buy versus lease models, buyers must ask themselves how much risk they are willing to take when looking for a solution. Risky bets can be determined easily, by looking at the maturity of the product, and the satisfaction of the client base. Decision makers should also examine the anticipated longevity of the hosted-model vendors they are considering by looking for "deep pockets" or revenue-generating partnerships that will help them to weather downturns. If a hosted solution vendor shuts its doors, clients stand a good chance of losing valuable data and processes, requiring them to start from scratch with nothing to show for their monthly payments. Though it may appear more attractive on the surface, the hosted model keeps many CIOs awake at night plotting their exit strategies. Those interested in hosted solutions, for cash flow or other business reasons, should continually assess vendor performance and long-term business viability. Consider the following questions: What will I take away from the termination of the relationship? If the answer is merely "data," then you are back to square one. If I should need to reduce my cash flow earlier than anticipated, will my contract accommodate this reduction, or complete termination, without excessive penalty to the business? Examine your contract to determine the fees associated with overuse or underutilization of the service. Most likely, the complete pricing model of the hosted solution was based on minimum and maximum thresholds, with additional charges associated with over- or underachievement of the model assumptions. In this situation, who is in control? The buyer or the vendor? User Support During the buying process it is important to remember the reasons for the exercise: your customers. The only question of significance is, "How am I going to support my users, both initially and over the long haul?" Regardless of which solution is chosen, one must have a solid support structure to ensure that users are productive at the lowest total cost. The user support plan should reflect best practice learning, including: Solid training with ongoing support for users A help desk that can address technological problems and accommodate the business rationale that users often question A support staff responsible for continually reviewing the solution's efficacy, comparing it against business needs to ensure that it is efficient and productive. Current and Anticipated Business Needs The final consideration is perhaps the most important -- gauging the time to productivity during and following the initial implementation, and as the solution changes to fit business needs. Having a fixed or limited product solution may get a business up and running in a shorter timeframe, but if it can't satisfy embedded business processes, or the way your business works, users may be less productive as they are forced to adapt to a new business model. Decision makers should also remember that businesses do undergo significant change and must remain agile in order to compete successfully. An inflexible solution can restrict a business' ability to meet that change from a systems point of view. If, after answering the questions posed above, your business decides to acquire a hosted solution, ensure that it can accommodate change according to your timetable and budget (including time required to modify the product, and cost associated with that modification). Remember that due to the fixed contract structure of a hosted model, the overall TCO of a hosted solution may not be significantly lower than a licensed solution, even if the product chosen can be modified quickly and efficiently. Those looking for CRM solutions should remember that in this instance, they are the customer. Being in control during the decision process gives you a better chance of staying in control once the implementation is complete.
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