These corporate efficiency initiatives really work! Salesforce’s April-quarter earnings report Wednesday showed an operating profit of $412 million, a 5% margin, compared with $20 million a year earlier, which equated to a margin of 0.27%. The reason was lower expenses—research and development costs fell 8.4% while marketing expenses dropped 6.5%—even as revenue rose 11%. Cutting costs to lift profits is about as basic a concept as there is in business. But it’s significant for Salesforce, which, as CEO Marc Benioff made plain earlier this year, hadn’t previously focused on operating efficiently.
Unfortunately, he may be drawing the wrong lesson from the improvement. In his typical superlative-laden commentary, Benioff credited “these incredible numbers” to Salesforce’s “superpower,” its “Ohana culture”—also known as Salesforce’s support system for staffers. Ah—no. This improvement is entirely a result of the pressure activist investors such as Elliott Management exerted on Salesforce management earlier this year. So the real lesson is that Salesforce has been managed lazily for years. It’s great to see that changing. But the fact that Benioff is now running a company the way it always should have been run is hardly cause for self-congratulatory celebration. For more on the results see here.