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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: On-
Demand 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
Forecasting 29.5%
Data Cle ansing 25.4%
Sales Knowledge Mana ge ment 19.3%
Channel Mana ge ment 18.1%
Figure 1
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.
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 in-
depth. Readers will note that, based on user experiences, On-Demand CRM holds the
edge over On-Premise CRM in key areas including:
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, e-
mail: barry.trailer@csoinsights.com.
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
© CSO Insights - 2006 5
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or by any means without the prior written permission of the authors.
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 On-
Premise CRM users across a variety of different metrics — results of which
organizations implementing or expanding their CRM platforms should be aware.
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).
.
Length of Time CRM System Has Been In Production
45%
41.7%
40% 39.6%
35% 34.4%
30% 29.6%
28.7%
26.0%
25%
On-Demand
On-Premise
20%
15%
10%
5%
0%
<12 months 12 - 24 months >24 months
Figure 1
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 2004-
2005.
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.”
40%
39.8% 39.6%
35%
33.3%
30% 30.2%
25%
11.1%
10%
9.4%
5%
0%
Significant Minor No Measurable Do Not Know
Improvements Improvements Improvements
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.
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).
60%
59.2%
56.3%
50%
40%
31.5% On-Demand
30%
28.1% 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.
80%
70% 70.8%
60%
50%
10%
5.7% 4.3% 1.9%
0%
Below Budget On Budget Slightly Over Significantly Over
Budget Budget
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 On-
Premise 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.
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.
45%
42.7%
40% 39.8%
35%
30%
26.9%
25% 25.9%
On-Demand
22.9%
21.9% On-Premise
20%
15%
12.5%
10%
7.4%
5%
0%
Absolutely Very Likely Somewhat Likely Unlikely
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.
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.
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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