Building Customer Success Organizations

www.tsia.com
Building Customer Centric
Organizations
Thomas E. Lah
Executive Director
TSIA

www.tsia.com
Why now?
Customer Centric Organizations
2
What will they do?
How will they be funded?
What will they look like?

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Our Unbiased Independent
Research Model
3
155
Operational
Best Practices
Audits
1 Million
Benchmark
Data Points
548,000
Survey
Data Points
1,310
Benchmark
Analyses
9,600
Analyst
Inquiries

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Customer Centric Organizations:
Why Now?

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Hasn’t This Always Been True?

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Old Consumption Economics
6Source: Consumption Economics, Wood, Hewlin, Lah

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High Switching Costs

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New Consumption Economics
8Source: Consumption Economics, Wood, Hewlin, Lah

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XaaS Revenue Waterfall Is Not Simple to Master
9
115%
$115m
100%
$100m
End of Year
Revenue:
Total $’s
End of Year
Starting ARR:
Total $’s Available
to Renew at
Beginning of Year
90%
$90m
Retention
Dollars
Upsell
Dollars
Cross
Sell
Dollars
Customer
Churn
Dollars
Downsell
Dollars
Retention Rate = 90% Expansion Rate = 25%
Churn = 7% $3m
Downsell = 3%
$7m
Upsell = 10%
$10m
Xsell = 15%
$15m
YoY Growth Rate = 15%
Source: TSIA SRG Cloud Benchmark Study 10

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What will they do?

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Growing ARR Is a DATA DRIVEN
Process,
Not a Heroic Act.
TSIA Believes…

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Supplier
Success
Adoption Perspectives
12
Customer
Outcomes
LOW > HIGH > EFFECTIVE>

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TSIA LAER:
AN INTERNAL OPERATING FRAMEWORK
13
Eﬀec%veness
Eﬃciency
Data Quality
S%ckiness
Quan%ty
Who
Land New
Customer
LAND ADOPT
Descriptive
Analytics
Predictive
Analytics
Outcome
Analytics
Consumption
Analytics
Platform
Cost-Effective
Selling
Channels
Data-driven
and CGT-driven
Lead Gen
X-Sell
Sellers
Renewal
Sellers
Upsell
Sellers
Large Upsell
Sellers
EXPAND RENEW
Outcome
Engineering
Customer
Success Team
Customer
Service Teams
Customer
Growth
Teams

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Use data analytics to predict
churn
25%
Source: TSIA Customer Success Baseline Survey
Use data analytics to predict
expansion opportunities
13%

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Roadmap: LAER Capabilities Heatmap
Lifecycle Construct: LAER
Roadmap: PIMO Lifecycle Service Offers
Internal and External Growth Constructs
Supplier
Perspective
Customer
Perspective
Land Adopt RenewExpand Plan Implement OptimizeMonitor
Lifecycle Construct: PIMO Outcomes
Goal: Maximum ARR Goal: Business Outcomes

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PIMO:
A CUSTOMER CONSUMABLE ENGAGEMENT MODEL
16
CUSTOMER
SUPPLIER
PLAN IMPLEMENT MONITOR OPTIMIZE
BUSINESS
BUYER
IT TEAM END
USERS
BUSINESS
MANAGERS
IT OPS BUSINESS
BUYER
SALES
TEAM
SOLUTION
ENGINEERS
DEAL CLOSE
PS EDUCATION CONSUMPTION
ANALYTICS
SUPPORT CUSTOMER
SUCCESS
EXPAND
SALES

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Customer Success at Scale
1.0
Organizational
Strategy and
Financial
Performance
1.1 Strategy and
Goals
1.2 Business
Performance
Management
2.0
Opportunity
Management
2.1 Account
Segmentation
2.2 Opportunity
Management:
Renew
2.3 Opportunity
Management:
Expand
3.0
Customer
Success Delivery
3.1 Success Plans
3.2 Customer
Onboarding
3.3 Adoption
Monitoring
3.4 Benchmarking
3.5 Renew
3.6 Opportunity
Identification and
Expansion
4.0
Success
Operations
4.1 Talent
Management
4.2 Customer and
Offer analytics
4.3 Infrastructure
5.0
Success
Engineering
5.1 Success
Engineering
Function
5.5 Value
Engineering
5.6 Product
Integration
6.0
Success
Marketing
6.1 Success
Marketing Function
6.2 Strategic
Pricing
6.3 Services
Rollout
6.4 Customer
Experience
17

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Foundational Reactive Support
SLAs, Hours of Coverage, Case
Routing, Support for Old Releases,
Client-side Diagnostics, Kbase
10 Layers of Value
Proactive Support
Alerts, Remote Monitoring, Health
Check, Technical Account
Management/Designated Resources
LEVEL 2
Product Services
Bundling Training
into Support
eLearning, Instructor-led Online,
Curriculums, Templates, Certifications
1
2
3
20
Adoption ServicesOperational Services
LEVEL 3
4
5
7
6
Risk Management / Compliance
Compliance Audit, Security Assessment,
Technical Readiness Assessment
Performance Optimization
Performance Optimization/Tuning,
Operational Status Dashboard
IT Staff Augmentation Services
Admin Services, Upgrade Asst, Event
Mgmt, Business Continuity PIng,
Operational Change Mgmt
Support for Adjacent Technologies
Network Troubleshooting, Multi-vendor
Support, Customization Support, Data
Integration Mgmt
Adoption Planning
Vision & Strategy Alignment,
Governance, Onboarding
Consumption Optimization
Success Management, Prescriptive
Best Practices, Gap Closure
Consumption Monitoring
Adoption Monitoring, Scoring
& Benchmarking
8
9
10

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New Offer Landscape
As Is
(Red Ocean)
Could Be
(Blue Ocean)
Availability Adoption and Outcomes
More Features Impact Features
Customer Type: Enterprise/SMB
Direct/Indirect
Adoption Class
Package an “Offering” Package “Business Impact”
Product + Services A Service
19

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Comparing Dashboards
21
TSIA
TS50
TSIA
Cloud 40
18
%
Revenue Growth
-5%
Operating Income
91
%
Subscription %
69
%
Services Margin
4%
Revenue Growth
66
%
Services %
13
%
Operating Income
52
%
Services Margin

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Cloud 40 Business Model: Q4 2015-Q4 2016
22
67.9%
38.0%
17.2% 18.8%
-7.6%
69.1%
35.4%
14.6%
19.1%
-4.8%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
Gross Margin S&M G&A R&D OI
Q4 2015 Q4 2016

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Customer Success
initially funded from
Support as Cost of
Goods Sold (COGS) or
out of Sales as Sales &
Marketing Costs (S&M)
Initial Customer Success Funding Model
23
Support Sales

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SG&A 54%
R&D 19%
OI -9%
% of Revenue Gross Margin Margin $
XaaS 1.0 Product 90% X 68% = 61%
Service 10% X 25% = 3%
GM 64%
UNprofitable XaaS 1.0
26

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Major motions of Adopt, Renew
and Expand are Sales and
Marketing costs (S&M)
Key metrics include Customer
Retention Costs (CRC) and
Customer Expansion Costs
(CEC)
Mature Customer Success Funding Model
25
Adopt Renew
Support Monetize

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Monetize Customer Success49%
Source: TSIA Customer Success Baseline Survey

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SG&A 30%
R&D 19%
OI 15%
% of Revenue Gross Margin Margin $
XaaS 2.0 Product 60% X 70% = 42%
Service 40% X 55% = 22%
GM 64%
Profitable XaaS 2.0
29

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Economic Engines of Technology Providers
28
Annuity
Services
Project
Services
Technology
Subscription
Product
Revenue Stream
Paid to deliver a project
Paid for a service capability that is renewed on annual or multi-year basis
Paid for access to technology (XaaS)
Paid for a technology asset
Each of these revenue streams has unique margin and profit profiles

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LowAverageHigh
Financial Keys: Mix Matters
29
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0%
SOFTWARE
PRODUCT
GROSS MARGIN
SUBSCRIPTION
GROSS MARGIN
ANNUITY
SERVICES
GROSS MARGIN
PROJECT
SERVICES
GROSS MARGIN

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Where is Revenue Coming From?
90
10
70
20
10
Future Value
Aggregators
Current Profit
Maximizers
30
60
3010
Mid-Term
Wedge
-10%
Operating Income
15%
Operating Income
0%
Operating Income
Annuity
Services
Project
Services
Subscription

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Service Organizations Most Likely to be in Place
32

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Tech Org Structure: Emerging Challenges
•  Ineffective sales investments
•  Portfolio proliferation
–  Basic Support, Premium Support, Education, Professional Services,
Technical Account Management, Managed Services, Customer Success,
XaaS subscriptions.
•  Customer confusion
–  The service offers from product and service lines are beginning to overlap
•  Cost of sales
–  Current models not optimized to cost effectively land XaaS customers
•  The adoption gap
–  Current org structure does not effectively drive adoption and expansion of
XaaS offers
35

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These trends are stressing the P&L and
organizational structure of existing models.

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How to accelerate profitable
growth in today’s technology
marketplace?
35
Question

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Deploy “as a service” offers.
36
Answer

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Built around helping customers
achieve specific business
outcomes.
37
Answer

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Supported by a go to market
model that cost effectively drives
customer adoption, account
expansion, and contract renewal.
38
Answer

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What Changes?
•  Blurring of Sales and Service roles
•  Breakdown of traditional P&L structures
•  New focus on adoption, cost effective expansion
•  Leveraging technology not labor to:
–  Educate the customer
–  Unfold offers
–  Monitor adoption
39

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End Game Coverage
40
UNLIKELY TO EXPAND LIKELY TO EXPAND
LAND SALES
ACCOUNT
MANAGER
LAND ADOPT EXPANDRENEW
Marketing

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End Game Coverage
41
LAND SALES
ACCOUNT
MANAGER
CUSTOMER
SUCCESS
MANAGER
Marketing

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End Game Coverage
42
LAND SALES
ACCOUNT
MANAGER
CUSTOMER
SUCCESS
MANAGER
Marketing

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End Game Coverage
43
LAND SALES
ACCOUNT
MANAGER
CUSTOMER
SUCCESS
MANAGER
RENEWAL
SPECIALIST
Marketing

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End Game Coverage
44
LAND SALES
ACCOUNT
MANAGER
CUSTOMER
SUCCESS
MANAGER
RENEWAL
SPECIALIST
SMALL
EXPAND
SPECIALIST
Marketing

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End Game Coverage
45
LAND SALES
ACCOUNT
MANAGER
CUSTOMER
SUCCESS
MANAGER
RENEWAL
SPECIALIST
SMALL
EXPAND
SPECIALIST
LARGE EXPAND
SALES ACCOUNT
MANAGER
Marketing

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Target Organization Structure
Well Funded Demand Generation Engine
CEO
LEAD GEN
MARKETING
47

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A Sales Organization Focused on LAND
CEO
MARKETING LAND SALES
VERTICAL 2 VERTICAL 1
SALES
RESOURCES
SALES
RESOURCES
LEAD GEN
48

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A Customer Growth Engine
CEO
LEAD GEN
MARKETING
CUSTOMER
GROWTH
LAND SALES
SALES
RESOURCES
SALES
RESOURCES
49

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With Account Coverage that Drives Adoption
CUSTOMER
SUCCESS
CEO
LEAD GEN
MARKETING
CUSTOMER
GROWTH
MEDIUM
RENEWAL
SPECIALISTS
LAND SALES
SALES
RESOURCES
SALES
RESOURCES
LARGE
SUCCESS
MANAGERS
SMALL
SMALL EXPAND
SPECIALISTS
INDIRECT
50

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CUSTOMER
SUCCESS
CEO
LEAD GEN
CONSULTING
SERVICES
EDUCATION
SERVICES
OFFER
DELIVERY
MARKETING
CUSTOMER
GROWTH
MEDIUM
RENEWAL
SPECIALISTS
LAND SALES
SALES
RESOURCES
SALES
RESOURCES
LARGE
SUCCESS
MANAGERS
SMALL
SMALL EXPAND
SPECIALISTS
INDIRECT
SUPPORT
SERVICES
With a Converged Resource Pool to Deliver Offers
51

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Sophisticated Customer Analytics
SUCCESS
SCIENCE
CUSTOMER
SUCCESS
CEO
LEAD GEN
CUSTOMER
ANALYTICS
CONSULTING
SERVICES
EDUCATION
SERVICES
OFFER
DELIVERY
MARKETING
CUSTOMER
GROWTH
MEDIUM
RENEWAL
SPECIALISTS
LAND SALES
SALES
RESOURCES
SALES
RESOURCES
LARGE
SUCCESS
MANAGERS
SMALL
SMALL EXPAND
SPECIALISTS
INDIRECT
SUPPORT
SERVICES
52

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Customer Enablement Platform
SUCCESS
SCIENCE
CUSTOMER
SUCCESS
CEO
LEAD GEN
CUSTOMER
ANALYTICS
CONSULTING
SERVICES
EDUCATION
SERVICES
OFFER
DELIVERY
MARKETING
CUSTOMER
GROWTH
INFRASTRUCTURE
MEDIUM
RENEWAL
SPECIALISTS
LAND SALES
SALES
RESOURCES
SALES
RESOURCES
LARGE
SUCCESS
MANAGERS
SMALL
SMALL EXPAND
SPECIALISTS
INDIRECT
SUPPORT
SERVICES
53

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XaaS Self-Service Business Model
53
REMOTE MONITORING AND OPERATING CAPABILITIES
SERVICE INTERVENTON CAPABILITIES
TAILOR-ABILITY AND APIs
LICENSE PROVISIONING AND MANAGEMENT
MARKETING ENGINE
CONSUMPTION ANALYTICS
SECURITY
TRUE MULTI-TENANT HOSTING PLATFORM
QUOTE-TO-CASH / SUBSCRIPTION MANAGEMENT / E-COMMERCE
SALESMARKETING
SERVICES
SUCCESS
SERVICES
EXPAND &
RENEW TEAM
MARKETING FINANCE
R & D Offer 1 Offer 2 Offer 3 Offer 4+
The
Customer
Self-Service
Engagement
Platform
Objects
Organizations
CUSTOMERCustomer
Handoffs
Land Adopt Expand Renew

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Chapter 4, The Technology-as-a-Service Playbook
SUCCESS
SCIENCE
CUSTOMER
SUCCESS
FINANCE/
ADMIN
CEO
LEAD GEN
CUSTOMER
ANALYTICS
CONSULTING
SERVICES
EDUCATION
SERVICES
OFFER
DELIVERY
MARKETING
CUSTOMER
GROWTH
OFFER
DESIGN
INFRASTRUCTURE
MEDIUM
RENEWAL
SPECIALISTS
LAND SALES
SALES
RESOURCES
SALES
RESOURCES
LARGE
SUCCESS
MANAGERS
SMALL
SMALL EXPAND
SPECIALISTS
INDIRECT
SUPPORT
SERVICES
PRODUCT
DEV
Eﬃciency EﬀecBveness
Tight Alignment Tight Alignment
55

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Why now?
Customer Centric Organizations
55
What will they do?
Lack of adoption kills growth
and profitability
Execute data driven processes
to maximize ARR
Combination of COGs, S&M,
and monetized offers
Two Teams: LAND and GROW

Building Customer Success Organizations

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