Farming out CRM

RATHER THAN saddle themselves with the difficult and expensive task of running their own CRM applications, many enterprises are opting for an alternative: farming this responsibility out to someone else.

Outsourcing of CRM applications ranging from SFA (sales-force automation) to call centers is becoming increasingly popular, as customers become aware of the trials, tribulations, and multimillion-dollar costs of internal deployments, choosing instead to allow a third party to handle the worry.

Companies are finding that many of their concerns are starting to be addressed, as outsourcers beef up security technologies and service offerings. Enterprises can now choose from a variety of services or elect to outsource segments of their CRM solution, retaining control of some CRM tasks while allowing an ASP to shoulder the rest of the burden.

Add the implementation time saved by outsourcing CRM (many outsourcers can do in a few days or weeks what might take an enterprise months or years) and the prospect of outsourcing CRM becomes more attractive for lean-running companies.

A cure for the CRM headache?

Outsourcing always grows during a downturn in the economy, as customers seek to avoid investing more capital and keep their costs under control, says Nick Pournader, vice president of outsourcing at Siebel Systems in San Mateo, Calif. Using an outsourcer provides “a single point of accountability, and it’s a fixed cost,” he says.

CRM software leader Siebel has been experiencing 20 percent to 23 percent annual growth in its outsourcing business, according to Pournader. Outsourcing accounts for roughly 10 percent to 20 percent of the company’s customer base, he says.

Avoiding the soaring failure rate associated with CRM — which a Meta Group survey has found to be as high as 55 percent to 75 percent — is another reason for embracing outsourced CRM, Pournader adds. Companies wish to turn over the responsibility to someone else purporting to be an expert on CRM rather than deal with the CRM headache themselves.

Apparel maker Victoria’s Secret is outsourcing e-mail marketing to San Mateo, Calif.-based ASP Digital Impact, which handles multiple mailings to 4.5 million customers. The company sees the move to outsourcing as a way to get its customers consistently attentive service.

“We as generalists would not be able to put the time and thought [into the] process that a [CRM] specialist would do,” says Ken Weil, vice president of new media marketing at Victoria’s Secret, in Columbus, Ohio.

Processing and delivering high volumes of mail is a specialty best left to an expert, Weil says. But Victoria’s Secret still prefers to maintain its own contact center, to exercise tight control over that aspect of the operation, he says.

“The majority of companies still think they can do it better in-house, but what we’re seeing today is more and more big companies want to see a change in the relationship with their clients,” says Toon Vanparys, executive vice president of corporate business development, marketing, and strategy at Sitel, in Baltimore.

Sitel, which provides outsourced CRM and contact center services, can deploy CRM in three to nine months as opposed to an internal deployment that can take three to five years, Vanparys says.

The lure of saving both time and money is proving to be one of outsourced CRM’s biggest draws, outsourcers and customers agree. Nextel, for one, expects to save $1 billion during the next eight years by hiring IBM to meet its customer service application needs, according to Audrey Schaefer, Nextel director of corporation communications, in Reston, Va. The companies have a $1.2 billion deal for IBM to take care of Nextel’s CRM and contact centers.

The arrangement, Schaefer says, “allows us to get the experts at customer care so we have happier customers, and it also allows us to focus on our network so we can really concentrate on our competency.”

Franciscan Estates, a winery in St. Helena, Calif., outsources its E.piphany sales application to overcome internal infrastructure issues, says Jack Clare, Franciscan’s director of IT. The winery has used an outsourcer for two and a half years, and “it’s been great. We completely got all the responsibility outsourced and it’s off of our plate,” he says.

Customer data is sent to the company’s ASP, Interelate, via FTP and a T1 network connection. The ASP populates the information into an E.piphany data mart for data mining, Clare explains.

Some companies are even using outsourced CRM as a stepping-stone on the way to doing their own CRM, says John Poffenroth, director of the hosted business unit at Sunnyvale, Calif.-based CRM vendor eGain.

“A lot of customers with a goal of in-house deployment have opted for outsourcing for the short term,” Poffenroth says. “We can get [an installation] up in a matter of days where it could take a large company months.”

Weighing the possibilities

Analyst Erin Kinikin, vice president of CRM at Giga Information Group in Santa Clara, Calif., says that outsourcing CRM applications makes sense for midmarket companies that can use a service such as Salesforce.com, or for companies where CRM is not a high enough priority to be done in-house.

Outsourcing also makes sense for fully mature applications, which are not likely to need a lot of revisions, Kinikin says. But “the thing is, nobody’s CRM system is so mature that they don’t change and just have to be run,” Kinikin says.

“People are still trying to figure out what managing customers means to managing their business. The downside of outsourcing is you lose that control and flexibility to make changes,” she adds.

Although outsourcing can offer benefits in deployment time, costs, and even in security, because application hosts have the latest equipment on hand, the concept may not work for everyone.

“[Outsourcing CRM] would not be a good option for a customer who has very specific and very complex application-modification requirements with multiple integrators involved in delivering the modifications,” Siebel’s Pournader adds.

Outsourced CRM costs will vary depending on each company’s needs, notes Paul Rodwick, vice president of market development and strategy at CRM vendor E.piphany, also in San Mateo. The majority of clients still prefer in-house hosted CRM deployments because they provide some feeling of control, he says.

“Some people feel that their customer data is their most valuable asset, so companies are reluctant to let that outside their firewall,” Rodwick says.

Denis Pombriant, research director at Aberdeen Group in Boston, says that although outsourcing is useful in certain situations, “there will always be good reasons to go in-house,” such as security concerns when sharing data outside the company firewall.

Nevertheless, Pombriant notes that “a lot of ASP vendors have better security systems than many enterprise datacenters have.”

According to Sanjay Kaytal, vice president of marketing at PeopleSoft eCenter, the oft-cited disadvantages to outsourcing CRM, such as loss of data control and security, are no longer an issue, given the technologies now available to CRM hosts.

“Those were perceived to be big impediments two or three years back. That’s not the case anymore,” Kaytal explains.

The terrorist incidents of Sept. 11 and spate of recent computer viruses awakened customers to the fact that their data is vulnerable, and an outsourcer can provide data protection, Kaytal stressed. PeopleSoft, for example, has three levels of redundancy at its Pleasanton, Calif.-based eCenter facility.

Dallas-based Carreker, which provides consulting and software for the financial services industry, is having its PeopleSoft 8 CRM applications hosted via PeopleSoft’s eCenter application outsourcing program.

“The cost of going with an outsourcing partner is less because you don’t have to go out and invest up-front,” in training, testing, and development, says Lori Faris, senior vice president at Carreker.

At Carreker, a hosted Web page gives customers and employees access to information; PeopleSoft is providing application and database support, disaster recovery and maintenance, and developmental support.

“The long-term [goal] is to implement a customer portal so customers can log their own service requests,” Faris adds.

Jumping on the bandwagon

A wide variety of vendors are jumping on the outsourced CRM service bandwagon, including IT services companies such as IBM and PricewaterhouseCoopers. Additionally, San Francisco-based Salesforce.com hosts its Web-accessible CRM and SFA applications and expects to do $50 million in business this year, according to President and CEO Marc Benioff.

“The No. 1 reason why customers are choosing us is because [Salesforce’s Web-hosted CRM paradigm] is the end of software as we know it,” Benioff says. “The Internet changes everything.”

Types of hosted CRM available range from those offered by companies such as Salesforce.com, which gives clients Web-based access to Salesforce.com’s own applications, to IBM providing outsourced services for another vendor’s software or PeopleSoft providing hosted services for its own software.

“We’ve been doing [CRM outsourcing] for quite a while, since May of 1998,” eGain’s Poffenroth explains. “I felt that eGain should really be agnostic about how the product is deployed,” be it internally at customer sites or via a hosting arrangement.

Outsourcing accounts for about 20 percent to 25 percent of eGain’s revenue. Company offerings have evolved from e-mail management and supporting e-commerce customers into a full suite of services for enterprise customers.

eGain has three datacenters in the United States, with redundant routers, firewalls, intrusion detection, and monitoring, Poffenroth notes. The average monthly hosting fee at eGain ranges from $7,000 to $20,000, depending on the number of applications.

Via a number of datacenters, IBM also provides CRM hosting services based on a variety of packaged solutions from companies such as Siebel. Services include legacy data integration and hosting, including the use of industry-based templates. Big Blue can also provide call-center services through partnerships.

“Beyond the cost savings, beyond the cutting time to market, we can help customers transform their business” through CRM deployment, says Joe Ragusa, vice president of transformational outsourcing at IBM Global Services in Somers, N.Y.

But no matter which form of outsourced CRM is selected, making sure the customer and the CRM host are on the right page is critical for success, Ragusa adds.

“I think that the challenge really becomes in defining an agreement with the customer and really making sure you’re focused on the right business issues,” Ragusa says.