Keeping TCO Low

If Siebel Systems has its way the CRM technology story of 2003 won't be about feature sets or thin clients or mobile users, but about reducing the cost of CRM in Year 2, Year 5, and Year 20. Total cost of ownership (TCO) is firmly in the company's sights, and it says that the lion's share of R&D will be dedicated to reducing the running expenses. "We have said this is our primary product focus for the year, and accordingly, most of our engineering and quality assurance resource is being designed to specify, develop, test, and ship features that will reduce costs," says Skip Bacon, general manager of technology at Siebel. Siebel queried dozens of its largest customers about their TCO challenges and formed an advisory board with seven premier customers, including IBM and Nationwide Mutual. Among the early initiatives are ongoing efforts to improve back-end software integration, provide easier data migration in environments like call center/CTI applications, and provide better manageability through industry standard systems like HP OpenView and Tivoli. It turns out that the vast majority of IT dollars goes into the ongoing care and feeding of enterprise applications. "Between 70 and 80 percent of most companies' IT budgets is locked up in maintaining the basic operations of IT, not investing in anything new," says Rod Johnson, vice president of customer management strategies at AMR Research. So the TCO drive is as much good-natured as it is good business. "The goal of all the vendors is to reduce that 70 to 80 percent to free up dollars so [clients] can continue to fund software deployments." "These issues are not specific to Siebel," Johnson says. He highlights enterprise application integration as the primary suspect in bloated TCO commitments, since most best-of-breed solutions still rely on, at best, prepackaged integration modules that require a significant level of configuration and intervention to optimize. One of the significant hidden contributors to high TCO is the failure for new CRM technologies to fully replace legacy systems--something both software companies and adopting companies need to be aware of as they plan costs and ROI, and a ripe target for improvement in the future. "You always have a lot of applications that remain, each requiring some level of integration, some level of additional maintenance and support," Johnson says. Developers who concentrate on optimizing software performance for server and database platforms that run on Windows and Linux instead of Unix, which cut overall costs, but preserve enterprise-grade strength and manageability, may help control the ongoing expense of housing and running applications in years to come. For its part Siebel isn't promising overnight results, but Siebel 7 users can expect a summer maintenance release that begins to streamline the applications in the ways that the company hopes will lower the ongoing cost. "These are big, complex issues, and it will take us a couple of releases to make a huge dent, and an ongoing commitment to maintain and minimize," Siebel's Bacon says. Ultimately, both vendors and buyers need to be more cognizant of the lifetime cost of any major technology undertaking. AMR's Johnson says the emphasis today is painfully short sighted. "Users have typically focused on how much it costs to buy the software, but in the grand scheme, you spend $1 on software and $100 to operate it and they spend most of their time worried about a 20 or 30 percent discount on that $1."
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