Relax, You’re Surrounded
I don’t know how many old movies there are in which the good guys say, “You’re surrounded, come out with your hands up!” Somehow being surrounded is a bad thing, or at least it was until it became a hot trend in the back office. Let me explain.
Surrounding legacy systems like conventional ERP is proving to be a good idea for a bunch of reasons. Everybody remembers the last ERP implementation wave more than 15 years ago when so many businesses needed to update their software to be compliant with the new century’s dates. Mostly what we remember is the delay, expense, overruns, and how the projects almost cratered some companies. Back then it was everyone’s ambition NOT to become a headline in the business press for a new ERP implementation.
The era left some bruises and although we’re all older and wiser, the scars are deep enough to make seasoned IT people more than a little wary of a rip and replace project for the back office. Can’t blame them. But this reticence and the stasis it imposes have a cost. The now legacy systems are becoming brittle and full of compromises caused by additional coding projects meant to keep the systems in step with their businesses.
One of the most disconcerting phrases I hear these days is, “Our system won’t let us do that” whenever someone proposes a new business process. So at least in some cases legacy systems are preventing businesses from evolving. If only there was a way to evolve while keeping the legacy systems in place, or at least not require a rip and replace, many businesses could get on with some challenging and remunerating work.
Today there is a solution for this dilemma and it employs a surround strategy, maybe you’ve heard of this. A surround strategy puts a new ring of flexible cloud-based ERP around the legacy systems enabling the business to transfer its back office innovation to the new ring while leaving the core system to continue with many functions like consolidating financial data and issuing reports. That means all, or at least most, innovation moves to the cloud allowing processed data and workflow to proceed to the legacy system.
Surround strategies are a practical approach to ERP obsolescence and they’ve been very useful in multiple business cases. For example, many ERP systems are not adapted to subscriptions because they are not built around the concept of recurring revenue and frequent customer-inspired changes. But many cloud ERP systems and specialized subscription billing solutions integrate well together.
Cloud ERP’s saving grace is the platform which can support multiple applications and is preconfigured to work with them. FinancialForce is a case in point. Built on the Salesforce.com platform this cloud ERP app easily integrates more than 2,000 other platform apps so that as a business grows it can have easy access to other front and back office systems that help it complete its mission.
Also platform tools, which include social tools, journey mapping, and point and click app generation for multiple operating systems and devices, enable businesses to make improvements and modifications to platform apps without the risk of losing the improvements with the next upgrade. Thus they can evolve with their businesses.
All this is happening not a moment too soon because businesses and markets are changing focus from transactions, which conventional ERP is good at, to processes. ERP and its data are key components of many business processes but ERP has to integrate well and change frequently to keep up with business change, that’s why a surround strategy with its improved business agility is so important.
The surround strategy might not be right for every business, no solution is, but it opens up a wide new vista for back office workers and managers who are tired of hearing and saying, “Our system won’t let us…”
Compensation is the Window on Business
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.
CPQ’s Time to Shine
Configure, price, quote (CPQ) software was once a barely thought about branch of CRM falling under the heading of sales enablement. But lately, it’s been getting a lot of attention from a familiar source, Salesforce.com. The question is why?
You can easily argue that many forms of business don’t require CPQ so that’s a possible reason it’s been in the background forever. For instance, if you sell a service, chances are reasonable that you need to develop a customized statement of work with calculated estimates of time, materials, labor and few of those things come out of a catalog. Services sales has its own version of CPQ but it’s different and a story for another day.
CPQ’s sweet spot focuses on line items, quantity, extended prices, add-ons and discounts but why Salesforce’s sudden interest in CPQ? I can think of some reasons. Some, if not most, CPQ systems like Apttus, also manage contracts and you can’t really have a valid contract about a deal unless there’s an itemized list of materials, promises, and all the rest. The same can be said on a services statement of work (SOW) but that’s, again, another story.
In today’s marketplace many deals are consummated almost without human contact. Two people might get together to specify a need and the sales person will develop a quote and the haggling is conducted electronically, if at all. But the pace of business is so torrid these days that the turnaround time needed to develop a quote, get it approved by your boss, and into the hands of the customer is shrinking. If you can’t deliver quickly, your competition can, which would place you at a serious disadvantage. Subscriptions add a new wrinkle since those deals can be consummated with zero direct human contact. Customers have come to expect contracts as quickly as they can make selections.
So in thermonuclear terms you could say that there’s an arms race ongoing in many markets to ensure that each sales team is adequately supplied with the tools that enable rapid and accurate quoting. Understandably, vendors like Salesforce want to ensure they can offer their customers a choice of quality solutions and they need to be able to do this at the enterprise level which often requires that the emerging vendors staff up.
So, a few weeks ago Salesforce Ventures, Salesforce’s corporate investment group swung into action. They led an investment round (the B round) that garnered $41 million for Apttus, a high-flying CPQ vendor. Apttus’ claims to fame are multiple and include being built on the Salesforce1 Platform (very important to Salesforce) and offering some innovative technology that enables the user to access and use Microsoft Office products like Word and Excel to build quotations. No more wrestling with product catalogs and hand writing the first draft for your department admin to decipher. It’s a productivity tool for certain.
Not to be outdone, Steel Brick made a similar announcement raising $18 million in a series B round led by Shasta Ventures with participation from existing investors Emergence Capital and new investor, (tada!), Salesforce Ventures. That’s two CPQ vendors running on the Salesforce1 Platform that Salesforce has taken an interest in.
It’s not strange to see a big dog like Salesforce stuff multiple arrows into its quiver and it’s a big market so I am sure the CPQ players will be able to differentiate well enough for the time being.
What’s ahead? It’s just me, but I don’t think CPQ by itself is enough to build a story around that you can take to the public markets. In an era of universal platforms CPQ is a good thing to have but it is a feature at the end of the day. It will never be a platform outright, we are too far down that road. All that plus larger vendors’ thirst for end-to-end product and business process coverage suggests either a merger or acquisition or both — the order of events is not clear.
You could imagine such a scenario for almost every category in the Salesforce AppExchange yet that won’t happen because Salesforce needs a well functioning ecosystem capable of generating billions in annual revenue if it is to reach its goal of becoming one of the biggest software companies in the universe. But CPQ is different, in many ways it is core to selling and CRM, and for that reason I could envision a scenario where one or both of these companies gets acquired by Salesforce as many other core competency companies have already. By investing early, Salesforce might be seeking to identify the right time and price.
Solving for the Customer
You might remember Garry Kasparov, the last chess grand master to beat a computer. That was about 20 years ago when he went up against Deep Blue, the IBM megaframe that is the direct ancestor of Jeopardy!-winning Watson. A re-match between Deep Blue and Kasparov a year later did not go so well for the human and that was the end of an era. You might even recall the Jeopardy! tournament in which two of the greatest players of all time, including Ken Jennings, matched wits and lost.
It would be a mistake to say that we’ve arrived on the threshold of artificial intelligence based on the Jeopardy! and chess performances but we may have reached an accommodation point. When computer science quit (for the moment) trying to emulate human thinking, it began to make real progress.
Watson, and it’s predecessor did as well as they did because they were loaded with up to 200 million pages of information that they could retrieve and sort through very quickly to winnow out possible wrong answers, stack rank the good ones, and offer up the most likely possibility. There was no thinking involved it was all raw horsepower. Watson was tuned for jeopardy! just as other versions are being tuned for things like medical diagnosis.
Watson isn’t always right but the combination of speed and accuracy enabled it to win Jeopardy! Interestingly, when asked how he would attempt to beat the computer one of Kasparov’s not so lucky colleagues, offered this advice—bring a hammer to the competition. Kasparov did the next best thing — he invented chess moves that hadn’t been written down yet and thus could not be in Deep Blue’s database. As a result the machine was forced to puzzle through (let’s not call it thinking) its options and it didn’t always choose wisely. It lost the tournament.
This bit of chess history has direct applicability to CRM and front office business. Like Kasparov’s strategy, business comes at you randomly, chaotically and the best you can do is to prepare for the well-known eventualities, even if they don’t happen to everyone all the time. Think of it like insurance. When a moment of truth hits, you’re glad to be covered.
From his experience with computers and chess, Kasparov penned an algorithm that serves as a blueprint for us. It says that you can’t rely on a brilliant player or a great computer alone, but that the key to success was, “Weak human + adequate computing + great process.” Did you note that Kasparov’s formula is the same people, process, and technology in a different order that we’ve all been preaching for many years?
You’d probably take umbrage at the notion of a weak human and rightly so because in business you have to be able to play with the team you have, not the one you wish for. So for business purposes let’s think in terms of empowered humans since we always want to empower our employees to do great things, at least we should. And computing is no longer a big deal. You can buy a lot of compute power for very little today so adequacy in the Kasparov sense can be assumed. So what separates great companies from the also-rans?
Process.
People haven’t changed in the last couple of decades; it takes millions of years for evolution to work its magic. Computers evolve before our eyes though and what was not possible yesterday is taken for granted tomorrow. Such is the case with process and the rapid advance of technology is one reason that new processes are coming on-stream all the time.
The MIT professors Erik Brynjolfsson and Andrew McAfee take Kasparov as the jumping off point in their book The Second Machine Age (yes, I have written about them before). They tell us that even for expert jobs we need to heed Kasparov, eschewing chasing success with only one or two of those resources. With computing being a level playing field and the human capital market being a coin toss process becomes the differentiator.
I think those ideas are essential to CRM success these days and I have written about how it all comes together in my new book, Solve for the Customer. Customer-facing processes are now undergoing a massive change simply because customers are increasingly demanding more sophistication in the processes they participate in — well beyond the purchase transaction and especially our uneven attempts at customer experience. Also, it is dead solid easy to figure out better processes, if you want to commit to change, that is.
In this case, change simply means checking your assumptions about customers and “the customer experience” at the door. Instead, you need a method, which I call Customer Science, to interrogate customers, capture their data, and apply some adequate computer analysis. The result is amazing. Like an insurance company you’ll be able to figure out the probabilities of a host of customer facing issues — called moments of truth — so that you can prepare for them. This beats relying on faulty memory and “experience” to speculate what a customer experience is all about.
As a matter of fact, if you embrace Customer Science you’ll discover that customer experience is no longer a noun, it’s a verb, as in customers experience a moment of truth. Knowing that you’ll compete so much better in the second machine age. It’ll be like winning Jeopardy! every day.
