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How midsize businesses can avoid the pitfalls of enterprise systems.

Imagine trying to return a shirt, only to be told by the clerk that not only does the store not accept returns, but that he’s going to force you to buy all your clothes from him for the next five years even if they go out of style or fall apart after one trip through the dryer. It sounds ridiculous, but unfortunately it’s the standard way of doing business in the CRM software world. The good news is that there is an alternative to being stuck with outmoded solutions that no longer meet your needs or simply don’t work: on-demand software.

Enterprise software systems have long been the dominant paradigm in the CRM industry. Companies pay millions of dollars for a software package and then spend even more money buying the hardware to support it and paying high-priced consultants to come in and make it integrate with their existing systems. That’s a lot of money to plunk down even before employees can use the tool, and it creates an in for a penny, in for a pound mindset in which companies are compelled to use software that they don’t even like. After all, who wants to pull the plug on a multimillion-dollar investment and admit that the entire project was an expensive flop?

The high cost of installing an enterprise-level CRM package is probably not a problem for a Fortune 500 corporation, but for small and midsize businesses (commonly lumped together under the SMB banner) it’s simply out of the question. It’s one thing for a $3 billion firm to spend two or three million on a new CRM package, but it’s quite another for a company with revenues of $50 million to take the same approach.

Because enterprise software has long been the only game in town, companies often find themselves trapped between two unpleasant options, one, to shell out more money for a good CRM application, or the other, to use an inadequate system, which usually means an Excel spreadsheet. That’s where on-demand software provides a far better option.

Simply put, on-demand CRM solutions allow your software and data to be hosted offsite and accessed by company employees through the Internet. That’s it. There’s no need to buy three or four hundred thousand dollars’ worth of new servers (or pay an equal amount in annual maintenance fees) to support the application because that’s all taken care of off site. As an added bonus, new features, updates, and even new versions can be rolled out without the added expense of having to buy and install a new software package. Everyone has a war story about installing a new CRM package, only to be forced to replace it after a few months when the newest iteration hits the market. On-demand software makes these tales of woe about as quaintly obsolete as an improperly punched FORTRAN card.

As impressive as these savings are, the biggest advantage of on-demand software might not be measured in terms of cost, but in terms of productivity. Enterprise systems are not only expensive, but they can take months–or even years–to install. That’s simply not acceptable to dynamic businesses that want immediate results when they buy new CRM software. In contrast, on-demand CRM packages can usually be installed in a matter of days. That translates into less wasted time and energy–and the ability to focus on what really matters: customer satisfaction.

So if on-demand software is so great, why isn’t it vanquishing enterprise CRM packages to the world of the Betamax and the Delorean? For starters, the enterprise paradigm goes all the way back to the earliest days of computing, whereas ubiquitous high-speed Internet access is less than a decade old. That’s not a lot of time to change the ownership mindset, which dictates that corporations need to install and host their own applications, but in the last five years the idea of using Web-based tools has become far more accepted, especially in small and midsize companies.

Part of this acceptance is the advent of security standards that make externally hosted data as secure, or even more secure, than information stored in the company’s own data center. Whereas the fear of hackers may have been a barrier to acceptance of on-demand CRM, Type II hosting facilities and SAS 70 certifications have made it safe to use Web-based software without worrying about some 15-year-old hacker playing War Games with companies’ private data.

There will always be a place for enterprise CRM software, but its primary customers will be large corporations that can afford to invest millions of dollars to deploy their systems. For smaller companies that want the advantages of a CRM system without needlessly sacrificing cash or productivity, the future is only a mouse click away.

About the Author
Christopher Cabrera is the founder, president, and CEO of Xactly Corporation, a leading on-demand sales compensation provider.

Some acronyms never die, even if in many ways their time has come and gone. CRM – or customer relationship management – is one such dinosaur.

To be sure, working more closely with customers is something that every company wants to do more of, and lots of software and services are being bought with that goal in mind.. Nonetheless, I’m ready to declare the end of CRM again, even if the quantity of financial, economic, and buyer activity around CRM is making it look like 2006 is going to be the Year of CRM, once again.

The problem is the following: As the breadth of customer-related activity – and software sales – grows, it’s becoming harder and harder to use the over-arching term CRM to compare one vendor’s offering to another. What SAP, Oracle, Salesforce.com and Microsoft, not to mention Onyx, Rightnow and others, call CRM is rapidly becoming more different than anyone wants admit. So different that we’re not just trying to compare apples to oranges – it’s looking more like apples to walnuts, or oranges to orangutans.

Sure, it’s all about the customer – that’s the easy part. But, if you really look at what’s happening in enterprise software, everything is all about the customer. It’s hard to find software that doesn’t impact the customer relationship: working with customers imbues activities in every part of the organization, from sales, service, support, marketing, and product development, to finance, supply chain, document management – and on and on.

Where the rubber hits the road today in the competitive CRM market turns out to be all about the non-CRM parts of a vendor’s offering. Tom Siebel talked about an important version of this issue in what I call his concession speech – the speech he made when the deal for Oracle to buy Siebel was announced. Remember, Siebel was always the CRM feature/functionality leader, and there was Tom saying he was selling out to Oracle because it was in that non-CRM domain, called connectivity to the back-office, where his company had failed to thrive.

More Than Just Customer Management

Similarly, Microsoft just had a blow-out quarter for its CRM product. But the reason is not because it’s the best CRM product in the business, but because it connects so well to Microsoft Office. SAP comes out with a CRM On Demand offering that is genuinely good at customer management – but the best reason to buy is that it connects seamlessly to the SAP back office. And now that the Siebel deal has closed, Oracle is out pushing Siebel’s vertical functionality, its analytics, and its on-demand offering. And, by the way, its CRM feature/functionality too.

In other words, what’s really important in the world of CRM is not the traditional CRM functions of sales-force automation, contact management, call center operations, and the like. What’s important about CRM turns out to be what has always been important to business users: connectivity, low-cost, industry-specific functionality, and usability.

This give some color to the efforts of Salesforce.com to move beyond its once pioneering point of differentiation, now that everyone is doing on demand. Ironically, this is the company that was among the first to understand that CRM is more than just customer management. Now it’s a company trying to find the next big non-CRM thing that CRM customers are looking for. Before someone gets there first. Hence its multiple attempts to be a platform supplier, to grow beyond on demand and become something bigger, and hence something more strategic.

So as the latest “Year of CRM” unfolds, keep an eye on the part of every vendor’s offering that’s not about CRM. The CRM hype will always be there, but the real points of differentiation will be seriously far from the old CRM that we worried about during the last Year of CRM, whenever that was.

Meanwhile, I’m going to spend the year trying to think of a new acronym to describe what’s going on in the market today. Because if everything is about managing customer relationships, then CRM is an increasingly redundant term, and those vendors that rely solely on their pure-play CRM capabilities will begin to become redundant too. It’s 2006 and CRM is dead. Meanwhile, for those managing customer relationships, it’s going to be a great year.

It’s a good problem to have: huge customer usage of an online service. This happened with such industry-disruptive companies as Amazon.com (Nasdaq: AMZN) and eBay (Nasdaq: EBAY).

Recently, the same thing happened to Salesforce.com (Nasdaq: CRM). Thankfully, the company has taken swift action to remedy its infrastructure so as to handle the traffic surge. In fact, Salesforce.com has provided full transparency of its reliability by launching a new website at trust.salesforce.com.

And customers keep coming. In the fourth quarter, revenues increased 67% to $94.1 million compared with the year-ago quarter. Keep in mind that this was almost the same amount of revenue the company generated in 2004. Net income in the fourth quarter was $6 million, which was a 66% increase from the same quarter last year.

One way to think of Salesforce.com is to compare it to eBay. But instead of allowing online auctions, Salesforce.com provides online services for employees to track customer leads, accounts, marketing campaigns, and even customer service issues. The process is called customer relationship management (CRM).

Instead of charging companies huge up-front licensing fees, Salesforce.com sells its software on a subscription basis. Last quarter, the company increased customers by 1,800 to 20,500. In all, there are 399,000 subscribers.

The customer base spreads evenly among small, medium, and large businesses. Some of the large companies include Cisco (Nasdaq: CSCO), ADP (NYSE: ADP), and Merrill Lynch (NYSE: MER).

While the CRM business is strong, Salesforce.com realizes it needs to expand into other markets. To this end, the company recently launched AppExchange, which allows third parties to develop applications on the Salesforce.com platform. For example, Morgan Stanley (NYSE: MS) recently signed up for 400 subscriptions to use a recruiting application built on AppExchange.

"I think our results show just how strong on-demand is right now," said CEO Marc Benioff. "And our AppExchange platform is really drawing tremendous interest: 4,400 installs and 97,000 test drives to date. And when I look outside our company, I see the giants of the legacy enterprise software business mounting weak impersonations of on-demand. We think that will continue to open minds and markets for us."

Earnings per share guidance on a non-GAAP basis (net of stock options expense) is flat, which looks like a disconnect given the torrid growth (and expectations for strong revenue growth moving forward). This is in part due to the effects of a higher effective tax rate, expected to clock at 45%. In addition, subscriber additions/growth can be volatile and, as a result, the past quarter saw a spike in subscriber growth, which might also have weighed on the company’s forecast. That said, I wouldn’t be surprised to find that Salesforce is being conservative on guidance. In fact, Benioff mentioned this a couple times on the conference call. The bottom line: With its brand, momentum, new product launches, and AppExchange, I’d expect the company’s growth to continue to be strong rather than conservative.

By Tom Taulli

Integration across operating locations of all sizes has become increasingly important in the age of globalization and increased competition. The reasons are clear: reducing costs, optimizing processes, and gaining a single, unified view across all company-wide information.

While end-to-end business software solutions are helping to integrate data, systems, and business processes within large enterprises, many companies have yet to achieve the same integration at their smaller subsidiaries.

The reasons are many. Integrating operations is perceived as too costly, complex, and time-consuming.

Similar problems are cited by midsize enterprises, which need their systems to integrate with those of their distributors or customers to remain competitive.

However, new, easily implemented solutions are now available which cover the demands of small subsidiaries and independent midsize companies while linking quickly and cost-effectively to enterprise-scale headquarters I.T. systems.

There are numerous solutions for integrating applications, processes, data, or systems within a company. But while large companies’ headquarters are usually equipped with modern business software solutions, their international subsidiaries and remote operating locations often work with applications that cannot interoperate.

Thus, exchanging financial data often involves adventurous spreadsheet calculations, which complicate transactions across the international network and hinder efforts to oversee activities at far-off subsidiaries. Equipping all company outposts with the comprehensive solutions deployed at headquarters would be far too costly and impractical in many cases due to differences in size and scale.

Many independent midsize enterprises are unable to oversee end-to-end processes across departments and functional areas for lack of a comprehensive information pool.

Once again, spreadsheet calculations often serve as the information basis for numerous key processes. In many countries, some 75 percent of all midsize enterprises are still evaluating company information on the basis of Excel sheets. This is a time-consuming and inflexible method that also increases the rate of errors.

The same applies to manual replication of data, which needlessly commits valuable employee time to mundane tasks. Nevertheless, companies often put off investments in end-to-end business solutions that could more cost-effectively manage accounting, customer-relationship management (CRM), materials management, controlling, and industry-specific processes.

The stigma of large integration costs hinder most companies from addressing inefficiencies within key processes and making the enterprise more flexible. Numerous midsize companies serve as suppliers to large enterprises which are increasingly demanding their suppliers’ integration into tightly linked supply chain networks.

Thus, a midsize company’s ability to dock its own I.T. infrastructure onto the high-performance systems of its larger partners and clients is a vital competitive factor.

HOSTED applications represent the fastest growing segment of the customer relationship management market, and this trend will accelerate with the recent release of an on-demand application by German enterprise software maker SAP.

In 2005, analyst Frost and Sullivan says, revenue from hosted CRM applications in Australia totalled $13.2 million, or 13 per cent of total CRM revenue.

Frost and Sullivan predicts that will increase at a compound annual growth rate of 40.5 per cent, to reach $51.2 million by 2009, and account for 35 per cent of CRM sales.

Whereas rivals Salesforce.com and NetSuite initially targeted small and mid-sized businesses, SAP Australia-New Zealand CRM head John Goldrick says his company’s software is aimed at large enterprises that traditionally purchase on-premises software.

Goldrick denies the new product would cannibalise revenue from SAP’s existing business. The on-demand product was developed from customer calls as a means of rapidly providing CRM, but with the capability to move to a traditional on-premise version at a future time, he says.

This appeals to large organisations with new or rapidly expanding business units that require a product quickly, as the application can be up in running within a week.

"It’s a best fit for customers," Goldrick says. "If they want to go beyond what is capable in on-demand, where they want to build processes and capabilities that are very specific to their organisation, or their growth gets to the point where cost-of-ownership says it makes more sense to go on-premises, we want to give them a starting point for an on-premises system."

He denies claims by Salesforce.com and other rivals that SAP was late to market.

"The term, late to market is an interesting one for SAP, because everyone says we were late to market with our CRM product initially," he says. "Now, within our peer group we get 47 per cent of market share."

Rival enterprise CRM developer Oracle is continuing to integrate its four-year-old Oracle On Demand product with other on-demand products it acquired in the purchase of Siebel Systems in 2005.

Frost and Sullivan ICT research director Foad Fadaghi says acceptance of the on-demand model is growing among corporate clients, who now comprise 30 per cent of the on-demand market.

Purchasing decisions are increasingly being made by more senior executives, he says.

"That’s why SAP has had to react in a defensive manner to meet the needs of the mainstream market," Fadaghi says. "That market is demanding hosted products."

Salesforce.com Asia-Pacific marketing vice-president Doug Farber says companies such as SAP and Oracle has been unable to adapt from its traditional model of building and selling massive, complex pieces of software.

"You have to be very service-oriented, you have to be very proactive with customers for relatively low-cost transactions," Farber says. "These guys have highly leveraged sales organisations with highly paid reps who are not going to go out and hustle to close small transactions."

However, Salesforce.com has increasingly been targeting the same group that SAP is chasing. The company has grown from three staff to 20 in Australia in the past 18 months to increase its service delivery capabilities.

"Larger organisations are knocking on our door, so we’re becoming conventional as a CRM decision," Farber says.

Salesforce.com claims more than 400 local customers, while NetSuite claims 150. Fadaghi says the bigger threat for Salesforce.com and other mid-tier suppliers will come from Microsoft’s on-demand CRM product, which offers subscription-based licensing to partners that deliver hosted systems, and from Microsoft’s plans to offer on-demand versions of products such as Office.

"Once that happens it poses significant challenges to players like Salesforce.com," Fadaghi says. "Microsoft has 60 million users of Office."

By: Brad Howarth -The Australian

So, you’ve decided to make the move to a hosted CRM solution. If you’re like most companies, you’ve spent the bulk of your evaluation on features and benefits, and rightly so. But as important as those are, I strongly suggest you carefully review the agreement you’ll need to sign, and look for a few missing elements that can greatly impact your ability to access your own company data, secure reimbursement in the event of a service interruption, and ensure adequate data back-up.

To assist in getting the best service after the sale, here are four critical questions you should ask your prospective hosted providers about before signing a long-term contract.

1) Does the provider offer month-to-month options?
Many hosted CRM providers entice customers with a "free trial" and then look to move them as quickly as possible to a long-term contract. With a company now locked into a long-term agreement, many requiring full payment to be made up-front, what motivation does the vendor have to take care of you compared to closing the next deal?

What you should look for: CRM vendors that are willing to earn your business every month have the ultimate incentive to offer outstanding service at a reasonable price. Long-term contracts still may be a great idea because of the mutual commitment they show and the discounts a customer may receive, but this should be your choice.

2) Does the vendor explicitly offer service-level standards in writing for all customers?
When you choose a hosted option, you are also choosing to hand over your most valuable asset- your customer data. But the service-level standards offered by each vendor vary dramatically, and some of the largest vendors don’t offer any Service Level Standards at all. They’re asking you to trust them with your data, so you deserve to see their responsibilities to you- in writing.

Most hosted providers protect themselves from legal liability and indemnity from damage claims resulting from interruptions – that’s fair. No one can control a blackout or a natural disaster.

What you should look for: Hosted CRM companies with written service-level standard that covers all customers-at no extra charge. A service-level standard with a guarantee of a minimum of 99.5 percent "uptime" and refunds, rebates, or other financial consideration if that standard is not met.

3) What is your standard, free level of customer support?
Just about every industry-except software, that is-provides customer support at no extra charge. Hosted solutions tend to follow the software route, offering a minimal level of "free" support, but then promote pricey service or support packages after you sign a contract to "ensure you get the level of support you require." In some cases, these extras jack your bill up by nearly 50 percent.

What you should look for: A provider that services all your users, all the time, because it values the relationship-not because you pay it to take your calls. If a provider offers service "packages" like standard (usually the free one), silver, and gold, that’s a sure sign it is looking to make money off of servicing you at some point in your relationship with it.

4) Can I Have A Full Export Of My Data Whenever I Need It?
What would happen if you decided to switch banks, and you went to withdraw your money and the teller said "Sorry, I can’t get the money in your account to you for a few weeks, and it will have to be all in pennies." You’d blow a gasket-and rightfully so.

Believe it or not, hundreds of companies have similar experiences trying to export data from the servers of hosted providers. Some may hold onto data until all billing issues are settled. But in many cases, it’s standard procedure to take a few weeks to extract and export data (for the convenience of the provider, naturally), and sometimes the format it’s returned in is difficult to port into any other solution.

What you should look for: It’s best to get this out in the open before you sign a contract. If a provider won’t guarantee immediate and full export of data on demand for next to nothing, you’ve got the wrong provider. Also, make sure you know what format you will get your data back in. Do your homework – after all, it’s more than just your data-it’s your business at risk.

Ask tough questions
There are many benefits of going the hosted route for CRM. But before you choose, ask the tough questions about what happens after the sale. It’s the best way to make sure the vendor doesn’t let you down at the most inopportune time-or stick you with an unforeseen support bill down the road.

Author: Natalee Roan

For CRM, 2005 was a bumpy ride. Major players in the customer-relationship management field engaged in a slew of mergers and acquisitions, buying competitors of every size — think of Oracle’s purchases, Siebel among them — and while the industry endured this cannibalism, spending on applications and related services and technologies was relatively modest.

Now that last year’s activity is in the rearview mirror, it’s time to focus on the road ahead.

Industry analysts looking at 2006 and beyond point to the growing importance of software-as-a-service (SaaS) and on-demand offerings as trends that will shape how small to midsize businesses (SMBs) and large enterprises alike deploy CRM technologies.

Experts also are forecasting that an increased focus on SaaS will lead to a change in the services side of the industry, with systems integrators and business-consulting firms beginning to form partnerships with software vendors. And the expected completion of Oracle’s Fusion project in 2008 — the company’s effort to stitch together all the applications acquired in its spending spree — also is expected to have a significant effect on CRM.

The industry has matured over the past year, according to William Band, a principal analyst at Forrester Research and the author of a new report, "Trends 2006: Customer Relationship Management." CRM has moved, Band wrote, from times of unrealistic expectations and exaggerated pessimism to acceptance as a core pillar of an organization’s competitive strategy.

"CRM is not going away," Band said in an interview. "It has gone through a cycle of over-inflated expectations, to the sense that the software is not useful at all to a more mature stage, with companies always trying to improve their customer interactions."

Oracle’s Buying Binge

Oracle made a huge splash in January 2005 with the hostile takeover of PeopleSoft and J.D. Edwards. Nearly a year later, the company’s spending spree culminated in the purchase of Siebel, a move that added roughly 4,000 customers and 3.5 million CRM users. That purchase was finalized in January.

Other Oracle acquisitions in 2005 included Oblix, Retek, TripleHop Technology, Times Ten, Context Media, ProfitLogic, and i-flex — all companies sought by Oracle to bulk up its enterprise-software portfolio, with the aim of lowering its dependence on its database business and putting it in a better position to take on SAP, the industry leader in enterprise applications.

Oracle programmers now are working on the Fusion Middleware project, the company’s effort to incorporate the software it has acquired with its existing applications. At a January presentation in San Francisco, Oracle executives said that, halfway to their 2008 deadline, most of the hard work is over. Rather than merging code from several applications, Oracle’s strategy is to take the best features from each and rewrite the code from the ground up.

The rapid consolidation of enterprise-application vendors over the past couple of years is enabling companies to rely on a single vendor for functionality across the enterprise, the Forrester report noted. Organizations exhausted from years of overspending on enterprise resources have started to demand that their CRM applications actually enable end-to-end business processes.

SAP, for example, long has touted the integration of mySAP CRM solutions with back-office capabilities, which now are offered as an enterprise suite. Microsoft is promoting its business-oriented applications as pre-integrated with other Microsoft back-office and desktop solutions.

"I think the industry has recognized that CRM needs to be tailored to how companies actually work," said Brad Wilson, general manager of Microsoft Business Solutions CRM. "If you have an environment with high turnover, for example, you can’t have a complicated tool because you don’t have the training time."

Coming Attractions

According to the Forrester report, three fundamental forces will steer the CRM market in 2006: persistent investment, a shift toward process management, and reliance on consultants and systems integrators. Band’s forecast anticipates a 2 percent to 3 percent increase in spending on CRM application licenses, amounting to some $3 billion worldwide in 2006 alone. He expects that level of growth to continue through 2008.

Total spending on vendor offerings, including maintenance and services, will grow roughly 5 percent to 6 percent each year over the same period, the report said. These expenditures, however, do not include any additional significant investments that buyers might make to support hardware and systems-integration services.

"This shift in relative growth rates reflects the increasing importance of after-market services to the revenue mix of CRM software vendors," Band wrote. "These rates of growth indicate a mature market, matching the anticipated pace of overall I.T. spending. However, the total amount of money to be invested in CRM remains large."

As businesses determine exactly where to spend those large amounts of money in CRM, more and more of them are seeking applications that will paint a precise picture of each of their customers.

"What we’re seeing is a great deal of customization on country and industry levels," said Microsoft’s Wilson. "When Microsoft was developing its CRM, it made sure that it was built on a Web services architecture so that it can be easily adapted to specific local needs and requirements. We don’t ship an out-of-the-box, property-management application, for instance, but those in real estate using the software can easily add apartment information without adding programming code."

Web services is the catch-all term for a software system that supports machine-to-machine interaction over a network.

An increasing number of businesses are choosing on-demand CRM solutions because of greater customization abilities, and integration with other services is the last hurdle for on-demand CRM to cross, said Liz Herbert, a Forrester Research analyst. Many of the larger enterprises today, for example, that have Salesforce.com deployed in some divisions typically do not have it integrated with their SAP or their Oracle software in the back office.

"Going forward, we’ll see a lot of that [integration]. It means that the integration tools are getting stronger," Herbert said. "It also means that the people who help out on the services side, whether it is coming from the vendor or coming from a systems integrator like Accenture or IBM, need to and will be getting more experience doing those more complex integrations."

CRM Standards

The trend for many years has been for vendors to deploy Web-services technology as an extension of existing platforms, applications, and tools as opposed to using it as the foundation for completely new applications and environments, according to the Forrester report.

But with the growing adoption of Web services and service-oriented architecture (SOA) technology for both vendors and enterprises in their platform architectures, these environments will become the "focal point for most application development and integration," Band wrote.

According to Sheryl Kingstone, program manager for CRM applications and infrastructure at Yankee Group, CRM software is in the midst of a significant evolutionary shift resulting directly from the convergence of SOA, Web services, and XML, a markup language that facilitates data-sharing across different systems.

"This new technology foundation enables the assembly, distribution, and management of business solutions in a way not possible before," she said, with the results being faster decision-making and a lower total cost of ownership for CRM customers.

Oracle, with its Fusion project, and SAP are leading the push for CRM standards. Both companies have intensified their efforts to develop prepackaged integration across their suite of products. For SAP, the answer so far has been its NetWeaver initiative, which seeks to put unified integration technologies on a single platform.

"Both of these initiatives aim to align each company’s offerings with the SOA world of the future," Band wrote.

SaaS in Demand

Perhaps no bigger trend has taken hold in the CRM market than the development of software-as-a-service, according to Forrester’s Herbert. "[It is] the one thing that has been changing lately in the CRM world."

No longer the sole domain of SMBs and small divisions, SaaS has moved into large enterprises. "Larger companies are now seeing hosted CRM as a way to put the application in a single department to try it out, and then roll it out to the rest of the enterprise later," said Rob Bois, an analyst at the consulting firm AMR Research.

With Siebel’s CRM OnDemand included in Oracle’s suite of applications, Oracle has what some regard as the leading offering in the hosted-CRM space. This gives the vendor a possible advantage over its chief rival, SAP, and also positions it to compete head-to-head against hosted-CRM pioneer Salesforce.com.

In the UK, Really Simple Systems has set up shop by offering basic CRM tools for campaign management and customer service. NetSuite, meanwhile, unveiled its NetFlex Applications Program, which gives companies the ability to link together project management, payroll, point-of-sale, and other capabilities.

All of these vendors likely will face stiff competition from Salesforce.com, which is aggressively touting the benefits of its AppExchange, an online marketplace for Salesforce.com and third-party applications.

NetSuite is optimistic that the market will respond well to integrating CRM with other enterprise applications. In particular, NetSuite is putting its weight behind NetFlex, which extends the company’s on-demand software to other industry-specific software applications.

"The market is changing, with enterprises moving away from the old-style CRM," said NetSuite chief executive Zach Nelson. "They want more capability and flexibility, and we’re happy to give them that."

Hosts, Hybrids, and Help

SAP’s recently announced intention to create an on-demand CRM service was seen by many in the industry as validation of SaaS. The company’s first CRM product in this arena is SAP Sales, which provides core features for managing customers, contacts, and sales. If you work for a small business, however, you need to look elsewhere. SAP has set a 100-user minimum for its hosted-CRM offerings, which start at $75 per user, per month.

Herbert said industry watchers are "seeing more and more motion" toward the upper midmarket and large enterprise sectors.

Additionally, instead of SaaS being a second separate class of CRM, it is becoming a popular deployment option. Herbert predicted that the industry will see a lot more CRM offerings from SAP and Siebel with an on-demand component or option that also will enable enterprises to perform hybrid deployments or migrate to an on-premise solution from the same vendor.

"We’re starting to see a lot of vendors doing that," Herbert said. "The two vendors who have started offering the hybrid deployments the most are RightNow Technologies and Sage. But going forward we’re seeing a lot more vendors moving in that direction."

In the coming years, SaaS also will lead to a change in the relationships between application vendors and services experts, observers have said, with such business-process mainstays as Accenture and IBM incorporating more and more SaaS offerings into their areas of expertise.

One example of the coming change is the recently announced partnership between Salesforce.com and Accenture. SAP’s partnership with IBM Business Consulting Services, announced two weeks ago at the launch of its on-demand product, will enable the company to provide deeper and industry-specific expertise for business processes, Herbert said, rather than "just blowing out a plain vanilla solution" for managing a sales pipeline.

Customer Is King

Continued high levels of investment in CRM technologies and services will be driven by the never-ending pressures on businesses to create a customer experience that will distinguish them from competitors.

The biggest problem facing CRM vendors and service firms, Herbert said, is developing industry-specific editions of their software and services. CRM’s biggest players — among them Siebel, SAP, and Oracle — have offerings specifically tailored to different vertical markets, such as financial services. But CRM software does not have industry-specific editions that allow companies to jump-start their deployments with a product that already includes, for instance, reports and terminology.

"To date, what we have seen in SaaS has been light templates with very basic modifications to make it appropriate for a specific industry, but nothing deep like we have seen in enterprise CRM," Herbert noted. "That is the next thing that has to change."

The analyst predicted that vendors such as industry leader Salesforce.com — either alone or in conjunction with its partners — will move to address the need. One early example is Salesforce.com’s partnership with Thompson Financial, which has led to the creation of a deeper vertical edition of Salesforce.com.

"I think we will need to see much more of that down the road," Herbert said.

Rather than targeting a specific part of the business world, Microsoft has assumed the mantras of flexibility and familiarity. "We put CRM right on the desktop, along with Office," Wilson said. "Most corporate users are comfortable with Office productivity tools, and so CRM becomes a natural extension of what they’re already doing. It’s not a major leap with a new application."

Microsoft’s next CRM release, Titan, will be out in 12 to 18 months, Wilson said, putting it in the same time frame as the release of Office 12. In fact, Titan is being designed to take advantage of the enhancements to that suite of applications. It is all part of CRM’s transformation from a large, expensive, stand-alone application to an easily adaptable tool that can involve and benefit all areas of the enterprise.

"I’m extremely bullish on CRM in general," Wilson said. "Businesses have an ongoing need to communicate with customers, to work from the sales process and provide great customer service. Those needs don’t go away. I think CRM has had some high-profile missteps in the past, but now we have a great opportunity to make CRM much more usable, and useful."

Author: Walaika K. Haskins, cio-today.com

For years enterprises have tried to combat customer service issues with technology.

In some cases, the organizations do not have a central location to keep all of a customer’s data. The e-mail requests are stored in one location while records of phone conversations are located someplace else. When this happens the call center manager approaches the IT manager and says, “We need a database.” The IT manager then researches the latest in knowledge-bases and buys the technology that will best fit the current architecture.

But there can lead to trouble.

After spending quite a bit of time and money getting this knowledge base up and running, the system still doesn’t seem to run smoothly. Data is not input regularly so the information is often stale, incomplete or inaccurate. The call center manager then goes back to the IT manager and complains that the CRM solution is not working properly. The IT manager protests that the technology is working fine, but it is the fault of the agents for not using it properly. The ensuing result of the project is another piece of technology not being used to the best of its ability and the gap between IT and the business user is driven further apart.

You are now probably asking how this problem could be resolved, as it seems like a vicious cycle. The solution is actually quite simple: Process planning and automation. Customer service failures are often a process problem rather than a technology one. CRM solutions are meant to carry out simple tasks – automatic responses to e-mails, online searches offerings, the logging and maintenance of client information, and so on. However, behind each of these tasks lies a laundry list of human workflow processes that need to be captured and automated before the CRM technology can work properly.

For years users have been trying to extend the capabilities of the CRM technology to capture the work that really needs to be done by Business Process Management (BPM). In the case above, the IT manager and call center manager need to work more closely together to identify the processes that are involved in capturing information. All too often, organizations think there are processes in place, but then later find out that there are deviations from the process, causing hiccups in the overall system.

Additionally, the technology that is implemented needs to adapt to the business’ culture rather than the typical scenario of the business needing to adapt to the technology. This may sound very basic, but people don’t like change and the more an organization tries to force change, the more likely that the project will fail. That is why all too often perfectly capable CRM systems become shelfware.

In the example above, once the IT manager and Call Center manager outlined the processes that needed to be addressed they should look to add BPM to their existing CRM systems.

BPM is defined as the automation of processes using a rule-based system that invokes the appropriate tools, and supplies necessary information, checklists, examples and status reports to the user. In basic terms, BPM bridges the gap between technology and the people who need to use the technology.

In one case, the CRM system was purchased to capture customer data from multiple locations. The system the IT manager purchased can do that, but it can’t make the agents input the data they gather throughout the day. Therefore, it is vital to not only have processes in place to ensure that the updated customer information is entered, but automating some of the more basic functions will aid the overall adoption of the new technology.

For example, when an agent receives an incoming call, a trouble ticket should automatically be launched. This could include a standard form that the agent fills out during the phone conversation. Once that call ends, or if the call needs to be escalated, the agent can submit the form to the system so the data is automatically saved, and a notice is sent to the person who is responsible for following up on the initial trouble ticket. Additionally, if further action is not taken reminders are automatically put in place. If those reminders are not met then the trouble ticket is elevated to the next in command to ensure that there is a resolution to the customer’s request.

By automating this process, the system ensures that the initial customer inquiry is seen through to fruition. It also forces those agents involved in the process to fill out the appropriate paperwork in a timely manner. This keeps the knowledge-base up-to-date, and customers happy because they are guaranteed answers to their questions.

CRM is very useful and can have a major impact on bettering the business, when used properly. It is not meant to solve process problems, rather CRM is meant to better the customer service experience. Therefore, businesses need to take a step back and review the entire situation before making a decision to purchase a new technology. More often than not a solution can be found by using better process management practices in conjunction with the technology that is currently available.

Rashid Khan is CEO and co-founder of Ultimus. He is also the author of Business Process Management: A Practical Guide (www.practicalbpm.com).

The standard definition of the word risk is the possibility of loss or injury. However, an alternative meaning that is much more relevant to the world of enterprise software is "the variability of returns from an investment." There isn’t a single organization that authorizes a technology purchase without some assurance of ROI and yet the majority of companies fail to properly identify and minimize risks in order to maximize return. These risks come in a variety of forms-internal risks, vendor risks, IT risks, market risks, et cetera, and each needs to be carefully evaluated as part of the overall ROI equation.

This is particularly important when evaluating customer service solutions, as they extend across numerous applications and departments across the enterprise. By moving beyond a single, dogged focus on costs, companies can more accurately calculate the return on their investments. Key risk assessments include:

Organizational risks. This involves assessing the company’s own ability to undertake the project. First, consider implementation timing in terms of available resources and skill sets. Next, take an objective look at organizational readiness. A customer service strategy may involve an evolving business model through a chain of various processes and organizations with the company, from HR to accounting to marketing to distribution. Be sure the company is ready to undertake the magnitude of change required for this far reaching a project. Solicit input from senior managers and strategic planners to ensure the project is congruous with the objectives of the organization. Aligning customer service goals with overarching corporate goals lessens the chance of project dollars being pillaged for other initiatives.

Another important consideration often overlooked is user acceptance. Lack of user commitment occurs when employees aren’t convinced of the need for a customer service technology strategy and implementation. Gaining user buy-in is a good way to ensure that all critical processes are incorporated into the software. In addition, users who are involved early on often become the greatest advocates, adopting the new technology immediately.

The likelihood of acceptance can be difficult to gauge up front. Fortunately, there are many steps you can take to minimize organizational risk. One large financial company took numerous proactive steps to ensure a commitment across multiple departments. First, the implementation was accompanied by a high-profile internal communications campaign, which included a count down calendar designed to build anticipation ahead of the go-live date. More important, employees were invited to visit the physical space where the customer service system was being set up so they could see firsthand what was being implemented and why. Staff members were given a chance to navigate around the software, which was customized to reflect the well-known look and feel of the existing business, and provide instant feedback and new ideas. Team feedback sessions were held four weeks prior to go-live to make sure all necessary solutions were deployed.

To manage customer service projects effectively, set tangible benchmarks and keep stakeholders informed as each are met. Follow a phased approach to implementation. This has two benefits. First, it gives users an opportunity to learn and adapt to new processes in stages. Second, and more importantly, it provides an opportunity to demonstrate early successes as incremental metrics are achieved.

Technological risk. Companies need to evaluate technological choices through a number of filters. Is the technology markedly different from what is currently in place? If it requires an entirely new operating system or application server, are the support resources in place to maintain this mission-critical system? Is it aligned with the direction the company is moving in? For example, deploying proprietary technology in an environment that is moving toward Linux or other open technologies could pose a problem. Many SAP implementations faced similar issues; the software had its own proprietary programming language. Finding and retaining SAP programmers became a painful and expensive proposition for many.

Be sure not to lose sight of the end goal. It may seem counterintuitive, but CRM initiatives are at risk if too much focus is placed on the technology itself. Build processes around business drivers, not around the proposed technology. After all, without a clear business strategy, the technology is simply managing transactions instead of improving customer relationships. The goal is to move toward a more customer-centric environment.

Another concern with technological purchases is the amount of integration needed. Determine how much customization and integration will be needed for the solution to work within the existing infrastructure. Also, consider how the proposed integration will impact the value of data retrieved through the integration point.

Vendor risk. Talk with companies of similar size and business to glean lessons learned and best practices applied. Conduct due diligence on the company of choice to ensure the company is stable and mature enough to support you in the long term. Of course some vendors use a partner-driven model.

Market risk. Uncertain times call for advanced planning. Consolidation of industry behemoths has many wary of new technology purchases, particularly when there is little synergy between the companies involved. Build these scenarios into your plan so your technology investment helps you stay ahead of the curve.

Conclusion
A successful CRM project encompasses people and processes that are aligned together to build stronger customer relationships. A customer service system affects the culture of the organization. Although each business is unique, there are many risk factors that are universal to all organizations, including vendor risks, technology issues, and market conditions. Careful consideration and planning up front as well as a strong partnership with the selected vendor empowers businesses to maximize ROI. Companies looking to implement a customer service technology should look to vendors that are willing to partner with them and bring best practices and expertise to the table.

About the Author
Paul Doughty is vice president of sales consulting for KANA Software. Please visit KANA at kana

Review a stack of business journals and three letters will likely pop up time and time again – CRM. The universal acronym for customer (or client) relationship management, CRM is seemingly the Holy Grail of today’s business manager. For the professional services person, some iterations of CRM may be confusing – many are slanted toward automating customer service operations. But never fear, there is a whole lot more to CRM than fielding service calls. In fact, a new breed of CRM is quickly becoming a powerful solution for professional services firms, especially those with management teams that want to leverage firm-wide intellectual property to grow their client base, improve productivity and maximize profitability.

Unlike accounting or HR solutions that are primarily used by highly trained and skilled personnel within a single department, CRM is an enterprise application that is used by virtually everyone across the firm. When deployed in an organization, CRM solutions aggregate vast amounts of information to create a pool of knowledge that can be used to prospect new business, validate leads, analyze processes and more. Sounds great. But the question remains: how can a firm ensure success? Following are five simple steps that can help put your organization on the path to CRM success.

1. Remember that Culture is King – A CRM solution is more than a new software package. It also encompasses a mindset, a way of doing business and a way of interacting with others in the firm. The success of a CRM implementation rests on the shoulders of a workforce that is willing to share information about clients and contacts. However, this "collaborative" mentality flies in the face of the culture within some professional services firms. For better or worse, many professional services practitioners are skeptical of sharing contact information for fear of losing opportunities to generate work that they can produce themselves. However, if a CRM implementation is introduced to the workforce as an opportunity to create new opportunities for all, success rates will improve significantly.

Consequently, it is especially important to publicize instances when shared information benefits the firm-at-large. Management must work toward creating a culture that is based upon "the greater good" rather than "individual gain." To reach this goal, users must see proof that the information they share will be used to improve operations and add new business that will benefit all members of the firm. It may take some time, but such a culture shift is worth the effort.

2. Set Realistic Goals – One of the greatest mistakes a management team can make is to force-feed new technology across the organization. This is particularly true with a CRM implementation. As firm management prepares for a CRM rollout, planning and patience are critical. Working with the implementation team from the software developer, management should agree upon a plan of phasing software use across the firm. Some organizations orchestrate a CRM rollout by location, others by practice group or department. Regardless, this type of phased approach gives both the firm and the implementation team an opportunity to make adjustments, manage expectations, achieve milestones and promote successes.

3. Obtain and Maintain Senior Management Support – Successful CRM implementations start and end at the top. Firms simply cannot achieve success without full management buy-in, nor can management set the process in motion and walk away. As a rule, successful CRM implementations are characterized as those in which management leads by example. Rolling-out a CRM solution takes hard work, but the benefits are substantial. Management should not sugar coat the process or minimize the effort involved. Similarly, as milestones are achieved, those same managers should be the first to strongly promote the benefits being realized by the firm.

4. Analyze Working Processes – The process of fitting a CRM solution into a professional services organization provides a wonderful opportunity to evaluate processes and procedures across the firm. Working with the implementation team from the software provider, firm management should review, analyze and evaluate the firm’s procedures as well as all of the data sources that will be migrated into the CRM solution. This is the perfect time to discuss and develop new procedures that will increase the firm’s success.

5. Select the Right Software Partner – While teaming with the right solution provider is important to every software implementation, it is absolutely critical when dealing with a CRM solution. The way CRM is utilized by a professional services firm differs greatly from the way CRM is used by a product-oriented organization. Therefore, it is critical for services-based organizations to choose a software provider that specializes in professional services solutions. Equally important is the software solution’s ability to seamlessly integrate with other business processes across the firm, including the firm’s financial and practice management systems. The ability to correlate client relationship management and new business development activities with firm financial performance greatly enhances the ROI generated by CRM. Finally, firms should closely review the
depth and breadth of consulting services provided by CRM vendors being considered. A CRM solution is only as good as the implementation methodology used to integrate it with a firm’s business processes. Make sure that the vendor you select can provide experienced and dedicated consulting staff members that will work with your team to ensure success.

A successful CRM implementation can help a professional services firm stay head and shoulders above the competition. Keep these five steps in mind, and you and your firm will be well on your way to CRM success.

George Brandon is director of practice management consulting for Thomson Elite. More than one-third of the top 1,000 US law firms, more than one-half of the top 100 US law firms, and 30 of the top 100 UK law firms use Elite’s practice management systems.

A tremendous amount of confusion exists about the comparative value of on-demand versus on-premise CRM software. On-demand CRM is fundamentally a deployment option, with attributes that make it a suitable option for some businesses, but many companies are unsure about whether or not it is appropriate for them. The answer, as you might expect, is “it depends.”

There are three relatively simple differentiators that can be useful in understanding the best fit for your business, as you sort through the decision tree. These are: scope; degree of integration; and the importance you place on your customer processes.

Scope

Which, and how many, functions need to be part of your customer interaction systems?In many companies the sales department is relatively independent of the rest of the organization. Sales people and managers want to track leads and manage their pipeline, and may be attracted to a solution that can be deployed rapidly and expensed, without a major IT investment. For these organizations, an on-demand solution can be a good fit, particularly in small companies.

Other enterprises take a broader approach and manage all their customer interactions across several departments, e.g. coordinating marketing programs with telesales, or a contact center identifying new sales opportunities during a conversation with a customer. Companies that fit this multi-function utilization profile are better candidates for an on-premises system that can enable these people and systems to work together, primarily because of more complex integration challenges.

Integration

What customer data or processes need to be linked to other systems and departments?Integration is often vital to the success of any CRM solution, especially in the services sectors where the major ERP vendors don’t have a significant presence. A typical financial services organization, for example, may need to integrate customer data or documents stored in a variety of vital legacy, or other key infrastructure, systems which are highly customized for a specific purpose. For these organizations the ability to directly access and update data is vital.

By contrast, if you do not need to integrate real-time, or near real-time, customer information with other major systems an on-demand offering may be right for you. In some instances, companies find that transferring data using flat files on a daily or weekly basis is sufficient to meet their data integration needs.

Customer Processes

How important are your customer processes to driving competitive advantage? Many companies successfully compete against larger opponents by differentiating their operations and business processes to deliver higher quality, or lower cost, goods and services. These companies use a variety of customer, process and analytics technologies and tools to define and deliver a consistent customer experience. In a highly competitive environment, these companies must be able to dynamically adjust their business processes to respond to market shifts and changing customer needs. They need an advanced customer process solution with the level of customization and process depth necessary to compete, which would mean that an on-premise solution is likely the best choice.

Total Cost of Ownership

Once you have sorted through these three key criteria, it may be obvious which solution functionally fits you best. The final factor to consider is total cost of ownership. Take a hard look at the breakeven point of the solutions you are evaluating. Look at these criteria through the lens of your near term requirements, as well as the medium and longer term evolution of your business. Gartner, for example, cautions that once the budget is calculated beyond three years, the cost of an on-demand solution may be greater than an on-premises solution, especially for a complex sales organization. (1) Do your homework and figure out what it costs to install, modify and live with your system over time, so your business has the best odds of successfully delivering on your revenue and customer aspirations.

Market Experience

Recently CIO magazine published an article (2) discussing several CIOs experience with various on-demand and on-premises CRM products. The experience described in this article reinforces the notion that on-demand is fundamentally a delivery model–a particular way to consume and use a solution.

The data indicates the following profiles are a good fit with on-demand CRM:

• Stand-alone organization or function looking for a quick, out-of-the box, ‘as is’ solution; likely to have limited or no access to IT resources or desire to involve corporate IT.
• Focused primarily on a single function that needs help in the near term (e.g., sales) with little need to integrate back-office applications or work with other departments (call center, marketing, product management, service); little or no need to pursue cross-sell/up-sell opportunities across multiple business units; relatively little need for integrated analytics to develop deeper understanding of customer buying behavior.
• Comfortable with customer data being stored off-site under the control of the on-demand provider.
• Low need for international, multi-language support on the same solution.

On the other hand, companies with the following profile are typically a better fit for an on-premise solution:

• Mid-size to large organization; looking to provide multiple departments with access to customer data or to coordinate work functions, including sales, marketing, customer service or call center tasks.
• Need to directly synchronize and orchestrate customer data with other discrete IT systems.
• View ability to manage customer interactions with advanced processes and workflow as strategic to creating competitive advantage and growth (such as cross/up-sell opportunities, customized service offerings, efficient lead management, or a tight quote-to-cash process.)
• Believe that customer data is proprietary, with strong emphasis on internal security infrastructure and procedures, as well as ability to perform advanced analytics to identify key customer trends.

The Bottom Line

Don’t get carried away by marketing buzz. Take the time to evaluate your company’s business goals and objectives and take a hard look at how managing your customer interactions and related processes can meet those objectives. Ground your decision in your management needs and then consider the delivery model, so you select the best solution for your enterprise. Finally, recognize that your customers’ needs and buying patterns are always changing. In order to remain competitive in a rapidly shifting market, you’ll need a solution that will enable you to create value across your enterprise and open up opportunities, without limiting your success because of inflexibility.

Although there are many choices, knowing what you need and where you are going is the best way to guide your decision process. Remember, there is no single ‘right answer’–there is only the best business choice for your organization and, best of all, you get to make it.

By Janice P. Anderson

Companies that learn to recognize and avoid them can realize the long-promised benefits of increased productivity, greater customer satisfaction, and better employee satisfaction.

It’s 1999–CRM is the must-have business application, because untapped customer relationships will open the floodgates to new revenues. You plan how you’ll spend the bonus you know is coming your way.

Thousands or millions of dollars later, perhaps things didn’t turn out quite as hoped. What went wrong?


First-generation CRM software was anchored in vendors’ expertise in a particular customer touch point, often the call center or sales force. Companies purchased extra functionality for any given touch point. Meanwhile, failed deployments made national headlines.

Today’s new products might give hope to companies that waited to adopt CRM technology or replace systems.

The pitfalls of deployment
Are companies in for the same problems that plagued first-generation deployments? The pitfalls do remain: AMR Research estimated in 2004 that 28 percent of CRM implementations failed to go live, and 33 percent had significant user adoption problems. Therefore, it is critical to consider the risks and take steps to avoid them.

Poor user adoption
First-generation CRM technology often required companies to redesign business processes to accommodate software function, and customer-facing personnel had to learn entirely new applications and processes. In some cases, neither vendors nor enterprises gave enough consideration to whether products would ensure user adoption.

Product scope instead of strategy
Immature technology led IT staff to focus on product scope, instead of capabilities that enhanced operations, legacy investments, and business processes. Companies even substituted CRM software for business strategy.

Rigid software design
First-generation software forced companies to conform to its function or customize it extensively, discouraging user adoption and automating business process without optimization.

Never-ending upgrades
First-generation CRM products took months or years to deploy, and the frequency of new product introductions continually pushed out completion of implementation.

Poor integration
Visions of 360-degree customer insight evaporated when first-generation CRM proved difficult to integrate with legacy software and data. The potential for poor integration remains: Gartner Research indicates companies risk sales and marketing teams sourcing technology without the IT department ("Predicts 2005: How CRM Will Help to Grow Revenue Again," January 2005).

Fortunately, companies have more options for CRM, and IT pros can take steps to get the most from CRM technology, bridging pitfalls without digging into new ones.

What are the top reasons that contribute to the high rate of CRM failures in traditional CRM implementations?

1. Lengthy CRM software deployments:
   Hard to customize and integrate traditional CRM software solutions require CRM consultants and system engineers and adequate IT staff to build a company-specific CRM solution. Some traditional CRM implementations have taken years to deploy and many more to even realize a return on investment (ROI) on.
2. High TCO Total Cost of Ownership and acquisition costs.
   Traditional CRM software solutions require:
3. Expensive License fees, including costs per user and per each model added.
4. Server & Network hardware components and constant upgrade and maintenance.
5. Expensive CRM consultants.
6. IT programmers to customize the CRM software application to a small business specific workflow and processes.
7. Continual upkeep of hardware, network, software systems, data and backups.
8. Continual CRM software upgrades license fees year after year. Hard-to-use traditional CRM software applications require constant training to ensure maximum benefits are gained.
9. Passive employee resistance and low user adoption rates. Employees just don’t buy it! Resisting change is human nature, and is perfectly normal. What’s not normal is to let the resistance and the low adoption rate cause a company’s CRM strategy to fail. An intuitive and friendly user interface, an employee-centric and customer-centric CRM solution will make your employees addicted to using the CRM software system. This will lead to a quick ROI on your CRM project and ensure CRM success, not CRM failure.

10. CRM: Is it a software solution or a business strategy? Small businesses who perceive CRM Customer Relationship Management as a software solution rather than an actual planned business strategy are more likely to fail at implementing CRM.

    CRM requires people to drive change and software to automate processes. CRM is a strategy, CRM software solutions are part of a small business strategy to enhance customer experience, customer loyalty and customer retention, increase employee productivity, and streamline business processes, increase sales and profits.

It’s as momentous as when the Union Pacific met the Central Pacific and the final, golden, spike was driven at Promontory Summit, Utah, completing the transcontinental railroad — not that in high tech anyone would notice an event as significant. I can’t even predict for you all the innovations that will be generated from the recent developments, but I will give you my thoughts.

First things first. What am I talking about? SAP (NYSE: SAP) is expected to announce that it will offer on-demand CRM, or as it should be called, SaaS (software as a service).

Why momentous? For one, SAP is not some five-year-old startup with a few workgroup- and department-level enterprise  customers. This is a company with products embedded in the heart of most of the world’s major corporations.

The New Enterprise Suite
"It is the real silver bullet for the whole [CRM] offering, regardless of the individual details of features," says Josh Greenbaum, principal at Enterprise Applications Consulting, pointing out that until now, CRM has always been in a separate silo within the enterprise, detached from the rest of the suite.

Consider the possibilities. SAP’s move makes the customer directly available throughout the enterprise suite. Customers want to know where their orders are, why they are late, how they can be customized. The enterprise wants to know what the customer is thinking, feeling and buying.

Given its size and scope of applications — the entire enterprise suite — when SAP drives its golden spike, tightly linking CRM with finance, logistics, manufacturing and supply chain  for the first time, lightbulbs will start to go off for everyone from IT to the boardroom.

For me, customization of products is the most significant result. If you remember, in the mid-’90s a lot was written about the concept of BTO (build to order). From cars to Nike (NYSE: NKE)  sneakers, customers would be able to design products they wanted rather than having the manufacturers’ products stuffed down their throats. Companies’ sales would increase while inventory levels would be dramatically reduced. It would be the Dell (Nasdaq: DELL)  model for everyone, but with a difference.

Not Competing on Price
Dell is now losing ground to other worldwide manufacturers, competing on price because customers end up with the same "me too" products, anyway. With CRM tied directly to ERP  manufacturers, not in a separate silo, there will be a way to differentiate products in order to compete on parameters other than just price.

What if companies could tie together customer history, customer demand, order processing, and business intelligence with finance, new product development, supply chain and manufacturing? Then tie that to BPM (business process management)? Then the BTO potential would be real.

Some day, if I want to go online and order a Vette with doors that open like a 1954 Mercedes-Benz 300SL Cullwing Coupe, Chevrolet will let me know what it’ll cost and when they can deliver. Today, with BPM and the integration of CRM into the enterprise suite, we will indeed see a BTO world dictated and modified on the fly by customer desire and demand.

Don’t expect immediate miracles. My guess is SAP will offer some sort of sales force automation  and contact management solution at first. During the next few years, it will get much deeper.

By Ephraim Schwartz
AP

So-called CRM failures are as much a mindset as an organizational reality.

After 18 years of implementing CRM systems I have come to believe that so-called CRM failures are as much a mindset as an organizational reality.

The common wisdom of why CRM systems fail includes:

CRM implementations are also affected by a number of underlying forces that impact the perceived success of a CRM initiative. A company should consider a number of CRM realities to help ground the organizational mindset, establish realistic expectations, and give a CRM implementation an even playing field on which to succeed. These often unspoken realities are:

The market has declared CRM dead any number of times over the years. The most recent pronouncement came when iconic Siebel was purchased by Oracle. If the market maker couldn’t stay afloat, then what hope did other vendors have?

To be sure, there is something to that doleful reasoning: Few expect the CRM market to register growth rates of the late 1990s and early 2000s again. However, the CRM software category’s predicted demise hasn’t occurred yet, and it is doubtful it ever will. The reason is simple: CRM evolves. Unlike other applications — general ledger, for instance — both CRM software and its vendors are willing to make adjustments in response to — or even ahead of — market trends.

Here are four examples of CRM evolution in action that demonstrate why the sector is here to stay.

1. Users Can Better Manipulate and Display Real-Time Customer Data.

Better than ever before, CRM applications are able to present real-time data to the end user in an easy-to-understand format. This is not about analytics, and it is not about intuitive interfaces — although both are considerations for many buying organizations. Rather, this is about applications serving up data that the system has accumulated in a customizable format, such as a Dashboard.

CRM software isn’t so much being replaced as it is morphing into a platform that consolidates relevant real-time data, Greg Anderson, who oversees the GoldMine product at FrontRange, told CRM Buyer.

"As customer-facing employees continue to see more relevant customer data wrapped up neatly for them to view, the actual functionality of the CRM system itself is becoming less of an issue," he said.

This trend is likely to spread to all aspects of a CRM application, Zach Nelson, CEO of NetSuite, told CRM Buyer.

NetSuite can be counted among those companies that popularized the concept of a Dashboard — a feature that allows users to choose which key real-time performance indicators of the company’s performance are displayed on their screens. To cite a typical example, a vice president of sales would likely choose the sales pipeline, pending leads and closed accounts on his Dashboard.

NetSuite’s next major release, expected this summer, will embed this technique — specifically, AJAX, a Web development protocol that allows developers to offer desktop applications in a Web browser — throughout the suite, Nelson said.

"We were using AJAX long before some guru named it," he pointed out. Until recently, the company focused on the Dashboard, but "in our next version, every screen will be AJAX-enabled, offering thousands of pages of rich application capability."

For example, Nelson said, users will be able to build complex reports in the browser.

GoldMine now includes browsers that can be easily programmed to grab data from other systems and display it in the customer record, Anderson noted.

"The browsers can point to shipping schedule systems, billing systems — even external systems — to gather current data for viewing by the customer-facing employee," he explained. "The data is all refreshed automatically when a customer record is opened."

2. SMBs Have More Choices.

When Daniel Guermeur, president and CEO of Metadot, an open-source portal server provider, decided he wanted to upgrade the company’s customer service capabilities, he couldn’t find quite what he was looking for.

Specifically, he wanted an application with these capabilities and attributes:

• a means to deliver instant customer feedback on the quality of customer service;

• the ability to watch the company’s internal customer satisfaction index evolve over time to show improvements or declines in service;

• delivery as a hosted software application; and

• pervasive support for RSS, so the company and its customers could access trouble ticket information from My Yahoo (Nasdaq: YHOO) or Google (Nasdaq: GOOG) personalized home pages.

"The products I found were full of features I didn’t need and wouldn’t use," Guermeur said. "I realized that there were probably other companies out there searching for a [similar] CRM product." The upshot is that Metadot will be launching Mojo Helpdesk this Spring.

The point of the story? If you are an SMB and can’t find the functionality you want, wait just a little bit. Vendors are entering the space every day eager to tap this market category.

3. Vendors Are Willing to Be More Flexible.

Siebel, ironically, was emblematic of many practices that did not sit well with buying organizations. Its high price points were barely negotiable. Until a few years ago, it offered little choice in deployment strategies. It was a philosophy that many of the vendors followed, to a certain extent, for many years.

That has changed. "Vendors are providing customers with more options — in how to get started, how to implement, and how to adapt the solution to the dynamic business needs while maintaining a solid IT foundation," Ralf VonSosen, vice president of CRM Solution Marketing, SAP (NYSE: SAP), told CRM Buyer.

For instance, SAP does not insist customers dispatch everything at once, he pointed out, but can work gradually to fit their needs. They can go broad across sales and marketing, for example, or choose deep integration in one specific area, such as order management.

"We allow customers to better manage the tactical considerations of budget, resources and speed of implementation without sacrificing their strategic initiatives and requirements," VonSosen said. "This is seen in deployment options and in the modularity of the CRM implementations."

4. Customer Touch Points Keep Proliferating.

Another factor is the growing number of customer touch points, or channel opportunities, that companies are eager to exploit, VonSosen pointed out. Typical examples include instant messaging, retail point of presence and targeted e-mail.

"CRM vendors have continually been successful in … creating more direct touch points for the company to interact with the customer," he explained, which in turn has further empowered classic "customer-facing" roles in sales and service. "Companies running CRM … continue to collect and utilize this highly visible customer information to make better business decisions."

By Erika Morphy
CRM Buyer

It is always interesting to compare CRM in Greater China and CRM in the United States. The main differences are the quality of data—or lack thereof; the differences in uniform prosperity; and even the way CRM is viewed. Still, there are similarities. The same vendors seem to lead the market, and there is a blurring between local business and multinational corporations.

As we begin a new year, here’s how I see the shape of CRM in Greater China in terms of five challenges for the market.

Data quality
The credit card penetration rate is under 1 percent in China, compared to more than 90 percent penetration in the United States, according to Visa International (2004).

Data quality in China is a matter of extremes. Ask anyone who works in data management in China, and he or she will tell you how difficult it is to get clean data and how frequent and dynamic the changes of Chinese people are, no matter what their economical status, geographical moves or demographical changes.

If you have a business in China, you can expect half your data to go obsolete in 12 months. This is why credit card penetration is so low. However, if you are willing to buy data at all costs, regardless of the types of channels and your purpose for the data, you could get almost any level of data. That’s because there is a loophole in the data privacy law, and the general public does not have strong sense of privacy protections. Because data is of primary concern when you’re dealing with CRM, it can be a thorny issue.

Disparity in prosperity
The difference in the gross domestic product of the first-tier Chinese provinces is 13 times that of the bottom-tier provinces, according to the National Bureau of Statistics of China and International Monetary Fund. This is compared to Europe, where the GDP of the first-tier countries is 3,000 percent of the bottom-tier countries.

More and more foreign enterprises realize they’re not only entering into a big country, but also they’re entering into a European-style market with diverse and dispersed segments. Consider the different levels of wealth, customer maturity, infrastructure, culture, languages, customs of different regions in China, not to mention growth, and you might have trouble surviving. You can’t apply one single policy or strategy to a market of more than a billion people. The fast and unbalanced economic development and growth of customer maturity further accelerate the gaps and intensify the two ends. The demand of on-target segmentation is another challenge for CRM in China.

Tough (but not impossible) road for local enterprises
Six foreign and four Chinese brands ranked in the top 10 of advertisers in 2004, according to Nielsen Media Research.

When you consider that, the competitive advantages of multinational corporations compared to local enterprises become a blur. In the past decades, the MNCs had the advantages of global branding, expertise and capital wealth over local enterprises. Nowadays, the gaps between the two are narrowing. With more and more capital influx from being listed in various stock market and more resources spent on building and enhancing brands; innovating new products with their own design; recruiting high profile professionals with global and MNC experiences, local enterprises are improving and expanding very quickly. On the other hand, the MNCs are gaining advantages in channel management while picking up local market knowledge. As the differences between local enterprises and multinational corporations lessen at the same time as customers are becoming more mature and expecting quality as well as low prices, companies large and small must focus on customer experience to win loyal customers and good profits.

Foreign vendors controlling all but niche industries
The reported sales revenue in 2004 of Oracle was $12 billion (in U.S. dollars); Siebel was $1.34 billion; and SAP was $2.8 billion. The top three Chinese software companies had a combined sales revenue of only $300 million or just 2 percent of the three foreign vendors, according to the Chinese Ministry of Information Industry.

Local vendors are too weak to compete with the foreign corporations, no matter which market segment you’re talking about—even in many industry-specific areas. They are just too weak in R&D, branding and professional industry experiences. Big ticket projects will still be won by ERP-oriented CRM vendors, benefiting SAP and Oracle. However, there is some room for local vendors that specialize in some niche industries—like real estate, telecom, media—that require unique local experiences and relationships to break the ice and close the deal.

Perception of CRM as an application
CRM sales revenue in the China market will have hit $54 million (in U.S. dollars) in 2005, according to the Chinese Center for Information Industry Development. That’s still less than 1 percent of global spending ($8.8 billion in 2004, according to Center for Information Industry Development).

Just as people often mistakenly perceive only advertising builds a brand, quite a large portion of people still think CRM means software or even a call center. So what are the natural results? The truth is no brand could be built successfully if you focus only on advertising, and no successful CRM can be done if you focus only on software or the call center. My opinion is that the perception in China that CRM is nothing more than software is too strong for simple education to change. There are two ways out: Change the term "customer relationship management" to something else or be patient and wait for enterprises to learn bitter lessons before they "get it." China enterprises have to invest (translate: lose) more before they learn those precious lessons.

Sampson Lee is the president of GCCRM, an independent CRM evaluation organization. He could be reached at sampson@gccrm.com. For more details, visit www.gccrm.com.

For the past several years, I’ve been writing annual predictions for the CRM industry. It’s all been good fun and forces me to sit down once a year and think about important developments.

How did I do last year? Judge for yourself by reading my CRM Industry Predictions for 2005.

It’s far easier to write about predictions for the CRM technology industry than for the business strategy of CRM. So this year, for a change of pace, I’m going to present my five-year vision of CRM, from both a business and technology perspective. Here are seven trends that I believe will define CRM for the second half of this decade.

Trend No. 1: Customers Rule!

Sure, we all say that already, but if you think customers are in charge now, you ain’t seen nothing, yet. Over the next five years, customers will gain even more power because of the convergence of three forces: globalization, the Internet and the development of China and India.

Globalization is an unstoppable force. Short-term, some countries will attempt to slow progress with trade barriers to protect jobs and local economies. But there’s no doubt that global trade will continue to grow, with help from trade initiatives like the EU, NAFTA, the WTO and three acronyms to be named later.

OK, so it’s not much of a stretch to say the Internet will reshape our buying habits. But think past Googling suppliers. That’s so 2005. The new news will be integrated supply chains where Web Services standards will help link organizations more seamlessly than they do today. Information will flow faster, and high prices will have nowhere to hide.

Finally, China and India will have an enormous impact, first as suppliers and then as consumers. Today, nearly 2.4 billion people combine to take an ever-growing role as the world’s manufacturing (China) and service (India) suppliers. In addition, their growth of affluent local consumers will mean that CRM will become a critical strategy within these countries, too.

Wherever you live, your customers will have more choices for products and services. Companies with lean, responsive and customer-friendly business models will prosper.

Trend No. 2: "CRM Is My Job"

CRM must, and will, become more of personal commitment by all employees, and not just a corporate philosophy or a technology initiative. But this begs the question: Why should employees care?

If you can’t answer employees’ WIIFM (What’s in it for me?) question, then good luck getting them to make CRM (or whatever you decide to call being customer-centric) a part of their job. My guess is that less than 5 percent of companies have a customer-centric business strategy that’s imbedded in the jobs of frontline workers, including how they are rewarded.

Here’s a quick test. Are you rewarded in any way for customer satisfaction, retention, loyalty—or anything that remotely has something to do with how the customer perceives your performance? No? Then get ready, because you will be.

Customer-centric strategies are being developed, and performance management tools are available. My prediction is that by the end of the next five years, companies will "connect the dots"and realize all employees must do the "CRM"job and be rewarded for doing it well.

Trend No. 3: Curing the Quick-Fix Hangover

In the past five years, tactical CRM programs and point solutions have proliferated. It’s completely understandable. To start this decade, large/complex CRM projects had a troubled track record, and a weak economy forced executives to throttle back spending.

Now hundreds of thousands of customers have implemented solutions that solved one particular problem well—and could be implemented quickly. Niche and on-demand vendors have prospered because they offered a clear benefit for a reasonable cost. And many others have invested in "voice of customer,"service training and other programs designed to fix specific problems.

The problem is customers don’t care about projects or ROI. That’s your problem. If you aim for a competitive advantage and not just a simple return on a (CRM) IT investment, then you’ll need to focus on the value and experience your organization delivers to your customers.

Leaders that emerge over the next five years will find that the cure for the "quick-fix hangover"lies in breaking down the program/project silos. The process will start with the customer experience and work backward, instead of merely automating an existing departmental process. Fortunately, technology will help, as "composite applications"become the norm. And integrated suites will take the lion’s share of CRM industry revenue.

Trend No. 4: Integration of the Customer Value Network

Every company must compete within an ecosystem of buy-side suppliers and sell-side distributors and partner, which collectively form a Customer Value Network.

In addition to breaking down silos internally, industry leaders will realize the CVN must be optimized to deliver what customers want, when they want it at a competitive cost. It does no good, for example, to operate a customer-centric retail store when the suppliers are unreliable. Or to have a "customers first!"slogan at a bank when the outsourced call center saves money but loses customers with bad service.

Technology can play a huge role in stitching together processes that span companies. And yes, here, again, is where Web Services can help.

But remember, it’s not just about whether your sales automation tool can talk to your customer service application. It’s about whether your CRM system can exchange information with your suppliers so that frontline employees can do their jobs better. It’s about arming your distributors with better information and tools, so they want to represent your products or services—not those of your competitors.

In short, in five years, it will be more commonplace for organizations to think "outside the box"of their own organizations and build a strategy with systems that help key players in the CVN collaborate to deliver what the customer wants.

Trend No. 5: Steady Growth of CRM Solutions Market

In 2005, according to Forrester Research, the CRM software license market exceeded $3 billion worldwide, and triple that amount was spent on related services and products. Over the next five years, barring a global economic meltdown, I think the CRM software industry should enjoy steady growth in the range of 5 percent to 10 percent annually.

Oracle and SAP will dominate in the large enterprise arena. No surprise there. And who knows? Maybe Oracle’s new converged Fusion product will be available five years from now. I see SAP keeping a lead position in annual software license revenue.

SMBs will enjoy an unprecedented array of high-quality options, ranging from the traditional software to on-demand solutions. Microsoft and Sage are well positioned to lead the charge globally, but the No. 3 spot is up for grabs. My prediction is that we’ll see either a new entry or a roll-up of a number of smaller SMB vendors. SMBs will continue to have many excellent choices from regional and niche vendors, too.

By the end of the decade, the red hot growth of on-demand solutions will have slowed to industry norms, and all of the current leaders will be acquired. Salesforce.com has the largest customer base and weakest long-term strategy, so it will be snapped up first, within the next 24 months. RightNow and NetSuite should hang on a bit longer. The big story, however, will be the emergence of a new on-demand leader that crosses over from a related industry. Overall, CRM software-as-service will take about 25 percent of the CRM industry revenue.

Trend No. 6: Technology Turns Strategic, Finally

Where is the innovation going to come from in CRM technology? The core operational processes have good automation tools available. Do we really need to re-invent SFA again? Let’s hope not.

Instead of more old wine in new bottle, I believe we’ll see an emergence of integrated voice-of-customer and customer experience management applications, aimed at listening to customers and delivering the experience that they value. Increasingly, real-time analytic applications will guide decision-making.

These operational "sensing"systems will be tied to customer value management applications so that businesses can focus on higher-value customers. And performance management (Balanced Scorecard and the like) will be an integral part of most CRM applications. The results of performance metrics will be linked to employee rewards, instilling that all-important "CRM is my job"mentality.

Trend No. 7: Chief Marketing Officer in Charge

The journey to customer-centric business strategy started more than 50 years ago, as marketing researchers noticed that "industrial"(business-to-business) relationships were driven by more than the classic marketing "four Ps"of Product, Place, Price and Promotion. That eventually spawned relationship marketing and direct marketing in the 1980s.

Then the technology industry took charge, as sales force automation (SFA) tools were introduced in the 1980s to early 1990s and eventually became incorporated into the term "CRM"by around 1995, with marketing and customer service applications joining the fun.

This software vendor-driven view of CRM brought the term high visibility—but at a price, as CRM software customers discovered that tools do not make the carpenter. Fortunately, the past five years have seen the black cloud over CRM dissipate, as we’ve learned that the keys to success lie in strategy and organization.

The CRM trend started some 50 years ago with marketing, so I think it’s fitting that it come back home. In five years, I believe Chief Marketing Officers will clearly be the driving force in CRM strategy.

This is not to say that CRM should become just the job of marketing. Far from it. The CEO must create and nurture a customer-centric culture, and break down fiefdoms. But the marketing executive is best prepared to develop customer strategies, which is still the missing ingredient in most CRM programs.

Who else but the CMO is going to analyze customer needs, define segments and assign value to customers and segments? This customer strategy can then be executed with tactical marketing and sales campaigns and customer service operations.

* * *

Well, that wraps up another look at my CRM crystal ball. I’m very excited and optimistic about CRM’s development as a successful business strategy. And I’m pleased to see the progress of the CRM software industry, which is working harder than ever to deliver tools that are usable and effective, in more customer-centric business models.

Enjoy the CRM journey the next five years. You can count on CRMGuru to be with you every step of the way. Good luck!

Bob Thompson is CEO of CustomerThink Corp., an independent customer relationship management (CRM) research and publishing firm, and founder of CRMGuru.com. Since 1998, he has researched the leading CRM industry trends, including how CRM concepts can be applied to extended enterprise relationships. He is frequently published and quoted in industry publications such as BusinessWeek, InformationWeek and Computerworld and speaks at conferences and seminars worldwide. Throughout his career, Thompson has advised companies on the strategic use of information technology to solve business problems and to gain a competitive advantage. Before starting CustomerThink, he had 15 years of experience in the IT industry, including positions as business unit executive and IT strategy consultant at IBM. You can contact Thompson at bob@crmguru.com.

Over the past year, there has been another dramatic shift in the CRM Marketplace. On-Demand CRM solutions have gained significant market share in the SMB and Enterprise space led by Salesforce.com.

There are many factors involved in this significant shift from the traditional software purchase and implementation to the On-Demand offerings from companies like Salesforce.com, Microsoft, and Siebel. For the larger enterprise user, there may be implementation fatigue, from the long, drawn-out and expensive projects from the late 1990’s and early 2000’s. For the small and mid-market business, the elimination of the traditional software purchase and the need for less internal resources and infrastructure is very attractive. The increased bandwidth and dependability of the “pipe” and increased speed have also contributed to the acceptance of the On-Demand CRM Solutions.

Advantages of On-Demand CRM
The initial hesitancy for On-Demand Solutions when they were introduced in the marketplace has been replaced with a general acceptance and understanding of the advantages of this type of solution. The advantages included:

Replacement of large Software Purchase with a monthly subscription charge – The On-Demand model is based on a monthly subscription charge per user. This allows a company to extend the software component cost of a CRM implementation over a period of time and eliminates the yearly support & maintenance fees of a traditional software product.

Flexible Pricing, Licensing, and Scalability – Some of the On-Demand vendors provide flexible pricing, allowing you to choose and pay for the functionality and services you need. You pay for the number of licenses you need with the flexibility of added users when necessary. The leading On-Demand CRM vendors have invested in significant infrastructure and have the ability to provide services to enterprise organizations.

Decrease in Hardware Requirements and Support – With a traditional CRM software implementation, you need to make sure you have the appropriate servers, workstations, operating systems, database, and network infrastructure to properly run and support your system. With an On-Demand solution, the costs and support are significantly reduced. As long as you have Internet access, you are able to use your CRM service.

Decrease in IT Support Staff – You need an IT Support Staff with various skills to maintain a CRM Software System. As noted above, as long as you have Internet access, you are able to access and use your On-Demand CRM system. Your IT support costs are reduced significantly.

Elimination of Costly Upgrade Charges – With a traditional CRM software solution, you can expect a major software upgrade every 12-18 months. Depending on your existing solution, the upgrade can be time consuming and expensive. The On-Demand Solutions provide the upgrades as part of your monthly service fee.

Remote Management – The beauty of an On-Demand solution is access from anywhere at anytime as long as you have Internet access. This allows the System Manager to remotely monitor and support the system.

Faster and Easier Deployment – On-Demand solutions eliminates the need to load software on any computer, allowing for faster and easier deployment. It allows the end-users to concentrate on the solution.

Good Solution for Distributed Offices – Distributed offices and users adds complexity to a typical CRM software solution. This is eliminated with an On-Demand solution, giving every office and every user access around the world to the same database.

General ease of use – On-Demand Solutions have been designed specifically for the Internet, providing general ease of use and navigation.

Availability of Good Mobile Solutions – With the improvement and reliability of wireless technology, you have access to excellent mobile solutions for On-Demand services using Blackberry® or Palm® Treo™.

Security and Backup Services – In order to provide a secure and reliable service offering, an On-Demand vendor has to provide the highest level of security and data back-up services. In some cases, you may find their service in these two areas superior to the security and back-up system in your own organization.

On-line Training – As part of the monthly service fee, some On-Demand vendors provide free on-line training. This can be a significant cost saving compared to the traditional classroom training.

Significant Third Party Add-ons and Web Services – As the On-Demand offerings continue to grow and gain acceptance by companies, significant third party add-on offerings have become available to meet various needs including integration, extended sales methodologies, and email fulfillment, to name a few.

Integration Capabilities – Some of the On-Demand Solutions are highly customizable and easily integrated to existing corporate backend systems.

Summary
It has take a few years for On-Demand CRM Solutions to find it’s place and acceptance in the marketplace. The improvement and reliability of the Internet, faster deployment, easier support, improvement in the functionality, and integration capabilities have fueled rapid growth. But, hold on, this is just the beginning!

About the Author
Sidney C. Lejfer is President of Harvest Solutions, a Customer Relationship Management Consulting and Training Organization.

SAP’s new CRM on-demand platform has a simplified pricing model — $75 per user is the base price for using either marketing, sales force or service automation modules or $125 for all three suites — but integrating it with back-end systems and mapping data to the on-demand platform will result in additional costs to many firms.

If a customer wants deep proprietary data exchange, a consultant would be required. Tony Martinez, vice president of global CRM business strategy, SAP

"We’re trying to keep it really simple with the subscription fees," said Tony Martinez, vice president of SAP global CRM business strategy. "The product is still being rolled out and a lot of initial integration work is going to have a consultant involved."

SAP entered the CRM on-demand market with a bicoastal press conference last week. Executives trumpeted the flexibility of the product and the ability to integrate it into a company’s back end systems.

But customizing the software based on individual business needs and the ability to integrate data between on-premise and hosted locations adds complexity that some customers may find unwieldy, according to industry experts. That added complexity could increase costs in the form of consulting fees.

"There are functionalities in existing CRM systems or the ERP back end systems which can be linked into the CRM on-demand system, but today it would require a consultant to do that," Martinez said. "If a customer wants deep proprietary data exchange, a consultant would be required."

For example, if a customer wants to import credit check history or access sales history information, the data has to be integrated into the on-demand system, Martinez said. SAP touts a similar data structure and architecture between its on-demand and on-premise back end systems, but the information that a customer wants to exchange between the systems is going to be the customer’s choice, he said.

Integrating to a company’s SAP back-end systems, integrating between non-SAP systems and customizing the software to meet a company’s individual business requirements are three areas that could potentially attract consulting, said Srini Katta, an SAP consultant with iServiceGlobe. Katta who is an expert with e-business and CRM implementations said that, at a minimum, a company may need to bring in a business analyst to determine what data is needed and should go beyond a company firewall.

"Every situation is different and every company has varying business requirements," Katta said. "When mapping data there is a filtering mechanism; someone has to understand what data is needed from non-SAP systems and what data is needed for business functions."

Additional support

SAP also said it may test a new support model once the product is fully launched. For now the base per user prices include unlimited end user support and a service level agreement, Martinez said. But SAP will listen to early adopters and is considering breaking out a premium option for companies that need additional support, he said.

"Potentially, as we put out more applications and have more specific customer experiences, we’ll look at packaging services," he said.

Customer feedback will also result in additional functionality and the use of composite applications that would made available at an additional fee.

Storage space

In addition, new customers may have to purchase additional disk storage space from IBM hosting services, Martinez said. For example, a large number of attachment files or large images could bloat the amount of hard drive space a company needs, he said.

Additional disk storage space will be sold in 25 GB increments. SAP and IBM won’t release how much storage space it will give customers. In contrast, San Francisco-based Salesforce.com lays out how much disk space it gives its customers. The company’s enterprise edition offers customers the greater of 20 MB per user or 1 GB in addition to 250 MB of document storage.

"It’s just like buying lobsters in that the market determines the price. It won’t be a significant cost and it’s not a significant revenue area for us," Martinez said. "We believe we will have ample storage space for most customers."

Data from partners

Many SAP customers also get product data and some lead generating data from third party systems located outside the company, such as data from a manufacturing partner or supplier. This could result in additional complexities and further modifications depending on a company’s business needs, according to Katta.

"If a company has a provider that furnishes data that results in leads then that company would likely want their system to be integrated with on demand solutions, but it could get complicated because the provider may be using some non SAP systems," Katta said. "Clearly there are still some questions that need to be answered by SAP and that is true with any new application."