CRM and GDP
I was gob smacked when I read this: “Electric light, the first reliable internal combustion engine, and wireless transmission [radio, my insert] were all invented within the same three-month period at the end of 1879” in Robert Gordon’s, “The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War.” It’s a book full of surprises emanating from an analysis of major inflection points identified by dates like 1870, 1920 and 1940. Gordon’s point is that major innovations spark major trends in how we make a living and that they happen with regularity. It’s the same idea embodied in long economic waves named after the Russian economist, Nicolai Kondratiev or Kondratieff.
It takes a while for inventions like these to percolate through a culture. As a matter of fact, each of these inventions represent networking innovations which, while they were brilliant, required great private efforts and investments to become mainstream. Electricity was only as good as the delivery system to the home or factory and then great investment in lighting and even more in electric motor driven machines was needed to derive value and that took decades.
The same is true for the other inventions. Engines need cars, which needed assembly lines and reliable roads, filling stations, and mechanics, and eventually the electric starter and automatic transmission, which made it possible for more women to drive. Finally, radio needed millions of receivers and content, content, content.
They all required prolonged rollouts driven by private sector purchases yet each also delivered increasing value as network effects took hold. With these innovations fully networked (or should we say socialized?) their impact on economic activity was profound, but until all was in place, these innovations looked alternately like interesting science projects or loss leaders. With full rollout, though, they became engines of productivity and drivers of accumulating GDP. Computers and information technology look very similar.
We saw the first inflection point in the IT/PC revolution back in 1996 or so. Prior to that computers and networks were a cost that seemed like a good idea but whose ROI remained in doubt. But the mid-1990’s proved to be an inflection point when all the investment in the PC rollout became the motive force for a sustained economic recovery that rivaled the 1960’s in duration.
In 1996, many smart people were baffled by the continuing rise in productivity and GDP in the absence of an uptick in inflation. But that’s exactly what to expect when a new paradigm makes it all the way to the mainstream.
I see CRM in much the same light as those Victorian era inventions and the original information revolution of the 1980’s and 90’s. What will it take to see another economic expansion like the 1990’s in the near future? The end customer has already invested heavily in Wi-Fi and handheld devices and many are now buying into wearables, all necessary prerequisites, while industry is still investing and re-investing in customer facing apps and devices like bots and drones.
It is amazing that we’ve derived as much value as we have from CRM in the last 20 years. CRM was mostly a system of record when it emerged and its records were incomplete at best. Yet almost from the beginning CRM was able to reduce the time and effort required to deal with front office issues and thus boost productivity. Now, though, I think we’re moving into a new CRM era in which productivity further accelerates but this time it’s increasingly the productivity of the customer that draws attention.
Earlier IT inventions and deployments have been fully accounted for and depreciated. Buying a few hundred PC’s doesn’t drive a company’s productivity any more; the business simply devours them. The newer inventions taking shape, and most importantly, the network effects that will ensure their success include truly exotic ideas like robotics, drones, the IoT, and analytics driven business processes. All of them intersect with CRM in some ways and all have a great deal to do with making customers’ lives better and ultimately driving GDP.
When we think of GDP growth we often look at the productivity of the worker. But as Gordon points out in “The Rise and Fall of American Growth” inventions that make the standard of living more affordable and also higher have a multiplicative effect because rising living standards get plowed back into an economy in the form of higher demand for even more sophisticated goods and services. As this election season amply points out, after decades of stagnation, the public is hungry for rising living standards.
I think GDP growth through CRM requires that we take CRM’s role up a level of abstraction or maybe it’s time to make a new level. We need to add a technology to the list equal to electricity and the internal combustion engine and CRM is only its application like a light bulb is to an electric dynamo. The technology is the software platform. It is both the automation of software development and the integrating factor for so many disparate branches of the software tree from social to analytics, to code generation to process automation and more. All of these services, when merged through the software platform, are capable of order of magnitude improvements in business and in living standards that are required for raising GDP.
But it’s still early. At the moment we are mostly looking at the pieces and parts of the solution. It’s as if we understand electricity well enough but fail to grasp the importance of electric motors. Or we understand the internal combustion engine but fail to see the need for a good road system. It all goes together. All of our technology—collaboration, social, mobile, analytics, workflow, journey mapping, code generation, the IoT—comes together in the integrated business process just as sure as the automobile revolution reached its zenith with interstate highways and drive-in restaurants. That’s why the platform is so important and it’s why I think the platform will be the key driver in the next boost in GDP and living standards.
The happy ending of a dot com
FinancialForce continues to impress having just announced a 60 percent jump in subscription revenues year over year. The largest cloud based ERP vendor on the Salesforce platform also just announced hiring industry veteran Joe Fuca as president of worldwide field operations. Finally, it signed its 1,000th customer in the last quarter. Let’s unpack this.
Revenue growth
The great thing about being a subscription company is renewals. Once you have a customer and assuming you do everything right, they should renew, which translates into having a much easier time reaching revenue goals. For subscription companies to grow, they need to attract more business but they don’t have to start the year at zero, there’s revenue in contracts or in the bank that hasn’t been officially counted yet so the revenue challenge is in how to generate the incremental number and not, as conventional companies do, everything starting at zero.
But take nothing away from FinancialForce. They still need to make customers happy and keep them engaged. In a way, the sales effort is never over, it’s shouldered by the whole company that’s a key lesson every subscription company needs to embrace. So good for them with both the revenue growth and with landing their 1,000th customer.
Subscription ERP
These facts put into high relief, the maturation and broad acceptability of software as a service and cloud computing in general. It’s here, it works, there’s abundant proof. It only took 15 years to get here! With subscriptions in general and subscription ERP specifically performing well we can expect a continued rolling conversion of many on-premise ERP systems. Unlike the Manhattan project at the end of the last century when every company had to convert to four digit dates, this conversion is happening in a statelier manner. If you sell conventional ERP on-premise, you could be lulled into believing everything is fine but if you allow yourself that indulgence your frog will likely boil.
So long story short, FinancialForce’s news is on track. The combination of Fuca’s hiring and the company’s momentum should mean we can expect the 2000th customer announcement much faster than the first thousand.
Dot com
Last point, FinancialForce executives tell me they’re dropping the dot com from their name. Not that long ago it seemed like every company was a dot com with a cocktail napkin business plan. Most didn’t last and the ones with real plans and discipline had much better outcomes. They’re just about all gone at this point and the successful ones like FinancialForce are scrapping the dot com relic of that boom era in favor of a cleaner and leaner aspect. This reminds me of when Apple dropped computer from its name. FinancialForce will have its growing pains but it will be a fun company to watch as cloud computing keeps getting bigger.
Marketing quantification
It has been fun watching the rapid improvement of the marketing function over the last decade. This advance was in no small part due to the advances in marketing automation and the marketing revolution is not over by a long shot. However, I think we’re bumping up against a ceiling and the improvements we can expect that make marketing faster will plateau. Our next steps should involve refining marketing quality and many businesses have already embarked on this effort.
It’s not unusual for marketing students to learn about the field as a numbers game today but the framing is important. Very often the most important number involves the quantity of leads produced and this is ironic because improvements in marketing involve generating better quality leads. We’re in the position of needing to quantify lead quality.
Counting raw lead quantity is a good strategy for business-to-consumer marketing in which vendors may seek the broadest market coverage while attempting to generate demand for relatively inexpensive or low margin products and services. Most organizations can’t afford to deploy sales people in these situations so coverage measured as a raw lead number is important.
However, applying this logic in a business-to-business situation where sales people are routinely dispatched to sell higher value items results in many of the common problems that adversely affect the marketing and sales relationship in many businesses. We all know the drill. Sales reps reject leads as inadequate, sometimes not even bothering to follow up, which frustrates marketers who are trying very hard to generate demand. A solution to this perennial problem involves employing different measurements of marketing activity to drive better outcomes.
All marketing activities, especially automated ones, leave data trails that marketers can collect and analyze and many marketing automation approaches leverage this data. Also, companies like Sirius Decisions have made a science out of identifying metrics that deliver more qualified leads.
Indeed, a marketing automation suite is almost a necessity if you intend to capture and analyze all the data churned up by marketing activities. There are at least three areas that marketers need to focus on in analyzing marketing activity. Within the marketing process, at the individual level, and at the program level.
The process
Within a marketing process we need to be concerned about velocity or how quickly a lead matures from earliest contact to ripe for hand-off to sales. These days, they describe these leads as marketing qualified, but that doesn’t mean the sales rep agrees. When the rep concurs the hand off can be said to be accomplished and the status is “Sales Qualified.”
Individual leads
This is difficult because there will be a lot of variability between leads and two that start out together can easily diverge. One might transition through the qualifying process relatively quickly while the other might be slower. This is something to track but not necessarily to worry about. Some customers just have greater urgency and certainly you want to meet that urgency but you also don’t want to ignore someone with average urgency.
At the program level
All marketing programs are not created equal but you won’t know which are best until you do some retrospective analysis that includes calculating costs and revenues by program. That’s why an automation system is so important especially one that can capture won/lost status from SFA. It’s also possible that one program will generate leads that just close faster than those from another program and that’s also something you will discover with time and analysis.
Now look at what all this gives us. A marketing group that’s been at it for a while, will know a lot about how its programs perform and that will provide great agility when the team is called on to do some magic to goose revenue. It’s still not a perfect system but it’s light years away from spray and pray direct mail and raw response counts.
Lastly, as others, like Debbie Qaqish have noted, this approach to marketing also gives marketers new things to talk about that are much more germane to the revenue discussion taking place elsewhere in the business. Being able to discuss marketing’s impact on revenue is huge and nicely points out the need for automation. While marketing automation is a hot topic, it isn’t universally applied yet, but that’s something that is rapidly changing.
Loyalty and engagement
I’ve been trying to analyze modern rewards programs and customer loyalty recently for a project. It’s a complex issue and so it is tricky to tease apart; nothing like trying to defuse a bomb but intellectually challenging for sure.
At the heart of the issue is a body of research that says rewards, as currently configured, don’t work in the ways we want. It’s complicated by the fact that rewarding customers for making purchases, for instance, does produce what looks like loyal purchasing behavior though further analysis exposes a flaw. If a customer continues to receive rewards for just being a customer then the vendor is effectively selling at a discount, which could roil the customer base, which might be paying full fare. And if everyone is receiving rewards just for being customers, then the notion of list price becomes problematic.
It’s appropriate to offer a token of appreciation to customers for positive behaviors but drawing the line between what’s appropriate and what’s too much is difficult. Rewards started as a way to recruit the marginal customer, the person who might need a product but who nonetheless did not see value at the regular price point. Offering a small discount did good things in such cases. The approach got new people to try products and, at an appropriate discount level, it still made profits. But at some point all that discipline went out the window and discounting in one form or another became a major point of competition. Today, we simply advertise savings opportunities, for example.
Customers have responded in kind, which is to say, not well if you study loyalty. Rewards tend to support today’s transactions and not much more. I’ve read a number of papers in business school reviews lately that basically say that even though customers exhibit loyal behavior, like making a subsequent purchase, they’d be happy to change brands or vendors in a second if they got a better deal elsewhere. That’s not loyalty, though we like to pretend it is by rewarding present behavior.
Other papers describe a vendor community that is frustrated with its loyalty efforts and their lack of results. But as an analyst I have to say that everyone is behaving rationally, or another way to put it, if you offer a customer a form of discount, don’t be surprised that they take it. Moreover, if you set up a game in which the well-understood rules are meeting one transaction with another (which is what current rewards approaches do) then don’t be frustrated when people follow those rules.
But if you want real loyalty in which customers preferentially seek out your brands and products, and in which they pay a slight premium for your products because they believe the products are worth it, you’ll need a different game with different rules. Instead of rewarding purchase behavior as if it was a demonstration of loyalty, we need to go upstream a bit to earlier forms of engagement. Many papers rightly point out that engagement is a predictor of loyalty but unfortunately in many studies, the percentage of vendors that reward engagement hovers in the mid-teens.
Simply put we need to raise our sights and rather than rewarding purchases, we should be rewarding engagement activities. A vendor gets a lot from engagement if you define it as a customer’s willingness to respond to a survey, advocate for a brand or even a solution to a problem that includes a brand or a product. This customer input can identify issues as well as unmet customer needs that could drive better processes and new products.
Other papers I’ve read lately point to vendors actually not wanting to engage with customers in this way. Why? Their lawyers told them not to. They’re afraid that if they get a product idea from a customer that ownership could be compromised by claims and litigation from the customer. Consequently, there’s a tall wall between the vendor and its customers and the most popular form of communication between them is the reward or discount, which gets us right back to frustration that loyalty isn’t any better than it is.
It doesn’t have to be that way. I’ve worked with large corporations that, at the end of the day, had to admit that their lawyers were simply trying to protect their corporate customer when they made anti-engagement recommendations. But interestingly, when the corporate attorneys were informed that their real customer is that same customer that the rest of the organization serves, things loosened up, at least in some cases.
Changes in lawyering won’t solve every company’s engagement challenges because there are many more. But if we take an approach that rewards should be focused on engagement and not on transactions at least some of the time, we might be able to present an engaging face to customers, one that drives loyalty.
Birth of the modern
Nearly every generation sees the birth of what for it will define modern life as going forward. As uncertain as the twenty-teens have been so far, some day in retrospect economists may pinpoint this decade as important as the tipping points of 1870’s and the 1920’s. If that turns out to be the case there may be no better event to symbolize the beginning of the era than the Salesforce fiscal year kick-off in San Francisco this week.
It has been an eventful year so far for the company, its city (with the Super Bowl festivities taking over much of downtown), and even the nation. On the day after polling began in the presidential primaries (which were eventful in their own right) Salesforce CEO Marc Benioff laid out an annual plan and announced a reshaped product line that will contribute much to the story of what will be the new modern in enterprise software.
Just back from the annual confab of the rich and the forward looking at Davos, Switzerland, Benioff gave revenue guidance to the financial analysts pegging his company’s work product at $8.1 billion for the fiscal year that was only a few hours old. As a subscription company Salesforce can be reasonably sure of its guidance because most of those revenues are already under contract as unbilled deferred revenues thus making climbing the $8.1 billion mountain much easier.
Benioff mentioned the Fourth Industrial Revolution as a topic of discussion in Davos, which might correspond to the launch of a new long economic wave (aka a K-wave). Long waves are often associated with the late Russian economist Nicolai Kondratiev and I correlate K-wave formation with what I see as the inflection points around us today.
The product line received the lion’s share of visibility, but in one way, it seemed to me under reported. While the technology was impressive, its impact on business is the real story and that will take years to write.
The Salesforce product line has been renamed using a Lightning moniker attached to nearly every cloud, so for instance Sales Cloud Lightning is now how we reference what was once simple SFA.
Lightning-izing the product line brings a great deal of complexity to the technology but this is largely hidden from the user so that we can more truthfully refer to the product line as sophisticated rather than complex. This is important because it directly affects the perception of new modernity.
For a very long time, CRM product sets have been on a ramp up to complexity as vendors, including Salesforce, layered subsystems on top of subsystems. These included collaboration, community, analytics, journey mapping, wireless and mobile accessibility, and more.
The evolution of the multi-tenant, metadata driven cloud platform was a key piece of the puzzle. Under this umbrella, all complexity can be consolidated and managed so that users can construct business processes on the platform without necessarily getting hip deep in code. But that’s not sophistication. Sophistication happens when one can achieve Arthur C. Clark’s vision that new technology should be indistinguishable from magic. I think that’s where we’re going.
Salesforce didn’t get all the way to magic with its Lightning announcement but it certainly put down a marker, which I believe will serve as a reference point for the birth of the modern.
Fundamentally, the technology is easily accessible by those who need it but it has been abstracted. A new layer that supports the user as if it was an assistant in a business process hides the complexity with a sophistication that begins to border on magic. So users are reminded, they are presented with data and information to enlighten their activities, and data that surfaces within a business process directly or through inference, is captured and teed up for future analysis that will again inform users in their processes. This is cool stuff.
Let’s have a look at the announcement’s big parts.
Lightning—the platform
Everything starts with the platform now known as Salesforce Lightning. Co-founder Parker Harris has, over several years, guided his developers to build a platform and stack that makes the magic possible. The Lightning-ization of Salesforce is largely the story of building the new platform full of services and of enabling all the apps to access these services and deliver them to the customer and employee facing applications.
Sales Cloud Lightning
SFA has been reimagined and added to so that it is a very different species than the one we started writing about in the 1990’s. Then SFA was a system of record, a tool for tracking basic contact information and the size of an order or a deal. The latest incarnation includes:
CPQ from recently acquired SteelBrick, which will accelerate, and for many companies standardize, the configuration, pricing, and quoting process.
Lightning Voice, an embedded telephony service that will see use in sales as well as service. Lightning Voice will enable reps to connect with prospects within the Salesforce application with all of its suggestions and prompts. Its functions include click-to-call, auto-logging of calls, and call forwarding.
SalesforceIQ Inbox, which brings the email inbox into the CRM suite through a suite of iOS, Android and Chrome apps that weave together Sales Cloud data with email and calendar apps of one’s choice.
Sales Wave App is just what you’d expect, analytics for the sales process. It is one of the sources of the information and suggestions that will change selling. New dashboards for things like pipeline trending were things that early SFA users could only imagine.
Salesforce1 Mobile. The big news here is full offline capabilities for iOS and Android devices. There are also 20 new Lightning Sales Components but I am getting tired and I recommend looking over the press release for even more detail. Check out Sales Path and Kanban.
Service Cloud Lightning
The Service Cloud got the same treatment in that service processes have been re-imagined but I’d say that this process of enhancement has been more evolutionary than revolutionary over several years. Nonetheless there were some big announcements including Field Service Lightning, which provisions CRM tools to dispatchers who will receive suggestions for service assignments based on location, technician training and skills, and availability. An Omni-Channel Supervisor gives call center managers more insights to better manage agents’ workloads.
Milestones
Salesforce is also noting its 49th and 50th product releases in the coming year. These milestones will also bring to market further enhancements in virtually every part of the product line. For instance, the company will release Heroku for the Enterprise aimed primarily at developers of highly scalable customer-facing apps. There will also be Marketing Cloud announcements later in line with enhanced uses for Journey Builder, which in my estimate may be the most important part of any CRM going forward.
Briefly, journey mapping enables vendors to bring scientific management to what have always been chaotic customer-facing processes. When used appropriately journey mapping will significantly enhance the customer experience and drive better engagement. It’s going to be a big deal.
Pricing and packaging
Salesforce continues to use a gold, silver, bronze approach to product packaging and pricing and it has taken this opportunity to reset the packaging to reflect the bulging product line. It would be a sales nightmare to sell this product line a la carte and it would also be counter-productive to the user who needs all the pieces and parts to fulfill the vision of modern sophistication. So Benioff told me that the company will continue with three levels of pricing, albeit at somewhat higher rates, and it will pack more technology into each level. See the company for details.
Finally
The Lightning-ization of Salesforce completes the solution set transition from a system of record to a system of intelligent engagement. Using all of the capabilities together makes it difficult to do business as we have always done it, which is a good thing. I don’t think it’s possible to sandbag deals any more or generally hide things from the boss. CRM is no longer a chore to be performed on Friday afternoons. It is an assistant that will enable many people to work better, smarter, and maybe more productively.
But long as customers are still involved, nothing I have seen will truly accelerate business processes beyond the acceleration on the vendor side. Customers will still think and deliberate about offers thus presenting us with a kind of speed limit much as the speed of light is the ultimate speed limitation in the universe. But these re-imagined tools do something as important as speeding up customer-facing processes, which I have discussed here before. They open the door to managing many more customer situations per employee. This will of course raise productivity but even more important from a sales process standpoint, they make it possible to expand skinny pipelines, to make them fat and thus enable revenue acceleration if not exactly shortening individual deal times.
