Qualtrics

November 15, 2018

#80 – SAP & Qualtrics, eCommerce, Customer Success and more

Maurice FitzGerald / Cognition, Cost reduction, Newsletter, NPS, Psychology, Strategy / bad service, Customer Experience, Customer Success, eCommerce, Net Promoter System, Qualtrics, SAP /

SAP acquires Qualtrics, eCommerce that complements retail stores. Welcome to the 80th edition of my customer strategy newsletter. The five topics this week are:

SAP acquires Qualtrics – Some thoughts about the value of the deal
Web stores need to complement physical locations – My latest experience
Latest blog posts
Notable items from other sites – Customer Success, strange customer stories
Looking forward

SAP acquires Qualtrics – Some thoughts about the value of the deal

At the time I retired from HP we were using Qualtrics as our provider for double-blind benchmark research. We did not use their customer experience software, choosing mainly to develop our own and use feedback processes built into our CRM systems. So, while their software has a good reputation, I have no personal experience with it. I knew SAP well when I worked on the global alliance team at Compaq and have tried to follow their progress at a distance since then. Last week SAP announced they are acquiring Qualtrics. You can see details here.

To me at least, the obvious question is how Qualtrics, with expected revenue of $400 million in 2018 could possibly be worth $8 billion, even with a 40% growth rate that they expect to continue. SAP has borrowed the money to make the purchase, though their net income in 2017 was about $4.5 billion.

The most important point to bear in mind is that there is only one correct way to value an acquisition target: Discounted Cash Flow (DCF). If you think something else, like ‘earnings multiples’ is correct you are simply wrong. DCF uses all expected future earnings before taxes, depreciation, and amortization (EBITDA) forever to provide a value calculation. The variables that matter most are the growth rate and the interest rate (the discount rate) used. In general, the company being acquired projects much higher growth rates than the acquiring company believes to be realistic. This leads to a disagreement on the price.

The acquiring company resolves that disconnect by designing synergies into its integration strategy. The reason the majority of acquisitions fail is that the overall integration strategy is unrealistic. The lack of realism comes from underestimating the difficulties of cultural integration and overestimating the value of synergies or how easy they will be to achieve.

Culturally, German and US business cultures are about as far apart as it is possible to be. (Source: When Cultures Collide by Richard D. Lewis.) SAP has an American CEO, and that will help a little, but not much.

Synergies fall into several categories:

Growth synergies that the companies bring to each other. More growth requires more sales people and partners. The existing sales people cannot possibly just sell the other company’s products. They already have full-time job, and software sales are specialized.
Cost synergies are reductions in people, buildings and payments to suppliers. If cost synergies have been built into the plan German labor laws mean they will disproportionately affect Qualtrics people as they are mainly located in places where workers are not protected.
Dis-synergies also exist, meaning customers or partners who will leave SAP or Qualtrics because they do not want to work with the other company.

Since such synergies are frequently insufficient to justify the acquisition price acquiring companies, driven by management hubris, jump into the fantasyland: the calculation of the supposed value of preventing a competitor acquiring the company. Such calculations are meaningless.

So… digging out my DCF spreadsheet from my M&A course at Kellogg… I can’t get to an $8 billion valuation without aggressive growth rates and at least some cost synergies. How realistic are such growth rates? It will take 18 to 24 months to find out…

Web stores need to complement physical locations – My latest experience

Someone (I don’t remember who) recently told me that water was the most critical thing on the planet because without water you can’t make coffee. This came home to me yesterday morning when our ‘bean to cup’ Delonghi coffee machine stopped working. The machine is (or was) about six years old and has been great. I quickly found a repair manual online, took it apart and determined that one of the two heating elements was no longer working. We once had a similar Delonghi machine fail while under warranty. They took more than a month to repair it. I decided to go shopping online. The situation required fast action.

I started by looking at some comparison tests on consumer sites and this took my choice down to a few models. I then used a price comparison site to determine a budget. Several of the major Swiss brick-and-mortar stores also have eCommerce sites and they were on the comparison lists, sometimes with prices that were close to the lowest. However, the main ones had one attractive feature that made all the difference. Their websites (Fust, InterDiscount, and Media Markt were the ones I looked at) all provided the stock status in each of their physical stores as well as proposing to sell online, usually with free shipping.

My need to have a new machine working the same day was paramount. I checked stock status at nearby stores for the models that interested me. I unboxed the new machine at home an hour later. Delicious experience. All too many companies that have physical locations run their eCommerce sites separately, essentially creating internal competition with lots of opportunities for disconnects. Intelligent companies have sites that complement their physical operations, making life much easier for people with urgent needs like mine.

Our latest blog posts

The top one on this is the first in a new series on a specific aspect of strategy creation: the process of asking new questions so you can get new answers. Older posts are still available on the blog page.

Strategy: Ask new questions to get new answers – Part 1: Customers

First in a series about the first and most important step in determining a new customer experience or business strategy: getting an accurate picture of where you are today and what could possibly be done to improve your business. The key point is that you need to ask new questions to get new answers and insights.

Invisible gorillas prove you need automated text analytics. Seriously! (7-minute read and videos about inattentional blindness)

We are awful at observation. Our brains just don’t work all that well. Various psychological experiments lead to the inevitable conclusion that our brains work hard to fit whatever we perceive to the list of things we already know about…

Tips for communicating the purpose of cost reduction (7-minute read)

I was talking to a former colleague yesterday. He described a recent meeting where he learned that major cost cutting still continues where we used to work. The discussion made me reflect on the horrible mistakes and best practices I have seen when cost reductions are communicated…

Notable customer experience items from other sites

Neil Davey: What are Customer Success Managers and why are they so important?

Customer Success Managers started in software and have become important players in other businesses. I suppose they started in software because software businesses tend to have high margins and could afford to make the investment without being certain it would work. In HP’s $4B software business we implemented them in two sub-businesses first. The huge improvement in contract renewal rates meant that we quickly decided to implement them everywhere. Their role is to make sure customers get the return they expect on their investment. Their services are provided without charge and they do not carry sales quota, at least in what I would call a ‘pure model’. Neil’s article for MyCustomer goes into detail and I think you will find it an interesting five-minute read here.

Strange site – Apparently the customer is not always right

Some of these are far from politically correct. I think it is simply a site where customer service agents of different types simply post stories about what they consider to be bad or unreasonable customers. Some of these are funny, some sad, some frankly difficult to understand. See what you think here.

Looking forward

I will need to go through my list of partner-related questions for the second blog in the ‘Ask new questions to get new answers’ series. Other than that, not much going on in the coming days. Your ideas for articles are always welcome.

Here are links to all of our books on Amazon.com. Kindle versions are available in all stores. Print versions are available from the major stores only. The thing that you can do to help us most is to write reviews of our books on Amazon.

Customer Experience Strategy – Design & Implementation

Net Promoter – Implement the System

Customer-centric Cost Reduction

“So Happy Here”: The Absurdist but Essential Guide to Better Business (Color edition)

“So Happy Here”: The Absurdist but Essential Guide to Better Business (Black & White edition)

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You can also email me, Maurice FitzGerald, at mfg@customerstrategy.net.

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October 26, 2018

#78 – My new NPS podcast on Healthcare, customer and employee satisfaction research, dropoff rates, Temkin/Qualtrics

Maurice FitzGerald / Cost reduction, Newsletter, NPS, Strategy / Bain, Customer Experience, employee satisfaction, Net Promoter System, NPS, Podcast, Qualtrics, response rates, Surveys, Temkin /

My new Net Promoter System podcast on healthcare with Rob Markey, customer vs. employee satisfaction research . Welcome to the 78th edition of my customer strategy newsletter. The five topics this week are:

Starting my annual research on customer and employee satisfaction
My new Net Promoter System podcast with Rob Markey is available
Latest blog posts
Notable items from other sites – Survey completion rates, Temkin & Qualtrics
Looking forward

Starting my annual research on customer and employee satisfaction

Most of you know that I have published research on the relationship (or lack thereof) between customer and employee satisfaction in March this year and last. My process is to assemble employee satisfaction data from Glassdoor in October and November, and to add the American Customer Satisfaction Index data for each company the following March. The thought process is that changes in employee satisfaction should lead to changes in customer satisfaction. We would not expect the effect to be instantaneous.

Once I have three years of data I should be able to do my first investigations of the trends over that time. If a company has had three straight years of employee satisfaction improvement or decline, has that had any effect on customer satisfaction? And I expect to investigate market share trends for some industries.

I was going through some Glassdoor data today I was wondering whether employee satisfaction has declined at companies that have had major scandals of whatever kind. This is not the place to describe the nature of each scandal, but here is the 2017 to 2018 employee satisfaction trend for a few such companies:

Wells Fargo: No change from 2017, and the 2017 score was up slightly from 2016.
Facebook: The 2018 score is lower than the scores for 2017 and 2016, again slightly.
United Airlines: Employee satisfaction improved slightly.
Apple: No change.

Two remarks. First, I did not decide that these companies had notable scandals. I just did a Google search on ‘Corporate Scandals’. Second, employees don’t seem to care much about scandals that affect their employers.

It will be interesting to see how the customer satisfaction trends turn out.

My new Net Promoter System podcast with Rob Markey is available

A few weeks ago I mentioned that I had recorded a new ‘Net Promoter System podcast’ with Rob Markey of Bain. It went live on the iTunes podcast feed just before I wrote these lines. The subject this time is customer experience measurement, or I suppose it is really patient experience measurement and improvement in the healthcare industry.

The podcast is the first in what I hope will be a series on specific industries. I feel strongly about healthcare because I believe it is the extreme example of an industry that measures things for its own benefit and does so in a way that does almost nothing for patients. I believe this is easy to understand.

If you have been hospitalized for any reason, think back on how the hospital asked you for feedback after the intervention. Let’s pick the semi-random example of a hip-replacement operation. It takes some time after the operation before you can understand how effective it was. So… when did the hospital ask you for feedback. It almost always seems to happen just as you are preparing to leave or are walking out the door. Did anyone (including the surgeon) ever come back six months later to ask you how functional your hip was, and whether you would recommend the operation to someone else? I thought not.

I write these lines, the iTunes podcast feed has pushed this one to my phone. It is not yet live on the Bain site. You can find all past Net Promoter System podcasts, including the eight I did with them, on iTunes and at http://www.netpromotersystem.com/resources/podcast.aspx.

Our latest blog posts

Older posts are still available on the blog page.

Tips for communicating the purpose of cost reduction (7-minute read)

When should you ask for customer feedback? And should you survey customers at all? (5-minute read)

I have a sort of hobby: answering companies’ requests for my feedback and seeing whether they will write back to tell me what they have learned and what they are going to do to improve. They almost never do…

Contra Revenue: Could it be your easiest way to improve profit margins? (5-minute read)

On the general subject of ‘customer-centric cost reduction’ I would like to discuss an area that many medium to large companies do not examine at all, and the rest do poorly. If you have never heard of Contra Revenue, please read on…

Notable customer experience items from other sites

SurveyMonkey – The effect of the number of questions on survey completion rates

Please read the title and what follows carefully. This is not about response rates, but about completion rates. There is a difference. The question the people from SurveyMonkey answer comprehensively is whether adding more questions causes a significant number of people who have started to respond to a feedback request to stop responding when they are part way through. The answer is that there is only a very small effect. To study the question, they looked at 2,000 randomly-selected surveys with one question, 2,000 with two questions and so on, up to 2,000 survey with 50 questions.

There is, however, some evidence elsewhere that the quality of responses goes way down as survey forms get longer. After a while customers may just pick random answers from a list in a bid to get finished quickly. People creating surveys also do silly things. An example would be a popup survey that appears immediately when you open a web page, and which asks you what you think about that web page. You may be prepared to answer any number of questions randomly in a bid to get to a comment box that lets you say that the feedback request should come after you have been able to actually use the site.

The study is about ‘dropoff’ or ‘dropouts’. This is not at all the same as response rates, as the research only covers people who answered at least one question. If they did not answer any questions they are not included in the research. I have to say that I have tried to work out how to study the effect of the number of questions on response rates, and I can’t come up with a good scientific method. Suggestions welcome. Read it here.

Temkin Group acquired by Qualtrics

Bruce Temkin just announced that his company has been acquired by Qualtrics. They simultaneously announced the creation of the Qualtrics XM Institute which Bruce will lead. The institute will provide both customer experience benchmarks and thought leadership in a variety of areas. I admire the work Bruce has done up to now, including the creation of the Customer Experience Professionals Association. He publishes an annual NPS benchmark report as well as reports covering his own more complex metrics. Read all about the new setup here.

Looking forward

October has set a new book sales record for a month of October! Thank you. Of course there was only a single month of October available for comparison. But still… October last year was by far our record month at the time. Other than that, I am looking forward to hearing what you think of the new Net Promoter System podcast and which industries you would like us to cover, assuming the series moves forward.