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

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