Thumbing through the current issue of Wired, I came upon a multi-page ad spread from Microsoft and I saw what looks like an interesting juxtaposition, though there was nothing in the ad itself that made the connection. I have also been interviewing some of the industry’s best and brightest recently on the subject of revenue performance management or RPM and the combination provided the source of my fascination.
The Microsoft ad is about the “Cloudcycle, A Hybrid Model” which discusses both private clouds — an oxymoron as far as I am concerned — and public clouds, private clouds’ counterpart. The purpose of this piece is not to discuss whether clouds should be free or if it’s even logical to privatize a cloud. I’ve written on this before. My interest in the ad is in the middle by the fold — it’s the 70/30 shift in which Microsoft says, “…seventy percent of the IT budget is spent on sustaining and running basic IT operations and thirty percent for increasing business value through IT innovation.”
Seventy-thirty is about right and it’s a ratio we’ve been familiar with for a long time. Microsoft is right in highlighting that with cloud computing, “…CIOs and IT leaders can spend less time keeping the lights on, and devote more time to driving innovation to increase business value.”
What I find somewhat ironic and interesting is that where IT is becoming more strategic and creative, departments like marketing are becoming more tactical and quantitative (which can drive strategy!). In interviews with Phil Fernandez, CEO of Marketo, Bruce Cleveland a VC with InterWest Partners and former Siebel executive and Thor Johnson, the pioneering former CMO of Eloqua and leader of his own Team Thor Marketing, all three tell the same story about marketing.
It’s rather simple, marketing and marketers need to learn to speak the language of the C-suite about revenue, ROI and investment in order to take a seat at the table with these executives. The language of clicks, impressions and booth space, is still relevant but it’s not something the C-suite ever got comfortable with. Marketing’s big job is to build bridges to the other side with talk about cost per lead, revenue per lead and revenue from specific programs. As Phil Fernandez told me:
“When a marketer appears in a CFO’s office and uses language like that the CFO first thinks, “Who are you and what did you do with my head of marketing?!” But the second thing the CFO thinks is, “Wow! This is incredible, let me open my mind to investing more and to how those investments are actually driving revenue.” It’s transformative for the way an organization can work.
Indeed it is.
So the interesting point for me is that at this moment IT and marketing (and other front office departments too) appear to be going in opposite directions. Marketing is becoming more quantitative and IT is becoming more flexible, strategic and creative in its own way. But look a little deeper and the two are in violent agreement. Each is striving to think outside of the box and deliver something new that is more flexible and provides more business agility.
Even more interesting to me is that much of this is driven, at least to a degree, by tight resources. IT has learned that the budget is not as elastic as their applications need to be and marketing is learning the same thing plus value of quantitative analysis. In the face of those necessities, if you can call them that, innovation is blooming.
I hope these shifts are permanent — better, faster and cheaper usually are — but they are just shifts and they eventually lead to new equilibria. As a new IT equilibrium is reached we can expect shrinking IT budgets (in inflation adjusted dollars) but for a long time there will still be a similar ratio of expenses going to support the existing infrastructure against expenses for innovation, at least because we’re comparing a high cost on-premise regime to low cost SaaS. In a so-called private cloud, all bets might be off if the cloud is owned by IT or its costs are equivalent to in-house systems. But what would the world look like if the ratio actually flipped, if IT spent more on strategy and innovation than on keeping the lights on?
The same is true for marketing. Marketing’s creative side isn’t going away, it can’t. As Fernandez said later in our interview:
“I sometimes worry that all this talk about the quantitative side of marketing is losing sight of the creative dimension of marketing, which is important too…you still have to deliver content to the customer because that’s part of the equation of what marketing has to sell. Marketing doesn’t have widgets to sell, it has ideas.
Much the same argument can be made for sales and service in the front office and what we’re left with is IT in some ways catching up with the way we work in the front office while the denizens of sales, marketing and service learn to be better corporate citizens. It is ironic and wonderful that this invention is driven by basic necessity.
The long recession and the rise of social CRM were not simply co-incidental. I believe they happened together. That’s not to say that social CRM happened for some cosmic reason, I neither subscribe to the belief that all things happen for a reason nor do I believe I am qualified to hold forth beyond what I’ve just written. I think social CRM — whose roots precede the recession — became important during the recession because it represents a good and inexpensive way to keep tabs on existing customers and possibly capture some new ones at low cost.
That’s recession 101 in my book. Manage the installed base, capture the business that’s available, keep the maintenance stream coming in and, whatever you do, don’t give a customer a reason to leave you. In the process you can promote your thought leadership and that’s valuable too. Social is perfect for that and a good deal more. But now that the recession is giving way and job growth — a frustratingly lagging indicator — is making tentative gains, many companies that I speak with are turning their attention to revenue and how to accelerate it.
Just as managing the customer base is recession 101, accelerating revenue is recovery 101. Some of us may not have made the psychic switch yet but that’s coming. Lots of people I speak with, especially vendors and VC’s, have the revenue idea firmly in place and, just as social predates the recession, revenue performance management (RPM) predates the recovery.
VC’s like Bruce Cleveland, a former high-ranking executive at Siebel, have been writing about RPM for a couple of years and today I can speak with him and people like Phil Fernandez, Founder and CEO of Marketo, or Swayne Hill, CEO of Cloud9 Analytics and many others about RPM and have good discussions. The talks aren’t simply about revenue and how nice it is but more substantively, they’re about accurately identifying opportunities and bringing them to fruition not just in a reasonable time but like clockwork.
Unlike other trends that we’ve seen over the years, RPM is unique in that it focuses on end-to-end business processes and quite possibly the overlap of responsibilities and systems to manage those processes. One of my favorite examples of a sales manager and a company that “gets it” is Dave Fitzgerald an EVP at Brainshark who has a constellation of SaaS applications covering the end-to-end spectrum. From lead nurturing to forecasting to compensation, Fitzgerald has RPM covered and he could be its poster child.
Every recession has an end and there’s always an idea or technology that leads us out. Often, what leads us is a tacit agreement to do things better and at less cost than we did prior to the meltdown. The idea makes sense and it spreads virally and no one wants to be left behind with a business practice that is outdated and relatively expensive. On-demand computing was one of those drivers from the last recession, so was the on-line meeting. Companies like Salesforce.com and WebEx became big players in the process.
You might say that those companies were too small to have a concrete effect on the economy at large. But keep in mind that they weren’t alone and in any case, no trend has to carry the economy on its back, the trend need only be leveragable and contribute to the growth rate, which is a more doable thing.
Revenue performance management fits the current need. It is a blanket term that can easily apply to managing anything in your SG&A line as it can apply to revenue generation. Its orientation is growth, not simply maintaining a hunkered down pose waiting for things to get better. The economy is shifting; everywhere I look experts are showing us how to do more with a little less.
Anneke Seley of Sales 2.0 fame is telling us to look at hybrid Web-phone-and field selling. Analytics vendors are showing us how to mine our social data to find the customers and prospects and customers who really need our attention. And experts like Thor Johnson are telling marketers to get more quantitative in discussions with the C-level both to justify their budgets and to have greater impact on a company’s direction.
When you boil that ocean down one of the surprising things you are left with is that the distance between sales and marketing is shrinking and that might be the biggest thing to come out of this recession. Sales and marketing each have their jobs to do and each is different from the other. But what’s clear is that if there was ever an either/or discussion about sales vs. marketing, the conjunction is changing from “or” to “and”.
As that change takes place we are already seeing the emergence of a new job title, the Chief Revenue Officer or CRO. I’ll admit CRO doesn’t exactly roll off the tongue but I am old enough to remember when CIO didn’t roll off the tongue either. I am also seasoned enough to recall other gems like vice president of first impressions, proof that some trends are fads. But CRO looks to have some staying power, most importantly because of that “R” word. Who doesn’t love “R”?
The CRO is the person who will need to understand both sales and marketing and most importantly also know that the two need to be mutually reinforcing. It does no good for one to be the servant of the other. CRO is a status to which both the VPs of sales and marketing can aspire. Does this mean that CMO and CSO go away? I don’t know. Does the CFO report to the CEO? The Board? Or work with the CEO? It matters.
What’s certain, as I look at the landscape is that marketing and sales are a lot different today. Customers are in control and many people recognize that the sales process is rapidly giving way to the buying process and that sets the stage for some interesting realignments.
Happy Groundhog Day!