CRM Industry Hosted vs in-house

8/14/2019 CRM Industry Hosted vs in-house

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Hosted CRM vs. In-House:

Which Direction Should Your Company Take?

a CRMindustry.com White Paper

Sponsored By:
http://www.entellium.com/gateway.asp?id=crmindustry


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Hosted CRM vs. In-House:Which Direction Should Your Company Take?

Any technology closely tied to the financial health of a business generates heated debate, and customer rela-tionship management (CRM) is no exception. CRM, as a concept and a technology set, has both bolstered andburned, been praised and maligned. One of the most animated arguments over the last couple of years hascentered on the where of CRM: whether to deploy the technologies in-house or rent them, outsourcing theirimplementation to an application service provider. Its a case, the arguments go, of cost vs. customization, time

to productivity vs. control, accessibility vs. security, on-tap vs. on-premise, and so on.

Yet, as customer management technologies mature and deployment models prove themselves under real-world conditions, the two factions are becoming a little less polarized. One reason: people finally understandthat in the tricky world of CRM and despite early hyperbole to the contrary no one size fits all. Today, infact, the two models coexist in many large companies, answering differing enterprise and divisional needs.Further, some traditional suite providers, witnessing the popularity of hosted offerings and recognizing thebenefits for customers, are now providing their own software through outsourced models. Meanwhile, the highlypublicized failures of large-scale CRM deployments are giving way to better stories, with customers findingsuccess in carefully planned, incremental implementations. Businesses, it seems, have more choices thanever before and thanks to better planning, more options, reasonable expectations, and experience betterodds of succeeding.

Increasingly, the choice businesses are making include an outsourced model. Apparently, the siren call ofhosted CRM offerings lower total cost of ownership, quicker ROI, etc. is a seductive one. Gartner Inc.estimates that by 2009, businesses will be spending nearly $1 billion in CRM as a service, and that 33 percentof all small to medium businesses (SMBs) will have chosen a hosted model. Meanwhile, Forrester Researchpredicts that the percentage of overall CRM revenues coming from hosted applications will stand at 13 percentby 2005, up from 7 percent in 2002.

Theres a huge interest inhosting, says EstebanKolsky, an analyst atGartner. Beyond the usual

drivers, he says, on-demandmodels are attracting adher-ents who got burned bycostly in-house CRMprojects that didnt deliverthe expected results.Hosting is particularlyattractive, he says, ifcompanies are looking formore tactical, point applica-tions, such as campaignmanagement, pipeline

management, and emailmanagement.

What CRM model busi-nesses choose, of course,depends largely on theirindividual needs and circumstances. Do they have an IT department? Do they need highly customized applica-tions, and if so, do they have skilled developers? Is their workforce distributed or mobile? Do they have keyback-office systems that need to be integrated with new front-office functionality? What are their securityrestrictions? The answers to these and other pertinent questions should dictate approach, say experts.


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Time is Money

Of a number of considerations that come into play when choosing a CRM deployment model, time-to-imple-mentation and cost, not surprisingly, lead the list. If a business needs to have customer-related software run-ning fairly quickly, with a more immediate ROI, a hosted solution can be very attractive. Though theyll have tosacrifice some of the things that ownership can bring absolute control, sophisticated customization theydont have to dedicate IT resources or purchase expensive hardware to get things underway. This has beenparticularly attractive to mid-market and smaller firms, who might not have the IT expertise to bring CRM in-house.

With a hosted model, you can start with five or 10 users as a pilot and if youre successful, you can expand itfurther into the enterprise, says Liz Herbert, an analyst with Forrester Research. The advantage with hosted inthis case is that it doesnt cost you a lot if you have to throw it away you didnt sink a million dollars into alarge-scale Siebel implementation.

Many enterprises, of course, dont want to cede the control that comes with running their software themselves,and some feel that deploying integrated, highly customizable applications allows them to better differentiatethemselves from their competitors. Experts say that if a company has complex integration and customizationneeds, and has sufficient time to deploy an in-house suite or even incrementally deploy the modules that willeventually constitute an integrated suite they may be better served by an in-house deployment. Security andregulatory restrictions in some vertical industries are other factors that drive the deployment of on-premise

applications.

Tradeoffs Between Hosted Vs. Licensed CRM

ASP Software

Cost Cheaper Upfront Cheaper after year three

Flexibility Easier to customize, More flexibility, but easier tobut has limited options overcustomize

Support Staff Usually requires only Requires business and ITone business staff, but larger

administrator implementations benefit

from economies of scale

Overall Easier to manage More control over the app

source: Forrester Research

The cost-of-ownership question is a little trickier. Not surprisingly, the nod in terms of costs typically goes to on-demand solutions: Not only do potential customers usually get a free trial, but they dont have to invest in hard-ware or factor IT personnel into their cost models, and they receive frequent upgrades as part of their subscrip-tion fee. According to Herbert, most businesses who choose a hosting option are able to manage necessarychanges with one full-time or even a part-time business administrator. However, while the cost of an in-house,licensed model drops over time and eventually comes down primarily to maintenance fees, customers continue

to pay the same monthly fee for hosted offerings. Gartners Kolsky says that, all things being equal, the costdifferential between the two models begins to equalize somewhere in the third year. Nonetheless, hostedvendors maintain that such cost comparisons can be misleading because they're based on the assumptionthat businesses won't need to make changes to their on-premise implementations beyond the standard up-grades they receive.

Customization Considerations

When hosted offerings first came on the market, prevailing attitudes held that they made sense for businessesthat could live with plain vanilla implementations. Hosted applications, after all, need to target a diverse range ofcustomers and are designed to eliminate the need for extensive programming. Nonetheless, vendors of hostedofferings are increasingly able to offer more areas of customization, and changes can typically be implemented


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by a business administrator taking advantage of various offerings built-in wizards, tools and configurationoptions. Says Herbert, If a sales process workflow needs to be changed [within a hosted solution], a businessperson can usually do it. They need some training but not heavy IT background or development skills.

However, if an organization has complex business processes to automate, it may make more sense to runCRM products in-house, she continues. The customization you can do [with hosted offerings] is limited tosome extent, she says. In any case, if more difficult coding is needed, the company would require the servicesof a skilled programmer.

Who, What, When and WhereIndeed, such personnel considerations play heavily in the choice of a CRM model. If youre a large companywhere IT is a key competitive differentiator, its more likely that youve got IT workers with sophisticated andmultifaceted skillsets who can handle the integration work and custom programming needed to achieve ROIfrom an in-house CRM implementation. However, if youre a midmarket or smaller company with little or no ITstaff, youre probably better served by outsourcing customer-related processes to an ASP. The provider handlesupgrades and support, and offers easy-to-use tools for some customization.

Another personnel issue affecting CRM decisions centers on the workforce actually using the applications salespeople, marketers, customer service agents, administrative people and other knowledge workers. If anorganization has a widely distributed workforce, whether it be because of mobility requirements or due to

geographically dispersed offices, an outsourced model can make a lot of sense, as users can use a browser tolog-in to applications. To provide secure access to in-houseapplications, many companies run virtual private networks, butthese sometimes experience performance problems. Fieldsalespeople, for instance, have experienced problems logginginto VPNs at customer sites due to firewalls and tunnelingissues. However, says Herbert, for companies whose fieldworkforce need to have complete application functionality whileworking offline, in-house licensed options are the better choice.

The ease with which upgrades are rolled out is another benefitof hosted offerings: Theyre automatically performed centrally,

obviating the need for an IT staff to distribute upgrades toindividual desktops or portable devices. Still, while touted as akey feature of hosted offerings, frequent, automatic upgrades bring their own problems. While its true thatdevelopers may have to redo customizations when upgrading their in-house suites, upgrades arent as frequentas they are with outsourced models, and companies have the option of not upgrading when new versions arereleased. With hosted offerings, theres no real control over when an upgrade is rolled out and what new fea-tures are included. This frequency, says Herbert, makes it all the more important that businesses stay currentwith end-user training to ensure against the input of dirty data.

Another personnel consideration is the number of users that need access to CRM applications. At some point,the number of users that should be included in a hosted licensing contract reaches a state of diminishingreturns. Because you license hosted software on a per-seat basis, theres a point where it makes more sense

to bring the entire thing in-house and run it yourself, say experts.

Secure in the Knowledge

Network securitys long been a hot button in arguments over which CRM model is the better choice. Those whofavor an in-house approach over outsourced models often decry what they claim is a lack of control over thesecurity measures ASPs put in place. Theres no question that in verticals working with extremely sensitive data financial services, for example keeping applications in-house due to security concerns is a commonstrategy, if not a mandate. Kolsky cites compliance issues, government regulations and other reasons that anoutsourcing arrangement simply wont work for some businesses.

However, many experts say that security concerns over hosted solutions are largely overblown today. In manycases vendors host through [providers like IBM], so security is good if not better than what in-house can do,

If an organization has a widelydistributed workforce, whether itbe because of mobility require-ments or due to geographicallydispersed offices, an outsourcedmodel can make a lot of sense, asusers can use a browser to log-into applications.


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Outsourcing Customer Service Processes? Avoid These Mistakes

While the promise of reduced costs and other benefits continue to drive CRM outsourcing agree-ments, companies need to consider a few things before going with a hosted model. Through 2006,according to Gartner Inc., 60% of companies that outsource customer-facing processes will experi-ence customer defections and unexpected support costs that outweigh any savings theyve gained

from the arrangement. Gartner cites the following challenges as contributors to customer serviceoutsourcing problems:

Failure to Manage Customer-Facing Intersection Points

According to Gartner, companies often neglect to map customer processes from a customer perspec-tive, particularly the intersection points between outsourced and in-house processes. This fragmenta-tion can cause frustration for customers who need to interact with the business, and in the worsecase, encourage them to defect. Gartner recommends that companies sit down with outsourcers tomap the process to be outsourced, defining individual entry and exit points and integration models.

Proof of Concept Testing

Pressures to leverage newly signed BPO (business process outsourcing) deals can cause compa-nies to cut corners. Pilot tests, or proof of concept exercises, are common victims. Reference checkssimply arent adequate for determining whether an outsourcer can do the job, says Gartner, as BPOarrangements vary between industries and even individual customers. The research firm recommendsthat companies conduct pilot tests of the business processes to be outsourced for three to six monthsprior to signing an agreement.

Inadequate Knowledge Management Processes

Customer service knowledge specific to a business doesnt just sit in knowledgebases; its lodged inagents heads as well. And if agents think their jobs are getting outsourced, its not necessarily an easyprocess to get them to share their insights so the knowledgebase can be optimized. The best situa-tion, says Gartner, is to have in place a reliable knowledgebase including the knowledge gained from

individual agents prior to any mention of an outsourcing arrangement.

Lack of a Well-Defined Exit Strategy

Despite the benefits, any outsourcing strategy that includes the outsourcing of personnel can result inloss of control over critical knowledge. This, according to Gartner, reduces a companys leverageduring contract renegotiations. To avoid the loss of key process knowledge, some companies retain in-house staff to work with outsourcers, or negotiate to keep some of the outsourcing staff if the contractgoes awry. Gartner recommends that companies entering into customer service outsourcing agree-ments establish procedures for retaining process knowledge.

says Herbert. She says customers need to ask providers where their applications will be hosted, what securitymeasures are in place, what back-up procedures they follow and whether they have a back-up location in thecase of catastrophic events.

Whatever options customers choose, CRM deployments are moving beyond the less-than-stellar early years todeliver some real, provable ROI. These improvements are due to a number of factors, including the success ofon-tap CRM and a more incremental, modular approach to on-premise implementations. Both traditional suitevendors and hosted service providers are adding analytics functionality through development, acquisition andthird-party partnerships thats becoming critical to getting more from operational CRM investments. Both

camps are also continuing to add vertical-specific functionality to their applications, providing individual industrysegments with functions and business process automation specific to them.


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Entellium: Your Place or Theirs

Let others debate whether CRM applications deliver better results as in-house deployments or as a hostedservice; Entellium can rise above the fray. Offering its product set on both a hosted and on-premise basis,Entellium gives its customers what they want so they can concentrate on a more important issue their own

customers.

Were very customer-focused, so we offer both types of solutions depending on customer size and needs,says Natalee Roan, vice president of sales and marketing for Entellium, a Malaysia-based company with NorthAmerican headquarters in Seattle. As the product is the same in both incarnations, the choice, says Roan,comes down to what the customer feels comfortable with. When an account reaches 100 seats or more,some IT departments prefer to bring an implementation in-house if, for example, they have very sensitivedata. On the other hand, weve been approached by global corporations that just want us to manage the entiresolution for them so their IT staff doesnt have to take on the additional workload. Its our job to be flexibleenough as a company to provide customers with either option.

Founded in 2000 with the charter of delivering a hosted CRM suite that was both feature-rich and flexible,Entellium offers Entellium eSalesForce and Entellium eCustomerCenter, its sales and customer service prod-ucts, respectively, as well as MyEntellium, a business intelligence and team collaboration portal. The productsare available as individual modules or integrated suite. Both in-house and hosted models are priced on amonthly, per-user subscription basis, and both deliver regular quarterly upgrades and occasional smallerreleases as part of their subscription fee.

Key to Entelliums ability to differentiate itself from its competitors and offer rich functionality across both mod-els is its sophisticated workflow engine a typical component of costly in-house systems that Entellium hasengineered for a hosted model. This and other capabilities are instrumental in driving what Roan calls second-generation hosting, wherein the capabilities of on-demand CRM solutions more closely rival those of on-premise offerings. Roan cites a number of areas where Entellium is driving second-generation hosted CRM:

Integration:In the area of integration, Entelliums relative youth in the market has been a great boon itsbeen able to leverage the agnosticism of XML and Web services to allow cross-communication between itsproducts and key back-office data sources. The company makes its integration platform available free ofcharge as an SDK, and regularly publishes new Web services as customers request them.

Weve built our product on Web services on Microsofts .NET platform, so we have two-way communicationwith anything for which a Web service is developed, says Roan. When we wanted to integrate withQuickBooks, [an Intuit developer] was able to develop an integration platform in 24 hours. Entellium alsointegrates its products to key third-party analytics tools through Web services, though it will bundle sophisti-cated analytics of its own in its next major release.

Usability:Led by a CEO Paul Johnson who previously served at Apple, it should come as no surprisethat Entellium touts usability as one of the most important overall features of its product set. Difficult-to-useproducts, after all, have been cited as a major contributor to failed CRM implementations. Entellium has en-hanced the usability of its suite by breaking the products into modularized components so that customers canpurchase just the functionality pertinent to them. For businesses using the entire integrated suite, individualusers are able to leverage the functionality of the module they need, without the clutter of superfluous tabs, andcan take advantage of read-only views into the other modules when necessary.

Weve simplified the interface, so that every [tab] is absolutely essential to helping users do their jobs, saysRoan.
http://www.entellium.com/gateway.asp?id=crmindustry


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Customization:Proponents of installing CRM products in-house have long pointed to the inflexibility of on-demand CRM offerings; companies choosing hosted solutions, they complain, have to be satisfied with plain-vanilla implementations. Recognizing that clients will be more effective if they can customize components oftheir hosted CRM suites, Entellium provides customization capabilities in four areas.

First, individual users can customize the look and feel of theinterface, choosing, for example, their color palette, tags oricons. The second area provides for corporate control of inter-face customization, so that management can enforce policiesor ensure, say, that the interface mimic the look and feel of thecorporate intranet.

Third, businesses can customize their workflows, enabling theproduct to better fit their processes and adapt as they grow. Weve talked to a number of customers whodjumped on other hosted products only to grow out of them relatively quickly because they were forced intocertain processes, says Roan. Entellium allows customers to set business rules in their workflow to reflecttheir own sales, marketing and customer service processes.

The fourth area where Entellium enables customization is at the data field level, so that companies can add andtrack fields as their business needs dictate. Furthermore, customers can populate fields from third-party data

sources such as Excel, as well as perform searches and create reports based on customized fields. Thesekinds of capabilities, Roan says, are typically only available through costly in-house installations, but Entelliumoffers them as part of the subscription fee.

We dont treat our product like a software-based offering where, once youve bought the product, there arehuge fees for customization and integration, says Roan.

Data Access:Entellium recognized early on that one of the main reasons many IT managers prefer in-housesolutions is that they feel they'll lose control over their data with a hosted solution. Entellium raises their comfortlevel with its hosted solution by providing customers access to their data whenever they want, including provid-ing a full download in the most popular formats upon request.

Pan Pacific Rewards Loyalty, Reaps Revenues

One customer that took full advantage of Entelliums integration capabilities was Pan Pacific Hotel and Resorts,the international hotel operations division of Tokyo-headquartered Tokyu Group. Using the EntelliumeCustomerCenter product under a hosted model, Pan Pacific has been able to overhaul and centralize its VIPloyalty programs, greatly increasing revenues through cross-selling and up-selling opportunities and improvingcustomer service. Though some custom work was needed, the integration effort to provide consolidated viewsinto key databases cost far less than was projected due to Entelliums Web services architecture.

The eCustomerCenter implementation serves 14 hotels throughout the Asia Pacific region, with Internet accessranging from advanced broadband services in Singapore and Malaysia to more rudimentary access in remote

destinations. More than 500 users handling VIP booking activities are able to view up-to-date information housedin the hotel chains centralized databases. Via an online portalcreated using eCustomerCenter, theyre also able to viewpersonalized pages, change personal information and prefer-ences, and receive and redeem incentives. The same portalis used by business managers to track booking activities sothey can identify trends to improve marketing and salesprograms.

Customers like Pan Pacific are able to leverage Entelliumsextensive functionality for just $45 a month per sales user,

Entellium allows customers toset business rules in theirworkflow to reflect their ownsales, marketing and customerservice processes.

- Natalee Roan, VP, Entellium

We price MyEntellium soaffordably because customer datais very valuable, and we dontwant our customers makingdecisions on who gets to see keydata simply based on price.

- Natalee Roan, VP, Entellium


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$55 per month for customer service user, and $59 per month per user for the integrated suite. Many salesteams, says Roan, are able to pay for Entellium by expensing the fee, much as they would their cell phone bills.Further, Entellium offers read-only access to data through the MyEntellium portal for just $9.95 per user unlike most hosted providers, who require executives who need data access for reporting purposes to buyanother license at full price. The same price applies for access to MyEntelliums eCollaborate platform, which isideal for teams who need to share documents among team members and even with outside parties.

Says Roan, We price MyEntellium so affordably because customer data is very valuable, and we dont want

our customers making decisions on who gets to see key data simply based on price.

For more information on Entellium, click here.
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