Beagle Research Group

Community

Two things impressed me about salesforce.com’s Spring ’07 release, the community portal and the influence of the IdeaExchange on the direction of the product.  A lot of people point to the portal as the more significant and I suppose it is, but maybe only by a whisker. 

At the end of the day, each is really a single side of the same coin.  Each is about the importance of capturing customer feedback or, as I like to say, the voice of the customer, to better understand what can make a product better and more desirable to customers.  What’s happening here is sometimes called the co-creation of value and, as Eric von Hippel points out in his book, Democratizing Innovation, it can be a powerful driver. 

Von Hippel shows that this co-creation of value has been going on for a long time and as one of his examples he shows how the steam engine was perfected in the Midlands of England in the 1700’s by groups of similarly minded people meeting to share ideas about the engines and how to make them more powerful, reliable, and smaller.  Early inefficient models were very big and barely useful and if that doesn’t sound like a disruptive innovation, I don’t know what does.  What was disrupted?  The horse and other forms of muscle power.

What is often overlooked in this tale is that the people who met were, on one level or another, competitors in coal mining or other industries that used steam engines but it didn’t stop them from collaborating to perfect a tool they all used.  With the IdeaExchange and the portal, salesforce.com is trying for the same democratization of innovation and I think this will be a long term trend that is picked up by others.

Capturing feedback from customers is only one way of gathering the voice of the customer though, and it has some drawbacks because it only captures what the customer is thinking about in the moment and decides to volunteer.  It captures the greatest pain points but it acts passively like a net placed in a stream collecting anything that floats by.  The next stage in customer feedback management should be compared to active fishing where you bait a hook and go after specific creatures or, in this case information.

All that aside, the Spring ’07 release of salesforce.com is built almost entirely on suggestions from customers captured in the IdeaExchange.  By extension the company seems to be saying, “If we can do it, so can you.  Look at the results.”

That’s all well and good but it seems like there should be some fine print for such an assertion.  Any day now, I expect to see any number of new or revived portal companies climbing on board the bandwagon to announce that they can deliver portals or even communities of interest better, faster, and cheaper, to which I say, hold on.

At the outset we should ask what makes this process successful and the answer is not the technology but the community.  In von Hippel’s example the only technology was the steam engine, it was the people organized as a community of interest that did the heavy lifting.  It can be argued that a community is on the cusp between software and a service because although technology might capture the information it is far from essential, it’s the people who make up the community which uses the technology that makes the difference.

The people at Communispace seem to have the idea of community down to a science and, according to them a community needs to enable three things.  First, it must build trust among members because people aren’t going to tell you anything of value if they think someone will pounce on their ideas as dumb or ridicule them personally for having them.  With trust as the foundation individuals will feel free to reveal their ideas including those that are top of mind as well as ideas that reveal deeper insights into future use and need. 

Finally, there has to be authentic communication in which all parties accept all the incoming information, good, bad, or indifferent.  A real community shares information among all participants and it is not simply a two party dialog between the customer and the vendor. 

The very concept of community is diametrically opposite from the open food fights that characterize so much of public debate today.  Think of a sports or political analysis show on TV today where guests and commentators run up to the edge of insulting others and where people talk over one another and you have a perfect picture of what a community is not.  The question that springs to mind as soon as I write this is, are we still capable as a society of hosting a real community?

The good news, according to Communispace is, yes, we are still capable; they do it all the time.  Nevertheless, the foundation of the community is not the technology that enables it on the Web or elsewhere, it’s in the people of the community and how they are managed.  There are methods and techniques we all have to understand before communities become widely dispersed and effective.  In a lot of ways communities represent the delivery mechanism for all of CRM’s promise.  I expect this aspect of the front office, which ironically chafes at being described as part of CRM, will be one of CRM’s important growth areas.

Mud season #2

I was working and minding my business the other day when a reporter called to ask some questions about Oracle’s law suit against SAP.   It was breaking news so I went to the Web and found it and made a few comments.  Later I read the complaint and drew some more nuanced conclusions.

First of all, while the names on the suit are of the parent organizations, this is really more about brands that are owned by the two.  Specifically, it’s about what’s alleged to have been done by TomorrowNow (TN) regarding Peoplesoft and JD Edwards.  The suit alleges that people from TN downloaded documents and programs related to support for Peoplesoft and JD Edwards products using the login credentials of legal users whose support agreements were about to expire or had already expired.

I don’t for a minute think that anyone from SAP corporate said or did anything to instigate this behavior; this appears to my eyes to be something done by the JV’s at TN.  TN, if you don’t know, is in the business of providing software support for products like Peoplesoft and JD Edwards at rates that are lower than what the authoring software companies charge.  It’s a business like many others where a competitor sees an opportunity to undercut someone and make a profit.

The problem comes from the fact that, if what is alleged really happens, the competitor—TN in this case—gets an unfair advantage by stealing support products to do its job.  It’s one thing to offer lower costs but quite another if you can do it without having to invest in support materials and that, I think is at the heart of the suit.

The other side of the suit is the fact that Oracle recently paid a lot of money for these companies and their assets.  One of the things that Oracle counted on when it made the purchases was the continuing revenue stream from legacy products to help pay for the acquisition.  Oracle had to figure on a reasonable amount of attrition when it tried to value the acquisitions and anything that causes the attrition to accelerate or for the models to get out of whack is a major concern.

When Oracle began noticing suspicious activity and higher than normal download activity, it had to set off all kinds of alarms that resulted in this law suit.  It also doesn’t hurt that Oracle had an opportunity to drag the name of its chief rival through the mud.

Mud season

There is a dandy little market share war taking place right now in the compensation management sector.  Vendors are making claims to uniqueness and superiority and trashing each other in ways that we haven’t seen in a few years and it’s great sport.

Compensation management is one of the hotter areas of the front office today and though some might stick it into the gadget drawer with other sales effectiveness solutions, it’s important enough to take a look at.  Basically, compensation management is the latest in a long line of applications that have emerged to replace crude spreadsheet based applications over the years.  I have often said that if you want to figure out what application areas are under served and therefore in need of a solution, you need only look at what organizations are using spreadsheets for and that’s compensation management for sure.

Sales managers and many others have used spreadsheets to track closed deals and variable compensation for a long time.  Unfortunately, as compensation plans get more complex tracking them in a spreadsheet is not a lot better than using paper.  The reasons are simple; today sales representatives have lots of products to sell and smart managers place different incentives on them to reward efforts to move new or hard to sell products out the door.  There are also ubiquitous spiffs and additional incentives used to get short term improvements as well.  Often the only way to make sense of this is to have one spreadsheet per sales person—which causes havoc when it’s time to pay out.

Tracking all of that becomes a tricky maze and finance departments often invest people and weekends at the end of a reporting period trying to sort out what the managers and their sales people have done.  But that’s not the only pain point, on the flip side sales reps will be sales reps and most keep their own spreadsheets to track their earnings and play what-if games as in, ‘If I close that big deal, will I be able to get that bass boat?’ 

Some of the studies I have seen say that the average sales representative spends a couple of days each quarter tracking money earned and trying to shadow the accounting department’s tally, a big productivity drain, and when you combine it with the troubles in the finance department caused by figuring out commissions in the first place you see a market opportunity.

The contenders I am following most closely include Callidus, Centive, and Xactly, each has its strengths and I am not here to pick a winner.  In the elbowing for market share though, it seems like initially Callidus took aim at very large organizations, Centive primarily targeted the sales force, and Xactly went after the finance department.  What’s interesting though is the way each has observed where the sweet spot in the market is and how they have each begun iterating toward it with their focus and messaging. 

Callidus takes an Olympian view of the competition and tries to stay above the fray by focusing on its well known customer base and its financials which are pretty good and, since it is a public company, freely available.

Centive and Xactly offer on-demand solutions and there have been claims to uniqueness in that respect, though obviously that’s not quite the case.  Also, since there are more seats to sell if you aim at the sales force rather than the finance department we’ve seen messaging modifications as all companies try to make themselves relevant to the sales team—by helping them recover those two days per sales person per reporting period—as well as to the finance department.

For pure entertainment you have to like the 15 second clips shown on the Centive site.  In any other medium they would be commercials but the word doesn’t ring true when you don’t have to watch.  Centive creatively appropriates the theme of the Apple vs. PC commercials now running in which two actors pretend to be the respective computers discussing their work lives.  In this series one actor is the spreadsheet and the other is Centive’s Compel product.  In the latest ad, (http://www.centive.com/video/parodies.html) Centive even manages to borrow from an old Hertz commercial for the tag line, “Not eXactly.”

I have met with executives from each company and they are all good, smart people. To me, what’s interesting about this market is that it’s wide open, very few companies now have the kind of solution each company offers and each has a great opportunity to capture hearts and minds. 

Perhaps it is human nature to beat up on what you perceive to be your nearest competitor but I wonder how effective it is.  If the market really is a green field, it seems to me the best thing these companies could do is to find the spots where they can concentrate on winning share without the overhead of competing head-to-head.  In the early days of on-demand the competition was all about SFA and predictably only one of the earliest SFA vendors survived the competition. 

The market for on-demand solutions proved to be bigger than SFA and a second generation of on-demand CRM players now occupies many different niches and even the big players like salesforce.com, NetSuite, and RightNow overlap a lot less than you might think.

On the other hand, maybe a new market needs a little mud wrestling just to get people to pay attention.  It seems inefficient but as I said at the beginning, it’s great sport.

I, Customer

Over the last three weeks I have received an intensive course in what it means to be The Customer and I really liked it. 

During that time—not to mention the preceding six months—my wife and I have been trying to get our kitchen remodeled. 

In our journey we have dealt with a broad range of contractors and retailers of everything from plumbing goods and appliances to stone, tile and paint, not to mention all of the take out shops we got to know while we couldn’t cook.  The job is done now, more or less, and I thought it would be fun to recount what I think I learned that’s relevant to CRM.  Here are my key findings.

My most interesting and obvious finding is that CRM really is not about technology—though technology can help, it can’t instill customer-centric approaches to business.  It is an attitude and a way of doing business and you could see it in countless ways if you were around my house over the last few weeks. 

Without exception, every contractor who came through the door brought a can-do attitude and a palpable desire to delight the customer and frankly, that floored me.  There was none of the stereotypical indifference by tradesmen that has been drilled into us by the media, also absent was the sitcom stupidity you expect from watching too many shows about “guys”.  These guys were smart about a lot of things which, I suppose, you have to be if you want to be successful in almost any business.

Because the contractors worked for themselves they held themselves to incredibly high standards.  For instance the tile guy set up his wet saw on the front lawn and despite temperatures that were well below freezing—and ultimately froze his saw—he went outside to make cut after cut to perfect the junction of tiles on two walls so that they looked like perfect mirror images.  You could tell he knew he had a reputation he wanted live up to and while he could have delivered a less perfect job, and I would have never known, he simply would not do it.

I have to say that I loved being a customer and whether it was information, a change to the plans, or a product or service, whatever I wanted was made available to me.  Of course, the key was the fact that I was willing to pay for what I wanted and in all cases we were always able to quickly agree on the deliverable and the cost. 

It seems to me that agreeing on cost and deliverables is one of the biggest disconnects we currently have and it degrades customer relationships.  It is certainly true that price negotiations have been a part of buying and selling since the earth cooled, but I think we may have gone too far in an almost exclusive focus on price in our dealings to the exclusion of things like quality, fit, and long term reliability.  By focusing the discussion on shaving prices we have commoditized too much and in the process cheapened products and services to the point that some are hardly worth buying anymore. 

A case in point that has been in the news while my kitchen was being renovated is the airlines.  Last week Spirit Airlines announced that in June it would begin charging for a whole slew of products and services that were once included in standard airfare.  On the list was checked baggage (up to ten dollars) and soft drinks—a Coke will be a buck and I hope they let you keep the can. Spirit isn’t alone, as you know food is now widely charged for and so are preferred seats.  United charges extra for more leg room and Northwest is charging fifteen bucks for a regular aisle or emergency row seat.

Economics has dealt a blow to CRM through a relentless focus on efficiency—of finding the equilibrium point where all markets clear.  That approach might have worked in Adam Smith’s day when most of what people consumed was made at home or bartered for but it is at least unhelpful today and, I think causes real damage to the relationship. 

No one has to tell you what a hassle flying has become and no amount of satisfaction surveys or other CRM based approaches is likely to change that.  In an economy that includes contractors delivering a service and big corporations trying to sell me something the comparison is like night and day and maybe that’s because the contractors know they have to stand behind their work. 

I have often suggested that for enterprise CRM to succeed we need to instill in everyone the responsibility for making the customer happy, before we can do that though we need to empower people to take the initiative on behalf of customers.  Not long ago I read about a hotel in Boston that exemplifies this idea.  The hotel is part of a large chain and I can’t recall which one it is, but the point is that everyone is empowered to take initiative on behalf of the customer down to the doormen who, according to the article I read, can spend up to two thousand dollars on behalf of the hotel to solve a customer issue, no questions asked.

When everyone is selling the same commoditized product it is a good time to try something different.  In the case of the airlines low fares are important but the granddaddy of low fares, Southwest, is also the champion of customer service.  Is it any wonder they are also profitable where others seem to lose money no matter what?

Disrupting Wall Street

Every disruptive innovation requires a minimum of two parties to play the game.  There has to be a disruptor—someone who does the disrupting—as well as one or more disruptees—the party or parties being disrupted.  Identifying either party is difficult but for different reasons.

The disruptor is usually best identified in hind sight.  It is the nature of markets that at any one time there are many competitors who are either the market share leaders or close to the top, or they are challengers.  Since most challengers fail for different reasons, it is hard to identify a disruptor until the disruption process is fairly well under way.

Disruptees are a little different.  Since disruptees are the market leaders they are easy to spot but if we all reacted every time a challenger made a product that claimed to be better, we would have a lot of false positives to say the least.  Here too, it is in retrospect that we can best see that a company should have reacted differently to a challenger because that challenger in particular eventually stole the disruptee’s lunch.

Last week in New York with this complex dance as backdrop two events collided offering up more drama than usually accompanies the ebb and flow of the software market.  Marc Benioff, CEO of salesforce.com was in Manhattan to address a lunch meeting of customers, press, analysts, and investors at which he unveiled his company’s new salient into the financial services market.  By an eerie coincidence the lunch took place in the middle of the stock market meltdown. 

The worst stock market sell-off in five years was a random event.  News reports said, and this is the interesting part, the computer systems that normally report on the market averages were swamped, overwhelmed by the volume of transactions so that a two hundred point drop that took a longer time to actually unfold was reported as a more precipitous dive. 

You might ask what difference it makes whether a drop like that happens in real time or in something close to it, but of course it does matter. It matters for all the panicky people trying to make decisions about what to sell and what to hold on to. A rapid drop like that is the kind of thing that people used to jump out of windows over.

For all of this decade Benioff and his company have enjoyed a wild ride that started out when he decided to disrupt the enterprise software market with a CRM offering delivered on-demand.  The story is well known and needs no long recitation here other than to point out that the disruptees were all of the enterprise software companies that sold through a conventional license mechanism and delivered products to be run on their customers’ computers.

Benioff made Siebel Systems the poster child of the old guard that also included Peoplesoft, Oracle, JD Edwards, SAP, and others.  What’s important to note is that everyone, not just Siebel, was true to form for disruptees, which is to say they did little to react to the challenge until it was too late and the new model had proven itself. 

Last week in New York there was what you can only call a dramatic coincidental pairing of old guard and new on the day the stock market sank.  Computer systems tend to show their age during big sell offs as systems that were built to handle certain loads fail when their loads are dramatically exceeded.  If I recall correctly, there was a similar computer problem during the sell off at the end of the 1980’s.  The New York Stock Exchange went on a shopping spree after that to beef up its computer infrastructure and located some of its data centers in other locations but recent events show that it is a never ending struggle to keep up with increasing volumes.

Salesforce.com’s wealth management solution probably would not have had much impact on the events of last week.  It is a solution designed for traders but it is not positioned as a back office system which is where it appears the problem was.  Nevertheless, there are stories circulating that salesforce.com’s aim is to replace the Bloomberg terminals that have become a fixture on the desks of financial advisors. 

At this juncture we have disruptor, disruptee, and a tipping point event.  If the problems surfaced during the sell off cause the financial services industry to perform one of its periodic reassessments of its computer systems, then salesforce.com might be very well positioned. 

However, there are numerous questions that need to be asked and answered by everyone involved in managing data at the exchanges before any changes can be instituted.  Most importantly, managers at the leading bourses need to ask whether their defacto in-house software as a service can compete with a commercial service.  At the same time salesforce.com and its brethren need to answer similar questions about their own capacities.  If the answers to all the questions are affirmative, then this might turn out to be the greatest inflection point yet for software delivered as a service.

Customer rights, salesforce.com on a roll

There have been a lot of things to write about this week.  The two things that peak my interest and that I think will have long range implications are the emerging discussion of customer rights and salesforce.com’s latest announcements of its financial vertical focus.  I don’t see how the two overlap and I won’t try to relate them, but I think they each deserve some analysis.  First, let’s talk about customer rights.

Congress and the airline industry have started making noises about customer rights in the wake of this month’s incidents in which several airlines were guilty of keeping passengers confined in planes sitting on tarmacs for hours on end.  The planes couldn’t take off due to bad weather and the gates were too crowded to let the planes come back to let people off.  The result was planes full of people waiting and waiting—some for as long as 9 hours—without adequate facilities.

You don’t need special education or training to know that this is terrible customer policy and that it shouldn’t happen again but what would concern me would be a rush to legislate policies that fit circumstances that are too narrow.  Let’s make sure that we lay down some governing principles that could apply to broad categories and that companies should be asked to sign up to them to demonstrate their CRM 2.0 chops. 

I would hate to see a customer bill of rights for airlines and another for department stores with a third for car companies and so on.  If that were to happen we’d be sunk under a pile of incomprehensible and sometimes conflicting rules.  A bill of rights should be universal and it should be broad enough to cover any vendor-customer interaction.  If necessary, Congress could write the specifics into law but in the first instance, if the vendor community isn’t willing to sign up I am not sure legislation could do much. 

For a good example, you only need to go as far as the US Constitution.  While I do not claim to be a constitutional scholar it’s pretty plain to see that the free speech amendment, for example, applies equally well to publishers of documents like newspapers—the primary media of the period in which the constitution was drafted—as it does to all the electronic media that came after.  As a protection to society, the legislature was still able to draft libel laws for situations where people abuse free speech and the courts have acted in their role as a check and balance and the whole machinery has been working well for a long time.

In the same way I think my friends and I over at the CRM 2.0 wiki ought to get busy articulating customer rights in a simple code of conduct that any company would want to agree to.  So, for example, the code might say that customers should be treated with fundamental respect and courtesy at all times; that they should never be subjected to conditions that threaten their health, security, and safety; and that customers have a fundamental right to privacy in their dealings and in securing their personal information.  If you have ideas I would love to hear of them.

Salesforce.com

Salesforce.com CEO, Marc Benioff, was in New York this week introducing the first of a proposed set of CRM applications for the financial services industry.  In what has almost become a rote performance the company earlier announced significantly improved earnings, more users, more customers, and large expansions of use within some individual customers.  Most of the information was delivered in a phone briefing for financial analysts last week but Benioff managed to have some surprises of his own such as the fact that Merrill Lynch is salesforce.com’s largest customer with more than 25,000 user seats.

The real news was that the company introduced its first financial services application for wealth management.  The solution is crafted from IP gained in working with Merrill Lynch to support its agents.  Salesforce.com is not the first company to take this route to introduce a wealth management solution but the style of the application definitely sets it apart.  For starters, the solution is based on the company’s platform technology which affords it important new approaches to customization and integration.

While it’s true that customization and integration are inherent parts of most enterprise software, the platform makes it possible for any of the more than 500 Apex partners to add an application to the core financial services functionality.  Moreover, the platform technology enables the business users to mold the application to their needs.

The first application the company is delivering is wealth management—a solution to support your friendly financial advisor who, in a prior day, might have been called a stock broker.  What’s interesting here is that this is only the first application; it will be joined in due course by modules for banking, mortgage origination, and others that you might expect in this sector.

Salesforce.com SVP Tien Tzuo told me that while the aim of the effort is to bring out additional modules, it isn’t clear who will build them.  Salesfoce.com could certainly do the job but so could a partner like Merrill Lynch which was instrumental in nurturing the wealth management module, or it could be a different third party.  If it is all built on the same salesforce.com platform, integration will be automatically taken care of, and that’s the coolest part of this.

At the beginning I said I didn’t see how customer rights and salesforce.com’s financial services announcement meshed, but perhaps the thread running through all this is the obvious need for systems that support best practices and the ability to create them.  In the end that might be the easy part.  The hard part will be re-programming the electro-chemical computers between the ears of a lot of executives who reflexively think first and last about the bottom line.