You are currently browsing the monthly archive for December 2010.

In a very quiet and very subtle move, Callidus Software  (NASDAQ: CALD) has offered to purchase the assets of ForceLogix for about $3.75 million. This sales applications software company provides sales coaching software to help sales managers realize the full value of their sales representatives. In 2010, Callidus Software entered into an OEM agreement to embed ForceLogix within a new offering called Sales Coaching; it clearly concluded that the opportunity to expose the application to further opportunities in its customer base was too important for ForceLogix to be allowed  to continue to operate independently, and so it used some of its stated cash position of almost $11 million at end of September. This step into a pre-sales and sales management application is a key move toward expanding its sales performance management position. I would guess that Callidus sees some significant revenue growth in 2011 and beyond for its purchase.

The ForceLogix application is one that I have been tracking for many years. It has come a long way; its latest 5.5 release includes a series of great advancements. The core application is known to be quite robust in providing a series of performance and process metrics about a sales rep as well as guidance on places to improve. The advancements that came out in August with the new version include support for sales manager coaching, performance improvement plans and reviews and coaching suggestions. In addition, the application includes an offline version with synchronization to enable coaching and reviews even when not connected to the Internet. Critical advancements in workflow, notifications and tracking make the core application more robust, and its utility is improved with new management views for assessing actuals, competencies and trending. These advancements support what our sales benchmark research found improve efficiency of sales processes is a top benefit of sales performance management that every organization should be investing into and Callidus is one of the key suppliers of it.

It’s important to note as well that ForceLogix had stepped up its development efforts along with focused sales efforts. In fact, its list of customers has grown to include Corning, Lenovo, Motorola and others. Foreshadowing this move, ForceLogix had already been expanding its integration with Callidus with single sign-on and use of underlying information and metrics. Now with Callidus buying the assets, will it offer jobs to all of the employees and keep the same level of investment and growth? Time will tell.

On the Callidus side this is a positive growth opportunity, and one that comes as the company has been reducing its operating footprint and costs. Despite this shrinkage, Callidus is closing new customers both at home and across the globe (which is a growing percentage of its business); among those added are AAA of Michigan, ESPN, Health Net and others. Callidus has been working its way through a very difficult transition from a license-and-maintenance model for its offerings to a recurring software-as-a-service rental approach that now represents 72 percent of its total revenue in its third quarter results. This conversion is no easy task and as it finds further growth in the market will provide an interesting case study of business management and an operating model transformation.

Focusing on profitability and margins is good financial management, especially for a public company, but it alone is not enough if the company isn’t able to market itself effectively against peer competitors – in this case, competitors like Merced Systems and Varicent, which have been increasing their marketing and sales efforts, and Xactly, which appears to have flattened its spend in this area. Most interesting was the pullback of Callidus’s efforts with salesforce.com; at the latter’s 2009 Dreamforce conference it showed the new set of products in which it had invested significantly and which I analyzed.  Since then Dreamforce 2010 has come and gone and Callidus did not even exhibit at the event. Although in my opinion salesforce has not invested significant effort recently in advancements for sales forces (See: “Can Your Sales Force Trust Salesforce.com?“), there remains activity in that area, and all of Callidus’s direct sales compensation competitors were present and this year’s show and actively in dialogue with prospects and Xactly appears to have the front seat as salesforce uses its products and has many partnering activities in motion.

Competitively, Callidus, like others, will face the reentry of Oracle into this space with its Fusion CRM for Sales which I have recently assessed (See: “Sneak Preview and Analysis: Oracle Fusion Applications for CRM and Sales Organizations“), and major releases from Varicent (See: “Sales Compensation Easier To Manage with Varicent 7“) and Merced (which already has a Coaching Plus application that it highlighted at its recent conference. This will make it even more important for Callidus to effectively market its advancements and value if it is to compete in this highly competitive environment. It has appeared in 2010 that it has removed itself from most common marketing activities to slash its operating expenses. For Callidus the question is whether SAP will come back and embrace Callidus as a partner or as an acquisition or will IBM decide to expand its existing sales analytics solution.

Callidus has also found some other critical application expansion opportunities. It recently highlighted an onboarding application that has had yielded growth in the insurance industry – it helps streamline agents’ ability to operate across carriers quickly, in some cases in only 30 minutes compared to the week or more required in a manual process. This application is yet another example of the potential of sales performance management.

I believe that in acquiring the assets of ForceLogix Callidus Software has a great opportunity for growth, but it will have to beef up and improve its marketing efforts to ensure it can compete for consideration in this area. It has a solid foundation as we have assessed its company and products in our Value Index. Clearly the newly augmented application will offer an opportunity to sell back to its customers, but Callidus must reach for the larger opportunity of organizations starting with sales coaching and then progressing to improvement in sales compensation and other sales performance management applications that it has and should expand, build and partner more for in the future.  

Regards,

Mark Smith – CEO & EVP Research

Wall Street has many leading indicators to work with, some serious – such as housing starts and the purchasing managers’ index – and some done a bit tongue-in-cheek. One of the latter is the Super Bowl Indicator, which says that if a team from the original National Football League wins the game, the market will be up for the year, but if an old American Football League team wins it, the market will be down. The amazing thing is that so far this heuristic has an accuracy rate better than 75%! On the other hand, over time some venerable weather vanes become unreliable. For example, the “hem line theory” (that stocks rise and fall with the direction of this aspect of women’s fashion) lost its (ahem) legs, partly because fashion these days is much more anarchic.

Then there’s the Headquarters Effect, which holds that once a company announces that it’s building a new headquarters, you’d be wise to sell its stock. One rationale for this indicator is that companies tend to make these decisions at or near the high point of their business cycle. So even though correlation is not causality, the two events happen in concert frequently enough to make it a reliable predictive indicator. And there are other reasons why people who trade the market believe in the Headquarters Effect. One is that any move proves to be a distraction to senior management: Once the new location is announced, the leaders spend a large portion of their time jockeying for offices and planning their office décor, and when they make the move, they spend too much time assessing fellow executives’ relative status based on office location and décor. In other words, human nature comes into play, which is seldom a stabilizing factor.

Personally, I’ve found the Headquarters Effect to be very reliable. I remember talking to a friend who told me his wife had just started working on designing the interiors of an as-yet-unannounced new headquarters of a company that I covered. Although it was insider information, I should have downgraded the stock right then because it would have been very close to the high of the stock in that cycle. It doesn’t even have to be a brand-new building. When, more than a decade ago, Hyperion Software announced it was relocating up the street a bit on Long Ridge Road in Stamford, Conn., I called up the CFO to warn her that the stock was going to tank because of the move. She protested that they weren’t buying the building and that they needed more space because people were doubled up in offices. I held my ground, and about nine months later, after the move had been made, the company announced disappointing earnings, and the stock sunk like a stone. (Of course, my inner lawyer forces me to note that past performance is not indicative of future results.)

I mention the Headquarters Effect because of Salesforce.com’s recent announcement that it will be moving across town in San Francisco into a huge new campus. Since the announcement, the company’s share price has increased, but this indicator is more long-term in nature. The stock is currently trading in the 130s. I’ll check back on the price next year at this time.

Let me know your thoughts or come and collaborate with me on Facebook, LinkedIn and Twitter.

Regards,

Robert Kugel – SVP Research

Mark Smith – Twitter

Top Rated

Stats

  • 157,051 hits
Follow

Get every new post delivered to your Inbox.

Join 17,643 other followers

%d bloggers like this: