In this new era of customer power, tech companies often have to go to extremes to make the sale. Take Reactivity Inc., a maker of specialized network security computers. The five-year-old Belmont (Calif.) company was so anxious to do business with Aeroplan, an Air Canada subsidiary, that it agreed to prove its technology would do the job before Aeroplan became a customer.
Reactivity engineers wrote a software program especially for Aeroplan, which runs Air Canada's frequent-flyer program and is the leading loyalty program provider in Canada. The software connects Aeroplan's computing systems with those of any marketing partner it chooses for its customer-loyalty programs. Then Reactivity set up computers to show that the system would work.
The project was completed in just one month. "The understanding was that if everything went well, we'd become a customer," says Spyros Kattou, e-business architect for Aeroplan. That's what happened. But it's a mighty hard way for Reactivity to get the business.
ONCE IN A LIFETIME. And that's quite a switch from the go-go days of the 1990s. Back then, three fair-weather systems converged to produce the perfect sunny day for the tech industry. Corporations were rapidly buying expensive run-the-business applications from the likes of SAP (SAP) and Oracle Corp. (ORCL). They spent fortunes setting up e-commerce Web sites and intranets. And they bit the bullet and invested billions in heading off the dreaded Y2K scare.
None of those things will happen again. And though a Next Big Thing will almost surely come, someday, three Next Big Things won't likely arrive at once.
Strong pressures will keep the tech industry focused on customer satisfaction. For starters, this three-year downturn has left corporate executives who bought unwisely with scars they won't soon forget. Plus, the Internet itself keeps everyone on their toes. Because the Net makes so much info available so easily, customers are fully aware of product and price alternatives.
"The tech industry helped create an era of customer power throughout the economy, and now it's coming back to affect them, too," says Erik Brynjolfsson, a management professor at Massachusetts Institute of Technology.
"PAY AS YOU DRINK." To avoid the boondoggles of the past, many corporations have erected obstacle courses designed to make sure money is well spent on tech purchases. Among eight members of the Society for Information Management's advanced-practices council who responded to a poll in November, every one has either shifted responsibility for tech investments to a central purchasing outfit or has at least notched up the internal requirements for getting a project approved.
One company that created a separate "strategic sourcing" outfit, Burlington Northern & Santa Fe Railway (BNI), credits the shift with keeping its annual tech spending flat at $273 million for three years -- even while salary and benefits costs increased by about $6 million this year. "In the old days, tech spending was like the company Christmas party -- open bar. Now it's pay as you drink," says Jeff Campbell, CIO and, in 1999, the railroad's first-ever chief sourcing officer.
Spending discipline doesn't necessarily put the kibosh on ambitious tech projects. If corporate customers and their suppliers figure out a way to move forward in lock step, they can both reap rewards.
That's the aim of Merrill Lynch (MER) and Thompson Financial, which are halfway through a three-year, $1 billion project that'll put workstations on the desks of 25,000 of Merrill's brokers. These machines will put the world of investing information at their fingertips. Thompson, the prime contractor, is obligated not only to deliver technology and services on time and on budget, but to constantly improve customer-satisfaction levels among Merrill's brokers and end customers.
SEEKING DETENTE. Some corporations now see an opportunity to collaborate ever more closely with their suppliers and help guide technology their way. Pharmaceutical giant Pfizer Inc. (PFE) is working with software makers Oracle and Adobe Systems Inc. (ADBE) to create a new system for automating the tracking of clinical drug trials. Pfizer is essentially a co-inventor of the technology. It gets to be the first among its peers to benefit from the advances, and Oracle will release a product based on the technology early next year.
"There will be tech companies that see Corporate America has a great role to play" in shaping technology, says Walt Hauck, vice-president for informatics at Pfizer Global R&D. "If they want to be in the game, they'll have to keep pushing this."
Even tech purchasers that are seeking detente with their suppliers still enjoy having the upper hand, though. It has been a long time coming. Back in the 1980s, the iron grip of the mainframe companies was broken by the advent of minicomputers and PCs. Then customers gained more leverage when the Internet came along in the mid-1990s. Net standards made it harder for tech companies to lock customers into their way of doing things.
"CASHECTOMIES." Then came the bust. Now, despite much consolidation among tech industry players, corporations typically have plenty of alternatives to chose from -- which keeps suppliers on tenterhooks. Joseph Sura, vice-president for technology at chipmaker Nvidia Inc. (NVDA), walks salespeople down to a room chock full of whirring computers when they visit him, making sure they see all of their competitors' machines lined up along the walls. "It's never an easy win here," he says.
That switch has forced tech companies to radically overhaul their sales forces. The industry was infamous for hiring red-meat-eating sales warriors who would launch an all-out assault on an account, make the sale, collect the commission, and move on -- rarely to be heard from again. This technique was perfected by Internet pioneer Netscape Communications Corp., where some employees referred to sales calls as "drive-by shootings" and "cashectomies." You won't hear jokes like that anymore.
In fact, Mike McCue, a former Netscape executive, was so grossed out that when he co-founded TellMe Networks he banned the word "sales" from any job title. When TellMe's "client development" people sell an automated telephone customer-response service, payments are always derived from savings by the customer. Under a new program, commissions are divvied up among an entire project team -- including engineers. It's enough to make an old-style sales rep cringe.
CEO APOLOGIES. This requires an immense cultural shift. Consider EMC Corp. The Hopkinton (Mass.) storage-computer company concedes that it was the epitome of arrogance in the boom era. When demand fell off the cliff, EMC (EMC) at first didn't have a clue how to respond. Nvidia's Sura recalls a day in 2001 when a team of EMC salespeople made grand claims about the performance of their computers and lectured him on how he should use technology.
Later, after he tested the machines and found their claims were bogus, "I ordered them to wheel out their equipment and not come back," Sura says. Only after receiving an apologetic visit from EMC CEO Joseph Tucci and a change in salespeople did Sura agree to give it another chance.
To avoid such mishaps, EMC overhauled its sales operations. It appointed Frank Hauck, who had long run customer service, to oversee the entire sales and service operation. Now, instead of staying with an account for as little as a matter of months, sales reps are expected to stay for years, and their compensation is tied to customer satisfaction. Hauck also appointed global account representatives who are responsible for overall customer satisfaction and don't get paid commissions on individual sales.
JUST WALK AWAY. Indeed, the tech industry's new favorite buzzword is "value-based selling." It reverses the polarity in the tech universe. Instead of pitching the gee-whiz capabilities of their computers and software, salespeople are supposed to learn their customers' business and work closely with them to come up with technology solutions that help them in measurable ways.
It's hard to enforce this kind of discipline, though. Dell's (DELL) 2,000 field salespeople are instructed to walk away from a deal if they don't believe their technology is a good fit. Yet, "sometimes our sales force forgets that the customer is king," says Joseph Marengi, senior vice-president of Dell Americas. "If they lied and just tried to make a sale, I'll remove them."
While rank-and-file salespeople may be struggling to adapt, tech execs are doing a better job of meeting customers eyeball to eyeball. In the past, tech CEOs and top sales managers would meet regularly with their corporate counterparts, but a lot of it was just window dressing. "Suppliers who wanted to have a relationship wanted to take you to lunch. I don't need that," says June Drewry, CIO of insurer AON Corp. (AOC) Now, more tech companies are deepening those bonds by setting up councils of top CIOs who advise them about their technology priorities.
WHOLE NEW STRATEGIES. Software maker Citrix Systems Inc. (CTXS) two years ago invited Alan Hosey, vice-president for domestic branch operations at Canada's Scotiabank, to join its new customer board, a group of nine who meet twice yearly to discuss strategic technology issues. It gave him a chance to influence the direction of Citrix' future products. And he took it -- making sure they could handle very large numbers of simultaneous users without ever going off-line. The results for Scotiabank: Its new computing system, for 20,000 desktops in 1,000 branches, has cut branch computing costs in half.
Taking advice from customers can pay off in ways that go far beyond adding features to a product. For some companies, it has led to significant shifts in strategy. Stratton Sclavos, CEO of Internet security provider Verisign Inc. (VRSN), in the summer of 2002 was summoned to the New York offices of David S. Bauer, the chief information security officer at Merrill Lynch. Bauer wanted somebody to supply him with a service that would alert him ahead of time to any emerging security threats on the Net, anywhere in the world, and help him set priorities.
Neither Verisign nor any other tech supplier offered that service at the time, but Sclavos realized that Verisign could easily do so. It already gathered the information about worldwide threats that would form the basis of the service. On Oct. 6, Verisign announced a new business -- security intelligence and control services. Its first customer: Merrill Lynch.
"RADICAL OPENNESS." Verisign and other larger companies have plenty of resources to respond to customers demands. It's a much more daunting task for hundreds of small companies that have struggled through the long downturn. They have to resort to creativity and quick reactions to get by.
Take Plumtree Software Inc. (PLUM), which has held on as the leadering provider of corporate Internet portal software in spite of competing with the likes of SAP and IBM (IBM). The key to holding onto customers and winning new ones is Plumtree's willingness to adapt rapidly. After two major customers last summer demanded that Plumtree make it easier to mix and match its products with those of its competitors, in October it announced a new technology strategy, dubbed "radical openness" that does just that.
Tech's new world order is especially tough on startups. With venture money scarce, the relatively few newbies being launched must do things vastly differently. Alain Rossman, who started four companies in the past 15 years including pen-computing bust EO Inc., typically relied on his instincts to lead him toward the Next Big Thing. But in 2001, he went to the extreme of interviewing dozens of corporate executives to help him figure out what his next startup should focus on.
RISING GRADES. The result was something he wouldn't have targeted on his own: His company, PSS Systems, provides software for complying with regulations such as Sarbanes-Oxley. It may not sound sexy, but it's practical -- and delivers immediate results. That's what corporations demand these days.
Because of the tech industry's focus on customers, corporate purchasers say products are improving and their satisfaction levels are climbing. Among computer makers that focus on corporations, the average customer-satisfaction grade rose from 7.5 to 7.9, on a scale of 1 to 10, from 1998 to 2003, according to market researcher Prognostics, one of the leading customer-satisfaction research firms. For software makers, the rating improved from 7.1 to 7.4.
Plenty of progress can still be made. But if both buyers and sellers keep their hard-won discipline, the payoff from technology might have a long way to run. By Steve Hamm in New York