The continuing roll out of platform technology is bringing many applications together to support better, and in many cases new, business processes. Not long ago it was nearly impossible for back office people to know about what the front office was doing, in fact, it was hard for marketing and sales to know how they were affecting each other. But now with platform technology bringing attention to and fostering better interfaces between front and back offices and even between departments, it’s easy for different areas of the business to gain a better understanding of operations as a whole.
Improving the linkage between sales and marketing has been a long term quest that has not been fully met yet, but we can see the outlines of a future that’s more integrated and informed. More exotic combinations are also beginning to present themselves. For instance, compensation management is coming into focus as a system that can bring together and influence both front and back office business in ways that few people could have predicted. Compensation is becoming a crossroads of sorts between HR, accounting, sales, marketing, and even service areas.
This should be no surprise. Compensation management systems are the heart (and record keepers) of how we motivate and reward people. The number of potential interfaces between compensation and the rest of the business suite is big and includes much of the rest of the business.
Since compensation is the natural reward for good business behavior it is also an accurate predictor of all kinds of activity within a business. For example, integrating CPQ (configuration, pricing, and quotation) with compensation provides the finance group a window into the pipeline that has not existed before. While the aggregate pipeline numbers can be developed from more traditional sales reports, linking CPQ with compensation provides an easy way to peer into the revenue mix in time to make any needed adjustments.
This approach could easily open a window to show product marketers if the sales department is penetrating the market with specific offerings such as a new product line that replaces an older one. This information would be useful to the supply chain as well as to the sales and finance teams. Of course deals in the pipeline cannot be counted as revenue, but taking a big data approach businesses can develop organizational metrics for things like close rates and make fairly accurate projections about revenue and future supply demands.
At the same time, data integration gives sales people and their managers better insights into their own forecasts. A pipeline deal without a proposal or one with a proposal that is aging without customer activity should provide more insight into forecast quality than a more generic pipeline report.
Compensation management will certainly help the finance department to close the books faster and to accurately pay the sales team. Both are valuable to any business, but considering compensation management this way only accounts for limiting a liability. This may include the cost of making a compensation error or the time required to tabulate all of the commissions, bonuses, spifs, and other incentives as well as wear and tear on the finance group that has the responsibility for running the numbers.
A more integrated approach to compensation and integration across departments suddenly gives business leaders greater insight so they can improve operations. That’s a significant development and one that will likely be emulated across many businesses in the year ahead as platform technology makes it easier to consider whole business processes that span departments and not just the transactions that those processes result in.
Platform is changing everything
If you think that cloud platforms are simply a nice alternative to software licenses, you should think again. It’s human nature to apply new technologies to old problems and that’s what such an approach really does. But sooner or later, and that means now in this case, the market figures out the true impact of new technology and things change in significant ways. Platform is like this. For almost 15 years we’ve seen SaaS and its variants taking up space in the market and picking off niches that were less desirable to the big license software vendors. That idea crossed the chasm just before the Great Recession, which muffled the impact for a few years but today, subscriptions are back with a vengeance. All of the shows I’ve been to lately are put on by cloud vendors and all either have platforms or want to convince you that they are well behaved citizens in almost any major platform ecosystem. So cloud computing + subscriptions = massive change, but…
Subscriptions are the tip of the iceberg
Subscriptions are the first of a long line of new business models that will disrupt business as we know it. The world doesn’t need to move completely to a subscription economy or even a majority subscription economy before subscriptions and other models will have a significant impact on the vendor customer relationship — hint, it’s already happening. I got this from my own observations but they were crystallized by Jeremy Rifkin through his book, The Zero Marginal Cost Society which I read on airplanes, mostly. Rifkin’s thesis is simple. If you can subscribe, rent, borrow or, even better share, something (possibly even make it with your handy dandy 3D printer), the marginal cost to the consumer becomes something close to zero. Ditto for home generated electricity from roof to solar panels and greatly reduced logistics needed. The implications are significant because an economy with even 20 percent of its commerce done through subscriptions, exchanges, and sharing makes it very difficult for a conventional company to show growth and profits. So what happens to Capitalism? Thomas Piketty is fascinated by…
Capital in the Twenty-first Century
Piketty’s book, which I also read on airplanes and, which at 577 pages gives you some idea of the amount of travel I have been doing, sees the twentieth century with its wars and economic disruptions as an outlier to history. Piketty thinks the average growth rate of the global economy will settle back into a long term range of 1 to 1.5 percent (from a Chinese high of up to ten percent per annum) in this century but that capital growth will maintain an average between 4 and 5 percent resulting in continued and exacerbated inequality. According to Piketty, the top percentiles in Europe own the equivalent of 6 to 7 times GDP as wealth while in the US the number is more like 5 to 6 times. Piketty’s point is that this kind of wealth accumulation could go on for a long time.
But Rifkin already sees a zero marginal cost society reaction to Piketty in which capital might become irrelevant. The two books should be read together as they form a big picture story. But all of this means that…
We will need to deal with the IoT soon
The Internet of Things (IoT) is growing out of the above-mentioned trends. Subscriptions and platforms including an Energy Internet and a Logistics Internet that together with the Communications Internet are pushing hard on the zero marginal cost accelerator, drive this. It makes sense to me that in a free market where the individual is free to pursue enlightened self-interest, that zero marginal cost models will become a norm. IoT will be the near zero cost approach to understanding customers in an attempt to eek out profit when capital becomes mostly irrelevant. If that all happens, it will be the first time the 99 percent had a revolution that didn’t involve blood shed a la French Revolution or the American one for that matter. All of this suggests that sales is no longer the effective end of the CRM stick and that…
Marketing is leading CRM
Zero marginal costs imply no margin to be dedicated to sales activities or people so it is very interesting to see the leaps that marketing automation is making. From Eloqua to Marketo to the Marketing Cloud and more, marketing, with its superior analytics (compared to sales) is sitting in the catbird seat. Sales and SFA aren’t about to go away but all of the above puts more pressure on sales people to come in from the cold and accept modern techniques without the complaints about SFA or CRM that it’s hard to use or that it detracts from selling time. Those arguments simply don’t hold water any more. I pity vendors using them to sell their favorite sales automation strategies. Interestingly, this affects how we engage because I think…
Customer engagement is wide of the mark
As customers we may not want an interrupt driven, broadcast advertising model for relating to vendors but neither do we want a neurotic relationship with any vendor that is always asking “How do you like me now?” Who are these guys, Ed Koch? In a country that highly prizes independence and a go-it-alone mentality (not saying it’s healthy, BTW) the neurotics won’t prevail. What we’ve been iterating towards all these years, and I suspect what vendors develop a rash to whenever they think about it, is an interrupt model driven by the customer. I really think that’s it. The vendors best positioned in this economy that seems to be determined to re-invent itself yet again, are the ones that can best prepare to be interrupted and not be surprised when it comes. All this suggests greater reliance on platform supported IoT and sensing customer relationships, so here’s a simple question…
Can we please be done trying to accelerate the sales process?
Enough. Done. Finito. Havlicek stole the ball. It’s all over. Railroads accelerated the sales process. So did telegraphs, telephones, automobiles, and maybe fax machines. Everything else is anti-climax. Why? If you follow the train (no pun) of the last few sentences, over the last couple of centuries we’ve been reducing the lag time between sales touches, which has arguably reduced the sales process time. Trouble is we’re now down to nearly instant communication so where do we go from here? If you’re a high-speed trader like in Michael Lewis’ new book Flash Boys you need to work in nanoseconds to affect outcomes. My bet? Not gonna happen in everyday selling in a zero marginal cost world. The key point is that people playing the customer role still make decisions the way they did before railroads. They think about the decision, weigh the pros and cons, sleep on it, or ask a trusted friend. All of this takes time. If your business really, really needs to accelerate selling then refer to the point about marketing above. The way to make it appear that selling is accelerating is to stuff more quality leads and deals into the pipeline and to use good metrics to verify that you aren’t back-sliding.
The end game (for now)
All this adds up to increased emphasis on the customer buying process but we also now have to add in the sharing, networking, community oriented processes too. I still see plenty of daylight for CRM to prosper but the relative mix is definitely skewing towards service and marketing as customers continue to pursue their idiosyncratic needs based on logic they alone fully comprehend. Meanwhile he who has the best platform, one that supports incredibly agile business processes and their constant reformation might not win but certainly will survive. That’s my view from seat 16B.
I have been studying sales forecasting and forecasting tools a lot recently and I have come to the conclusion that we need better tools as well as better ways of using them.
There is a lot that can be said about forecasting, its current state and how to improve it and I don’t want to leave anything out but I will try to be brief. First off, how we forecast says a lot about our views on economics. Given that most of us are not economists, our views of economy are most likely derived from what we see and hear on a daily basis, much like our view of the weather.
For over thirty years our view of economics has been increasingly colored by the ascendant views of the New- or Neo-Classical school of economics. To over simplify, it is a view that goes back to Adam Smith, of supply and demand and a belief that economics is a hard science governed by equations as rigorous as Newtonian physics — wishful thinking I’m afraid.
The most germane idea for our purposes is Say’s Law. Say was a French economist, very much in the Classical school who said that “production creates its own demand” and from that we derive the famous supply side economics of the last thirty years. Supply side economics corresponded nicely with another phenomenon in our world, the introduction of the CPU chip in 1968 and the cascade of new products that ensued over the coming forty years, roughly the high-tech era.
Increasing CPU power followed Gordon Moore’s famous dictum, now Moore’s Law, of increasing CPU power and decreasing cost, and it created a special circumstance that governed supply and demand for technology goods. Moore’s Law made Say’s Law work like a charm. A corollary to Say is that all markets clear, i.e. all supply is eventually absorbed at some price — but maybe not a premium price.
Moore’s Law ensured that a fresh supply of technology goods that superseded the earlier generation would arrive and drive demand thus ensuring Say’s Law would operate as advertised. But if Say’s Law requires something like Moore’s Law to operate smoothly, then it must be said that Say’s Law is a special case, not an iron clad law of economics.
What’s that got to do with sales forecasting? Quite a bit. In the special case of selling into a market with undiminished demand, sales forecasting need not be a lot more complicated than determining where we are in the sales cycle. If we’re ninety percent through the cycle we ask for the order and there is a reasonable chance that we will get the business — no guarantee, but a reasonable chance.
It hardly matters that our ninety percent is not really a probability derived statistically but really just a milestone in a process. In an expanding market there are enough deals percolating that reasonably diligent effort will result in on-quota performance. But on-quota performance is not what it once was and forecasting is in disrepute in many places.
According to Jim Dickey and Barry Trailer at CSO Insights, only about fifty-eight percent of sales people manage to make or exceed quota. Also, according to my research less than ten percent of sales forecasts have an accuracy of ninety percent; the rest aren’t worth the time and effort it takes to compile them.
What’s happening to sales forecasting is not surprising. With Moore’s Law slowing down and with so many formerly new market niches filled with products, we are transitioning from an era of expanding markets to one of zero-sum conditions. In a zero-sum situation, if you are going to win business you need to do it by displacing another product. If you are a customer in a displacement game it is always easy to do nothing and wait for a better offer and continue using an existing product that might not have all the bells and whistles you want but fills the need nevertheless.
A zero-sum economic environment has a lot of uncertainty in it. You might use the words uncertainty and risk interchangeably but they are not the same. Risk is something that is unknown but knowable. If a deal forecast is at risk a sales representative — frequently at the urging of the sales manager — can ask more questions, get more data, and piece together an answer. There are many issues in sales that are simply unknowable or mostly unknowable, for example, the details of the bid your competition makes.
When uncertainty — not just risk — enters the picture, our forecasting paradigm that relies on milestones in the sales process becomes useless. We need better tools if we are to forecast in the face of uncertainty and those tools exist but few of us have taken them up yet. For example, prudent managers might start with the territory planning process. How much white space is in the territory? What percentage of that white space is likely to churn this year? What is the overall economic forecast? Given our market share what is the probable share of that white space that we can capture? Is that enough to sustain quota for one or more people? How should we incentivize them?
Sales forecasting will always be an inexact science but we can do better than we are currently. We could persist in basing our forecasting ideas on Say’s Law but inevitably it is a race to the bottom, to pure competition on price. The airlines do that but none of them makes any money.
There is a lot of unspoken information in last week’s announcements by Sage andSalesforce.com (NYSE: CRM) about their respective contact managers. Each is creating a disruptive innovation that affects the other, and the symmetry of these dual and dueling announcements is frankly beautiful in a funny way.
To review, Sage announced the 2010 version — with new bells and whistles — of its flagship contact manager ACT!, and a day later Salesforce introduced its Contact Manager Edition (CME). On the surface, it looks more like Sage introduced its routine annual update and no more, while Salesforce jumped into a new market. However, if you look closer at the two situations you might get a different impression.
For a long time, Sage has been adding functionality to ACT! that has made it a very powerful and complete contact manager, and some would say that it crosses the line into SFA (sales force automation). If that’s so, then Sage has a major price advantage in the SFA market and can steal SFA business from any number of vendors, including Salesforce.
However, Salesforce’s CME announcement does to Sage what Sage has been doing for quite a while to SFA vendors. At a mere US$9 per month per seat, Salesforce CME is a no-brainer for individuals and entrepreneurs who want to keep track of customer information on-demand but whose businesses are small and do not require all of the functionality of CRM. ACT! could fit the same need and usually does, but now there’s price competition.
Both companies face other competition from vendors like Microsoft(Nasdaq: MSFT) and Outlook, which is a virtually free, though limited, repository of basic contact information. But for our analysis, a customer still using Outlook or Apple’s (Nasdaq: AAPL) Address Book is outside of the discussion.
In The Innovator’s Dilemma, Clayton Christenson described the phenomenon of disruptive innovation in which a new entrant to a market disrupts a well-established vendor by providing a stripped-down product at a lower cost. The reasoning is that the established product vendor has, over time and because of increasingly demanding customers, over-engineered a product to meet the needs of the most demanding users. The disruptor enters the market with the advantage of having a smaller product that meets the needs of a large segment of the population and an upper price limit of the established vendor.
It is never a problem for the challenger to make money below the cost level of the incumbent, and frequently the incumbent flees the lower end of the market to chase the more profitable customers up market. That’s what Salesforce did to Siebel and what it is attempting to do with Sage right now in the contact manager space. However, Sage is more or less doing the same thing in SFA. ACT! is not a full-function SFA product, but it has a lower price point than even a Salesforce, Oracle (Nasdaq: ORCL) , Siebel or NetSuite subscription, and it offers a lot of functionality that many SFA customers might find adequate.
There are many complications having to do with the idea of product line cannibalization — each company has an SFA/CRM product with better margins to protect, for example. So Salesforce limits its CME offering to two users; if you need more, you need SFA, they believe. The same is true for Sage. SalesLogix is their full-function CRM package with SFA. So neither company can swing for the fences with their disruptive innovation strategies. Success for either of them at the low end would result in some takeaway business from the other guy, but it would likely hurt the house brand SFA too.
Room for a Third?
There is a danger in this thinking because it leaves the way open for a third competitor to enter the fray unencumbered by a need to protect an up market product. I am not sure such a vendor exists — at some point you get to the top of the food chain. Nothing hunts lions other than humans, but that’s a different story.
It’s hard to say which vendor has an advantage. Salesforce has well over 1 million seats deployed, and ACT! has about 2.9 million licenses under maintenance contract. Salesforce is a sales and marketing juggernaut, and Sage sells through a channel that is the envy of many vendors in the space.
This situation is the picture of yin and yang and should be entertaining to watch. Meanwhile, the competition definitely benefits the customer.