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Qualtrics and SAP's new mission as a 'system of action' - exclusive interview

Phil Wainewright Profile picture for user pwainewright April 17, 2019
In an exclusive interview Qualtrics CEO Ryan Smith and SAP's Adaire Fox-Martin explain the software giant's new mission as a system of action for customers

Ryan Smith with Adaire Fox-Martin at Qualtrics X4 London 2019
Ryan Smith and Adaire Fox-Martin, SAP

Businesses have always had a historic transactional record of what their customers have bought. In today's digitally connected world, they can also gain valuable insight into how to win future transactions, by finding out what customers want now. Businesses are starting to realize that's a gamechanger, says Ryan Smith, CEO of Qualtrics, which became part of SAP earlier this year in an acquisition valued at $8 billion.

I remember calling in 2006 into a major airline saying, hey, look, we want to power all your customer and employee feedback. They said, if our customers or employees are upset, they'll just call us.

At the end of last year, [we signed] a massive deal with that organization.

Everything's playing into our world. I'm the same person with a similar product, just a little better, but we've been coloring in those lines. And the market has come around to what we're doing.

I caught up with Smith, and SAP board member Adaire Fox-Martin, for an exclusive diginomica interview on the eve of the vendor's X4 customer show in London today. The audience here is heavily skewed towards people from marketing and consumer brand management roles, with a focus on customer experience and net promoter score (NPS), along with a sprinkling of HR professionals focused on employee experience. That reflects Qualtrics' seventeen-year history during which it has built strong relationships with brands such as American Express, Unilever, Amazon and UnderArmour.

But Smith is challenging his customers to think more broadly, citing Yamaha as an example of a company that uses Qualtrics — and yes, the name can be a verb — to inform its product development:

We can now bring a voice of the customer into the product side. There's a video on our website from Yamaha. They're in the middle of the product development cycle and they've got this massive keyboard that they're doing for concerts. They don't know whether to put a knob or a fader on this.

They hit stop, they Qualtricsed it, and they figured out it was a fader — in 24 hours, hands down.

SAP as a 'system of action'

This goes to the heart of the rationale for the acquisition. With a footprint that spans customers, brand, products and employees, the vision is that Qualtrics offers a consistent platform for all-purpose feedback that will help the SAP customer base become more responsive across their entire operations — the 'O' to which Qualtrics adds the 'X' of experience. Fox-Martin believes this changes SAP's traditional role:

People have referred to SAP as the system of record. I don't like that. I think that with Qualtrics we can become the system of action. You can place it in a system where some action can take place on that sentiment, in order to close that feedback loop.

For me personally, as a consumer, there's nothing worse than giving some feedback and having it fall into a black hole and nothing happen to it. I think this is probably one of the experience gaps that we have the opportunity to fill in terms of the combination of the two companies.

As a measure of how seriously SAP is taking this opportunity, Fox-Martin added that the company has rebooted its longstanding value engineering team to refocus specifically on identifying use cases for experience management:

We had a value engineering team where we had a very significant benchmark database based on the standard processes in SAP, [such as] procure to pay, cost of goods sold, those typical ERP processes. We were in the process of updating that platform for the S/4 portfolio and for the processes that S/4 would support.

But now we've just control-alt-deleted that entire team and changed it to XME — experience management engineering — because we want to be able to work with our customers to identify the business models, to identify the use case opportunities, where it's the combination of X and O that creates a differentiated outcome.

The integration question mark

These are fine words, but that X and O feedback loop will only be closed if the various systems involved can be joined up. There's a big integration question mark hanging over this vision.

Fox-Martin and Smith each had an answer as I probed on this point. Fox-Martin's perspective, informed by her role as head of Global Customer Operations, was that it would take time to work through the necessary integrations. SAP will therefore prioritize those that deliver the speediest benefits:

We need to look at this by use case, by industry, and then we will begin to derive a program of integration based on opportunity. It'd be ridiculous to say let's integrate Qualtrics to every single property or every single business process that SAP has. That's not feasible.

We have to prioritize them based on use cases, based on process, based on opportunity, based on industry — and SuccessFactors is the first one. As we do this, we'll learn, we'll refine and we'll get better, and more and more will appear.

Smith emphasized Qualtrics' existing integrations as a longstanding SaaS vendor, which already connect to many of SAP's systems:

We're a cloud-first product. We integrate with 50-100 different applications already. We have to, because people get the data that comes to Qualtrics, they run the analytics and they need a trigger, an action. [Or] there is a system that is triggering the action to us to ask a question in the moment.

This is not the heavy transactional integration of traditional enterprise applications, but the more flexible, API-based integration that SaaS vendors use to pass signals from one system to another. He gives the example of a Los Angeles hotel that used Qualtrics to discover why local visitors to its website never made a booking. The answer quickly came back — they were looking for the happy hour menu. A simple change to the Qualtrics dialog now includes a link to the menu, closing the experience loop.

'Don't kill the brand'

Smith also cautions that there's a significant downside to integrating too fast, citing what he's seen happening as a SaaS entrepreneur watching acquisitions by other big vendors:

If we went through every other cloud and watch how they've literally destroyed these entities and how maybe they've got a little integration, but they killed the entire brand ...

Which problem do you want to have? You actually put them all together in the way everyone wants right away, but you kill the brand and you kill the identity and you kill the employees and you kill everything there? Or you actually keep those going, so they actually are mature, and then work on the integration as much as you can.

He adds that one of the factors in deciding to sell to SAP was its track record in preserving the culture and independence of prior acquisitions such as Concur, Ariba and others. At the same time, SAP's presence across so many different application areas — from ERP and HCM through to Hybris and the other customer-facing products — give it a reach that other potential acquirers can't offer.

With Qualtrics we literally can work on every single experience. We literally go horizontal across the business. This is why we were so excited about SAP because SAP goes horizontal across the business ... We can basically take every experience in the organization and make sure that you're able to have a conversation at scale.

The potential, for example, is to take all the feedback and experience data Qualtrics collects on behalf of 30 different airlines and match it to the operational data SAP holds on all of the airports that run on its systems, he explains:

We can tell you how the check-in experience was. We can tell you how the end experience was. But SAP now has the data to say, Hey, TSA's backed up, security's backed up, this is going to take time, all the other airport data.
We now have the ability to combine those and help airlines impact the experience of the entire airport from start to finish. That's never been done.

So while Qualtrics intends to keep its separate identity, the business is eager to seize the global opportunity that being part of SAP represents:

Our mission is to take XM to the world. I think you're seeing a big excitement from SAP and a big excitement from us to say, okay, how do we do it together?

My take

I like the vision, but I think the execution is going to be a challenge. The vision maps onto my own framework for thinking about business models in a connected world — the XaaS effect of continuous connection to customers that fosters a virtuous cycle of engaging customers, monitoring their interactions and iteratively improving their experience.

Clearly, Qualtrics is a sophisticated monitoring platform for this emerging business landscape. That gives it a huge runway for growth, which SAP can help accelerate by adding global resources and brokering introductions to its customers. The story of the airline that didn't get why it had to proactively engage with customers and employees back in 2006 sums up how much the world has changed in the past decade, even more so over the past few years. Just like Ariba and Concur before it, this suggests to me that Qualtrics is destined to repay its purchase price.

Where I think the vision gets ahead of reality is in the characterization of SAP as a transformative platform for its customers' operations. Layering Qualtrics over the top is not going to be enough in itself, even if customers were yet ready for operational change on such a scale. The airport example is a case in point. Getting real-time alerts that your customers aren't happy with the TSA lines isn't transformative — not until you've devised operations that eliminate the lines in the first place.

One story that Fox-Martin told me I think sums up both why SAP is right to embrace Qualtrics but also why it's not yet grasped the full implications. When the acquisition went to the supervisory board for approval, she says that SAP co-founder Hasso Plattner immediately saw the value:

He said, 'Imagine if we had that experience in our product, so that in our design process, in our build process, we could incorporate our customers through that process and their feedback.'

Whereas today in the traditional software world, even in new lean and agile methodology, you develop in a vacuum typically, and then you deliver, and then you take your feedback.

My perception of software development in a SaaS and cloud environment is that it's already strongly engaged with users throughout the process, and the vendors are already carefully gathering and listening to customer feedback. If SAP needs Qualtrics to introduce that dimension, it's a warning that it's not yet got the right culture in place. And that is a stumbling block many of its customers will face too, one that I suspect SAP's newly formed experience management engineering team will be unable to help them overcome.

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