Call Center/Telesales Effectiveness Insights – 2005 State of the Marketplace Review
On-Demand Versus OnPremise CRM Are There Performance Differences?
Jim Dickie
Partner, CSO Insights Boulder, Colorado
Barry Trailer
Partner CSO Insights Corte Madera, California
On-Demand Versus On-Premise CRM: Are There Performance Differences?
Copyright © 2006 CSO Insights All Rights Reserved.
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On-Demand Versus On-Premise CRM: Are There Performance Differences?
On-Demand vs. On-Premise CRM: 2007 Update
The paper you are about to read was produced by CSO Insights in June 2006, and was based on input provided by firms who had implemented a commercial CRM application and/or a combination of a commercial and internally developed applications. As you will read in more detail, the emerging On-Demand contender was the clear winner with higher ratings in projects completing on time, within budget, enjoying higher levels of user adoption and satisfaction. Since the release of the original paper two questions have consistently been raised: 1) Is On-Demand for real? And 2) In addition to core CRM capabilities (contact management, opportunity management, forecasting, etc.) what other functionality are firms looking to enhance their CRM platform? The verdict is in and while not unanimous it is clearly beyond reasonable doubt: OnDemand is for real. In the early years of hosted solutions, arguments could be made about lack of access, speed, security, customizability, uniformity or affordable carriers. Essentially all of these have been addressed by enhancements to the applications and the ubiquity of high-speed, relatively low cost and wireless Internet access. Further, the introduction of disconnected clients, that is, the ability for users of hosted applications to access customer contact information and histories essentially swamped the most frustrating aspect of on-demand applications. And recent purchases (i.e., implemented in the past year) favor on-demand over on-premise by at least 2:1. So the answer to the first question is yes, at least until something bigger than the Internet is invented on-demand applications are for real. The broadly accepted acronym SaaS, for Software as a Service, is now being used to include all on-demand offerings, including those that attach to traditional CRM applications. Which brings us to the second question: What’s next?
Plans to Expand CRM Platform Over Next Year
CRM/Sales Process Integration Sales Manageme nt Ana lytics Le ad Generation Mana ge ment No Plans for Enhancements / Additions Forecasting Data Cle ansing Sales Knowledge Mana ge ment Channel Mana ge ment Customer Service Sales Force Collaboration Ince ntive Mana ge ment 0.0% 5.0% 8.1% 10.0% 15.0% 20.0% 25.0% 30.0% 15.2% 19.3% 18.1% 16.9% 25.4% 29.9% 29.9% 29.5%
33.1% 31.7%
35.0%
Figure 1
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On-Demand Versus On-Premise CRM: Are There Performance Differences?
Based on CSO Insights’ 2007 Sales Performance Study data we see in figure 1 that 70% of CRM users plan to enhance their current CRM application, be it On-Demand or On-Premise, with additional functionality. Indeed, it is increasingly recognized that CRM is not one static solution but really a dynamic solution that continues to evolve. As seen in the chart above, sales knowledge management, forecasting, channel and incentive management are just a few of the enhancements significant numbers of companies are planning to add. However, we see an especially potent 1-2 Punch in the first two categories: CRM/Sales Process Integration and Sales Management Analytics. CRM applications provide an enormously flexible and powerful technology for capturing and storing data—customer contact information, past purchases, current opportunities, call reporting, appointments are all examples. However, data is not all that useful; what sales reps and their managers need is actionable information. What converts data to information is analysis. That is, someone or something has to look at the data, analyze and interpret its meaning(s), and then provide recommendations based on this. The first step lies in a clear and consistent definition of sales process(es). Using the example of sales forecasting, managers must set standards that clearly identify where in the sales cycle an opportunity lies. This avoids the all too common scenario of “Bill’s 60% to close is not the equivalent to Carl’s 60% to close” – which leads to unreliable forecast data. However, once this goal has been met, a critical challenge for the organization still remains: equipping their sales team with reporting tools that provide insight into their key metrics, as well as a method of quickly and securely sharing this information amongst managers and colleagues. Eliminating as many bottlenecks in the CRM cycle via intelligent sales management analytics must be a primary focus of any success-minded sales organization. With these challenges met, the super powerful computing and analytic capabilities available today can finally be brought to bear on such vexing questions as forecast accuracy, best practices, most productive lead sources, to name just a few. This is not insignificant. To the contrary, it is our opinion that the ~30% of firms realizing significant performance improvement from their CRM initiatives and 57% average quota attainment--both of which have been consistent the past four years--are unacceptable. We believe the enhancement/enactment of real CRM/Sales Process Integration and the introduction of true Sales Management Analytics represent the path out of these dark woods. And the following paper explains why we believe these capabilities will be increasingly accessed through On-Demand applications.
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3
On-Demand Versus On-Premise CRM: Are There Performance Differences?
ON-DEMAND VERSUS ON-PREMISE CRM: EXECUTIVE SUMMARY In 1994, CSO Insights published its first report evaluating the impact that Customer Relationship Management (CRM) systems had on sales performance. The results were dismal as nearly three-quarters of the projects were failing. Over the following seven years, the technology became more mature, stable, and robust. Project failures turned into project successes to the point where, in 2001, nearly 70% of CRM initiatives were achieving at least some degree of success. But in 2002, - the success curve hit a performance plateau, and in each of the following three years approximately 25% of the companies implementing CRM systems reported significant improvements in sales performance. In the 2005 and 2006 Sales Performance Optimization studies in which over 2,500 companies worldwide were surveyed, there was a noticeable jump to 29% and 33.5% respectively. This led to more detailed analysis of the data to determine the factors that led to this improvement in CRM project successes. In segmenting the data by factors including geography, size of firm, industry, etc. one dynamic stood out — the type of system installed. It seemed to have a profound impact on the results achieved through leveraging CRM to improve sales performance. Specifically, there were significant differences in user experiences by firms implementing On-Demand versus On-Premise CRM applications. For the purposes of this analysis, the 2006 Sales Optimization survey responses received from study participants who implemented the leading On-Demand CRM solutions (Salesforce.com, Siebel OnDemand, and NetSuite) were compared with the most widely known enterprise On-Premise CRM systems (Siebel, Oracle, PeopleSoft, SAP, and Microsoft). In the following white paper, these differences are explored indepth. Readers will note that, based on user experiences, On-Demand CRM holds the edge over On-Premise CRM in key areas including: ! Considerably more firms are achieving significant improvements in performance o 39.8% reported by On-Demand users, compared to 20.8% for OnPremise ! Dramatically shorter system implementation times o 59.3% of On-Demand Systems implemented in 3 months or less, compared to 15.6% for On-Premise ! Significantly fewer project budget overruns o 76.5% of On-Demand projects on budget, compared to 43.7% for OnPremise ! Noticeably higher customer satisfaction ratings o 66.7% of On-Demand users absolutely/very likely to recommend/buy again from their CRM vendor, compared to 34.4% of On-Premise users
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On-Demand Versus On-Premise CRM: Are There Performance Differences?
In this white paper, for each of these areas, the differences in user ratings will be profiled as well as perspectives on the trends that are contributing to these differences in project results. Any questions or comments on these findings should be directed to Jim Dickie, (303) 530 6930, e-mail: jim.dickie@csoinsights.com or Barry Trailer, (415) 924 3500, email: barry.trailer@csoinsights.com. THE EVOLUTION OF THE CRM PLATFORM The first incarnations of CRM systems appeared on the business scene in the early 1980’s in the form of applications that ran on a number of platforms; IBM mainframes, DOS-based standalone PCs, and UNIX servers. The scalability, stability, and usability of the early incarnations of CRM left much to be desired, and the failure rates of those early projects were 70-80%. In 1994, the CRM world started to embrace client server-based architecture which dealt with a number of the shortcomings of the previous generation of systems. With these improvements, sales grew rapidly as Fortune 500 enterprises signed agreements for thousands of product licenses. The late 90’s saw CRM become viable for the Small/Medium Business (SMB) marketplace as a new delivery method for CRM came onto the scene which treated software as a service (SaaS). Initially referred to as Application Service Provider (ASP)based CRM, SMB firms were able to access CRM functionality without the need to deal with a myriad of technology issues associated with maintaining systems in-house. Over the past five years, CRM users have aligned themselves into one of two camps; those organizations that have implemented, administered, and maintained their CRM systems in-house (On-Premise) and those who have leveraged the services of a SaaS solution provider (On-Demand) to meet their CRM needs. In 2001-2004, as the success rates of CRM projects were tracked, a flat trend for the firms who implemented a CRM system was evidenced. The results showed that approximately 25% achieved significant improvements in performance of their front office teams, approximately 45% achieved minor improvements, and the remainder witnessed no improvement or did not know what impact CRM was having on their performance. It was questioned as to whether CRM would ever fully deliver on the promise of optimizing sales performance. In our 2005 study, an increase in the number of firms achieving significant improvements was reported by 29.0% of the companies. In the 2006 study, 33.5% of the companies reported significant improvements. These results led us to do a detailed analysis of the study data in the second quarter of 2006 to uncover trends that could be contributing to the increase in performance. When comparing CRM adoption by geography, vertical industry, selling approach, etc. no consistent significant trends emerged. Project success rates were then analyzed based on the type of CRM system that was installed. Initially, we were unsure what, if any, differences we would uncover, as we had found that the conventional wisdom of many CRM project teams today was that “all CRM
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On-Demand Versus On-Premise CRM: Are There Performance Differences?
systems are created equal.” And in fact, at first pass, the product functionality differences between products today can appear blurry. However, it became apparent that the experiences of CRM system users were quite different based on a key factor. Users of On-Demand CRM systems reported significantly better results than OnPremise CRM users across a variety of different metrics — results of which organizations implementing or expanding their CRM platforms should be aware. ON-DEMAND VERSUS ON-PREMISE CRM USER EXPERIENCE COMPARISON Before we share the data findings, let’s first categorize what is meant by CRM as it pertains to the following comparison. In our CRM solution developers’ database, there are more than 140 companies that lay claim to the CRM label when describing their software offerings, some of which take significant liberties with the term. For this analysis, the leading vendors in the cross-enterprise CRM software space were selected — those who provide a core suite of CRM capabilities to support sales teams using the On-Premise model (Oracle, Siebel, PeopleSoft, SAP, and Microsoft). In addition the leading firms offering similar solution suites via On-Demand platforms (Salesforce.com, Siebel OnDemand, and NetSuite) were selected. The first comparison was to determine the average length of time these systems had been in use by the companies that deployed them (Figure 1). .
45% 40% 35% 30% 25% 20% 15% 10% 5% 0% <12 months 12 - 24 months >24 months 41.7% 39.6% 34.4% 29.6% 26.0% On-Demand On-Premise 28.7%
Length of Time CRM System Has Been In Production
Figure 1
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On-Demand Versus On-Premise CRM: Are There Performance Differences?
This chart offers an interesting insight into the evolution of the CRM marketplace. The majority of On-Demand CRM systems have been in use for less than two years. This correlates with the CRM vendor market share numbers we have been tracking since 1999, which show that On-Demand CRM accelerated in popularity beginning in 20042005. The reason this point is noteworthy can be seen when the level of results companies are achieving as a result of their CRM investments are compared. As mentioned earlier, firms seeing significant improvements in success increased from 25.0% in 2004, to 29.0% in 2005, to 33.5% in 2006. As seen in Figure 2; however, this was not a result of “a rising tide lifting all boats.”
Results Generated by CRM System Usage
40% 35% 33.3% 30% 25% 20% 15% 10% 5% 0% Significant Improvements Minor Improvements No Measurable Improvements Do Not Know 20.8% 15.7% 11.1% 9.4% On-Demand On-Premise 30.2%
39.8%
39.6%
Figure 2 The conventional wisdom regarding the “sameness” of CRM begins to be called into question when analyzing the above findings. Sales organizations that implemented systems from the selected vendors that offer On-Demand CRM solutions are seeing a higher rate of significant performance improvement than those sales organizations relying on the On-Premise vendors included in the analysis. When these findings are combined with the data in Figure 1, outlining the length of time that CRM systems have been in production, the impression is that the newer entries into the marketplace (On-Demand CRM) may be responsible for the overall rise in project results over the past two years. These insights caused us to want to better understand the differences in user experiences between the two classes of CRM solutions. The analysis focused on four
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On-Demand Versus On-Premise CRM: Are There Performance Differences?
more metrics collected as part of the study. The first of these was to determine how quickly the CRM system was deployed. Having sat in on numerous vendor presentations, the standard claim heard repeatedly is that “the application can be in full production in less than three months.” We attempted to qualify these claims in the survey and compare it against On-Premise solutions (Figure 3).
CRM System Implementation Time Comparison
60%
59.2% 56.3%
50%
40%
30%
31.5% 28.1%
On-Demand On-Premise
20% 15.6% 10% 9.3%
0% <3 Months 3 - 7 Months > 7 Months
Figure 3 The claim that leveraging On-Demand CRM solutions reduces the Information Technology (IT) complexity of the initiative has been one of the cornerstone benefits touted by the proponents of the SaaS model. The data suggest that this is far from an idle assertion. Nearly six in ten firms that implemented On-Demand CRM solutions met the 90-day project completion goal. Conversely, over half of the survey respondents who implemented the On-Premise CRM applications reported implementation times in excess of seven months, something experienced by less than 10% of the study participants who opted to install On-Demand CRM systems. Lengthy system implementation times can have two impacts on a CRM initiative. First, it can delay the realization of performance improvements resulting from the use of CRM technology. Second, it can result in the project exceeding the original budget amount. The extent to which this can be an issue is seen in Figure 4 which summarizes the responses of the survey respondents using On-Demand vs. On-Premise solutions regarding their project costs as related to initial expense projections.
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On-Demand Versus On-Premise CRM: Are There Performance Differences?
CRM Project Actual to Budget Comparison
80% 70% 60% 50% 40% 30% 20% 10% 5.7% 4.3% 0% Below Budget On Budget Slightly Over Budget Significantly Over Budget 1.9% 21.7% On-Demand On-Premise 30.9% 25.5% 70.8%
39.4%
Figure 4 This chart can easily cause CRM project leaders to shutter if they are considering the use of On-Premise CRM solutions. A total of 56% of the firms surveyed who implemented enterprise On-Premise CRM systems report that they exceeded budget — and a significant number reported exceeding their budget significantly . On the other side of the curve, the experience of over three-quarters of the study participants who implemented one of the market-leading On-Demand CRM offerings was that they were on target in terms of project expenditures. This raises a number of questions as to where the budget exceptions come from for OnPremise CRM. Are the costs related to system integration, system customization, end user training, unplanned software expenditures, help desk support, etc.? Also, what makes On-Demand solutions costs more predictable? We will be doing some more detailed surveying into this topic in a research project scheduled for the fourth quarter of 2006 and will send those results to our research clients as soon as we have them. In the meantime, we encourage all organizations who are evaluating CRM solutions to do the proper level of due diligence and talk to other project teams who are six to twelve months ahead of them in the implementation process to fully understand the costs that can be associated with implementing any CRM solution.
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9
On-Demand Versus On-Premise CRM: Are There Performance Differences?
Further analysis into assessing user views on CRM systems led us to segment the responses received regarding user’s attitudes toward their existing vendor. Specifically, we asked the study participants to express their views on “Recommending/Buying Again From” their solution provider. The summary of the responses is seen in Figure 5.
Would Recommend/Buy Again From CRM Vendor Comparison
45% 42.7% 40% 35% 30% 25% 20% 15% 12.5% 10% 5% 0% Absolutely Very Likely Somewhat Likely Unlikely 7.4% 26.9% 22.9% 25.9% 21.9% 39.8%
On-Demand On-Premise
Figure 5 Previous experience has shown that a response of “somewhat likely” is often not a positive answer. If this is coming from an existing user regarding recommending their vendor to another peer, it tends to be less than a ringing endorsement. And when considering buying again, it tends to mean that the firm is likely to consider other options. Based on this, the fact that nearly two-thirds of the On-Premise users surveyed chose the “somewhat likely” or “unlikely” options shows that differences exist between these two classes of CRM platforms. As seen, the On-Demand users’ experiences were more positive. Conclusion Over the past two years, more CRM projects are generating positive returns in terms of helping sales teams improve their performance. We are more comfortable than ever in recommending that companies include CRM as part of their plans to improve the effectiveness of their sales teams.
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On-Demand Versus On-Premise CRM: Are There Performance Differences?
As always, when starting any CRM initiative, whether you are looking to implement your first system or reevaluate/enhance what you already have in place, we encourage you to fully define the problems you are going trying to solve. Doing so on the front end of the project will be valuable in helping determine which types of CRM systems best fit your needs. However, once the class of CRM tools is determined, the assumption should not automatically be made that all the vendors in that class offer equivalent solutions. The data clearly suggest that when comparing On-Demand and On-Premise offerings, significant differences between vendor solutions exist and need to be fully explored during your vendor evaluations. Research clients who want to discuss this analysis in more detail or would like examples of ways firms are effectively leveraging CRM technology to optimize sales performance should call to discuss specifics. Contact Jim Dickie at (303) 530-6930, e-mail: jim.dickie@csoinsights.com or Barry Trailer at (415) 924-3500, e-mail: barry.trailer@csoinsights.com.
About CSO Insights CSO Insights is a research firm that specializes in benchmarking how companies are leveraging people, process, technology, and knowledge to optimize the way they market and sell to customers. Over the past 12 years, CSO Insight’s sales effectiveness survey of over 7,500 sales effectiveness initiatives has become the benchmark for tracking the evolution of how the role of sales is changing, the challenges that are impacting sales performance, and most importantly, what companies are doing to address these issues. For more information on this research go to www.csoinsights.com.
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