For public application software companies, the phrase, "not meeting expectations" is the most frequent comment heard by the investment community. In the last quarter, 14 publicly traded software companies have used this phrase in their reports to the market. In most cases, we hear them talking about reinventing themselves into a customer focused business model, a "Love The Customer" model.
The stock market of the 90's saw new accounts as a key metric when valuing application software companies. This drove application software companies to a business model designed to win new accounts. New accounts were seen as the primary source of revenue by many of these companies. For both the investor and vendor, this "New Accounts at All Cost" was the right business model. But times have changed. Market penetration is high so few new account opportunities exist. Economic uncertainly has pulled the purse strings of most companies so selling is more difficult. Therefore, application vendors are focusing on their install base as their primary source of revenue while cutting costs to provide profitability. The result is a drastic change in their business model. The old business model of "New Accounts At All Cost" must morph in to a "Love the Customer" model.
Most vendors will tell you that they are both new account and customer oriented, and some have struck this balance. But the vast majority have been worshipping at the Wall Street idol of new accounts for so long that the reality is, they have a new account business model.
Changing A Business Model Not Easy
Changing a business model is a fundamental change; it is not changing the web site or printing new brochures. In this case, it is a flip in strategy from a new account culture to a customer culture, and culture is always very hard to change.
The most important asset of any application software company is people. In a new account culture, sales, marketing, support and implementation teams are oriented towards selling and installing new accounts. In a customer culture, the same departments are required but the skill sets and attitudes can be very different. Can the vendor change the skill sets and attitudes? If not, the customer must suffer the consequences of less experienced, less knowledgeable people.
To illustrate the problem, application software sales management often classifies the sales teams in two groups, hunters and farmers. The hunters search out new accounts, the farmers grow the customer. The skills and the attitude of these two types of sales people are very different. Can a hunter be converted into a farmer? Most sales managers will tell you "not usually." The new account culture needs mostly hunters; the existing account culture needs farmers. What happens is turnover (voluntary or otherwise) with hunters being replaced by farmers. But when a farmer walks out the door, they take their experience, product knowledge, and market knowledge with them. Most new farmers cannot make up for that knowledge and experience and the customer suffers.
In a new account culture, the majority of service personnel are trained and equipped to install new accounts. They are very good at taking a customer from nothing to being implemented. In the customer culture, the service personnel work to enhance the value of the software already installed. While some of the skills and knowledge are the same, the enhancing objective requires greater experience, knowledge and people skills. The identical people issue exists in our sales team example above.
The Software Support model has challenges similar to the services team. When an account initially implements, it get lots of relatively easy calls for help. Once, installed, the quantity of calls drops but the difficulty of the questions increase. Of all departments, software support may be the one that needs in-depth product knowledge more than any.
In this down economy, we must also realize that in the application software business, people = cost. If the company wants to reduce expenses, they really have only one way, cut headcount. Today, most vendors have two objectives, they want the change the mix of skills and they need to reduce headcount.
Business Practices Must Change
Business practices must change. Installed customers are more interested in services than products. Installed customers have excellent knowledge of the pluses and minuses of being a customer and expect to interact with the vendor in a way that enhances the pluses and fixes the minuses. Therefore, they often want more flexibility. For example, they want support of older releases. They want options or "ala cart" support services.
Perhaps the hardest change is management. If the business requires a "love the customers" approach, business decisions are made differently. Metrics on business or team performance must be different. All companies need to make money; the customer-focused companies are focused on a long-term relationship with the customers as their profit strategy. They see the long-term value creation or at least value protection as key to their customers well being.
One warning, beware of vendors who interpret "Love the Customer" as "Milk the Customer". This business model focuses on short-term profits, not long-term relationships. Typically, these companies increase support fees and set service level based upon income and profit considerations. As one executive in a "milk the customer" vendor put it, "It's an easy business to run, you see what your support revenues are going to be for the year in January, you subtract the profit you want and fire people down to the level that you can afford."
SOURCE:-
http://www.technologyevaluation.com/research/articles/the-reinvention-of-software-vendors-and-end-user-value-16951/
The stock market of the 90's saw new accounts as a key metric when valuing application software companies. This drove application software companies to a business model designed to win new accounts. New accounts were seen as the primary source of revenue by many of these companies. For both the investor and vendor, this "New Accounts at All Cost" was the right business model. But times have changed. Market penetration is high so few new account opportunities exist. Economic uncertainly has pulled the purse strings of most companies so selling is more difficult. Therefore, application vendors are focusing on their install base as their primary source of revenue while cutting costs to provide profitability. The result is a drastic change in their business model. The old business model of "New Accounts At All Cost" must morph in to a "Love the Customer" model.
Most vendors will tell you that they are both new account and customer oriented, and some have struck this balance. But the vast majority have been worshipping at the Wall Street idol of new accounts for so long that the reality is, they have a new account business model.
Changing A Business Model Not Easy
Changing a business model is a fundamental change; it is not changing the web site or printing new brochures. In this case, it is a flip in strategy from a new account culture to a customer culture, and culture is always very hard to change.
The most important asset of any application software company is people. In a new account culture, sales, marketing, support and implementation teams are oriented towards selling and installing new accounts. In a customer culture, the same departments are required but the skill sets and attitudes can be very different. Can the vendor change the skill sets and attitudes? If not, the customer must suffer the consequences of less experienced, less knowledgeable people.
To illustrate the problem, application software sales management often classifies the sales teams in two groups, hunters and farmers. The hunters search out new accounts, the farmers grow the customer. The skills and the attitude of these two types of sales people are very different. Can a hunter be converted into a farmer? Most sales managers will tell you "not usually." The new account culture needs mostly hunters; the existing account culture needs farmers. What happens is turnover (voluntary or otherwise) with hunters being replaced by farmers. But when a farmer walks out the door, they take their experience, product knowledge, and market knowledge with them. Most new farmers cannot make up for that knowledge and experience and the customer suffers.
In a new account culture, the majority of service personnel are trained and equipped to install new accounts. They are very good at taking a customer from nothing to being implemented. In the customer culture, the service personnel work to enhance the value of the software already installed. While some of the skills and knowledge are the same, the enhancing objective requires greater experience, knowledge and people skills. The identical people issue exists in our sales team example above.
The Software Support model has challenges similar to the services team. When an account initially implements, it get lots of relatively easy calls for help. Once, installed, the quantity of calls drops but the difficulty of the questions increase. Of all departments, software support may be the one that needs in-depth product knowledge more than any.
In this down economy, we must also realize that in the application software business, people = cost. If the company wants to reduce expenses, they really have only one way, cut headcount. Today, most vendors have two objectives, they want the change the mix of skills and they need to reduce headcount.
Business Practices Must Change
Business practices must change. Installed customers are more interested in services than products. Installed customers have excellent knowledge of the pluses and minuses of being a customer and expect to interact with the vendor in a way that enhances the pluses and fixes the minuses. Therefore, they often want more flexibility. For example, they want support of older releases. They want options or "ala cart" support services.
Perhaps the hardest change is management. If the business requires a "love the customers" approach, business decisions are made differently. Metrics on business or team performance must be different. All companies need to make money; the customer-focused companies are focused on a long-term relationship with the customers as their profit strategy. They see the long-term value creation or at least value protection as key to their customers well being.
One warning, beware of vendors who interpret "Love the Customer" as "Milk the Customer". This business model focuses on short-term profits, not long-term relationships. Typically, these companies increase support fees and set service level based upon income and profit considerations. As one executive in a "milk the customer" vendor put it, "It's an easy business to run, you see what your support revenues are going to be for the year in January, you subtract the profit you want and fire people down to the level that you can afford."
SOURCE:-
http://www.technologyevaluation.com/research/articles/the-reinvention-of-software-vendors-and-end-user-value-16951/
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