ShoreTel CFO and senior vice president Mike Healy vividly recalls the one time in his four years with the company when it missed its quarterly revenue forecast. "It wasn't a big miss," says Healy, "but our stock went from $13 to $6 in one day."
The fact that it was the last month of 2007 didn't help, but Healy says a major contributing factor was a lack of visibility. Not that the company couldn't see into its sales pipeline: it knew what its then-400 channel partners were doing in terms of selling ShoreTel's VoIP products. The problem was what it couldn't see. The company hadn't realized that it hadn't recruited enough new partners to "pick up the [revenue] slack" in the quarter's final month.
Today, ShoreTel relies on a portal to get a better grasp of how its partners are faring, and Healy is confident the company's stumble won't be repeated.
The recession certainly drove home the message that if cash is the blood that keeps a company's cheeks rosy, the sales pipeline is the major artery through which it flows. As Paul A. Boulanger, managing director, finance and performance management, for Accenture, puts it, the downturn "made CFOs wake up to the volatility of the environment.
"I bet that if you dig underneath companies that had earnings-per-share surprises," Boulanger continues, "it maps to disconnects with sales pipeline management systems."
These days, a CFO's ability to get near-real-time feedback on leads going in one end of the pipeline and wins coming out the other is, according to Mark Thompson, consumer technology practice leader for The Brenner Group, "table stakes." The tools that enable visibility "are not that expensive anymore," Thompson says. "What's key is the skill in matching the tool to a process. That is the CFO's real job."
That, and maximizing financial performance. Doing so requires good tools, better processes, and, as Jonathan L. S. Byrnes, MIT senior lecturer and author of Islands of Profit in a Sea of Red Ink, says, the ability to "understand what you're not doing, what you're not seeing," such as the aforementioned dearth of channel partners for ShoreTel in late 2007.
A beating from Wall Street is not the only punishment awaiting CFOs who miss forecasts. According to a 2009 University of Illinois study, "missing one quarter of consensus earnings forecast…increases the probability of CFO dismissal by 18.57%."
Time to Act
So there's a lot of pressure on CFOs to manage earnings if a peek into the pipeline reveals that revenues are trailing. But Forrester Research principal analyst Andre Pino says CFOs need to go beyond what they see. "If sales historically falls short of its projections," he says, CFOs need to add a factor to the pipeline that will make it reflect the plan more realistically. "One of the advantages of sales force automation (SFA) is that you can determine when you're off track so you have time to put corrective actions in place to offset a revenue shortfall," says Pino.
CFOs can, as they say, dip into the cookie jar — by extending asset-depreciation schedules, for example, or draining obsolete-inventory reserves. Of course, one eventually runs out of cookies. It would be much better to have a rock-solid historical record for weighing deal probabilities; precisely defined deal stages so the finance chief, sales director, and salespeople are on the same page; impeccable compliance to make sure the salespeople are using the tool; and the day-to-day visibility that SFA can provide.
Given the importance of accurately forecasting and reporting revenue, it's surprising how many organizations still equate sales pipelines with Excel spreadsheets.
Robert Hull, founder and CFO of Adaptive Planning, a software-as-a-service (SaaS) budgeting, forecasting, and reporting provider, estimates that about 70% of midmarket firms are still using Excel to manage their pipeline, as are 50% of larger enterprises.
Hull says he founded Adaptive Planning because of his own frustrations with Excel: "You're inputting data, sending out e-mails, making sure people have the right versions, error-checking. The process takes over."
Mike Sullivan, CFO of eIQnetworks, an enterprise security provider, adds his voice to the choir. "The problem with spreadsheets," he says, "is that everyone uses their own format; there's no easy way to collect data, aggregate it, and look at the total.
"Forecasting accuracy was horrible on Excel," Sullivan continues. "In the early part of the quarter, we were closing 5% to 10% of our deals and not getting a lot of detail on who the salespeople were meeting, when they were meeting with them, and the problems that came up." eIQnetworks began utilizing Salesforce.com about two years ago, motivated, says Sullivan, by a desire for "accuracy, more-detailed information, and better visibility."
The CRM (customer relationship management) and SFA tools that companies deploy to gain such information can be divided into two large categories: on-premise systems and SaaS offerings. (On-premise CRM vendors are increasingly offering cloud-based options. Indeed, Gartner estimates that by 2015 a third of all CRM spending will be on SaaS-provided products.)
According to Gartner, the SFA leaders are native SaaS provider Salesforce.com, the rapidly growing Microsoft Dynamics CRM, on-premise Oracle Siebel CRM, and the SaaS-model Oracle CRM On Demand. Making moves are SAP and Sage SalesLogix, with Cegedim Dendrite, NetSuite, CDC Software (Pivotal Sales) all improving in their ability to execute, while SageCRM, Act! By Sage, SugarCRM (an open-source platform), FrontRange Solutions (Goldmine), Maximizer Software, and Landslide fill a variety of niches.
All of these tools can be integrated with a company's financials, with Oracle, SAP, and Microsoft promoting synergies with their already-massive presence in the enterprise. The degree of integration a company requires, however, is determined to a great extent by its deal volume and the geographic distribution of its lines of business.
At eIQnetworks, for example, Sullivan has not integrated Salesforce with his financials. "Eventually, we'll get there, but right now our volume is manageable [without integration]," he says. "We maintain one item master list, but if we make a change in Salesforce we have to make the change manually in Quickbooks, and vice-versa. Today, we can afford the inefficiency."
But, says Accenture's Boulanger, "if you're a global enterprise and you have to harvest data from hundreds of points, your process can lose integrity. For those organizations, we preach integration."
Integrated or not, Salesforce.com has been the dominant story in the SFA space. Gartner predicts that by 2016 Salesforce.com's CRM revenue will exceed Oracle's.
What's behind Salesforce.com's success? Flexibility, configurability, and cost certainly play a big part, but beyond those attributes the question has a simple answer: salespeople like it. And because they do, they'll use it.
Inside the Pipe
Brainshark, which sells software for creating, sharing, and tracking online video presentations for sales, marketing, internal communications, and related purposes, deployed Salesforce .com in 2006. It augmented its functionality with AppExchange-sourced analytics, sales intelligence, and e-signature, all integrated in Oracle and AT&T clouds. Brainshark is the very model of a modern digital company, but it maintains an old-timey focus on salespeople and their deals.
When Brainshark executive vice president David L. Fitzgerald peers into his pipeline, he sees sales managers' and salespeople's accounts, which one of six defined stages those accounts are in, close probabilities, and a rolled-up quarterly sales estimate. He knows how many wins he needs to meet plan, and he knows his lead-conversion rate.
He also sees if his salespeople are using the tool: entering meetings, advancing accounts, or removing them when they're lost. "They can't survive if they don't use it," says Fitzgerald. "They use it or they're shot."
What Fitzgerald doesn't see in the pipeline is "the capacity in our existing customer base. We need to balance organic growth with customer acquisition. There's a cost to acquire."
What Brainshark CFO Michael J. McEachern doesn't see — and what he considers critical — is "marketing efficiency: how leads relate to spending and sales productivity. One of my tasks is to ask how to scale effectively as we grow, and how to add sophistication to our sales-marketing alignment."
In short, SFA can do many things, but as McEachern says, "A good CFO must ask himself, 'What are the market opportunities not reflected in the pipeline?'"
"The sales pipeline is a tracking system for what's there," stresses MIT's Byrnes. "But we don't know who salespeople are not bothering to sell to. Are they leaving scraps on the table, or big hunks of steak?"
David Rosenbaum is senior editor for technology at CFO.