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CRM: Should you implement or be hosted?

Thousands of companies have decided not to implement their CRM in-house and instead have chosen hosted options. In this installment of CRM Steps to Success, we weigh the benefits and drawbacks of this different delivery model.

Traditional CRM comes with hardware, software and, oftentimes, the headaches associated with protracted installations and integration snafus. Hosted CRM offers an alternative: buy access to software on a subscription basis and log on to the apps via the Internet. Sounds simpler, right? But the hosted model presents its own separate set of challenges (see sidebar), not the least of which is wrapping your head around a different approach to getting software.

"It's a new model, and it requires people to think outside the box," says Denis Pombriant, vice president and managing director of CRM at Boston-based Aberdeen Group.

Charter Communications Inc., the fourth largest provider of broadband services in the U.S., was perfectly willing to use some imagination if it meant decreasing churn among subscribers. Digital cable customers have a high churn rate due in part to the relative complexity of the product, according to Tom Brockhaus, director of customer retention at St. Louis-based Charter. "There's a learning-curve issue that we needed to address," says Brockhaus, citing the more complex remote control and interactive guide that digital cable users must learn.

Common concerns about hosted CRM
There are a few pitfalls to watch out for if you're considering a hosted application. Denis Pombriant, vice president and managing director of CRM at Aberdeen Group, enumerates a few of the more common concerns and describes how hosted vendors have addressed them:

Security and stability: How secure can an application be if it doesn't live on your servers? Very, according to Pombriant. "In many cases, vendors offer better security than a lot of small, medium and even some large organizations can afford to do on their own." Service-level agreements stipulate the physical, password, data and access security of the applications, as well as specifying how much uptime the subscriber can expect from the system.

Integration: Hosted vendors, says Pombriant, are only beginning to tackle integration issues and are showing "great progress."

Wireless access: Especially for sales force automation, "the big drawback" for hosted vendors used to be the absence of versions that could be used in the disconnected mode, says Pombriant. That started to change within the last year. Pombriant now says that all of the major hosted CRM vendors are working on or have already delivered a disconnected version. Now, sales reps can download data before they leave the office and have it with them on sales calls.

The future:With many glitches behind them, hosted vendors are moving from their initial area of concentration of sales force automation to developing full-function CRM suites, including financials. "I don't think there's a good reason why, down the road, everybody can't use software applications the same way they use electricity," Pombriant says. "You don't generate your own electricity.... And I think we're moving toward a time when it would be very easy to have software delivered as a utility."

In July 2001, Charter launched a campaign to reach out to customers early in their life cycles and address their concerns before dissatisfaction led them to downgrade to the analog tier or disconnect their services altogether. By October 2001, Charter had signed with Salesnet Inc.'s subscription CRM service. Charter used Boston-based Salesnet to route calls from its third-party telemarketing vendor to the appropriate customer service rep, record the answers customers received and the feedback customers gave, and run reports on the results.

Customization restrictions

Charter elected to make some changes to the Salesnet offering, including revisions to the nomenclature in the fields that customer service reps see.

However, one downside to hosted CRM is that it typically does not allow for the creation of a great deal of custom code. "More often than not, a hosted vendor will not allow customizations," Pombriant says.

Still, subscribing organizations can work with configuration files that alter the way the basic application looks and feels to reflect companies' individual processes. Pombriant says that many hosted providers offer very flexible architectures that enable users to dictate the attributes and behaviors of the system at a high level without programming.

One benefit to fewer customizations is ramped up rollout times. For Charter, Brockhaus says, initial implementation was "nearly instantaneous -- start-to-finish in one week."

In a previous job, Brockhaus had worked with both an out-of-the-box and a customized content management application. The y put a heavy burden on his in-house staff because they relied heavily on administrators to run reports and posed integration problems that resulted in delays. With the customized solution employees didn't buy in, Brockhaus says, because the program clearly didn't work. Annual fees for Salesnet turned out to be 30% of the total setup costs for the customized solution.

Cost savings

Hosted CRM is largely viewed as a cheaper alternative with a simpler pricing structure. Some providers charge a start-up fee and then price access to software based on the number of users who need to use the system each month.

Aberdeen's research shows that hosted solutions can be as much as 80% to 90% less expensive. Also, end-user companies don't have to worry about complicated software licensing plans or costly software upgrades. Providers deliver software upgrades -- such as improved functionality and enhanced user interfaces -- over the Internet.

In cable television, where the market is more than 70% penetrated, the price differential makes a necessary program affordable for companies like Charter, which now thinks Salesnet "has paid for itself."

The online CRM players
The following is a list of some of the vendors in the hosted CRM space:

  • Inc., San Francisco
  • NetLedger Inc., San Mateo, Calif.
  • Salesnet Inc., Boston
  • UpShot Corp., Mountain View, Calif.

The future at Charter

The improved churn rates won Charter a CTAM (Cable & Telecommunication Association for Marketing) award in June 2002. Brockhaus says the software played a role in the turnaround. He says the success inspired his team to pilot another hosted CRM project for their sales reps.

The second Salesnet program at Charter will mirror the first in that it will form a bridge between Charter and its yet-to-be-determined telemarketing vendor. The difference is that it will focus on hitting customers later in their life cycles -- say, three or four months after they become subscribers -- to up-sell additional services.

Brockhaus expects to have about 100 sales reps on the new system; currently, there are about 20 reps working on it. The new program will be more complex than the first, containing more custom-defined fields than the retention program.


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