Benioff Trash-Talks in Language of Innovation

By now, industry press have extensively covered the scornful comments of Salesforce.com CEO Marc Benioff, trash-talking SAP's introduction of an on-demand CRM product. (See Susan Campbell's coverage of the mySAP CRM release and David Sims's analysis of why on-demand CRM providers aren't scared.)

But I was particularly interested to note Benioff's use of the language of innovation in this excerpt from his internal memo to employees (titled "SAP on the defense?") 'inadvertently' leaked to me by a company PR hack:

"Let's state it simply: SAP is an innovation-free company.  When reporters describe the great innovators of this industry, it's easy to identify the significant contributions of many of the leaders.  For Oracle, it's the database;  for Apple, the Mac, iPod, and iTunes; for Microsoft, the PC operating system; for Intel, the microprocessor.  But for SAP?  I struggle to think of a single innovation that SAP has contributed.  Their code is as bulky and inefficient as it is expensive and unloved by its users.

"And that is just part of the problem.  Mustering the will to turn your back on the business model that has enriched you, your employees, and your shareholders has time and again proved far more difficult than solving technological hurdles.  SAP, like Oracle and Microsoft, now risks cannibalizing its existing customer base.  Can they actually afford to convert their billions of dollars in maintenance revenue into subscriptions?  This classic innovator's dilemma engenders painful internal rifts and wastes valuable time while customers' needs languish."

If this doesn't have a familiar ring to it, it might mean you're not familiar with "The Innovator's Dilemma," by Harvard Professor Clayton M. Christensen. Benioff is borrowing some ideas from Christensen's work (appropriately, in my opinion), in pointing out why big established companies like SAP, Microsoft, Siebel and Oracle are going to have a hard time beating the on-demand start-ups at their own game, in spite of their technical capabilities and financial resources.

Christensen's theory holds that a successful company has a built-in disadvantage when faced with a disruptive technology. The established company is embedded within a value network that requires it to please its existing customers, which a well-managed company has to do well. The established company might know about the disruptive innovation and might be technically capable of developing products based on it. But any products based on that technology will not find a market among the company's existing customers. The markets for such products are much, much smaller in the beginning and margins are lower. So the big, established, well-run, customer-focused company will never be motivated to devote enough resources to the disruptive innovation. Eventually, the disruptive technology results in products that can be sold in bigger markets more profitably, but by that time it will be too late for the big established company.

If that doesn't make sense to you but it sounds intriguing, you should read "The Innovator's Dilemma" and maybe some of Christensen's more recent work.

Anyway, Benioff is obviously trying to cast the big developers of on-premises CRM (or at least SAP) as lumbering behemoths who have already missed the on-demand boat and are no threat. Largely I think I agree with him, except maybe in the case of Microsoft -- in spite of the obstacles, they seem capable of attacking markets for disruptive technologies. Christenden thinks it is possible for an established company to do this, the best strategy being to form an independent company or unit devoted to the disruptive technology -- an organization that is completely free of the normal pressures within the company to meet the needs of its premium customers. Such a splinter organization has a shot at serving new markets by creating innovative products.

AB -- 2/2/06