Driving Down the Total Cost of Ownership in CRM Systems

These days organizations are taking a close look at the projected return on investment on IT spending. Unfortunately, most CRM systems are extremely expensive, leading their supporters (and CRM salespeople) to project unrealistic returns that will never be met, particularly during a downturn and a bear market. This is a set up for disappointment and "failure," and the higher the investment, the more likely the disappointment.

The good news is that CRM systems can, in fact, deliver a healthy ROI in a reasonable amount of time, no matter the economy. In order to reap such a benefit, however, organizations must choose their CRM systems with the utmost care. Finding a vendor that offers customizable solutions based on a sound underlying core technology is essential.

According to Dale Hagemeyer of Gartner Inc., "total cost of ownership (TCO) is key. Through 2005 as more small to-midsize pharmas (750 mobile reps and less) look to automate their business processes through CRM, they should seriously evaluate vendors that have good out-of-the-box functionality, a highly flexible solution, and can implement rapidly. Executing through integration partners will become an issue for the small to-midsize pharmas, because the significant integration cost has to scale down relative to the number of licenses. Smaller projects must translate to smaller integration costs and a la carte software pricing to keep the TCO acceptable. Winners will be those who can keep the costs in scale."

The total cost of ownership of a CRM solution includes licenses, implementation costs, support costs, and most important, the costs of changing the system on a regular basis to meet changing business conditions. In each of these areas it is a system's underlying technology -- the foundation on which everything else is built -- that is the most significant factor in containing the total cost of ownership.

Capping Implementation Costs
One often hears, with regard to CRM systems, "The technology doesn't really matter. They all do the same thing." This is a mistaken belief. Every system can capture some contact details and record a call. But some do it much more quickly and inexpensively than others. Systems that come in with a better design up front save the customer the costs of redesigning it over and over again. Yet, because the "all CRM technology is the same" myth is so prevalent, many organizations follow one of three paths that ultimately lead to massive unforeseen complications and, consequently, to potentially ruinous hidden costs.

The first common pitfall is to say, "Let's implement a system right off the shelf, and if we have to, we can fix it later." This is actually the most costly way to go about things. Everyone who interacts with such a system will want to make changes to it, and if the system does not have the strong foundation of a very flexible software architecture, changes will be time consuming and costly. Of course, every off-the-shelf solution touts itself as flexible, but many are not. Organizations that choose inflexible solutions will be faced with the prospect of scrapping them and starting over or changing their business processes to try to fit the software, in the process losing any possibility of the competitive advantages that flexible CRM architectures can offer.

The second common pitfall is that customers are attracted to software that has the most perceived functionality -- on the premise that if one blankets the entire area one will cover the function points that are actually needed. Bloatware (or shelfware as many CRM vendors call it, because the majority of the functions or modules never get taken off the shelf) makes software more complex, more difficult to use and train users on, and in the end, more expensive because the additional, unneeded bells and whistles must all be maintained and modified during the product's life. If you buy a tractor-trailer instead of a pickup truck, expect to pay more for gas.

The third common pitfall is buying into "best practices" CRM software touted by vendors and consultants. Best practices is really a vendor's way of selling inflexible software and making an organization change its business processes to match the ones already defined in the software, rather than the more difficult (from the vendor's point of view) path of creating a solid architecture that can be fit exactly to the organization's business. Lets face it: software companies haven't worked out how the software industry works. Why should anyone think they could tell a company how to run its business?

The better approach is to collaborate with a vendor that has the most flexible architecture, paired with solid foundation functionality that can get customers started on the process of designing a CRM solution specific to their business. No one should be fooled by user-defined fields or switches to turn functionality on and off -- these are superficial changes that will not alter the way the software works. It's necessary to ensure that the data model can be defined from the ground up, if necessary. Better still, ensure that the architecture supports an Object Oriented Data Model (OODM) design tool, which is inherently more flexible than traditional design methods. Buyers should make certain that the business processes and logic can be changed, and that the interface is not only flexible, but can also be personalized by individual users. By employing these standards to judge CRM software, purchasers will end up with a product that will fit their business better -- and therefore, will be more cost effective to implement and support. Such a product has a real chance of making a positive effect on one's business.

When this approach is taken, a CRM system can be implemented at a ratio of $1 in licenses to $1 to $2 in implementation costs. That is an astonishing advantage, given that typical large vendors take $1 in licenses to up to $4 to $10 in implementation fees.

Containing Training and Support Costs
Some additional benefits: Having a truly flexible, customized architecture in place leads to lower training costs and lower support costs. Training will be simpler and consume less "lost time," because the system will be based on an organization's already familiar in-place business processes. And forget trying to train on bloatware, you will spend much time telling people to ignore this feature or that field and you will have difficulty getting to what really matters.

As for support issues, organizations with up-to-speed users will save themselves large amounts on the hidden or unforeseen costs of such features as help desk, not to mention the communications costs of connecting with that help desk. Now the total cost of ownership is reduced even further.

Money will also be saved on the cost of data-cleansing activities -- yet another hidden cost of CRM systems. The more users intuitively understand the workings of the system, the less garbage goes in -- and the less garbage comes out.

Finally, support costs will be driven down substantially by choosing a vendor whose software has underlying architecture that allows it to control, monitor, and maintain systems in the field without taking them out of production for repair. Central synchronization of core technology can enable a vendor to do anything it needs to on a software basis remotely, without touching the machine. Organizations should look for a vendor that internally develops all the building blocks of its core technology -- the application itself, command center, analytics, call center and the various add-ons that go with it. That will allow more control over the product, rather than being at the mercy of a second-tier vendor, which translates into savings, both on a straight dollar level and on a productivity level.

A House Built on Bedrock
The total cost of ownership of CRM systems is often greater than projected and, therefore, great expectations for ROI can be dashed. Selecting software that is based on a strong, solid, truly flexible, and customizable core technology architecture mitigates this situation.

ROI can only be gained from a CRM solution that is actually used by the people that it is meant to help. A great person once said that no great salesperson was ever fired because they did not use a computer system. If you sell, you're hired. The road to user adoption is to create a solution that provides real value. The only way to achieve this is to use technology that is flexible enough to be molded around existing business processes and culture. Don't try to use a computer system to change the culture of the organization. A system can support and reinforce a cultural change, but it can't make one.

The truth is that no house will stand if built upon sand. Build your house upon bedrock and all things are possible.

About the Author
Sam Barclay is vice president of business development at StayinFront.

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