Outsourcing CRM functions

Originally posted in July 2002 on a discussion board in response to an article discussing the pros and cons of outsourcing CRM functions
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"It makes sense to look at the relevance of the ASP delivery model from the perspective of where a business using an ASP application is in its own life cycle. For ventures (and this includes divisions within companies) that are cash- and time-constrained in the short term (startups, or those anticipating near-term expansion), it makes a lot of sense to sign up with an ASP. As the business matures, the tradeoffs may change, and the same venture will evaluate bringing the application in-house.

Its the classic 'Rent vs. Buy' decision. In more mature phases, businesses are ready to explore more strategic ways in which they want to use their technology infrastructure . Or perhaps they anticipate that their application needs have stabilized, and they'd rather just buy a software once and run it in-house because the long-term cash outlay will be smaller.

Given such decision criteria, ASP vendors may be better off offering their customers a migration path towards a locally hosted, on-premise version of their application, to suit the needs of customers who want to make strategic use of their technology assets.

It also makes sense to look at the ASP delivery channel in terms of the maturity of a technology. If a technology is widely available, it is so mature that it has a commodity function, and there is little perceived strategic advantage in deploying it (e.g. payroll processing applications, telephone service), a business would rather have a service provider manage it for them. They would benefit from economies of scale of the service provider, and lose little in terms of strategic value by outsourcing it.

CRM apps that perform the very basic functions of customer database management and customer interaction may already be ripe to pass the commodity test and be delivered via ASP. But CRM is a pretty vast field, still young, and there are a lot of things innovative companies can do in this space.

By definition, those that want to pursue innovation in their use of CRM technology won't be able to do it through an ASP, or else there would be nothing innovative about it!

So, to really dig into the broad subject of 'CRM outsourcing,' it makes sense to look at sub-segments of the CRM market, where each is in its maturity, how companies use different types of CRM at different points of time in their life, and also other factors that drive their evaluation of 'Rent vs. Buy,' e.g., current recessionary business conditions make service providers more attractive than in-house."