Salesforce is changing tactics and pursuing wider profit margins after years of focusing on growth.
COO and president Brian Millham says efficiency is key as the company moves forward. This means downsizing teams (aka 10% of their workforce), integrating recently acquired companies, and relying on online portals and self-serve tools to facilitate customer acquisition.
Despite slowing growth and fastidious activist investors, Salesforce's shares surged 15% last week as it offered even more ambitious projections for profit margins than had previously been announced. Currently, the company is projecting a 27% operating margin by 2024. (For comparison, before last quarter, Salesforce had adjusted operating margins of about 19% over the previous four quarters. This was lower than competitors like ServiceNow Inc. (26%) and Adobe Inc. (46%).
Mr. Millham, having been at Salesforce from the very beginning, has watched the company grow rapidly, accompanied by a corporate culture of generous spending when it came to marketing and courting customers. But recently, he told The Wall Street Journal they would have to start approaching things differently.
“We think we can get smarter about the way we’re putting head count into the business,” he said.
The tech sector has been the site of massive layoffs recently, particularly Salesforce, which is in the process of laying off 10% of its workforce, and there are rumors of possibly more to come. Many employees feel wronged by the nature of these layoffs [we could link to our feature on that] especially given that CEO Marc Benioff has always emphasized that Salesforce is one big family. Pressure from activist investors has been cited as the driving force behind these abrupt changes.
Benioff stated recently that Salesforce had entered a new era of efficiency, disbanding its M&A committee which it has previously relied on to grow. Mark Zuckerburg too has evoked 2023 as the year of "efficiency."
As part of its restructuring, Salesforce has been reducing the number of sales teams per account (and sales executives per account, in particular), expanding a self-service model for customers to sign up for services independently, and using outside companies to sell software instead of hiring more staff.
In addition to trimming its own staff, Salesforce has also been looking to trim the staff at companies it has acquired over the years, having let those organizations run fairly independently until now.
"Do we need as many people leading these businesses? Can we get synergies in a way that we bring these organizations together?” Millham told The WSJ.
Much to some people's surprise (and to some others' chagrin) Salesforce's tactics are working well. Company shares have risen 41% so far this year, and the outlook for further increase is looking good.