CRM: Hosted or on-premise?
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It's a common dilemma: you're going to invest in CRM but don't know whether to go with a hosted or on-premise solution. Duncan Wood highlights how you can make the most appropriate choice for your organisation.

By Duncan Wood, Sage CRM, UK

You are the sales or IT director of your organisation and you have decided you need customer relationship management software so your organisation can learn more about your customers. However, you now face the dilemma of whether to go for a hosted or on-premise solution. Choosing between the two seems harder than you initially thought, so here are a few pointers to help make your decision a little easier.

In looking at this you must be aware of the cultural changes that are required when adopting CRM; the growth plans of your company; the support you have available within your organisation; and finally, making sure that the CRM software meets your functional requirements.

"Putting the customer at the centre of all business decisions and viewing CRM as a philosophy is the only way an organisation will reap the full benefits of CRM."

Duncan Wood, Sage CRM, UK

When adopting a CRM solution, a company needs to understand that a cultural change is required. Putting the customer at the centre of all business decisions and viewing CRM as a philosophy is the only way an organisation will reap the full benefits of CRM. Once this has been taken on board, the decision of choosing between a hosted or on-premise solution arises.

Essentially, both hosted and on-premise CRM offer the same functionality, but with customisation and implementation differences; both offer important benefits. Some are more suited to smaller business, others are suited to larger organisations or those working in complex or regulated markets. In deciding whether hosted or on-premise suits your business best, it is important to view the options looking at the return on investment over a matter of years.

Assessing your requirements

It is vital to establish your functional requirements upfront to determine the best fit over the lifetime of your installation. Assessing the following requirements will help you to make a decision.

Looking at the growth plans of your company is key, as initially you may only require the implementation for the sales team. Over a matter of time, this might also be extended across the marketing and customer service divisions and as a company scales it is important look at the whole picture before making an informed decision.

If your company is unsure of growth plans and it does not have a substantial infrastructure, you might decide to stick with hosted initially, but then look into rolling out the solution out to further users in the future.

If you are a small business, creating an infrastructure to cope with a full CRM system is most likely not a sustainable option in the short term. The sheer amount of infrastructure required makes a hosted solution an obvious choice in the short-term. However, once you have determined how you need to use the software and would like the added benefits of complex customisation and the budget to do so, it makes sense to migrate to on-premise, lowering the total cost of ownership in the long term.

Looking to the future

Assessing the growth plans for your company is always important. You should be aware of how many employees will require the software, whether the current IT infrastructure can cope with such an implementation and whether your company will require this deployment to grow substantially over a minimum of five years.

It costs more to run a hosted system in terms of licence costs. However, taking into account the time required to implement and maintain infrastructure for an on-premise solution, hosted solutions make a great option for smaller businesses. Another key factor to take into consideration is that hosted CRM allows a company to take on a fixed cost, paid by subscription over a specific amount of time (although this is now also possible with some on-premise vendors).

Total cost of ownership

In requiring a lower upfront investment, the hosted solution provides a lower TCO over a two-year period. However, the total cost associated with the hosted solution will increase at a faster rate than that of the on-premise deployment. By the third year of implementation, the hosted will become evidently more expensive. Over a five year period, the hosted deployment is approximately 56% more costly than the on-premise solution which clearly must be taken into consideration when making your choice.

It is important to note that, depending on the software used, it may be possible to migrate from hosted to on-premise. The process should be a simple one, and this is worth checking when making your choice.

"Essentially, both hosted and on-premise CRM offer the same functionality, but with customisation and implementation differences; both offer important benefits."

Choosing the right time to do this is important and can be determined by external factors such as your IT skill and resources available. For example, if you are creating a new post to manage the CRM software, this would then be the right time to migrate from a hosted to an on-premise solution.

If your company is large enough to have a substantial IT department/infrastructure already in place, this makes an easy argument in opting for the on-premise solution. When viewed beyond the near-term then on-premise makes perfect sense.

Process, process, process

You must assess the process requirements of your organisation: are your needs simple or complex? How will you be using CRM? Will you be using it for your sales team to maintain customer information, for emailing purposes, will your marketing team be using the system to develop long-term strategies? Do you have a dedicated IT function to manage a CRM solution in-house? These are all questions which you must ask prior to making a decision.

With on-premise, you have the benefits of full customisation and upgrade options which will allow you to select each module on a bespoke basis. You can then integrate this across your entire business structure according to your unique requirements. If you work in a highly regulated or technical industry, such as pharmaceutical, manufacturing or retail, then a generic CRM solution, as you would get with hosted, would not lend itself to your specific needs.

To explain this more clearly, if you work in manufacturing, you might like to tailor your CRM software to track and manage product recalls, whereas for retail, you might like to use the software to coordinate sales promotions. This is possible with on-premise, but the hosted solution does not allow you to extensively customise the software to suit very specific requirements, so the offering is a more generic CRM solution.

Tailor made for your business

Accessing the method of deployment that is required will help you make the correct decision to suit the needs of the organisation as a whole. There are also various security issues to address too. While an on-premise CRM solution retains customer data in-house, an on-demand CRM solution externalises customer data to a third party facility. If you are in the pharmaceutical/financial industries, regulations stipulate how you must keep customer data secure, therefore the degree of customer data sensitivity must influence your decision.

"Never choose a 'one-size fits all option'. Think about your industry and how that will affect what you need from a CRM solution."

You should always ensure that your decision will cater for the requirements of your business. If, for example, your sales team works remotely for much of the time, you must ensure the solution allows for disconnected access scenarios for those situations where an internet connection is not available. Additionally, if your mobile workforce uses PDAs, smart phones or BlackBerry devices, you may be best served by selecting a solution that has been specifically optimised for mobile devices and in this case on-premise is the way to go.

In conclusion, a hosted solution suits companies looking to use CRM to optimise profitability, revenue and customer satisfaction without having to upgrade on a regular basis and for those looking for a lower up-front investment.

On-premise CRM, by contrast, is more likely to suit companies requiring CRM to integrate across and feed into the entire business strategy, specific customisation to suit vertical markets and a lower medium to long-term TCO.

Always consider the following when choosing between hosted and on-premise CRM:

  • What do you specifically need from a CRM solution? There is a range of on-demand software available, but each will have different features and functions. Know what you want!
  • Is your company growing quickly or are you consolidating? Hosted and on-premise will suit either of these scenarios in different ways
  • Do the sums so you know where you stand on TCO. Question your software provider on how easy it will be to migrate between hosted and on-premise if you choose to in the long term, and add any costs associated with this into your TCO calculations
  • Never choose a 'one-size fits all option'. Think about your industry and how that will affect what you need from a CRM solution

Duncan Wood is product manager at Sage CRM, UK.

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18th Aug 2008 17:26

Great article Duncan, it really hits the spot, and sounds very logical, however, the mid market or (more specifically) the more modest company, often cant justify the expense of the scoping that you are suggesting, especially when their requirements are very much a "round peg in a round hole", they need to spend the budget they have on getting their systems delivered, especially if they have a more 'modest' budget to start with.

My advice would be to be careful making the 'cost of entry' just too high, that's why SugarCRM do so well in the States.

Most of our clients tell us, 'how it is', straight, they know that they need CRM and they have a sensible strategy on how they can role CRM out, and evolve into the more complex business processes, but often cant afford the higher costs associated with some of the mainstream players.

That's why they select OpenCRM, we only charge for the work that we do and we are really good at getting the implementation done, effectively and keeping that 'entry barrier' low.

I have to admit though, you do make some fair points, but the pure length of the article probably means that few will have read it and even fewer will get to the bottom to see any replies..

But, if you do get here, take a look for yourself :

Graham Anderson
Software Add-ons - The Home of OpenCRM

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