March 18, 2009
White Paper: Choosing a CRM Vendor
ION
This paper describes a tough, disciplined process for choosing the right CRM vendor for your company. It does not push a predefined laundry list of functionality, but describes how to define your own set of requirements and find out which vendors really meet them.
This paper addresses the following key selection criteria:
Functionality: Why it is essential to gather quantitative information from potential vendors and how to find the right questions to ask.
Responses: How to obtain detailed responses from the best-qualified vendors and avoid wasting time with non-starters.
Demos: The fatal flaw in most demos and how to avoid it.
Pricing: How to negotiate pricing with potential vendors and set realistic expectations about ongoing costs.
Before discussing the selection of a CRM vendor, let’s spend a moment to review why it is so important. The reason is pretty simple - the failure rate for sophisticated CRM implementations ranges between 25% and 80% and the difference is not so much in the facts, just their interpretation.
If you only include the most abject belly flops in the definition of failure, the success rate probably is 75%, but if you include major cost overruns, production delays, failure to meet expectations and soaring post-production costs, the failure rate may actually be higher than 80%.
Choosing the wrong vendor is both the biggest single reason for the failure of CRM implementations and the easiest to avoid.
SELECTION STYLES
There are several styles that companies use to choose a vendor and these can broadly be characterized as: Safety in Numbers, Standard Analysis, and Enhanced Analysis. Let’s take a brief look at each of them.
Safety in Numbers:
In this approach, the buyer simply looks for the vendor(s) with the biggest market share. It aims for safety, but can actually introduce severe risk factors. In particular:
The larger the vendor, the less likely they are to listen to your needs.
Vendors typically achieve a large market share by concentrating on selling to the typical customer. If your company does not fit that profile, the solution will not fit either.
Given two vendors with similar resources, the one that spends money on marketing will, at least over the short term, achieve a higher market share than the one that spends the money on developing a robust product.
Market leaders charge a price premium precisely because so many companies take this buying approach.
Of course, the long term viability of the vendor is a critical consideration and will factor into your evaluation. Vendor size, profitability, years in business and of course product quality are linked with viability. Further, these factors do not compete with, but are complementary to the analysis techniques described below.
Standard Analysis and Enhanced Analysis:
The basic steps for Standard Analysis and Enhanced Analysis are identical, but the details of how they are implemented provide completely different, even opposite, results. Let’s start by summarizing each step.
1) Produce a detailed RFP
2) Send it to possible vendors and narrow the list down to 3-5 strong candidates based on their responses.
3) Ask each of them for a demo that illustrates the desired system.
4) Negotiate pricing
br /> DETAILS
1) Produce a detailed RFP and send it to a wide range of vendors
The Standard approach is to talk to the administrators, managers, users and other stakeholders, find out what the need and describe these in a document.
For example, the a manager may note that the business is continuously changing and anticipates having to manage additional information in the future, leading to a line item in the RFP such as: "The system must allow the creation of custom tables"
This is fine as far as it goes, the problem is what the requirement has been stated in purely qualitative terms and omits critical information. For example:
How long does it take to create such a custom table and what expertise is required?
The answers can range from 30 minutes to 3 months of consulting time from specialists who charge $200 per hour. The latter answer will cost you over $100,000 per table and CRM companies will not warn you of this in advance. In fact, they may make most of their revenue from such services.
Do custom tables behave like native tables?
If the answer is “Yes”, you should follow up with more detailed questions to confirm the truth of this statement, such as: Can you create links between custom tables and native tables? Can you search on fields in custom tables? Can you create reports and business rules on them? Are they included in exports?
Does the presence of custom tables create any obstacles to upgrading your system?
The additional cost of upgrading a system with custom tables may range from zero to exporting all the data, redoing the entire custom table from scratch, re-importing the data and praying that nothing goes wrong.
As we see from this example, the quantitative answers can show whether a given feature provides essential functionality that your company needs to grow and adapt to changing conditions or is simply a useless checklist item designed to satisfy RFP's from naïve customers.
The above example focuses on a single item, but the same general principals apply throughout and here's a simple trick for finding out what questions to ask:
If you are not sure what quantitative questions you should ask, contact the vendors who support the desired functionality and say: "I am pleased to see that you support feature X. What questions do you recommend I ask the other vendors who are competing for this sale to determine how fully they support it and whether there are any limitations or additional costs associated with their implementation"?
Then sit back and watch as the vendors fall over themselves to supply you with the questions that expose weaknesses among their competitors. Sometimes, they will even expose their own weaknesses.
Enhanced process:
A standard RFP just asks whether a vendor can meet the requirements but the enhanced process will arm you with additional quantitative information:
a) How long it will take to implement this feature?
b) What are the immediate and long-term costs associated with using it?
c) Are any limitations in the resulting solution?
2) Send the RFP to possible vendors
It can take weeks, or even months of hard work to produce a detailed, probing RFP.
But it's all for naught if you do not get responses that are equally detailed and it can take a long time to respond to a detailed RFP. If it has been sent to 50 vendors, the only ones that will take the time are those who are desperate and/or planning to recoup their costs once they have you locked in as a customer. Of course, they will need to recover not just the cost of making the sale to you, but also of all the sales they failed to make. That is why most vendors will simply ignore such an RFP unless you follow the enhanced process.
Enhanced process:
First narrow down the list of potential vendors with a mini-RFP that asks your top ten questions. It should be possible for the vendor to respond to this document or online form, in 20 minutes or less. The exact questions depend on your needs, but they should certainly include: How much will it cost over the next couple of years, how long will it take to implement and can you try the system before committing to a purchase?
The answers should enable you to narrow down your list to 3-5 vendors and by taking the time to respond they will be partially committed. Now tell them that they have made the short-list and hit them with the full RFP. Knowing that they have a 25% chance of making a sizable sale, they should be willing to respond.
3) Ask each vendor for a demo that illustrates the desired system.
At this stage, many companies tell the vendor what the finished system should look like, ask them to implement as much as possible and schedule a demo to see that they have accomplished.
The problem is that this process does not measure how efficiently the vendor's software can be used to create the system you need, but how much time and effort they are willing to spend chasing the business. As a general rule, the more a company is planning to charge you, they more they will be willing to spend to get the business.
In brief, the standard method will result in your choosing the company that is planning to hit you with the highest possible costs over the life of the contract.
Enhanced process:
The solution is simple - do not tell the vendors exactly what you want to see in advance, but hit them with your detailed requirements during the demo itself and ask them to demonstrate, live, how they would configure the system to meet those needs.
You should be upfront about this - warn them in advance that you will be asking them to configure the system during the demo so that they can have technical resources standing by, but do not accept excuses during the demo itself or give them information they can use to prepare the system in advance.
This may sound brutal, but you are betting your reputation and quite possibly, you company's future on making the right choice. Making life easy for their sales team is simply part of your job description and you can also use this exercise to measure their honesty.
Suppose your RFP asked two vendors how long it would take to create a custom table, the first responded "5 minutes", but struggled to actually get in done in 15. The second responded "25 minutes", but completed it in 20. You might consider the second vendor a better potential partner, or at least adjust the first vendor's RFP responses in light of the discrepancy between their promises and reality.
4) Negotiate pricing
Some people seem to delight in getting a deep discount on expensive software and would rather pay $75,000 for a $200,000 system than $50,000 for a $75,000 system.
The problem is that unlike buying a house, the implementation and ongoing costs can easily exceed the initial purchase price. Once you are locked into the $200,000 system, the vendor has all the leverage and you can look forward to paying full price for implementation services, support, upgrades and additional licenses. In fact, they probably already have a strategy for recouping the $125,000 "discount" with interest.
Enhanced process:
Be realistic. Look at the list price and assume that after any initial discounts, this is close to what you will be paying.
When negotiating a discount for the software, try to get one that will cover additional licenses and upgrades for the first year or even longer if possible.
Ask for a fixed price bid on the implementation itself. You may not get it, but it can make for an illuminating conversation when a vendor who estimated 2 weeks in the RFP response will not commit to actually doing it in 2 months on a fixed price basis. If they estimate that it will take 2 weeks, but request payment for 2 years for a fixed price implementation, then assume that it will take 2 years.
REMARKS
This paper may seem antagonist to CRM Vendors but that is not the intent. The evaluation process in necessarily tough and you need to safeguard your interests, but the goal is to find the right partner for a strong long term relationship. Your tactics throughout this process should be tough, but transparent and ethical.
SUMMARY
Choosing the right CRM vendor is a tough job and requires an equally tough mindset, but by following a disciplined approach that focuses on your needs and demanding detailed quantitative as well as qualitative information from potential vendors, you will make a well-informed decision that maximizes your chances of success. The result will be relationship that is built on a stable foundation and a technology that fits your business.
Complete product information, as well as demos and free CRM software trial downloads, are available at http://www.enterprisewizard.com
.
White papers on customer relationship management software are available at http://www.enterprisewizard.com/white.htm.
ABOUT ENTERPRISEWIZARD INC.:
With headquarters in Silicon Valley and resellers worldwide, EnterpriseWizard, Inc. is the leading provider of powerful, affordable, and easily deployed 100% web-based business process automation (BPA) solutions for organizations of all sizes.
Our company has attracted customers from industries with vastly different needs, ranging from startups to Fortune 500 companies such as Chevron, Merrill Lynch, and NEC since we were founded in 1991.
Based on its award-winning predecessor product SupportWizard, EnterpriseWizard CRM is a top-rated, out-of-the-box J2EE solution for issue tracking, helpdesk, customer support, sales, email, and marketing automation. Organizations can get up and running quickly with its default templates, and easily enhance and extend the application through an intuitive browser-based interface. Clients have adapted the system for Sarbanes-Oxley and Government Regulation, Project and Time Management, Change Management, and other specialized applications.
Thanks to Adam Smith for contributing this article to our CRM blog:
This paper describes a tough, disciplined process for choosing the right CRM vendor for your company. It does not push a predefined laundry list of functionality, but describes how to define your own set of requirements and find out which vendors really meet them.
This paper addresses the following key selection criteria:
Functionality: Why it is essential to gather quantitative information from potential vendors and how to find the right questions to ask.
Responses: How to obtain detailed responses from the best-qualified vendors and avoid wasting time with non-starters.
Demos: The fatal flaw in most demos and how to avoid it.
Pricing: How to negotiate pricing with potential vendors and set realistic expectations about ongoing costs.
Before discussing the selection of a CRM vendor, let’s spend a moment to review why it is so important. The reason is pretty simple - the failure rate for sophisticated CRM implementations ranges between 25% and 80% and the difference is not so much in the facts, just their interpretation.
If you only include the most abject belly flops in the definition of failure, the success rate probably is 75%, but if you include major cost overruns, production delays, failure to meet expectations and soaring post-production costs, the failure rate may actually be higher than 80%.
Choosing the wrong vendor is both the biggest single reason for the failure of CRM implementations and the easiest to avoid.
SELECTION STYLES
There are several styles that companies use to choose a vendor and these can broadly be characterized as: Safety in Numbers, Standard Analysis, and Enhanced Analysis. Let’s take a brief look at each of them.
Safety in Numbers:
In this approach, the buyer simply looks for the vendor(s) with the biggest market share. It aims for safety, but can actually introduce severe risk factors. In particular:
The larger the vendor, the less likely they are to listen to your needs.
Vendors typically achieve a large market share by concentrating on selling to the typical customer. If your company does not fit that profile, the solution will not fit either.
Given two vendors with similar resources, the one that spends money on marketing will, at least over the short term, achieve a higher market share than the one that spends the money on developing a robust product.
Market leaders charge a price premium precisely because so many companies take this buying approach.
Of course, the long term viability of the vendor is a critical consideration and will factor into your evaluation. Vendor size, profitability, years in business and of course product quality are linked with viability. Further, these factors do not compete with, but are complementary to the analysis techniques described below.
Standard Analysis and Enhanced Analysis:
The basic steps for Standard Analysis and Enhanced Analysis are identical, but the details of how they are implemented provide completely different, even opposite, results. Let’s start by summarizing each step.
1) Produce a detailed RFP
2) Send it to possible vendors and narrow the list down to 3-5 strong candidates based on their responses.
3) Ask each of them for a demo that illustrates the desired system.
4) Negotiate pricing
br /> DETAILS
1) Produce a detailed RFP and send it to a wide range of vendors
The Standard approach is to talk to the administrators, managers, users and other stakeholders, find out what the need and describe these in a document.
For example, the a manager may note that the business is continuously changing and anticipates having to manage additional information in the future, leading to a line item in the RFP such as: "The system must allow the creation of custom tables"
This is fine as far as it goes, the problem is what the requirement has been stated in purely qualitative terms and omits critical information. For example:
How long does it take to create such a custom table and what expertise is required?
The answers can range from 30 minutes to 3 months of consulting time from specialists who charge $200 per hour. The latter answer will cost you over $100,000 per table and CRM companies will not warn you of this in advance. In fact, they may make most of their revenue from such services.
Do custom tables behave like native tables?
If the answer is “Yes”, you should follow up with more detailed questions to confirm the truth of this statement, such as: Can you create links between custom tables and native tables? Can you search on fields in custom tables? Can you create reports and business rules on them? Are they included in exports?
Does the presence of custom tables create any obstacles to upgrading your system?
The additional cost of upgrading a system with custom tables may range from zero to exporting all the data, redoing the entire custom table from scratch, re-importing the data and praying that nothing goes wrong.
As we see from this example, the quantitative answers can show whether a given feature provides essential functionality that your company needs to grow and adapt to changing conditions or is simply a useless checklist item designed to satisfy RFP's from naïve customers.
The above example focuses on a single item, but the same general principals apply throughout and here's a simple trick for finding out what questions to ask:
If you are not sure what quantitative questions you should ask, contact the vendors who support the desired functionality and say: "I am pleased to see that you support feature X. What questions do you recommend I ask the other vendors who are competing for this sale to determine how fully they support it and whether there are any limitations or additional costs associated with their implementation"?
Then sit back and watch as the vendors fall over themselves to supply you with the questions that expose weaknesses among their competitors. Sometimes, they will even expose their own weaknesses.
Enhanced process:
A standard RFP just asks whether a vendor can meet the requirements but the enhanced process will arm you with additional quantitative information:
a) How long it will take to implement this feature?
b) What are the immediate and long-term costs associated with using it?
c) Are any limitations in the resulting solution?
2) Send the RFP to possible vendors
It can take weeks, or even months of hard work to produce a detailed, probing RFP.
But it's all for naught if you do not get responses that are equally detailed and it can take a long time to respond to a detailed RFP. If it has been sent to 50 vendors, the only ones that will take the time are those who are desperate and/or planning to recoup their costs once they have you locked in as a customer. Of course, they will need to recover not just the cost of making the sale to you, but also of all the sales they failed to make. That is why most vendors will simply ignore such an RFP unless you follow the enhanced process.
Enhanced process:
First narrow down the list of potential vendors with a mini-RFP that asks your top ten questions. It should be possible for the vendor to respond to this document or online form, in 20 minutes or less. The exact questions depend on your needs, but they should certainly include: How much will it cost over the next couple of years, how long will it take to implement and can you try the system before committing to a purchase?
The answers should enable you to narrow down your list to 3-5 vendors and by taking the time to respond they will be partially committed. Now tell them that they have made the short-list and hit them with the full RFP. Knowing that they have a 25% chance of making a sizable sale, they should be willing to respond.
3) Ask each vendor for a demo that illustrates the desired system.
At this stage, many companies tell the vendor what the finished system should look like, ask them to implement as much as possible and schedule a demo to see that they have accomplished.
The problem is that this process does not measure how efficiently the vendor's software can be used to create the system you need, but how much time and effort they are willing to spend chasing the business. As a general rule, the more a company is planning to charge you, they more they will be willing to spend to get the business.
In brief, the standard method will result in your choosing the company that is planning to hit you with the highest possible costs over the life of the contract.
Enhanced process:
The solution is simple - do not tell the vendors exactly what you want to see in advance, but hit them with your detailed requirements during the demo itself and ask them to demonstrate, live, how they would configure the system to meet those needs.
You should be upfront about this - warn them in advance that you will be asking them to configure the system during the demo so that they can have technical resources standing by, but do not accept excuses during the demo itself or give them information they can use to prepare the system in advance.
This may sound brutal, but you are betting your reputation and quite possibly, you company's future on making the right choice. Making life easy for their sales team is simply part of your job description and you can also use this exercise to measure their honesty.
Suppose your RFP asked two vendors how long it would take to create a custom table, the first responded "5 minutes", but struggled to actually get in done in 15. The second responded "25 minutes", but completed it in 20. You might consider the second vendor a better potential partner, or at least adjust the first vendor's RFP responses in light of the discrepancy between their promises and reality.
4) Negotiate pricing
Some people seem to delight in getting a deep discount on expensive software and would rather pay $75,000 for a $200,000 system than $50,000 for a $75,000 system.
The problem is that unlike buying a house, the implementation and ongoing costs can easily exceed the initial purchase price. Once you are locked into the $200,000 system, the vendor has all the leverage and you can look forward to paying full price for implementation services, support, upgrades and additional licenses. In fact, they probably already have a strategy for recouping the $125,000 "discount" with interest.
Enhanced process:
Be realistic. Look at the list price and assume that after any initial discounts, this is close to what you will be paying.
When negotiating a discount for the software, try to get one that will cover additional licenses and upgrades for the first year or even longer if possible.
Ask for a fixed price bid on the implementation itself. You may not get it, but it can make for an illuminating conversation when a vendor who estimated 2 weeks in the RFP response will not commit to actually doing it in 2 months on a fixed price basis. If they estimate that it will take 2 weeks, but request payment for 2 years for a fixed price implementation, then assume that it will take 2 years.
REMARKS
This paper may seem antagonist to CRM Vendors but that is not the intent. The evaluation process in necessarily tough and you need to safeguard your interests, but the goal is to find the right partner for a strong long term relationship. Your tactics throughout this process should be tough, but transparent and ethical.
SUMMARY
Choosing the right CRM vendor is a tough job and requires an equally tough mindset, but by following a disciplined approach that focuses on your needs and demanding detailed quantitative as well as qualitative information from potential vendors, you will make a well-informed decision that maximizes your chances of success. The result will be relationship that is built on a stable foundation and a technology that fits your business.
Complete product information, as well as demos and free CRM software trial downloads, are available at http://www.enterprisewizard.com
.
White papers on customer relationship management software are available at http://www.enterprisewizard.com/white.htm.
ABOUT ENTERPRISEWIZARD INC.:
With headquarters in Silicon Valley and resellers worldwide, EnterpriseWizard, Inc. is the leading provider of powerful, affordable, and easily deployed 100% web-based business process automation (BPA) solutions for organizations of all sizes.
Our company has attracted customers from industries with vastly different needs, ranging from startups to Fortune 500 companies such as Chevron, Merrill Lynch, and NEC since we were founded in 1991.
Based on its award-winning predecessor product SupportWizard, EnterpriseWizard CRM is a top-rated, out-of-the-box J2EE solution for issue tracking, helpdesk, customer support, sales, email, and marketing automation. Organizations can get up and running quickly with its default templates, and easily enhance and extend the application through an intuitive browser-based interface. Clients have adapted the system for Sarbanes-Oxley and Government Regulation, Project and Time Management, Change Management, and other specialized applications.
Thanks to Adam Smith for contributing this article to our CRM blog:
Filed under About CRM by Guest Author
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