James Allworth was the Director of Strategy at Medallia, a Sequoia-backed experience startup. He writes for Harvard Business Review and is the author of the New York Times best-seller – How will you measure your life?. He also co- hosts the hugely popular exponent.fm podcast with Ben Thompson.
We talk to James about ERP systems, financial and customer focused companies, and how the new economy calls for new measurement tools.
Your Medium article “Manage what matters” talked about legacy systems such as ERP focusing solely on measuring the financial aspect of the business, and in doing so are neglecting the customer…can you elaborate?
While I was working with Professor Clayton Christensen, who’s most well-known for his work on disruption, the starting point was to ask the question – “Why do successful companies fail?” The counter-intuitive conclusion that he reached was they fail not because they do anything wrong but because they do everything right. They focus on their best customers, they move up-market and they’re very financially-focused. It started to occur to me that in most modern companies, part of the reason they’re so financially-focused is because every tracking system that they have, and everything that they measure and manage is financially-focused. It’s a necessary thing to focus on, but it’s not sufficient to just focus on the financials.
The purpose of a business is to create a customer. You need systems and measures in place on the customer. I can’t really think of too many businesses that should not have something like this in place. If you have customers you interact with, and you’re trying to differentiate from your competition on some measure other than price, this is something that you absolutely need to be paying attention to. The irony is that lots of companies don’t, but you look at some of the best companies in the world, companies like Apple and Uber, this is something that they are paying super-close attention to.
How do you see this change impacting financial systems and services? Does that mean there is a lesser role for ERP systems going forward? And if so, what replaces it?
You obviously need a system of measurement. What’s the best system of measurement, is a debate that we could get into forever. I think that you should get some smart people in a room that understand your business, and you should figure out what it is that you’re trying to achieve, and then figure out which metric is the most effective and appropriate metric for you given your business, given what your goals are. Then, it’s really an organizational thing. It’s a discussion around priorities. It’s a set of behaviors coming out of leadership that spills forth throughout an organization.
You’ve spoken recently about how Oracle is “stuck in the middle” between (1) the flexibility of Amazon’s AWS infrastructure-as-a-service on one side and (2) the commitment to user experience from the dedicated SaaS providers on the other. Why do you think legacy companies struggle to meet the needs of the modern customer? Is it a product issue, a business model issue, a culture issue, or all of the above?
I think most people make the assumption that because Oracle has all this money, all these smart people, this incredible brand, all these customer relationships, that of course, it’s going to be successful. What most people underestimate when it comes to these things is the power of having a blank slate. Assumptions change. Technology changes. What people look for in a product changes. The way businesses operate changes.
The fact is that Oracle grew up in a world that had computers, but the internet wasn’t around, much less the internet economy that we see today. They have to evolve their culture, their products, and their business model. The nature of how enterprise software works has started to change.
This is not to criticize Oracle which has been a very successful company. It’s just to make the broader observation that the nature of business and all the assumptions underlying business have changed. If you’re able to build something ground-up with the new set of assumptions, that’s incredibly powerful. It’s much harder to change the culture, and the business model inside a big company even with all the resources.
That’s why I think you’re going to continue to see these new upstarts in the enterprise world successfully challenge some of the established players. The tides will rise together – the internet economy companies and the enterprise software companies that serve them will rise up while legacy businesses and the legacy enterprise software companies that serve them will slowly start to lower.