Milestone Group Quarterly: July 2004

Articles

• CEO Hot Seat: John Street, CEO, MX Logic
• Investment Viewpoint: Brad Silverberg, Managing Partner, Ignition Partners
• OpEd: Ben Gomes-Casseres on Alliances Sweet Talk
• Milestone POV: Scott Boutwell on Driving Revenues Via Relationship Management Q&A with Howard Anderson on The State of Venture Investing

Milestone POV:

Scott Boutwell on Driving Revenues Via Relationship Management Q&A with Howard Anderson on The State of Venture Investing

The term “Relationship Management” has traditionally applied to the development and management of clients and prospects of an organization. Customer Relationship Management (CRM) systems have been in place for a number of years, with somewhat mixed results. Originally designed to increase customer loyalty and thus allow for better opportunity and account management, the systems have delivered varying degrees of returns on investment. However, these systems do not allow for identifying and managing all potential relationships that may affect an organization: customers, prospects, competitors, partners, influencers, media, human capital (or talent), and other third parties.

With the advent of ‘social networking’ or ‘enterprise relationship management (ERM) solutions today, many CEOs and VPs of Sales are scratching their heads, trying to understand the potential value of such systems, and if there is value, how does a corporation fully leverage their “network” of relationships and integrate it into existing customer, partner, and sales automation solutions? And as the tech economy gradually builds steam again, companies are seeking to drive top-line revenues; can “Enterprise Relationship Management” assist in this regard?

Relationships as Assets

On a broad level, relationships are about articulating common values & goals and building trust, and managing that process over time. Translating this to a business advantage: you can lower sales costs, shorten your sales cycle, and increase partner and channel effectiveness, by building then sharing trusted relationships.

Mark Granovetter (Stanford University) developed a concept called “The Strength of Weak Ties”: individuals can maintain a finite number of ‘strong’ ties or relationships, but they also have a much larger network of weaker ties with other contacts. In a large organization, the number of weak relationships identified can be substantial, and can yield significant insights into customers, sales, and market trends. These ‘weak’ relationships may include those that are with external contacts, such as prospects, influencers, and partners; but also may include internal relationships: a sales person relationship with product manager, or an internal recruiter’s relationship with an employee, for examples.

The organization that can identify and manage these strong and weak relationships may realize those relationships as assets, and leverage them in a way that increases sales and revenues. Therefore, from a revenue perspective, fully leveraging relationship assets may increase company valuation as well.

Relationships on an Enterprise Level

Analysts and trend watchers have estimated that there are over 100 start up software firms in the social networking space; the market is not only crowded, but has generated a fair amount of negative press; the term “YASNS” (“Yet Another Social Networking Service”) has been used to refer to new companies entering the space. But we can see two general categories emerging:

• Web Communities, consisting of companies that build communities of interest, are limited in their number of contacts, but have high affinities of interest
• Enterprise Relationship Management (ERM): those companies that are targeting “behind the firewall” solutions to corporations, and assisting them in business development, lead generation, and sales intelligence

The latter group of companies, including firms such as Spoke (www.spokesoftware.com), Visible Path (www.visiblepath.com) , and Zero Degrees (www.zerodegrees.com) , seek to provide corporations with systematic processing of contacts and associated workflows; thus automating data entry and eliminating a critical user adoption barrier: the need to input and update records. The size and reach of these networks is also significantly higher as well; allowing for a corporation to leverage the full extent of these ‘weak’ ties.

How does Enterprise Relationship Management fit with existing customer care systems?

As sell-side applications, including CRM, multiple - channel management (or PRM; Partner Relationship Management), and Order Management are converging, organizations are now beginning to view relationships more comprehensively. This viewpoint is still focused on prospects and partners, however, and is not inclusive of other key contacts within an organization or outside. A quick review of the relevant customer, partner and sales solutions is provided below, with ERM leverage points noted.

Customer Relationship Management (CRM) and Sales Force Automation (SFA)

Traditionally, the focus of CRM initiatives has been on driving down costs and creating customer data, not on revenue enhancement. As organizations gear up again to drive top-line growth, the need for CRM solutions to focus on customer intelligence and account development increases.

Where ERM has potential to increase the utility of CRM / SFA solutions: by improving sales effectiveness, via identification of broader range of contacts that may affect the sales process; and consequently, the identification of best practice strategies & processes to develop high value customers and market segments. For example:

• Extend the reach of customer care solutions by incorporating more comprehensive business development intelligence gathering
• Broaden the network of contacts beyond just prospects, and make inclusive partners, competitors, and other third parties
• Utilize customer intelligence to provide insights into prospect and customer – specific value propositions and appropriate communication strategies

Partner Relationship Management (PRM) - As organizations continue to sell via multiple channels and thus reduce the costs of sales, PRM moves beyond solely partner – based selling, to multi-channel selling, marketing, and support.

Enterprise Relationship Management solutions may assist PRM solutions by allowing partners access to an organizations relationships, thus increasing their sales effectiveness. This allows sales organizations to fully leverage their partners’ relationships, to better serve them in targeted marketing campaigns, sales incentives, as well as post sale support situations.

Knowledge Management (KM) - ERM allows for the development and management of relationships across the enterprise. As relationships are developed, lines of communication become more informal; moving away from email and into collaborative settings for sales, marketing, and engineering projects. These ‘communities of interest’ may identify new members via an ERM solution.

Human Resources (HR) - ERM has been identified as extending CRM and SFA systems, but it also has utility in a critical area of company growth: the Identification and recruitment of talent, via referrals from employees, partners, and trusted advisors.

Strategies for Success

As organizations consider the use of ERM solutions to gain better visibility and control of all relationships that affect the company’s viability, we can identify a number of key strategies to keep in mind, when evaluating the deployment of an ERM solution:

(1) Understand How You Sell: Identify the mode(s) of selling in your organization: high touch, customizable solutions; low touch, high volume products; or anything in between. High touch, distributed and fragmented profit centers, and high value services (such as those provided by management consultants and system integrators) will require more relationship building in their sales process, compared to selling of lower value commodity products.

(2) Leverage existing technology investments: Don’t create another ‘silo’ of information, or a separate workflow that is independent of existing business development and sales processes.

(3) Understand the TCO (Total Cost of Ownership) of solution: integration efforts, time to deploy, and rate of adoption within your organization.

(4) Identify and Apply ROI: For the short term: are the early adopters (or lead business development executives) quick to use the solution and actively promote it in their organization? Longer term: evaluate the increase in sales from leveraging relationships not captured in traditional CRM / SFA systems; can you identify key deals won (or lost), new leads generated, accounts further developed & grown, and translate that information into new revenue gained.

(5) Keys to Rapid Adoption: Create incentives for sharing contacts and leads, including the accounting of contact ‘ownership’. Allow for customization of privacy and opt-out controls; don’t use ‘one size fits all’ mentality.

(6) When Partnering or buying from ERM start ups:
What is their business model, and is it sustainable? What is their funding history and cash reserve? How easy is it currently to integrate their solution with your existing CRM or SFA systems? What are their technology alliances and customer successes?

(7) Look for other areas to seek value: Can you leverage the ERM solution for talent / team building: opportunity to use existing HR systems to leverage human capital networks for lower cost, higher value hiring and recruiting? Also, can your ERM solution assist in branding / influencing: opportunity to identify influencers in the marketplace, and target them for key messaging and branding.

As the enterprise relationship management space evolves, we expect to see consolidation and mergers in this space, with the acquirers increasing their user base, and migrating new users over to existing or enhanced systems. Over the next 12 to 18 months, we expect a convergence of CRM and ERM; as the major ERP software companies expand their CRM offerings with internally developed or acquired enterprise relationship management solutions.

Scott Boutwell is a Partner at the Milestone Group. He has over 20 years experience in consulting and business development, with leadership roles in companies such as Oracle Corp., Autodesk, URS Corp, a knowledge management start up, and his own alliances & recruiting firm. Scott can be contacted by scott@milestone-group.com.