Keeping up with on-demand
Someone recently asked me who I thought was ahead in the on-demand market. That’s a hard one. As far as I am concerned there are no right answers to a question like that and such a seemingly innocuous question raises more questions than I can answer.
For starters I don’t even think it is a single market at this point. Certainly, from a financial analysis perspective you could look at it as a single market—you can track revenues for this type of software delivered as a service, note the growth rate and compare it to the growth rate of the enterprise or SMB software, if you like—but from a functionality perspective, we’re way beyond that. There are simply too many applications now available as on-demand solutions. Jeff Kaplan at ThinkStrategies tells me he tracks a list of about forty different types of on-demand software and some of them compare to each other like apples and watermelons.
Nevertheless, from other angles, the question of who leads is very important if only to provide backlighting to show who is trailing. Let me explain.
For a long time, I have been comparing on-demand solutions to other disruptive innovations that have taken place in the software industry over the decades. The importance of disruptive innovation as an event is that it changes the game. It’s like an asteroid hitting the earth 65 million years ago. It causes massive upheaval and dislocation but eventually equilibrium is re-established and then things remain fairly constant until the next big shift. Without a disruption, there is no telling the trajectory of history would be.
At this moment every company in the software business is playing out a scenario in the disruptive innovation story. Some are innovating like mad, identifying and in many cases creating new niches that they are rushing into ahead of competitors to establish new markets that will serve them for years. Others are taking a more cautious approach, waiting for clearer signals from the market and their customers. Still others are cautiously dipping a toe in the water trying to have a position in each camp by co-opting part of the on-demand message while re-positioning their legacy products as quasi-on-demand fare.
Very often we only look at parts of the big picture—the technology is cool and slick and it does things we never thought possible; or we see that customers like it and that the new technology has numerous cost advantages over the legacy approach and we think, why would anyone want the old stuff? To understand each company’s motivations, you have to look each one’s business model.
In a disruptive innovation a business model might be the hardest thing to change because it is not simply some abstract bit of philosophy. The business model is the driving force for how a company makes money and how it invests scarce resources to build infrastructure which can mean the products themselves, the sales force and the type of selling the company engages in, and numerous other pieces of investment to support all that. Changing technology paradigms is the easy part; changing the way you make money—and most importantly, the way your investors expect you to continue making money—is the tough part.
Changing the business model is a harder nut to crack than rent and alimony, maybe that’s why every disruptive innovation seems to sweep a whole new cadre of vendors into leadership positions in the industry. I think we’re at a leadership transition point right now in the software industry. The established vendors are still strong but they are under increasing pressure from the insurgent on-demand players who can deliver solutions quickly and effectively and at very low costs compared to the big guys.
On the other hand, some on-demand vendors are still fighting to dispel the idea that they are not ready for prime time quite yet. While that’s going on, larger vendors are fighting holding actions designed to offer a bit of on-demand’s benefits—especially lower costs—while preserving their hold on the market, their revenue streams, and, yes, their business models.
In capitalism we don’t really have many good mechanisms for enabling companies to retool and change their business models. You can make cosmetic changes that rarely stem the tide of change—many try, but few are able to go far enough and most end up caught in the no man’s land of bankruptcy. You can take yourself private, but that requires a long time horizon and lot of capital; for most the costs are frequently prohibitive. Finally, you can persevere in doing what you have always done, but eventually the company stops meeting financial expectations and becomes ripe for a buyout.
We have already seen some vendors introducing on-demand strategies designed to keep their customers engaged by giving them a flavor of the new paradigm without causing massive dislocations to their businesses. I expect we will see more as legacy vendors try to redefine on-demand to meet their needs. Unfortunately, these hybrid solutions rarely work out and customers who try to insulate themselves from change ultimately have to change anyhow.
So who’s ahead in the on-demand market? My guess is it’s the customers who clearly see the writing on the wall and who make plans to transition to the new paradigm in an orderly way.
Customer Experience Management
I spent part of last week at a user group meeting high in the Rockies, the Right Now Summit. The term summit is not only figurative it’s literal. The company is headquartered in Bozeman, MT another high spot on the continent, and it seems to select meeting locations near the tree line to burnish its western image. At that altitude it’s sometimes hard to breathe which produces a perfect environment for being sedentary and listening to new ideas. In retrospect it might have been a perfect setting.
Right Now has its roots in the on-demand movement but instead of initially focusing on sales and marketing as many early on-demand companies did, it chose to concentrate on service and support. Today, Right Now is one of the largest on-demand call center solutions. I say solutions because, more than supplying infrastructure on-demand, the company sports a variety of on-demand software that call center agents use to provide service to their customers.
In my experience the call center is the most conservative part of the front office, with good reason. Call centers have been obsessed with efficiency and an elaborate set of accessory solutions has grown up around them to measure and manage most aspects of the operation from how long customers wait in queue to the percentage of problems resolved on the first call, and lots more. Call centers identify best practice metrics and compare themselves to national averages and look for ways to improve. Good for them.
The concentration on efficiency has had its down side though. Call centers have historically been expensive propositions to get rolling. There’s a lot of equipment and software to buy and people to train and monitor, so it’s important to maximize call center use to offset the costs. That efficiency orientation makes the call center a less than fun place to work for many people and efficiency is not usually the first thing that customers think or care about when they have problems.
On-demand solutions have helped call centers manage many of their costs and operations people have been continually searching for ways the call center can expand its role and possibly generate revenue. Right Now CEO, Gregg Gianforte saw the need for call centers to expand their roles and focused his company on providing solutions that do more than help companies deal with customer issues quickly. At last week’s summit the company introduced a lot of new thinking to its customer base focused on the customer experience which I thought was a smart move.
Although Right Now offers a full suite of CRM software solutions, the company did not spend its valuable time with its customers focusing on simply expanding the footprint of solutions in each account. Instead Right Now continued an ongoing dialog about the customer experience.
There’s a lot of talk about customer experience management (CEM) in the marketplace today and some people think it should be the successor of CRM. I am not so sure. Truth be told, CEM is a terrible name suggesting that a subjective experience can be managed is silly and almost bound to fail. The more I look at it the more I think that CRM is trending toward a technology set that enables companies to provide all the ingredients of a positive customer experience. As the old saying goes you can lead a horse to water but… In my view the customer experience is more a method or an approach to business and to Right Now’s credit they never suggested that you could actually manage someone else’s experience only that you should try to provide all the inputs.
So, for example, Martha Rogers, who gave a keynote, emphasized that customers are a company’s most precious, basic, and limited resource. More importantly, she pointed out that the relationship between a vendor and a customer need not equate with a personal relationship. Instead, the customer relationship needs to be managed from the customer’s perspective so that companies not only do the right things for their customers, but the customers also feel well treated. From a customer experience perspective, that’s how you build loyalty.
For a long time, CRM vendors and solutions have emphasized capturing data to support internal business processes like rolling up an accurate forecast, the trend today seems to be in the opposite direction—capturing data so that a company can better understand customer needs, likes, and biases. Knowing that kind of information makes it more likely a company will do the right thing for a customer at the right time and thus enhance loyalty and ultimately gain a larger share of the customer’s business.
Those were the points that Right Now tried to make last week at its user meeting. To back up the message, the company introduced version 8 of its on-demand solution. The new version sports a very functional and powerful user interface and an architecture that should enable further additions as the company fleshes out its customer experience vision.
I doubt the conversion to a focus on the customer experience will be immediate in the industry, there is, after all a lot of investment in the status quo. Nevertheless, the marketplace shows lots of signs that, in the absence of new blockbuster products, companies will increasingly need to rely on their existing customers for growth. That makes retention and loyalty highly prized and means paying attention to the customer experience will also remain a high priority.
The Professisonal call center agent
A couple of weeks ago I wrote about the on-demand call center and about how the new technology model is driving business model change. With so much happening in the call center you might be led to believe that being a call center agent is the best job in the world. Well, maybe not the best job, I have that, but you get my meaning.
A reader, who is also an at home call center agent, wrote to complain that the brave new world of the at home agent has a few rough edges. He said that some agents have to buy their own equipment and that call volume is never predictable and that has consequences for the pay check. He has several other issues with the OD call center; however, my point is not to enumerate all of them but to shine a little light on a job position and an industry, both of which are in flux.
About a year ago I did some research into the trend of generating revenue in the call center. As I am sure you are aware, call centers got most of their reputation from outbound calling during dinner time which most people despised to the point that we now have legislation that prevents most of the abuses we associate with the call center.
In contrast, responsible call centers have been trying to find the right formula for enabling selling to take place as a natural part of the in-bound call. For example, a customer calls in for service and the agent discovers that the customer’s problem could be best solved with a specific product or service and so an offer is made.
Not to get too far off track from my friend, what I discovered in my research was that call center agents don’t have the best of work lives. In my opinion, and I acknowledge that this varies quite a bit from place to place, many are micro managed and there actions are tracked to a high degree taking most of the fun out of the job. There are metrics and tracking software to analyze all aspects of a call including the time it takes to resolve a problem, the time it takes to pick up a call, how long a customer waits in a queue, and much, much more.
The conventional call center collects data on every agent and every call to determine how each compares to industry and in-house norms. Some of this is necessary and some of it, to my mind, is over the top.
When I did my research I discovered that many of the call center executives I was surveying had little idea about what it meant to sell in a call center, which was interesting because so many of them said selling was on their radar. High numbers of them had no concept that in order to sell you needed at least a few of the following: a sales methodology, clear goals, a sales manager, and most importantly incentive compensation. Most call centers I studied did not offer incentive compensation and they did not provide any kind of goals either. They just expected that if you hire right and train well you could get the desired outcomes. I am not kidding.
That got me thinking and it also brings me to the point of this piece—the position of call center agent needs to be professionalized. Greater reliance on incentives, goal setting, training, and methodology can do more than a lot of tracking software and the position needs to have more of a growth or career path.
If you go back a generation or two, you might recall the position of mail room clerk that was common in many companies. The clerk was an entry level job and its practitioners received, sorted, opened (and often read), and delivered mail throughout the enterprise in the days before email.
Clerks, with their access to all incoming information, often knew more about the business than many department heads and they leveraged that information on the career path. The clerk’s job was a stepping stone up the ladder that brought more than one clerk to the corner office.
If this was a story about mail clerks it would not be worth reading and I use it only as an illustration. Today there are lots of jobs that are considered professional or at least semi-professional that we hardly give a second thought to but many had humble origins. For example, the paralegal profession grew out of a secretarial job and many of the diagnostic testing jobs in health care such as x-ray technician and medical laboratory technologist got their origins when someone had to perform the testing because the doctor was too busy.
So here’s the thing, rather than being a dead end job that corporations frequently send off shore, business ought to be thinking about where the next generation of mid-level or higher managers are going to come from. The business schools do a good job of churning out really smart CEO wannabes but I have heard too many horror stories about how some of them wouldn’t lick a stamp if their lives depended on it.
I think there’s a lot of pent up wisdom in the ranks of the call center agent. Those are the people who, like the mail clerks of old, have their ears to the ground by virtue of spending their days listening to customers. Corporations would be wise to acknowledge that contribution more by professionalizing the position and giving it a growth path.
Don’t Just Relate…
Salesforce.com did a good thing the other day when it announced a new customer feedback site. I am not usually the kind of guy who goes to McDonalds and asks to weigh a quarter-pounder, but let me say in all earnestness, it could be better and hopefully it will be.
The company’s statement reads in part, “In our effort to continually create a dialog with our community, we are hoping that this site provides an open and direct channel of communication for customers.” Great, I am all for communications but we win on results not attempts. Simply gathering communications from the field is not as valuable as knowing much more about who is providing the information and analyzing it accordingly. Without some controls on the sample population you get a babble of opinions and little hard data to act on.
How important is it to know that a handful of customers have a specific problem or need if you don’t also know that they all come from a particular vertical market or that all of them have revenues north of a set point? When you know these things you can discern real product needs and act accordingly. Without this kind of information all you have is a lot of interesting data points that don’t necessarily flow together.
The best company anywhere for doing this kind of community research is Communispace, based in Watertown, MA. The Communispace methodology calls for selecting a population of customers that represents all facets of the population base. It might seem less than democratic but that’s OK. There are many ways to gather the voice of the customer.
I am not saying that what SFDC is doing is without validity. It has plenty of validity in showing their customers that the company values their inputs. But there’s another shoe that needs to drop on gathering VOC and it would be smart if Salesforce.com made a call to Watertown.
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See Glen Urban’s “Don’t Just Relate, Advocate” and Eric von Hippel’s, “Democratizing Innovation” on the main blog page.
Gordon, Meet Geoff
I had my annual meeting with my friends at Walker Information the other day when they were in Boston talking about their latest report. I have written about Walker before and it gives me pleasure to do so again and to point out that I have no business relationship with them; I just like what they do.
If you are not familiar with Walker, they have made a science of loyalty. They collect volumes of data from the industry, analyze it, and discover relationships that are not immediately apparent.
Walker’s concept of loyalty is a two by two matrix with attitude and behavior on opposing axes. It turns out, in their world, truly loyal customers have both loyal attitudes and exhibit behaviors that support the attitude, i.e. they buy more. Take away behavior and Walker categorizes a customer as “accessible”, they might not be buying more right now but they still think a vendor is doing well by them.
If, instead, attitude goes negative while behavior appears positive, the customer is said to be “trapped”, they might be buying more but they don’t like it and are looking for a way out. Finally, customers that are neither acting loyal or feeling loyal are called high risk for attrition and most leave. This year, Walker turned its sights on the semi-conductor industry, a very interesting sector from a loyalty perspective and one that has relevance to CRM. First, let’s jump into the way-back machine.
In 1965 Gordon Moore observed that the density of semi-conductor chips would double about every 18 months bringing with it significant improvements in computing and, as we see today, advances in most parts of everyday life. This doubling will have to end at some point as miniaturization on the chip reaches the barrier of molecular size—you can’t make a transistor smaller than a molecule.
Moore’s Law
To understand the effect that this law has on chip makers and the pressures of new product development, you need to look at design wins, which is what Walker did. Very simply, a design win happens when a product developer decides to work with semi-conductor Company A and not Company B long before a product is finalized. Walker found that a lot of what goes into that decision making process is what another Moore, Geoffrey, said a few years back, namely, that as markets mature customers look for vendors who can provide whole products.
In the semi-conductor world whole product means development tools, product capabilities or features, and technical design support. What is truly interesting is that according to Walker’s report, cost is not much of a factor either. In sectors like consumer electronics, companies simply want the best chips and associated tools they can get so that they can rush new products to market.
The down side of all this is that in semi-conductors, loyalty is pretty low. The industries with the most loyal customers—automotive and medical devices—each only scored 32 percent truly loyal compared with the bottom sectors, consumer electronics and wireless communications, with 28 percent. That’s it just 4 points separate the best from the worst, a rather flat bell curve. More interesting is the fact that most of the sectors reporting actually have higher percentages of customers who are high-risk than customers who are loyal.
So if your business is semi-conductors, you have to be looking are some very high potential attrition rates. What drives it? Well, you might be doing well with the current generation of whole product but if you think you can stand pat, think again. Every time a semi-conductor customer goes to the market, it’s a jump ball, and as we’ve said already, price is not the driving force. In other words you can’t simply attract customers or expect to keep them with low prices. Building semi-conductors is too important to be left to price.
All of this sure looks like signs of a mature market to me. Switching costs are not trivial but apparently automotive, medical device, and other companies, view each product they design as a new opportunity to push the envelope and the semi-conductor makers—the good ones at least—seem to be competing pretty much as equals. With so much switching and little price sensitivity, the chip makers are competing on services and tools, not raw ability to make the devices.
It’s getting to be much the same with many product categories. In many markets where innovation has slowed, vendors find themselves competing on tangential aspects of service. Geoffrey Moore’s latest book, “Dealing With Darwin” spends a lot of time looking at ways companies in this kind of situation can differentiate themselves and make good returns.
As you can see this is a world where the customer really is king. That’s why we hear so much about the customer experience and capturing the voice of the customer today. When we talk about the experience we aren’t trying to replicate Disneyland—though those folks have done a great job of understanding the customer to the point that they’ve turned CRM on its ear preferring to call it CMR. If you are not familiar with CMR, it stands for the customer managed experience.
In CRM the practical effect of all this is in a quiet shift that is taking place in the form of a growing reliance on marketing and on strategies that touch the customer in multiple ways. So far email marketing is the most obvious approach but if you look at the newest application categories growing up many fall somewhere between sales and traditional marketing. Lastly, I expect the call center will be called in to help out too.
