Why Did SAP Just Spend $8bn on Qualtrics?

James Allworth
5 min readNov 16, 2018
Qualtrics CEO Ryan Smith and SAP CEO Bill McDermott

The Qualtrics acquisition by SAP represents the third largest sale of any SaaS company in history. One of the largest players in enterprise software just purchased a company in a space — Customer Experience Management (CEM) — that you’ve probably never heard of.

But despite you haven’t heard of it, this deal actually has the opportunity to fundamentally alter the way that organizations get managed. ERP systems have traditionally focused on sensing data inside an organization — inventory, processes, financials. Customer Experience Management (CEM) systems shift that focus from the inside, to the outside.

Back to the customer.

Imagine, if you will, a typical employee walking in to a typical business — if either of those existed. After they’d sat down, perhaps with their coffee in the morning, what do you think the first thing is that they’d look at?

They might start with email. That’s people reaching out to them; perhaps customers, suppliers, direct reports or managers. That might give them some sense of burning issues but, as a system, it’s not going to give them much more direction for how to spend their day than the paper mail would have helped an employee 20 years ago. If they’re a salesperson, perhaps they’ll log in to a Customer Relationship Management (CRM) system and check the status of any key accounts they’re chasing.

But beyond that? Despite the fact we’re decades — decades — into the IT revolution, there’s no real system that a frontline employee can use to get a real pulse on the business they work in. Or to give them individual guidance on what they should be doing, or doing better.

To understand why that is, we need to go back fifty years to the start of the ERP revolution.

The emergence of ERPs last century was borne out of a simple problem: the need to track the flow of financial information across a company. It seems almost impossible to imagine now, but if you go back fifty years to when SAP was founded in 1972, most businesses were run using pen and paper. Closing the books was not done with a press of a button; getting a timely perspective on the performance of a business was challenging.

ERPs presented a salve to this problem: anyone inside an organization could get an up-to-the-minute perspective on the flow of money and inventory across a company. Compared to how things were previously done, this was a revelation.

Unsurprisingly, this data was immensely useful to managers. They soon began to rely on it not just as a record of performance, but as a system of management. Given the past we were coming from, where technology wasn’t used in management at all, it was incredibly powerful. Management accounting systems emerged to offer insight into the efficiency of operations. Of the status of inventory. Revenue could now be tracked down to the dollar. And, perhaps most importantly of all from the perspective of executives — they could immediately see profitability — and the financial levers that impacted it.

But this focus on dollars came at a cost: myopia.

Peter Drucker, widely considered the father of management, once said, what gets measured gets managed. And ERP systems were ensuring that it was the dollars that gets managed. The problem with this? Well, Drucker had another famous saying:

The purpose of business is to create a customer.

Dollars might be correlated with customers, but they’re not the same thing.

The emergence of Customer Experience Management represent the best attempt at untangling of these two concepts in terms of systems inside an organization.

What do I mean by this? Well, perhaps the best articulation of it comes from Tim Cook:

“We’re not focused on the numbers. We’re focused on the things that produce the numbers.”

But perhaps the best example actually comes from another tech sector. Compare the experience of riding in a taxi with riding in an Uber or a Lyft. On one level, they’re much the same: a driver, a car, and a passenger. And yet the experience of being a passenger in a ride share is completely different from that of a taxi.

Why is this?

It’s not that Uber and Lyft drivers exist in a utopian world where they no longer care about money. They care just as much as the driver of a taxi does. Instead, the difference is that one organization tracks the flow of dollars, much as business always has. The other organization tracks this as well, but has put in place another system — one that tracks the quality of the experience of the ride that you’ve received with the same level of granularity typically reserved for financial data. For a driver to continue to work on the Uber or Lyft network, they have to maintain a certain rating.

The companies don’t prescribe how the driver does it; they just tell the driver they need to deliver a great customer experience, and then ask the passenger how the driver did. And this, at its essence, is what a CEM is. Ask for feedback. Collect it. Manage it. Get it back to the person who was responsible for giving the experience.

By putting in place a system like this, the system creates a shift in priorities in an organization: the drivers not only care about the dollars, but they also care about the quality of the experience that is provided.

In other words: this is a system to ensure that the frontline is executing on their core mission as a company — which is not about making money. It’s about serving their customers.

This shift in perspective has been a long time coming. But it is why I’m so excited about this acquisition: within Customer Experience Management is the possibility to refocus business back to what matters most. And SAP just made an eight billion dollar bet on it.

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James Allworth

Co-host @exponentFM, Co-author @MeasureYourLife, Fellow @ClayChristensen's thinktank, writer @HarvardBiz