Does Cloud Computing maximize customer value?

Is there a case for maximizing customer value by exploiting business-ready cloud computing? I think so. But why maximize customer value instead of shareholder value? And what is business-ready cloud computing?


I recently read a compelling case for maximizing customer value ahead of shareholder value in HBR (there will always be a place for magazine print editions on my stationary bike). The article by Roger Martin is called "The Age of Customer Capitalism". Roger refers to the famous Druckerism that "the purpose of any company is to create a customer" and then goes on to discuss why optimization theory will only let you optimize one thing at a time while all other variables become constraints. His view of corporate success is to optimize customer satisfaction, while "providing an acceptable risk-adjusted return on ... equity" for shareholders. 


He compares the superior long term performance of companies like J&J and P&G which "tell shareholders in no uncertain terms to get to the back of the corporate bus", with companies like GE and Coca-Cola which were managed through the 90's by leaders whose mantra was shareholder value optimization. Roger makes the argument that shareholder value optimization is simply not sustainable in the long run because the market comes to expect too much and eventually the company falters when it falls short of expectations.


I obviously agree with Roger's assessment, having myself worked for publicly traded tech companies based in Boston, California and Germany my entire career (and a few years at the head of a small publicly traded company in Canada). In those companies we all marched to the tune of shareholder value creation, although at the field level we cared a lot about customers too. It was very confusing most of the time. Most major customer decisions revolved around margins, which created a fair amount of friction.


If you buy into maximizing customer satisfaction as the corporate purpose, at least for the moment, you might be wondering why I throwing around the term "business-ready cloud computing". First off, I apologize for being like everybody else and using the term "cloud computing". I particularly like Simon Wardley's "Cloud Rant" on this topic. He dislikes the word "cloud" being used so regularly to describe every new IT service. He believes many are being dishonest when they apply it to their service offering. In Simon's view, cloud services must provide the "standardization of an activity and its provision through utility services." 


He discusses a great example, which is close to home for me, of how most companies believe they get very little or no value from the expensive customization of their ERP systems. I was at SAP for over a dozen years and it was sometimes impossible to convince customers to use standard out of the box processes instead of re-creating their complex processes in organizational concrete. Every customization implemented today was sure to slow them down in the future.


Accepting Simon's definition of cloud computing, I feel it is useful to further differentiate a class of cloud computing which is "business-ready". This class of cloud computing is quite different from the services provided by Amazon EC2 or GoGrid Cloud Server. Using these services I am probably months or even years away from being able to provide something that is truly business-ready. To be business-ready, the following criteria must be met:

1. No assembly required. A business user is the consumer of the service. Once business user accesses the service they are able to execute work processes, whether company workflows, social media interaction, or office productivity applications. The service must allow customization, but the service supports a business user.
2. Device independent. The service is available exclusively through a browser on a PC or through the tools provided on a mobile device. Browser plug-ins or local software installations undermine business-ready computing by tying the user to a specific device. Business-ready computing is also mobile enabled. And what about the age-old arguments about whether it should be PC or Mac? In business-ready cloud computing we no longer care.
3. Social media conversant. To be truly productive the business user must have access to customers, social media tools, corporate applications, and corporate ecosystem partners within an integrated environment. This implies a strong collaborative focus amongst disciplines that are often separated in the organizational design and within the application portfolio. 
4. Customer driven. OK. Now I've put a stake in the ground. The customer is now in the center of all those pictures you draw instead of the shareholder, or the products, or the employees. I believe this is an essential element because it changes the nature of where process design starts and ends. It calls for us to completely overhaul our online presence, which today is mostly brochure-ware. It also dictates integration between applications which for some reason or another we have never integrated. 

How does business-ready cloud computing help maximize customer satisfaction?

Let's start by looking at areas where we can greatly improve customer satisfaction and identifying some application process scenarios (or business scenarios) to enable them. This is not the complete list, but it will give you some ideas:

• Buying experience. This is perhaps the nemesis of buyers we hope to turn into customers. We provide buyers with a great deal of information on our websites and ask them to figure it out on their own. If they make the mistake of registering on our website, we set our inside sales reps onto them to hassle them with qualification questions. We need to overhaul of the buying experience using a front end which is community based and provides mass-customization / one-to-one marketing (I talked about this in another blog post). A Content Management System / Social Publishing platform such as Drupal may be used to provide a problem solving customer dialog with buyers, with important results being stored in a CRM service such as salesforce.com. This greatly enhances the customer buying experience while automating the collection of key buyer information captured during the buying process. Ultimately we should be capturing critical information about the entire customer life cycle using this approach.
• Online customer service. This one is obvious. Customers should experience exceptional online service. On the back-end we need to ensure access to customer service information is made available to all of the roles in our company and our partner's organizations with customer touch points. The same tools we discussed in the online buying experience fit the bill here too.
• Mobile computing. We need to use cloud computing services which enable mobile services for all customer related processes. Access to these processes must be made available to all stakeholders with customer touch points.
• Training and education. Training as a service makes a lot of sense, but why is it that we build a product or service and then sell ourselves short by not delivering top notch online education to allow our customers to get the best out of it? This is a no-brainer. Buyers would tap into this during the buying process as well. Our own people could benefit from this tremendously - we call them knowledge workers for a reason. We need to focus on motivating them by investing in their knowledge. This requires thinking outside of the box and not restricting our view to conventional training offerings - sales training and product training come to mind. As Drucker said, "most sales training is totally unjustified. At best it makes an incompetent salesman out of a moron"... whew...he was never one to hold back his punches...
• Social Publishing and Communities. We need to organize some of the efforts of our companies to social publishing and community development. There are many platforms available for this, Drupal being one of them. This will be key to moving our organizations from product-driven companies to customer-driven companies. Emerging technologies, such as crowdsourcing add the potential to tap into large customer communities to evolve offerings to match customer needs.

The are many other business scenarios which may benefit directly from business-ready cloud computing. We'll dive into more of them in future blogs, as well as the benefits they bring to your organization.

Business-ready cloud computing will co-exist with your existing infrastructure. The best place to start in applying business-ready cloud computing is to focus on maximizing customer satisfaction. In many cases your current ERP and back-office solutions do not perform adequately to support the goal of maximizing customer satisfaction. Moving into the cloud with re-vamped customer facing processes is achievable once you have identified the business scenarios and technologies to enable them. 

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Total Cost of Ownership - Is Cloud Computing really cheaper? TCO for SaaS versus On Premise

Recently I had one of those client experiences we all need to keep us grounded. It helps us remember that perhaps not everyone has jumped onto the same band wagon as we have.


I recently met with an old friend, who we will call Bob, who owns his own successful services business. He  engages with a high number of customers through a fairly low volume of transactions. Their contracts with customers are fulfilled exclusively using contractors. I had done some consulting work in the past to help the company reduce its IT costs while improving service levels using third parties exclusively - the company has no internal IT resources and wants to keep it that way. The company uses an IT solution which is similar to an ERP which is purpose built for their industry. This one was built  in the early 1990's and is starting to show its age in many ways. It is difficult to use, expensive to change, and has none of the capabilities of a modern application.


Given Bob's desire to keep a lid on IT costs and address the shortcomings of his current application I decided to approach Bob with a cloud-based solution which would deploy salesforce.com and use the Force.com platform to develop the customized bits to make the final solution business user ready for Bob's company. Bob agreed to see a demo and go from there.


I prepared for the demo by prototyping a small component which was critical for their business using the Force.com platform.


The demo took about two hours and Bob was fully engaged, asking questions and clearly quite impressed. I navigated my way through an action-packed demo of salesforce.com, complete with customizations for Bob's industry, integration to a web page to collect leads, online case management from the web, mobile integration, and real-time synchronization of information in Outlook. Before I could even wipe the sweat from my brow, Bob asked the all important question, "How much?"


Well, those of you who make your living selling know this is one of those very important questions that demonstrates real interest on behalf of the buyer. All those expensive sales training courses I took over the years drilled it into my head this is a critical moment and the very last thing you do at this point is quote a price. All the training will tell you to begin the process of reeling in the fish very carefully to ensure the hook is set before scaring them away with price. So what did I do? I promptly forgot about all the sales training and blurted out the annual subscription fees for salesforce.com for the number of users Bob would need for his company.


Now Bob said, "Well that's more than I'm paying in maintenance for my current solution."


Having worked with Bob to reduce his IT costs I knew how much he was paying for maintenance on his current solution and replied, "That's true Bob, but software maintenance is just a part of your annul cost to support the application. What about the servers (3 that I knew of), database licenses, IT support (all of which Bob had outsourced at commercial rates for all IT services), virtualization, and backup services?"


And because it's always best to try for the knock out blow before the buyer can catch their breath, I added, "And remember last fall when you lost your application for three days because the disk mirroring wasn't working and you had to go to a backup to recover? Well, that kind of thing isn't going to happen anymore."


Bob now looked at me like he either had a very bad case of stomach cramps or was thinking about committing violence, "But Kalvin (and he might have felt like adding - 'you moron'), I've already bought all of that stuff. And my current application works just fine for my business needs. And the backup recovery process worked just like its supposed to..."


I had now turned the conversation into a debate, or perhaps even worse, an argument. It dawned on me at that point I would not recover from my enthusiastic rant and it would be best if I backed off for the time being. We both agreed to talk at some point in the future when I had something compelling to share with him (and he was likely hoping whatever happened next didn't involve me continuing to tell him he wasn't 'getting it').


I have a background in cost benefit analysis and before starting a process of cranking the numbers myself I decided to see what was available online. In earnest I started my online research and found various cost calculators. The free ones are mostly provided by vendors of products and to me demonstrate a bias towards the vendor's products. There are also a number of companies offering value calculators or TCO calculators as their central offering and they, of course, require compensation for efforts. I didn't want to go down this path for an opportunity which was still speculative.


I decided to build my own simple model in an Excel spreadsheet. You may download a copy if you wish. I discovered very quickly is there is no such thing as a simple TCO model. In the case of Bob's company, to obtain enough value to justify the implementation of a new solution would also dictate integration from the cloud-based solutions to both in-house applications and the company's online presence. The online presence is hosted with a third party hosting company. It would also mean a redistribution of IT services from their conventional supplier of in-house services to a cloud services provider. It is also has a profound effect on current development costs and time to implement changes.


The important point here is for many companies with a base of legacy applications, the introduction of SaaS applications will require integration and sustainment activities with in-house or other outsourced applications.


I therefore organized the model recognizing an investment in SaaS may also involve an investment in in-house applications and a change to the shared services model for the entire IT environment:


SaaS costs

• subscription fees based on multiple billing models per solution
• premium support fees (for 7x24, for example)
• incremental device costs required to support the solution (does everybody get a PDA to run the app?)
• complementary services - startup, development, testing, documentation, ongoing configuration, etc.
• expenses - T&L, etc.

On Premise costs

• license costs
• maintenance and premium support
• incremental devices
• servers
• network
• environmental - facilities, power, recycling
• hosting
• complementary services - startup, development, testing, documentation, ongoing configuration, etc.
• other expenses

Shared Costs

• business continuity
• business practices
• interfaces
• desktop support
• server support
• database management
• storage management
• security management
• network management

I completed the model twice for Bob's company. Once for the status quo, where we simply keep everything as-is and complete some enhancements to the current in-house application to address some glaring problems. I completed the model a second time for the SaaS option, retiring the current core application.


Working through the TCO model for Bob's solution, it is very clear the TCO will be lower for the SaaS or cloud-based solution. The principal reason is the core application we are replacing is the mission critical application for the business. We will be reducing the shared costs by 70% and in-house costs by an equivalent percentage. The new SaaS costs are very manageable as the number of users required in the business is not significant and number of users is the primary pricing mechanism for salesforce.com.


The interesting learning for me, however, is in future I will not likely be so quick to assume TCO will always be lower for a cloud-based solution, especially in a legacy environment with many established systems where the introduction of the proposed SaaS application does not significantly displace some existing costs, or where the foot print of the SaaS application is not significant enough to drive the value of its incremental cost.


TCO only the starting point. It comes down to value.


So while I believe it is meaningful for us all to crank the TCO model using something like the model provided here (we don't ask for your email id or other info), we also need to assess the value of the respective solutions being evaluated, whether they are SaaS or on-premise applications to ensure we get the best possible return on our investment.


The bottom line - TCO is only the first step in comparing solution alternatives, whether they are cloud-based or on-premise. While important, it is only a determining factor in influencing solution alternatives where the cost of on-premise or shared services can be significantly reduced. In most cases we need to evaluate the business impact of the various alternatives in the form of a cost benefit analysis, where TCO is one component of the business case.

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Why does CRM sometimes not deliver?

CRM is a one of the most popular cloud applications, so why do some executives question its value a year after installing it?

I'll answer this question by focusing on some big issues:

• Sales and marketing are different departments and like it that way
• Glengarry Glen Ross School of Selling
• The 80's buying experience
• Service and support ghetto

Usually when planning CRM implementations we focus on resolving 'sales issues'. We focus on resolving problems we have been programmed to think about by CRM vendors. Spend a few minutes watching some of the videos on the salesforce.com website and you will be exposed to endless functionality. Here's a small sample of what it can do for you:

• Sales - Much needed visibility into the sales and pipeline, lead conversion rates, competitive losses. Sales dashboard. Manage complex sales with ease (incorporating sales methodologies into salesforce), customize salesforce for unique needs, and manage complex territories. Everything a rep needs on their desktop, exactly when they need it. Improved processes such as lead routing. Integration with service and support to get a complete customer view.
  
• Marketing - track ROI instantly, conduct marketing analysis - campaign performance, campaign to sales life cycle tracking.
  
• Service - ensure agents have access to information they need, managers and execs have access to key performance indicators to improve service and decrease costs.
  

And I have no argument with any of these claims. The services offered by salesforce.com do all of these things and more (and it’s called a service instead of software because it is delivered via the internet cloud - a class of applications we call business-ready cloud computing).

The reason our executives are questioning the value of CRM has nothing to do with the capabilities of CRM, but rather the problems in our go-to-market approaches which remain long after CRM is implemented. These problems exist because we tend to focus solely on the needs of the sales team when implementing CRM - usually because we are looking for the quickest return, which we hope might come from increased sales. Without looking across the organization for all buyer touch points, however, we miss out on some great opportunities for a better return on investment.

A broader view of CRM as a true Customer Relationship Management system is our starting point. We need to focus on our relationship with buyers through higher quality interactions with them. CRM implemented right should improve the way everyone in our company interacts with buyers and customers.

So let's dive right into the problems we identified at the beginning.

Sales and marketing are different departments and like it that way

This is likely the biggest problem and I will talk about it the most. In any implementation of CRM the gateway between marketing and sales is a lead. While this makes sense from a sales process perspective, it leaves a lot to be desired as the only integration point. When lead management is the only bridge between these two groups there tends to be a lot of friction between them. When I hear sales people complaining about lead quality and marketing complaining about sales' ability to convert leads into opportunities, it provides me with evidence of the typical sales/marketing relationship.

The problem originates when marketing is creating 'impressions' based on positioning your brand and solutions. The solution positioning is usually the result of research which identifies the top pain points for each of your target markets.

Marketing creates leads based on this high level solution positioning, often creating a high volume of interest, which it channels into the lead funnel. Many leads originating from this process are of poor quality. Even after a first call by inside sales, the lead quality is still suspect. It may still take sales considerable effort to make any progress in processing these leads and once they process too many bad ones in a row, they begin to lose confidence in the leads generated by marketing altogether. This is very distressing for the marketing lead who has invested marketing dollars in generating every one of these leads.

This happens for some very basic reasons:

• Marketing is under pressure to create a high volume of leads. In fact they usually have lead creation targets. Any lead is a good lead to marketing. And yes, I know marketing has other measures - I have seen everything from 'lead to opportunity conversion rates' to 'opportunity acceleration' (one of my personal favorites). But when the President joins the marketing meeting he wants to know one thing - 'How many leads am I getting from having these marketing guys around?', followed by 'Is my brand being mentioned at kitchen tables yet?' (and if time allows, “Are people's appetites affected in a positive way when they are talking about my brand around the kitchen table?”)
• Inside sales is ill-equipped to process leads. Marketing is casting a very wide net, often handing a high percentage of leads over to sales for qualification. Normally some leads should be filtered out and some sorting done before the leads are sent to sales. And maybe at this point you say, "Wait a minute, our telesales / telemarketing colleagues process the leads and send the best ones to sales". To which we say – these inside sales roles generally earn some percentage of their compensation based on lead creation volumes. Additionally, telesales / telemarketing generally have poor tools and training for sorting through leads, sometimes relying almost exclusively on BANT (qualification using Budget, Authority, Need, Timing) as their only tool.
• Marketing operates at a high level with positioning that does not resonate with buyers. One of my favorites is the Volkswagen commercials with the 'das auto' delivered at the conclusion of their commercial by the big German voice (have you figured that one out yet?). Our buyers are dealing with day-to-day problems at a much more granular and much less sexy level than the high level marketing positioning. As a result, marketing is able to generate a small glimmer of interest (or sometimes more) from a buyer, which puts the buyer in a slightly vulnerable position where we are allowed to market or sell to them one-to-one. Unfortunately, our first response is to hammer them with the hard-selling telemarketer / telesales person. The telemarketer / telesales person is either trying to convert the lead into an opportunity, or determine if it is a cold lead to go into the nurturing bucket (which is generally a dead-end). This results in the buyer experiencing an entirely different dialog which ignores their problems and our solutions to address them. Instead, our inside sales person qualifies them. Many well organized buyers with low vendor expectations make their way through this process just fine, but if you look at the percentage of leads on average that get closed or rejected, this is clearly an issue.

So, what's the solution?

Buyers desire an entirely different dialog with us early in the sales process (back when we are still trying to put them into the lead management process or convert them into an opportunity). My work has led me to believe this dialog changes based on any number of attributes of the buyer and the buying organization. Attributes of the buyer organization such as industry, country of operation, global-reach, and company size have a significant impact on the dialog with anyone at the buying organization. In the case of the individual buyer, their role in the company and various psychographic variables will greatly impact both buyer solution preferences and their approach to acquiring it. You can't sell leading edge technology to an individual who is risk averse.

Once again, this is an opportunity for many of you to say - 'We are already doing this.' On some level you likely are, as you may already have whole areas of your website dedicated to your target segments, perhaps by industry or company size. A classic example might be solution offerings specifically for mid-sized professional services companies.

While this might be a great start, it does not go nearly far enough. Static pages which offer specialized information are necessary, but don't qualify as a two-way buyer dialog. Online product configurators are better, but only if they configure solutions based on buyer needs and not solution features. 

We need to move to a buying process where the dialog goes to the heart of the buyer's problems. This requires mass customization and one-to-one marketing which in turn requires a deep understanding of buyer’s problems, the impact of those problems on their business, resulting needs, and how your solutions address them. Secondly, this dialog must be conducted consistently throughout all of the buyer touch points, whether automated through an online presence, email or in a real-time conversation.

This means a lot of work for Marketing. Also, this information needs to be delivered to your organization and your buyers via a repository which resides in your CRM system. All of the buyer touch points must also be tracked and stored in CRM.

Glengarry Glen Ross School of Selling

If you haven't seen this movie yet, put it on your list of movies to see. Here is a refresher of one of the best parts (don't forget to come back and read the rest of this blog!). My entire career has been spent in and around sales. I was always amazed to see the new sales people pick up all of the same habits as the more experienced sales people. Regrettably, they learned many bad habits.

With technologies we have available to us and the sophistication of most buyers, I am surprised to see most selling models are still quite adversarial. It's ‘us’ trying to convince the buyer to acquire our solutions through a process of us being better sales people than the competition. Now, I'm not saying being good in sales isn’t important. Obviously, well trained sales people with good selling skills make more sales than those without the skills and training.

But have you ever closely watched a sales person who is consistently successful over many years (and maybe even over a career that spans many different companies and products)?

In short, sales people who excel over a long career are good problem solvers and team players. They build strong internal networks in their own companies to allow them to broker the best capabilities of their company to create solutions to solve buyer problems. In a buyer dialog, most of the questions they ask go to the heart of uncovering buyer problems and the impact of those problems. Early in the process, very few questions are asked which only serve the interest of the seller, such as pure qualification questions. When the accomplished seller resorts to asking qualification questions, they do so after earning the right to ask them, having created some value for the buyer by helping the buyer to better understand their problems and potential solutions.

We call this the Problem, Impact, Need, Solution selling model (lousy acronym – maybe we’ll think of something better later). It forms the basis of our Guided Customer Buying go-to-market framework. We believe sales must be trained to sell this way. And we think the marketing content that we identified earlier must be provided to sales as “sales-ready” content to be used in customer dialogs.

The 80’s buying experience

We can no longer provide static web pages with tons of content for buyers to sort their way through as our only approach to engaging in an online dialog. The very same content marketing is creating for sales to support real-time dialogs must also be made available through your corporate website to facilitate one-to-one dialogs with buyers.

This would take the form of an online interaction where the buyer identifies their problems and the impact of those problems. Throughout the online interaction the buyer would be provided with supporting information to facilitate learning. This learning is valued by buyers, and it does not simply imply teaching them about your solutions. Buyers want to learn about the problems other customers in their industry are facing, how to assess the impact of various problems, and finally, how others may have successfully addressed those problems.

If this dialog is done well, the buyer should uncover problems for which they might not as yet have visibility. If you do a good job providing this online dialog with the buyer, you will allow the buyer to learn a great deal about the depth and impact of their problems. This online dialog can be further enriched with the deployment of community tools to facilitate an interaction between your buyers and your customer and partner community.

As we mentioned earlier, psychographics will also impact the way the buyer wants to buy. Some buyers will require a great deal of information and will invest significant time in an exhaustive dialog, while others will desire a very high level, rapid fire dialog where they can get to the solution as quickly as possible. Your selling process and sales-ready content must facilitate all types of buyer preferences.

Service and Support Ghetto

For solutions with a significant implementation or post-sales support component, we find the poorest served team within the selling organization is the service and support group. Usually the promises and expectations made by sales are not well documented, other than in the proposal or quote completed mid-way through the sales process. This puts service and support in the position of “promise breaking”. Nothing is more devastating for a buyer, now turned customer, to deal with the frustration of re-educating a new team, only to discover the vision they bought from sales looks unattainable or more expensive. In defence of the sales team, these broken promises are not generally a misrepresentation of the solution capabilities, but rather a lack of understanding on behalf of service and support about the priorities that were agreed upon during the buying process.

As a result, the buyer feels they are re-educating the seller’s organization, and service and sales will eventually do everything they can to avoid the conflict that may arise while the customer’s frustration elevates. This leads to eroded service margins, and even more mistakes. It becomes something of a downward spiral.

You’ve likely already guessed where I am going with the solution to this problem. If the information we collected from the buyer during the buying process, either through our online presence or from buyer conversations with sales, were made available in our CRM, service and support will have a critical repository from which to identify the promises and customer priorities identified during the sales process.

In progressive companies, sales and service partner early in the sales process prior to the buyer becoming a customer. A CRM-driven approach as we are discussing here serves as a tool to be used during business discovery, and also ensures service and support are aware of customer priorities and expectations set during the sales process. The customer information and approach to conducting business discovery also becomes a great learning tool for everyone involved, including the service and support team.

Implementing CRM as the repository with sales-ready content to support customer dialogs is a powerful tool. Sales-ready content developed by marketing in partnership with sales, using a standard framework such as problem, impact, need, solution will be embraced by your sales team and buyers. Your online vision of this sales-ready content facilitates a one-to-one dialog, which is supported by mass-customization. The addition of online communities to this environment will enrich the buyer experience substantially.

We are no longer limited by technologies to implement a powerful vision of the guided customer buying experience. CRM technologies are easily customized to enable this vision and community/social networking tools may be integrated into our online presence. We simply need to overcome the limitations we impose on ourselves, whether it is the inability of sales and marketing to partner to develop sales-ready content, the adversarial nature of our selling approaches, our lack of imagination in envisioning an interactive online dialog with buyers, or our inability to go the extra mile in providing our service and support teams with access to critical information collected during the sales process.

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