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Helping Software Companies Navigate Their Way To Success |
Preventing Customer Crises: Ensuring You Keep The Customers You Have |
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In this post dot.com bubble, post 9/11, corporate-scandal-ridden economy, IT organizations have clamped down on spending, and when they spend, they spend less. Estimates for IT spending for the next several years are in the low-single digits. So many software companies have focused on providing more services to current customers, changing the mix from 50/50, or 40/60, services to fee-based revenue, to upwards of 80/20, services to fee-based revenue. Consequently, it is even more imperative that we retain the customers that we have. Which is why we need to ensure that we prevent customer crises before they happen. Crises don’t erupt overnight; they take time to mature. Yet, like a frog we sometimes miss the signs of an impending crisis. A frog knows enough, when thrown into a pot of boiling water, to jump out. But when it is placed into a cool pot of water that is heated to the boiling point, it doesn’t notice the change in temperature, until it is too late, and it dies.1 In this article, we will first look at a frog that encountered the boiling point; that is, a company who clearly missed the early warning signs and paid the consequences. Then we will look at how to sense the water’s rising heat; that is, noticing the early warning signs so we can take action and avoid a coming crisis. And finally, we will look at how to keep the water cool; that is, instituting an early warning system. First a classic case of boiled frog. Logisticon, a ten-year old $20 million warehouse management software company, successfully landed a $1.7 million contract with Revlon who wanted to track $3 Billion worth of sales and shipments.2 During the ensuing installation, Revlon told Logisticon that the software wasn’t working properly. Not getting an adequate response, after installation and paying $420,000, Revlon took an extreme measure: they halted any further payments and refused to resume payments until the system performed as specified. Believing the software issues were minor—after all, the warehouse software was in place and working—Logisticon responded with another equally drastic action. They disabled the software running in two different warehouses, one in Edison, N. J, and another in Phoenix Arizona, idling 400 workers for three days. In effect, they “repossessed” the software for non-payment. Citing losses coming from the warehouse shut down which caused a delay in shipping about $60 million worth of merchandise, Revlon sued Logisticon. The press feasted on this David and Goliath story, especially on the potential ability of a small software company to inflict significant damage on its large multi-billion dollar revenue producing customer by shutting down the customer’s operations. Headlines blared from the Wall Street Journal, “Logisticon Settles Score With Revlon By Remote Control—Software Maker Uses Phone to Repossess Programs; Cosmetics Company Sues”, from The Washington Post, “Revlon Suit Revives the Issue of ‘Sabotage” by Software Firms; Manipulation of Computer Programs Damages Credibility” and finally from Time magazine, "No Payment, No Lipstick." Even though , Logisticon did settle out of court with Revlon, the bad press it received lost them new sales and the company, as a result, eventually went out of business. So how do we avoid being another Logisticon? How do we notice the rising heat? Unfortunately, we all have had that little tingling, fleeting feeling of concern in the back of the neck, that only takes on meaning later, when a disaster strikes, much to our dismay and misfortune. The crisis casts past events into a whole new light. Yet, if we where just more aware, more observant, the crisis could have been prevented Accordingly, be a keen observer of your customer. Make it a practice to look for changes, even small ones. During an installation, Howard Kalman, VP of Services at Business Layers, an e-provisioning software company, detected a troubling trend: informal meetings, covering the progress of the project held in a spirit of mutual collaboration, were changed to a formal one-hour meeting with an agenda passed out just prior to the meeting; meetings which had just 2 or 3 people now had 6 or 7; and scheduling meetings became more difficult. Following up, Kalman, used an approach that has worked before. He often would visit his staff at his customer’s premises. But on this particular day, he deliberately came in earlier, catching the project business manager alone in his office. Repeating this a number of times, he was able to have an unscripted, informal one-on-one meeting, which also avoided the grandstanding that was taking place at the formal meetings. From this intervention, a change in how Business Layers dealt with its customer, Kalman unearthed the unstated issues and put this relationship back on track. Paula Cervoni, VP Of Services for Relavis, a CRM software company, pays special attention to changes in communication, changes in frequency or type. For example, during a customer’s product installation, over a period of time, her staff heard, almost daily, the product champion’s name being mentioned over and over again. Then, silence. Cervoni was suspicious about this change, and in a follow-up, discovered that behind the scenes there was an impeding change in project leadership. After learning this, she then held a series of meetings with the new leader to both provide an orientation and bring him up-to-speed. For Cervoni, the key is looking behind the change to explore what that change might mean. Also, be aware of hidden issues. Even in business, where one expects customers to be upfront about their problems, they aren’t; they will speak indirectly about it or avoid discussing the real problem at all. Kalman relates an incident earlier in his career, where a large advertising firm refused to renew a software contract. Kalman’s boss, wanting to retain the business, told him to take this client out to lunch and engineer a turn-around. When Kalman called and suggested they go to lunch anywhere in Manhattan, his client chose the most expensive restaurant in Manhattan, the Four Seasons. At the end of lunch, after discussing a number of problems, Kalman was surprised when his client said, “I guess you guys are serious about us as a customer.” It was only then that he truly understood the real issue; making his customer feel important. So, Kalman won the renewal, not because of the usual and obvious issues—cost, service, performance, or functionality—but because of a hidden issue, one the customer was unlikely to bring up himself. At times, there are deeper, hidden problems that can have a dramatic effect on a relationship, as in this case where the customer wanted to feel important. Lastly, how do we do we keep the water cool? By proactively creating strong communication channels with your customer which act as early warning systems. Marc Stone, VP of Client Services for Optum, a Supply-Chain Management software company, finds Optum’s Customer Advisory Board(CAB), formed four years ago, a very effective way to do this. These meetings, held twice a year and hosted by an Optum customer, provide two forums for communication: informal and formal. At one session, a CIO pulled Stone aside. This CIO, a new customer who was just completing an installation of Optum’s Warehouse Management System, who was an intense individual, told Stone in no uncertain terms that he, the CIO, had a number of concerns that must be dealt with. Because of this informal discussion, and because of the structure of the CAB—having the right talent on hand—Stone was able to marshal the right executive resources and technical talent to met with the CIO to resolve those concerns. Now this CIO is one of Optum’s best references. At a recent CAB meeting, held in April of this year, several attendees surfaced a new question which Stone realized was important to them and clearly needed further development. In response, he suggested an offsite roundtable meeting. The attendees agreed. Stone then scheduled a two-day meeting, limiting participation to ten customers, only to discover that many more wanted to attend then first planned, indicating the high level of interest in this topic. While at the meeting, he facilitated a two-day work session where Optum’s customers, working in teams, first defined their issues and then translated these into specifications for changes to Optum’s software. Afterwards Stone worked with Optum’s product development team to have these changes scheduled for a 4th quarter implementation.. In both instances, the Customer Advisory Board enabled new communication channels, creating the opportunity for questions, concerns, problems, issues to surface, whether in private dinner meetings or in the regular scheduled sessions, and then be dealt with. So unlike the boiled frog, we need to be sensitive and aware of small changes, like Cervoni who looks for changes in communication and wants to find out why. We need to seek out hidden issues like Kalman’s customer who wanted to be recognized as an important customer. And we need to prevent the temperature from rising by opening up strong lines of communication, creating an early warning system, as Stone did with Optum’s Customer Advisory Board. In this way, you can avoid Logisticon’s fate and not be frog legs for dinner. Notes
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