Tech Check: Apptegic

Boston-based start-up Apptegic formally launched its new offering at TechCrunch Disrupt NYC conference last month, officially joining the fray in the emerging customer engagement measurement market.  Given the very high cost of customer churn on revenue and profitability, tools such as those offered by Apptegic allow cloud computing companies to proactively monitor and respond to customers in an effort to reduce or prevent churn.

Apptegic is similar to competitors JBara and Totango. Like them, Apptegic’s mission to help firms understand their customers in order to keep them, make them successful, and sell more to them. Each examines customer visit frequency and online behaviors, helping software engineers identify product changes and enhancements. Each enables Customer Success Managers to identify trends and personally respond to “at risk” customers, or identify those who may be receptive to up-sell or cross-sell opportunities.

But Apptegic does some things differently. The company offers greater depth of understanding by collecting more data and adding the ability to score interactions against essential Key Performance Indicators (KPIs). By analyzing more data than simply which product the customer purchased or how often they used it, the application allows better conclusions to be drawn about specific customer segments and behaviors, enabling more relevant, context-dependent decisions. Reporting capabilities are correspondingly more advanced, allowing analysis over different periods of time and with greater stratification (e.g. by user, account, and segment) which can better assist product and service improvement efforts. Apptegic then delivers more sophisticated filtering capabilities to generate responses in real-time, directly and automatically from the customer’s application. Online actions can include sending tailored customer support or marketing messages that automatically and intelligently guide customers to their next steps.

Apptegic’s product offers potentially greater advantages for many cloud computing companies by promoting better targeting, scalability, and predictive modeling. In circumstances where less information is collected or known about target customer segments during the sales process, Apptegic allows more ways to analyze and segment users according to common needs, value, and profitability after the fact. Through greater automation, customer service and success management can be less manually intensive and more productive, allowing companies to focus their more expensive human resources on market segments and accounts that truly justify them. Having more variables also enables more robust churn modeling. Companies can design and run statistical experiments, testing and optimizing customer “treatment” strategies even further, resulting in approaches that have the greatest impact on customer retention at the minimum cost.

Apptegic’s early clients include Constant Contact, Vela Systems and Dyn. Pricing varies from $200 to $4,000 per month according to account structure, number of unique users and events per month, and number of Apptegic users at the customer site. The company offers a free trial period for those who want to kick the tires. For more information, visit Apptegic.

CSM Performance Management Done Wrong

Managers often perceive differences in how individuals perform sales and customer service, implementing management practices that make things worse. Faced with the challenge to improve results, many establish numbers-based, “pay-for-performance” systems to reward good employees and punish bad ones. Motivating by comparing, ranking, and paying people according to their individual results just makes sense. After all, prestigious business schools and prominent corporate leaders espouse meritocracies. The “carrot and stick” approach is so widely used that it must be right. But this philosophy is flawed and counterproductive, especially in operations like Customer Success Management. Why? Supervisors wind up focusing on the wrong things and demotivating their employees.

Call centers are a case in point. Managers keep detailed statistics such as call handle time, call quality and conversion rates. Most then rank agents based on their numbers. A pep talk might sound like, “Bill, I see you are near the top on quality, but you’re only about average on your call handle time. Keep up the good work, but you need to go faster!” In addition to coaching, call centers use a variety of bonuses and awards to single out and further motivate agents, believing it’s the answer for achieving high service performance.

How well does it work? The fundamental question is to what extent performance can be attributed to the process (i.e. technology, workflow, customers, training, policies, etc.) or to the people. We studied this question examining average handle times (AHT) and quality scores (QA) for a group of 55 agents over several months. If performance was due exclusively to process factors, individual rankings would be decided by chance alone. If people factors entirely determined results, ranking would always be same, month after month.

Using statistics no more complicated than the probabilities of flipping a coin, we found that individuals played a role, but nowhere near as much as managers expected. In the agent population, only 13% exhibited non-random behavior for QA and 22% for AHT. Combining both metrics, we showed less than 6% of agents had performance that could be attributed to something other than chance. Clearly, rewarding and recognizing individuals for outcomes dominated by systemic variation was a waste of time—and many agents knew it. Management time was much better spent improving the process than motivating the people.

Surprisingly, experts have shown that reward systems can be demotivating, especially when it comes to tasks people enjoy. Psychologists classify motivation as intrinsic (doing something for its inherent satisfaction) or extrinsic (doing something in anticipation of a separable, dependent consequence). Ask people in customer service why they do the job and most will say it’s not the money but because they like helping people. In other words, service people tend to be intrinsically motivated. Years of scientific analysis confirms that virtually every type of reward that is contingent on task performance undermines intrinsic motivation.¹ The flip-side is also true—management threats, deadlines, directives, and competitive pressures also backfire. Quality guru W. Edwards Deming felt so strongly about the obstacles caused by ranking people according to the numbers that he insisted leaders eliminate it in his famous “Fourteen Points for Transformation of Western Management.”²

So does this mean employees shouldn’t be rewarded or held accountable for their work? Absolutely not! In any distribution of people, some will excel and others will struggle. Leaders must help everyone do a better job, and for statistical outliers “manage up or manage out.” But leaders must also understand better results come from better processes, and should make process improvement their primary focus. They should also set aside relative ranking and competitive reward systems, choosing instead to practice leadership and instill teamwork. And not all extrinsic motivation is bad. We found that service employees respond very favorably to team-based goals and incentives that promote cooperation and process innovation—enhancing, not hindering, their natural inclination to serve customers and each other.

And what about CSM functions mixing sales and support? In these cases, small, individual sales commissions may be appropriate, but great care must be taken to balance and clarify job expectations and goals. Many times employees view sales and service to be at odds, and for good reason: customers don't want to be "sold to," but appreciate assistance making a decision. Framing the task as identifying needs when they surface and helping customers decide in a subtle, consultative way tends to be much better received than pressuring CSMs to meet monthly upgrade and renewal quotas at the expense of good service.

Often the road to hell is paved with good intentions when it comes to performance management. With great service increasingly the market differentiator and a primary driver of customer retention in subscription-based revenue models, managers can’t afford missteps. Spending time unproductively improving service performance or lowering front-line employee satisfaction and engagement can be disastrous. Using a more enlightened approach to performance management avoids pitfalls and pays much higher dividends.  

Footnotes:

1.    Ryan, R. and Deci, E. (2000). “Intrinsic and Extrinsic Motivators: Classic Definitions and New Directions,” Contemporary Educational Psychology, issue 25, pp. 54-67.  

2.    Deming, W. (1982). Out of the Crisis, pp. 70-85, MIT Center for Advanced Engineering Study, Cambridge. ISBN 0-911379-01-0

Best Practices of Practice Fusion

“I just signed up for this new software package,” my friend Dr. Grace Alessi said over Margaritas at a family outing on Mother’s Day. “It’s incredible!”

Formerly an internist at a family medical group, Grace started an independent medical practice in town two months ago. It’s called Balanced Well-Being Health Care of Fort Collins, Colorado. She and I were catching up, and I told her I was doing work in cloud computing these days. Grace proceeded to RAVE about how wonderful the cloud concept was and how much she liked her new web-based application.

When opening her new office, she had considered buying a software license to manage medical records through her former practice, but the cost would have been $15,000 right out of the box. It was well out of her budget for just getting started. Instead, she discovered Practice Fusion, a freemium SaaS offering that manages Electronic Health Records (EHR) for medical offices.

She couldn’t believe how easy it was to set up and use. “They said, ‘Live in Five’ and they weren’t kidding!” Practice Fusion advertises that any new customer can be up and charting patients in five minutes. Grace said they solved a browser issue on her computer right away and she was rolling, as promised.

“I have a dedicated assistant, Jason, who’s fantastic. I can call for him help any time. He always answers, ‘Yes, Dr. Alessi, how can I help you?’” Practice Fusion boasts over 170,000 users and says it’s the fastest growing EHR application. Clearly the company has found a way to keep an intimate feel while scaling operations quickly. They understand the personal touch makes customers raving fans, and they’ve implemented the technology, staffing, and processes to make it all work. Can they keep it up? The robustness of their strategic management system will ultimately determine that; how well their practices enable planning, execution, and learning amidst rapid growth.

Grace said she didn’t know how Practice Fusion could make money with a free price tag, and commented that after a while she didn’t even notice the ads scrolling at the bottom of the screen. She said she would have paid $100/mo. without blinking since it was still a fraction of what she would have spent. Do the math. With over 170,000 subscribers, that’s a cool $17M per month run rate if everyone felt the same way. I’m left wondering if advertising to physicians brings in anywhere near that number.

If being free, easy to use, and HIPAA compliant weren't enough, Practice Fusion further differentiates by publishing ‘three nines’ of availability in their Service Level Agreement (SLA). In the medical industry, system reliability is obviously a concern. The contract offers service credits if the company doesn’t deliver. Grace didn’t mention this, but to me it’s always impressive to make a customer promise and hold yourself accountable to it.

Looking at what I’ve written above, I need to clarify: I’m a management consultant, NOT a paid spokesman for Practice Fusion. Neither is Grace. But her enthusiasm is contagious—to use a medical term. And like recognizing the attention to detail that distinguishes Ritz-Carlton, a two-time recipient of the Malcolm Baldrige National Quality Award and perennially successful in the commodity-driven hotel industry, I appreciate rare SaaS companies like Practice Fusion that understand unparalleled service is the key to low customer churn, higher referral rates, and maximum profitability. After all, SaaS stands for “Software as a SERVICE.” Sure, some IaaS and PaaS vendors may scoff, saying SaaS providers serving end customers are the only ones needing to worry about good service, but last I checked the acronym applies to them, too.

“I don’t know why anyone would buy anything else. What’s going to happen to the other software companies?” On that cloud computing observation, Grace asked the most important question of all. From their actions, it's clear Practice Fusion intends to be here for a while.

Loyalty, by Design

Most customers defect because of how they were treated, notably during the initial business relationship (see "What Starts Right, Stays Right"), but product and service design can also be a major factor in customer churn. In the cloud computing business, there are few barriers to entry, competition is increasingly fierce, and the cost to switch providers is low. Since customers can cancel subscriptions any time they perceive greater value elsewhere, Cloud Service Providers (CSPs) must create compelling solutions, treat customers exceptionally well, and always stay one step ahead of the competition.

But in many ways, CSPs are no different than any other business. Fast-moving, high performing manufacturing companies have long known that better product and process design yields better results. Often CSPs don’t do the basic market research, solution definition, and validation required for developing exceptional, well-differentiated products. As a result, inadequate design approaches hinder a CSP’s own ability to retain customers for the long term.

So what makes a good design? It’s simple: innovating when customer requirements are known, not assumed. Engineers are natural problem-solvers. Presented with challenges, they’re quick to come up with solutions. Add to that time-to-market pressures and their answers come even faster. But knowing exactly what problem developers are trying to solve is essential, and collecting more information in the beginning often feels unproductive.

Left alone, software engineers develop products based on what they presume to be customer needs and desires, which can spell disaster down the road. The top reasons for IT project delay are unclear customer requirements: expansion of functionality or “scope creep,” and “gold plating,” or over-engineering things that don’t matter.¹ In start-ups, this can spell certain death. The Startup Genome Project says building a product without a validated product/solution fit is a common failure point stating,"It's widely believed amongst startup thought leaders that successful startups succeed because they are good (re)searchers and failed startups achieve failure by efficiently executing the irrelevant." ² Senior leaders must keep their engineers’ natural impulses in check by instituting a process that places intense focus on understanding market needs well before any coding begins. A little more time doing it right up front means much less time, cost, and risk fixing it later.

Great product designs come from:

1.       Market Requirements Analysis. Using secondary research to size market opportunities, select attractive market segments, and evaluate competitive position. Using qualitative, primary research to uncover unmet or under-met needs. Using quantitative surveys to further clarify and prioritize needs.

2.       Solution Design. Brainstorming and creating an exciting, realistic, achievable, solution concept at a block diagram level that is distinctly better than the competition, addressing market needs with new technical capabilities.

3.       Value Proposition Refinement. Summarizing the design’s compelling benefits, competitive differentiation, and tradeoffs (such as cost or conversion) customers must make when buying the solution. Testing the design concept, feature and pricing options, and Value Propositions with target customers to set the final design details.

4.       Requirements Definition. Converting the final solution design into very explicit features, system capabilities, software modules, and specifications for the development project’s scope of work. Establishing performance goals for potential technology partners (e.g. cloud applications, APIs, and managed infrastructure) intrinsic to the solution. Creating process requirements, metrics and goals for internal service delivery capabilities, including onboarding and customer care. 

5.       Development. Assembling and integrating capabilities, writing and testing code to meet requirements and fulfill the Value Proposition. Creating channel and marketing partnerships to communicate the Value Proposition. Developing internal processes and negotiating Service Level Agreements (SLAs) with technology partners to deliver the Value Proposition.

So how is greater customer loyalty achieved? It begins in Market Requirements Analysis. Leading companies conduct a deep investigation into customer challenges using carefully chosen, open-ended questions to surface underlying needs. Then they use tools like Kano surveys to classify potential solution attributes into “must-have,” “more-is-better,” and “delighters”— unexpected features and benefits that elicit emotional response and attachment, resulting in greater loyalty. Knowing what truly matters to customers helps engineers not only target the right problems but consider breakthroughs. Project teams then test final design features, benefits, and pricing using discrete choice surveys. They summarize with clear, compelling, and competitive Value Propositions, explicitly stating what customer promises the company will make and how it will keep them. Well-crafted Value Propositions articulate why customers will buy, renew their subscriptions, and refer other customers. Only when all of this is done do top-performing companies begin writing code.

CSPs that jump to the obvious miss opportunities to develop anything other than “me too” solutions, creating an offering ripe for high customer churn. Given the significant economic impact defecting customers have on revenue and profit in subscription-based models, using a more market-centric design process is the first step for generating high customer retention and loyalty.

Footnotes:

1. Goldratt, Eli (1997). Critical Chain, North River Press, Great Barrington, MA, and McConnell, Steve. (1996). Rapid Product Development, Taming Wild Software Schedules, Microsoft Press, Redmond, WA.
2. Marmer, M., Herrmann, B. L., Dogrultan, E., Berman, R. (2012) Startup Genome Report Extra on Premature Scaling: A Deep Dive Into Why Most High Growth Startups Fail, Startup Genome.

Tech Check: Is Facial Recognition the Next Frontier?

Affectiva, an MIT-linked SaaS startup, uses technology to observe and analyze physical responses to determine emotional states. Positioned for media testing, Affectiva’s Affdex product uses webcams and facial recognition technology to test advertising spots for large clients. Gone are expensive and inconvenient test labs agencies use to evaluate TV ads—participants just watch from their computers while Affdex records their reactions. The company uses sophisticated algorithms to interpret expressions and head movements, ascertaining emotions and their level of intensity in real-time.

Sounds like Madison Avenue marketing hooey, right? It turns out greater emotional response leads to better business results, and the science backs it up. In a 6-week case study, AOL used Affective technology to test a new online media advertising format (IAB portrait) versus traditional online advertising formats. The results were impressive in how the audience reacted:

·         Portrait format attracted attention 35 percent faster than competing formats, created 81 percent more attention, and 95 percent more fixation time

·         Live media metrics showed interaction rates rose 4.5x – 7x

·         Facial recognition analysis showed Portrait format lowered negative emotions by almost 40 percent, with less user frustration, and fewer frowns

And in business results:

·         Users indicated they would visit the Brand site/Facebook Fan page 49 percent more often

·         Users indicated they would recommend the brand or product 46 percent more often

·         Purchase intent rose 263 percent

What does this have to do with cloud computing? Researchers have proven emotions are a primary driver in customer loyalty and retention, so new emotional response measurement approaches may be critically important. Many cloud computing companies already collect information on what customers think (via satisfaction surveys), what they say (via text analysis on social media sites), and how they behave (via application monitoring tools), so understanding how they feel may not be far away. All of these attributes, especially used in combination, can create powerful customer churn prediction models. When lowering churn even a few percentage points dramatically increases customer lifetime value and per-customer profitability, understanding and addressing the causes of churn depends on good measurements.

A practical application may be using Affdex as a training tool with willing new customers enabling their webcams during the onboarding process. Imagine recording new customer orientation sessions with Customer Success Managers to provide feedback on how to improve their critical first customer interactions (see “What Starts Right, Stays Right”). Managers and staff could then optimize customer engagement and ensure they begin the relationship on a very positive note.

What Starts Right, Stays Right

More cloud computing organizations are “onboarding,” implementing processes to ensure customers experience a smooth transition to their technology product or managed services right after the sale. Managers intuitively recognize the need to begin new customer relationships on a positive note.

Their instincts are well-founded. Research shows creating and maintaining positive customer experiences, especially at the very beginning, pays dividends. Ruth Bolton studied customer satisfaction and churn in the cellular phone industry¹ and found:

·         Negative experiences in the beginning are a major factor in short-term customer exits

·         The longer people have satisfactory experiences, the less likely they are to churn

·         Customers who have many months of positive experiences weigh cumulative satisfaction more heavily than any occasional, negative experiences that occur later

Researcher Ho Huy Tuu confirmed that specific factors affect the satisfaction–loyalty relationship in a combined and interactive way: ²

·         Involvement: an individual’s long-term evaluation of importance and significance consuming a product

·         Ambivalence: an individual’s emotions towards consuming a product (Tuu proved ambivalence was negatively correlated, i.e. Caring is the factor in satisfaction)

·         Knowledge: a person’s evaluation of their familiarity, expertise performing a task, and consumption of a product in a specific transaction

·         Certainty: the consumer’s confidence evaluating their satisfaction with a product

Tuu also verified that actively mitigating customer’s perception of risk is essential. Fear, he demonstrated, trumps positive loyalty gained from high satisfaction.

What’s more, along with Svein Ottar Olsen,³ Tuu confirmed the effects between satisfaction and loyalty are nonlinear—at high levels, small increases in satisfaction have a disproportionate impact on customer loyalty. That means there’s no point of “diminishing returns” when it comes to continuous improvement; above certain levels, loyalty impact from customer satisfaction multiplies. They suggested offering ‘delight’ or ‘exceeding expectations’ explains these nonlinear loyalty behavior effects.  

Research shows cloud computing companies are on the right track; onboarding is indeed an important strategy for reducing customer churn. An effective process engages the customer, increases their knowledge, and gives customers reasons to care about the product and the people behind it. Orientation should not simply be a “data dump” of technologies and product features—feelings matter! Companies should pay close attention to allaying customer fears, such as emphasizing data security, privacy, system reliability, and responsive support. To put the customer experience into orbit, companies should surprise customers, showing them extra benefits in exceptionally positive, personal interactions. First impressions linger, and maintaining and improving service increases customer certainty, reducing the potential for customer churn down the road.  

Footnotes:

1.       Bolton, Ruth. “A Dynamic Model of the Duration of the Customers’ Relationship with a Continuous Service Provider: The Role of Satisfaction.” Marketing Science, Volume 17, No. 1, 1998

2.       Tuu, Ho Huy. “Moderators in the Relationship between Satisfaction and Loyalty of Vietnamese Fish Product Consumers,” a thesis for the degree of philosophiae doctor, University of Tromsø, February 2011.

3.       Tuu, Ho Huy, and  Olsen, Svein Ottar. “Nonlinear Effects between Satisfaction and Loyalty: An Empirical Study of Different Conceptual Relationships,” Journal of Targeting, Measurement and Analysis for Marketing Vol. 18, 3/4, 239–251. 2010 Macmillan Publishers Ltd. 0967-3237

Three Essential Elements for Successful Change

All organizations face periodic turning points due to sagging profits, aggressive competitors, disruptive technologies, or beckoning markets. Yet, if leaders do not enact changes swiftly, they can watch their enterprises spiral downward.

Change is never easy, and surprisingly, strategy itself is not the problem. According to Fortune, approximately 70% of CEOs who lost their jobs did so not because they had a bad plan, but because they failed to execute. Figuring out what to do is relatively easy, but few organizations are good at the hard stuff—following through. When change is complex and so much hinges on the outcome, CEOs can’t afford missteps.

There are three essential elements to executing successful change (in this order):

1.    The CEO’s total personal commitment. It all starts in the corner office. CEOs must actively participate, delegating tasks but not their ultimate responsibility for success. Larry Bossidy, former CEO of AlliedSignal and co-author of Execution: The Discipline of Getting Things Done says, “The leader has to be engaged personally and deeply in the business… and only the leader can make execution happen, through his or her deep personal involvement in the substance and even the details of execution.” The chief executive must do whatever it takes—make unpopular decisions, terminate non-performing managers, even overcome personal shortcomings—to push forward and get results. Jim Collins, author of Good to Great, says top leaders who successfully transformed their organizations demonstrated a quiet, but “fierce resolve to do whatever was needed to be done.” Without this level of personal commitment on the part of the CEO, few enterprise-wide initiatives stand a chance.

2.    Emotional engagement of the right people in the right numbers. CEOs can’t do it alone. They must build solid coalitions of executives with the right skills, knowledge, and leadership to affect change. John Kotter, a leading expert and author of Leading Change says the first step is to mobilize people by creating a sense of urgency. His secret ingredient? Appeal to emotions rather than logic. People must personally experience a truth, feel it rather than think about it, to want to change. Kotter studied hundreds of initiatives and discovered that the “see-feel-change” progression was far more effective than the usual “analyze-think-change.” By forming the right, emotionally motivated team, the senior leader creates a juggernaut with the capabilities, size, and momentum to overcome obstacles.

3.    A systematic approach. Organizational transformation always involves tackling tough, far-ranging issues. For example, a defense company re-purposing itself to capitalize on growing commercial markets requires a major shift that affects people, systems, and processes in every department. When an organization deals with challenges haphazardly or fails to create early wins, the change initiative quickly loses steam. However, a project replete with good analysis, prioritization, planning, investment, coordination, communication, deployment, and review becomes ripe for success. The real trick is achieving balance; organizations must limit turmoil and remain healthy while in transition. Those adept at execution use strategic management systems to incorporate enterprise-wide initiatives into day-to-day operations, minimizing disruptions and protecting their bottom line throughout. These managers skillfully harmonize their strategic planning, scorecards, product and process improvements, and performance evaluation systems to balance both short-term and long-term objectives.

Worse than a waste of time, change initiatives devoid of these three essential elements can cost companies progress, revenue, and profit. In today’s world, failing to adapt and execute change can quickly put companies in decline. And, as Fortune points out, that makes CEO’s lose their livelihoods.