NT: Please tell us about your company and your type of business.

MF: KANA Software provides an integrated suite of software applications that helps companies manage their customer service channels, including e-mail, chat, telephone and Web self-service. The core applications in this suite are KANA IQ, KANA Response and KANA Response Live. These are well established products in the marketplace that are generating tremendous results for over 600 companies worldwide, including almost half of the Fortune 100. Our technology enables very successful interactions between our customers and their customers, regardless of channel, so that businesses can foster loyalty and satisfaction while reducing costs.

NT: That’s impressive. What would you say is the greatest challenge your company is facing?

MF: The greatest challenge, I think, would be the perception of CRM in the marketplace. This perception had been generated because CRM systems have historically taken a very long time to implement. Businesses moved a little too quickly in attempting to implement very large CRM strategies, and have been turned off by the upfront costs and disappointed by the returns. ROI calculation is an extremely important factor, as well as business value and time-to-market, and a lot of CRM solutions haven’t offered that to clients. KANA’s success has come from the fact that our technology is a subset of the CRM space focused on managing customer service channels. Our customers typically take a more systematic approach to implementing our technology: taking on their e-mail problems first, for example, and then moving into chat and Web self-service after they’ve seen success. We think that’s why we have such a large and happy customer base.

NT: We also share with you the view that CRM has not had a good, positive perception. In the last three or four years, I’ve written a number of editorials explaining that, and all the reasons behind it. I’m glad that you share that view with me. Sometimes, when these new technologies come up, people jump on the bandwagon without knowing what they’re doing, and the salespeople promise greater things that could come from CRM adoption; it doesn’t happen, and everybody’s disappointed.

MF: Absolutely. I think a lot of companies that implemented CRM solutions didn’t think about the fact that it also required cultural and business changes within the company and how they approached their customers. In some cases, it required different skills within their call centers that they didn’t have. Technology is never a panacea on its own in solving a significant business issue. It’s a great tool and vehicle for solving it, but it requires extensive personnel training and development to make it work, and a commitment from the leadership of the company.

NT: I couldn’t agree with you more. Again, I’ve written a number of editorials saying that it’s the people and the training that’s really going to make it successful. People don’t understand the technology, they don’t know how to use it properly and they don’t have the right skills. It won’t work that way.

MF: I know from reading your editorials over the years that you absolutely believe that, and it’s an important criterion. For those of us who have been in the business a long time, success comes when a corporation internalizes the business benefits of technology and there is executive-level sponsorship. It almost never works when it’s just an issue for solving something at line management and the company doesn’t view it as being strategic.

NT: I agree. In your opinion, what is the greatest need of our industry?

MF: In the customer service software market, we think it’s a combination of an integrated, multichannel approach to customer service, as well as highly scalable applications capable of supporting this environment. We think those elements are very important in combination. You can’t support only one channel of access to your customer. Rather, you need to support all the channels in an integrated approach, so that when a contact center agent is responding to a customer, that agent has at his or her fingertips all interactions with that customer regardless of whether those interactions came from e-mail, chat sessions or Web self-service — it’s all available to the agent. To do this effectively on an integrated basis, you must have systems that are highly scalable. Frankly, we think we are the leader in offering highly scalable, enterprise-class, multichannel customer service solutions.

NT: Could you share with us some of the new developments at you company?

MF: Certainly. The first thing we’re doing is streamlining the company and maintaining better focus around our strengths and our dedication to our customers. Some years ago, this company made a decision to offshore the development process for its core products. In December of last year, I made a decision to bring product development back onshore — we call it “backshoring.” We’ve done this to be more nimble, more flexible and to drive more product innovation. By combining our development organizations into one entity, we believe we’ve gained in communication efficiency and in teamwork. In an offshore environment, where you have your programming done where your architects aren’t, you tend to lose more time-to-market and frankly, it tends to cost more because you need more oversight and management of the process. So, we brought ours home, and we’re hiring in Menlo Park [California] and in Manchester, New Hampshire. Through that, we’re developing a much more efficient and focused team to continue to deliver the best technology on the market.

NT: You used to offshore or outsource your development before now, and you have brought it back to the U.S.?

MF: Yes. We outsourced it to Asia, and it just wasn’t working for us in terms of cost, efficiency and time-to-market. By “backshoring” it, we’re starting to see those relative gains take place. Actually, it reduced cost. I think with outsourcing, companies have looked at only one layer of the problem: the fact that an engineer in India, for example, costs significantly less than the equivalent talented engineer in California. There’s no question about that; the cost is less by a magnitude of three to four times. However, when you add all the other associated costs, such as communication, oversight, additional quality assurance and documentation, and the time-to-market issues you create by separating the architects from the programmers, you end up spending more time and almost as much money, and you don’t meet your time-to-market goals.

NT: You’ve hit on an issue that is very close to my heart. On the call center side, a lot of people are disappointed with offshore outsourcing and coming back to the U.S. We continue to get complaints about what is happening offshore.

MF: Another factor is turnover. There is tremendous turnover taking place in [outsourced] organizations. Since these are not your employees, it’s very difficult to manage and control turnover. With your own employees, you can manage that turnover better. I’m not against globalization, and I’m not against large companies that have established offshore entities for development with their own employees. But for a company of our size, where our mission is to deliver the best and most complete solutions for customer service, we’ve done the math, and it costs us no less money. But we’ve lost a lot of time to market.

The other major new development in the company is our shift toward more of a sales- and marketing-focused culture in the company. This company has a long history and has been successful in developing a strong customer base, but what we didn’t have was a sales and marketing focus. We had very few sales people. We had no concise and organized marketing campaign. We’re now really starting to figure out how to do real marketing for the company.

NT: As I’ve said in many editorials, many technology companies love to develop a better mousetrap only to find that the mouse died 15 years ago. They don’t know why the product doesn’t sell. They need to collaborate with the marketing department to find out if the market really needs this product.

MF: That starts with having a strong marketing department, which we really didn’t have before. So, we’re making these changes in the U.S., Europe and Asia. We’re branding KANA for what it is: the leader in highly scaleable multi-channel customer service solutions. We believe that no one else can compete with that message.

NT: How would you describe the current status of customer interaction and CRM in the business? We’ve touched on it, but would you like to make any other comments?

MF: There’s a tremendous opportunity still. We’ve both been in this business for a while, and seen a lot of different cycles. I believe this whole customer service world within CRM is in a cycle similar to what we saw with the relational database market. In the early days, there was a lot of money spent, but few results. Then, over time, companies began to realize how to get results by having a relational environment. It began to change platform types, and before we knew it, that market skyrocketed because there was real business value generated by the implementation of relational database management. I think we’re going to see a similar cycle with the customer service world of CRM. We started off with a bang. A lot of companies spent a lot of money. They didn’t get the value for that money back. But now, as they’ve started to settle and they start changing the organizations in order to match them up against the technology, they’re starting to see the business value. The vast majority of our customers can now tell you how they are gaining specific business value from the implementation of our technology. Not just technical value, but how they are increasing productivity by 70 percent among their call center agents. How they’re reducing their average hold time and average handle time for customers by 50 or 60 percent. How they’re improving their sales to customers who have had a service call, because the service call experience was so good. Those value points are now beginning to get recognized, and I think it’s going to cause an explosion of utilization of this level of technology in the market in the future.

Productivity improves two ways. If you have knowledge and you give the agent easy access to that knowledge, then you reduce your training time. The other is the multichannel element; so, our customers using both our IQ and Response products, for example, are finding that the multichannel environment gives their agents information more quickly and completely about the customer interaction.

NT: What is your vision for the future and trends in our industry?

MF: It starts with a particular premise that we have. I call it “the commoditization of everything.” There are so many product types and markets in global business today that are now commodities that didn’t use to be before. Or, there are new markets that customers treat as commodities. I have an example. If you’re interested in a mutual fund, how would you, as an individual…an average person...discern the difference between Vanguard and Fidelity? I think, frankly, that there are only 50 people in the world who could discern the difference, and since Alan Greenspan retired, there are now only 49. So why would you buy Vanguard? It’s the customer service, not the product. How does Vanguard treat you and give you information, and how do you communicate with them? All those things are going to determine whether you’ll do business with Vanguard for mutual funds. It’s not going to be the mutual fund, because you can’t really tell the difference. We think that this “commoditization of everything” is permeating significant markets. Look at the telecommunications market, particularly now with the advent of being able to move your number in the cellular space. Why would you stay with Verizon versus Cingular? Certainly the network is important, but all of them are reaching a point of [parity in their] network capabilities, so it’s going to be about customer experience. We think that the trend for technology is: how do you improve the customer experience for your customer’s customer?

I call it my “Singapore Airlines experience.” In 1998, I had the opportunity to fly on Singapore Airlines first-class to Asia from San Francisco. It was a great flight...wonderful service. When I fly, I usually order a Virgin Mary to drink. I didn’t return from my trip on Singapore Airlines, and I didn’t fly them again until 2002. Once again, I was in first-class going to Asia. When I sat down in my seat in San Francisco, the flight attendant came up with a Virgin Mary in her hand and asked, “Mr. Fields...are you still having your Virgin Mary?” That is truly focusing on the individual customer experience. I think that in this commoditized world, that kind of personalization for customer interactions is going to be necessary, not just for a select subset of a customer base, but for all of our clients’ customers. That’s why, not only does the technology need to be multichannel, but it has to be highly scalable, as well. That’s the only way you’re going to be able to manage the amount of data necessary to support that level of customer interaction.

NT: Thank you for your valuable time.