I had the privilege of presenting at GITEX Dubai. The event organizer asked me to speak on ‘The Risks and Rewards of Cloud-based CRM’. For some background, Software as a Service (SaaS) and CRM cloud computing lag adoption in some industries and geographies. The Middle East is one of those regions where cloud computing is becoming pervasive but doesn't yet match adoption in the U.S., Western Europe and Southeast Asia.
So this audience provided me a refreshing opportunity to speak about both the business benefits and risks of SaaS, and stay clear of the more esoteric discussions such as multi-tenant architectures, IT delivery platforms and other arguments levied by many SaaS purists.
A Cloud CRM vs On Premise Decision Framework
The Top 5 Risks of Cloud CRM
Downtime and SLAs
When SaaS Customer Relationship Management (CRM) systems were initially débuted at the turn of the century they were met with reservations about uptime and security. On-demand CRM vendors responded to system uptime and uninterrupted availability by showcasing their data centers, and more specifically, their hardware and telecom redundancy, high availability (HA) and immediate fail-over capabilities.
System downtime renders a business software application worthless — and can stop a business in its tracks. Sure, short and infrequent CRM system outages aren't as critical as accounting software or ERP software downtime; nonetheless, when sales people are not selling it has a negative cascading effect throughout the business.
Mitigation strategy: To avert cloud computing downtime, pursue a three step verification process. First vet your vendor's data center redundancy. They should be able share documentation which supports N+1 redundancy and no single point of failure. Most vendors also welcome data center tours for first hand viewing. Also, they should have multiple data centers for synchronization and emergency roll-over. Any SaaS vendor which only operates a single data center is putting your application availability at risk.
Second, review the vendors downtime history. Some vendors such as Salesforce.com display their uptime online (although only for the last 30 days). Getting a schedule of all downtime interruptions for at least the last two years will provide a strong gauge in predicting future uptime.
Third, review the Service Level Agreement (SLA). Understand whether the vendor excludes 'planned maintenance' from downtime calculations and make certain the SLA provides financial compensation if target uptime metrics are not met. It can also be helpful to translate the vendors SLA uptime guarantee into a real time equivalent. For example, a 99.95% SLA means 4.5 hours of downtime per year is acceptable.
CRM systems normally contain two very important information assets – their customer list and their sales forecast. Ensuring information security around these assets is paramount. A compromise in information security can lead to customer ill will, a public relations nightmare and regulatory fines from governments which impose strict privacy laws for consumer data.
Mitigation strategy: Ensure your SaaS vendor has a mature information security plan, backed with risk analysis, business continuity & disaster recovery methods, layered security protocols and a capable information security team. Leading on-demand CRM vendors get third party information security audits and offer independent attestations such as the ISO 27001.
CRM systems are often departmental applications that must be integrated with back office accounting applications, ERP systems, custom billing programs or other legacy systems. A failure to integrate business information systems across the enterprise results in an increase of manual processes, manual data entry, data inaccuracies that accompany transposition errors, transaction cycle times and multiple data repositories. It can also make getting reports a challenging process.
Mitigation strategy: Several SaaS vendors offer point to point or ESB (enterprise service bus) tools to perform standards-based system integration. For example, Salesforce offers Mulesoft and Microsoft generally uses the Azure Service Bus for an ESB. Some vendors deliver a WSDL (web services description language) file for describing web services, online data dictionary and packaged XML web services for integration. Other vendors partner with ETL (Extract Transform Load) vendors or the new breed of Integration as a Service (IaaS) solutions from vendors such as Cast Iron, Boomi or Pervasive which have created many templates and pre-packaged integrations between all sorts of systems. Unfortunately, many smaller SaaS publishers don't offer strong integration tools such work-arounds must be considered.
The initial release of on-demand CRM systems lacked the years of maturity built into the prior era of client/server systems as well as the methods to customize the systems to meet atypical business processes or unique requirements. Missing CRM software functionality, which cannot be remedied via software customization or another method, generally results in manual efforts, thereby driving up labor costs, driving down user productivity and challenging user adoption.
Mitigation strategy: Leading SaaS CRM solutions have adapted their shared applications with customization tools, often in the form of Platform as a Service (PaaS) add-on products. PaaS tools generally permit customization as a layer of abstraction between the core CRM system and the presentation layer, thereby not changing source code or the original product and easing the way for continued upgrades.
Open source CRM vendors such as SugarCRM take a different approach and simply offer source code to their customers. A third option is for customers to seek pre-integrated applications among the eco-systems which surround popular CRM vendors such as Salesforce’s AppExchange, NetSuite’s SuiteApps directory or Microsoft’s Dynamics CRM AppSource directory.
Another consideration is to purchase suite-based applications which deliver fully integrated broad applications for use across the enterprise. For example, both NetSuite and Microsoft Dynamics offer an integrated, enterprise-wide business system which includes CRM, accounting software, distribution software, manufacturing systems and HR/payroll applications.
Total Cost of Ownership
While predictable expenses and a usage based pricing model are welcome news in the enterprise software industry, SaaS CRM systems which break the bank don’t deliver CRM ROI for customers.
Mitigation strategy: To evaluate this risk, you will have to construct a multiple year cash projection and TCO model. SaaS costs are simple and predictable. On-premise software will require key assumptions such as variable costs, internal rate of return and the useful life of the system. Most CFO’s suggest that a business applications useful life is 5 years, although that figure is clearly declining every year as the cost of business systems fall while their utility rises.
The Top 5 Rewards of Cloud CRM
Total Cost of Ownership
It’s no mistake that the last SaaS risk may actually be a SaaS reward. SaaS entry costs are certainly lower and SaaS converts capital expenditures into operational expenses (capex to opex). Studies form analyst firms such as Yankee Group and Gartner have illustrated that even with the recurring nature of the SaaS subscription model, the cumulative effect of subscriptions may still be less than the one-time capital expenditure associated with on-premise CRM systems.
Verification strategy: As suggested, to determine whether SaaS TCO is a risk or a reward, create a multiple year cash projection that is reflective of your organizational environment. For on-premise systems, don’t shortchange the calculation by failing to include real world expenses such as computer hardware, redundant systems, platform software (such as databases, operating systems, backup programs, etc.), application software annual maintenance fees, and labor associated with system administration, database administration, near annual system upgrades, information security and IT trouble-shooting. Also remember that hardware must be upgraded or recycled about every three years. Realistic cost projections should also include the management time involved with operating in house information systems.
Focus on Core Competencies
In a conversation I had with Gartner's Rob Desisto, he commented that cost is not the primary decision criteria for SaaS, instead limited resources and time to market are the most influential factors. Clearly, outsourcing a non-core competency such as business software administration to outside experts removes what is often viewed as a headache function and reallocates management time to more critical areas.
Verification strategy: SaaS providers manage the IT infrastructure, delivery platform, maintenance releases, new version upgrades, backups, disaster recovery and information security. Even though these functions are handled by the provider, IT buyers are wise to understand these processes, the frequency of updates and how they may affect the customers utilization of the application.
SaaS pricing models are normally per user per month subscriptions. This type of utility based pricing is simple, predictable and reduces cost surprises and overruns.
Verification strategy: The caveat here is to avoid shelfware, or maybe its now called cloudware. Vendors often require customers to prepay SaaS subscriptions in order to secure aggressive discounts. While such a move may be financially worthwhile, it is generally cost ineffective to pay for user subscriptions prior to the go-live event or before those users come online. Instead, defer most user subscriptions during the implementation period and agree to a schedule whereby subscriptions are activated as users begin using the system.
Accelerated Time to Market
With no hardware to implement and no software to install, SaaS deployments are much faster than on-premise CRM software implementations. Due in part to their browser-based interfaces and intuitive navigation, on-demand systems generally achieve a much shorter learning curve and more successful user adoption.
Verification strategy: Implementation consultants are very valuable, but expensive. A time and cost implementation comparison between SaaS and on-premise deployments will reveal the cost savings.
SaaS applications normally permit companies to scale up or down their user count or software utilization on-demand. This is a big change from on-premise systems which require IT departments to purchase, implement and forever manage expensive IT infrastructures 'just in case' they’re needed – and provides no refunds or credits if the company does not grow according to projections or reduces staff.
Verification strategy: Make sure you don't turn this SaaS reward into a risk with a vendor contract that imposes minimum user counts or penalties for subscription reductions.
When evaluating CRM cloud vs on premise applications, focusing on the risks and rewards which deliver bottom line business impact, and not getting sidetracked into the nebulous techno jargon, will aid business and IT buyers in determining whether SaaS CRM software systems make the best business sense for their organisations.