Allied Office Products Inc. lost US$8 million worth of business when the World Trade Center, where many of its customers worked, was destroyed. In the aftermath of the tragedy, the $300 million office products company was forced to lay off employees and reevaluate its entire business and sales strategy. Executives came up with a plan to generate new accounts and reactivate those that had lapsed. They also decided they needed a sales-force automation (SFA) system that would improve customer service and enhance sales employees' productivity. They eventually zeroed in on an ASP that promised reasonable costs and a quick turnaround. However, ASPs held a number of negative connotations for Allied executives, who remembered the ASP meltdown in 2000, when scores of hosted software companies went out of business after the dotcom collapse. COO Mike Palmer, who was CIO at the time his company was searching for an SFA product, worried that the ASP he had settled on-- SalesForce.com Inc. -- might go out of business in the chilly economic climate for IT spending. He was also concerned that a hosted solution couldn't be customized or easily integrated with his company's back-end systems. And he obsessed about whether the ASP could provide adequate protection for his company's crown jewels--its customer data.
But in spite of those reservations, he made the leap of faith because of SalesForce's cheap price tag and promise of fast implementation. Allied began rolling out the SalesForce.com product to its 220 sales and sales-support employees in April 2002.
Two months later, 165 salespeople were using the hosted software, and Palmer was in for a big surprise. The concerns he had had about the vendor's financial stability, security and service levels turned out not to be major issues. And while not trivial, the obstacles his company ran into integrating SalesForce.com's team edition with its legacy systems were surmountable. The biggest problems Palmer confronted with the hosted solution had to do with the age-old bugaboo of convincing salespeople to adopt new processes and tools--the same change management issues that bedevil any technology implementation, whether done in-house or hosted.
If Allied's experience with SalesForce.com is any indicator, it may be time for CIOs to get over their (not unfounded) aversion to ASPs. Those who witnessed the collapse of the ASP market (when revenue growth declined by 86 percent from 2000 to 2002) might still have a lingering bad taste in their mouths. But in the CRM space at least, ASPs are increasingly being seen as a viable solution, particularly for small and medium-size companies. The surviving vendors have matured and largely rectified the security and service problems that dogged them in the past. CIOs, of course, still have to be on their guard against overblown promises that ASPs--or any vendor for that matter--make about instantaneous ROIs and quick deployments. While ASP deployments are quicker than packaged implementations, they still take longer than the vendors say they will, and the ROI always takes longer to achieve.
Beware the promises that some ASPs make about quick deployments and speedy ROIs. Even so, an increasing number of companies, including Allied, British Airways PLC, Sovereign Bancorp and engine manufacturer Briggs & Stratton, have made the ASP model work for them. British Air found ways to integrate a hosted customer self-service application with its customer database and was pleasantly surprised to learn that a small ASP could support its huge, international Web presence. Sovereign discovered a hosted SFA solution that was so easy to customize that the company could put the task of customizing the application in hands of the non-IT employees. And Briggs & Stratton found that letting an ASP host the customer self-service application on its website ultimately resulted in zero downtime for the site. For those enterprises, going with a hosted solution turned out to be easier and less costly than rolling out and maintaining an enterprise software package themselves.
"If you go with a client/server-based application, you have to deal with both the technical implementation and the cultural issues," says Allied's Palmer. "With an ASP, all of the technology is sitting in their data centers. All you have to worry about is adoption."
Overcoming Your Fears
One of the biggest worries CIOs had about ASPs in their heyday was security. Would their hosted data be secure from competitors, hackers, the outside world?
Bill Patten, director of MIS and project administration for Sovereign Bancorp, a US$342 million bank headquartered in Philadelphia, was particularly obsessed with the security issue. So while the idea of a hosted solution for sales-force automation appealed to him, Patten and his IT staff spent weeks researching the security measures their ASP candidate, Salesnet Inc., had installed before signing on in the fall of 2001.
The staffers began by visiting Salesnet's data centers in Boston. They evaluated the firewalls, encryption techniques, socket security features, intrusion detection systems and other protections the vendor had on its servers. They also asked to see the results of Salesnet's own security audits. Eventually, they came back with a thumbs-up.
"It took a while for us to become convinced that the privacy of our customer information was never at risk," Patten says. The MIS director was also reassured by the fact that Salesnet, which was founded in 1997, had not only survived the dotcom collapse but was steadily expanding its network of profitable customers.
Patten's next big concern was how easy (or hard) it would be to customize the Salesnet application. He knew he wouldn't be able to change the underlying code, but he also knew he couldn't do that very easily with packaged applications either.
What Patten discovered was that the Salesnet product would allow his company to tailor the application's user interface according to Sovereign's sales processes and lexicon. The customization was so easy, in fact, that administrative assistants throughout the company could do it.
Using pull-down menus, drag-and-drop fields and point-and-click maneuvers, the administrative staff mapped Sovereign's sales process to the software to create whole new layouts of information, modify existing layouts, change the way fields were labeled, and design pick lists (drop-down menus of information that salespeople can select). Patten says the application was rolled out to 325 employees in six months.
Salesnet has "these analysts that work with you to help you figure out the processes you have and how you're going to customize their application to them, which is pretty amazing," says Paul Greenberg, author of CRM at the Speed of Light. He believes that "Salesnet does the best job of all the ASPs in customizing the application according to its customers' sales processes."
Patten would agree. He says the customization his staff had to do didn't cost the company more money. "It doesn't drive up the cost even incrementally because of its simplicity," he says.
British Airways was also pleasantly surprised by its experience in customizing and integrating an ASP solution. The $11.9 billion airline had signed a contract with RightNow Technologies to automate the creation and management of different FAQ pages on its website, BA.com. British Airways knew it would have to radically change the ASP's standard product to suit its exacting needs. For instance, the airline needed to automatically develop, manage and post different sets of FAQs for different customers, depending on whether they were members of British Air's loyalty program. If the customer was enrolled in the program, the technology had to identify his tier (low, middle or high end). That way, if British Air offered a special promotion exclusively to top-tier members, it could post information about that promotion in a Q&A format on a page that was accessible only to top-tier members and not to lower-tier participants or other customers.
Setting up this capability meant that British Air's customer database and Web authentication system had to pass customer information to RightNow in real-time so that the ASP could identify customers based on their membership status and provide the appropriate FAQ page. Dave Bevan, British Airways' general manager for e-service, says that getting RightNow's eService Center application to dance to his company's tune was not easy. "It was quite challenging because we were trying to do things quickly and were quite demanding of time scales," he says. Daniel Butcher, lead developer with British Air on the RightNow project, says the integration work his company and RightNow needed to do was trickier than he had anticipated. The difficulty lay in preventing end users from being kicked off BA.com and onto RightNow's website--a fix that required writing a small application to parse HTML and make sure hyperlinks were requested through British Air's server.
Despite those difficulties, British Air met its deadlines and launched the product on schedule. Bevan attributes that success to the chemistry between RightNow's and BA's staffs. "The two teams got on remarkably well. There was quite a positive attitude on both sides of the house, and that did see us through," he says. In sum, he says integrating a hosted solution was no more difficult than integrating a licensed software package.
When ASPs first emerged in the late 1990s, they had a lot of problems with scalability and service levels. Those early ASPs didn't have the right infrastructure to support "multi-tenancy," or lots of different customers. But the new breed of ASPs in the CRM space has largely mastered the multi-tenancy architecture and service issues.
In fact, these companies seem willing to bend over backward for customers. RightNow completely changed its application so that it could do what British Airways needed with no effect on the ASP's other customers, which simply continued to use RightNow's standard application. Realizing that potential customers in other industries such as retail and hospitality would also want to customize FAQs according to different customer segments, RightNow eventually built that functionality into its product.
British Air was also reassured that RightNow could handle its daily traffic by observing the volume the ASP's other customers were putting on its server. "They were able to show us hard data on their capacity," Bevan says. "They were able to show us what they could do currently and what they were investing in."
In addition, RightNow offered British Air a free trial of its software. But the true test of whether RightNow could handle British Air's site traffic came immediately after 9/11, when hundreds of thousands of users flocked to the website for information. Bevan says the airline's call center would never have been able to handle all of those inquiries. "September the 11th cruelly demonstrated that this tool did meet the promises made by RightNow," says Bevan.
Briggs & Stratton, a $1.5 billion manufacturer of engines for lawn mowers, motor boats and snowblowers, has experienced virtually no downtime since it opted to let RightNow host its eService Center application, according to Michael Del Valle, the company's e-customer support coordinator. He says upgrades also proceed fairly smoothly with the ASP. "You can schedule your upgrade, get a test website, work with the test site and upgrade in a matter of days," he says. "The support from RightNow is solid enough that if you have a problem, the personnel can in many cases fix whatever the problem is."
Debunking the Hype
In an effort to compete with the large CRM vendors, ASPs do sometimes make heady promises about their quick and easy deployments, speedy ROIs and bargain basement prices. Beware these sells. Only one company that CIO spoke to, Electronics for Imaging Inc., managed to roll out an ASP CRM application to 100 out of its 125 users in four weeks. Part of the reason the deployment went so quickly was because Electronics for Imaging did not try to integrate the product with its SAP back-end systems. If your company needs to do customization or integration, you can count on a longer deployment time. On average, the companies CIO interviewed took five months to roll out their ASP applications.
Cost savings can also be a red herring. While CRM ASPs are considerably less expensive than client/server-based applications (ASP customers don't have to worry about capital expenses associated with infrastructure), the cost does catch up after about four years because you're paying a monthly fee for the ASP service for as long as you run it, says Bob Chatham, principal analyst with Forrester Research. "In the long run, the hosted applications only have a 25 percent cost advantage over licensed software," he says.
While ASP deployments may be easier from a technical viewpoint, their customers still have to deal with recalcitrant users who don't want to use these new tools and processes. And ASPs don't provide much--if any--help in the area of change management. Allied's Palmer says his company had to come up with its own incentives to get salespeople to use the product. Allied, for instance, created a tele-prospecting group that does all the time-consuming legwork associated with lining up sales calls, freeing up salespeople to make more calls and thus, increase their commissions. But since only sales employees who actively use SalesForce-.com are given access to the tele-prospecting group, even the most stodgy salespeople at Allied have begun using the hosted software just so they can have someone else make all the tedious cold calls.
Perhaps because of the creative way Allied got its employees to use SalesForce.com, the company is seeing a substantial return on its investment. Of the $180,000 in new sales his company generated in January 2003, Palmer attributes 25 percent, or $45,000, to SalesForce.com.
The vast majority of companies deploying hosted solutions today are small and medium-size businesses that don't have an IT staff or don't want to burden their small IT staffs with CRM implementations. But Forrester's Chatham expects ASPs will soon be a popular choice among Fortune 500 companies. "Over time, there's no reason why a [hosted] model won't scale to thousands of users," he says.
ASPs are, in fact, starting to infiltrate the big guys. Staples Inc., an $11.6 billion office supply retailer, recently deployed Salesnet to its 500 sales employees to track demand and forecast revenue.
These days, the only other threat to ASPs is Microsoft Corp., which released its CRM product last January. Greenberg predicts the software giant will undoubtedly steal a large piece of the CRM pie. "They've got the marketing muscle, the dollars, the functionality, the engineers, and the fears they strike in the hearts of other vendors," he says.
The bottom line, Chatham says, is that if an application meets your needs, you shouldn't worry about whether it is hosted or licensed. Instead, when it comes time to select a vendor, consider the basics, like the company's financially stability, its reputation and market position, and the quality, price and potential benefits of its application. "The hosted versus licensed issue is overplayed," Chatham says. "A lot of the issues people throw up around hosted data are really misplaced."
Five Reasons Why an ASP May Work for You
Here are criteria you can use to evaluate whether a CRM ASP is right for your company
1. You don't have an IT staff, or your IT staff is small.
2. You don't have a big technology infrastructure.
3. You don't have well-established, deeply ingrained sales processes.
4. You don't have the luxury of 12 to 18 months to deploy an application.
5. You don't have or don't want to spend a lot of money. -- CIO (US)
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