"SaaS today is like manufacturing was 40 years ago."
In 1980, U.S. manufacturers were back on their heels. Japanese businesses had eviscerated the American consumer electronics industry.
Gone were venerable TV brands like Admiral, Zenith, and Curtis-Mathis, replaced with Sony, Hitachi, and Panasonic. And Nissan, Toyota, and Honda were gobbling up domestic market share from Ford, GM and Chrysler at an accelerating rate.
Complacent in the lingering post-war boom, U.S. companies forgot the manufacturing techniques they had mastered in the 1940’s. Japanese firms were delivering far higher quality, lower-cost products, and consumers were buying them in big numbers.
Back then, American production lines employed massive Quality Assurance departments. Their job was to test each product coming off the line, ship the conforming ones and rework the defective ones. The percentage of bad units was high, making test-and-fix operations slow, manually intensive and very costly.
Committed to quality, however, manufacturers maintained their operations, vowing never to ship bad products. They viewed QA as a necessary evil. It was simply a cost of doing business.
Enter the quality revolution.
Getting Back in the Game
In 1980, NBC News ran a TV program entitled, “If Japan can… why can’t we?” The show revealed how quality improvement methods transformed Japan’s global competitiveness after World War II.
Dr. W. Edwards Deming and other experts who helped rebuild the nation challenged conventional thinking that high quality must come at a high cost.
By adopting Total Quality Management practices, Japanese firms showed that high quality meant far less waste and rework, lower costs, more reliable products, and happier customers.
American industry got the message.
Led by HP, Motorola, Alcoa, Ford and many others, manufacturing rebounded over the next decade as companies rediscovered these same approaches.
They adopted techniques such as statistical process control, continuous process improvement, inventory management, supplier management, and robust designs.
In today’s world, defects are no longer measured in percentages but in parts per million. Manufacturers have fundamentally shifted in their thinking. They no longer achieve high quality through inspection but by designing it into products and processes in the first place.
Manufacturing companies also look very different now than they used to.
Gone is the large Quality Assurance department and replaced with a few internal Quality consultants working upstream in procurement, R&D and process engineering.
Quality has also transcended production and has become a company way of life. Modern Lean Six Sigma teams improve work processes throughout the enterprise, relentlessly increasing performance in sales, marketing, and administration.
Same Rodeo, Different Stadium
SaaS today is like manufacturing was 40 years ago.
Instead of fighting defective products, SaaS companies battle defecting customers. Like QA fixing problems at the end of the production line, today’s Customer Success departments attempt to save unhappy customers at renewal time.
"Captains of industry must internalize that churn transcends functions."
Organizations react to problems instead of preventing them. And SaaS companies have yet to learn that customer loyalty, like quality, is an enterprise-wide problem. Solving it means doing things differently in development, marketing, sales, operations, and even accounting.
Keys to Success
How can SaaS companies transform themselves? By following the same path manufacturing took years ago:
Key #1: Embrace the change
As Deming said, “Quality begins in the boardroom.” Prompted by an investment community attentive to the economics, most SaaS executives have deployed Customer Success organizations to mitigate contract cancellations.
But this is just a first step.
Captains of industry must internalize that churn transcends functions. They must adopt a systems view, understanding that their firms are complex and interdependent functions combine to produce outcomes. And senior teams must commit to work together and make company-wide transformation a top priority.
Key #2: Assign a senior executive to lead the action
The best way to achieve organizational change is through a focused, top-down effort, blessed and continuously championed by the CEO.
The chosen initiative leader must be granted the responsibility and authority to decide changes and be capable of working with peers to carry them out.
Corporate function doesn’t matter — the leader can be CMO, VP Sales, or even a senior staff member. He or she should own end-to-end customer experience results (logo churn, revenue churn, Customer Lifetime Value) and a meaningful portion of their bonus should be tied to achieving long-term, sustainable improvement.
Key #3: Break down silos
The customer experience degrades as companies grow, driven in large part by human behavior. Because of evolution, we’re hardwired to operate in small tribes, not large companies. Add to this Management by Objective (MBO), and the situation gets even worse.
Customers suffer frustrating disconnects as employees focus more on pleasing the boss than on serving them. Executives must understand this insidious social behavior and implement aggressive countermeasures.
- They should replace MBO with Hoshin Kanri, a breakthrough improvement system that elevates common needs over parochial concerns.
- They should revamp metrics systems to thoughtfully optimize, not sub-optimize, business results.
- They should map their customer journey to build a shared vision and a common commitment to improve it.
Lastly, they should personally model customer focus and cross-functional teamwork on a daily basis.
Key #4: Practice continuous improvement
Continuous improvement requires that teams uncover and address root causes of problems, relying on evidence, not speculation. As a result, teams make significant, sustainable impact because they don’t treat symptoms.
Top performers also use financial justification to prioritize projects, and the cycle of improvement never ends. Initiative leaders pay a key role as well. They must manage change effectively, involve everyone in the organization, track progress, celebrate wins, communicate frequently, and never let up.
Key #5: Adapt the organization
The quality of the customer experience and the organization’s productivity delivering it will increase after successive cycles of continuous improvement.
Just as it happened in manufacturing, massive labor investment downstream will be replaced with fewer, more specialized personnel upstream.
For example, a large Renewals team can be phased out over time as a smaller Customer Success team, armed with supporting technology, does a more effective job of onboarding and preventing churn from the very beginning.
Leaders should plan for this change in advance, using natural attrition and staff development to slowly redeploy employees over time.
Most SaaS executives think their technology-driven world is unique. But theirs isn’t the only industry to grapple with necessary transformation. By recognizing similar patterns and learning the lessons of the past, technology companies can create a better future for themselves, one that includes dramatically higher customer loyalty, faster revenue growth, and reduced costs.