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3 Reality Checks (cont.)

Open Source: Not a Bad Bet

The code is free. But is it worth it? As with so much in life, it depends.

Open source software, though less costly than commercial packages, is rarely plug-and-play. It contains hidden costs in the form of maintenance and development. And it requires technical expertise to implement. For many midsized companies, that's a requirement -- or a tradeoff -- that CIOs aren't always willing to make or that causes them to think seriously before they proceed.

At Aspen Technology Inc. in Cambridge, Mass., CIO Irwin Weiss estimates that an open source infrastructure management program saved his $333-million software company perhaps $1 million compared with a traditional packaged application. But he attributes that success to a heroic, bordering-on-obsessed programmer who single-handedly implemented the software enterprise-wide. The $700-million construction company Rudolph and Sletten had the opposite experience. One of CIO Sam Lamonica's first moves was to dump an open source virtual private network he inherited; it failed in ugly fashion every single day.

"The biggest danger companies face is believing the hype, swallowing it whole," says Laura DiDio, an analyst at Yankee Group Research Inc. in Boston. "Open source is software, subject to all the same economic principles and economic vagaries as any software." In other words, it's not a silver bullet.

Make no mistake: Properly implemented, the right applications in the right organizations can save midmarket businesses a ton of money.

"Are some open source applications technologically viable for mainstream uses? Yes," DiDio says. "Can they save money and deliver quick ROI? Potentially. However, whether a company manages to lower TCO [total cost of ownership] and achieve fast ROI depends on its IT organization's attention to basics: testing, planning, configuration, management and support."

Hence the reality check. Midmarket enterprises want to swim in the open source pool to enjoy cost savings, but they must proceed with caution. CIOs should look around to see whether open source has quietly infiltrated their business already (you might be surprised). Further, CIOs need to know just how much open source expertise they'll need to have on staff for viable projects.

If you're ready to give open source a shot, start small, monitor the project closely and be realistic about savings goals. IT groups that fail to heed this advice may find that what they thought was an open source cannonball is actually a belly flop.

Thumbs Up on CRM

The idea of leveraging technology to better tend to key customers -- as well as increase sales and profits -- requires no reality check. But the software at the epicenter of this effort, customer relationship management (CRM), has long been viewed as the bane of an IT executive's existence. Think clunky, kludgy, ignored by users.

But today, CRM has fresh appeal for midmarket CIOs, thanks largely to the hosted software delivery method. Open source versions are also attracting interest, because they are easier and cheaper to deploy.

Hosted CRM works because it doesn't require companies to rejigger all their business processes and commit to expensive, long-term implementations (which are prone to failure). According to AMR Research Inc., sales of hosted CRM grew a whopping 105% in 2004, with the best-known hosted-CRM vendor, Salesforce.com, growing sales by 97%. But firms that don't mind getting their hands dirty can turn to open source CRM from such vendors as SugarCRM. The customization available with this option can drive more value from the investment.

Perhaps most important, CRM has evolved from being merely an application to become a state of mind. The concept, and capability, of making customer data available to staff at all customer touch points -- from sales to customer service to billing -- is now intrinsic to business.

The crafts and fabrics retailer Jo-Ann Stores Inc. has embraced this mind-set. "We've targeted customer loyalty as an area where we might be a little deficient," says CIO Gertrude Van Horn. Yet rather than viewing this as a job for a monolithic CRM application, she is looking for incremental improvements in all Jo-Ann Stores' existing applications. "It's all about understanding our customers and our up-selling and cross-selling opportunities better, and that's not necessarily all about CRM."

Whether you use CRM software or not, if you don't have visibility into your customers, you'll fall behind peers that do. So with easier and more affordable CRM options, consider if one of them can help your business.

This was first published in December 2005

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