When it comes time to implement CRM or e-business applications, small and midsize businesses often face a dilemma: Wait until the money can be found to fund such projects, or go ahead with something less complex and with fewer features.
But a new, more flexible payment approach could make such trade-offs a thing of the past. NEC Corp.s Systems Internet Business Solutions unit late last month added leasing as a payment option for its professional services targeted at smaller companies.
Although leasing has long been a payment option for hardware, NEC is among the first to apply it to professional services.
"Its a very innovative model," said Ted Kempf, an analyst at Gartner Group Inc., in Chicago. "I havent come across a Tier 1 service provider who has a program for dealing with the small-business market like this."
Leasing as a way to make implementation services more affordable is an extension of other payment options such as milestone payments. Such payment options, used by a wide range of service providers, are usually applied to fixed-cost engagements.
NECs leasing option, which leverages the leasing arm of the Tokyo-based conglomerate, is likewise being applied to fixed-cost engagements.
Getting a fixed-cost bid, not always an option when dealing with professional services companies, "was something that fell into place," said Chris Harvey, vice president of customer confidence at Caw Networks Inc., the first NEC customer to use the leasing option. "I think the professional services firms that have their act together and accurately cost out jobs and therefore can do the fixed bids would benefit from [leasing]."
Caw, a privately held company in Mountain View, Calif., with 50 employees, found that the leasing option allowed it to implement the CRM (customer relationship management) solution they wanted but thought they couldnt afford.
"We thought wed have to go with a much less robust solution," Harvey said. "They gave us a fixed bid on it, and when they gave us the option to lease it, instead of coming up with the cash for it, it made it that much easier to swallow."
Caw, which is working with NEC Systems Internet Business Solutions to implement Pivotal Corp.s CRM offering, found in its "fishing expedition" that CRM solutions are grouped into different tiers according to cost and implementation complexity. Without the leasing option, "we would have had to go to a lower-tier solution that would give us much less in terms of functionality and depth of the product," Harvey said.
NEC added several payment options to the leasing arrangement to make it "convenient" for customers to employ its services, according to Glenn Hunter, director of the companys Systems Internet Business Solutions unit, in San Jose, Calif. Customers can also pay in steps, with payments lower at first and rising over time. Deferred payments are another option, as are seasonal payments. Upgrades or changes can also be made under existing leases.
"We focus on consulting and services, but we also sell hardware as appropriate for the IT infrastructure," Hunter said. "For the customer, we can roll everything into one deal—consulting, services, software—in one lease. And we can add new items to the lease schedule along the way. It helps to get IT solutions implemented without the barrier of waiting for funding."
Entering into a leasing arrangement starts with an evaluation of a clients business needs. Then a proposal is created—which could include the sale of software.
"We put the whole package together, then we connect them to the NEC leasing group," Hunter said. "They get all the financial information, do a credit check to see if the company is sound, and then they OK the funding. [Terms are] usually three years, but we are open to other time periods—the whole deal is financed and the customer makes payments to the leasing organization, which pays us."
The client typically knows within 48 hours if the funding is approved.
There are risks associated with fixed-cost engagements, however. For the service provider, they require careful control, said Joshua Randall, an analyst at Kennedy Information LLC, in New York.
"Cambridge Technology Partners pioneered the fixed-price/fixed-time consulting engagement, but it didnt work well for them," Randall said. "You have to carefully control costs and the selection of clients. You dont pick a client that will end up requiring a lot more work than you planned to deliver at that cost. And any time the client changes the scope of the project, the billing needs to be changed."
For customers who dont fare well with NECs credit check, the companys Systems Internet Business Solutions group will look at risk sharing with the client to facilitate an engagement.
For services companies willing to provide more flexible payment arrangements for small and midsize clients, the market opportunity has potential. Especially for implementation services wrapped around CRM or sales force automation applications, which rely heavily on the Internet, demand is significant, according to Eric Shuster, North American managing director of Access Markets International-Partners Inc., in Houston.
In a recent survey of small and midsize businesses, the research company found that 31 percent of companies with between 100 and 499 employees have implemented CRM, and another 26 percent are planning to.
Among companies with 500 to 999 employees, only 10 percent have implemented CRM, while 34 percent plan to do so. At the same time, 37 percent of companies with 100 to 499 employees and 39 percent with 500 to 999 employees said e-commerce solutions have been more difficult to deploy than they previously thought.
"Its a decent leading indicator that these guys need some help," Shuster said. "Fixed and predictable costs are pretty compelling."