Salesforce’s Very Good Execution

Posted: December 20, 2011 in CRM, Economics
Tags: , , ,

The McKinsey Quarterly is pumping out some very useful and interesting and I might even say fascinating material on a variety of subjects.  I am trying to make them a habit and you should too.  My interest here is to share some ideas on growth, corporate growth, economic growth, the stuff that makes economies work.  But first I also have to caution that past is not prologue and I have lately read some influential books such as “The End of Growth” by Richard Heinberg that take the opposite tact.

Nonetheless, McKinsey is useful in helping us understand the recent past and in helping potentially settle a simmering disagreement that I have with Cowen Research over Salesforce.com’s recent acquisition tactics.  That’s a lot for one post and I am not sure I am up to it but WTF?  No body reads this anyhow.

Way back in April 2011, McKinsey published “The Granularity of Growth” a report on how companies pursue growth.  They found growth centered in three areas: “portfolio momentum, or the market growth of the segments in a company’s portfolio; M&A; and market share gains. The exercise showed us that companies outperforming their peers on two or three of these drivers grow faster and achieve better returns than those that outperform on just one.”

The research started in 2007 just before the meltdown and the April report update provides perspective on how companies have fared in the intervening turbulent times.  The most interesting findings involve companies of a certain size, with revenues in the low single digit billions.  Again quoting McKinsey, “companies from emerging markets are outgrowing competitors from developed ones at a startling pace. The third [finding] is that the smallest companies in our database, with revenues of less than $1 billion, are growing by increasing their market share to a much greater extent than larger companies are. For the latter, the role of share gain is marginal or even negative.”

What interests me in all this is that the company type discussed in the quotes is exactly the kind of company that Salesforce is.  And the tactics that Salesforce has pursued are those described by McKinsey, plus or minus.

When you compare this with Cowen’s recent critique of Salesforce’s strategy (er, ah, tactics) especially over the last few months—its entire lifetime really—you see that the company has pursued what in retrospect looks like an optimal approach.  True, the approach may not resonate with what the financial analysts believe is optimal but last time I looked very few of those guys were headed for Cooperstown, if you know what I mean.  Moreover, this shows how much the financial community still needs to learn about the subscription before it can make more meaningful contributions to the economic discussion.

So, what did you think?

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