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An Interview with Genesys' COO Paul Segre

We interviewed the Chief Opperations Officer of Genesys, Paul Segre, to get his view of the changes sweeping enterprise software.

Q. Can you share with me your general thoughts on the state of enterprise software space today?

A. In terms of enterprise software, the industry is trying its best to get ahead of the demand for more and better functionality. As quickly as technology itself is advancing, the expectations of business users are still ahead of what the technology can deliver today. There’s a lot of pressure to build more ambitious enterprise solutions because the complexity of what enterprises are trying to accomplish continues to increase.

Q. What key trends do you see happening in enterprise software and what do you think will be the major key trend over the next 12-36 months? 

A. Customers are unquestionably making a big press to shifting the business model for enterprise software is purchased. We’re seeing many different business models, but specifically, the demand for managed services is increasing. Some of this demand comes from telecommunications companies that see a large opportunity to provide ubiquitous access to services over their networks. We’re also seeing a demand for managed services from key system integrators, particularly those focused on larger business process transformation practices. Interestingly, these trends are bigger in Europe and Asia than they are in the U.S.

Q. Where is the contact center in this trend?

A. The contact center started out as a discreet function within most companies, but we’ve seen this distinction blur over time. While there may still be physical places to accept and make calls, the technology is being pushed into front office and back office applications where traditional contact center technology was not located.

Q. How will the next generation of contact centers be built?  Will they ever be built using Open Source? 

A. Open source contact centers just aren’t viable for everyone today. Genesys sells its products in the very contact centers that enterprises view as most strategic, and so far we haven’t seen heavy utilization of open source software.

Q. As the COO of a global enterprise software company, do you view globalization as more of a threat or an opportunity?

A. Globalization will always be both a threat and an opportunity, but I believe it’s more of an opportunity today. Globalization provides an opportunity to radically change the cost structure of services and, in turn, deliver new services. A lot of people feel threatened by globalization and see the pie of services as fixed - when in fact it’s evolving. Changing the cost structure and driving costs down actually makes it more economical to provide new services. This is particularly true in the software business, but I have to imagine it is true for companies in other industries as well. Additionally, globalization allows Genesys and other companies to provide value to their customers. In the near term, enterprise software companies will need to provide more tools to allow the seamless management of services around the world.

Q. How do you see China factoring into software globalization and what are your thoughts on its future economic development? 

A. China is evolving very quickly. There is a very dynamic market in China already and businesses are investing very significantly in infrastructure. They may have a rather insular market today but business leaders in the region realize that over time, companies will need to go beyond their domestic market. We started to see this with the acquisition of IBM’s PC business by Lenovo. But other companies in China are starting to look at outside technology to help provide a level of customer service comparable with the western world as well. What makes our product suite attractive to most customers is the return-on-investment they get from reducing costs. Companies in China don’t value this as much because labor rates there are so much lower, so in China our value proposition must be entirely on the customer satisfaction side. We’ve gotten a lot of feedback about our products from the banking sector in China because they want to build state-of-the-art banks and to do so they have to be state-of-the-art in customer service.

Q. Where do you see the next generation of contact centers being built?

A. We are driving hard to support a virtualized contact center where businesses can utilize resources wherever they are most appropriate. Today it may be important for spoken interactions to have a local presence in the United States to better understand the accent, but more labor intensive interactions, such as answering e-mail, can be sent to India, China or elsewhere - wherever inexpensive labor is provided. It depends on the customer is trying to achieve, and of course, the demand will shift over time as competencies build up. Historically, Indian contact centers focused on offering low value-add calls, but low-cost countries are not going to be low-cost countries forever. There is significant labor price inflation for quality employees in India and China, and over time, we’ll see the emergence of other low-cost alternatives in the market. We chose not to enter the Indian market two years ago because we sell based on the value of our software, not on a competitive price model. We’re seeing a shift in this trend in India, however, as these organizations look toward investing in technology as the key to continued market leadership and greater success. In December, Genesys opened its first office in India and closed its first deal within a month.

Q. Are major technology shifts like VoIP affecting software globalization and are there any other technologies that you think will have a major effect on the software industry?

A. One trend we see is that customers are first trying to tackle mobile solutions, then distribute that information throughout the enterprise across divisions and geographies. That was always possible with traditional telephony (pre-VoIP), but VoIP facilitates that in a number of ways. First, VoIP dramatically lowers the cost of transport. A voice self-service product can be located anywhere in the world as long as it is connected to a good IP network and anyone logged onto the network has the same level of access to that service. Second, VoIP dramatically lowers the entry barriers for certain types of applications. In traditional telephony, to connect a voice switch to an application with a CTI link has a “real” cost, while not expensive. This connection makes sense in large and medium-sized offices. However, in a small office such as a bank branch, it isn’t necessarily cost effective to put in CTI links. With VoIP, the incremental cost of addressing a single individual is zero so long as he or she has access to the network. Once those barriers to entry are removed, you can have truly virtualized companies where people can work together anywhere in the world.

For more information about Genesys and to hear the entire interview with Paul Segre, please visit www.genesyslab.com.

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Paul Segre is the executive vice president and chief operating officer at Genesys, responsible for operational management of sales, customer services and marketing.

An Interview with Accenture's Paul Nunes

We interviewed Paul Nunes, an Executive Research Fellow at Accenture's Institute for High Performance, to find out why most of what we thought about marketing to consumers, the nature of wealth, and economic distribution was wrong.

Q. In your book, Mass Affluence, you describe a whole new way to look at consumers that flouts almost a century of conventional thinking and the opportunities its creates. Could you give a few of the data points from the first chapter of the book that you regard as most significant?

A. Certainly. The key point to understand is that the mass market as traditionally defined no longer captures the majority of income in the U.S. In 1970, the 87% of all households that earned less than $65,000 (in year 2000 dollars) took home 68% of all household income. They were the mass market both in terms of number of households and percentage of total income. But by 2000, the 70% of households that were earning less than $65,000 were taking home only 37% of total household income. In other words, a large percentage of the population had vacated the middle in those years, moving up to significantly higher incomes. In the process they changed the balance of which households hold the majority of total income. So companies that continue to target what they think of as the middle-income American are missing opportunities to capture part of the 63% of income now being earned in more affluent households.

It’s also important to debunk the myth that top earners are also top spenders. In the mid-1980's, according to the U.S. Dept. of Labor, the top quintile of households by income was spending roughly 74% of its income on consumption.  By 2002, however, this percentage had steadily declined to roughly 66% of total income.  If expenditure by this top quintile were still at 74% today, there would be well over $100 billion of additional spending on consumption per year in the U.S.

When marketers consider these trends along with the deflation that has affected many key categories of spending, they should see a tremendous opportunity for business growth-- if they know where to look and what to do to unleash this reserve of spending potential.

Q. How has deflation affected consumer spending habits, particularly the amount of discretionary income households possess?

A. Deflation has played an important role in allowing the masses to enjoy higher degrees of affluence by reducing the amount of income needed to support the essentials of life, freeing the rest of a household’s earnings to be spent on discretionary purchases. This “trickle up” effect frees money to be spent on newer, more innovative products and services. The effect has had a dramatic impact on consumption in the past 100 years. For example, real prices on food, clothing, and shelter have declined so dramatically over time that these categories of essential consumption now make up only 47% of the total outlays of the poorest quintile of earners in the U.S., down from a whopping 70% in 1920. As a result many more consumers at almost every income level now own what were once luxuries, from refrigerators to dishwashers to cars with air conditioning and sophisticated stereos.

In fact, research from Northwestern University demonstrates that the effective flow of innovation in the marketplace depends on having both an effective trickle-up effect and the right balance in the distribution of incomes. Gaps between earnings levels can prevent products and services from crossing over into lower-income markets, because the natural cost improvements companies make to attract larger markets stop occurring. One example of a gap being filled to increase the flow of innovation is found in the increase in fractional ownership and the time sharing of private jets, driven by the growth in “minor” millionaires—people who are moderately wealthy but not super rich. Even though private jets have been around as long as air travel itself, the result of crossing this earnings-level gap is that companies are now experimenting with “air taxis”—private jets that leave from small airports and can provide seats at a price very near the cost of the major carriers—which will make  private jet travel available soon to an even greater number of non-millionaire households.

Q. Your research seems to contradict the received wisdom of a century about consumption. Does this mean Thorstein Veblen’s theories of conspicuous consumption no longer apply for millions of potential consumers?

A. Our research actually supports, and was actively informed and enhanced by, academic knowledge of consumption and consumer behavior. Though Veblen was responding to the increasing affluence of his time, for a number of reasons he focused his attention on only one reason for consumption: social comparison. We know of at least five others, including identity creation, the need for mental stimulation or novelty, the desire to have a consistent level of quality in our possessions, the benefit of an increasing degree of specialization of our possessions, and the desire to benefit from new infrastructures, such as broadband communications today. Each of these is a powerful force driving individuals to consume, and each is enhanced and changed by mass affluence.

Throughout the book we highlight where we see these changes coming into play. One example is the increased search for highly tailored, specific goods. In the chapter on that topic, we demonstrate that a combination of conspicuous consumption, an appreciation for specialization, and the need to create a new personal identity is compelling, for example, non-hunters to buy expensive hunting jackets and couch potatoes to buy triathlon watches.

Q. Is there a malaise in spending?

A. Yes, in two senses of the word. There is a shortfall of spending among the most affluent households, though there is no shortage of spending among other households. Research shows that increases in wealth and income, confidence in the future of that income, and increases in access to credit lead to increased spending, but only up to a certain income level. After that, the value of even more consumption diminishes and the desire to become even wealthier kicks in. Many more consumers are hitting that point, and it is those consumers who represent a great opportunity for marketers.

There is also another type of spending malaise which deals with the quality of what’s bought and the enjoyment consumers derive from it. Are people really happy with their purchases, or is there an opportunity to help people replace what they are buying now with fewer, better goods and services? Our survey data showed us that consumers say they prefer to buy one high-quality item they value rather than multiple lesser goods. Today we opt for multiples of everything as a result of affluence. We buy second homes, second cars, and five pairs of shoes a year on average. One golf magazine’s subscribers own an average of five putters. While there may be benefits to owning multiple versions of similar products—in instances where specialization matters, for instance—we believe much of this spending could and would be consolidated by consumers to buy offerings they believe to be better, if only companies were innovative enough to create such offerings.

Q. Why are people not satisfied with traditional luxury goods?

A. It’s not really a dissatisfaction with luxury goods—this past holiday season was most profitable by far for the luxury goods makers—it is dissatisfaction with the missing middle tier of goods, those in the space between luxury and everyday. We call this space the “new middle ground” and believe marketers should focus on reaching the large number of consumers who recognize their own need for goods and services in this territory. Our survey results informed us that consumers feel they often must choose between offerings that cost less than they are willing to spend, but which don’t fully serve their needs and desires  and offerings that are too expensive for them. This was true for a wide range of product and service categories. One company that has created the kind of offerings that address this dilemma and seize the new middle ground is Procter & Gamble., Its Whitestrips line, for example at roughly $35, satisfies the new middle ground of tooth whitening between $7 high-end toothpastes and $400 dentist office treatments And its $7 Spinbrushes have found the middle between $3 brushes with angled bristles and $100 rechargeable units.

Q. Has wealth become just another consumer good?

A. It really always has been, and recent research confirms this. What was found, and it should concern marketers, is that once a certain level of income and consumption is reached, wealth creation increasingly becomes the most attractive consumer good. No researcher is exactly sure why this is, though many theories—such as the desire to save money for a rainy day and the hope of building a dynasty of wealth for future generations--have been disproved. All that is clear is that as income increases, pure consumption struggles versus savings and investment spending, a topic we address in one chapter that recommends infusing investment elements into a company’s offerings. For example, health- and education-related offerings are some of those that have done the best in terms of sales in recent years, at least partly because consumers see such offerings as investments in themselves. Laser eye surgery and tutoring centers are just two offerings that demonstrate this principle.

Innovation is critical to combating the idea that wealth is a consumer good, particularly innovation targeted at higher price points and income levels. Already some interesting innovations are occurring at the high end of the spending spectrum. For example, some companies are actively exploring the sale of space travel. These trips started at $20 million for a ride to the space station recently, but they are expected to come down quickly to less than $100,000 a flight (and someday as little as $10,000). Space flight may be the perfect chance for the affluent to use some pent-up wealth for a once-in-a-lifetime splurge. Millions of others, however, are already going under the sea and up in balloons on expensive adventures to live out their dreams. Marketers must actively seek ways to raise the value proposition of their offerings well beyond the quotidian if they wish to capture this new type and level of discretionary consumption.

Q. Is it more work to sell to those who have much or those who have little?

A. Both can be challenging for very different reasons. What is clear is that those who have the most money have the most to spare and are best prepared to give companies the price premiums they desire for their innovations. Significant growth can only come from volume or price improvements, and often a small number of high-price, high-margin sales can make all the difference. Take black car service in New York City--those chauffeured cars that take people to the airports and elsewhere. These services take in more revenue in a year than all the taxis in New York do, even though they are used far less than the cabs.  They are a perfect example of the new middle ground in luxury automotive travel, in this case between the luxury of having a personal chauffeur and the everyday experience of paying for a hair-raising cab ride.

Q. Is the phenomenon of Mass Affluence limited to the United States?

A. Not at all. Our research finds the same trend occurring today in China, though on a smaller income scale. We also see it happening in many other countries, including the United Kingdom and India. While in some places it corresponds to a rise in a previously small middle class, the marketing changes these developments require are the same as those needed to take advantage of conditions of mass affluence.

Q. How can companies take advantage of this opportunity?

A. There are of course seven rules we think companies ought to follow, but they come down to three overarching changes that companies must consider. First, companies should rethink the positioning of their offerings; they should seek specific price points even before they know what the offerings are. Second, they should enhance existing offerings and create new ones along three dimensions: new usage contexts, new payment methods and ownership models, and value propositions that include the concept of investment. Last, they must go to market differently, flipping the retail concept so that their channels think in terms of retailing going to the customer rather than retailing as a destination, and then modifying promotion, advertising, and public relations tactics to better serve affluent consumers with new mass marketing techniques.

Q. Will you be speaking about this at Siebel Leadership Council on Amelia Island?

Yes, and I am really looking forward to it, as this is a topic I think has tremendous relevance for the audience. I also look forward to it because the topic tends to promote really great dialogue in the question and answer portion of the session, something I really enjoy.

Good. I look forward to learning a lot more about this subject in Florida.

About Paul Nunes

Paul Nunes is an executive research fellow in the Accenture Institute for High Performance Business, where he directs research on marketing strategy and related topics. His research focuses on the impact of technology on marketing practice and consumer behavior. The results of his research and his frameworks have been used extensively in Accenture’s strategy work with clients. During his eighteen years at Accenture, Nunes was a founding member and helped establish the firm’s Institute for High Performance Business, and before that the company’s Technology Assessment Group. He is the author of numerous articles appearing in leading management publications. Mr. Nunes’ latest book is entitled, Mass Affluence: Seven New Rules for Marketing to Today’s Consumers.