Commentary: Why High Tech Has To Stay Humble
Imagine Ralph Szygenda's surprise. The General Motors Corp. (GM ) chief information officer strolled down the hall at headquarters in Detroit a few months ago and discovered Steven A. Ballmer, chief executive of mighty Microsoft Corp. (MSFT ), crawling under the table in a conference room and plugging in PC monitors -- like some high school audiovisual nerd.
Turns out Ballmer was helping Szygenda's lieutenants figure out why Microsoft's Windows operating system wasn't delivering the screen resolution that GM engineers need to design new vehicles. On the spot, Ballmer dialed his minions back in Redmond, Wash., and asked them to fix it. "This shows me Steve Ballmer cares," says Szygenda.
In the past three years, tech company executives have been down on their hands and knees -- sometimes literally -- trying to show corporate customers just how much they care. They haven't had much choice, since corporations were watching their pennies and were fed up with the industry foisting on them expensive, complex products that focused too much on the latest technologies, rather than on practical results. The downturn gave rise to an era of unprecedented customer power. Prices for computers, software, and services are depressed, and tech companies spend considerable time, effort, and money getting to know corporations' needs and delivering to them what they want when they want it.
Now the wind seems to be shifting. Analysts expect corporate tech purchases to grow a relatively healthy 5% this year. With the money flowing at long last, tech companies will be tempted to go back to their bad old ways. "If the suppliers have a lot of customers, they'll be less hungry," warns Howard Edgar Trainor, president of the Society for Information Management, a group of corporate technology officers.
So, as 2004 begins, it's time for the tech industry companies to make a New Year's resolution. They learned the value of catering to customers in the crucible of the long downturn. Data-storage giant EMC Corp. (EMC ), for instance, saw its revenues decline 58% from fiscal year 2000 to 2002 -- partly because of the arrogance with which it treated customers. Now, rather than forgetting those hard lessons, tech companies need to keep up their efforts to cater to corporate customers, which control 80% of the $1 trillion spent on information technology each year. This is vital to the industry at a time when the payoffs from investments in technology are being questioned.
Indeed, a more dependable tech industry seems to be emerging. When BusinessWeek interviewed more than 30 tech leaders and 25 corporate buyers, they described a new environment in which creators and consumers of technology are for the first time becoming closely aligned. "Things have fundamentally changed -- for the better," says John W. Cummings, chief information officer at Merrill Lynch & Co. (MER ). "Both sides come at it with a more rational view than we did in the past. We're all more focused on delivering a business result, rather than technology."
The effects of this shift -- if it proves durable -- are likely to be overwhelmingly positive. Erik Brynjolfsson, a management professor at Massachusetts Institute of Technology, says that because innovators and customers are working more closely, technology will be the major contributor to a 3% average annual growth in U.S. productivity. That will promote economic growth -- and fuel demand for computers and software.
But that will come only if industry players lock into place their hard-won lessons with new processes that reinforce good behavior. Here's what they need to do:
FIND OUT WHAT CUSTOMERS NEED
In the past, tech outfits tended to be driven by their engineering departments, rather than by studying clients' needs in disciplined ways. Now they're turning the gathering of input from customers into a standard process. Dell Inc. (DELL ), for instance, three years ago started holding two-day "knowledge share" events where it invites chief information officers in small groups to exchange ideas with its executives and technology managers. One result: CIOs urged Dell to make the Linux operating system central to its plans, which it has done. "They heard us," says Jeff Campbell, chief information officer for Burlington Northern & Santa Fe Railway Co., who participated in a Dell event early last year.
Certainly, tech companies can't count on their customers to ask for breakthrough innovations. The industry's most important new technologies of the past three decades, the personal computer and the Web, were not things that corporations had on their to-do lists before they emerged as realities. So it's incumbent on tech players to keep innovating freely in their labs. The new challenge is to understand customers' businesses so well that tech companies can anticipate their needs and convince them that disruptive new technology will pay off.
MAKE CUSTOMERS CO-CREATORS
The info-tech world used to be a one-way street. Tech suppliers created it; corporations consumed it. Not anymore. German software giant SAP goes to the extreme of co-developing major new software products with industry leaders, so it understands exactly what they need to solve business problems. Software programmers from SAP and its customers work together to design and refine the programs. The software company just completed a 2 1/2-year project with Deutsche Postbank, Germany's top retail bank, that automates a bank's core checking, savings, and loan transactions with customers. Now SAP is selling the package to other banks. Other tech companies, including corporate software leader Oracle Corp. (ORCL ) and desktop publishing leader Adobe Systems Inc. (ADBE ), have recently co-developed products with customers.
DELIVER TECHNOLOGY AS A SERVICE
The old way was to sell software and hardware in big chunks and then persuade customers to upgrade to the latest stuff every couple of years. Increasingly, hardware makers, such as IBM (IBM ), and software companies, such as Siebel Systems Inc. (SEBL ), are selling their technology as services. Upstart Salesforce.com Inc. showed the way, rounding up more than 8,400 customers in just four years for its service of providing customer-relationship management software via the Web. Instead of spending tens of thousands of dollars for new computers and software, Salesforce.com's customers spend a modest sum each month for use of the technology. With this kind of business, tech suppliers have to keep pleasing their customers or risk losing them. And customers enjoy being in the driver's seat. "I feel like we're getting more than we paid for," says Salesforce.com customer Chuck M. Fallon, executive vice-president for revenue generation at Cendant Corp.'s (CD ) Car Rental Group.
REVAMP THE SALES FORCE
Typically, tech sales forces were made up of aggressive fast talkers who bagged big sales to companies and moved on, never to be heard from again until a new sales opportunity came up. Now companies are retraining their salespeople and creating incentive programs that match the tech company's interests with those of their customers. At EMC, for instance, as a result of an overhaul begun in March, 2001, sales representatives are expected to stay on an account for years. Reps who manage large global accounts are responsible for customer satisfaction and don't get paid commissions on individual sales.
In the coming year, the degree to which high-tech companies obsess on their customers will determine who wins and who loses. Companies that don't adapt face an imperiled future. But the rewards will be rich for tech companies that get this right. Networking giant Cisco Systems Inc. (CSCO ) suffered a humbling rejection by telecom companies when it tried to sell them traditional voice telecom equipment without studying their needs deeply. Cisco executives apologized profusely when the Bells called them on it. Then they spent the past 18 months completely revamping their telecom products in response to detailed critiques from the likes of BellSouth Corp. (BLS ) and SBC Communications Inc. (SBC ). As a result, Cisco's telecom equipment revenues are growing at 20% a quarter while its rivals are just treading water.
It just goes to show that there's no shame in groveling a bit -- if it gets you the business. That's a lesson the entire technology industry seems to be taking to heart. "This puts pressure on our industry, but that's good," says Henning Kagermann, chief executive of SAP. "We have to be more mature and do the things that bring value to our clients." Customer power? Tech companies are getting used to it.
By Steve Hamm
With Peter Burrows in San Mateo, Calif.
— With assistance by Peter Burrows