Audit Your Message Strategy by Answering Three Questions

The launch of TEC’s blog has somewhat coincided with my visit to Belgrade, Serbia (what used to be Yugoslavia and then Serbia & Montenegro) for personal reasons. Those several days spent in my homeland in late October/early November (whereby I missed my beloved Boston Red Sox’ winning the MLB World Series ’07 Championship, darn it!) I at least used this time to also learn about the enterprise applications market in that region, and maybe even in the entire Balkan region. I have never seen any such market report from any other analyst house about this (possibly obscure) region, and I thought this topic might be of interest to our (curious) readers as well as to me. To be fair, I’ve seen other similar trip reports, such as this recent one about the Australian enterprise applications market.

Well, it appears that in Serbia (and in all other countries from the former Yugoslavia), there is today still not a mature enterprise applications market per se, as opposed to in the developed Western world. On one hand, the variety of offerings is far from being sufficient, while on the other hand, the prospective buyers’ awareness and education about what and why they really need is not developed either. Consequently, most purchased and deployed enterprise resource planning (ERP)/accounting systems are those products that have somehow already become a brand name in the market (the so-called Coca-Cola phenomenon). Alternatively, prospective user firms simply buy the cheapest option, regardless of the (mis)fit and possible ramifications. Such a situation seems to be in all spheres of information technology (IT) – hardware, software, telecommunications, etc. (if not even in virtually all spheres of business and life). But I digress…

One should, however, note that the former Yugoslavian market, never having been behind the Iron Curtain, had an enviable tradition of both local entrepreneurs and state-owned enterprises developing their own software applications from scratch, even at a time when the term ERP had not even been coined yet. Thus in the late 1980s and early 1990s, the market was dominated by the software products of many domestic companies, such as former (now defunct) SDC-CIP’s Mozaikus (a.k.a. Comand 2000) product, former Digit’s Hefis product, meanwhile renamed into FIS (Financial & Industrial Systems) and arguably SAGA’s Avizo product. These firms and their respective products held at the time about 80 percent of the market, while many new companies emerged later like M&I Systems , Breza Software Engineering , Spinaker, ABsoft, Mihajlovic Soft , etc.

Some of these companies are apparently no longer in business, while the others have meanwhile diversified their offerings to become reseller partners for Microsoft, Fujitsu, Oracle and so on. One ERP product that deserves due mention here is Apollo, not only for weathering all the storms of the 1990s to survive today, but also for keeping abreast of modern developments. Namely, its fourth generation product, dubbed ApolloG4, boasts a multi-tenant software as a service (SaaS) architecture for on-demand deployments, in addition to solid multi-national capabilities. But I digress again, and Apollo will get an in-depth coverage in a separate blog post or in a research article on our web site/newsletter…

Going back to the era of late 80’s & early 90’s, Oracle was the main provider of underlying relational database management systems (RDBMS) and development tools, whereas IBM DB2 also played a part (albeit to a much lesser degree). Much later, software developers started using Microsoft SQL Server and related cheaper integrated development environment (IDE) tools (or, until recently, one could use even “alternative channels of supply”, i.e., piracy). The protracted crises (the regional wars and the United Nations [UN]’s sanctions throughout most of the 1990s) have tremendously weakened (if not even put out of business) many domestic ERP vendors.

Given that at the time one could count on the fingers of one hand the number of successful manufacturing companies, demand for business software was extremely thin, so that only some privileged enterprises (under the patronage of the government, so called „government budget enterprises“) would purchase an ERP solution. These were Naftna Industrija Srbije (NIS) or the Serbian Oil Corporation, Elektroprivreda Srbije (EPS) or the Serbian Electrical Utilities, the Serbian Government and its umpteen ministries , as well as some government agencies and institutions. Certainly as a separate lucrative segment, there were banks and insurance firms, which, beside telecommunications, such as government-owned Telekom Serbia and former Mobtel (now Telenor), were the only enterprises able to afford the modern IT systems and services.

A particular blow for many avant-garde domestic ERP providers in the 1990s was the closing of Oracle’s office in Belgrade. Amid UN sanctions and NATO bombing, some resilient ERP entrepreneurs were left to their own scarce means to continue developing and supporting their applications. However, the positive political and economic changes that took place after October 5, 2000 (when the Serbian velvet revolution took place) have resulted in the emergence and penetration of foreign packaged software systems into the Serbian market.

Interestingly enough, before Oracle returned Microsoft was one of the first to arrive (in great part due to a deal with the new Serbian Government to provide the standard IT infrastructure solution for all government agencies). But, beside its common infrastructure and desktop products, Microsoft then brought something new – the Microsoft Dynamics NAV ERP product (at the time known as Navision). Soon after, the Serbian market witnessed Baan (then part of Invensys, today known as Infor ERP LN) via its value added reseller (VAR), followed by Oracle, who initially only offered its infrastructure and middleware, but not necessarily Oracle e-Business Suite (EBS). Former PeopleSoft/JD Edwards (well before being acquired by Oracle) and, of course, SAP also followed suit.

Certainly, there were still a number of lower-end accounting products that had meanwhile been developed in Serbia even if under adverse conditions. These products came out of the needs of smaller enterprises, which were not ready to pay more than a few hundred German Marks (later Euros) per month (the price entailing both the software license fees and implementation costs) for their accounting needs (i.e., regulatory compliance imposed by the state).

In any case, in 2001 and later the Serbian ERP market became a hodgepodge of available products, to a such degree that at some tenders (selections) one could witness up to 30 contesting vendors offering their products in the range of contract prices from Euro 150 to Euro 2 million (?!). One could then imagine the ludicrous task of a selection committee to select the best solution if the main selection criterion was the price. For that reason some tenders would be repeated several times in order to set criteria that would eliminate unsuitable solutions to enter the contest. That was also the time when certain consulting houses entered the picture. For the price of an arm and a leg, they offered their selection services, which would include some criteria and contract terms that could easily render some vendors as favorites.

During last seven years or so, the situation has become much clearer, and the market has been stratified into the following three segments/tiers:

1. The buyers of the most expensive, top-of-the-range Tier 1 ERP solutions,
2. The buyers of moderately expensive, middle-of-the-range Tier 2 ERP solutions, and
3. The buyers of the least expensive, Tier 3 ERP solutions.

When one attempts to segment the enterprises in Serbia, it is most natural to divide them into the large, mid-size and small ones, as well into privately or state-owned, and also by the industry vertical. Certainly, from the buyers’ angle and their possible needs, one could think of other segmentations, but the above tiering of Serbian ERP market should be sufficient here. Given that every market consists of demand and supply, let me try to describe each segment/tier in terms of buyers and vendors.

Tier 1 – the potential buyers here are the abovementioned public and government-owned enterprises: the Serbian Government and its institutions, and large manufacturing, retail and export/import trading enterprises that have meanwhile become privatized (as it is so popular and politically correct to say in Serbia these days “they have completed the transition”). As we will shortly see, most of such privatized companies have been sold to multinational companies who then often brought in their own already implemented enterprise solutions. The estimated number of such enterprises, and thus potential users of Tier 1 ERP systems would be between 100 and 150, but it is not unrealistic to expect as many more in a couple years or so.

This market segment already seems to be largely captured by SAP. According to data from SAP West Balkans , which covers Serbia and a few other countries from former Yugoslavia, SAP ERP has nearly 50 corporate customers in the region. For many privatized enterprises, given that the parent company in Europe has SAP as a corporate-wide ERP standard, recently acquired plants or divisions in Serbia were given the mandate from the HQ office to roll-out SAP. Enterprises like ZDRAVLJE “Actavis” Company (a drug manufacturer in Leskovac), Tetra Pak Balkans, or Duvanska Industrija Nis (DIN), a cigarettes manufacturer and part of Philip Morris International, would represent well SAP’s client roster. Certainly, SAP’s brand recognition and leadership position worldwide have played a part in the decision-making of other customers, which are not necessarily owned by a SAP-using foreign entity.

Inevitably, the fiercest competitor to SAP Business Suite is Oracle EBS, albeit with only a handful of installations in Serbia, mainly owing to its apathetic regional marketing effort for its ERP solutions. The most notable Oracle EBS users are Narodna Banka Srbije (NBS) or the National bank of Serbia, “Vojvodjanske Toplane” Novi Sad (a public heating utility in the city of Novi Sad) and Aerodrom Nikola Tesla u Beogradu or the Belgrade Nikola Tesla Airport. Oracle has some additional presence, because one investment fund (Salford) has bought a majority of dairies and some food and mineral water plants in Serbia (thereby establishing the Danube Food Group in Serbia). The corporation has been trying for years to implement JD Edwards (first acquired by PeopleSoft, and now part of Oracle) as its ERP standard. There are also a few notable companies with instances of Baan due to its distributor’s timely entrance in the market in the early 2000s.

But, in a nutshell, SAP currently has a very little competition in this market segment due to Oracle’s tepid marketing approach and because the former Baan distributor company, ITS Intertrade Sistemi was acquired in 2004 by the SAP reseller, Austria-based S&T Group. There are simply no other viable upper-market and/or specialized solutions in the market, such as Lawson M3, Infor (a plethora of possible offerings), Epicor iScala, QAD Enterprise Applications or IFS Applications. The reasons for the lack of competition might be multiple – from these ERP vendors’ estimates that the Serbian market is too small and not worth the investment, to the possible political instability and the fate of ongoing reforms in the region, and so on – but the Tier 1 ERP supply situation is so.

Audit Your Message Strategy by Answering Three Questions

The goal of positioning is to help the target market associate a significant benefit with your product or company. Failure to differentiate creates market confusion, and this inevitably leads to longer sales cycles. Yet few companies successfully differentiate, generally because they either don't know how to evaluate and determine competitors' product positioning, or they simply don't think it's important.

Are You Making a Unique Claim?

It's pretty easy to learn how competitors are positioning themselves, because they do it in public. So start reading and analyzing your competitors' print advertisements, marketing collateral, and web sites, with an eye to deducing the positioning behind their messages. You'll probably find that a lot of the marketing communications put out by your competitors aren't backed by a real position. Often, these messages are just a “brain dump” (a lot of factual information) of product features. They lack the heart and soul of good positioning—a meaningful benefit statement, a reason the audience should care about their product.

A positioning statement frequently appears in the first or last paragraph (or both) of an advertisement, or in a prominent place on the home page of the web site. A good positioning statement should be a focused benefit idea or concept underpinning the executional theme of the advertisement, home page, brochure, etc. For each competitor, analyze as much of the marketing material as possible, including direct mail and e-mail marketing pieces, brochures, and press announcements.

Once you have determined the competitors' positioning, organize the ideas or themes in a table according to the conveyed benefit statement. Some competitors are likely to have similar or identical positioning statements. Other competitors may publish many claims, making it harder to determine how they are positioned, if at all. It is common—and a mistake—for companies to make two or more benefit claims of equal importance. Check those too. Figure 1 shows a real-world example of how the following mid-market enterprise accounting and enterprise resource planning (ERP) software companies were positioned in late 2005.

Benefit	Lawson	MBS	Best	SAP	Oracle	SSA
Understands the needs of small and medium businesses.			X
Understands business fundamentals.				X
Is flexible and adaptable.		X	X	X
Is affordable.		X			X
Delivers value to the customer.	X				X
Supports rapid implementation and return on investment (ROI).						X

Figure 1. Positioning of mid-market enterprise accounting and ERP software companies in 2005.

Bolstering the Call Center with Service Resolution Management Processes

To accommodate increasing customer demand for company and product information and for quick issue resolution, companies are now considering the benefits of online self-service systems. Knowledge management (KM) software is the key to such systems, as well as to integrating customer relationship management (CRM) and service resolution management (SRM).

For more background, please see Integrating Customer Relationship Management and Service Resolution Management and Knowledge Management: The Core of Service Resolution Management.

Bolstering Call Center (and Other CRM) Processes

The trend of customer service enablement and the nurturing of customer relationships (which have traditionally been the forgotten stepchildren of CRM) may be overtaking customer acquisition as a main driver of recent CRM deployments. Customer service has historically been provided primarily in person or over the telephone, with limited reference materials available for the customer service representative (CSR). This emerging business model assumes that companies that provide customer service over the telephone will find value in aggregating company knowledge by using the appropriate software, and will be willing to access the content over other channels, especially the Internet. The business model also assumes that companies will find value in providing some of their customer service over the Internet instead of by telephone.

In the past, customers would show a preference for a certain channel of communication with a company, but this is no longer the case. Customers now use several different channels available to ask for support and service and about upgrade issues, or to inquire about or request new products and services. And they expect to receive accurate, consistent information, regardless of the channel they are using. Service that does not meet these expectations is considered a waste of time, and a reason for the customer to seek out competitive offerings elsewhere.

The use of multiple channels for customer service and support, as well as the importance of consistent, accurate, and swift answers, is expected to only increase in the future. Companies are thus realizing that what their customers are seeking is knowledge (which is likely stored somewhere in the company, but more likely, scattered all over the company), and that these customers want it regardless of the channel they choose, be it telephone, Web self-service, e-mail, retail kiosk, or chat.

The logical question a company should ask itself is how it can provide customers with direct access to the knowledge they are looking for when that data may be residing in a variety of places. For example, product specifications, technical support, billing questions, and pricing and policy information can all be found in any number of places, such as CRM databases; legacy KM systems; frequently asked questions (FAQ) lists; intranets; content management systems; billing systems; or an automated response system. The goal here is to analyze the customer's problem, retrieve the information needed to solve that problem, and to do so in whichever contact channel the customer chooses. This process should not only minimize customer frustration and lower the cost of the support transaction, but it should also leave the customer delighted.

Although computer-telephony integration (CTI) systems do a great job at automating call routing and case management, web sites have become ever glossier and animated, and CRM systems do a decent job of handling customer contacts (and possibly preferences) and product information, something is still missing to enable cohesive customer service. The plethora of new self-service technologies, such as natural language search engines, knowledge bases, guided navigation, user forums, collaboration, personalization, multichannel (e-mail, instant messenger [IM], integrated voice response [IVR], call centers), and so on, lead us to the emerging part of CRM software applications, specifically applications that enable customer service organizations to more effectively resolve service requests and answer questions.
What Service Resolution Management Offers

Built on KM and search technologies, SRM (not to be confused with supplier relationship management) applications optimize the resolution process across multiple service channels, including contact centers, self-service web sites, help desks, e-mail, and chat.

An SRM system creates a knowledge backbone for the seller company by creating a single interface that pulls vital information and knowledge from wherever it is stored, whether it is in the CRM system, legacy support systems, search engine, web site, document libraries, etc. It allows the company, as a business leader, to evaluate what processes are taking place in its support environment and to then determine how it would like those processes to be handled. With this, the company can guide users step by step through the process of answering their questions, applying the right process to each inquiry to drive the outcome it wants.

Service resolution systems enable the company to harness all the tools and knowledge it has already acquired to solve customers' issues, regardless of what channel they use to tell the seller company about their issue. These SRM applications have to complement, integrate with, and enhance traditional CRM areas like sales force automation (SFA), marketing automation, contact center, and help desk applications by providing knowledge-based solutions that improve service delivery. Although still an emerging software category, existing SRM customers include some of the largest companies in the world, and SRM products have reportedly enabled these companies to reduce operating and service delivery costs, improve customer satisfaction, and increase revenues.

Here is an illustration: A service call (customer inquiry, complaint, etc.) comes in, and the agent fields it by performing a search. A technical bulletin, written by a product manager and stored on a network drive, comes up in the query results because the knowledge base searches both structured and unstructured knowledge. This very issue has been documented, and a resolution has been built to ensure that an answer can be provided. A wizard pops up and prompts the technical support agent to walk the customer through a setup process. The new product can then be used successfully, resulting in a happy customer.

This is the type of service the customer wants and what support systems are really trying to provide—seamless service resolution, which can only be provided by effectively using and managing corporate knowledge (i.e., the knowledge of products and services; diagnostic troubleshooting; information stored in all documents on the network drives, intranets, and e-mail systems; and, most important, the knowledge of the customers and support agents).

Trend Analysis

The markets for KM and SRM solutions are still emerging, and it is difficult to predict how large or how quickly they will grow, if at all. Some companies have found that the productivity of customer service personnel initially drops while CSRs are becoming accustomed to using the software.

Self-service can cause conflicts, since it contributes to a general shift of control and resources away from the call center. Also, exposing some information can be risky. For example, logging complaints into the system and then displaying them on the customer portal can cause some users to regard giving out sensitive information as “hanging themselves." Resistance to the software by customer service personnel and inadequate development and maintenance of the system's knowledge resources, business rules, and other configurations have in some cases made it even more difficult to attract new customers and retain old ones.

Competition in the fragmented SRM marketplace is rapidly evolving and intense, and one should expect competition to further intensify in the future as current competitors expand their product offerings and as new competitors enter the market. One should also expect that competition will increase as a result of industry consolidation, which comes from the need for newer models of customer service, in which a single vendor provides solutions for both internal and external service, technical support, and search.

Knowledge Management: The Core of Service Resolution Management

Today's businesses are faced with the reality of customers expecting and demanding more multichannel information and better service from call centers than ever before. Integrating call center service resolution management (SRM) into customer relationship management (CRM) can help companies retain both their call center agents and their customers.

For more background, please see Integrating Customer Relationship Management and Service Resolution Management.

Knowledge management (KM) is at the core of integrating CRM and SRM. KM software aims at helping to unlock the power of a company's knowledge to improve efficiency, competency, and profitability. It does so by providing an environment in which companies can, more quickly and cost-effectively, create a company-wide knowledge base to store and index documents and to more accurately search for the answers to user questions.

Currently, the key trends in KM tools enable companies to perform the following: 1) target their online information to reflect what is most likely to interest customers, and 2) maintain online forums where customers can share amongst themselves what they know about the company's products.

Hence, KM products typically fulfill two functions. KM accommodates self-service, meaning a customer can access a pool of public information that a company accumulates about itself, without the need for live assistance, to have his or her questions answered. Second, KM software helps call center agents to retrieve information from a repository that is often, obviously, larger than what is available to the public (since the aim of live assistance is the same as self-service—to answer customers' inquiries quickly and accurately, but with the preferred human touch).

The above considerations have marked a fundamental shift away from the time when any company could claim to perform a valuable service to customers simply by displaying information on its web site, without having to take into account who the customers were. Today however, virtually all companies must demonstrate their value to customers by segmenting information that is directly relevant to them.

Customer segmentation is not a new idea, since segmentation was supposed to be the way that—with the help of CRM tools—companies would offer the best possible service to their best customers. The problem with applying overt segmentation to customer service was that it then revealed a hierarchy that placed most customers at the bottom. This was so because, by definition, elite customers represent a small minority (the proverbial Pareto's 80/20 Rule). The premise of segmenting customers reinforced the idea that customers existed to create value for companies, rather than the other way around. Using this logic, most (up to 80 percent) customers were of little value to the companies that they bought products and services from.

By contrast, the practice of KM helps companies establish a bidirectional relationship with customers that rewards them for sharing knowledge (their product and service use experience), and not only for spending money. The latest generation of KM software makes this possible by enabling the company to combine what it knows about customers and what customers know about the company, and to offer this information as part of the resources available on its web site.

As discussed in Making the First Call Count by Greg McFarlane, an astute KM software has to make it easier for agents to author new knowledge when new services, products, or upgrades are in place. This reduces the need for agents (especially novice agents) to escalate calls to the upper service tier. This decreases the costs and the lengths of calls, but more importantly, it gets calls answered more quickly. In addition, the diagnostic search functionality helps resolve customers' issues quickly and accurately with its ability to pull answers from any data source an agent can connect it to, thereby giving agents the right information at the right time. Lastly, the automation of key resolution processes enables new agents to get up to speed more quickly. By pre-populating case notes and pre-establishing workflows and other techniques, the companies can create an environment that allows agents to operate as effectively as possible, regardless of their experience.
With the addition of multiple channels and new technologies to support them, call center agents' job descriptions should become more interesting and diverse. When this occurs, several of the major barriers to call center agent job satisfaction, such as stress, repetition, and dullness, can be eliminated, thus resulting in greater retention. The customer service representative (CSR) might start to feel like a problem-solver rather than a mere document reader.

Agents might also feel more accountable for problem resolution, as they begin to follow problems from start to finish. For instance, a CSR can access and present solutions to problems from a knowledge base; create a service ticket; request repair services; note a complaint; process returned materials; issue a rebate, coupon, or refund; and escalate issues to other responsible parties, such as tier (level) two support, development, quality assurance (QA), or even third parties.

Customer satisfaction should, in turn, increase, as the number of disconnected handoffs between agents, customers, and channels are reduced. On the other hand, increased agent retention should improve the organization's domain knowledge, and as a result, the number of first-call closures should rise.

The Impact of Online Customer Service

Online customers are becoming increasingly demanding, since they want answers to queries quicker than ever before, and they want to be able to access services when it suits them—around the clock. No customer wants to be put (seemingly endlessly) on hold or escalated, or to attempt several different solutions over the next hour, only to be called back the next day. He or she wants the issue resolved as quickly as possible, either through self-service or by a knowledgeable agent at the other end of the telephone.

At the same time, web site design is maturing, and the average customer is becoming more computer literate, which means that customers are ready to be introduced to online self-service solutions. Many customers indeed want to be able to solve their own problems through self-support on the Web, since we are all “too darn busy, and who has time for lengthy phone calls.” Companies, too, are ready to embrace the benefits of self-help solutions, which offer the dual advantage of cutting the cost of support while improving the quality of the service delivered to users.

In the early 2000s, Forrester Research reported that it costs, in US dollars, about $33.00 to handle a customer inquiry by telephone, $10.00 to handle it by e-mail, and about $1.00 to deal with the question through an online self-service system. Furthermore, by 2010, Gartner projects that self-service interactions will account for 58 percent of all service interactions, up from 35 percent in 2005. Thus, the goal of self-service has been to drive as many inquiries as possible away from the telephone to the Web, which is less difficult than it might seem, because organizations usually find that about 12 questions will account for half the calls made.

An effective self-help system should allow users or customers to resolve most common queries on their own, but it should also make it easy to escalate inquiries to an operator through telephone, Web chat, or e-mail if users get stuck or their questions are more complex. Also, call center representatives can sometimes handle problems more productively over live chat than on the phone, since an agent can deal with only one customer at a time over the phone, but it is quite possible to simultaneously juggle a few live chat sessions with customers.

One should note, however, that different users have different levels of tolerance for the length of time they are willing to commit to self-service, which means the availability of live support is still a necessary option companies must offer. On the other hand, in a corporate setting, the company may want to discourage highly paid staff from using self-help for more than a few minutes, because it does not want these employees to be unproductive.

In summary, enterprises can provide customer self-service that reduces service costs, improves customer satisfaction, and facilitates the sales and marketing of products and services. Moreover, IT organizations can increase the effectiveness of employee help desk operations while decreasing internal technical support costs.

Integrating Customer Relationship Management and Service Resolution Management

A customer relationship management (CRM) system that accommodates complex customer-facing processes requires four key factors to give the system a competitive advantage.

The first key factor lies in the application's ability to develop a complete customer profile that supports multiple business units and products. Service organizations need a wide range of customer data, including demographics, financial status, and current and anticipated lifestyle changes (for example, college-age children, retirement concerns, newborn kids, house or condo purchase, changing insurance requirements, etc). To gain a true understanding of customers' needs and wants, any interaction with them must be captured and analyzed.

For example, when a customer with a savings account inquires about a home loan, a full-service financial services company would want the customer-facing employee, whether in the branch or contact center (if not even an intelligent online software agent), to recognize that here lies an opportunity to cross-sell a home insurance policy to the client as well.

Having a complete customer profile enables users to quickly identify key attributes about a customer, such as whether the customer has multiple accounts with the bank, and therefore is a customer the bank would not want to lose. Naturally, customers are highly sensitive to how they are treated; they notice such things as whether their service institutions answer the phone quickly and recognize the customer when he or she calls, or whether the establishments answer questions astutely or resolve issues promptly. Also of importance is whether the institution provides rapid turnaround for specific offerings, such as new account origination, new loan origination, refinancing a home, and so on.

Most customer-serving institutions need software solutions that can deliver services that are personalized to the customer's needs. Take, for example, an insurance company that has many distinct lines of insurance products but no common customer database, leading to the disastrous result of several agents calling on the same accounts. Such disorganization is not only costly and inefficient, but it also creates a great deal of customer dissatisfaction, annoyance, and ultimately, defection. By implementing a unified solution to market more than one product to the right customers, the service company should be able to improve revenues while driving down the costs—and retaining customers.

The second key factor is that the CRM application should provide companies with the ability to customize their solution to address their unique business needs and evolving external requirements. In a dynamic business environment, the service enterprise must be able to sense and react, almost instantly, to changing market conditions. These conditions vary depending on whether they are caused by shifts in market structure, new competitive threats, micro- or macro-economic changes, or other factors. A company must also adapt to its users' needs, since not all users are alike; an adaptable system should provide a personalized interface for the user, based on his or her specific information needs. Ideally, the system should also be able to dynamically modify its behavior, depending on what the user is doing.

Financial industry enterprises—especially those competing with larger organizations—claim that they win and keep customers because they leverage their in-depth knowledge about the client to offer more personalized service. These clients do not want a cut-and-dried solution that looks and acts like the same CRM system that their next-door competitor uses. Rather, they want a flexible solution that they can tailor to their products, services, and business operations.
The third essential factor of a CRM system that accommodates customer-facing processes is that it should offer organizations the ability to adapt to customer and market changes, since most traditional enterprise CRM offerings require users to write lots of expensive, time-consuming custom code as part of their deployment. This often creates many problems, starting with most customers finding that by the time they have completed the development cycle and are ready to roll out the software, something in their business has yet again changed (such as a new, fierce competitor has entered the market; new legislation has been passed; the company is involved in a merger; management has decided to add or drop a new product line, etc.). Thus, these firms may find themselves stuck using their old model and needing to go through another long, expensive software development cycle to add the changes they need. On the other hand, customized environments can be very difficult to upgrade when the vendor comes out with a new release of its software.

The fourth factor is the CRM application's ability to integrate, in near real time, with other complex systems, and its adaptability to users' existing infrastructure. It is not at all uncommon to find dozens of systems in the service firm's back offices, all of which have data that needs to be integrated with the new CRM system. Some of these systems can even go back a decade or more. Many of these systems, although ancient in the IT timescale, still deliver mission-critical services reliably and effectively, day in and day out. Thus, a modern CRM solution must easily and seamlessly share data bi-directionally with these systems, using open industry standards.

As the first factor indicates, an adaptive service enterprise must be sensitive to ever changing customer requirements, and must foster an optimal customer experience by creating and delivering incremental services that customers want and are willing to pay for. This requires an IT infrastructure capable of seamlessly tracking and managing interactions across all customer touch points, such as the retail store, the Internet, e-mail, fax, the call center, etc.

Though CRM mega-vendors often want users to rip and replace their entire IT infrastructure with the mega-vendor's software stack, many clients view their legacy systems as mission-critical, and might prefer a CRM solution that will protect their investment by plugging into their existing infrastructure.

To be sure, services institutions live and die by the services and products they provide to fickle and demanding customers, and they need to be able to change direction quickly in order to meet competitive challenges or to take advantage of emerging opportunities. Only by deploying astute CRM technology will they be able to capture customer and market data, sense and understand how their customer segments want to be served, and be able to analyze and respond to changes in customer needs and wants.

Because CRM processes touch so many parts of a business, they can have a major impact on both cost and revenue. The improvement of sales and marketing processes can bring in new revenue, while call center productivity can drive down the costs of servicing customers, as well as present up-sell and cross-sell opportunities (and maintain customer satisfaction).

The business case for call center applications is becoming increasingly obvious, especially given the recently established National Do Not Call Registry in the US. The revenue driver will thus become inbound customer calls rather than companies trying to generate leads via outbound telemarketing efforts, which have too often proved to be annoying to customers, and ultimately counterproductive.

The Seven Deadly Sins of Software Marketing

Marketing collateral does not come cheap. Costs associated with textual content, graphic design, and production quickly add up. Obviously, you want to get an appropriate return on your investment. This article looks at seven common mistakes, or "sins," made when developing marketing collateral for the software industry. The sins discussed consider such concepts as targeting your market, lowering costs, and making it convenient for your potential customers to use your marketing collateral. Also considered are the various forms of marketing, such as hard copy, electronic, and e-mail. Finally, we consider the cost of changing marketing collateral and its reproduction.

However, before we start confessing our sins, we need to state the obvious. Marketing collateral must be tailored to your marketplace and products. To sell a car, you probably would emphasize miles per gallon, passenger accommodation, and maintenance costs. Applying these same metrics to software may not make a lot of sense or demonstrate the strengths of your software products. While it may go without saying, never lose sight of the obvious—know your marketplace. This simple statement is not considered one of the deadly sins because if you are committing this grievous offense, you need to go back to the basics and seriously rethink your marketing plan.

The good news is that committing one sin may not condemn you to marketing hell, but committing enough of them surely will. So, grab your holy water, prayer beads, or whatever your religion provides for protection, and let's proceed.

Sin #1. Hiding Your Message

Have you ever gone to a web site that is plastered with customer testimonials, but with either no indication of what it is selling or, at best, with its products or services written in small print? It's like lighting a candle and covering it with a basket. You need to tell your audience what you are selling, what services you offer, and what support you provide. Tell them up front that "We offer software designed for the process manufacturing industry," "We cater to the food and beverage industry," or "Our software was developed to support the field services industry."

To avoid the "hard sell" approach, it may be helpful to ease into the description of what you have to offer. Consider the example below for the food industry.

They say that "it's the ingredients that make food taste good." However, in a rapidly changing marketplace, it takes a lot more than ingredients to compete effectively and efficiently in the food industry. Our software is designed to take care of the production and operational issues of the food industry so you can focus on the freshness of the ingredients.

Don't assume that your audience already knows what you do. If they did, they probably would not need a marketing brochure in the first place. In creating marketing collateral, assume that the reader is seeing your company and its products for the first time. Stating the obvious is not a bad thing. With marketing collateral—hard copy or electronic—readers already familiar with a particular content can simply read on or scroll down.
In the case of the cluttered web site, consider your own buying practices. If you were buying a car, would you start by finding out what current customers say, or by finding the car that meets your needs? Your next-door neighbor may be enthusiastic about his truck, but you're hauling kids, not lumber. Marketing collateral, which includes the web site, must clearly state what you are about and leave no room for doubt. When developing a piece of marketing material, remember that this is probably a prospect's first introduction to your company and its products and services.

When driving down a highway late at night on a business trip, looking for a place to stop, does the bright neon sign say in big letters "Free HBO" and in small letters "Motel"? Of course not. Likewise, if your marketing material emphasizes effective formula management before you mention that you cater to the chemical industry, you may want to reverse the order.

Sin #2. Swerving off Course

Too often we give up before the finish line is in sight. We become impatient if the results of a marketing campaign are not immediate. Here are some simple facts. Getting more than a 1 percent hit ratio for a marketing campaign is considered a success. So, if you send out a mailer with a response card to 100 prospects and 1 responds, don't give up. It usually takes between eight and ten contacts before you can expect to get your foot into your prospect's door. Accordingly, when planning a monthly e-mailer campaign, make sure you have enough material for at least eight months, hopefully avoiding repetition. Think about your reading habits. If you are extremely busy, you probably push unsolicited mail into your wastebasket and e-mail into your "deleted items" folder. On those rare occasions when you have time, you may actually peruse the mail, if only briefly. This is why success takes so long. The mail habits of your prospects are not much different from yours. However, if you incorporate consistent, eye-catching graphics, the chances are better that visual recognition will kick in a little sooner than normal.

Constantly changing directions confuses your prospects. Let's say your most recent sell was to a computer manufacturer. Now you want to switch to the discrete manufacturing space, when all along you have been proclaiming software development for process. Sure, make the sale, but don't let it change your focus—at least not after the first sale. Constantly changing your marketing plan destroys your credibility. Trying to be all things to all prospects is a bad business plan—and a worse marketing strategy.

There was a local dentist whose slogan was "We cater to cowards." On every piece of literature he sent out, the slogan was prominently displayed. Now, he did not have the advertising budget that most companies have, but after three years, whenever someone mentioned his name, the response was "Oh, the dentist who caters to cowards." Staying the course does pay off.

Sin #3. Failure to Create Reusable Material

Being able to use a piece of marketing collateral for multiple purposes can significantly reduce your overall marketing costs and time to deployment. If considered from the onset, this is not a difficult objective to achieve. If not, there could be a lot of redundant effort.

Boosting the Bottom Line with Master Data Management

If you haven't heard of master data management (MDM) yet, you will. If you didn't realize that you use master data every day, you do. If you didn't know that MDM can help boost your company's bottom line, it can.

MDM is the process that organizes, unifies, and eliminates duplication of customer, product, and logistical records, as well as other key pieces of information that businesses have to track every day. And it does this across different departments, platforms, and systems. Simply put, master data is the core customer and operational data that gets used in virtually every significant process and transaction that a business conducts.

So what does this mean for an organization in practical terms? MDM enables companies to boost their bottom line by

* reducing the cost of mailings, marketing campaigns, and lead acquisitions
* allowing for faster sales lead processing
* improving the quality of service in customer service departments and call centers
* strengthening sales and marketing functions

Download this informative podcast featuring Lyndsay Wise, senior analyst at Technology Evaluation Centers (TEC), and Anurag Wadehra, vice president of marketing and product management at Siperian, a leading MDM and customer integration solution provider, today. You'll find out more about MDM, including how to get started, what strategies to bring to the table, and all the benefits you can expect.

Click here to download Boosting the Bottom Line with Master Data Management now!

This podcast examines the following questions:

* What is the importance of master data management (MDM) to your organization?
* How can you cut costs through the use of MDM?
* How can MDM help you improve your company's sales and marketing efforts?
* What should you be aware of from a technical point of view before implementing an MDM solution?

Podcast Transcript

Hi, and welcome to TEC Radio. My name is Lyndsay Wise, and I am the senior research analyst for business intelligence [BI] and performance management here at Technology Evaluation Centers. Today I have [with me] Anurag Wadehra, the vice president of marketing and product management at Siperian. Siperian is a leading master data management [MDM] and customer integration solution provider. I will be discussing with Anurag what the importance of master data management is, and how organizations can use MDM solutions to improve their sales and marketing efforts, and how MDM can affect the bottom line and increase profitability within an organization.

Lyndsay Wise: Anurag, thank you so much for taking the time to be with us today.
LW: What is MDM?

AW: That's a very interesting question, Lyndsay. Today, there's a lot of coverage of master data management, and essentially what it is, is a management of a certain kind of data. It is a data that defines the core business descriptions of customers, products, locations, and other key entities that [businesses] have to track. That's a very simple way of saying that master data management is managing your key business entities.

LW: How do organizations use master data? Can you give us an example?

AW: What's interesting about master data and the management of it, and the use of it in companies is that nobody uses it exclusively. Nobody wakes up and says, "I'm going to use master data today." It gets consumed in every business process and every business transaction. Let me give you an example. If you go to the bank and withdraw 10 dollars from an [automatic teller machine] ATM, in that transaction is implied who you are: what's your name,... your account number,... your address,... your location. Those aspects of the transaction are attributes of master data, and they get used, derived, or accessed during that transaction. And that's true for other business processes that involve customers, products, the relationship among customers and products, or other classes of what is called master data. So, in a nutshell, master data gets used in virtually every significant business process and transaction.

LW: How can MDM actually help a company improve its sales and marketing efforts?

AW: That's a very tricky question because companies have been trying to improve their business performance, including their sales and marketing processes, for a very long time. And for sales and marketing, companies have been trying to reduce the cost of mailings, cost of marketing, to different segments of their customers.

In sales, the cost of acquiring the leads and processing the leads … is an area of focus for many companies to improve their effectiveness. Master data is critical because very often the reason why costs are very high is because companies do not have good control over their master data. And therefore by controlling the quality and reliability, and very often, very simply, the definition of master data around customer product accounts, companies can significantly improve the business performance and business processes associated around this data.

Perhaps an example will help. If you consider a mailing that is sent to 10 million customers by a large bank announcing either a credit card offer or some other product offer, a significant amount of money can be spent on incorrect addresses, incorrect duplicate names, similar names, multiple mailings sent to the same household, very often not recognizing that spouses might actually belong to the same institutions as customers.

All of these issues result directly in higher cost and lower profitability. The root cause of many of the problems I've just described was poor quality of master data, lack of understanding of the relationships among master data.... By improving the quality and control of master data, you can improve directly the bottom line of your sales and marketing processes by reducing the cost of mailings, by improving the quality of services at call centers, and by improving the time it takes to process leads for sales.

Audit Your Message Strategy by Answering Three Questions

Every couple of years, your company probably goes through a positioning process. You might think the process is complete once a message strategy has been developed that accurately and compellingly describes the company's unique ability to satisfy customers' problems and needs. Well, this is certainly a step in the right direction, but now what the company needs to do is add a yearly audit to this process.

A message strategy audit determines the effectiveness of your positioning strategy and whether you need to change or tweak it. The audit assesses your situation by answering these three basic questions:

1. Is your marketing claim important to the target market?
2. Is it unique?
3. Is it consistently executed?

It's a good idea to audit your message strategy every 12 months. By doing so, you'll stay on top of your competitors' marketing, and have confidence that you are delivering the right message to the market. There's a lot of information you'll need to gather to answer each question accurately. Before getting into the details of what you need and why, here's a quick summary of the audit process.

The Quick Answers to the Questions

Answer the first question by developing a list of key customer problems, ranking them one through five. Then determine if your positioning statement addresses one of the top problems from a benefits angle. If it does, you are making a claim that is important to your target market. If it doesn't address one of the top problems, you need to change your positioning statement.

A unique claim means that you are the only one making it. Test for uniqueness by analyzing competitors' advertisements and web sites to determine how they are positioned. Then create a perceptual map that will show you whether your claim is unique or not. If you are making an important claim, but one that's not unique, you may want to consider changing your message strategy.

The key to successful positioning is to consistently execute your message strategy in all your marketing communications, and then repeat it, over and over. Check for consistency by first evaluating advertisements, then your web site, and finally, press releases. The primary benefit should stand out in each medium. There are many reasons for inconsistent message strategy delivery. The audit identifies the causes and recommends ways to deliver your message more consistently.

One outcome of the audit is that you are able to decide if there's a need to implement a standard process for positioning. Some of the steps in the process become obvious when you audit your message strategy. Let's take a closer look at how to do the audit.

Your Product Is Only as Important as the Problem It Solves

Your prospects are overwhelmed by communication in today's fast-paced, high-tech world. They get so many marketing messages—somewhere between 5,000 and 10,000 per day—that they have become experts at filtering these messages out. You need to become an expert at cutting through the filter with a message that is relevant, important, and unmistakably yours.

A list of product features just won't “cut it” (be effective). Your passport through the filter is a benefit statement that addresses the primary concern that keeps your prospect awake at 2 A.M. Your target audience will listen when you demonstrate that you understand their problem and clearly communicate the benefit your product offers to solve it. Give your target audience a break and show that you really understand what's keeping them awake at night. Your single-mindedness will be rewarded.

Once you've developed a list of key problems, you need to rank them. If you ask customers to rank these problems when you survey them, they can do so pretty quickly, but be alert for repetition (the same problem described in different words) and broad generalizations.

The act of ranking the list of customers' problems gives you a gauge to measure your positioning statement. The test is simple: does the statement address the target audience's most pressing problem? If it doesn't, you may need to go back to the drawing board.

Give the Prospect a Break—Differentiate

In their 1993 marketing classic, Positioning. The Battle for Your Mind, Al Reis and Jack Trout wrote, "too many companies embark on marketing and advertising as if the competitor's position did not exist. They advertise their products in a vacuum and are disappointed when their messages fail to get through."

The goal of positioning is to help the target market associate a significant benefit with your product or company. Failure to differentiate creates market confusion, and this inevitably leads to longer sales cycles. Yet few companies successfully differentiate, generally because they either don't know how to evaluate and determine competitors' product positioning, or they simply don't think it's important.

Are You Making a Unique Claim?

It's pretty easy to learn how competitors are positioning themselves, because they do it in public. So start reading and analyzing your competitors' print advertisements, marketing collateral, and web sites, with an eye to deducing the positioning behind their messages. You'll probably find that a lot of the marketing communications put out by your competitors aren't backed by a real position. Often, these messages are just a “brain dump” (a lot of factual information) of product features. They lack the heart and soul of good positioning—a meaningful benefit statement, a reason the audience should care about their product.

A positioning statement frequently appears in the first or last paragraph (or both) of an advertisement, or in a prominent place on the home page of the web site. A good positioning statement should be a focused benefit idea or concept underpinning the executional theme of the advertisement, home page, brochure, etc. For each competitor, analyze as much of the marketing material as possible, including direct mail and e-mail marketing pieces, brochures, and press announcements.

Once you have determined the competitors' positioning, organize the ideas or themes in a table according to the conveyed benefit statement. Some competitors are likely to have similar or identical positioning statements. Other competitors may publish many claims, making it harder to determine how they are positioned, if at all. It is common—and a mistake—for companies to make two or more benefit claims of equal importance. Check those too. Figure 1 shows a real-world example of how the following mid-market enterprise accounting and enterprise resource planning (ERP) software companies were positioned in late 2005.

Benefit	Lawson	MBS	Best	SAP	Oracle	SSA
Understands the needs of small and medium businesses.			X
Understands business fundamentals.				X
Is flexible and adaptable.		X	X	X
Is affordable.		X			X
Delivers value to the customer.	X				X
Supports rapid implementation and return on investment (ROI).						X

Figure 1. Positioning of mid-market enterprise accounting and ERP software companies in 2005.

Taking Multilingual Support to the Next Level

Traditionally, multilingual software applications and Web sites allowed users to select a language from a list containing multiple languages at the set-up and log-in stage. The language was then installed and displayed on all screens, menus, and help text. That sufficed when the application's use was confined to a single language at a time.

With the increasing globalization of the twenty-first century, co-workers who are spread across many countries in multinational corporations need to work cohesively as one unit. The traditional level of multilingual support no longer suffices. Multinational corporations need the next level of multilingual functionality from their software applications to boost productivity and, in some cases, even meet compliance with local regulations.

Product managers in product companies and solution architects of custom-developed applications can enhance the marketability of their software applications by creating a roadmap for incorporating the sophisticated multilingual requirements that such multinational corporations need.

Multilingual Support in Software Products

Let's take the case of an analysis and research application for European asset management companies (AMCs) spread across France, Germany, Italy, Spain, the United Kingdom (UK), and other European countries.

It would be typical for a branch of one such AMC in one country to have employees belonging to another (e.g., the Paris office would have a few German employees). As a result, not only would the product be expected to support multiple languages (e.g., French and German), but it would need the capability to permit an employee to choose the language (e.g., German) instead of installing the French-language version by default.

In many AMCs, investment recommendations for funds traded in one country would need the approval of the chief investment officer (CIO), located at the headquarters in another country, before they could be presented to customers. This means that after logging into the application in the German language, the asset manager in the AMC's Frankfurt office might need to switch over to the English language later while reviewing the data with his UK-based CIO prior to obtaining his or her approval. Once the approval is obtained, it might be necessary to recast all data, reports, and charts into the French language before presenting them to a prospective customer in Paris as part of an investment recommendation. Therefore, the application should not restrict users to the language chosen at the time of logging in, but let them toggle between multiple languages "on the fly."

Apart from the multilingual screens, menus, and help features, the application will have to cater to data entry, querying, and reporting needs in the different supported languages. This means support for various accents such as the German umlaut, French grave, acute, cedilla, circumflex, and the Spanish tilde. In addition, sensitivity to different date formats such as 15 June 2006 in the UK versus 15. Juni 2006 in Germany; and decimal separators such as a comma in the UK versus a period in Continental Europe (e.g., 1,000 versus 1.000) are respectively prevalent in different European languages.

Now, when a London-based asset manager queries for all French funds containing a certain letter in their name, he or she would expect the application to return funds containing not just that letter by itself but its various applicable accents like acute (e.g., "ć"), grave (e.g., à), cedilla (e.g., ç), and circumflex (e.g., ĉ). This means that the application will need to support multilingual query literals, characters, and messages.
While different technologies are available to implement the next level of multilingual support in software applications, we examine one design approach based on .NET's technology elements.

Satellite assemblies can be used to provide multilingual support for menus since they contain localized resources. Microsoft Developer Network defines a satellite assembly as follows:

A .Net framework assembly containing resources specific to a given language. Using satellite assemblies, [the developer] can place the resources for different languages in different assemblies, and the correct assembly is loaded into memory when the user opts to use that specific language.

Using satellite assemblies, designers can place resources for different languages in different assemblies. Depending upon the language selected by the user, the corresponding assembly will get automatically loaded into memory. The application will need to incorporate individual satellite assemblies for each specific culture (the combination of a particular language with a particular country). For example, the culture "fr-FR" refers to the French language as used in France, whereas "fr-CA" refers to the French language used in Canada. These satellite assemblies can be placed in a specific location and loaded by the parent framework based on the culture setting of the software.

Support for multilingual messages can be provided by storing the culture-specific user messages in separate culture-specific message files (one file per culture). Message files appropriate to the specific culture setting of the software will be used to retrieve and display messages to the user.

By leveraging the locales facility, developers can build support for different date formats and decimal separators. Microsoft Developer Network defines a locale as follows:

A collection of rules and data specific to a language and a geographic area. Locales include information on sorting rules, date and time formatting, numeric and monetary conventions, and character classification.

While the user-selected default locale would be applied by default to all information presented to the user, the user can also select any other locale from a list of pre-defined locales to view the same information in another format.

Multilingual support for special characters in queries can be incorporated by maintaining separate culture-specific mapping files (one file for each culture). A mapping file maps a character in the chosen culture to the special accent characters in the other cultures supported by the software. The application would scan the mapping file corresponding to the language setting (culture) of the software and construct additional search phrases for all other mapped cultures.

By consciously designing the application so that it enables the user to select the language culture at the time of installation, one can prevent a "forced install" in the local language culture derived from the PC's regional settings. By designing the application to install and load all—and not just the user-selected culture files, designers bestow it with the capability of being re-started in another culture.

By leveraging the facility available to set the user interface (UI) culture property in report controls, reports generated in the native locale can be toggled into another locale. As a result, the application will be able to support recasting of data, reports and charts generated in one language into another.

In this manner, product managers and designers can combine sophisticated features available in the .NET technology stack with an innovative design approach in order to deliver the next level of multilingual support in a software product, with the overall goal of improving usability and boosting productivity.

Multilingual Support in Custom-developed Applications

Apart from usability and productivity, compliance considerations will increasingly raise the bar on the level of multilingual support demanded from software applications. This trend has already been noticed during implementations of the Single Euro Payments Area (SEPA) regulation among banks and corporations operating in different countries in Europe.

Zooming into the Clothing Retailer Conundrum

While most of the observations made so far throughout this series hold true for multiple retail segments (for more information on the scope of retail management systems in general, please see Retail Systems: A Primer and Retail Market Dynamics for Software Vendors), the increasingly fickle and demanding customer base of teens (and their paying parents) or yuppies has led to the fashion apparel or garment retail vertical market to become one of the fastest changing of all markets. If these retailers do not constantly refresh their presentation and assortment for consumers, they run the risk of losing out to their competition, no matter how competitively they source and deliver their product.

For more background on global sourcing, please see previous parts of this series: The Blessing and Curse of Global Sourcing and Supplier Management, Distinctions and Benefits of Strategic Sourcing, The Promise (and Complexities) of Private Labels, The Anatomy of Retail Sourcing Processes, and No One Said Sourcing Overseas Would Be Easy.

The market is buzzing about the examples of European retailers Zara and H&M, which are known for their ability to design, produce, and deliver new styles to stores in only a few weeks. These retailers achieve such a feat by running different supply chains for different market segments. This means that these retailers use a combination of inexpensive volume production in nearby Southern and Eastern Europe countries and, in some cases, they leverage expensive airplane shipments to deliver brand new goods to stores in three weeks. In the US, a good example of balancing the lower costs of globally sourced goods with a higher quality of domestic (or regional) final manufacturing and assembly is the century-old manufacturer New Balance. New Balance's entire staff prides itself on knowing the “business of making athletic shoes first,” including even the internal information technology (IT) group.

By turning their inventories more often, such retailers (including those in the US, such as Gap, J. Crew, and Wilson's Leather) even have the luxury of selling most of their merchandise at full price or at an initial markup unit (IMU) rather than at significant markdowns and discounts. In addition to giving consumers a reason to shop more often, leaner inventories and faster turns can improve margins by encouraging shoppers to buy more often at full price. Hesitant customers might not find a desired item the next time they come (akin to the expression, “you snooze, you lose”), either because of the item's “hot” demand (meaning without replenishment) or because of a deliberate store policy of automatically marking down and selling goods every six weeks or so.

Price pressure is the strongest driving force in the apparel industry. It can be felt across the entire supply chain, from consumer to retailer, apparel brand wholesaler or manufacturer, and apparel contractor to the fabric vendor. Successful apparel retailers tend to excel at more accurate forecasting, inventory optimization, and supply chain speed and agility. Major North American retailers have typically turned to software, such as analytics for forecasting, inventory optimization, or markdown calculations, and specifically Web-based software to tie together data from disparate departments and trading partners, all to speed up supply chain processes from remote, low-cost material (fabric) and labor locations. One way to speed these processes up is to have close relationships with suppliers (for example, committing to a particular factory and sharing more information).
Direct shipping, also known as “DC bypass,” is another effective practice that occurs when vendors ship goods directly to the retail store instead of to the retailer's distribution center (DC). Successful execution of this is still extremely challenging and requires supply chain partners to be flexible enough to make last-minute changes to carton and container assortments as well as to destinations. Sourcing and logistics leaders also want access to information that enables decision making closer to market (meaning end consumers), such as data to evaluate whether they should make changes to colors, styles, production locations, order sizes, retail assortments, or shipping plans.

Enter Product Lifecycle Management

With this shift, sourcing and product lifecycle management (PLM) tools have emerged as important technology enablers within the retail enterprise, since such tools can help offset the loss of control and slowed responsiveness associated with outsourcing the manufacturing of merchandise to remote parts of the world. Avant-garde retailers that are driving private label strategies forward are doing so by automating key sourcing functions, streamlining business processes, and implementing best practices across multiple product lines.

As fussy consumers continue to demand new products “yesterday,” leading retailers have to extend the skills and tools required to effectively scale their sourcing and PLM communications and processes. Additionally, reducing the error rate early in product design phases prevents issues from becoming magnified further into the product life cycle and supply chain. Searching for and identifying the appropriate sources for goods and services takes up half of the entire sourcing cycle, and 80 percent of the product cost is built in the design and development phases when sourcing occurs (requiring close, cooperative relationships). From another angle, the expenses related to design are typically up to 15 percent of the nominal product cost, but up to 70 percent of the product delivery cost can result from a (poor) design.

The results of a recent survey by Eqos show how winning retailers rate the value of the following means to overcome organizational inhibitors and other challenges to global sourcing. In descending order of importance, these approaches and means are 1) improved integration technology tools; 2) collaboration with suppliers on costs and implementation; 3) availability of success stories and case studies about the winners in a particular line of business (LoB); 4) deployment of hosted or on-demand solutions to mitigate initial costs; 5) creation of an interdisciplinary team to investigate benefits; and 6) leveraging consultants and internal LoB champions to help with process changes.

The findings from another survey show that companies that achieve the best returns from global sourcing employ the following strategies: standardize sourcing procedures; coordinate sourcing decisions across functions, divisions, and geographies; establish procedures and intelligence for accurate and timely landed cost calculations; use advanced analytical tools; and automate global sourcing processes.

Performing the above best supply chain practices concurrently rather than sequentially (where possible) has led to production times, on average, to be almost halved. Given this enormous decrease, manufacturers and brand wholesalers are able to streamline and reduce the product design cycle, for which successful downstream and upstream systems integration is important. As such, the PLM software category is taking on much greater meaning in the sourcing and logistics realms.

PLM emerged as a tool for discrete manufacturing, which needed to keep track of product specifications in computer aided design (CAD) drawings. However, these traditional tools not only poorly translate to fit the needs of process manufacturers (see Preparing for Product Development in Process Manufacturing), but they are especially unfit for fashion retailers.

Retail remains a very tactile industry, focused on the hand, drape, and durability of fabrics and trims. Designs are still sketched on paper and pinned onto size models or mannequins. Yet, the popular misperception is that new product development and introduction (NPDI) in apparel is a simple progression from a designer's sketch to the finished item. Retailers approach PLM in terms of collections and seasons, continually launching new creations. Planning allocation for the various pieces that comprise a collection is still determined by budget.

No One Said Sourcing Overseas Would Be Easy

For all the reasons detailed in The Anatomy of Retail Sourcing Processes, the issue of how to achieve more transparent and cohesive sourcing processes has become a frontline concern for many retailers, driven by boardroom directives to boost margins through the direct sourcing of lower priced international products.

For more information and background, please see The Blessing and Curse of Global Sourcing and Supplier Management, Distinctions and Benefits of Strategic Sourcing, The Promise (and Complexities) of Private Labels, and The Anatomy of Retail Sourcing Processes.

The sad fact is that few information technology (IT) systems fully support the complexities and unique requirements of global trade. Many outmoded sourcing programs (some of which are part of traditional enterprise resource planning [ERP] and accounting systems) have not been designed to factor in currency fluctuations, customs duties, or additional bank processing fees. This has resulted in much of the accounting for these items still being performed manually. It is no wonder that, within only a few years of deployment, less than 15 percent of available software functionality is customarily being used (see Application Erosion: Eating Away at Your Hard Earned Value).

While outmaneuvering the global competition requires that companies be well prepared to source anywhere and sell anywhere in addition to having an understanding of the global supplier market trends, buyers require much more intuitive tools to solicit quotes from trusted suppliers, analyze and compare responses, and ultimately manage critical path items, such as testing and sampling. In other words, to rapidly respond to customers' demands, companies must have the ability to seek out the most appropriate global suppliers and factories, and then get these facilities up and running on the retailer network of systems as soon as possible. In terms of major “ifs, ands, or buts,” according to the Retail Systems Alert Group's (RSAG) benchmark study from November 2006—see The Promise (and Complexities) of Private Labels—the following top sourcing challenges remain:

* finding and keeping dependable partners;
* unpredictable lead times and delivery windows;
* geographically dispersed supply chains slowing down reaction times;
* potential profit not always realized;
* vulnerability to shocks within supply chains;
* counterfeiters and diverters diluting the brand equity;
* cultural and language barriers;
* increased working capital for imported goods;
* fair labor practices in sourcing countries; and
* political instability in sourcing regions.

Outsourcing to geographically remote countries has introduced many additional difficulties for retailers. Even with the benefit of Web conferencing, retailers find it ever more expensive and time-consuming to travel the long distances to outpost research and development (R&D) centers, since the costs of doing so may negate the initial potential benefits of outsourcing. It is particularly costly and time-consuming to set up an international sourcing office, as it takes at least a few months to get new suppliers on board and the office running effectively. Additionally, increasing fuel prices and fear of disease outbreaks like severe acute respiratory syndrome (SARS) or bird flu can contribute to reduced executive travel and more reliance on Web-based collaboration (although the benefits of the rapport established in person-to-person meetings cannot be replaced in some cases).

Delays and other problems in communication caused by different time zones, workdays, and holidays can further reduce supply network visibility and the closeness of the working relationship, thus seriously obstructing an effective, demand-driven approach (see Demand-driven Versus Traditional Materials Requirement Planning). Cultural and language differences are other hurdles to outsourcing successfully, and even slight misunderstandings or miscommunications can prove quite costly.

Skills availability and consistency as well as differing standards in quality can also present problems with far- or near-shore sourcing. Since cultural differences are generally less pronounced with near-shore locations, and because of the real concern over political instability and currency fluctuations in some geographic regions, US retailers might still prefer to deal with “south (or even north) of the border” options. In addition, alignment with the European Union (EU) laws can be complex, and EU law favors dealing with EU and soon-to-be EU countries.

The 2007 APICS program Certified Supply Chain Professional (CSCP) Learning System, Module 2: Building Competitive Operations, Planning, and Logistics summarizes well why a company should thoroughly consider the advantages and risks of product assembly in another country. On the plus side, potential benefits include lower labor rates (depending on the country); lower material costs; lower benefits costs in countries with national health care; favorable duty rates (especially if materials are domestic); lower taxes; and smaller capital investment (if assets are transferred to the foreign country).

On the minus side, however, a company may encounter a multitude of potential problems. These challenges include possible costs and disruptions caused by time zone differences (there is up to a fifteen-hour difference between the US and Asia); higher transport costs and longer lead times; higher relationship management costs for communications, travel, etc.; possible political risks in unstable, unfriendly countries; costs of hedging currency exchange risks; costs of maintaining environmentally responsible forward and reverse logistics chains; environmental costs for mitigating air, water, and noise pollution and for preventing the spread of disease-harboring species; higher costs of increased safety stock; costs of holding inventory in warehouses or in the pipeline; shrinking inventory due to theft, damage, spoilage, etc.; increased costs of insurance against damage, theft, spoilage, etc.; and so on. For more information, see Understanding the True Cost of Sourcing.

How to Reconcile These Conflicting Objectives?

The benefits of private label merchandise can be so large that they become crucial to retailers' strategies—to the extent that ignoring global sourcing is no longer an option for most. The issues discussed above could be particularly critical and even more complex for companies that offer their sourcing services to other independent retailers. They must also comply with those retailers' unique billing and documentation requirements as well as internal invoicing and vendor payment for goods bought on their own behalf.

The Anatomy of Retail Sourcing Processes

The potential benefits of global sourcing and supplier management that have been discussed for retailers in this series so far are not that easily achieved across the board. To recap, these benefits can be seen both at the top line and at the bottom line. At the top line, benefits include growth of private label business, faster time-to-market, better product availability and fewer stockouts, more competitive offerings and improved customer value, and broader access to global sources and growth of direct imports. At the bottom line, decreased costs of goods sold (COGS) and improved margins, improved efficiencies and reduced operating costs, reduced inventory and tied-up cash, better regulatory compliance, and better ability to manage risks can all be seen.

To learn more, please see The Blessing and Curse of Global Sourcing and Supplier Management, Distinctions and Benefits of Strategic Sourcing, and The Promise (and Complexities) of Private Labels.

As noted at the end of The Promise (and Complexities) of Private Labels, the “inconvenient truth” of retailers' reality is that there is still a bevy of diverse (yet highly interdependent) tasks that require spreadsheets or other rudimentary personal computer (PC)-based tools, if not still needing to be performed manually. These tasks include product specification, design briefs, product quote sheets, product range plans, new product concepts, trends and ideas, requests for quote (RFQs) and bid management, response management (both to and from a supplier), new vendor forms, new line forms, supplier setup, supplier audits, pack copy, product setup, buying briefs, product tests—and the list goes on.

To illustrate a typical modus operandi (MO), during the design brief process, the retailer's designer or buyer performs a variety of tasks. These tasks include creating an initial design brief, which might entail selecting the item type, and then entering shipment dates, volume estimates, and target prices in a certain currency, while also selecting style, color, etc. Following this, the quality manager completes a technical review that may consist of entering testing requirements, specifying packaging requirements, and adding or reviewing various style and quality data, such as for grading, size, curve, etc.

At the end of the day, the buyer signs off the design brief and notifies the remote sourcing office, which then initiates the sourcing brief process. Accordingly, the merchandiser or agent reviews the sourcing brief and selects suitable suppliers to provide quotes. If necessary, he or she may add further comments or requirements. Once this process is complete, the merchandiser or agent accepts one particular sourcing brief and notifies the “lucky” supplier that an order is likely to be placed with it. However, a rapid on-boarding of selected new suppliers requires that retailers have transparency into the suppliers' factory operations so they can minimize the risks associated with product safety, regulatory compliance, and potential late deliveries. Retailers also remain responsible for maintaining audits and ensuring that ad hoc testing is performed throughout the product life cycle.
This then starts the supplier brief process phase, where the supplier reviews the supply brief and, if necessary, adds comments, inquiries, or requirements. After some back-and-forth, the supplier will eventually accept the supplier brief, which then initiates the quoting process phase.

The quoting process phase begins with the supplier creating a preliminary quote with a starting price (most likely based on its internal costs) and submitting it to the sourcing office. The merchandiser then reviews the quote and either approves it, returns it with modifications, or rejects it. Once an agreement is reached between the merchandiser and the supplier, the supplier then submits a much more detailed quote with complete technical details (specifications), ordering information and instructions, and dimensions, as well as complete pricing information. The merchandiser again reviews the quote, and if acceptable without further negotiation or modifications, sends it to the buying office. Once the buyer completes a comparison of the quotes and approves one, the ordering process phase begins.

During the ordering process phase, the buyer confirms the preliminary order, sometimes updating certain information (such as style, size, and color buying allotments and channels), and then signs off the order and creates stock-keeping unit (SKU) numbers. The planner must then update quantities and delivery destinations by creating purchase order (PO) lines, while the quality manager reviews and signs off the required technical details.

Once the purchase orders are placed, buying departments need to maintain control over any purchase order revisions made—regardless of whether chosen suppliers are large or small, or whether they are information technology (IT) savvy or have minimal access to technology. The buying departments also need assurances that the correct information is transmitted throughout the company and its trading partners, and that advanced shipping notices (ASNs) trigger the relevant sequence of events.

When the supplier confirms and signs off (commits to) the order details, the order delivery process commences. The quality assurance department tracks and updates testing and sampling requirements (that is, it manages the sampling process and updates testing completion status). The supplier then begins actual production once it receives permission.

After this, the supplier will select the freight forwarder and the destination distribution center (DC) once it receives permission to ship from the retailer. Finally, the (hopefully correct) order will arrive at the DC at the expected time. Successful retailers have been those that continually focus on driving the very best performance from each supplier, and that work collaboratively to improve performance in areas such as on-time delivery, product quality, and regulatory compliance.

How These Realities Affect Retailers

To see how these realities affect retailers, consider a hypothetical garment retailer that has outlets in major cities across several continents—one that targets young shoppers by offering a full line of moderately priced clothing and accessories. Its stores are thus designed to reflect the tastes and “culture” of these young shoppers, and the retailer's buyers order products at quarterly shows from a variety of vendors. The problem here is that the retailer is always chasing changing fashion trends. The retailer's stock must reflect the very latest fashions, since its target market is likely to be aware of and seek out these fashion trends. For example, if the shopper sees a particular T-shirt in a new music video spot, he or she will want to buy that T-shirt right away, not next season.