CRM: What to Consider When Choosing Between SaaS and On-Premise Systems

CIO — What’s Happening :: The customer-relationship management software you installed ten years ago is showing its age just as the market for CRM software has fully matured. You have choices now between on-premise and software-as-a-service (SaaS) applications.

Why You Care :: According to Mark Ameres, a CRM consultant, many companies are running “dead-end” applications that either integrate poorly with other enterprise systems or can no longer accommodate corporate growth.

“Our older systems were holding us back from providing the same level of student service and support we were able to provide when we were smaller,” says Michael Statmore, the IT director with Post University, which has a physical campus in Waterbury, Conn., and a growing online presence. The university chose Oracle (ORCL) CRM On Demand to manage information about all its students, whether they take classes online or on campus. By using a SaaS application, Statmore avoided making investments in new infrastructure and is able to keep management costs down.

The Real Deal :: Online CRM costs less to deploy than an on-premise system, and it may be more easily funded because it can be budgeted as an operational—as opposed to a capital—expense, says Sajid Usman, an analyst and consultant with Accenture’s CRM practice. It’s also easier to add users and capacity as an enterprise grows. On the other hand, on-premise systems offer tighter integration with other enterprise systems and are more easily customized.

Integration concerns were critical for Maricel Cabahug, CIO with Yaskawa America, which manufactures components for industrial equipment. She chose on-premise CRM from SAP because it could be linked more easily to the company’s SAP ERP system. Yaskawa America lost business when sales agents did not realize they were pursuing an existing customer as a prospect. “Someone can know that a customer has a machine being serviced and see that we are negotiating a new contract with that same customer,” says Cabahug.

One the other hand, Justin Ricketts, CIO with Susan G. Komen for the Cure, chose Salesforce.com and an online fundraising management tool from Convio for its flexibility, lower initial costs and ability to scale up quickly. The nonprofit manages the activity of 14 million donors and 124 affiliated offices. “We did have to make sure the security precautions were the same we would have used for on-premise CRM, and we had to choose vendors who could show us the status of all servers, performance metrics, and the same stats of a premise-based product,” says Ricketts.

What You Should Do :: Don’t base your decision on what you’re currently using, says Ameres; consider which platform best meets your current needs for managing customer contacts and technical issues such as security or scalability. On-premise CRM is better suited for integration with other in-house applications, observes Usman. But a SaaS application offers lower up-front costs for companies that need a new system immediately and don’t have a big data center staff.

John Brandon is a freelance writer based in Minnesota.