Monday, October 10, 2011

Salesforce Dot Com is not a cloud Utility, it is a customer Amenity
-- The evolution of IT solutions towards increasing Amenity

Over 50% of IBM's revenue comes from services, not from products. In fact, the figure may be higher since sales of tangible goods such as systems, servers and software can easily obscure the associated support. 

Now look at companies like Accenture, CSC or CapGemini. 100% of their revenues are in services. Their annual reports do not break out revenue for any of the products they use in the course of delivery, even in areas where they own a product and the intellectual property. This is not just an accounting quirk. Today, IT solutions firms are services firm - fair and square. Being services firms, their greatest assets are their people and their client relationships. They generate revenue when they perform tasks for clients - whether these are visible to them or behind the scenes in support. The role of solutions in businesses like Accenture, CSC and CapGemini is to provide a template for a repeatable service, i.e. a type of project or a style of longer term engagement.

Given the dominance of services to the business growth of IT solution providers, their research and development should focus strongly on services innovations. They are not unique. The trend is called 'servitization'.

Services now account for 80% of the U.S. GDP, with other developed nations showing similarly high percentages. Even product-dominant companies are adding service to their offerings because it is relatively inexpensive to implement, provides recurring revenue, and creates an effective differentiator in an increasingly crowded and commoditized marketplace.

When Jack Welch took over at GE in the early ‘80s, he realized that relying solely on product sales was a short-sighted approach. He shifted the mindset of the company from a one-and-done sales strategy toward creating ongoing revenue streams with clients. GE now sells airplane engines nearly at cost but bundles them with highly profitable, multi-year service contracts.

In 1999, retailer PetSmart refocused its expansion strategy toward caring for the lifetime needs of its customers’ pets. With the addition of grooming, training, and boarding services, PetSmart pulled ahead of the competition and became the largest national provider of pet services. While services account for a relatively small percent of the company's revenue, they continue to comprise a major chunk of its profits.

In a bold move toward increasing service and education for its customers, home improvement retailer Home Depot hand-picked 25 experienced and tech-savvy employees to provide peer-to-peer support for the online community. Armed with flip cameras for DIY videos, the Social Media Store Associates work in-store three days a week and devote two days a week to social media exchanges with customers. Seven months later, the initiative has surpassed expectations of customer engagement and brand loyalty.

In the aerospace industry there is a clear distinction between product (e.g. an aircraft engine) and service (e.g. preventative maintenance). In the Pet industry, no one is going to confuse pet food (product) with pet grooming (service)? Are things quite as clear in IT?

Companies like CSC and Accenture operate in the 'digital' realm. A computer server is just as tangible as Pet food, and IT support is just like pet grooming, yet the trend in IT services is towards hybrid models and capital-intensive business strategies such as Web services, cloud and SaaS (software as a service).

Take as an example. They provide online business applications to thousands of clients and hundreds of millions of users using a 'multi-tenant' IT architecture. Is a product, a solution or a service? They are all three. Salesforce provides a level of 'amenity' to their users that seem to be greater than the sum of its parts. What's going on?

When you choose which hotel to book into do you compare the beds? Not unless you are very fussy. Most hotels provide beds of roughly equivalent value. No, you look for other amenities that increase the hotel's attractiveness, value or that contributes to its comfort and convenience. This might include dining, adjacent parks or a golf course, swimming pools, health club, party rooms, theater or media rooms, bike paths, access to city centre and garages. You also compare the customer experience and other environmental factors such as location which add to the desirability of the property. It's a good analogy for how the IT landscape is changing.
In order to attract and retain clients, services are added to products, and amenity is added to services.

Recently, for example, Salesforce added to its market leading application, allowing direct access to Dun&Bradstreet information within their Sales cloud. When this was announced at a recent Salesforce conference, there was a spontaneous outbreak of applause. Users love the convenience.

Salesforce have also extended the structured customer data they manage to include new unstructured social profiles, automatically extracted from online services such as Twitter, Facebook and LinkedIn. In addition, Salesforce have modified their service so that it can used, unchanged, on popular touch-screen devices such as iPads and Android tablets.

The history of development is dominated by step changes in amenity.

No one buys based on a feature-function comparison of packaged CRM software. There is no need for such a comparison because the service has become a permanent amenity to its users. And the amenity is developing, and is shaped, by the demands placed upon it by the users. To wit: Mark Benioff, the flamboyant CEO of, always begins the annual Dreamforce conference by telling the audience that he has been traveling the world and meeting his clients. This is not just PR. His team want to understand how their clients are adopting, shaping and using the service. Benioff is a CEO-journalist, and always takes a film crew with him to document the most surprising client stories.

There is a common thread to these stories. Users report a raft of immediate benefits, just by adopting the service. The transformation appears to be non-disruptive to their business. It's as if an invisible consultant has come in, moved all the chairs and tables around on the deck, without anyone noticing. Amenity is more than value add, it is the confluence of product, solution and service, and it's where the IT industry is heading.

All industries begin in the product domain, proceed through services and end up competing on amenity. The battleground is now customer experience and amenity and it's far more than putting lipstick on a pig.

We all know that the cost of IT has dropped off a cliff. This is called commoditization. It's now possible to buy the equivalent of a super-computer for small change and put it to work in your garage! It's the same with software. What was once expensive and difficult is now cheap and easy. What once attracted premium service is now merely routine. Automation is rife. It's already possible to load up a virtual image of an enterprise application, deploy it on a virtual server, running in a virtual data center, and then scale it 'elastically' to thousands of user and millions of transactions. At the same time, power users can be given their own dashboards for configuring the data and workflow.

Commoditization demands that IT providers innovate upstream, closer to the customer. And that means service and experience innovations.

Customers do not go to for a product. They know the Salesforce hotel provides the 'bed' and will safely manage their customer data. They don't even go for a solution. They know the core is a market leading CRM application. They go for the experience. They are not only interested in the functionality of at a point in time, but how it is evolving and what amenity it affords them. They go to be part of the party.

A film maker goes to a film studio to make a film because it provides the required amenity: access to high-end 'creatives', specialized skills, working spaces, equipment, pre- and post-production services and all the other paraphernalia of the movie industry. Salesforce customers go to to make 'films' that enable them to foster powerful sales disciplines across their organization and instill in their employees a customer-centric culture.
The journey to amenity, and the customer's changing expectation of service 'value', can be categorized by this crude analogy:

I need meat to order to make a hamburger ... and then ....
I just need great hamburgers - where do I go? ... and then ....
I need hamburgers available everywhere I travel ...
I am looking for a nice environment in which to eat hamburgers ...
I eaten too many hamburgers - fix me up ...

I need advice on the quantity and frequency of what I eat ...
I would like the hamburgers I eat to keep me healthy ...
Make me healthy and keep it that way

Hamburger corporations that don't understand they are in the healthcare services business, beware! Ditto IT services providers that don't understand they are in their customer's (growth) business.

The supply of any computing system always gives way to demands for the supply of associated support services. Even a consumer device such as the iPad has spawned 100s of web sites and books to help the users make best use of the technology and to clue them into all of the amenity provided in the Apple AppStore. Now, attention is moving to advice and consulting on how best to use that power in the business. One day, I can envisage a business user contemplating the purpose of a new device asking "So, how is this going to transform my business?"

The evolution of the IT services industry is two fold: up the stack to amenity (economies of scope), and down the stack to cloud (economies of scale). You need to know where you are pitching since it is hard to be a company such as and operate at all points of the spectrum. There is a service chain. Even outsources many aspects of their business and infrastructure.

Amenity is a good place to be for a services firm. It attracts clients and premium fees. The value of an amenity gains from the increased knowledge accumulated via 1) all of the transactions that pass through it, 2) all of the interactions of the users and 3) each of the use-cases the client brings as requirements for evolution and innovation of the service. Salesforce understood this when they created AppExchange, a marketplace of adjunct applications which can be layered into the service experience. Amenity transforms products into platforms, building many service innovations on a common core and providing these to all customers who choose to engage. is also an amenity for consumer purchases. Each purchase enhances the service for others.

Any service, of any scale, can be changed so as to increase amenity. This is called services innovation. It usually starts by mapping out how an existing service create value for the customer, how the customer experiences the service and how this is supported by the service provider on-stage, back-stage and through the support system and value deliverables. Services innovation methods are then used to explore changes in service choreography.

In a mature amenity such as or, services innovation is a forever task. And this is the norm for all services. While products and solutions are often delivered and then forgotten, or at least only 'supported', services are continuous. To retain the client they must improve and evolve. Services innovation projects are always about the customer. The goals will be specific. They could be one or more of:

To reduce customer complaints
To pinpoint sources of untapped revenue
To foster customer advocacy
To capture more value from existing clients
To attract new clients
To fill gaps in services before clients go elsewhere
To personalize a service for specific client segments
To generalize a service to increase its appeal
To capture more tacit client information to guide innovation
To drive a clearer service culture and vision
To bring in service partners using an orderly processes
To foster a customer orientation throughout an organization
To achieve economies of scope - more services
To create a memorable customer experience
To grow our service platforms and increase amenity
To create a new customer benchmark in the industry

Services Innovation is the next source of competitive advantage for IT solution providers.

-- Howard Smith, CSC