This guest article was kindly provided by Liz Roche, former META Group analyst, who decided to take the first stab at the fact that the CRM industry likes little more than to talk about "mid-market CRM", even when it is entirely unclear what they mean... –JC
Let me just say it straight up: the concept of "mid-market software" is an artificial construct that vendors developed as a means to simplify how they differentiated various target markets. Though there are no hard and fast size boundaries, most vendors would agree that a mid-market (or SMB, for "small to medium-sized business") is an organization with revenue under $500M and fewer than 350 employees. Personally, I don’t get the connection between organizational size (a simple market demographic) and similarity of requirements.
Arguably, organizational size has little to do with business type or business process complexity. Indeed a division of a large enterprise (clearly not an SMB) may have similar process requirements as a $250 million, 100 person business. And if we buy the vendors’ notion that a mid-market solution is ‘simpler’ than its enterprise big sister, we already have a mismatch. As the inherent contradictions of the SMB market become increasingly apparent, a more meaningful way of identifying commonality among this audience must be developed.
As it turns out, these organizations are bound not so much by a similar set of needs, but rather by a similar set of constraints: limited resources. Following this line of thinking, the "resource-constrained organization" (RCO) is a better way to characterize this market, and as such vendors can design closer-fit products and users will find improved total cost of ownership (TCO). Understanding why this is will help organizations make better choices in selecting 'best fit' CRM software.
(I note that former META Group and now Gartner analyst Brian Prentice was one of the first analysts to conceive and expound on the RCO concept.)
Since 2002/03, enterprise applications vendors (e.g., Oracle, SAP, Siebel) have recognized that the days of eight and nine figure deals were basically over and figured that the next big growth market would be the smaller projects within the (largely un-penetrated) business units and subsidiaries of the Global 2000, and within organizations that could be classed as "non-G2000." Since we now know that organizational size is not a great lowest common denominator to design product around, the RCO will be a concept that will coalesce the efforts of business application vendors into more meaningful solutions for this community. However, hindsight has shown that enterprise vendors who have created products for this market by paring back the capabilities of enterprise-class products have not succeeded. The solutions have been either too functionally deficient (as some traditional "mid-market packages" are), too cumbersome to implement and manage, or still too darn expensive.
The good news is that the application vendor community is starting to deliver integrated applications with lower TCO. However, such new applications will be of little value if operational behaviors do not change from those which arose from the world of resource-intensive application deployments. Best practices should stem from four themes that are the foundation for the RCO paradigm:
- Consolidate platforms: Cost and complexity are closely related, and one of the most important components of the RCO paradigm is the aggressive pursuit of simplicity through consolidation. Consolidation is bigger than just simple application and vendor consolidation; in fact perhaps even more important are the decisions made as to a strategic platform provider (e.g., SAP NetWeaver, Oracle Application Framework, Microsoft .Net). And please understand this: an ASP solution (e.g., NetSuite, RightNow, Salesforce.com) is not necessarily a panacea. RCO’s must think of the ASP model as one point along a deployment continuum. The vendor must meet the users’ deployment needs, not vice versa.
- Go Vanilla: Professional services are the single largest cost component of a CRM deployment (upwards of 40-50%) and the two largest cost components are business process re-engineering and custom code development. The best practice is to implement vanilla (i.e., generic) where a process has not been defined as provided competitive differentiation in the market--essentially examining what makes the business the same rather than different.
- Seek IT Generalists, Not Specialists: The most significant cost in an IT organization is personnel, and RCOs typically have very limited IT staffs. In fact, this is one of the key reasons that so many organizations are drawn to hosted solutions: perception that the staff needed to maintain them is minimized. RCOs can best address this significant resource constraint by seeking generalized versus specialized staff competencies. This cannot be done in isolation, and it is intricately tied to the first theme of platform consolidation. If all applications use the same underlying technology (e.g., J2EE), then economies of scale can be attained. Staff generalization reduces costs by spreading the pool of skills across a broader range of application maintenance requirements.
- Think Process, Not Feature: Application features and functions are abstractions. They serve as a way to translate business needs into a form that can be packaged and resold. In truth, the closer an application’s processes can come to a particular industry’s implementation, the lower the probability of business meaning being lost in translation. And the less of the need to customize the generic process to begin with. Process-centricity must the foundation for RCO thinking.
With a deeper understanding of what binds SMBs together, a clearer picture arises as to product design requirements and IT operational best practices needed to appeal to this community.