Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Siebel Systems (SEBL) - strong buy? -- Ignore unavailable to you. Want to Upgrade?

To: mirada who wrote (6040)	6/13/2002 2:13:39 PM
From: JakeStraw	Read Replies (1) \| Respond to of 6974

The Runaway Costs of CRM Customization Thu Jun 13, 1:47 PM ET Erika Morphy, crmdaily.com story.news.yahoo.com Software implementation and systems integration are risky propositions, but there is another activity that Gartner ( NYSE: IT) research director Dale Vecchio calls a "death spiral" -- software customization. "Whenever a company says it wants to customize a particular feature or application I know it is headed for trouble," Vecchio told CRMDaily.com. Many analysts and systems integrators urge clients to avoid the temptation to tailor new applications precisely to their needs. "We always recommend to clients [that they] minimize customization as much as possible," said Joe Kulak, vice president with Cap Gemini Ernst & Young. "It is so important to understand the full capabilities of a package before you start tinkering with it," he told CRMDaily. Multiplication Tables Yet, there are some cases -- perhaps many, depending on a particular company's complexity and business structure -- that warrant customization. In those cases, buyers are advised to be aware of the hidden costs. "An industry rule of thumb is that software implementation is usually one to two times the cost of the package," Kulak said -- and many analysts place that ratio much higher. "Once customization enters the picture, it rises to three, to four, to even five times the cost of the software," he added. Staying the Course More and more companies are heeding expert advice and are using software right out of the box. However, the trend could be attributable to the number of options now available in the software market, as well as to the troubles and expenses that customization can bring. Many vendors, on the heels of industry-leader Siebel ( Nasdaq: SEBL), are beginning to offer industry-specific applications. "Companies like Siebel, PeopleSoft ( Nasdaq: PSFT) and SAP ( NYSE: SAP) are customizing their suites so they meet the business requirements in different industries," Aberdeen vice president Denis Pombriant told CRMDaily. In another words, the vendors are tailoring these apps to accomplish a raft of "customizations" before a sale is made. On another front, modularity, or breaking applications into relevant components based on JAVA or .NET, is lowering the complexity of some customization and integration projects. "This can be accomplished using vendor-supplied, high-level tools, as opposed to getting into the source code," Pombriant said. Hidden Costs Customization still is a staple for a large number of companies, though. "If an application cannot support something unique or a competitive advantage that a company offers, then customization is warranted," Kulak said. Still, it is important to recognize the potential for hidden costs, especially in personnel expenses and contract negotiations, where they can spiral out of control. Human Capital. Simply put, it is costlier to maintain a customized software application. "The tech skills required for a customized packaged are likely to be much higher than just for the package," Vecchio said. Voiding Contracts. Negotiating contracts with software vendors and systems integrators is difficult enough and fraught with many loopholes that favor the vendor. A contract for a customization project is twice as hard to negotiate and the possibilities for the company to unwittingly violate the terms of the agreement are numerous. Less is More? There are other cost-related pitfalls in the road to CRM software customization. These include the costs of ongoing integration issues and the costs of upgrades. Integration Increases. As it is, systems integration or enterprise application integration tools are almost as pricey as the applications they connect. Whenever an upgrade or change is made to a particular component, the interface between the systems needs to be modified as well. Most companies, of course, realize they must include the price of integration in the initial cost of a new software initiative. The mistake many businesses make is neglecting to include those costs as an ongoing item when calculating the ROI of a particular project. Upgrades Battle. "The biggest hidden cost for a customization project hits you when it comes time to upgrade the application," Kulak said. "Everything you did to tailor the application has to be ripped out in order to take advantage of the new release."