unning a Business on Commercial Open Source

Running a Business on Commercial Open Source Software What are the Benefits for Your Sales Organization? BUSINESS WHITE PA P E R Running a Business on Commercial Open Source Software CONTENTS EXECUTIVE SUMMARY ................................................................1 Better Quality ...................................................................1 Less Risk..........................................................................1 Faster Payback ................................................................1 Greater Innovation ..........................................................1 BACKGROUND .............................................................................2 The Client/Server Era ......................................................2 The Proprietary/ Hosted Era ............................................2 The Commercial Open Source Era ..................................3 CASE STUDY: AVID TECHNOLOGY ............................................4 Background ......................................................................4 Solution Requirements .....................................................4 Vendor Selection ..............................................................4 Reason #1 Better Quality .................................................5 Reason #2 Less Risk ......................................................6 Reason #3 Faster Payback ..............................................6 Reason #4 Greater Innovation .........................................7 SUMMARY .....................................................................................8 ABOUT SUGARCRM.....................................................................8 Copyright © 2005 SugarCRM, Inc. All rights reserved. i Running a Business on Commercial Open Source Software EXECUTIVE SUMMARY This white paper describes the next generation of Customer Relationship Management (CRM) technology, based upon “Commercial Open Source” (COS), a software development methodology that produces better software at lower cost. After describing the benefits of Commercial Open Source relative to previous generations of CRM technology, this study provides an example of how sales professionals at Avid Technology, Inc. use commercial open source software from SugarCRM to improve productivity and sales effectiveness while providing the visibility and insight demanded by executives. Commercial Open Source CRM benefits users and managers by providing the following advantages: Better Quality All sales organizations have experienced the quality problems inherent with proprietary software, whether the all-too-frequent customer data security concerns, or the quirkiness of a company’s business application. COS solution vendors believe that using business applications and software in general does not have to be an unpleasant experience. If business software malfunctions or fails, users should not have to wait for the vendor to deliver another product release after a new development cycle or product patch to fix the problem. Alleviating the proprietary software quality problems, COS solutions reveal 100 percent of its source code to all developers, allowing the open source community to test and fix any problems or bugs within the application—a radical departure from the world of closed vendors. Less Risk The most common problem for CRM failure is lack of adoption by a sales organization. Many companies have made significant CRM investments and then watched as employees failed to adopt a new CRM system. The problem: people were forced to adapt to the application, not the other way around. The COS CRM solution places customization and usability at the forefront. A fun, friendly and usable application increases user adoption, improves employee productivity and provides the visibility executives need to effectively run their business. Faster Payback COS solutions offers lower upfront, implementation, customization and maintenance costs than proprietary CRM systems because of the way the software is manufactured. By leveraging the expertise of developers worldwide, COS vendors deliver a better product at a lower cost. Thus, customers can measure their return on investment in months, if not weeks; instead of years, or in some cases, never. Greater Innovation By nature, COS product development is a Darwinian process, where only the most useful features and products merit the time and attention of the open source community. This “survival of the fittest” approach differs greatly from the development model of proprietary software vendors, where a selected group of engineers build features they believe sales organizations across a variety of businesses, industries and geographies might 1 Commercial Open Source CRM promotes higher quality, more innovative software with less risk. Copyright © 2005 SugarCRM, Inc. All rights reserved. Running a Business on Commercial Open Source Software want. By contrast, COS captures the feedback of thousands of the world’s best developers; leading to more frequent improvements of an application that fits the demands of sales organizations worldwide. BACKGROUND Recent analysis by the Gartner Group shows that hosted CRM deployments from proprietary vendors may be more expensive that the traditional software licensing model over the long-term. CRM on Demand is More Expensive Then You Think Alex Bona, Gartner Group 26 May, 2004 Managing sales, marketing and customer support activities are some of the most complex business processes within an organization. In the last 10 years, the business software industry has spawned successive generations of vendors supplying software to manage these activities. For the purposes of this study, it is useful to understand how these vendors tackled the challenge of managing customer relationships, where they succeeded and failed, and how COS solutions are improving upon the work of previous generations of CRM vendors. The Client/Server Era The first generation of what most experts would consider “true” CRM emerged in the 1990s.These systems, sold by vendors such as Siebel Systems, SAP, and Oracle Corporation, were built upon the client/server model, where computing was split between a “client” running on a PC and a “server” running in a data center. First generation CRM software focused primarily on tracking and reporting on the day-to-day activities of sales reps. Having sales reps enter information about each customer and each sales call made it easier to coordinate sales efforts and also gave sales management better insight into the sales reps’ work habits. However, the top-down approach and proliferation of features resulted in morale problems and resistance among sales reps given the features were focused on management reporting, not usability. As a result, the majority of early, first generation CRM implementations failed; typically ending up as expensive “shelfware” that nobody used. Rather than improve sales productivity, these implementations simply convinced many sales reps that CRM technology was not really appropriate for real-life sales environments. The Proprietary/ Hosted Era The backlash against the cost and complexity of first generation CRM, along with the rise of the Internet as a primary means of business communication,led to the rise of second generation CRM systems:proprietary/hosted applications. Led by salesforce.com, hosted providers managed customer data on their own closed systems, renting the CRM functionality to sales organizations. This was an attractive alternative to the client/server model for many sales organizations because it moved control of the CRM system away from the in-house IT group and put more control into the hands of sales management. With proprietary, hosted CRM, the sales organization could access the application through any web browser to meet their shortterm needs. Just as importantly, these solutions were less expensive in the short-term than purchasing an upfront software license. As adoption of proprietary, hosted applications increased, CRM vendors attempted to move from smaller deployments to larger enterprises. This focus led to two major problems inherent within the closed, hosted providers. First, hosted vendors alienated their customer base by introducing an Copyright © 2005 SugarCRM, Inc. All rights reserved. 2 Running a Business on Commercial Open Source Software COS overcomes the limitations of traditional software development methods by allowing organizations the ability to adapt the application to their sales structure and protocols without waiting for the CRM vendor to make changes. ever-increasing number of features that made sales reps jobs more difficult, and their daily activities less streamlined.This is the similar problem that the client/ server applications experienced. Secondly, the integration and customization requirements of larger companies strained the hosting model due to their closed architectures.With thousands of requirements from customers, hosted vendors could not accommodate their requests. Instead, fueled by marketing dollars and bold pronouncements, they attempted to turn a weakness into strength. By proclaiming themselves a “platform” and requiring customers to pay for their required customizations and integrations on their “platform,” hosted vendors have hit a wall. As one analyst notes, this “platform” or lock-in strategy is analogous to a mechanic handing a 125-piece wrench to you rather than actually fixing your car. Indeed, recent analysis by the Gartner Group shows that hosted CRM deployments may be more expensive that the traditional software licensing model over the long-term.* The Commercial Open Source Era COS overcomes the limitations of traditional software development methods by allowing organizations the ability to adapt the application to their sales structure and protocols without waiting for the CRM vendor to make changes. COS enables on-the-fly codeless customizations as well and deeper and more meaningful modifications to the source code. Moreover, COS also offers several flexible deployment options, allowing businesses to choose whether they would like to deploy software in an on-demand or on-premise environment. By not locking customers in to a closed architecture, customers gain greater control, as the following case study shows. * Alex Bona, Gartner Group: CRM on Demand is More Expensive Then You Think, 26 May, 2004 Copyright © 2005 SugarCRM, Inc. All rights reserved. 3 Running a Business on Commercial Open Source Software CASE STUDY: AVID TECHNOLOGY AVID Technology Snapshot Nonlinear video, audio, and computer graphics content creation tools $589 million annual revenue S&P 600 +2,000 employees +250 global sales representatives Background Avid Technology, the industry leader in digital media creation tools for film, video, audio, animation, games, and broadcast professionals—as well as video and audio consumers—employs over 250 sales professionals. Sales responsibilities are segmented by product rather than by account, which means sales reps are dispersed internationally and may call upon the same accounts.This introduces sales challenges in account and opportunity management. Moreover, Avid transacts tens of thousands of sales every year with substantial data transfer, storage and retrieval requirements. Solution Requirements In order to manage all this activity and data, Avid needed a Sales Force Automation (SFA) system that could offer an efficient sales tool for reps and a strong reporting tool for management. Avid required a solution that could deliver faster performance for storing and managing a growing volume of sales pipeline data. Furthermore, because of security concerns, Avid preferred to store this data on their own systems behind their own firewall. This last requirement eliminated a hosted SFA application as an alternative. Avid successfully operates SAP CRM that manages their marketing automation and support automation, but decided to integrate a complimentary SFA system that could integrate with SAP and enhance the overall sales and marketing departments’ performance. The CRM project team worked closely with the global sales organization to understand its requirements and built a plan to address them. This plan included a phase to gather information about alternative solutions and make a recommendation to the sales management team. Meanwhile, a potential problem was developing in the field, as some sales teams, frustrated with the lack of a sales force automation capability, began renting time on hosted CRM SFA solutions or creating their own homegrown solutions. With each sales team going its own way, it would be impossible to tie all of the different systems into the centralized repository that Avid’s sales executives could monitor. “We realized that we are going to have a really horrible nightmare trying to integrate data connection between each different organizations version of their sales force automation system,” says James Sullivan, Avid’s CRM analyst. Avid’s executives were also concerned that leaving customer data on vendors’ servers was creating an enormous audit and security problem. Vendor Selection Sullivan evaluated alternatives and ended up recommending Sugar Professional, a COS solution from SugarCRM. “I went out and looked at Copyright © 2005 SugarCRM, Inc. All rights reserved. 4 Running a Business on Commercial Open Source Software Avid Technology’s Sugar Professional SFA Snapshot Sugar Professional $55K for year 1 including implementation. Sugar Professional 3 year TCO for 250 sales users approximately $105,000 the different packages that were out there and based on minimal upfront costs there was no competition; SugarCRM offered the best value.” SugarCRM’s customers like Sullivan, can examine and customize the source code that makes up the application. This solution is far more customizable than what is possible with a client/server or proprietary/hosted CRM solution. In addition, SugarCRM benefits from the last decade’s worth of application design that took place with previous CRM generations. As a result, SugarCRM’s solutions include sales, marketing, customer support, collaboration and offline client and wireless capabilities delivered through a compelling user interface that can be accessed by a web browser. Reason #1 Better Quality Faster user adoption due to a more efficient and engaging user interface The primary challenge in most CRM engagements is getting sales reps to actually use the software. Often when CRM projects fail, the most common cause is that the CRM is intended to benefit management rather than the sales rep, according to Erin Kinikin, vice president consultancy Forrester Research. “CRM was originally presented as a productivity tool but ended up being a management-mandated time drain,” she explains. That concern was present inside Avid. “Some sales people are afraid of ‘big brother’ micromanagement,” says Wright, “They’re worried that the boss is going to review every single detail of their day-to-day operations and make life hell for them.” To overcome this reluctance, according to Kinikin, is “to define what’s in CRM today that actually helps the sales rep and not just upper management.” The open development environment inherent in the SugarCRM business model drove the design towards making the solution attractive to sales reps as well as sales managers. SugarCRM includes “themes”—an ability for users to personalize their interface appearance with different styles and layouts. This lets sales users form a sense of ownership and control over the application. The “themes” turned out to be wildly popular among Avid’s ��� ��� ��� ����� ��� ��� ��� ��� ��� The acceleration of Avid’s user adoption rates shows the natural propagation and efficiency of Sugar Professional. The increase in usage was accomplished without management mandates during their pilot phase. Copyright © 2005 SugarCRM, Inc. All rights reserved. ��� ��� ��� � � � � � ������ 5 Running a Business on Commercial Open Source Software sales staff because sales reps consider their laptops and any software that runs on them, as personal productivity tools and part of their personal office environment. The ability to personalize the SFA screens, small as it may seem, makes the entire CRM system more attractive to the people who are actually expected to use it. Reason #2 Less Risk “I went out and looked at the different packages that were out there and based on minimal upfront costs there was no competition; SugarCRM offered the best value.” James Sullivan CRM Analyst Avid Technology Easier customization and adaptability to sales needs Another critical factor was the need for a strong core application that performed powerfully in a global, sales environment, combined with the customization capabilities that would allow Avid to adapt the SFA system to new requirements as they emerged.The Sugar Professional package was not only feature rich, but those core capabilities were fully supported by SugarCRM, according to Wright. “We have the comfort level for both the application level support and the database level support even though it is an open architecture solution,” he says. Just as importantly, due to the open availability of the source code, Sugar Professional offered significantly better customization capabilities than competitive products. In addition, due to the fact that Sugar Professional was developed in the Linux environment, many of the customizations that Avid’s management anticipated could be implemented using LAMP, the core set of applications and languages for Linux Web servers. “The LAMP architecture is very popular, so you can find a developer that knows LAMP very easily,” says Wright. A side benefit of the easy customization was that it allowed Avid to introduce SFA functionality gradually to the sales force rather that overwhelming them with too many features. For example, Avid started its sales force automation implementation at the point in the sales process most likely to have the biggest positive financial impact: sales leads. Avid customized the system so that sales reps could quickly get the information needed to develop sales opportunities and then moved to other aspects of the sales process, such as tracking quotes and sales calls. This gradual introduction of features allowed sales reps to incorporate new capabilities over a period of time, thereby maximizing user acceptance. Avid discovered that the Sugar Professional core application is not only powerful enough to support sales organizations employing hundreds of reps, but also possess the extended customization capabilities required to accommodate the rapid growth a multi-national, growing sales department with an evolving set of SFA needs. “As the Avid organization continues to grow, our sales staff will continue to grow, so we’re focused on making sure the infrastructure is available to support that growth,” says Wright. Reason #3 Faster Payback A better total-cost-of-ownership (TCO) than traditional CRM solutions With client/server CRM, much of the cost is front-loaded, often in the form of an expensive software license. In many cases, those licenses include a certain amount of support for which the sales organization must pay, regardless of whether they require that support. In addition, the inflexibility 6 Copyright © 2005 SugarCRM, Inc. All rights reserved. Running a Business on Commercial Open Source Software of a client/server implementation meant that integrating with Avid’s SAP databases would be extremely expensive. A hosted solution, because it involved renting rather than buying the software, would have been less expensive in terms of up-front expense, but there were significant hidden costs that would have resulted in an unacceptable TCO. For example, integrating hosted CRM with Avid’s SAP CRM application would have been even more difficult than with a client/server system running in Avid’s own data center. In addition, it was unclear whether any hosted solution would be able to cope with the large amount of data that were involved in Avid’s sales cycle. “The data demands that we have involve higher price points than what you see advertised by other hosted CRM vendors,” Wright explains. The case for a superior TCO with Sugar Professional was so compelling that the IT project team was able to sell this solution easily to all levels of management. Avid subsequently installed Sugar Professional as an evaluation for the CRM solution, and confirmed that the TCO associated with COS CRM was much better than the TCO that could be expected with a client/server or hosted CRM solution. “I don’t think the business was really dead set on finding an open source system,” says Sullivan, “It just so happened that SugarCRM was open source and was a superior product at a superior price.” Reason #4 Greater Innovation Superior support for multi-national deployments An early requirement for Avid’s global SFA initiative was a system that could be implemented in all geographies by offering multiple language support, time zone and currency conversions. In client/server and hosted CRM systems, support of multiple languages is “hard-coded” into the system, making it difficult to add new languages.This inflexibility can serve as a critical barrier to employee collaboration. In contrast, SugarCRM’s Sugar Professional offers support in over 30 languages—a testament to the power of open source development. Only a few days after releasing its software to the open source community, the application was translated into five languages. Many other translations followed soon after. In addition, Sugar Professional offers the users to select their time zone and currency for their transactions, to minimize any localized confusions or conflicts. “I don’t think the business was really dead set on finding an open source system…It just so happened that SugarCRM was open source and was a superior product at a superior price.” James Sullivan CRM Analyst Avid Technology Copyright © 2005 SugarCRM, Inc. All rights reserved. 7 Running a Business on Commercial Open Source Software SUMMARY The following table compares commercial open source CRM, as realized in the SugarCRM product set, with client/server and hosted CRM products. 1st Generation CRM Representative Vendor Primary Architecture Ownership Costs User Adoption Rate Support for Globalization Core Functionality Customization Capability Integration Capability Customer Support Integration with Legacy Systems IT Personnel Costs Siebel Systems Client/Server with mobile extensions. Expensive licensing, support, integration and customization. Poor. System geared primarily towards management needs. Limited. In general, language support is hard-wired. Good. Maturity of software has resulted in extended features. Poor. Customization generally requires a programming staff. Good. Server portion of implementation has database hooks. Good. Client/Server CRM vendors provide adequate support. N/A. These are legacy systems. High. Experts in Client/Server CRM difficult to locate. 2nd Generation CRM salesforce.com Hosted, but with no access to source code. Lower licensing costs, limited customization, & expensive integration. Fair. Interface became complex for sales and management. Limited. Same problem as first generation CRM. Limited. Feature creep that is isolated from other applications. Fair. Supports the changing of fields and screens. Poor. Backend integration very difficult. Good. Hosted CRM vendors provide adequate support. Difficult. Hosted model precludes deep connectivity. Costs hidden until environments become more complex. 3rd Generation CRM SugarCRM Commercial Open Source* Low cost leader in licenses, customization and integration. Best. Open source makes userfriendly features easier to implement. Extensive. Templates provide users with 20+ selectable languages. Excellent. Benefits from a large community of developers. Best. Allows for easy implementation of new features. Allows maximum integration. Good. SugarCRM provides full support of core product set. Easy. Open source is adaptable to legacy systems. Low. Implementation in LAMP is familiar to most programmers. * SugarCRM products also available as hosted applications. Third generation CRM solutions like SugarCRM’s commercial open source solution are improving the productivity inside complex, multinational sales organizations, in a manner that’s highly cost effective and extendable. Commercial open source CRM heralds a new era in the CRM industry, offering superior quality and innovation while mitigating the costs and risks of succeeding with CRM applications. About SugarCRM SugarCRM is the world’s leading provider of commercial open source customer relationship management (CRM) software for companies of all sizes. SugarCRM’s Sugar Suite easily adapts to any business environment by offering a more flexible, cost-effective alternative than proprietary applications. SugarCRM’s open source architecture allows companies to more easily customize and integrate customer-facing business processes in order to build and maintain more profitable relationships. SugarCRM offers several deployment options, including on-demand, on-premise and appliance-based solutions to suit customers’ security, integration and configuration needs. To learn more about the fastest growing CRM company, call (408) 454-6900 or 1 877 SUGARCRM tollfree in the US, email contact@sugarcrm.com, or visit http://www.sugarcrm.com. Copyright © 2005 SugarCRM, Inc. All rights reserved. 8 SugarCRM, Inc. 1 0050 North Wolfe Road S W2-130 C upertino, CA 95014 T: 408.454.6900 F : 408.873.2872 www.sugarcrm.com Copyright © 2005 SugarCRM, Inc. All rights reserved. SugarCRM and the SugarCRM logo are trademarks of SugarCRM, Inc. in the United States, the European Union and other countries. All other trademarks are the properties of their respective companies. 04-05-014