CUSTOMER SUCCESS Research Publication The State of ... · 2018, aggregated data that pointed out that for every three CSM roles that existed there was one CSM job opening. On top

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©2019 Technology Services Industry Association | 17065 Camino San Bernardo, Ste. 200 | San Diego, CA 92127 | Tel. 1.858.674.5491

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Phil Nanus, Vice President, Customer Success Research

The State of Customer Success 2019

CUSTOMER SUCCESS Research Publication

www.tsia.com ©2019 Technology Services Industry Association | 17065 Camino San Bernardo, Ste. 200 | San Diego, CA 92127 | Tel. 1.858.674.5491

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The State of Customer Success 2019 By Phil Nanus

Executive Overview

In this annual “The State of Customer Success” report, we will identify trends within established customer success organizations and explore lessons learned from our rapidly growing customer success community. As we look back at the last year, it is very clear that customer success continues to be the top trend within TSIA. We have a diverse membership community that includes traditional hardware and software companies, non-OEM service providers, born-in-the-cloud XaaS companies, and companies with vertical focus, such as healthcare and industrial equipment manufacturers.

In 2000, Malcolm Gladwell authored The Tipping Point.1 In the book he defined a tipping point as “the moment of critical mass, the threshold, the boiling point.” When we look back in several years, we will be able to point to 2018 as the year that customer success, as a broad set of capabilities and organizations, hit its tipping point. Several years ago, there had been initial questions and debate around longevity of customer success initiatives and organizations, but the evidence of organizational representation and the cavernous gap of demand versus existing supply of resources in the market are stark evidentiary points that conclude customer success is thriving and here to stay. The key points in this paper articulate the way forward for many in customer success as to how to effectively scale their capability. Scaling customer success through various means including digital and partner capabilities represent the most pressing business challenges for customer success organizations. We will also provide crucial metrics and datapoints that solidify the growth and investment in customer success.

Research Report

TSIA-04515

February 27, 2019

CUSTOMER SUCCESS | Research Publication

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Current Landscape CFO conversations continue to be encouraging specific to the initial investment in customer success capabilities and organizations. We have generally moved past the initial question as to “should we” invest in customer success. Broadly across the industry we have seen overwhelming support for one, two, or three charters of these organizations, including adoption, retention, and expansion. These represent the important Building Blocks of Customer Success.2 As Figure 1 illustrates, these investments have yielded continual increase in customer success as a distinct organization. And while our 2019 Organizational Study has yet to be completed, the initial data indicates that this number continues to trend higher and will be north of 70%.

Figure 1: Distinct Customer Success Organization

Source: TSIA Organizational Studies, 2015-2019.

However, finance teams do communicate hesitancy in green-lighting a large people-based organization in similar size, scale, and revenue responsibility to sales organizations. These teams have seen the public data referenced in our Cloud 403 and Technology & Services 504 where sales and marketing costs trend higher in XaaS recurring revenue models versus traditional on-premise technology models, so there is reluctancy for some organizations to invest beyond an initial pilot. This “prove it” stage is best represented by TSIA benchmark data which states that only 48% of customer success organizations have a defined funding model. This means that more than 50% of customer success organizations are either operating in a pilot program or using some unstructured resource ask. The companies that have a defined funding model also have more than double the revenue responsibility as those that do not. This may vary from funding on the core recurring revenue offers, to monetizing the customer success capability by charging a premium fee above the core offer. These organizations that not only have direct funding models but have also diversified them will be well prepared in the event of a broad economic downturn. In that hypothetical, the organizations that do not


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have revenue responsibility or a defined funding model are luxuries and will be cut more deeply than revenue-generation or mission-critical functions like sales or engineering. It is also fair to assume that our friends in finance will continue to ask practitioners of customer success to continue to do more with less.

Once companies have moved beyond the initial ROI or basic financial justification, the questions quickly turn to recruitment and staffing. Chief customer officers and vice presidents of customer success express concerns about the combined service and sales skillsets needed to be successful. This is clearly validated in public data. The role of the CSM continues to be in the most promising job list that LinkedIn has published for several years.5 Additionally, LinkedIn published a now well-referenced article that articulates the supply and demand gap.6 The article, published in the summer of 2018, aggregated data that pointed out that for every three CSM roles that existed there was one CSM job opening. On top of that, customer success leaders are struggling to keep their talent. In our own benchmark data we saw a 58% increase in employee attrition numbers, from 7.9% to 12.5%. Part of this was incorrect identification of the talent, or shifting of internal resource to begin with, which wound up as involuntary attrition. However, the voluntary attrition numbers were up almost 20% year over year. There is clearly a lack of supply to meet an ever-increasing demand. These critical and in-demand skills from individuals and organizations will continue to propel the unstoppable momentum for customer success.

The two forcing functions of improving financial efficiency and clear shortage of available skill in the external marketplace have shaped the most pressing business challenge within customer success, which is how to scale the organization and capability.

Scaling Customer Success Table 1 represents TSIA’s six recommendations for scaling your customer success capabilities and organizations. We will explore two of these in more depth, but there is additional reference material that members can access on the topics listed.

Table 1: Recommendations for Scaling Customer Success

Recommendation

Operationalize the customer journey

This practice combines three customer success capabilities that include journey mapping, success plans, and playbooks, in order to orchestrate a meaningful scripted set of time, event, and value-based milestones as customers achieve outcomes over their life cycle with technology and services.

Partners Enabling your partner community to deliver against one or more charters of customer success, including adoption, retention, and expansion.

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Recommendation

Analytics The organizational process of improving outcomes by leveraging data. This process involves people, technology, math, statistics, and data.

Digital customer success Investments in low human touch or digital capabilities that focus on a high-volume customer segment.

Effective sales growth Balancing the entire sales and marketing budget to evaluate spend based on customer acquisition, customer retention, and customer expansion.

Technology Investing in different types of technology that will spur automation and increase efficiencies. These include consumption monitoring, customer experience analytics, and customer success work management.

Operationalize the Journey We initially described journey mapping as the process of documenting and illustrating a customer’s interaction with a vendor’s people, process, and technology. This includes identifying the touchpoints and recording the importance and emotional response from a customer based on these interactions.

Within our foundational frameworks we have discussed the importance of delivering prescriptive customer engagements that are time, event, or value-based interactions.

Journey mapping has been around for some time. Marketing and sales organizations have used this customer experience capability to map buyers’ journeys so they can understand how to unfold the customer acquisition stage. Customer success organizations are catching on. Approximately half of all customer success organizations have executed a customer journey map. While these could be based on any customer life-cycle phase, segment, and persona, many start with the post-sale journey and first-time-to-value. Within our foundational frameworks we have discussed the importance of delivering prescriptive customer engagements that are time, event, or value-based interactions. Ideally, these are encapsulated in success plans and playbooks.

To that end, this practice is focused on first executing a customer journey map, and then creating success plans and playbooks that align to that customer journey. Companies that do this have a better idea of first-time-to-value, and then the continuous life cycle of next-time-to-value. Ideally, companies should have a good idea of where their customers should be at any point throughout the customer life cyle. This is no easy feat, and to do this at scale is even more difficult. Only 28% of companies have operationalized their customers’ journey. The investment does yield great results, as these companies are achieving a three percentage point increase on their dollar retention rates.


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Scaling Customer Success through Partners Within the customer success research practice at TSIA, the topic of partners and customer success is clearly one of the hottest topics today. To that end, we conducted a study in 2018 to obtain a baseline set of capabilities and metrics between original equipment manufacturers (OEM) and their partner communities. Table 2 illustrates five summary findings that represent primary expectations specific to the customer success interaction between OEMs and their partner community.

Table 2: Primary Customer Success Expectations between Partners and OEMs

Customer Success Expectation

Sharing of adoption information

This follows the TSIA Adoption Framework, in that low adoption is consumption information, and effective adoption can be quantified based on business outcome or financial achievement (i.e., cost savings). There is an expectation both ways in that partners share this information to the OEM and vice versa.

Customer success resource investment

For years OEMs have used marketing development funds or account development funds to reinvest in its partner community for sales. This is using a similar methodology, but instead investing for CSMs or other customer success resources.

Training and enablement Create a formal training or certification program around your customer success charters, capabilities, and metrics.

Technology This could include customer success work platforms or other tools, but there is also an importance of how to thoughtfully share information with the explicit goal of helping customers achieve their outcome and improve the experience with the technology.

Rules of engagement It is critical to communicate how partners should participate in all revenue streams, including monetized customer success offers. This includes between the partner and the OEM as well as how partners should behave with other partners.

Going into the study, one of the first things we wanted to understand was if the responsibility for partner relationships had shifted from the sales organization to the customer success teams. The context here is customer success organizations continue to break glass inside of many OEMs, and some companies’ traditional organizational responsibilities have shifted from sales, marketing, and services over to customer success. However, the responsibility of interaction with the partner has not. The primary interface between OEMs and partner organizations is still the responsibility of OEM and channel sales organizations. Seventy-five percent of the time sales continues to have primary responsibility for this relationship.

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We also wanted to get a sense of who has the primary responsibility for the customer renewal. This could range from common customer success roles like the CSM or a renewals representative. Some companies may rely more heavily on partners or outsources. As indicated in Figure 2, it is a mix, but the area that raises concern is when a traditional OEM sales rep has responsibility for the renewal. The recommendation is to investigate this further and understand the impact to sales and marketing costs.

Figure 2: Primary Renewal Responsibility

Source: TSIA Customer Success delivered via Partner Study.

Additionally, in this study we found that there were many mixed messages between OEMs and partners, almost playing out like an Abbot and Costello “Who’s on First” comedy.7 Almost 50% of the OEMs that responded had a different charter than their partner. There is also a very high likelihood that partners and OEMs are not sharing adoption-based information. Interestingly, OEMs overwhelmingly stated if a partner sold the deal, the partner had primary responsibility for adoption. There were many additional data points that pointed to this kind of disconnect in the early days of trying to scale customer success through partners. Different charters and lack of metric alignment are potential causes of finger-pointing and, ultimately, customers not achieving their outcomes.

There were many positive signs for OEMs that were working collaboratively with their partner community. For those OEMs that had a formal training or certification program around customer success, the OEM had a double-digit higher growth rate than those that did not have this practice. We also saw extremely positive results for the OEM when they displayed some of the five recommended summary practices outlined in Table 2.


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Recommended Member Resources As discussed in this paper, scaling customer success continues to be a very important topic. We have several member resources available to help. Below are just a few, but members should reach out to their Member Success manager for more information specific to their customer success business challenges:

• Consumption Analytics Framework • Predictive Consumption Analytics • Analytics to Increase Adoption and Renewal at Scale • Helping Customers Succeed: Three Distinct Plays • 2019 Customer Success Technology Stack • Delivering Customer Success via Partners – Results

o Study participants can request personalized and more comprehensive results. • Best Practices in Low-Touch Customer Success – Results

o Study participants can request personalized and more comprehensive results. • Customer Success Virtual Summit

o Research from TSIA executives and case studies from Autodesk, Cisco, and Tableau

TSIA also continues to invest in developing a broad construct of hundreds of capabilities, that are summarized in Figure 3, to evaluate your company’s customer success capabilities.

Figure 3: Customer Success Capabilities

Source: TSIA.

https://www.tsia.com/resources/tsia-consumption-analytics-framework

https://www.tsia.com/resources/predictive-consumption-analytics

https://www.tsia.com/conference-presentations/analytics-to-increase-adoption-and-renewal-at-scal

https://www.tsia.com/resources/helping-customers-succeed-three-distinct-plays

https://www.tsia.com/resources/2019-customer-success-technology-stack

https://www.tsia.com/resources/delivering-customer-success-via-partners-results-for-non-participants

https://www.tsia.com/webinars/building-customer-success-at-scale

https://www.tsia.com/resources/2018-best-practices-in-low-touch-customer-success-results-for-non-participants

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Customer Success Trends There are several trends we see that further validate the key theme of this paper—that we have indeed hit a tipping point with customer success.

Customer Success for On-Premise

One of the more significant shifts in data we saw in 2018 was the jump in members that offer a level of customer success capability or personnel that align to an on-premise model, which could include technology like software or hardware. This is absolutely nothing new and has been going on for longer than a decade. What is different is the volume and momentum toward providing customer success capabilities outside of an as-a-service model. As indicated in Figure 4, the TSIA benchmark data points to a 30 percentage point increase from last year.

Figure 4: Customer Success Practice Trends from 2018 to 2019

Source: TSIA Benchmark data.

There are two key observations within this cohort of companies. The first is technology companies that have a more traditional, capital-heavy model, whether it is hardware or software, have been forced to rethink their customer’s journey. They have been experimenting with new as-a-service models, invested in customer success capabilities, and have yielded some good results. However, their customers have a disjointed experience. Customers are adopting the as-a-service models and have good experiences, but then come back and wonder why the experience and focus on adoption and outcome is not applicable to the on-premise model. The second observation is the cost. In an on-premise model there hasn’t been a big focus from product teams in gathering telemetry or basic usage


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and consumption information. As a proxy to that, these companies are using CSMs and other resources to gather that information, which is a labor-intensive model. There is a case study that members can access that speaks to the challenges of operating in a hybrid environment, including on-premise and as-a-service customer success models.8

Dedicated Customer Success Work Management Systems

As indicated in Figure 5, in 2018 we saw an increase of 15 percentage points in adoption of customer success work management systems. These are platforms that allow customer success teams to model, execute, and monitor adherence for key processes, such as customer onboarding, success plans, playbooks, health scores, adoption monitoring, renewal activities, and identification of expand selling opportunities. Focused on the “blocking and tackling” workflow of customer success, this technology helps ensure customer success teams deliver consistent experiences to customers across the entire customer life cycle. Common member installations include Bolstra, ChurnZero, Gainsight, Totango, and many more. It is important to note this is only one of 13 distinct technology categories that are relevant to customer success. You can read more on the other 12 as part of our annual “Customer Success Technology Stack” research.9 Investment in these systems are indicative of a more robust customer success capability within a company.

Figure 5: Customer Success Practice Trends from 2018 to 2019

Source: TSIA Benchmark data.

We have continued to evolve our thoughts on where these systems are headed since our initial blog post on the topic was published.10 It is apparent, based on member discussion and how they use either a dedicated customer success work management system or some combination of homegrown tools or off-the-shelf technology, there is a clear collision course for CRM and dedicated customer

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success work management systems. It is hard to envision CRMs in the future without basic information about how customers are adopting solutions, meeting their business outcomes, and some basic 360-degree view of the customer. TSIA sees consolidation ahead between CRM and CS platforms. In the interim, ask your CRM provider about roadmap capabilities for adoption monitoring and renewal analytics, and be sure to evaluate CS platforms offering “out of box” integrations to your existing CRM system.

Customer Success Member Inquiries from 2018 In addition to our benchmark data, we can also look at our member inquiry to spot early trends. Thomas Lah recently published the “TSIA 2019 Capabilities Heatmap.”11 TSIA received over 3,000 inquiries from member companies in 2018. This volume of member inquisitiveness provides incredible visibility into the topics that are most critical to technology organizations. TSIA maps every inquiry we receive to a specific organizational business challenge. We also track which business challenges are showing up with the greatest frequency. Customer success is clearly a hot topic within our membership. Below are the top customer success business challenges ranked by percentage increase in frequency from 2017 to 2018:

1. Customer Success for Partners 2. Improve Customer Experience 3. Funding Customer Success 4. Staffing a Customer Success Organization 5. Best Practices for Creating Customer Success Capabilities and Organizations

Customer Success 2019 Research Calendar

TSIA provides data, frameworks, and advisory services that accelerate the development of organizational capabilities. Our research studies, member inquiries, and other data collection vehicles help provide input back into these frameworks and services.

Research Studies

Customer Success Compensation Study. In 2017, TSIA published the most comprehensive customer success compensation study in the world, with over 1,000 individual data points and detailed global salary and variable compensation analysis of individual and leader role profiles that make up customer success organizations. This is a refresh of that study, and is important because hiring the right employees and keeping them engaged are critical success factors for customer success organizations. All information will be kept anonymous, and should you choose to participate you will be given access to valuable compensation data, such as salary practices for base salary, variable bonus, and commission compensation plans. The more participants, the better the insights.


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The survey has three main components:

• Salary data at the individual employee level. • Variable compensation levers at the average position level. • Compensation practices.

Customer Success Benchmark Study. TSIA delivers the most comprehensive benchmark in the industry for customer success organizations. The Customer Success Benchmark Study addresses a broad range of practices, results, and operational metrics in the core areas that enable companies to protect and grow recurring service revenues. Merely conducting an internal evaluation of your company’s quarterly trends on metric percentages doesn’t tell the whole story.

With TSIA’s Customer Success Benchmark Study, we:

• Evaluate your company’s performance on critical metrics versus your peer companies. • Quantify the metric performance and align to peer and industry groups. • Help you craft strategies and tactics to pursue these revenue growth opportunities.

Customer success industry vertical studies. TSIA will explore research in specific industry verticals, such as healthcare and industrial equipment manufacturing, to understand how companies that serve these industries are creating adoption playbooks that align to their unique markets.

Outcome Chains

Customer success outcome chains. TSIA is leveraging software to build “outcome chains.” Each outcome chain is centered on a specific target outcome, such as improving the customer experience or reducing churn. For more information, visit: https://app.outcomechains.com/?ref=tsia.com.

Endnotes

1 Gladwell, Malcolm. 2002. The Tipping Point: How Little Things Can Make a Big Difference. Little, Brown. 2 Nanus, Phil. September 2017. “The Building Blocks of Customer Success.” TSIA. 3 For a complete list of companies in the TSIA Cloud 40, visit: https://www.tsia.com/c20datawidget.html. 4 For a complete list of companies in the TSIA T&S 50, visit https://www.tsia.com/s50datawidget.html. 5 Pattabiraman, Kumaresh. January 10, 2019. “LinkedIn’s Most Promising Jobs of 2019.” LinkedIn. 6 Anders, George. June 6, 2018. “If Sales Are Soaring but Users Stumble, This Rescue Crew Is Ready for Action.” LinkedIn.

https://www.tsia.com/resources/building-blocks-of-customer-success-ebook

https://blog.linkedin.com/2019/january/10/linkedins-most-promising-jobs-of-2019

https://www.linkedin.com/pulse/sales-soaring-users-stumble-rescue-crew-ready-action-george-anders/

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7 “Who's on First?” is a comedy routine made famous by 1940s comics Bud Abbott and Lou Costello, and is descended from turn-of-the-century burlesque sketches that used plays on words and names. 8 Franco, Nello. October 24,2017. “Customer Success for Hybrid and On-Premise Customers.” TSW Conference Presentation. 9 Ragsdale, John and Phil Nanus. January 2019. “2019 Customer Success Technology Stack: Automation Is Critical to Manage Renewals and Track Customer Consumption.” TSIA. 10 Nanus, Phil. August 24, 2017. “Are 67% of Customer Success Organizations Wrong?” TSIA Blog. 11 Lah, Thomas. February 2019. “TSIA 2019 Capabilities Heatmap.” TSIA.

https://en.wikipedia.org/wiki/Who%27s_on_First%3F

https://www.tsia.com/conference-presentations/customer-success-for-hybrid-and-on-premise-custome



https://www.tsia.com/blog/are-67-of-customer-success-organizations-wrong

https://www.tsia.com/resources/tsia-2019-capabilities-heatmap

Documents

CUSTOMER SUCCESS Research Publication The State of ... · 2018, aggregated data that pointed out that for every three CSM roles that existed there was one CSM job opening. On top