Editor's Notebook: ITSMA's New Look

It's hard to be totally upbeat right now, since the Boston Celtics just got bounced from the NBA playoffs by the New Jersey Nets. But I am excited about the launch of ITSMA's new look last week. We unveiled a new logo, redesigned the Website, and rolled out new collateral. It's not just a new look, though. The design changes reflect a deeper effort both to reaffirm ITSMA's mission as the leading experts in services marketing and sales and to showcase more clearly our expanded role in providing customized research, consulting, and training to support ITSMA members. I think it all looks great, but I'll have to admit to just a bit of bias. What's your reaction? I'm also curious about your thinking on the software as service trend, the subject of our lead article this month. Has this movement reached the takeoff stage? Is your organization developing new software subscription offers? What kind of reaction are you finding in the market? Read on and let me know. Just don't ask about the Boston Red Sox!

-Rob Leavitt, editor

What's Hot: Subscription-Based Transformation: Four Keys to Selling Software as Service

Momentum continues to build for the software-as-service model, with Fortune magazine, among others, recently citing this approach as one of the five biggest trends in technology. Some software firms have begun to gain traction with this approach, but many others are struggling with the difficult realities of successfully marketing, selling, and delivering subscription-based offers.

Proponents of the model promise numerous benefits to customers, including faster implementation of enterprise applications, controlled costs, and reduced risks. As such, they hope to acquire new accounts, especially small to midsize companies that don’t have the infrastructure to support the most sophisticated applications internally. Proponents also look to increase average revenue per existing account and to make switching to a competitor less likely.

Yet many customers see only new tactics to lock them into longer-term deals and increase overall spending. Persuading the skeptics may require more substantial organizational change than first seems necessary.

Too often, subscription offers are essentially just a financial façade for the same old products or a superficial combination of products and services that are not effectively integrated. To truly create the value that will make these programs sell into the mainstream, vendors need to do four things:

• Understand customers’ business. Selling and providing subscription-based solutions will require vendors to dig deeper into their customers’ business models and operations. For example, crafting an effective value proposition could require modeling and comparing customers’ life-cycle costs of software ownership. This, in turn, means understanding customer use models and the challenges that arise over time that cause the most cost, resource drain, and frustration.
• Improve customer relationships. Subscription-based solutions change transaction sales into ongoing relationships. This is a big change especially for the smaller and midsize accounts that have often received little day-to-day care and feeding. If managed well, the new relationships create opportunity for further product penetration, higher referral rates, and reduced switching. But the key is making the user experience a positive one. This requires a clear value proposition, well-designed services, and the elimination of frustrating surprises such as hidden fees.
• Integrate disparate organizations. Providing sophisticated subscription services typically relies on seamless integration of multiple organizations. Managing this integration with internal groups such as product development, consulting, customer service, IT operations, and administration—and sometimes partners as well—requires substantial planning, skill, and organizational alignment. Most important are clear agreements on the definition of the offer and specific deliverables, quality measurement and control, and accountability.
• Facilitate business process innovation. Vendors need to emphasize innovation in business process as much as technical advancement. Over time, the key to success with the software a service model will be the degree to which particular offers and solutions continually improve customers’ business operations, expand opportunities to grow revenue, and reduce risk and aggravation.

These changes are not trivial. They require a shift in focus from helping customers understand the promise of new technology to meeting customers’ business needs. Subscription-based solutions and similar models will likely enter the portfolios of most large software firms. Their prospects for success, however, will depend heavily on their ability to prioritize the four customer-centric initiatives described here and integrate them into corporate culture.

And who knows—as subscription revenue increases and competitive advantages become more visible, even Wall Street may start valuing the services side of the software business.

—Rich Staples

For a broader view on the organizational changes involved in moving to a solutions approach, read about ITSMA’s Solutions Roadmap at http://www.itsma.com/research/abstracts/u0041.htm.

Research Desk

Stop Listening to Your Customers! The Case for Outcome-Based Innovation

Innovation remains vital for generating growth in technology services, even in a conservative market. But innovation is often hamstrung by the way organizations listen to their customers.

Traditional customer research involves gathering ideas to improve current services and for potential new products and services. The problem is that customers' input is highly limited to what they already know and what is available and technologically feasible. Additionally, organizations often ask questions that are consistent with their existing offer and business model, thereby missing input that might lead them in a new growth direction.

The result, as Harvard Business School innovation guru Clayton Christensen explains in The Innovator’s Dilemma, is that companies can be held captive by their existing customer base. By focusing on the needs of their mainstream customers, companies can miss opportunities for sizable new growth markets.

The solution is not to actually stop listening to customers altogether but to change what you’re asking for and to listen in a new way. The key is to capture the customers' desired outcomes: statements that describe what they are trying to accomplish by purchasing your services or solutions. These outcomes represent an internal, often subconscious, "customer scorecard" by which customers measure the value of a product or service. (The concept of outcome-based research was first introduced in "Turn Customer Input into Innovation," Harvard Business Review, January 2002.) Once you understand how the customer measures value, you can predictably manage value creation.

Most organizations, for example, conduct regular customer satisfaction surveys and try to identify the top drivers of satisfaction. For example, "responsive customer service" might appear as a top customer priority. But what does that really mean? Does "responsive" mean the same thing to all customers?

An outcome-based approach would dig more deeply into the specific outcomes that people are looking for with "responsive customer service." The survey would produce more actionable findings if it addressed outcome statements such as "minimize the time it takes to get a live person on the phone," "increase the amount of information I can access on your Website" and/or "minimize the time to resolve a complaint."

During an extensive history of using the outcome-based approach, Strategyn, an innovation consulting and research company, has found that customers use between 50 and 150 desired outcomes to measure the value of a product or service. Furthermore, these outcomes are stable over time. What does change over time is how important they are and how well the market satisfies the outcome.

Uncovering the specific outcomes that are most desired and least satisfied enables companies to identify new avenues for growth and apply an accountable, measurable approach to analyzing new opportunities for services. With a solid understanding of how your customers measure value, you will be able to develop and evaluate new service offerings, modify existing offerings, and create new marketing and sales approaches that quantifiably increase customer value.

—Sandra Bates, sbates@strategyn.com

Sandra Bates, a veteran services marketer, is an innovation advisor for Strategyn, a consulting and research firm specializing in the management of innovation. For more information on outcome-based innovation, visit www.Strategyn.com.

Improving Marketing Accountability at IBM Global Services in Europe

Until recently, marketing resources for IBM Global Services in Europe were held mostly in individual countries and regions. A central EMEA team worked to ensure consistency across programmes, but decentralised budgets led to fragmented initiatives. On the whole, measurement of marketing effectiveness was inconsistent and accountability was limited.

As the economy slowed two years ago, greater scrutiny of marketing spending led to a significant push within the central team to justify marketing investments by linking programmes more clearly to broader business objectives and creating more rigorous metrics to evaluate results.

The proposed introduction of new measurement systems—particularly around lead and business generation programmes—met with initial resistance from within the marketing team across Europe. The team was unconvinced that services marketing could be measured in terms that were meaningful. In particular, services marketers were uncomfortable with existing systems to track services leads. In the past, leads they had passed to the sales teams would often get "lost" in the system.

But the importance of aligning marketing with sales needed to be underlined, so marketing began systematically measuring campaign elements to understand what was most effective in driving sales opportunities.

Additionally, the team established a new process to track the development of relationships with key clients, focusing on four main metrics:

• Number of contacts
• Number of new relationships initiated
• Number of accounts into which sales or consultants were introduced
• Number of times existing clients are touched

At first, measurement proved difficult and was usually done manually. Over time, the team strengthened the internal systems with new campaign codes to help track all leads passed to sales. Sales-related tracking included:

• Contacts established and relationships developed
• Meetings set up for the sales team
• Deals

For the first time, EMEA marketing could look across Europe and see which programmes were most effective and analyse the return on marketing investment in terms of business objectives.

—Bev Burgess, info@itsma.com

ITSMA Europe's new Case Study, IBM Global Services EMEA: Building a Proactive Marketing Organisation, takes an in-depth look at the EMEA marketing team's broader reorganisation. The Case Study is available without charge to ITSMA Europe members and for sale to others. For more information or to download the report, visit http://www.itsma.com/research/abstracts/EUC002.htm.

Wendover's Lead Generation Provides a New Window on Market Trends

Disaster recovery solutions topped the charts last week in Wendover Corporation’s Technology Marketing Report, a compilation of sales leads generated by the Haverford, PA, marketing intelligence firm. In itself, this weekly tally provides only another data point suggesting the continuing concern of U.S. companies with the security of their systems. The ongoing report, however, holds far greater promise as a window into market trends and priorities.

In all, Wendover uncovered some 150 leads for new technology projects during the week of May 5, including requests for help with enhancing e-mail management, implementing offsite data storage systems, upgrading enterprise resource planning (ERP) applications, and managing a migration from Novell to Windows. Likely buyers included hospitals, manufacturing companies, technology firms, colleges, state and local government agencies, and a variety of other types of organizations. At a time when lead generation is a top marketing priority, it is not surprising that Wendover’s successful efforts have attracted a number of marquee clients in the technology world, including Cisco, CSC, and J. D. Edwards.

As interesting, though, is the company’s effort to provide a new forecasting tool for technology spending as a whole. Tapping a database with more than 10,000 completed sales calls each month, Wendover claims to provide extremely accurate forecasts of future technology spending—a bold and appealing claim given that so many prognosticators have missed the mark so widely in recent years.

Wendover’s unique insight, according to CEO Larry Dillon, is based on the firm’s lead-generation approach. Unlike the traditional market research firms, Wendover is explicitly making sales calls, not research calls, every day. The focus is on budgeted projects rather than general, often less concrete, plans. In a recent evaluation of leads that Wendover uncovered in 2001, for example, the firm found that 76% of the projects had been completed. About 15% had been canceled, and the remainder were either on hold or could not be verified.

The scale of Wendover’s effort adds to the credibility of the forecasting program. In all, Wendover reaches out to virtually every company in the United States that has more than 1,000 employees and about 25% of all companies with 100–1,000 employees—some 80,000 companies in all. Last year Wendover uncovered leads from almost one out of every five companies with more than 1,000 employees. Among other things, as Dillon notes, "If we’re not seeing leads for a certain type of project, they are not out there."

The Wendover approach has limitations. By focusing on leads, the company isn’t tracking spending per se. Indices for different technology markets are useful primarily to track trends and priorities rather than planned or actual spending.

But that tracking can be extremely valuable. For example, as Dillon recalls, "A few years ago, everyone was talking about whether Microsoft could make it in the B2B market. While the experts were debating, we went from one company looking to migrate from Novell to NT to five, then ten, and then all of a sudden Novell shops complaining that they didn’t have enough NT engineers to handle all the work." At least one Wendover client was able to use the early-warning data on the NT shift to great advantage by shifting its own resources toward NT ahead of its competitors.

The relative value of Wendover’s forecasts vis à vis the research houses is not yet clear; the service is too new. A recent deal with Global Insight to create a new technology-spending index, however, gives the firm a strong seal of approval. (Global Insight itself was recently formed with the integration of DRI and WEFA, two of the most respected economic and financial analysis firms in the world.)

For marketers looking for new insight into buying priorities, Wendover can provide demand charts and trend analysis in any number of permutations for different industries, size of company, type of buyer, state of project development, and more. And if you’re pushing disaster recovery solutions these days, you might want to check out their new leads, as well.

—Rob Leavitt

For more information on Wendover, visit http://www.wendovercorp.com.

Tech Poll: IT Spending Plans Bog Down Again, But Largest Firms a Bit More Optimistic

CIO Magazine's Tech Poll provides a monthly assessment of technology buying trends from a broad cross-section of chief information officers (CIOs), mostly from North America. The latest survey, conducted during the winding down of the Iraq war on April 10-17, 2003, shows a downturn in plans for IT spending for the next 12 months but also an uptick in spending plans at the largest companies.

Key findings:

• CIOs plan to increase overall IT spending 4.2% over the next 12 months, down notably from a 6.1% projection in March.
• Plans for spending on outsourced IT services also declined slightly in April, with only 28% of survey respondents planning to increase such spending over the next 12 months, compared with 31% who projected increases last month. A similar number plan to cut spending on outsourced IT services, and about 40% project no change.
• More than one third of the respondents (35.8%) do not foresee a spending pickup until 2004—a substantial increase from the March survey, which showed 26.3% projecting no pickup until next year.
• Although overall spending plans for the next 12 months declined, CIOs from the largest companies—those with more than 5,000 employees—became more optimistic. These companies project spending increases of 4% over the next 12 months, compared with flat projections last month.
• Respondents from business services, the federal government, financial, telecom, and manufacturing verticals reported comparatively stronger spending plans, with respondents from health care, state and local government, retail, transportation, and utilities reporting comparatively weaker plans.

April Tech Poll figures are based on 279 survey responses, with 93% from North America. CIOs made up 89% of the total respondents. The respondents represent a wide range of industries, including technology services, manufacturing, finance, state and local government, health care, and wholesale and retail distribution.

For complete survey results, visit http://www.cio.com/info/releases/050103_techpoll.pdf.

Multiclient Research Opportunities: Market Positioning Studies on Managed Services, Storage, and CRM

How effective are your marketing messages with target markets? How do buyers perceive your brand compared with those of your competitors? ITSMA Market Positioning Studies help study sponsors understand customer perceptions, competitive positioning of market leaders, critical sources of influence, and key buying criteria.

Learn more about the benefits of study sponsorship for these upcoming studies:

• Managed Services: 2003 Market Positioning Study
  http://www.itsma.com/Research/prospectus/mk0317_ms02.htm
  
• CRM Solutions: 2003 Market Positioning Study
  http://www.itsma.com/Research/prospectus/mk0370_crm03.htm
  
• Storage Solutions: 2003 Market Positioning Study
  http://www.itsma.com/research/prospectus/mk0367_strg03.htm

EuroNotes: ITSMA's European Forum: Winning in a Solutions World

Marketers will gather in Heathrow next month for ITSMA's third annual European Forum, the leading European event for IT services marketers to stay current with industry trends, address new challenges, and focus their strategies to market, sell, and deliver value more effectively. The forum will take place 18-19 June at the Radisson Edwardian Hotel, Heathrow, London.

This year's forum features Professor Adrian Payne, author of the first book on relationship marketing and Director of the Centre for Customer Relationship Management at Cranfield University School of Management. Dr Paul Fifield, an innovative marketing strategist and member of the Chartered Institute of Marketing's international board of trustees will address the key issue of achieving differentiation. Additional presenters include senior executives from Accenture, Computacenter, Hewlett-Packard, Microsoft, Steria, and Unisys.

The forum provides services marketers from across the technology industry with a great opportunity for an intensive day and a half of presentations, discussion groups, networking, and workshops focused on the requirements for marketing solutions effectively in today's challenging environment.

For more information or to register online, visit http://www.itsma.com/Events/event_desc/03AF06E05.htm.

More EuroNotes

Upcoming Events

May 20 Online Briefing: Best Practices in Customer Segmentation (free to members)

Segmentation is critical to success in today's skeptical technology market, yet effective approaches are often quite different from those traditionally used in consumer product marketing. Join Julie Schwartz, ITSMA's vice president of research, for a review of the latest thinking and best practices in segmentation for marketing technology services.

For more information or to register online, visit http://www.itsma.com/events/event_desc/03OB05N08.htm.

June 3 Online Briefing: Effective Thought Leadership: Engaging Senior Decision Makers (free to ITSMA Europe members)

Thought leadership is increasingly important in the marketing mix as marketers seek to establish a dialogue with top-level decision makers on critical business issues. Join Bev Burgess, ITSMA Europe's managing director, for a review of new research on the effectiveness of thought leadership programs in the financial services markets in the United Kingdom, France, and Germany.

For more information or to register online, visit http://www.itsma.com/Events/event_desc/03OB04E04.htm.

June 18-19 European Forum: Winning in a Solutions World (London, UK)

ITSMA Europe's Annual Forum will explore how to win in a solutions world by marketing, selling and delivering client value. With presentations from leading practitioners and academics in Europe plus working sessions and networking opportunities to encourage peer learning, the forum is a must for marketers looking for practical techniques and new concepts to improve their companies' return on marketing investment.

For more information or to register online, visit http://www.itsma.com/Events/event_desc/03AF06E05.htm.

June 25-27 Client-Centric Marketing Course: Accelerating Services Growth (Boston)

ITSMA's signature MBA-level course provides an intensive, hands-on learning experience focused on the core client-relationship issues that services marketers need to master in order to succeed. The course is led by Steve Hurley, ITSMA's vice president of learning, and Philip Dover, faculty director for Babson College's School of Executive Education.

For more information or to register online, visit http://www.itsma.com/Events/event_desc/03ME06N09.htm, or contact Lore Griffith at +1-781-862-8500, ext. 19, or lgriffith@itsma.com.

Complete 2003 Events Calendar
http://www.itsma.com/aspfiles/Events/calendar.asp

Event Sponsorship Opportunities
http://www.itsma.com/Events/other_desc/sponsorprg.htm

Ask ITSMA!

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About ITSMA
ITSMA specializes in helping companies market and sell services and solutions more effectively. As a membership organization, we provide research, consulting, and training to the world's leading technology, communications, and professional services providers to generate increased demand, strengthen customer relationships, and improve brand differentiation. ITSMA is based near Boston, and has offices in London and Tokyo. Learn more at www.itsma.com.