The Key Demand Drivers and Success Factors for CPQ Solutions
This document discusses some business drivers behind the current rising demand for automated product configuration, or Configure Price Quote (CPQ) tools. It examines the principle characteristics of markets and companies that are giving attention to CPQ.
It considers the internal and external demands that are being placed on businesses systems within companies that are now choosing, or whose markets are requiring them to adopt, multi channel, tailored product and client self service models.
It concludes that technology is only part of the solution. It proposes that a successful outcome to a CPQ implementation is likely to depend significantly on other ingredients. We reflect on the factors that are claimed by businesses that have affected their implementations.
We review experiences, to learn how good deployments can deliver the desired twin outcomes of increased sales and reduced cost. The importance and scope of sound business reviews as a component of successful implementations is discussed, and examples are provided.
So let us first focus on some of the important business drivers that are being encountered...
Businesses seeking competitive advantage
It has always been an accepted principal in progressive businesses that they must positively differentiate themselves from competitors in order to secure competitive advantage, and grow profitable sales.
It is also now becoming a widely accepted view in such companies that there is frequently a concurrent opportunity to both improve sales processes and reduce the cost of sale, as part of such a differentiation process.
Organisations that are open to embracing change, consider that they have an opportunity to grow by gaining market share from those that fail to adapt to new business conditions.
Within such business reviews, an increasing number of organisations have decided that their market opportunity requires them to build configurable, multi-option product portfolios. And these organisations are increasingly concluding that traditional CRM and ERP systems are not fully meeting the needs of their businesses.
These companies recognise that CRM systems, when effectively deployed, enhance the ongoing sales process by improving the management of opportunities, and encouraging repeat orders.
Effective CRM also enables the delivery of higher levels of after-sales service, and provides increased levels of automation and consistency.
However, whilst CRM systems are generally adequate for creating straightforward quotations and proposals, when they are used by organisations that have a requirement to produce bespoke highly tailored quotations for complex products and services, shortcomings become apparent.
It is a primary function of Back Office (MRP/ERP) systems to manage order processing and fulfilment. If they are deployed in a Front Office environment however their core structures and processes, which are built around ‘bills of materials’ (BoMs), make them less well suited to activities such as quoting.
The solution for many organisations which are embracing business change, has been the deployment of complimentary business systems such as Configure - Price - Quote (CPQ) applications. Applications that bridge the gap between CRM and ERP platforms.
Businesses striving for joined-up Front Office processes
The Front Office can be described as incorporating all activities that relate to the generation and fulfilment of an order. These activities include:
Capturing and managing sales enquiries efficiently
Converting sales enquiries to specifications and quotations
Producing detailed, accurate and professional quotations
Processing quotations through to orders accurately and efficiently
Making it easy and enjoyable for customers to order and re-order
The challenge today for many organisations, particularly those that have chosen a configurable product portfolio approach, is that Front Office processes are not seamlessly connected and intelligent. Gaps between system elements are apparent, which can negatively impact the overall effectiveness and profitability of Front Office operations.
This is particularly apparent in the Lead to Order process. Many organisations are concluding that improvements made to the production of quotes, the converting of quotes into orders and subsequently into deliveries, are amongst the most productive areas that an organisation can address. They frequently provide a rapid return on investment.
Progressive organisations have already identified the Lead to Order area as a constraint to sales growth. It is apparent though that many businesses still rely on spreadsheets to fill the ‘quoting gap’ between their CRM and ERP.
But spreadsheets do not constitute intelligent solutions. They cannot effectively be shared across an organisation, or with field based personnel and customers. They cannot hold complex compatibility rules or aid learning. They cannot be used to link other data, produce documentation or help automate processes with the Back Office. In summary, they fall short.
Businesses seeking to cope effectively with Front Office complexity
The increasing complexity of products and services on offer to clients is a matter of increasing concern to many organisations.
There are at least two potentially conflicting forces driving the requirement to address the issues that this increased complexity creates: the demand for enhanced customer service, and shareholder demand for the control of costs and generation of profit.
Also, as competition increases and product differentiation becomes harder to maintain, customers are seeking higher levels of personalised service and a fast response to questions about product capability, pricing and availability. Having made a decision to purchase, fast delivery is important.
From a shareholder perspective, growth is of key importance. This can require entry to expanding or emerging markets, and necessitate the early identification and development of new or modified products and services to meet current and future customer demands.
One effect on organisations that are seeking to keep up with the speed of change in their markets is that numerous new products and services are being launched. These frequently involve only incremental changes on previous versions.
The frequency with which new variations, options and configurations are made available however can cause existing systems, bills of material (BoMs) and pricing structures to become unmanageable.
A challenge facing many organisations today in this increasingly complex business environment is, that once savings have been made in the Front Office, Back Office and in Manufacturing, there may seem to be little scope for further efficiencies. Progressive businesses are addressing therefore the whole Lead to Order arena.
Complexity affects different areas of today’s Front Office
Range of products, features, options and permutations
Discounts, rebates, group or project deals and promotional campaigns
Number and types of channels, channel partners, direct sales force, distributors, resellers, sales agents, etc.
Businesses seeking to disseminate business critical knowledge
Lead to Order processes used by many companies are based on product, customer and market knowledge owned by a few key individuals within the organisation. And frequently processes rely on silos of historical data.
Historic data and knowledge silos can be adequate for analysis and financial review. But they do not provide the systemised product, customer and market information that is required in the Front Offices of businesses with complex product and/or service offerings.
For organisations that are selling through multiple channels e.g. via direct sales, channel partners, distributors, overseas agents/subsidiaries - the issues multiply. In such businesses there is a requirement for expert technical support and accurate information at pre-sale - especially where complex products and services are offered.
When forecasting within such businesses, the problem of relying solely on analyses of leads and enquiries plus the knowledge of experts, are particularly acute. Forecasts from sales teams can frequently be over optimistic, and hearsay input from channel partners notoriously unreliable.
Increasingly businesses are therefore enhancing their forecasting models by analysing data at the quotation stage. Such an approach can provide very detailed insight derived from drill downs into data giving close insight at product and service component level.
Leading companies are also deploying CPQ applications which empower their sales channels and partners - making them self-sufficient, yet close coupled to the supplier. And through CPQ applications companies are gaining improved access to valuable external sales data.