Top Tips for Your On-Demand CRM Purchase

The post-holiday period hits hard. Your credit cards are tapped, your jeans are too tight and maybe that extra 'tini last night wasn't such a good idea. Time to face up to a few harsh realities. Not ready to hit the gym? Put your mind on something else you've put off long enough -- doing something about customer relationship management (CRM). If you haven't yet invested in CRM software (whether deployed on-premises as an enterprise application or rented monthly in an on-demand model), your customer data is likely to be a mess. Chances are, customer data resides in a bunch of different databases, in a bunch of different formats, making it difficult for your front-line employees to serve customers' most basic needs. Fail to address this now and you'll torpedo your chances of ever crossing over into the promised land of customer centricity (where your products and services are so special customers just can't live without you). Manufacturers, like other types of companies, are vowing to make 2006 the year they get serious about focusing on customers. "They want to better understand and respond to their high-value customers. That is driving a lot of CRM initiatives right now," says Leslie Ament, director of customer intelligence research for Aberdeen Group Inc. and an MA.com columnist. If this is your first run at CRM, you probably work for a small to mid-size manufacturer. The big guys have been at this -- and spending big bucks -- for years. Waiting does have its advantages. The scope of on-demand CRM offerings is broader than ever with Microsoft Corp.'s recent market entry through third-party resellers and widening every day, with the long-anticipated entry of players such as SAP (which is expected some time in 2006). Vendors like Sage Software Inc. (Saleslogix), NetSuite Inc., salesforce.com, and RightNow Technologies are popular in on-demand CRM in the mid-market space. Renting rather than buying CRM has obvious appeal. You can skip the upfront hardware investment, implementation/maintenance worries are minimized and application upgrades come through automatically. All this can be yours at a cost of about $60 to $125 per user per month, according to Liz Herbert, analyst for Forrester Research Inc. Not too shabby when you consider the price tag for a full-blown enterprise implementation can start in the millions and rises sharply from there. Vendors like Sage are also offering rent-to-own models, which are even more attractive as the money spent on rentals accrues toward purchasing the software for use in-house. If you hit the three-year mark in using the software, advises Herbert, it typically will be more cost-effective to take it on-premises The reason: If you use the system for five years, say, its full lifetime, over the long haul the rental fees add up to more than the outright on premises cost. Beyond cost, the rental model allows you to receive functionality upgrades automatically (most are minor enough not to require additional user training), sparing your IT department the hassle of dealing with them individually. In fact, unburdening IT in general is one of the best reasons to rent rather than buy. On-demand CRM is turnkey, a major advantage for overburdened mid-market IT departments. But it's not all Nirvana. Integration, for one thing, remains a major issue (though Salesforce.com is working overtime to resolve this with its AppExchange software sharing service). Integrating on-demand CRM with other enterprise applications will usually require the services of the CRM provider (services arm providing), a third-party systems integrator or your in-house IT staff (assuming you have significant IT resources to burn). Whether you choose to integrate immediately or wait until after you have the first phase under your belt, having an integration path is critical (see below for more on this). Before digging down into the specific features and functions of each offering, don't forget these big-picture considerations:

• Start with the business need. It's tempting to get bogged down in cool features, warns Herbert. "Think about your business goals, whether that's revenue growth or something else, what your processes look like now, what they'll look like in the future," she says. Let your aims guide the means rather than vice verse.
  
• Weigh the features. Once you are clear on what you're trying to do, identify the features that are critical to achieving those goals. Assign a number value to weight the importance of each feature. Isolate the few features that are deal breakers and consider the rest gravy. On-demand CRM is a fairly new area; even the vendors that have been in the space the longest do not specialize much by vertical so it's not likely you will find one application service tailor made for your industry segment. As long as you get the most important 20%, the other 80% is not as important.
  
• Start short-term. You can get the best deals on on-demand CRM, as with any type of software, the more you buy (both in terms of number of seats and length of agreement). But don't be tempted to sign a multi-year contract on untested software just to get a better deal. First try it on a month-to-month basis. If you see good value, you'll be confident in inking a long-term deal.
  
• Do a pilot. Once you get to the short-list stage, ask each vendor to do a six-week pilot to prove the value is there. (Some will charge for this; some won't.) Or, if you're serious about one vendor, do a pilot with just that company (typically gratis). If you don't have time for a formal pilot, just start using the software and see how it goes. Most vendors offer a free trial period. Make sure your pilot encompasses order management or inventory management, both critical functions for a manufacturer.
  
• Keep an eye on the horizon. SAP America and Microsoft, as well as Oracle Corp. to some degree, have taken their time in bringing their on-demand CRM offerings to market. SAP products and technology group head Shai Agassi recently said his company will not rush to market. Microsoft, for its part, has struggled with creating a multi-tenant version of its software so it can run more than one customer per server, critical for economies of scale in the hosted model. So, should you wait for the giants to move? It depends, says Ament. If you are already an SAP shop and you need heavy inventory management or order management functions, it stands to reason SAP's offering will be your best bet, when it comes out, that is (SAP says only "sometime in 2006"). On the other hand, adds Herbert, there is not much harm in trying out an on-demand CRM product now and seeing how far it takes you. You can always make the switch later. That's the beauty of on-demand. The buying decision carries much less risk than a typical enterprise software product.
  
• Integrate now, integrate later. Even if you don't have the bandwidth to think about integrating your on-demand CRM with other enterprise applications such as ERP, advanced planning and scheduling, customer service and support and warehouse management, to name a few, make sure your selection has a clear path for integration later. It is especially critical for manufacturers to integrate CRM and ERP, says Ament, or they won't have the supply chain visibility they need to meet ever-increasing customer demands.
  
• Assess the vendor's viability. Just because we're no longer in the depths of the dot-bomb doesn't mean you can afford not to evaluate your on-demand CRM vendor's financial soundness (remember how quickly the Application Service Provider model imploded?). Even if everything checks out (positive cash flow, no overwhelming debt), don't assume that means your vendor will continue as is forever. Consolidation will continue in CRM (Siebel's pending acquisition by Oracle and Epiphany's recent take over by SSA Global Technologies were among the first shoes to drop this year), as in ERP, throughout 2006, says Ament. If your vendor were to get acquired, it's far from the end of the world, she adds. Customers have so many choices vendors are likely to bend over backwards to keep customers in the fold.