back office

  • April 24, 2016
  • Zuora-Logo-Navy-largeZuora, the company that made its bones in subscription billing and payments held its annual user meeting in San Francisco last week and staked out some new turf. It had always been back office focused but its latest messaging includes elements of the front office. Perhaps it’s no surprise given co-founder and CEO Tien Tzuo’s history of having been an early luminary at Salesforce rising to the CMO position before he left.

    The new turf straddles the two worlds we’re most accustomed to dealing with, the front and back offices. This area, let’s call it the middle office, takes data from either side, changes it, and passes it onto processes that go in both directions. Among the applications that act this way are compensation management, subscription billing, customer success management, and possibly HR. But each application area does different things for different reasons.

    Compensation management

    Xactly may be the best example of a pure play comp system though certainly Callidus Cloud should be included. Sales incentive compensation used to be a pure back office thing because it tallied up sales and applied some algorithms then cut checks. But today, comp management is also about motivating people within an active quarter by identifying best opportunities and ensuring appropriate resources are applied. For this, the marketing and sales automation data is useful and derived information is fed back into SFA. That’s a long way from pure compensation.

    Subscriptions

    Of course you need to make the subscription bills accurate and get them out efficiently, but these systems throw off huge amounts of customer data concerning uptake and use which are valuable in helping to sniff out early warning signs of disaffection, churn, and attrition—all things to avoid if you are a subscription company. It is in this area that Zuora is making a bigger footprint thanks to its acquisition of analytics company FrontLeaf last year. The subscription data run through analytics can easily kick off processes that use billing, sales, and service, another front to back situation.

    Customer success

    Full blown customer success takes a page from subscriptions by capturing subscriber data and marrying it to other client data to produce compound metrics that can give managers a better understanding of how well a business is doing with the customer base. This area might see renewed competition with subscription billing vendors in the months ahead.

    HR

    Long associated with payroll and mainframe back office systems, the HR or HCM systems today are lending their data and insights to front office processes like field service and professional services automation influencing deal structure, reporting, and more.

    We could also easily add CPQ to the list too because back office catalogs, price lists, and pricing algorithms come to the service of SFA via CPQ to close better deals.

    So all of these application areas are staking out positions that are neither fully back office and certainly not fully front office either. They are opening up new territory and that is potentially very exciting because the other territories are rather full of settlers and we need somewhere else to occupy.

    I don’t know what to call it but that will come and I hope we avoid something as cliché as the middle office. This new area strikes me as another dimension. We’ve talked about systems of record for a long time and those systems belong to old school front and back office systems. But the new territory embodies more of what you’d expect from a system of engagement, a system that leverages all of the data businesses collect and actually turns it into unique and valuable IP.

    That’s what struck me about Subscribed last week. In so many words Zuora said we’ve done a pretty good job since 2007 of building a solution to the subscription billing problem. But now there are other challenges.

    Sales compensation added several important business processes once businesses were able to take their eyes off of the quarterly challenge of writing commission checks quickly and accurately. Incentive comp became all about doing the right business and boosting profits through being more intelligent actors in the market.

    I think something similar will happen with subscriptions. Now that the billing and payments issues are resolving Zuora is training its guns on pricing and packaging. Think about it, when your products are more or less electrons, innovation can easily happen around how you package and price and it can happen at much faster rates than we see in traditional product development—if you have agile systems.

    This is why the emerging middle ground is so important and why it’s one more thing to keep an eye on even if you’re not an analyst.

     

     

     

    Published: 2 years ago


    I spent part of last week in the Seattle area at a small meeting Microsoft organized for analysts.  The purpose was to brief us on product positioning and plans and much of the meeting was covered by non-disclosure.  Consequently, I am at a loss for how much I can divulge in this setting, at least until things are announced.

    I am fine with NDA information and the Microsoft presenters were generally good at stating what was on or off the record though there were a few times when the presenter said, “Some of this is NDA.”  “Great, I’d think, which part?”  And inevitably the presenter would default to, “We’ll get back to you.”  Not a big deal, just the reality of dealing with a big company.

    Now, as a practical matter, though the particulars of the meeting were interesting, the non-NDA facts that are generally available on the Internet tell an interesting story fairly well.

    At $62.484 billion in revenues, Microsoft is one of the biggest technology companies.  More than double the size of Oracle and four times SAP.  It is also about two thirds as big as IBM.  Of course, each of these companies got to its position in a different way and the comparison is less important than what these large numbers say about the market power that each, especially Microsoft, wields.

    More interesting still is this consideration.  The last time the world paid massive attention to its back office computing needs was Y2K, a term made famous because companies everywhere had to update their back office systems to accommodate four digit date formats.  Rather than heavily edit aging mainframe and AS400 applications to account for the new millennium, companies en mass scrapped their big iron and took on lighter ERP applications that ran better and cheaper.

    But that was ten years ago.  It was so long ago that client server was the main computing metaphor, social networking was barely on the horizon, CRM didn’t have an agreed on name and you could actually board an airplane without taking your shoes off.  A great deal has changed in the intervening decade, especially in software—enough to make it worthwhile to reexamine existing systems with an eye toward taking advantage of improvements to both economize and to take advantage of new business processes.

    Forgive that small digression but it was necessary to fully illustrate this point: Microsoft is many things and one descriptor that should not go unremarked upon is that it is an ERP company.  It is an ERP company at least as much and maybe more than it is a CRM company at least by the measure that Microsoft has three ERP products.

    The ERP replacement cycle, driven by a need for economy, plays to Microsoft’s advantage because it offers products that operate in the cloud as well as on premise and the company is agnostic about where the products run.  In fact, all competitors in the front and back office have come to the realization that running applications via cloud computing is a growth industry.  Oracle has a grid computing offering, SAP is debuting cloud friendly products, and a raft of smaller companies such as NetSuite are intent on becoming the next big thing just as many of today’s incumbents displaced mainframes a decade or more ago.  But Microsoft is different coming from a background of small and inexpensive systems compared with the big project and big license solutions from the traditional vendors.

    Microsoft appears to be executing on a classic strategy of gaining footholds in key areas and expanding on them leveraging its low cost cloud infrastructure to tip the balance in favor of replacing ten-year-old ERP systems.

    Much the same can be said of CRM.  Where first generation CRM systems are nearing end of life, Microsoft is confidently offering replacement systems that have been the beneficiaries of significant investment over the last several years.  These systems also run on cloud infrastructure, though cloud does not necessarily mean multi-tenant.

    Microsoft and others—with the notable exceptions of companies like NetSuite and Salesforce.com—have decided to kick the can down the road with regard to multi-tenancy.  While multi-tenancy might have advantages, it is not advantageous enough yet to push the issue.  As a result, it may have to wait ten more years—until the next wholesale replacement cycle—until multi-tenancy becomes more of a standard.

    So adding up three key factors — the market cycle, cloud computing and the market reach enabled by more than sixty billion dollars in revenues and the marketing budgets that implies—and a picture emerges of an imperative for change to lower cost systems that can easily drive the recovery in IT.

    Of course business products aren’t sold in shrink-wrap at retail and success will depend on the performance of the partner ecosystem.  But the partners have been a solid part of Microsoft’s success all along.  Nonetheless, some attention to elevating their games will be essential if Microsoft expects to reach a new plateau in enterprise computing.  I think they know that.

    Published: 7 years ago