On-demand or on-premise CRM?
Posted May 1, 2006
Lately there has been a tremendous amount of interest in on-demand CRM. Boisterous supporters with a vested interest and a flair for sound bites loudly proclaim that all applications will be delivered using on-demand and other software models belong in a retirement home. The time has come, though, for a balanced, reasonable approach to the subject of whether--or when--it's appropriate for a company to choose an on-demand or on-premise solution.
It's clear that there is a place for on-demand software. However, it is fundamentally a deployment option with attributes that make it suitable for some businesses, but not for others. What factors should you be considering when evaluating whether or not to use an on-demand CRM solution?
Some companies may not have an IT staff or IT may lack the skills to implement an in-house system. In some organizations the sales team may not want to involve IT for various budgetary or political reasons. Often, sales professionals require a simple solution to track and manage sales leads, and don't have a strong need to coordinate customer information with other departments, such as marketing or customer service. These are all scenarios where an on-demand SFA solution makes sense.
On the other hand, some enterprises have more complex customer-facing business operations. Telesales representatives responding to inbound customer interest may need information about a marketing campaign. A financial services company with multiple business units may want to leverage cross- and upsell opportunities. Or, a telecommunications company may want to tie marketing, sales, and services operations together to deliver a 360-degree view of customers across multiple product lines. These are all examples of a higher level of operational complexity that may be better suited to an on-premise approach.
In some market segments like manufacturing or consumer packaged goods, companies interact with a relatively small number of resellers and distributors, even though millions of consumers may use their products. Companies in these sectors often reply on a single ERP-packaged application with relatively few integration points. These companies may find an on-demand solution could work perfectly well.
Other industries, such as financial services, often don't have a single enterprisewide system. In the back office of any major bank you'll likely find a diverse portfolio of highly customized applications running mission-critical operations with histories going back a decade or more. These represent a substantial investment that is not about to be replaced anytime soon.
These customers need a CRM solution that actively shares customer data as part of the customer processes that the company executes every day. While on-demand vendors are getting better at integration, today's reality is that they can't easily connect directly with multiple enterprise applications, especially custom-built ones. In this scenario, an on-premises solution is probably a better fit.
Every company is unique. Many companies in highly competitive markets view their customer interactions, and the processes they use to deliver distinctive customer services, as core to their competitive advantage. These companies need a flexible, cost-effective CRM solution to reflect the unique ways in which they deliver their customer experiences.
Part of their strategy includes quickly modifying their business processes to respond to changing customer demands. It's difficult to deliver this level of flexibility and customization with an on-demand system designed to work the same for thousands of customers. For companies driven by the imperative to deliver unique, specialized services that can be adjusted quickly, an on-premises solution may enable them to create a customized solution that meets their needs with a lower overall cost and level of risk.
Some companies regard vital customer data as one of their core assets and are not comfortable with the data being beyond their control. Others may be concerned with regulatory compliance and privacy issues (Sarbanes-Oxley, HIPPA, et cetera) and feel more secure with the data in their own data center.
What About Costs?
On-demand may initially appear inexpensive, since there is little or no capital investment and the per-seat cost can come out of an operational budget. However, analysts like Gartner have published research revealing that over the long term, on-demand may cost more. An understanding of your company's capital financing structure, combined with an evaluation of the life cycle costs of a particular vendor, should lead you to the right answer.
The Bottom Line
Don't let yourself be carried away by enthusiastic marketing buzz. Remember, on-demand is fundamentally nothing more than a delivery model--a particular way to consume software. Your CRM decision should be based first on your company's customer management needs, how the various vendors meet those needs, and then on the delivery model. Don't let yourself be locked into a solution that can't adapt to your changing business or that may not be able to support your growth over the next several years. The last thing you want is to limit your business because your CRM application doesn't have the flexibility you need.
About the Author
Janice Anderson is chair and CEO of Onyx Software Corp., and a seasoned business executive with 22 years executive management experience at both large and small technology companies. At Onyx she is spearheading the company's drive to extend its core enterprise CRM solutions with integrated business process management and analytics offerings. Please visit www.onyx.com