The Total Economic Impact Of Salesforce CRM Customer Service & Support A Leading Global Application Software And Services Provider

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1 Prepared for Salesforce.com January 2009 The Total Economic Impact Of Salesforce CRM Customer Service & Support A Leading Global Application Software And Services Provider Project Director: Jeffrey North, Principal Consultant

2 TABLE OF CONTENTS Executive Summary...3 Purpose...3 Methodology...3 Approach...4 Key Findings...4 Disclosures...5 Salesforce CRM Customer Service & Support: Overview...6 Self-Service as the Preferred Destination...7 Knowledge Management...7 Analysis...8 Interview Highlights...8 TEI Framework...10 Costs...10 Benefits...14 Risk...16 Flexibility...16 TEI Framework: Summary...17 Study Conclusions...19 Appendix A: Total Economic Impact Overview...20 Appendix B: Glossary...21 Appendix C: About The Project Director , Forrester Research, Inc. All rights reserved. Forrester, Forrester Wave, RoleView, Technographics, TechRadar, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. Forrester clients may make one attributed copy or slide of each figure contained herein. Additional reproduction is strictly prohibited. For additional reproduction rights and usage information, go to Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. 2

3 Executive Summary In May 2008, salesforce.com commissioned Forrester Consulting to examine the total economic impact and potential return on investment (ROI) that enterprises may realize by deploying Salesforce CRM Customer Service & Support (CSS) software-as-a-service capabilities. Salesforce CRM Customer Service & Support, including Salesforce CRM Call Center, Salesforce CRM Customer Portal and Salesforce CRM Knowledge, is a software-as-a-service (SaaS) application that can lower the overall cost of customer service while transforming the way companies build customer loyalty. This study illustrates the financial impact of implementing CSS within the banking products support groups at a global software application and services company. The customer organization serves over 1,200 banking customers in more than 120 countries, including all of the world's top 50 banks. Products and services extend to retail banking, corporate/wholesale banking (including trade finance and payments), and universal banking integrated for financial institutions across the globe. In conducting in-depth interviews with this existing salesforce.com customer, Forrester found that this company achieved significant support labor cost savings resulting from the ability to streamline and standardize support processes across multiple product groups and support centers. Case turnaround time was reduced eleven-fold, while the average age of development cases was reduced by a factor of five. Purpose The purpose of this study is to provide readers with a framework to evaluate the potential financial impact of Salesforce CRM Customer Service & Support in their organizations. Forrester s aim is to clearly show all calculations and assumptions used in the analysis. Readers should use this study to better understand and communicate a business case for investing in Salesforce CRM Customer Service & Support. Methodology Salesforce.com selected Forrester for this project because of Forrester s industry expertise in customer service technologies, customer relationship management strategies, and Forrester s Total Economic Impact (TEI) methodology. TEI not only measures costs and cost reduction (areas that are typically accounted for within IT) but also weighs the enabling value of a technology in increasing the effectiveness of overall business processes. For this study, Forrester employed four fundamental elements of TEI in modeling the financial impact of Salesforce CRM Customer Service & Support. 1. Costs 2. Benefits to the entire organization 3. Risk 4. Flexibility Given the increasing sophistication that enterprises have regarding cost analyses related to IT investments, Forrester s TEI methodology serves the useful purpose of providing a complete picture of the total economic impact of purchase decisions. Please see Appendix A for additional information on the TEI methodology. 3

4 Approach Forrester used a multi-step approach for this study: 1. Forrester gathered data from existing Forrester research relative to Salesforce CRM Customer Service & Support and the CRM market in general. 2. Forrester interviewed salesforce.com marketing and product management personnel to fully understand the potential value proposition of Customer Service & Support implementations. 3. Forrester conducted a series of in-depth interviews with an organization currently using Salesforce CRM Customer Service & Support. 4. Forrester constructed a financial model representative of the material gathered in the interviews. This model can be found in the TEI Framework section below. Key Findings Forrester s study yielded several key findings: ROI. Based on the interviews with the customer, Forrester constructed a TEI framework and the associated ROI analysis illustrating the financial impact areas. As seen in Table 1, the risk adjusted ROI for the customer organization is 727% with a near-immediate breakeven point (payback period) after deployment. Benefits. Principal benefits include annual labor cost savings of approximately $12.4 million for product support that were previously provided by internal staff. Costs. Significant cost categories include: a) startup labor costs amounting to approximately $200,000; b) training costs of $202,000; c) ongoing IT and business support labor costs of $705,000 annually; and d) fees paid to Salesforce.com for CRM Customer Service & Support capabilities amounting to $528,000 per year. Table 1 illustrates the risk-adjusted cash flow for the customer organization. Forrester risk-adjusts these values to take into account the potential uncertainty that exists in estimating the costs and benefits of a technology investment. The risk-adjusted value is meant to provide a conservative estimation, incorporating any potential risk factors that may later impact the original cost and benefit estimates. For a more in-depth explanation of risk and risk adjustments used in this study, please see the Risk section. 4

5 Table 1: Three-Year ROI, Risk-Adjusted Summary financial results Original estimate Risk-adjusted ROI 753% 727% Payback period (months) Total costs (PV) ($3,613,526) ($3,635,748) Total benefits (PV) $30,836,965 $30,066,041 Total (NPV) $27,223,439 $26,430,293 Disclosures The reader should be aware of the following: The study is commissioned by salesforce.com and delivered by the Forrester Consulting group. Salesforce.com reviewed and provided feedback to Forrester, but Forrester maintains editorial control over the study and its findings and does not accept changes to the study that contradict Forrester s findings or obscure the meaning of the study. The customer for the interviews was provided by salesforce.com. Forrester makes no assumptions as to the potential return on investment that other organizations will receive. Forrester strongly advises that readers should use their own estimates within the framework provided in the report to determine the appropriateness of an investment in salesforce.com s products and services. This study is not meant to be used as a competitive product analysis. 5

6 Salesforce CRM Customer Service & Support: Overview According to salesforce.com, the company s CRM Customer Service & Support offering, which includes Salesforce CRM Call Center, Salesforce CRM Customer Portal and Salesforce CRM Knowledge, is a SaaS customer service application that can lower the overall cost of customer service while transforming the way companies build customer loyalty. Time To Value Faster deployment. The Salesforce offerings can be deployed in weeks versus months or years (for client/server products). User organizations can benefit from enhanced capabilities to both the software and the platform via frequent new releases. With Salesforce CRM, there is no software or infrastructure to deploy or maintain. The application is delivered entirely on demand, so a company can focus on providing innovative customer service, not on maintaining systems. Rapid customization. Salesforce CRM Customer Service & Support can be easily modified or extended to reflect the way the organization works. For most customizations, users can use the point-and-click configuration tools, which require no programming. For more complex customizations, salesforce.com provides tool kits for all major development languages. All customizations are automatically carried forward with every system upgrade. Additional SaaS applications. On the force.com AppExchange marketplace, customers can browse, test drive, and install hundreds of SaaS applications with a few clicks. There are over 60 customer service applications, including Agent Productivity, Chat/ , Community, elearning, Field Service, Asset Management, and more. Empowering Agents Salesforce.com believes that every customer service agent immediately influences the customer experience, either positively or negatively, and salesforce.com has focused on providing agents with the tools they need. An additional focus for salesforce.com has been to enable agents to contribute more best practices to the success of an organization with the end result of agents feeling more engaged in the overall success of customer service. Salesforce CRM Call Center transforms agents into brand champions who can exceed customer expectations. It only takes a few delighted customers sharing their experiences with the community to elevate a company s customer service reputation to elite levels. Fewer clicks. Salesforce CRM delivers automation and easy to use productivity tools, resulting in less training, faster responses, and more satisfied customers. Customer visibility. Salesforce CRM provides customer visibility, with access to backoffice information, via a unified console, to give agents a true, 360-degree customer view. Performance analytics. The analytics toolset in Salesforce CRM has reports and dashboards to track service quality, agent performance, and customer issues, which are customized for individual users via simple point and click customizations. 6

7 Self-Service as the Preferred Destination Salesforce CRM helps an organization to go beyond mere call deflection by enriching the customer conversation, tapping into community ideas, and turning customers into evangelists. Cross-channel processes are enhanced because Salesforce CRM delivers the same platform across all channels. Customer self service. Salesforce CRM provides a personalized experience with access to the right answers in the knowledge base. And agents have instant access to customer information for issues that need escalation. The result is lower service costs and more satisfied customers. Salesforce CRM also enables enriched customer self-service experiences with reporting, training, content, or personalized information via point-andclick customization. Integrating consumer wisdom. Salesforce CRM Customer Portal delivers a forum for customers to discuss challenges, and more importantly, for companies to demonstrate responsiveness to those challenges, and harness community innovation to resolve customer issues and influence a company s direction. Knowledge Management Salesforce CRM Knowledge is a knowledge base that delivers the right answer the first time to both support agents and self-service customers. Relevance in real time. Salesforce CRM Knowledge has a patented Dimensions technology combined with the complete customer picture in Salesforce CRM that pinpoints what is relevant to a particular customer in real time leveraging the actual context of the customer issue. Staying Relevant Since the customer service business is always evolving, traditionally it was very difficult to maintain the relevance of search algorithms without constant tuning and expert reengineering. Salesforce CRM Knowledge allows business users on-the-spot access to point-and-click tools to keep the knowledge base fresh all the time. See What You Know and What You Don t The analytics in the Salesforce CRM knowledge base helps to determine what works or does not work for customers. In order to deliver effective self-service, it is critical to spot what knowledge is missing before customers figure it out, and leave frustrated. 7

8 Analysis Forrester took a multistep approach to evaluate the impact that implementing Salesforce CRM Customer Service & Support can have on an organization: Review of existing Forrester research related to the salesforce.com CRM offering. Interviews with salesforce.com marketing and product management personnel. In-depth interviews within the customer, a leading application software and services provider currently using Salesforce CRM Customer Service & Support. Construction of a financial framework around the implementation of CSS. Interview Highlights The salesforce.com customer featured in this study is a global software application and services company, focused primarily on banking and healthcare. The customer employs over 4,500 staff worldwide. The Customer Service Support Group is comprised of 35 sites worldwide and a new global 24/7 support center located in the Philippines. The interviews conducted for this study uncovered the context of the customer s environment and several salient facts and insights: There are 1,300 users of salesforce.com products on the banking side of the customer s business, including Sales, Sales Support, Marketing, Professional Services, Development staff, and a handful of executive staff. In 2003, the Sales and Marketing groups deployed Salesforce CRM for 200 users. This provided a foundation for overlaying Salesforce CRM Customer Service & Support in late This study focuses on the instance of CRM Customer Service & Support within the customer s banking division. This instance is accessed by over 500 users, who typically rely on CRM Customer Service & Support to execute their processes. The company rolled out CSS in phases. A new global contact center was established in Manila prior to rollout, and a first pilot phase was launched to ensure that the system would handle the correct case management and the new global support processes. o o o The customer deployed CSS to its support centers between December 2004 and May The bulk of the implementation took approximately six months to roll out to the main product streams, extending the smaller product support groups into early With this implementation of CSS, the company was able to eliminate four support call centers in as many countries. Key drivers behind the decision to deploy CRM Customer Service & Support were: o Replacing a homegrown system to create uniformity and reduce internal maintenance costs. Prior to implementing CSS, the various support groups were using AS 400- based systems with homegrown applications. Every product support area used its own homemade systems and processes. 8

9 o Providing alignment among the product groups. There was no alignment across support groups for the 16 main product streams. In addition to using different processes for each product, the environment was characterized by high cost to maintain multiple systems, manual handling of cases, and manual reporting. No audit trail and a lack of clear ownership also contributed to making users unhappy and customers dissatisfied. As the staff became accustomed to CSS desktop capabilities, case turnaround time, decreased by a factor of 11. The improvements that contributed to reducing the average case age from 2,500 hours to less than 225 hours include: o o o o o Change request processes to respond to user community needs. Suggestions and changes from the user community are now handled as cases instead of ad hoc. Integration with the major Level 3 systems, all of which are accessible via CSS reduces opportunities for errors to occur. Transparency on Level 3 outstanding cases help to create a streamlined process. Customers use of the self-service portal to see an overview of their cases and enable support staff to respond faster to unresolved customer issues. Providing solutions for some products to customers via the portal, reducing overall turnaround time. In mid-2005, this customer integrated CSS with its product development systems, fostering faster, tighter integration between customer-originated banking product requirements and the teams crafting those product enhancements. The average age for development cases dropped by a factor of 5, from over 5,000 hours to less than 1,000. 9

10 TEI Framework Introduction From the information provided in the interviews with this salesforce.com customer, Forrester has constructed a TEI framework for those organizations considering implementation of Salesforce CRM Customer Service & Support. The objective of the framework is to identify the cost, benefit, flexibility, and risk factors that impact the investment decision. Framework Assumptions Table 2 lists the discount rate used in the present value (PV) and net present value (NPV) calculations and time horizon used for the financial modeling. Table 2: General Assumptions Ref. General assumptions Value Discount rate 10% Length of analysis Three years Organizations typically use discount rates between 8% and 16% based on their current environment. Readers are urged to consult with their finance department to determine the most appropriate discount rate to use within their own organization. Costs The key cost categories associated with this CSS implementation include: 1) software license, 2) hardware costs, 3) training, 4) internal labor for design, development, and rollout, and 5) ongoing internal labor for development and support. The following are the cost inputs to the financial framework. License Cost The customer acquired this instance of Salesforce CRM Customer Service & Support including the CRM Customer Portal and Salesforce CRM Call Center for an annual cost of $528,000 as shown in Table 3. The customer purchased the Unlimited Edition, which includes Salesforce.com Premier Support. 10

11 Table 3: License Cost Salesforce CRM Customer Service & Support Ref. Metric Per period Year 1 Year 2 Year 3 Total At Software license fee $528,000 Ato Total $528,000 $528,000 $528,000 $1,584,000 Additional Hardware And Software The customer was able to operate its CSS instance without additional hardware or software. However, because the customer integrated Salesforce CRM Customer Service & Support with its development systems, several additional database servers and middleware were acquired. Integration with the development systems required some middleware and several servers that would take information from CSS and talk with the Level 3 systems. Four servers cost $80,000 in total and the middleware to connect workflow from L2 to L3 systems cost an additional $15,000, as shown in Table 4 below. Table 4: Additional Hardware, Software Ref. Metric Calculation Initial B1 Hardware costs: 4 servers 4 * $20,000 $80,000 B2 Software costs $15,000 Bt Hardware and additional software B1+ B2 $95,000 Training Training on the desktop capabilities of CSS (and the Salesforce CRM Customer Portal) is provided via several channels. First, online training provided a basic understanding of CSS, and all support staff were encouraged to complete the online module. Second, a high-level overview of the functionality, coupled with a half day hands-on training session, was provided. Over the course of six months, three company trainers visited each of the support centers to conduct training sessions on the new CSS desktop capabilities and the CRM Customer Portal. This group dedicated half of its time to the initiative, for a total labor amount of $112,500. In addition, travel costs are assumed to amount to $90,000 (3 staff x 6 trips x $5,000 per trip). 11

12 Table 5: Training Ref. Metric Calculation Initial C1 Number of training staff 3 C2 Fully loaded compensation $75,000 C3 % utilization (6 months) 50% C4 Training internal labor C1 * C2 * C3 $112,500 C5 Travel expenses $90,000 Ct Training cost: internal labor, travel C4 + C5 $202,500 Internal IT Labor Startup To launch Salesforce CRM Customer Service & Support and carry out the initial design and development work, this customer engaged four internal IT staff for six months. These employees earn an average of approximately $100,000 ( 65,000) in salary and benefits. Table 6: Internal IT Labor Startup Ref. Metric Calculation Initial D1 Number of support staff, developers 4 D2 Annual fully loaded compensation $100,000 D3 % utilization (6 months) 50% Dt Design, development, rollout labor costs D1*D2 *D3 $200,000 Internal IT Labor Ongoing To manage the CSS implementation, conducting ongoing development, integrations and support, the company engages the equivalent of 3.5 full-time employees (FTEs). These employees earn an average fully loaded compensation of $94,500, which amounts to $330,750 annually as shown in the Table 7. 12

13 Table 7: Internal IT Labor Ongoing Ref. Metric Calculation Per period Year 1 Year 2 Year 3 Total E1 Number of FTEs 3.5 E2 Et Annual fully loaded compensation IT development and support $94,500 E1 * E2 $330,750 Eto Total $330,750 $330,750 $330,750 $992,250 Internal Support Labor Business Support Operations The customer established an internal group of support staff of five persons in Europe and the Philippines, who work directly with the business unit users. These five business support operations people perform work on new reports, for example, making sure that reports are standardized. If someone asks for a new report, Business Support Operations can create it while ensuring that it is in line with the overall report standardization. They also work in areas of governance, monitoring, end-user support, and other tasks outside of, but related to, Salesforce CRM Customer Service & Support. Table 8: Internal IT Labor Business Support Operations Ref. Metric Calculation Per period Year 1 Year 2 Year 3 Total F1 Number of FTEs 5 F2 Annual fully loaded compensation $75,000 Ft Internal labor business operations support F1 * F2 $375,000 Fto Total $375,000 $375,000 $375,000 $1,125,000 13

14 Total Costs All of the costs incurred by the customer over the three-year span of this analysis are shown in Table 9 below. Table 9: Total Costs Costs Initial Year 1 Year 2 Year 3 Total Software license fee 528, , ,000 1,584,000 Hardware and additional software 95,000 95,000 Training cost: internal labor, travel 202, ,500 Design, development, rollout labor costs 200, ,000 IT development and support 350, , ,000 1,050,000 Internal labor business operations support 375, , ,000 1,125,000 Total $497,500 $1,253,000 $1,253,000 $1,253,000 $4,256,500 Benefits With Salesforce we were able to do more with less at all levels. Head of Global Applications CRM Interviews with the salesforce.com customer uncovered several categories of benefit accruing from the implementation of Salesforce CRM Customer Service & Support. These include a significant reduction in the workforce of the customer s many support centers, consolidation of four support centers, greater visibility into support operations, and greater overall efficiency brought about by standardizing processes. Labor Cost Savings Call Center Support It now takes less time to manage a case, explained the global head of CRM applications. It takes support staff less time for reports and views. They are now able to quickly resolve any customer issue. I think the biggest advantage is that all of the information, activity or communication for a case is in one place under one case number. The case loading process is easier and more efficient because it is standardized; everyone knows how it works and why. Built-in automatic routing to the correct group has eliminated delays and errors in directing cases to the groups and people responsible for resolving them. Before there were often delays because the support analyst on duty may not have known who the best person or group to assign the case would be. Removing that dependency has eliminated misrouted cases. With the Salesforce CRM Customer Portal, customers are more involved in the resolution of their own cases, and that results in even greater efficiency. Customers now have a portal where they 14

15 can monitor daily what s happening with their case. In addition to this increased customer awareness, they have requested that we increase the capabilities of the portal, thereby driving the efficiency of CSS to the next level. We are planning to implement the next level over the next six months to offer even more aligned, common Level 1 and Level 2 support processes for all our products, explained the head of CRM applications. With the customer s banking products, the bank customers representatives are very technically knowledgeable, so when an issue comes in, via phone, or the portal, it is typically a complex issue which will probably require days or weeks to resolve. Before the customer deployed CSS, their customers would call one of many telephone numbers to try to find the appropriate product support group. Now each customer has one point of contact in Manila. This connects them to the Global Complex Center that routes the case to the right part of the service organization. Customers have a choice about how they are interacting with this organization; they can pick up a phone, use the customer portal or . If the communication is via or phone, a Level 1 associate will log the case into CSS, where it will be assigned and routed using automated rules based on several criteria such as customer location and product. The case is then routed to a particular workgroup s queue, with an automated notification to the customer which provides a case number that ties together all further activities. Workgroups in CSS can see all the cases listed in their queues. If they need additional information from the customer, they can request, for example, screen shots, from that customer. The customer can then go to the CRM Customer Portal, use a link to the case number and add the screenshots that are needed to continue to resolve the case. The support person gets a notification that the customer has added an attachment or added a comment. So this interaction via CSS is like a hundred thousand times quicker than sending s or just using spreadsheets or whatever old methods were used before, noted the CSS project leader. In the first quarter of 2008, 53% of cases were logged via the CRM Customer Portal. The resulting improvement in efficiency resulted in consolidation of four support centers and reduction in workforce of 200 support staff. The calculation of this benefit is shown in the table below, assuming an average fully loaded compensation rate of $62,000 ( 40,000), produces an annual cost savings of over $12 million. Table 10: Internal Labor Cost Savings Ref. Metric Calculation Per period Year 2 Year 3 Total G1 Number of workers 200 G2 Yearly compensation per worker $62,000 Gt Labor cost savings A1 * A2 $12,400,000 Gto Total $12,400,000 $12,400,000 $12,400,000 $37,200,000 Customer Satisfaction With the these new capabilities, we can take action to improve the resolution times on our cases, which then of course has a huge impact on the satisfaction of our customers, explained the head of 15

16 CRM applications. As noted above, over half of new cases are now logged via the Customer Portal, providing one indicator of customers satisfaction with the CSS system as it touches them. Risk Risk is the third component within the TEI model; it is used as a filter to capture the uncertainty surrounding different cost and benefit estimates. If a risk-adjusted ROI still demonstrates a compelling business case, it raises confidence that the investment is likely to succeed because the risks that threaten the project have been taken into consideration and quantified. The risk-adjusted numbers should be taken as realistic expectations since they represent the expected values considering risk. In general, risks affect costs by raising the original estimates, and they affect benefits by reducing the original estimates. For the purpose of this analysis, Forrester risk-adjusts cost and benefit estimates to better reflect the level of uncertainty that exists for each estimate. The TEI model uses a triangular distribution method to calculate risk-adjusted values. To construct the distribution, it is necessary to first estimate the low, most likely, and high values that could occur within the current environment. The risk-adjusted value is the mean of the distribution of those points. For example, in the case of labor costs for design, development, and rollout described in Table 8 above, the 4.0 FTE value used in this analysis can be considered the most likely or expected value. Labor costs vary based on the complexity and duration of the project, which can be difficult to assess before commencing. This variability represents a risk that can be captured as part of this study. Forrester uses a risk factor of 125% (5.0 FTEs) on the high end, 100% (4.0 FTEs) as the most likely, and 75% of 3.5 FTEs on the low end. This has the effect of increasing the cost estimate to take into account the fact that original cost estimates are more likely to be revised upward than downward. Forrester then creates a triangular distribution to reflect the range of expected costs, with FTEs as the mean. Other cost figures are not risk-adjusted. License costs, for example, can be determined with a high degree of certainty (and contractually set) before a project is started. License and maintenance costs presented in this study are not risk-adjusted for this reason. The same is true for hardware and software expenditures shown in Table 4. On the benefits side, the other area of risk specific to Salesforce CRM Customer Service & Support considered in this study was the amount of internal labor that would be eliminated as a result of greater efficiencies and changes in process. At the beginning of the deployment, IT and business decision-makers could not be completely certain about the number of full-time associates that could be re-assigned. Forrester therefore assembled a range for this benefit category with 250 FTEs on the high end, the maximum benefit that would be envisaged, 200 as the most likely, and 135 on the very conservative low end. The mean, 195, is the risk-adjusted number, equivalent to $12,090,000 in labor cost savings per year when multiplied by the average annual fully loaded compensation rate of $62,000. Flexibility Flexibility, as defined in Forrester s TEI methodology, is an investment in additional capacity or capability today that can be turned into future business benefits at some additional cost in the future. This provides an organization with the right or the ability to engage in specific future initiatives but not the obligation to do so. There are multiple scenarios in which a customer might choose to engage Salesforce CRM Service & Support within a certain scope of activities and business areas and later discover additional value that can be realized by expanding usage. The flexibility component of TEI can capture that value using the industry standard Black-Scholes option pricing model. 16

17 While data for calculating the monetary value of several flexibility options was not available at the time of publication, the customer identified the following areas that present promising developments that have been brought forward since the implementation of Salesforce CRM Customer Service & Support: Exploit opportunities to build connections between sales and support groups using Salesforce CRM as a foundation. Salesforce CRM Customer Service & Support has stand-alone capability, and it can be a plug-in to the overall Salesforce platform. Salesforce Automation was the first of the salesforce.com products implemented for this customer. Many opportunities exist to link capabilities, leverage data, and provide even more responsive customer care with 360 degree views of the customer. If an existing customer asks for more functionality in a software product, for example, the request can come into CSS and be visible to other groups development, sales, license compliance, marketing, finance, etc. to serve their requirements in product development, opportunity staging, leads, forecasting and pipeline management, campaigns, deal approval, and more. Leverage the salesforce.com technology and the processes of Salesforce CRM Customer Service & Support with SAP and Cognos as these are the three strategic systems with which the customer wants to map all other associated functionality, along with whatever other applications can message into one of those three systems. Review SLA measurement using the Entitlements Module. TEI Framework: Summary Considering the financial framework constructed above, the results of the costs, benefits, risk, and flexibility sections using the representative numbers can be used to determine a return on investment, net present value, and payback period. Table 1 shows the consolidation of the numbers. Tables 11 and 12 below show the risk-adjusted values, applying the risk adjustment method indicated in the Risks section and the values from Tables 9 and 10. It is important to note that values used throughout the TEI Framework are based on in-depth interviews with one customer organization. Forrester makes no assumptions as to the potential return that other organizations will receive within their own environment. Forrester strongly advises that readers use their own estimates within the framework provided in this study to determine the expected financial impact of implementing Salesforce CRM Customer Service & Support. 17

18 Table 11: Total Costs Total Risk-Adjusted Costs, Present Value Costs Initial Year 1 Year 2 Year 3 Total Present value Software license fee 528, , ,000 1,584,000 1,313,058 Hardware and additional software Training cost: internal labor, travel Design, development, rollout labor costs IT development and support Internal labor business operations support 95,000 95,000 95, , , , , , , , , ,000 1,050, , , , ,000 1,125, ,569 Total $519,722 $1,253,000 $1,253,000 $1,253,000 $4,278,722 $3,635,748 Table 12: Total Risk-Adjusted Benefits, Present Value Benefits Year 1 Year 2 Year 3 Total Present value Labor cost savings 12,090,000 12,090,000 12,090,000 36,270,000 30,066,041 Total $12,090,000 $12,090,000 $12,090,000 $36,270,000 $30,066,041 18

19 Study Conclusions Based on information collected in interviews with a current Salesforce CRM Customer Service & Support customer, Forrester found that organizations can realize benefits in the form of a lower total cost of labor for product support. The financial analysis provided in this study illustrates the potential way an organization can evaluate the value proposition of Salesforce CRM Customer Service & Support. Based on information collected in the customer interview, Forrester calculated a three-year risk-adjusted ROI of 727% for the customer s organization with a payback period in the first month after deployment. All final estimates are risk-adjusted to incorporate potential uncertainty in the calculation of costs and benefits. Based on these findings, companies looking to implement Salesforce CRM Customer Service & Support can see financial benefits in the form of labor cost savings as well as opportunities for multiple functions or departments in the organization to benefit from the Salesforce CRM platform. Using the TEI framework, many companies may find the potential for a compelling business case to make such an investment. Table 1: Three-Year ROI, Risk-Adjusted Summary financial results Original estimate Risk-adjusted ROI 753% 727% Payback period (months) Total costs (PV) ($3,613,526) ($3,635,748) Total benefits (PV) $30,836,965 $30,066,041 Total (NPV) $27,223,439 $26,430,293 19

20 Appendix A: Total Economic Impact Overview Total Economic Impact is a methodology developed by Forrester Research that enhances a company s technology decision-making processes and assists vendors in communicating the value proposition of their products and services to clients. The TEI methodology helps companies demonstrate, justify, and realize the tangible value of IT initiatives to both senior management and other key business stakeholders. The TEI methodology consists of four components to evaluate investment value: benefits, costs, risks, and flexibility. For the purpose of this analysis, the impact of flexibility was not quantified. Benefits Benefits represent the value delivered to the user organization IT and/or business units by the proposed product or project. Often product or project justification exercises focus just on IT cost and cost reduction, leaving little room to analyze the effect of the technology on the entire organization. The TEI methodology and the resulting financial model place equal weight on the measure of benefits and the measure of costs, allowing for a full examination of the effect of the technology on the entire organization. Calculation of benefit estimates involves a clear dialogue with the user organization to understand the specific value that is created. In addition, Forrester also requires that there be a clear line of accountability established between the measurement and justification of benefit estimates after the project has been completed. This ensures that benefit estimates tie back directly to the bottom line. Costs Costs represent the investment necessary to capture the value, or benefits, of the proposed project. IT or the business units may incur costs in the forms of fully burdened labor, subcontractors, or materials. Costs consider all the investments and expenses necessary to deliver the proposed value. In addition, the cost category within TEI captures any incremental costs over the existing environment for ongoing costs associated with the solution. All costs must be tied to the benefits that are created. Risk Risk measures the uncertainty of benefit and cost estimates contained within the investment. Uncertainty is measured in two ways: the likelihood that the cost and benefit estimates will meet the original projections and the likelihood that the estimates will be measured and tracked over time. TEI applies a probability density function known as triangular distribution to the values entered. At a minimum, three values are calculated to estimate the underlying range around each cost and benefit. Flexibility Within the TEI methodology, direct benefits represent one part of the investment value. While direct benefits can typically be the primary way to justify a project, Forrester believes that organizations should be able to measure the strategic value of an investment. Flexibility represents the value that can be obtained for some future additional investment building on top of the initial investment already made. For instance, an investment in an enterprisewide upgrade of an office productivity suite can potentially increase standardization (to increase efficiency) and reduce licensing costs. However, an embedded collaboration feature may translate to greater worker productivity if activated. The collaboration can only be used with additional investment in training at some future point in time. However, having the ability to capture that benefit has a present value that can be estimated. The flexibility component of TEI captures that value. 20

21 Appendix B: Glossary Discount rate: The interest rate used in cash flow analysis to take into account the time value of money. Although the Federal Reserve Bank sets a discount rate, companies often set a discount rate based on their business and investment environment. Forrester assumes a yearly discount rate of 10% for this analysis. Organizations typically use discount rates between 8% and 16% based on their current environment. Readers are urged to consult their organization to determine the most appropriate discount rate to use in their own environment. Net present value (NPV): The present or current value of (discounted) future net cash flows given an interest rate (the discount rate). A positive project NPV normally indicates that the investment should be made, unless other projects have higher NPVs. Present value (PV): The present or current value of (discounted) cost and benefit estimates given at an interest rate (the discount rate). The PV of costs and benefits feed into the total net present value of cash flows. Payback period: The breakeven point for an investment, or the point in time at which net benefits (benefits minus costs) equal initial investment or cost. Return on investment (ROI): A measure of a project s expected return in percentage terms. ROI is calculated by dividing net benefits (benefits minus costs) by costs. A Note On Cash Flow Tables The following is a note on the cash flow tables used in this study (see the Example Table below). The initial investment column contains costs incurred at time 0 or at the beginning of Year 1. Those costs are not discounted. All other cash flows in Years 1 through 3 are discounted using the discount rate shown in Table 2 at the end of the year. Present value (PV) calculations are calculated for each total cost and benefit estimate. Net present value (NPV) calculations are not calculated until the summary tables and are the sum of the initial investment and the discounted cash flows in each year. Example Table Ref. Category Calculation Initial cost Year 1 Year 2 Year 3 Total 21

22 Appendix C: About The Project Director Jeffrey North, Principal Consultant Jeffrey North is a principal consultant with Forrester's Total Economic Impact (TEI) consulting practice. The TEI methodology focuses on measuring and communicating the value of IT and business decisions and solutions as well as providing a business case based on the costs, benefits, flexibility, and risk of investments. Jeff came to Forrester with consulting and operating experience, notably working with fast-growth companies. He was a founding member of the digital strategy practice at Cambridge Technology Partners, where he specialized in business value justification of technology investments and customer advocacy. As a director in the international and catalog business units at Staples, Jeff built and managed metrics and reporting programs in North America and Europe as the company experienced significant growth. He has also consulted in a business-it capacity to retailers and life sciences companies. Jeff holds a B.A. from St. Lawrence University and an M.B.A. with concentrations in international management and finance from the Thunderbird School of Global Management. 22