Is Centralizing Customer Success the Right Move to Deliver Growth?

17 Mar 21

Over the past 20 years, and especially in the last decade, Customer Success has gone from a key differentiator for a few forward-thinking software players to a truly critical component of any aspiring market leader’s revenue engine. For CEOs focused on maximizing customer retention, cross-sell, and up-sell, CS organization model decisions can be critical to achieving the company’s revenue growth goals.

Customer Success (CS) teams originated in the mid-1990s in response to the sky-high failure rate of large-scale Customer Relationship Management (CRM) implementations. Often having spent millions of dollars and several months implementing CRM software to manage customer contacts and interactions, many customers simply weren’t seeing the expected returns of their investments. In response, leading software vendors built entire teams dedicated to helping customers maximize the value of their software purchases. The objective was to create a clear win-win: customers see a positive ROI while the vendor reduces customer churn and increases customer lifetime value. CS functions have become more and more important to a software vendor’s success in the years since, especially as the move to SaaS and subscription-based models have reduced customer switching costs and tied revenue to long-term consumption. Today, companies like Salesforce have made CS a central component of their overall growth strategies.

As CS has evolved from a key differentiator for a few notable software vendors to a business-critical function for virtually every player in the industry, the organization model of CS teams has also changed; increasing importance and increasing scale has caused companies to wrestle and experiment with whether CS should be a centralized function (reporting into a single leader or business unit), decentralized (reporting into different product groups, regions, or other BU), or some combination of the two. Which of those models is the right choice?

The Case For Centralization

On the one hand, the benefits of centralizing CS are compelling—and to a large degree reflect the case for centralizing any corporate function within a Shared Services (SSO) model:

  1. Consistency - In a centralized model, CS organizations are better able to standardize processes, apply best practices, and create a consistent set of customer experiences. This, in turn, simplifies everything from getting support (knowing who to call) to paying an invoice (consolidated billing). Centralized CS functions are more likely to have a unified set of systems for gathering, storing, analyzing, and leveraging customer information—which also helps drive consistency in how the company engages customers.
  2. Cost-Effectiveness - Centralizing CS (and indeed any corporate function) drives scale and scope efficiencies as the cost of human resources and overhead are spread across business units. Moreover, a corporate charge-back model ensures costs are applied to BUs directly related to how CS dollars are spent; the product, region, or other teams that utilize the most CS resources pay their fair share of the company’s total CS budget.
  3. Professional Development - Centralizing CS activities makes it easier for CS team members to gain new skills and experiences. This is especially true in multi-product businesses. Exposure to CS activities that span multiple products provides CS professionals with learning and career growth opportunities that can be more difficult to come by in single-threaded businesses. Those development opportunities can create motivational drivers for CSMs and decrease CSM attrition in the long term.

On the Other Hand…

Decentralizing Customer Success—with separate CS organizations reporting into different product groups, regions, or subsidiaries—has certain advantages:

  1. Specialization - Decentralized CS operations can make it easier to develop and align specialized skill sets based on the needs of specific customers. Specialization in this sense may include knowledge of a specific use case, industry, region (including languages), or other key customer attributes. Specialization is also helpful in instances where there are unique or standalone products in the portfolio—such as when a software company expands into an adjacent market either organically or through M&A (e.g., Salesforce’s acquisition of Slack).
  2. Agility - Aligning CS to a specific business unit can also streamline decision-making and communication, as well as improve responsiveness and flexibility to changes in customer needs and expectations.
  3. Customer Intimacy - Each of the first two benefits of decentralized CS—specialization, and agility—can help improve customer intimacy. Specialization in a customer use case, industry, region, etc., gives the customer a sense that the CS team “understands me.” Meanwhile, the responsiveness and flexibility resulting from improved agility demonstrate a clear focus on the customer (versus strict adherence to internal processes). These can, in turn, help improve customer retention—which is increasingly critical to achieving overall growth goals.

Which Way Should You Go?

As with most business decisions, the “right” approach depends on a host of tradeoffs…and is often somewhere in the middle. After all, centralization vs. decentralization is rarely, if ever, black and white; they exist in degrees.

In fact, many of the world’s foremost CS organizations feature elements of both centralization and decentralization. For example, complex, global, multi-product software companies such as Salesforce and Microsoft have matrixed CS organization models featuring a central reporting structure (and global leaders) into which product and region-specific CS teams “hard-line.” Those products and region-specific teams “dotted line” to their respective product groups and/or regional leaders. Meantime, certain specialized business units may maintain their own separate, semi-autonomous CS teams that only interact with the “core” CS team where they intersect inside accounts that consume multiple products (think Salesforce CS working alongside semi-autonomous Tableau or MuleSoft overlay teams within a Fortune 500 account). There may also be regional overlay teams that bring specialized language skills and other knowledge to support the customer’s regional subsidiaries.

This blended approach will make sense for many companies, particularly those with more than one product that operates in more than one region. They balance the benefits of centralization—visibility, consistency, cost-effectiveness, and professional development—with the benefits of a decentralized model—specialization, agility, and customer intimacy.

Conversely, less complex companies require a less complex solution. Single-product companies with a smaller set of customers clustered in one region can maintain a heavily centralized CS model…but should evolve that model as their businesses and customer bases become less homogenous.

These complexity considerations point to two additional questions that should be addressed in order to arrive at the right model decision:

  1. How large, diverse, and complex is our product portfolio?
  2. How concentrated are our customers (geographically, vertically, etc.)?

SBI’s CS Centralization Decision Tool can help weigh these questions against the benefits of centralization and decentralization described above.

The decision to centralize or decentralize Customer Success is a complex one involving multiple tradeoffs. While centralizing CS can drive consistency, improve cost-effectiveness and create professional development opportunities for your CSMs, a decentralized model can facilitate specialization, agility, and customer intimacy. Leverage SBI’s CS Centralization Decision Tool to help inform which model is right for your organization.


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