Achieving early market success by paying close attention to customers
The saying goes, “The best salesman is a satisfied customer.”The popular statement is representative for the almost magical power of having happy customers speak about their successful experience with a company’s products or services – an activity also known as referencing. The utilization of referencing is a common practice in business today and has received widespread research attention in relation to its managerial relevance – especially as a source of and following the heels of early market success into mainstream adoption, as shown by Geoffrey Moore (2002) in his technology innovation marketing bestseller Crossing the Chasm.
Therefore, working closely with early customers on their experience and success with new technology innovation can be seen as the foundation for a company’s success in new product development and introduction. In fact, the organizational approach to – and necessity for – ensuring customer success at an early stage of market entry is fundamentally changing in today’s Information Technology (IT) and the entire High Tech industry. Today, IT companies need to tightly integrate customers into the product development process, and can no longer afford to leave behind customer experience as well as the derived value from technology use.
Describing this transformation represents the objective of this whitepaper, using SAP’s new OnDemand portfolio approach to Design Thinking, Co-Innovation and First Customer Success as real-world examples.
Software industry transformation
There are multiple dynamic trends in technology and society, which boost such industry transformation. In fact, the intensifying technological choice for consumers, together with the shortening of technological life cycles, suggests an increasingly important role to managing early customer success in today’s IT industry.
A key driving force in the industry is the very nature of the Software as a Service (SaaS) model For simplicity reasons, the term OnDemand will be used throughout this whitepaper referring to SaaS applications. It is related to a larger category called Cloud Computing. Gartner defines Cloud Computing as a style of computing in which scalable and elastic IT-enabled capabilities are delivered as a service to external customers using Internet technologies.
This OnDemand deployment model is experiencing increasing popularity with software “buyers” now renting the service for a limited time period – typically a two to three year contract based on a subscription fee per user per month. As a result, barriers to exit are much lower for customers in the new model. In turn, vendors are basically forced to invest in the success of its customers to avoid customer churn.
Another significant driving force in the transformation of the industry is the Consumerization of IT, which describes the increasing societal use of technology in everyday life, as well as the broadening use of personal IT devices and consumer-driven software in corporate settings.
SAP has realized that this new frontier requires a new approach. Customers not only need to be tightly integrated into the product development cycle, but also need to be treated and managed like a partner further down the product lifecycle. Therefore, managerial practices enabling organizations to pay close attention to customers are becoming essential success factors in technology innovation. To realize this importance of customer integration, SAP Co-Innovation uses a user centric approach realized based on the ideas of Design Thinking, Agile Development and Lean Management.
Design Thinking and Co-Innovation
SAP OnDemand has learned from the Design approach used by IDEO, which is based on the idea of human centered design. Following this idea means to start the development with the end user as the real expert to get a better insight in his behavior, needs and preferences. The ultimate goal is to close the gap between the ones who develop and the ones who use the solution. Too many layers have been build between them over time
To accomplish this, SAP OnDemand unit includes feedback and knowledge from customers and external experts in an iterative development process consisting of three phases: Inspiration, Ideation and Implementation.
During the Inspiration phase the goal is to understand the problems and needs of the end user and to get a 360-degree view of everything, which might affect the design, implementation, and use of the solution. During the Ideation phase the earnings from the Inspiration phase are translated to practical ideas by using a co-design approach which integrates again the feedback and knowledge from the customer. During this process prototypes are used to make ideas tangible, generate feedback and rethink and redesign these ideas. This shows the basic idea of Design Thinking: trying, prototyping and improving.
In the last phase of Implementation, these ideas will be finally realized. Again the customer is integrated to support the development team. Mini-pilots are developed quickly to get feedback from end users and learn for future developments. Through such a human centered approach the efficiency of the development process is significantly enhanced, as the cut down in time-to-market and cost-to-market shows. Additionally this approach helps that solutions better fit the customers’ needs and really solve their problems, because they can influence the design process as active parts.
These big advantages on both sides are the reasons why SAP Co-Innovation puts the customer and it´s end users into the focus of the development approach by using the ideas of Design Thinking .
As Co-Innovation initiatives benefit from creative thinking, diversity is an important success factor. Having a diverse group of software users and buyers participate; will significantly increase the ability to meet customer requirements, ranging from functional to usability preferences. On the other hand, it is necessary to have a clear target customer, which has a perfect match with the solution.
To combine this twofold approach SAP uses Design Thinking and starts with a rather heterogeneous group of Co-Innovation candidates. Attributes, such as demographics, region, industry, job-function, etc. all play an important role here. The focus needs to be put on the right customer sample, the right end user in the right roles matching to the business value of the solution. Especially going out of the usual network is important, as you tend to fall into the trap to be caught in your same context.
Based on a first hypothesis of what Co-Innovation customer we are looking for, the customer profile is then adjusted with the help of additional research and learning’s, bringing the final Co-Innovation customer group to a closer fit step by step. This iterative approach helps us, to end up with the right match between customer and solution without missing to include all necessary needs. With this approach SAP avoids e.g. to just concentrate on participants belonging to the baby boomer generation while missing other generations that have grown up with extensive technology usage. These so-called digital natives play an important role if we want to develop software for the future.
Lean Thinking and Co-Innovation
The second fundament to meet the requirements of a fast changing environment and to be able to deliver solutions which meet the customer needs, SAP started to incorporate the ideas of Lean Thinking into its software development processes.
Especially in the agile world of on demand solutions, a fast adaption to the requirements of the market and a fast delivery of working solutions is essential. Therefore the lean principle tact is used in the software development process. The whole development process is split up in short so-called sprints of four weeks with a working piece of software at the end of each sprint. From the beginning the customer is tightly integrated into this process by defining the requirements for the software, testing it and giving important feedback for its further improvement. With this the customer is able to pull for the solution he wants to have – another principle of Lean Thinking.
The third main principle in the SAP OnDemand software development process, which is based on the Lean Ideas, is Value. By integrating the customer tightly in the development process the final solution is more likely to include such features, which are really valuable for the customer, instead of many items which are rarely used.
For SAP this integrated development approach in short sprints guarantees a more efficient way of developing applications that better fit market requirements. For the customer it is equally valuable. Having access to newly developed solutions that are made available in short cycles, and which reflect a customer’s requirements and feedback is in the best interest of the customer as well .
Early markets and Early Adopters
Given the described Co-Innovation approach for SAP’s OnDemand solution portfolio, SAP observes strong interest of participating customers in also adopting the solution in their organizations at an early stage of the Technology Adoption Life Cycle  – a group of customers generally referred to as early adopters in the industry. In fact, the initial customer set for a new technology product is usually made up primarily of innovators and early adopters as defined by Geoffrey Moore (2002). 
At this point it is necessary to take a closer look at the differences between the key groups impacting a technology’s early market success in order to allow for a better understanding of the terminology used in this whitepaper.
Innovators usually have a specific interest in the technology. Moore refers to them as the technology enthusiasts. They sometimes seek out innovative products even before a formal marketing program has been formed. 
Early adopters, like innovators, buy into new product concepts very early in their life cycle, but unlike innovators, they are not technologists. Moore refers to them as visionaries, who are key to opening up any market segment, as they do not rely on well-established references or proof. 
The early majority are content to wait and see how other people are experiencing the innovation before they buy in themselves. In fact, Moore suggests that for technology innovations, there is a gap or chasm between the innovators/early adopter groups, and the early majority.
As a result, referencing activities or testimonials play a significant role in convincing this customer group, as well as the late majority and laggards groups that are characterized by an even more skeptical attitude towards adopting new technology innovation. Of course, it is important to note that there is a weakening in the reference base between customer segments; however, companies can overcome this phenomenon by targeting a number of different candidates as shown in the SAP Co-Innovation approach. In this way, early releases already feature capabilities influenced by a diverse innovation and reference base.
Consequently, paying close attention to early customers not only represents an essential tool for development of truly differentiating technology innovations, but will also benefit a company’s mainstream market plans allowing for a faster crossing of the chasm.
First Customer Success at SAP
The fundamental question related to successful technology innovation is what managerial practices allow IT companies to quickly bring new differentiating products to market that will reach a critical mass of customers, and therefore sustain beyond the early market phase.
SAP’s OnDemand portfolio approach to Design Thinking, Co-Innovation and First Customer Success represents a new concept to overcome such challenges.
As described, SAP’s cooperative Co-Innovation approach plays a crucial role in supporting this organizational objective as it allows significant advantages for the development organization, as well as for the customer. By working closely together with Co-Innovation customers, the efficiency of the product development process is enhanced and there is a higher potential that a greater share of the market evaluates it as a real innovation and as a good fit. A positive observation is the fact that SAP experiences strong interest of participating and the Co-Innovation customers in also adopting the solution in their organizations at an early stage of the Technology Adoption Life Cycle  as previously described.
Once a new solution has completed its development sprints, feedback from participating Co-Innovation customers has been looped back into the solution, and the software has been thoroughly tested internally as well as with the co-innovation customers – SAP then prepares for market launch.
Launching new products to market usually requires companies and product managers to manage a diverse set of internal and external go-to-market prerequisites, such as pricing, availability, legal guidelines, etc. While these activities certainly play a very important role and should not be underestimated as factors of success, this whitepaper will focus on the described managerial practices at SAP ensuring customer success with the actual use of a new OnDemand solution for Lines of Business.
This phase is referred to as the First Customer Success phase and describes organizational activities to help customers successfully deploy a new SAP OnDemand solution prior to or at an early stage of market entry. Related preliminary organizational activities are considered the foundation for successful new product introduction, as well as for potential future mainstream market adoption. At SAP, we have defined the core focus of the phase to concentrate on the first 10´s of customer deployments.
This First Customer Success approach requires a sound interplay between involved cross-organizational teams, such as the development organization, customer on-boarding (part of the service organization in many companies), marketing, sales, etc. that puts the success and positive experience of first customers as its ultimate goal or mandate.
While this might sound like a typical Marketing or PR statement, it is absolutely essential to have general agreement across the involved organizational parties that customer success is the clear priority during this phase. It is even recommended to create a mission statement that clearly articulates the purpose, which helps to reiterate the objectives and key priorities for the respective time period.
Customer Engagement Manager
First Customer Success consists of multiple individual customer engagements or projects that need to be managed independently from each other. As a result, a dedicated and cross-organizational project management represents an important building block of this phase. It is recommended to appoint two project managers – one from the customer or partner (System Integrators traditionally are often consulted for this purpose in IT) and one from the vendor. Such project structure usually simplifies communications and project execution between the involved parties. At SAP this role has been defined as the Customer Engagement Manager in the First Customer Success phase, acting as the central point of contact for the respective customer engagement.
Those among the early adopter customers that already participated as Co-Innovation customers for the respective OnDemand solution, might even be able to leverage the established relations with the respective representatives of the Co-Innovation approach when adopting the solution in their organizations, something which is representative for the close relationship and trust SAP and its customers establish over the course of the cooperation.
At the same time, responsibilities of different organizational units or teams need to be clearly set in the First Customer Success phase. In many large companies, organizational ownership might not be obvious due to complex structures, which can then become a factor of uncertainty, and therefore should be clearly defined. Given the significant degree of product uncertainty in first deployments of new technology innovations, the product development organization plays a decisive role in this phase of immaturity. This holds especially true for large enterprise software deployments. Consequently, product development holds responsibility for first deployments of SAP’s OnDemand portfolio for Lines of Business until critical learning and validation from first customer deployments are made available for market scaling.
As a result, the role of the Customer Engagement Manager in First Customer Success differs from typical project manager tasks in traditional software implementation projects as looping back customer feedback is of central importance for continuous product improvement and successful market launch activities. In this way, the customer (end-user) is again put in focus of SAP’s OnDemand development approach.
Beyond the role of the Customer Engagement Manager that supports the respective customer one-on-one, SAP has also implemented automated means for customers to find help, share ideas and provide feedback. This is essential for supporting customers in the event of delivery disruptions or other issues the customer might experience. On the other hand, SAP has a significant interest in bolstering its ability to gather such highly valuable customer input in the First Customer Success phase.
SAP is leveraging new social technology developments that enable close collaboration on projects (e.g. www.streamwork.com), market leading feedback and idea generation software (e.g. www.ideascale.com), as well as for a key group of customers to interact closely in a more intimate fashion a dedicated and orchestrated community (e.g. http://coinnovation.ondemand.com/).
Enterprise software implementations (the more accurate term is deployment in the OnDemand model) traditionally represent resource and time-intensive projects. As software is provided on demand as a web-based application or on a mobile device, managed in the vendor’s data center, the required effort and duration is significantly reduced in the OnDemand model.
Mapping system configuration and scoping to the specific customer requirements marks the most resource-intensive phase in the deployment process. In contrast to mainstream markets, the Customer Engagement Manager will help early adopter customers to manage the solution fit in respect to their organizational setup and requirements. Although this process is also made available as an easy-to-use self service for SAP’s OnDemand portfolio, SAP is also providing this special service for customers at an early stage of the Technology Adoption Life Cycle as part of its First Customer Success approach.
Another advantage of investing in the role of a dedicated Customer Engagement Manager is to allow for greater transparency on how customers are using and experiencing new solutions, accompanying and supporting customers on their path to successful deployments of the software. You need to see how end-users interact with the system to really understand if value is derived from the solution “as designed”.
As Customer Engagement Managers, to experience the transformation of the respective line of business first hand, SAP supports the customer in tracking and measuring the key benefits of using SAP’s new OnDemand solutions. This not only strengthens the relationship between vendor and customer, but most importantly it helps customers to formulate and realize first achievements. After all, going back to the mission statement, this is the primary goal of First Customer Success.
Given the described cooperative approach to having first customers realize success, promoting the combined partnership and related achievements is the last objective of SAP’s First Customer Success phase for its On-Demand portfolio.
The First Customer Success team is closely working together with marketing to create attractive Co-Marketing opportunities for early adopters that meet customer, as well as SAP interests. There is a twofold objective for investing in referencing activities at this early stage of the product lifecycle.
First, it is important to provide customers with a stage to get acknowledged for their achievements. Software vendors usually have great means to do that via Co-Marketing initiatives. In this way, the customer is also animated to measure and assess the internal progress since adopting the new software internally, which is likely to further help improve the organizational transformation that was started. This might lead to a closer relationship to the technology and new valuable input for future releases. In other words, referencing also fosters Co-Innovation and Design Thinking.
Secondly, having customers speak positively about their experience and gained benefits of using a company’s products or services will also be beneficial for the vendor’s mainstream market ambitions. As discussed previously in this whitepaper, referencing is likely to allow for a faster crossing of the chasm, and consequently, also represents a central building block in SAP’s marketing and sales activities.
Therefore, companies investing in the success of its early customers will therefore find themselves creating a true win-win situation for supplier and buyer alike.
By Niclas Otte, Mareike Bender, John Hunt, Sven Denecken
Co-Innovation LoB OnDemand
SAP AG, June 2011, Walldorf
Cruz, E. (2011). Small Time Movers & Storage. From http://www.smalltimemovers.com/testimonials.htm
Gartner. (2011). Gartner Website – Press Release. From http://www.gartner.com/it/page.jsp?id=1035013
Moore, G. (2002). Crossing The Chasm. Collins Business.
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 (Gartner, 2011)
 For more information about Lean and Co-Innovation see http://blogs.sap.com/cloud/2011/07/01/co-innovation-2-0-at-sap-a-user-centric-approach-with-lean-thinking-to-meet-customer-needs/
 See (Joe M. Bohlen, 1957) p. 30
 See (Moore, 2002)
 See (Moore, 2002) p. 30
 See (Moore, 2002) p. 12
 See (Moore, 2002) p.12
 See (Moore, 2002) p.13
 See (Moore, 2002)
 See (Moore, 2002) p.56
 See (Moore, Burgelman, Christensen, & Wheelwright, 2004)
 See (Joe M. Bohlen, 1957) p. 30