What Does the Commoditization of CRM Mean to your Business?


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One of the very interesting things to watch over the past 10 years has been the complete disruption of elements within the CRM industry. The drive for efficiency has pushed CRM (and underlying technology) to the cloud; eliminating much of the competitive IT differential companies would build in-house just a few short years ago. The value chain within the supporting business partner channels has shifted as a result; even if many of these companies fail to see it. It may be too late for them.

It’s not just about your products; it’s also about supporting services. For instance, a company that uses CRM technology has increasingly treated it like a commodity over the past 10 years. Just as the cloud has begun to shift IT value elsewhere, it is doing the same for CRM. Your value as a CRM technology engineer has diminished greatly; whether you are an internal employee or an external consultant. Implementation services are becoming increasingly uncommon, and legacy customers are applying the downward pressure on cost even in their on-premise implementations…or they threaten to switch.

The margins are simply no longer there for value-adding resellers. They need to seek value elsewhere!

  1. Many still assume there is value because legacy customers haven’t switched (yet)
  2. Meanwhile, there is a significant amount of cost pressure to switch since much of the implementation work has been eliminated by the cloud
  3. A few of these VARs and systems integrators are developing higher order services in other parts of the value chain

We all have value chains (more than one), and each element in them is constantly shifting along the dimensions of evolution and value (to the customer). Many of us have moved our day-to-day applications to the cloud. While some of us are barely beginning to virtualize IT on-premise, some are already migrating IT resources to highly dynamic, reliable and cheap cloud platforms. It’s increasingly difficult to know where to place your bets; but one thing is certain, placing the same bet over and over is a certain path to failure.

In the CRM “consulting” world (I prefer to call it “contracting” since it is historically input oriented and not outcome oriented), we once dealt with highly custom solutions and infrastructure. It was expensive! It was time consuming, and failure rates were high due to the uncertainty and complexity. To make things worse, we used legacy project management practices to deal with these highly variable projects. We were focused on high value services related to technology implementation and customization; because this is where the money was.

Now that the pressure is clearly on to switch to cloud solutions, what does this tell us about value? It tells me that anyone whose business model is built around the old VAR model has a big problem. It may seem like there is still time to nurse this thing for the next 10-15 years, but that’s simply not going to be the case except for a handful of self-proprietors supporting a dwindling group of laggards (I know a few independent Seibel consultants that are still making a good living). Why is it so hard for CRM “consulting” businesses to see this? An interesting researcher named Simon Wardley calls this inertia; where practices co-evolve with activities and make change look extremely difficult and expensive. Clay Christensen calls it the Innovators Dilemma. I recommend you read Simon’s entire series on strategy mapping.

So, now that the core technology of CRM is implemented in a more commoditized fashion (including social), where is the value to services providers? That leads us to a couple of questions:

  1. What are the unmet needs in the CRM technology consumption chain?
  2. What higher order jobs are companies trying to get done that are supported by CRM technology?

There is one thing that is certain; no one has gotten it completely right when it comes to CRM technology experience. There are a vast number of important and unsatisfied needs across the population of CRM platforms and users; they just aren’t articulated, or articulated consistently and completely. It’s not about how a user uses your software, it’s about how well they get the job done that your software purportedly supports. The cloud has made many points in the consumption chain far less painful. However, there are still places where attention needs to be focused. As technologies change, and higher order solution are built upon them, the needs in the consumption chain will shift as well.

While part of your existing business should surely focus on wringing out every last ounce of value in the old consumption chain of CRM technology(and pursue opportunities in the new consumption chain), it might make a lot of sense to determine what kind of support companies might be looking for (even unknowingly) now that the CRM technology is less variable, less costly and also less value-adding. What higher order jobs are companies trying to get done? Let me walk through a couple of ideas:

  • Grow faster and more reliably than their competitors
  • Maintain profitability while growing, and not just by cost cutting

I know; that’s rather high level isn’t it? So, what are the drivers for these outcomes and what can you do to help them?

  • Focus on helping your customer innovate more predictably
  • Focus on helping your customers acquire new customers
  • Focus on helping your customers sell more to existing customers
  • Focus on helping your customers retain profitable customers
  • Focus on helping your customers generate more referral business

At this point you are probably exasperated because you…

“…thought the software did that!”

As consulting frameworks mature, there are those that open their frameworks up to the community, or consultants in lower level markets. Ultimately, these become productized where high level consulting resources and experience are embedded into the product. As this happens, I predict an exponential growth in the ability of non-specialist consultants to take on the role of formerly higher order consultants in areas like innovation and marketing. If spinal surgeons can be disrupted by advances in pedicle implants; and general practitioners can be disrupted by nurse practitioners at MinuteClinics, a management consultant can be disrupted as well.

As the perception of value continues to shift and the capabilities of technology delivery improve, this simply makes sense. All services move from differentiation to commodity at some point. So, all of you CRM technologists have great opportunity to get in on the ground floor of the next wave; if it’s not too late. The question is, what will the management consultants do? Muwahahaha!

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.

Republished with author's permission from original post.


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