There are three ways to grow profitability (in order of popularity):

• acquisition;
• development; and
• retention.

Thomas Cates, founder and president of consultancy The Brookeside Group, argues that the order is all wrong. “They’ve got it backwards,” he said (“They,” I presume, is your typical, sales-hungry business). CRM is “too often about technology, too often about big systems.” Cates is doing something bold — he’s putting the “relationships” back in CRM.

He highlighted the expenses of one company that spent the first third of its year paying for the costs of customer attrition, which he analogized to trying to fill a tub without a plug. “Plug the leak!,” he told the audience this afternoon at our CRM Evolution conference in New York this week. “Focus on retention first, then getting upsell and cross sells, then worry about new business.”

Satisfaction was the old standard — you fulfil your task, satisfy a customer, but that doesn’t guarantee consumer loyalty. With so many choices (50,000 products in your average supermarket! 300,000 products in your average Wal-Mart!), why would consumers ever tie themselves to just one vendor?

Cates describes the characteristics of any loyal relationship. They:

• exist to meet each party’s needs;
• are based on perceptions, not reality; and
• are dynamic, always changing, and naturally drift apart.

Basically, if you really want a loyal relationship, he said, “get a dog.”

The Brookeside Group developed a Sales Intelligence System to measure “aroused motivation,” which basically helps you determine what stage on the relationship spectrum a customer is in his or her interaction with you, and how, depending on where the customer is, what you need to do to “arouse” them into action.

The system is broken down into six dimensions:

• Integrity (satisfier): Are you a company I can respect?
• Competency (satisfier): Are you (the company) skilled in what you do?
• Recognition (motivator): Have you (the company) done something that makes me (the consumer) think my business is important to you?
• Proactivity (motivator): Are you looking out for my best interest?
• Savvy (motivator): Do I think you know my (the consumer) business?
• Chemistry (motivator): Is our communication pleasant? Do I look forward to working with you?

On the other side of the equation, is the consumer Loyalty Index (ranked based on descending degrees of loyalty):

• Loyal (a vocal advocate)
• Value-added
• Transactional
• Antagonistic (a vocal detractor)

Cates argued that consumers with high “aroused motivation” exhibit significantly higher conversion rates compared to those with low around motivation, exhibiting behaviors such as:

• 9x more likely to be responsive to a call;
• spend 2.5x more; and
• 4x greater retention rate.

“Companies don’t have relationships,” Cates emphasized, “people do.” Success is ultimately dependent on getting the right information to the right people (i.e.,  sales, marketing, or customer service), at the right time, so that they can best serve your consumers. To that extent, he added, “Departments can’t fix relationships. People do.”

[Editors' Note: We posted on Oracle/Sun earlier this morning, and will have a news story up shortly here's Lauren McKay's news story on the acquisition.]

Ahh, what to make of this? Good? Bad? Creative destruction? All of the above? Probably. Of course, it’s too early to offer more than a few prognostications but that’s what’s so much fun about this.

First, Sun’s shareholders got a dime more per share than the IBM offer — $9.50 versus $9.40 – Whoo-hoo! Seriously, a dime over millions of shares is a lot of money — think about a good weekend in Vegas.

More seriously, the deal complicates Oracle’s relationship with Dell and HP, which Oracle has courted aggressively recently. Last September Larry Ellison introduced the Exadata — part storage array part computer — built in cooperation with HP to provide orders of magnitude better support for terabyte and bigger databases. A good idea. But now where does the budding relationship with HP go?

On the other hand, I wish I had one of those extra dimes for every Oracle database that was sold on a Sun box over the last three decades. Sun’s customers are Oracle’s customers — but the same can be said of HP.

More after the jump…

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Here’s Lauren McKay’s news story on the acquisition, We’ll have more on this later, of course — over on destinationCRM.com — but for the time being, here’s the skinny and below are some relevant links and excerpts.

• Oracle’s own press release. [Note: Oracle's servers have been returning error messages for this.]

In case the problem’s persisting, here’s that same press release, carried on an aggregator site.

Sun Microsystems, Inc. (NASDAQ:JAVA) and Oracle Corporation (NASDAQ:ORCL) announced today they have entered into a definitive agreement under which Oracle will acquire Sun common stock for $9.50 per share in cash. The transaction is valued at approximately $7.4 billion, or $5.6 billion net of Sun’s cash and debt. 

“The acquisition of Sun transforms the IT industry, combining best-in-class enterprise software and mission-critical computing systems,” said Oracle CEO Larry Ellison. “Oracle will be the only company that can engineer an integrated system – applications to disk – where all the pieces fit and work together so customers do not have to do it themselves. Our customers benefit as their systems integration costs go down while system performance, reliability and security go up.”

There are substantial long-term strategic customer advantages to Oracle owning two key Sun software assets: Java and Solaris. Java is one of the computer industry’s best-known brands and most widely deployed technologies, and it is the most important software Oracle has ever acquired. Oracle Fusion Middleware, Oracle’s fastest growing business, is built on top of Sun’s Java language and software. Oracle can now ensure continued innovation and investment in Java technology for the benefit of customers and the Java community.

Let’s face it — the economy is a mess. Cost of living is up, stock shares go on hourly roller coaster rides you normally have to wait in line for hours to ride at Six Flags, and now people are trying to figure out how to buy gifts this holiday season while still being able to keep the lights on. In sum, consumers are impatient, perturbed, and trying to find exactly what they need when they need it.

For companies, this means personalization — and St. Louis-based customer experience systems provider Amdocs is looking to meet this growing need, particularly in the mobile phone world with its acquisition of Dublin, Ireland-based ChangingWorlds for $60 million, which is expected to close during Amdocs’ fiscal quarter ending December 31.

ChangingWorlds’ mission, according to its Web site, is to “pave the way for all types of personalized information services over mobile, from personalized portal navigation to smarter search and highly targeted mobile advertising to ensure that mobile subscribers enjoy content and services that are relevant to their true needs.”

Judging by the fact that the term “mobile” is mentioned three times in a single-sentence statement, ChangingWorlds is focused on that customer touchpoint. However, James Patmore, vice president of EMEA and Asia Pacific for Amdocs stresses that this move is not solely for the sake of mobile content. “This is about adding relevancy and personalization for all of the touchpoints a user might have with a service provider,” he says. “One is mobile, but others can be with a customer management team in the call center or the experience they might have purchasing [or updating] a service plan by using the online portal. ChangingWorlds’ business is really an expansion on what we bring to personalization technology.”

Elisabeth Rainge, director of next generation networks operations at Framingham, Mass.-based global market intelligence firm IDC, believes this is a smart move for Amdocs. “It’s about expanding the reach of the [the customer experience systems provider's] platform and providing more value to the consumer by being responsive in the way the subscriber prefers to interact,” she says. “It’s a bigger competitive footprint for Amdocs … but one with more values for [its clientele].” Rainge sees this as a largely technological acquisition, and as a result expects ChangingWorlds’ capabilities to be integrated into Amdocs’ core assets.

Consequently, Patmore does not foresee any massive layoffs and believes this is a way to also expand ChangingWorlds’ — there are no plans to change the company name at this point according to Patmore — competitive footprint. “This is an accretive acquisition,” he stresses. “The people are the key assets and we expect to assimilate all the employees into our organization.”

Rainge believes this move is well-timed and will force Amdocs’ competitors to rethink how they are providing personalization. “This shows [the company] is paying attention to the subscriber which is so important because sometimes the discussion becomes one of efficiency,” she says. “The kind of challenge operators face today in this economic climate is that they need to touch their customer as best they can with as rich an experience and reliable system possible.”

Epicor Software is one of those companies that, in hindsight, we probably haven’t covered often enough—we certainly don’t play favorites around here, but it’s not always clear why some firms make it onto the radar screen more often than others do.

Yesterday, though, Epicor publicly—and, to be honest, a little coldly—confirmed receipt of a $9.50-per-share offer from Elliott Associates, a roughly 20 percent premium over its previous closing price. So I’m reminded that there’s a massive, healthy, robust CRM industry out there, and we have to be vigilant in keeping tabs on it.

Irvine, Calif.–based Epicor has certainly paid its dues—founded in 1984, it’s been around longer than the CRM industry itself. (Click here to download the PDF of Epicor’s Fact Sheet from the company Web site.) According to the company’s press materials, Epicor was named one of Fortune magazine’s 100 Fastest-Growing Companies in 2006, and serves over 20,000 customers in more than 140 countries—but it isn’t simply a CRM provider; in fact, Epicor boasts of its “integrated enterprise resource planning (ERP), customer relationship management (CRM), supply chain management (SCM) and professional service automation (PSA) software solutions,” and there’s no immediate sign of what share of its customer base is utilizing CRM.

But where has it been hiding? Eight years ago, for example, our longtime friend Chris Selland (who was at Yankee Group at the time) was quoted in our magazine [before my time; I'm just accessing archives] as saying that Epicor was one of the best-kept secrets in the CRM industry: “If it can get its marketing act together, the company has a great integrated front/back office offering for the mid-market and could finally present a real challenge to Pivotal and Onyx.” [More after the break.]

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