Salesforce.com Pestel Analysis
Salesforce is a leading provider of cloud based CRM services and an innovative brand that has seen splendid growth in recent years. At the root of all this success lies a culture that values trust, equity, innovation and customer success. The company was founded in 1999 and now after it has turned twenty, Salesforce is the undisputed leader in CRM offering its services to companies of all sizes. It offers tools and techniques that help brands connect with their customers more efficiently in an all new way which drives higher customer engagement. Revenue of the company shot past $13 billion in 2019, increasing by 26% compared to the previous year (Salesforce Annual Report, 2019). Now the company is targeting to double its revenue within four years.
Marc Benioff, the CEO of salesforce is known as a charismatic, passionate and innovative leader who believes that truly great companies care for all their stakeholders including its people, customers, suppliers, shareholders, the community and the environment. This is how he has managed to grow the positive impact of Salesforce exponentially. For several years consecutively, the company has kept winning rewards and recognition in several fields including technological innovation, service quality, customer experience, employee management and organisational culture. Customer success is an important focus area for the company and dedication to customer success is one of the core pillars of the business strategy of Salesforce. The focus of the organisation is also on constant innovation. Its range of products and services has grown a lot with time and the company is touching several industries and enabling success for a wide range of customers through its cloud solutions.
Political Factors :
Political factors are now playing a very important role in the context of international business and affect them to a large extent. These factors constitute both risks and opportunities and must be considered for the purpose of strategy making. Changes in the political picture bring new opportunities and risks for companies and require them to stay ready. Political factors can create uncertainties which make it difficult to predict upcoming trends or analyse the business environment. Salesforce is based in the United States. However, it has also acquired several overseas businesses and offers its services abroad to a large segment of customers. Managing growth amid political uncertainty is challenging and requires focus upon your core business strategy to emerge successful. The influence of political factors is not limited to physical businesses only but instead all major cloud players including Amazon, Google, Oracle and Salesforce are facing this challenge. Brexit has also created some uncertainties that are affecting the fortune of businesses operating in the United Kingdom.
For better results companies need to quickly adapt to the changing political circumstances and that can be possible only with a strong business model. The fast growth of Salesforce over the recent years has proved that the company has a strong business model and to grow faster it will need to sustain its focus upon customer success which will help it overcome the biggest barriers to growth. Tax environment in various nations is also evolving and creating difficulties for domestic and international brands. Another major challenge is related to the regulatory frameworks developed by local governments which are mostly developed in a manner that benefits the local businesses against international. In the Asian companies, doing business locally is generally difficult if you have not entered into a local partnership. In several markets, Salesforce delivers its services through local partners. Meeting the local requirements becomes all the more challenging in market regions with a controlled currency environment. In some of the Asian market regions, the legal and regulatory framework is so complex that companies trying to enter these markets cannot form a strong foothold without a local partnership. Regulatory framework in Asian and European markets is still evolving and is a major cause of ambiguity and conflicts which affects not just international businesses but the local third party resellers of these brands as well. Market growth requires a careful analysis of the local political environment and a strategy that can help businesses overcome the regulatory pressures.
As the technology industry continues to grow worldwide, governments are forming stricter laws in areas including privacy, employment, antitrust, data transfer, import, export and other areas. Europe has adopted stricter measures making it all the more difficult for technology enterprises both small and large to continue growing their operations in the European markets. Customer trust and strong image helps businesses control the risks arising from these regulatory pressures and maintain their growth momentum. However, while political factors have mostly created pressures, in some areas relief provided by governments has also helped bolster consumer confidence leading to higher consumer spending including in the United States market. The 2017 Tax cut worked to bolster consumer confidence. In this way, political factors seem to be driving higher consumer spending in the US. Resolution of the trade wars could also mean higher growth for both China and the US.
Economy and economic factors need a lot of attention in the current scenario when the political environment in several regions is creating higher volatility and ambiguity. The world economy’s performance in recent years remained steady and several regions including the United States have seen better growth. This has a direct effect on the business of local and international brands operating in the market. Together the political and economic factors affect the bottomline of any brand to a very large extent. Countering the effects of these forces requires focus upon the business strategy, innovation and top of all customer trends. Economic conditions affect the level of employment in an economy, its overall output and the ability of customers whether individual customers, small businesses or large enterprises to purchase new products and services. Main markets of Salesforce include the Americas, Europe and Asia Pacific. The American markets accounted for the largest part of the company’s revenue; more than 70% in fiscal 2018 and 2019. United States is the largest market of Salesforce and accounted for 96% of the company’s total revenues from the Americas. Improved performance of the company in the United States is also linked to the stable performance of the U.S. Economy. Economic growth in the US has remained stable over the past few years. According to Deloitte, tariffs and softened investment spending could lead to weaker economic performance in late 2019 and early 2020. A forecast by FOMC showed that the GDP growth rate will slow down in 2019 compared to 2018 and the trend will continue till 2021. However, while economic growth will subdue in 2019, a recession is still far from likely in the U.S. As per Deloitte, consumer spending has grown steadily in US even if business investment and housing market weakened. The main factor contributing to higher consumer spending was job growth. Even if the number of low wages jobs increased, it added to the purchasing power of the consumers and gave them the confidence that they could spend safely. Overall outlook for the United States economy looks good and if wages increase further that could give consumers extra confidence. United States being the core market of Salesforce, such positive economic changes affect its bottom line positively. The trade wars are currently the leading factor having a negative impact on the US economy and businesses. While the Trump government is exploring various Tax reductions, the negative effects of the tussle between the US and China are showing at various points in both the leading economies. While recession might be a possibility according to some analysts, the economic picture of United States looks fine since unemployment has hit a 50 year low in September 2019. For companies like Salesforce, there are still major growth opportunities hidden in the US economy as more and more companies, including big and small are turning to cloud solutions to control their operational costs.
Sociocultural Factors :
Sociocultural factors and their understanding is growing more important than ever for the growth of businesses. Society and culture are some important forces whose understanding helps businesses innovate their products and services according to local taste and create better customer experiences that fit with local culture. Several leading brands have proved it that cultural understanding helps market your products and services better and grow the customer connection stronger. Market penetration otherwise becomes challenging for businesses whether they are physical businesses like large retailers or online businesses like cloud services and CRM solutions providers. Salesforce has made several acquisitions and has operations in foreign markets also. However, the cultural and lingual barriers can become obstacles to selling your services online in distant markets. Local partnerships again come handy when you are selling in a market whose culture and language are complex for you or which are otherwise impregnable because of the local political and regulatory environment. Moreover, integrating operations across various societies and cultures can become difficult without understanding the socio-cultural environment of these markets. Salesforce has established a unified culture across its organization and building an open culture of collaboration has helped the brand integrate its operations seamlessly throughout all regions where it does business. This has also helped the brand project a better image compared to the other CRM providers, strengthen its core promise and helped it deliver its products and services consistently across all markets where it operates.
Technology and technological factors present major growth opportunities for businesses and in case of cloud brands like Salesforce, technological innovation is a central factor driving business growth. Salesforce is a leading brand of cloud based CRM software. The company helps enterprises both small and large to grow their productivity through technologies like cloud technologies, mobile technologies, AI and IoT. It offers a large range of cloud based services spanning sales, marketing, customer service and customer relationship management through a single trusted platform. The company has continued to grow its service range and introduced several new services for a large group of industries and based upon user roles, making it easier for various classes of customers to access the services they need. However, competition in the CRM industry is growing more and more intense. To find faster growth any cloud or CRM brand needs to build a strong source of competitive advantage. In the cloud industry, the core source of competitive advantage is technological innovation since the position of any brand can be challenged by an emerging disruptive technology. This is why Salesforce retains heavy focus on research and development. Each year, it has continued to grow its R&D investment. Research and development expenses of Salesforce grew to $1.89 billion in fiscal 2019 from $1.55 billion in 2018 (Salesforce Annual Report, 2019). However, Salesforce has also managed faster growth than competitors through acquisition of complementary products and services. Delivery of its CRM services requires the use of third party data centers located in various parts of the globe including the United Kingdom, the United States, Germany, France and other countries. In this way, the business model of Salesforce relies heavily on technology and innovation. With growing use of internet and cloud based CRM services, the business of Salesforce continues to expand into new regions around the world. Salesforce has augmented its competitive advantage by acquiring other brands that offer complementary services like Tableau and ClickSoftware.
Environment and sustainability continue to grow in importance in the context of international business, While the cloud industry does not have any major negative impact on the environment, still investing in sustainability helps brands manage a strong and responsible image in the society. The advantages of sustainability are not limited just to stronger image but many businesses have been able to reduce their operational costs by investing in sustainability. Salesforce has made sustainability a core pillar of its business model. Environment is a key stakeholder in its business model. Focus upon sustainability has also earned several awards and accolades for maintaining its focus upon sustainability. In 2018, the company was ranked at the second position in the Barron’s list of the 100 most sustainable companies. During the recent years, Salesforce has also made major progress in the area of sustainability, including the achievement of net zero greenhouse gas emissions and delivering 100% carbon neutral cloud services. Two of its towers in the Salesforce global headquarters are sourcing 100% renewable energy. The company has formed a special team called ‘Earthforce’ comprising of more than 6000 employees whose focus is to promote and celebrate sustainability at Salesforce. In the words of Suzanne Dibianca, EVP, Corporate Relations and Chief Public Officer, “At Salesforce, social and environmental impact is core to who we are as a company.” The focus of the company CEO is to grow Salesforce into a socially and environmentally responsible company. Apart from environment, Salesforce is also investing in the communities where it operates.
Legal Factors :
Law and compliance are now highly important for businesses operating internationally. In case of technology brands, legal compliance is even more important since around the world governments have stiffened the laws related to consumer privacy and data security. There are several laws in the US and EU related to technology, privacy and data security that can have an adverse impact on cloud businesses like Salesforce. Moreover, the legal framework in the US and EU related to services provided over the internet is evolving. Some of these laws are making it complex for online service providers like Salesforce to deliver their services in foreign nations efficiently and without any obstructions. While these laws are mainly to protect the interest of consumers, they end up hurting the bottom line of businesses. Moreover, as the legal framework across most nations is evolving, Salesforce needs to continuously watch and analyse the legal environment in order to avoid any court battle or penalty. The company has already invested in legal compliance with GDPR and CCPA. However, when it comes to meeting legal requirements, the best thing is to remain ready and watch so that new changes do not affect demand and sales. Data transfer from the EU to the United States has become difficult due to the complex network of laws like the ones requiring local data residency. There are some legal frameworks that support cross border data transfer including EU-US and Swiss-US Privacy Shield framework but these agreements too need to be updated and legal challenges to these frameworks are growing which can place additional burden on Salesforce. Costs of compliance add to the operational costs of the company. Other limits imposed by these privacy and data transfer laws and regulations also affect demand as well as use and adoption of Salesforce services. Staying compliant on the other hand helps Salesforce project a more responsible image and maintain demand and customer trust. It has also helped the brand stay clear of any major issues like the other online businesses including Facebook faced. Marc Benioff and Salesforce did several things right even if the leader could not foresee some changes which happened due to increased competition and growing legal scrutiny of cloud based services. Risks abound in the cloud industry and they include legal and socio-cultural risks. Maintaining demand and growth will also require Salesforce to watch how the legal environment across major markets is evolving.
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