SaaS CRM Deployments Will Reduce Channel Role

Saas is gaining popularity among the enterprise segment. Seeing the growth
rate, it is believed that four years down the line, 30 percent of the customer
services and investments will be carried out using Saas. However, the transition
from CRM to SaaS will see a diminishing role of system integrators

Software-as-a-service (SaaS) has been evolving during the past decade and
this model has become increasingly popular over the past three to four years. By
2012, 30 percent of new customer service and support application investments
will be through SaaS.

The key drivers cited for the adoption of SaaS include total cost of
ownership (TCO) and unmet performance expectat­ions with on-premises solutions,
in addition to changes in sourcing strategy. Replacement of on-premises
solutions and net-new implementations were stated as major drivers of future
deployments.

Customer Relationship Management (CRM) is one of the business processes that
enterprises are now transitioning from on-premises to SaaS when they look for
software solutions to support the CRM process. Typically large external service
providers (ESPs) help businesses improve customer processes as part of the CRM
engagement. However, the move to SaaS

from CRM often eliminates a significant portion of ESP participation.

Due to the increasing use of SaaS for CRM, ESPs (including business
consulting and system integration services) will have less influence on CRM
processes as SaaS adaptation accelerates. This is because large ESPs do not have
significant SaaS CRM application practices. If the trend continues, the results
will be an erosion of large-scale, systemic or long-term CRM process
improvements among large enterprises that invest in or deploy SaaS solutions,
and a dip in customer satisfaction scores of large enterprises that do the same.

By: Michael Maoz

A similar drop is expected in customer experience scores from midsize
businesses, as they are a stronger target for SaaS CRM offerings. For example,
in the area of CRM, SaaS is growing rapidly (more than 15 percent CAGR is
expected in 2009). The limited business process modeling (BPM) capabilities in
SaaS CRM applications geared to midsize businesses will limit improve­ment of
the customer experience. BPM tools enable an organization to create customer
policies, manage these policies and organize operational processes to support
the customer. These capabilities are not found in the most common SaaS CRM
applica­tions. Small or midsize businesses rarely use ESPs for business
consulting skills, which would be a way of compensating for the lack of built-in
best practices for CRM or BPM capabilities. Instead, ESPs are used among midsize
businesses for technical skills on SaaS CRM projects.

Large enterprise business-to-consumer companies are less exposed to the
problem of low CRM process capabilities built into SaaS solutions. Through 2010,
SaaS CRM applications will fail to demonstrate the necessary scalability for
1,000-plus-seat complex customer service contact centers, where process
integration is key and distributed environments are common.

Many projects involving complex customer service contact centers
(specifically, banking and large telecom­munications providers) are reported to
hold until better references are available from the large enterprise application
vendors. They are in the process of releasing a new generation of their
products. As the next generation of CRM applications mature, we are seeing users
move ahead with smaller projects in areas such as knowledge management,
enter­prise feed­back manage­ment, channel integration and integration with the
website, instead of desktop CRM replacements or refreshes.

SaaS solutions are the deployment model of choice for an increasing number of
these projects. Because SaaS applications lack sophistication in BPM and process
design, and due to the absence of ESPs providing business process advice, the
growing spread of SaaS CRM applications threatens CRM efforts. Among the top 100
SaaS deployments in 2007 and 2008, fewer than 10 percent involved a large system
inte­grator or an external enterprise business consulting team that assisted
with customer process improvement.

In the overall CRM market, SaaS accounted for more than 15 percent of CRM
market total revenue in 2007, and that is expected to rise to 24 percent in
2012. According to Gartner's observation, only 10 percent of CRM SaaS projects
are used by large ESPs. This means that the role of large ESPs in designing,
measuring and driving CRM process improvements will diminish at enterprises
deploying SaaS solutions for CRM through 2012. In their place will be smaller
regional and boutique consulting firms assisting businesses, and fewer than half
of these projects will have an established CRM process improvement program.

Large ESPs will see SaaS projects as marginal; entering 2009, they won't be
prepared to train and deploy large imple­mentation teams dedicated to SaaS
projects. From the perspective of large ESPs, the market opportunity is unknown,
and that makes the investment of resources too risky. Although there is a chance
that large ESPs will eventually view the con­version of on-premises
applica­tions to SaaS as strategic consulting, they will not be ready to take
the risk through 2010. The possibility of continuing a consulting model (in
which the ESP looks after one client with 8,000 desktops, versus 400 clients
with 200 desktops) is strong.

Implications and advice

There will be significant savings in infrastructure and resource costs in
migrating to SaaS, but to put that money to work in customer process
improve­ments, careful performance measurement of 'before' and 'after' project
spending will need to be performed. Because SaaS CRM offerings do not provide
the technology for BPM, it will require third-party software or custom workflow
design inside the SaaS system.

If this does not happen, then the savings will not be put to use in customer
process improve­ments. In a case study of a major high-tech company going
through a global SaaS CRM project, the company estimated that, had the project
been on premises (as was the previous project), an additional 25 resources would
have been required. The careful comparison showed that the project was also much
less ambitious than the previous project; process integration was overlooked in
favor of a lower-cost software package. In a difficult economic environment,
many businesses will make similar choices.

The author is Research VP and Analyst, Gartner