Clayton Christensen, is the famed Harvard professor and creator of the leading theory on disruptive innovation. One of his complementary theories is called Value Chain Evolution (VCE) Theory. In short, the VCE theory states that when a product or service is not yet good enough to meet the needs of mainstream customers, companies need to integrate vertically in order to control the entire production and delivery process. In many cases, these companies are creating new processes or technologies to take a product on the upward trajectory of improvement; and all of this requires tight integration. In this scenario, it’s nearly impossible to manage the complex interaction that would be required with partner companies in order to meet the performance demands of the customer.
As these products or services begin to overshoot the needs of their customers in areas of performance or customization, integration becomes less important. What becomes important is the ability to compete on speed, flexibility and/or convenience. To improve along the dimension of speed of production, for example, a company will seek to standardize interfaces, decoupling the integration. These standards ultimately expand to the industry allowing a product to become more modular, and allowing specialist companies to build components that fit into these standard interfaces. The integration (and value) moves into the integrated design of the modules, which use standards to interface with other modules.
HBR had an interesting piece recently that told the story of a 5 year old who designed a product that fit the special circumstance of kids. If we look at companies as having a maturity level, kids would be in the early stages, where they are still developing their motor skills and coordination. For them, a separate toothbrush and toothpaste dispenser are not good enough. They find it difficult to coordinate the two. I watch my 6 year old deal with this every day. Houston Diaz, a 5 year old, decided to take matters into his own hands on Quirky. This is the special circumstance he was facing (that adults don’t face):
- “I want to brush my teeth on my own – but I’m only five years old.” – minimize the need for parental supervision
- “Why do they make it so hard to put toothpaste on my brush?!” – increase the likelihood that toothpaste gets on the brush
- “If I try to do it myself I usually make a mess out of the sink.” – minimize the likelihood of toothpaste getting on the sink
- “Since it is so hard to do it, many times I just pretend to brush my teeth.” – minimize the coordination required to successfully brush teeth
- “My dentist told me that I’m supposed to replace my toothbrush every 3 months. Who is keeping track of that?” – increase the likelihood that a toothbrush is replaced at recommended intervals
Sound familiar?
With the help of his father, he designed a product to address the desired outcomes of a 5 year old getting the job of maintaining healthy teeth done. With the technology available, they designed an integration of two existing products that addressed these problems. Even the last need was addressed because when the toothpaste runs out, you replace your brush as a part of replenishing your toothpaste. One day, we will likely have technology that doesn’t look like a toothbrush at all. However, the job will never change.
As we get older and develop better coordination between our various human components, then we can again use modular components (toothbrush and toothpaste) each of which will have an integrated process or design to continually improve their performance. While we’re young, performance is not measured on having the whitest smile; it’s simply on getting teeth clean consistently so we are not admonished by our parents, or the dentist.
CRM is not just software; it’s also an interdependent set of capabilities within an organization to manage customer acquisition, retention, growth and profitability. The two go hand in hand, yet very rarely do we hear examples of the smaller enterprise (like mid-market companies) getting this right. In fact, an argument can be made (and I’ve made it) that regardless of size, most organizations do not achieve what they promise. This isn’t so much about size, but about maturity. Most companies are 5 year olds when it comes to their ability to develop capabilities, strategies and tactics that can sustain their growth year over year over year and then do it profitably taboot.
Like the 5 year old struggling with the toothbrush (the platform) and the toothpaste (the catalyst) – and who fakes brushing his teeth by simply using the toothbrush alone – many companies deploy CRM software (the platform) without having built the requisite capabilities (the catalyst) to use it effectively, and for the ultimate purpose (growth and profitability). Why do companies struggle with using strategy and tools together for the ultimate purpose of growing their business profitably?
- They want to grow their business but they don’t know how and can’t afford to (or won’t) hire a specialist/consultant. The interaction between the two parties is complicated by the fact that consultants have an asymmetry of skills in an integrated package (them) that is valuable (sometimes) and costly (always). They are not motivated to work just as hard for less – which would be required down market (they are therefore the incumbent). So we have a really big problem to solve for companies who don’t want to be disrupted or outperformed by new entrants
- It’s so hard to learn how to design capabilities/strategies on their own
- When they do try to design capabilities/strategies, they usually make a mess out of it, or get horrible returns on their investment
- Because it so hard to do, many purchase CRM software (something that can be touched) and then talk about strategy – they are faking it – all platform, no catalyst.
- Since they have not designed a system or measurements, it cannot be improved over time, so they end up with 10 year old software and the same usage patterns. Their shareholders (the dentist) admonish and/or penalize them.
Sound familiar?
How might we design an integrated CRM that recognizes that today’s solution is not good enough? Will someone begin taking today’s commoditized CRM technology platforms and begin stitching in proprietary services and tools that have been designed specifically for companies wishing to align CRM with their business goals? The technology no longer needs to be optimized as it has overshot the needs of most companies (we’re moving to the cloud and standardization). What is needed now is a better way to ensure that companies can meet the demands of their mainstream customers over time.
CRM software is the toothbrush and competitive capabilities are the toothpaste. Strides have been taken to standardize the process of surfacing and designing CRM capabilities over the years but we are still having a difficult time with the complex interactions that need to take place between these products or services and the CRM platforms we currently use to implement them. People still view CRM as software and little attention is paid to the framework(s) within which it must operate. The front end of CRM needs to become integrated with the back end of CRM as we seek that desired path to sustained growth, profitability and customer-centricity.
This post was written as part of the IBM for Midsize Business program, which provides midsize businesses with the tools, expertise and solutions they need to become engines of a smarter planet. I’ve been compensated to contribute to this program, but the opinions expressed in this post are my own and don’t necessarily represent IBM’s positions, strategies or opinions.
