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With a variety of CRM options available, many CIOs and IT managers find themselves facing an embarrassment of riches. Numerous CRM companies are eager to sell their services and software to corporate customers, and this fierce competition tends to benefit IT departments, which can negotiate better deals as a result.
Before choosing a vendor, however, a CIO must answer an increasingly critical question: hosted or in-house? The hosted market, which uses an application service provider (ASP) model of "renting" software to customers, has been heating up in the past year, and many companies have started moving to hosted offerings for their CRM needs. Other firms still prefer the tried-and-true approach of rolling out CRM software in-house. Although more expensive, this method allows for better customization and control.
To ease the decision-making process, here are some basic questions that should be on every IT decision-maker's checklist when the CRM discussion starts.
1. What business issue are you trying to address?
Some companies begin investigating CRM simply because they want better return on investment (ROI) and happier customers. While both of those goals are important, Aberdeen Group vice president Denis Pombriant told CRM Buyer that there are more factors involved, and a company should know what it wants before even approaching vendors.
"For an implementation to succeed, you need to have a clear understanding of what you want to accomplish," he said. "Unless you do this, a vendor will be the one to help you define your needs, and lo and behold, it'll be based on their product."
For example, Pombriant noted that if a company's goal is to achieve rapid ROI, a hosted solution could do the trick. "If your organization is comfortable with the idea of hosting, that could save 80 to 90 percent of up-front costs," he said.
Conversely, if a company is more interested in a long-term approach that can be tailored to fit the firm, purchasing in-house software may make sense. As Pombriant said, "Look at your projected returns, and think about how each direction would affect that."
2. How quickly does your CRM system need to be deployed?
One advantage of hosted solutions has proven to be speedy implementation time. A company that wants to try a new CRM strategy can call a hosted-solutions vendor and get hooked up within days, sometimes even faster. Anurag Juneja, vice president of services and solutions at eGain, told CRM Buyer that businesses with limited resources that need to get their CRM up and running quickly are often better off with a hosted offering.
"It's very compelling to a company that needs to meet a certain business requirement in a short time frame," he said. "It gives them a turnkey approach to getting started."
On the other hand, an in-house approach makes more sense if what is desired
can best be described by the old chestnut "slow and steady wins the race."
For example, SAP (NYSE: SAP) 
vice president John Grozier told CRM Buyer that some firms can benefit from taking an incremental approach that lets them slowly build out a suitable CRM system, rather than signing on for a hosted solution that allows them to be using CRM tomorrow.
"One of the largest trends is companies adopting this incremental approach," Grozier said. "It allows the customer to ... pick and choose business processes based on what they need."
3. Do you need customization?
Indeed, for companies that require specialized features in a CRM solution, an in-house strategy tends to be better than trying to haggle over such details with a vendor.
Anand Subramaniam, eGain's vice president of marketing, told CRM Buyer that certain types of firms, especially those on the cutting edge of technology, are better off implementing CRM in-house because doing so gives them more control over their strategy.
"It could be that they have a certain need, like for a collaboration product," he said. "If there are very specific features necessary, it's often easier to just do it in-house. It saves time and, in the long run, money."
4. What is the breadth of your IT resources?
However, relatively small companies should take yet another consideration into account: Implementing in-house CRM with a small IT staff is like trying to stop the MyDoom virus by posting a security-policy note on the company bulletin board. It may work to some degree, but it certainly is not the most efficient method.
As Gartner (NYSE: IT) analyst Beth Eisenfeld told CRM Buyer: "A CRM implementation decision is largely determined by funding, benefits and
operations. For the operations component, having a robust IT department is
usually considered a must for in-house CRM."
The IT department not only must control the technical aspects of rolling out and maintaining an in-house application, but also is in charge of security, management and connectivity.
If an IT department is already overtaxed or otherwise unable to handle a sweeping CRM implementation project, a hosted solution likely is a more attractive option, because all technical aspects are handled by the vendor and management is done remotely.
Overall, the choice between a hosted or in-house CRM strategy is not one to be
taken lightly. However, if a CIO asks the right questions up-front, he or she can
find answers that will benefit the company -- and keep ROI rolling in.
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