Use Performance Management To Realize the Promise of CRM: An Interview With Pilot Software’s Jonathan D. Becher

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CRM systems have helped companies automate processes, but businesses need something more targeted to move the company forward. Pilot Software CEO Jonathan D. Becher sees his company’s solution, operational performance management, as a way for businesses to gauge how well they are moving toward the business’ operational goals—for a more customer-centric approach. CRMGuru.com founder Bob Thompson speaks with Becher about the Pilot approach in this inaugural edition of Inside Scoop.

The following interview, which took place Jan. 21, 2005, was edited for length and clarity.

Bob Thompson

I’d like to welcome Jonathan Becher to our first Inside Scoop for 2005. Jonathan, welcome to our program.

Jonathan D. Becher

Thanks for having me.

Bob Thompson

The topic that we’re going to explore today is what I’ve called in a recent article, “corporate performance management.” I think it’s got a few different names, and perhaps my guest can help bring some light to that. But I’d like to start and just ask Jonathan, who is CEO of Pilot Software, to tell us a little bit about Pilot Software: when it was founded, where its focus is, how it’s different. Then we’ll get into how corporate performance management is related to CRM and see where else that might take us. So, Jonathan, tell us about Pilot Software, please.

Jonathan D. Becher

Thanks, Bob. Pilot was founded in June of 2002, but, in fact, our core technology has a 15-plus-year history. In fact, we were involved in the first-ever performance management deployment in the late ’80s. Today, we focus on a space that we call operational performance management. These are solutions that help organizations align their execution with their objectives and their strategy. By “solution,” we mean a combination of our award-winning software, a unique and proven approach to getting to performance management and some very deep domain expertise.

Bob Thompson

Operational performance software? Does that mean that there are other software solutions out there that are “inoperational”?

Jonathan D. Becher

Great question. Most performance management vendors focus on the financial aspects of an organization, like budgeting consolidation, or on the compliance aspects, like Sarbanes-Oxley or HIPAA compliance. Pilot’s solutions, instead, help organizations get on the same page with what we call “increasing their alignment,” “increasing their operational alignment.” As a result, we go beyond the classic metrics, which are typically financial—say, revenue or return on investment—and that are also typically lagging. That means they reflect completed activities, things that happened in the past.

And, instead, we have ones that are more operational in nature. In sales, for example, you might talk about the quality of the pipeline. They’re more qualitative, which means they are subjective and not necessarily stored in your operational systems, and they’re leading, which means they provide you with an indication of the future outcome, not just the activities you’re working on now.

Bob Thompson

How is this different from what I’ve heard called “balanced scorecards” or “KPIs”?

Jonathan D. Becher

The balanced scorecard is a specific methodology that you can use to help articulate your overall goals, but it doesn’t necessarily say how you’re actually going to reach those goals. So, balanced scorecard is one methodology that’s supported by our solutions, but we are not trying to get people to develop their strategy. Rather, they should run their organizations so that they’re working toward common goals. KPIs are one piece of that, but you also have to have objective management and initiatives management: How am I going to accomplish my goals?

Bob Thompson

What does this have to do with CRM?

Jonathan D. Becher

If you look at most existing CRM systems, we all know they were built to automate what was, historically, a very manual task. The classic example, of course, is sales force automation. That streamlines the historically labor-intensive process of collecting forecasts from my sales team that’s all over the world. As a result of CRM systems like that, we’ve reduced what used to take days to hours, or maybe even minutes.

But if you think back to the original concepts behind CRM, it was meant to be a lot more than just that. CRM was supposed to help organizations become customer-centric. In a very real sense, it was the way that customers could have a seat at the table. What I mean by that is business operators would consider the customer’s point of view when they made a decision—an external point of view, not just the internal ones that they used in the past, like financial, manufacturing or sales, marketing, service.

Unfortunately, with most of the CRM systems today—while they do a great job of automating processes, for the most part—there’s no way to tie what they measure to any kind of goals. Not your department goals. Not your business unit goals. Not your organizational goals. Without those goals, the organization can unintentionally get out of alignment. As a concrete example, if you’re a marketing organization, should you care more about brand awareness or lead generation? If you’re a service organization, should you care more about reducing the cost of service or deepening your relationship with your most profitable customers?

Bob Thompson

Right, but it assumes that you’re going to measure something that has to do with being customer-centric.

Jonathan D. Becher

Absolutely.

Bob Thompson

And that you’re going to have some link between that measure and financial performance so that you’re not just doing something for fun. So how does your approach help a company do that?

Jonathan D. Becher

Our approach essentially allows you to articulate the goals from everyone’s point of view. You decompose your overall objective—to make money—into something that means something from the operational point of view; from the financial point of view; from the customer point of view. What do customers see when you say, “make money”? That translates from there to the objectives—the goals—so everyone knows how they fit into the overall pie to a series of initiatives. What are the programs I’m going to put in place to help me accomplish those goals—the tactics, the activities, that move me from where I am today to where I’d like to be?

Bob Thompson

So this is largely a planning exercise to this point, right?

Jonathan D. Becher

In fact, it is largely short-term to medium-term planning, not necessarily a five-year plan.

Bob Thompson

Right.

Jonathan D. Becher

That provides you a context that your metrics can be in so that you know whether revenue is the right metric to use—or profitability. But perhaps early on, as you launch a new product, profitability isn’t the right metric. It’s really more about momentum, and so the number of units is more important to you than profitability.

Bob Thompson

Let’s explore that just a little bit more. You said earlier that having leading indicators is important.

Jonathan D. Becher

Correct.

Bob Thompson

I couldn’t agree more with that. But in the area of being customer-centric, let’s take loyalty—or customer satisfaction, if you like—something that does have some relationship, if you can measure it, to the customer’s future business potential. How does your system facilitate that kind of measurement so that you’ve got an early warning of problems?

Jonathan D. Becher

Well, the first thing it says is, before we measure, let’s define what we mean by customer satisfaction. Unless we all understand the definition, we won’t be able to agree on the actual metric. Is customer satisfaction defined by the percentage of the customers that actually buy more within a given time period? Is it defined by the number of returns of the product, if people return products, say, at a retailer? Is it defined by the number of calls at a call center that are closed within 24 hours?

Bob Thompson

Or maybe the simplest example would be some kind of a survey. But I like what you’re saying. So now you can look at a variety of metrics, but you have to think about what those really are.

Jonathan D. Becher

That’s exactly right.

Bob Thompson

Not just like all the managers sit around the boardroom table and say, “Yeah, I think things are going great this month with our customers.” You’ve got to get real data.

Jonathan D. Becher

Data is certainly an important part of the problem.

Bob Thompson

Now, how do you get that into your system so that you can, then, present it to the people who need to know how things are going?

Jonathan D. Becher

Well, when it’s time to measure, metrics tend to boil down into two types: qualitative and quantitative. Quantitative are the ones we’re more used to. Those are the hard numbers. Most of the time, those are stored in some kind of operational system—in your CRM system, for example, or perhaps in your financial system. If that’s the case, then we have a series of connectors, or extractors, as some people like to call them, which can pull the bits of data out and populate them in our product.

More often than not, though, when you’re working on leading indicators, these are softer, more subjective things, as you mentioned you get from surveys. In that case, you’re pulling things out of Excel, or out of forms, and we have a whole series of technology to allow us to populate that into Pilot, as well.

Bob Thompson

I want to turn to the bigger picture of the market for performance management. Maybe you could help our members at CRMGuru.com understand some of the terms they might run into. Is performance management the term? Is it operational performance management? Is it corporate? Tell us which term the market is defined by and the size and growth potential of this market.

Jonathan D. Becher

From Pilot’s perspective, the overall market, you could call performance management. It has a variety of subcomponents. One is focused, primarily, on the financial part of the market. It’s sometimes called financial performance management; sometimes business performance management; and occasionally, even corporate performance management. That market is the largest right now and the most mature. That’s where budgeting and consolidation tend to live. Most people would argue that the financial performance market is already a billion-dollar market but growing quite slowly, probably less than 10 percent year over year.

There are other parts of performance management, like work force performance management—sometimes called employee incentive management—helping people understand how they make their money or their bonuses or their variable comp. There is another part, which is where Pilot fits in, which is the operational nature: the middle manager, if you will, who’s trying to get specific objectives done, not necessarily the top-level strategy.

That operational performance management market is still relatively new. Most analysts would tell you that it’s roughly $100 million right now but growing very rapidly—more than 25 percent year over year, by some estimates.

Bob Thompson

When you have a fast-growing segment like this, other software vendors, solution providers, etc. are going to get interested. As this heats up, how does Pilot plan to compete with vendors like SAS, Cognos and a variety of specialty companies that I’ve run across that are all hitting this market in different ways?

Jonathan D. Becher

From a practical point of view, I don’t think we’ve seen either of those two large vendors that you mentioned in any deal recently, and maybe 10 percent of the deals in the last year. I think that’s primarily due to our specific focus. As I mentioned before, we’re targeting an operational audience, a mid-level manager in a sales, marketing, service or manufacturing area, if we’re talking about the commercial world. Whereas most people are targeting a more financial or a CxO-level audience.

Secondly, we tend to look at this in a different way. Many people are trying to sell performance management in the way that ERP and CRM was sold originally, in what I call “big-bang, multimillion-dollar” deals that take a year or more to deploy. We believe in what we call “multiple-rapid incremental”: Do things very small. Get results quickly, in six weeks or less, in many cases. Show value. And then move on from there.

Bob Thompson

So, flying under the radar a bit.

Jonathan D. Becher

That’s a good way to describe it.

Bob Thompson

Do you think that this really should be, in some way, incorporated into the CRM industry? Or is it really something different that’s related to, but not really a part of, the CRM industry?

Jonathan D. Becher

I think I would actually answer yes to both of your questions. I do think that the large CRM vendors will eventually include performance management capabilities in their solutions, although I don’t see that happening in the next 18 to 24 months. But, in fact, that could be a really good thing for organizations like Pilot. If you think about when CRM vendors first incorporated analytics into their products, most of them didn’t decide to recreate business intelligence. Instead, they partnered with the existing BI vendors to add that capability. At Pilot, we’ve already anticipated that that’s likely to happen, and we’ve built our solution so it’s easy to incorporate in the major CRM packages. In fact, we’ve done that for a number of customers. So if they view that they need to have it, it would be just as easy—in fact, much easier—for them to partner with us than try to build it, themselves.

Bob Thompson

It seems to me that there are a lot of sort of specialized solutions out there, and one of the things we found in our research is that projects that are troubled, especially those that don’t deliver strategic value, tend to lack this linkage with the top-level business objectives.

Jonathan D. Becher

Correct.

Bob Thompson

So it seems to me as though this would be a good opportunity for working with these vendors or integrating that technology into CRM packages to say, “Hey, if you’re trying to make customer-centricity actually work, you need a system to make it work.”

Part of the trick seems to be motivating people to do the right job so that the company is being customer-centric and profitable. Tell us a little bit about how your approach and your solution helped get the people on board.

Jonathan D. Becher

One of the first things you discover when you deploy one of our systems is that employees are hungry for information. They want to know how what they do helps the overall whole. Many, many organizations unintentionally keep their employees in the dark, and while employees do a good job of focusing on the tasks they’re given, they rarely understand how what they do fits into the overall company goals. And so, just by communicating that linkage, you often get much more motivated employees, ones who, in fact, don’t have to go back to management to make on-the-spot decisions but can say, ” I’m no longer going to spend my energy thinking about how I do my project the right way, but I’m also going to think about whether I am working on the right project: Am I actually forwarding the company’s goals?”

Communications helps people be better employees because they understand more about their piece of the puzzle.

The second thing that happens is many of our customers actually tie this back to the incentive programs. They actually help people figure out how they can achieve their bonus, or their variable compensation, by tying it directly to the organizational goals.

Bob Thompson

I know you’ve got around 300 customers.

Jonathan D. Becher

That is correct.

Bob Thompson

Can you give me an example of a company—and omit the name if you need to—that has implemented Pilot software and done some of these things? What happened when they did that? What was the before and after?

Jonathan D. Becher

I’ll pick an unusual organization. I’ll pick a public sector organization. One of the things that’s unusual with a public sector is they’ve gone from what’s called zero-based budgeting—you give me money; I’ll spend it; and I get more next year— to what’s called performance-based budgeting, which is: I have to describe what I’m doing with the money; justify that I actually did what I said I was going to do; and used that as the excuse of how I’ll get my money again. This is happening at the federal, state and local levels.

But in very large organizations—and one of Pilot’s customers has more than 14,000 employees—the only way to figure out whether you’re working on the right thing is through the monthly and quarterly operational reviews. So they’ve made Pilot the backbone of those operational reviews, rather than you coming in and showing your boss a PowerPoint deck: “Here’s what I accomplished; here’s what I failed on; here are the bottlenecks.”

Bob Thompson

How long has this been implemented?

Jonathan D. Becher

This system went live this summer, in the May to June timeframe.

Bob Thompson

Has it been live long enough to see how it’s changed the behavior and the performance of the organization?

Jonathan D. Becher

It has. Targets are not set in a top-down point of view, where people say, “This is your goal,” but rather, targets are set collaboratively. I know information that you can’t know, and if you set my goal to 47, there’s no way we can achieve it. We can actually only achieve a 21, or perhaps we can achieve 156.

Bob Thompson

But, you’re talking about how the process has changed. I want to get to the bottom line. I’m the CEO and head of this organization. What is the impact on the performance of the organization?

Jonathan D. Becher

Well, with this particular organization, there’s something called the PMA—the president’s management agenda—which essentially gives each of these organizations a score on 10 different things: use of budgeting dollars, whether they’re customer-centric, etc. They went from mostly yellows and a few red to half green and half yellow. They expect by next year they’ll be all green.

Bob Thompson

Do you have an example of another customer that’s been able to put some dollars against it? Who’ve increased their financial performance by 1 point of net operating margin or anything that would be a little bit more quantitative?

Jonathan D. Becher

A manufacturing company, which makes heavy equipment, recognized that one of the fundamental things they were about was service. That was the key thing. They were looking at how to reduce the cost of service of their particular device and getting people on the same page: getting them to understand when to do preventative maintenance; when to do outsource maintenance; when to change the design of the machine so that it didn’t fail in the first place; getting all of the different groups, rather than just the service organization, to collaborate on reducing the cost of service after six months. And we have about six months of results for that particular customer. They reduced the cost by more than 12 percent, compared to the prior period, which, to them, is in excess of $15 million in six months.

Bob Thompson

I’d like to ask you for some quick words of advice for somebody who might be reading this interview and saying, “Hey, that’s what I’d like to try.” How would you advise an executive or a manager in the mid-part of the company to get started with this?

Jonathan D. Becher

I have three short words of advice. The first is: Don’t bite off too much; don’t go big bang. This isn’t something that needs to take you months, or even years. You can get real value out of performance management in just a small number of weeks. Think small with high value.

The second thing is, just as with CRM, to do this right, it’s more than just software. It requires an approach; a philosophy; a way of thinking about it.

Which leads me to the third point, which is: Don’t start with your data. The analytics industry has sort of conditioned us so that the first thing we do is try and define a bunch of metrics. Unfortunately, we end up with metrics overload. Step back, and try to think about what it is that you are trying to accomplish. Articulate that. Break it up into different points of view, and you’ll be much more successful.

Bob Thompson

That’s great advice. Jonathan, thank you so much for spending time with us, and giving us the inside scoop on performance management.

Jonathan D. Becher

I appreciate the opportunity.

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