wisdom of crowds

  • April 28, 2010
  • CRM took a significant turn in the last few years, neither good nor bad, really, but significant.  The turn took us from what I will call core CRM, which primarily dealt with business to business (B2B) interactions to social CRM which deals with end customers or consumers, a.k.a. B2C.

    Now, it would be wrong to assert that core CRM never addressed consumers or that social CRM has nothing to say about the B2B world, but the emphasis has shifted.  Interestingly, both core and social CRM have an important emphasis on the call center and resolving customer issues for instance and that idea really straddles the two worlds.  The dominant part of the conversation is now social and consumer oriented.

    It wasn’t always like that.  CRM was born from a frustration that sales managers had with knowing what their people were really doing.  That drove the emergence — if not the popularity — of SFA.  Sales force automation was, after all, an attempt to corral the freewheeling activities of sales people as much as it was an attempt to capture and make sense of the reams of sales data they produced.  All of this existed with a backdrop of expanding markets where new products and new categories bloomed like a desert after a freak rainstorm.

    But if you look at the marketplace in the last several years, it looks like a desert again.  Demand cratered with the economy and companies that were able to make money were those who could understand demand patterns of individuals and cater to them.

    James Surowiecki, author of “The Wisdom of Crowds” made an astute observation in his New Yorker column a couple of weeks ago when he showed that there are now two centers of activity in the marketplace where there had been only one for a long time.  I think of this as the camel theory — one hump Dromedary, two humps Bactrian.  Say what?  Sure, it goes like this.

    The conventional market we all know and love or at least tolerate can be represented as a bell curve, a single hump representing the range of quality, demand and ability to pay.  For years, vendors simply aimed their offerings at the middle of the bell curve and pretty much scored big.  If you couldn’t be successful that way your product or strategy was badly flawed.

    But then something happened and rather than having one hump to contend with we suddenly had two.  The Bactrian market’s humps cover two market types.  The first provides mass produced, good enough products that are affordable by most people.  The long period of new product development and category formation has, at least for the moment, paused leaving us with many fine products in the commoditization process (Hump 1).  That leaves us with a plethora of choices of things that, while they are not customizable, are good, reasonably priced products.  Surowiecki includes H&M clothing stores and flip cameras in this category and there are many others.

    The second hump also features mass produced goods but these products usually come with more features, functions and are generally coveted by all of us.  Think about Apple products when you think about the second peak.  You can make a good argument that you don’t need an iPad or an iPhone or an iMac.  There are cheaper products in the first hump that meet the need but somehow we manage to shell out the extra money.  Apple is not alone either.  We go to Starbucks for coffee and buy luxury cars when there are less expensive alternatives, too.

    What’s interesting here is that the two-hump marketplace has made the single hump variety untenable.  If you try to stay in the single hump world you find that your customers have gone elsewhere and you are in danger of going out of business.  None of this should surprise us though.

    In 2005 Geoffrey Moore wrote about the two-humped beast in a slightly different context.  Moore said that the first hump represented companies that had to rely on operations and efficiency.  They are the vendors who Surowiecki sees as offering good commoditizing products for a market most concerned with price.

    The second hump in Moore’s construction are companies that rely on customer intimacy, they still sell products that need a bit of handholding if only because the attention connotes value in the eyes of the customer — think Genius Bar.  Note here that Joe Pine’s vision of mass customization is bearing fruit if only because the customization is happening via personal attention and the vendor is still selling a mass produced good (maybe this is Pine’s other idea, the good as experience).

    Understanding who their customers are remains among vendors’ greatest challenges.  The young woman who shops at H&M might take a break from shopping at the Starbucks next door, for instance, where she might call a friend on her iPhone.  That’s where social media and enterprise 2.0 ideas come in handy because no vendor can afford to lavish attention on customers like they did in the old days.

    The difference between the two humps may be in how or where social strategies are applied.  Denizens of the first hump use social strategies to identify their customers and their needs.  The second hump cohort may use social strategies internally to marshal resources to meet the needs of the up-market buyer.  As the economy improves, I expect more attention will be paid to the B2B side of the house and the second hump.

    Published: 14 years ago

    One of Salesforce.com’s challenges in driving Chatter’s acceptance comes from positioning it for the buying public.  That’s a tall order since the company is simultaneously trying to establish a new product and its category.

    The product and the category are classified as social networking and leverage the wisdom of crowds — James Surowiecki’s idea.  But Chatter is unlike any of the products that may help a group come up with the answer to a quantitative question of the type, How many jellybeans are in this jar? which Surowiecki uses a lot in his 2004 best seller.  Nonetheless, Surowiecki does address the Chatter problem as one of coordination and the wisdom of crowds is a good approach to dealing with coordination with some caveats.

    To review briefly, the wisdom of crowds is almost self explanatory — the crowd is smarter than any one of its members and crowd wisdom can lead you to some astonishing revelations such as the number of jellybeans in the mythical jar, the best route to work, which styles will be popular in the fall and which won’t.

    The Chatter problem is different from all those examples because the group being sampled is internal to the organization and the customer problem the organization is trying to address may be unique.  Regardless, there are three attributes of a successful wisdom of crowds strategy that all approaches seem to need according to Surowiecki — diversity, independence and decentralization.

    The three strategies work remarkably well for the jellybean problem and they fit the Chatter problem well too.  Briefly, diversity means getting input from as many sources as possible, not just the smartest people in the room, but everyone.  Smart people tend to think alike and a creative spark can come from anywhere so the more the merrier.  Also, diversity means capturing bad ideas as well as good and the wisdom of crowds makes it possible to let bad ideas cancel each other out leaving you with the good stuff.

    Independence means letting each actor in the crowd do what he or she does best without attempting to influence them unduly.  Many of us think nothing of begging friends to vote for our ideas in a social forum as often as possible, but as soon as we do, it wrecks the idea of independence and therefore the whole wisdom thing.  Finally, decentralization is tied with independence in this example, your begging produces a command and control hierarchy which is responsible for the wrecking.

    So, what about Chatter?  Chatter neatly implements the three primary social strategies of crowd wisdom for the benefit of the organization.  First, there’s diversity — everyone does a job, their job, not someone else’s.  That means support does support and sales does sales and when there is a customer problem involving a deal being held up by a support issue, everyone does their part.

    Chatter helps this process by opening up lines of communication — and ad hoc coordination — so that sales knows what support is doing and vice versa.  Importantly, anyone else who wants to know and lend a hand can also have a ringside seat.  This is critical because other independent actors, perhaps a manager, VP or C-level executive, can shine a light on the situation too.

    Finally, the critical piece is decentralization.  In a Chatter crowd, no one has to be a dictator, taking control of a situation and directing people to do certain things.  People do their jobs and that turns out to be enough.  The secret ingredient to this decentralized approach is corporate culture.  A culture that says, do what makes your boss happy might have a tough time benefitting from Chatter.  But a culture that operates on a prime directive approach — like Google’s or Star Trek’s — will do well.

    The prime directive can be as simple as “Don’t be evil,” or “First do no harm,” or more practically, “Be good to customers, and always to the right thing,” is all that’s needed.  An employee operating along the lines of the culture’s prime directive should be praised and rewarded regardless of outcome, which will usually be fine.

    I am at the 35th meeting of the SAS User Group this week in Seattle.  SAS is one of those gems of a company we all wish we worked for.  In fact, they just won an award for being the best company in America to work for, an award that goes with similar awards from all over the world.  I haven’t spent a lot of time following SAS since I worked at a competitor more than a decade ago but what I am learning here is truly remarkable.

    I don’t know what SAS’s prime directive is but I know that every employee does.  You can see it in their eyes and hear it in their conversations and it is definitely pro customer.  What makes SAS such a gem is that it is privately held and unlike many private companies this one has revenues north of $2.3 billion and it reinvests more than 20 percent in its products and services.  And it appears to me that founder and CEO, Dr. Goodnight, has a prime directive that encompasses customers and employees that I assume goes like this: treat employees well and they’ll treat customers well.  It’s a strategy that has worked well for more than 34 years.

    SAS grew into a powerhouse without social media — though today it is introducing several products in that realm.  Most big companies are not private and they have shareholders to keep happy as well as customers and employees.  I can’t help but wonder though if applying crowd wisdom through a product like Chatter might help many other companies to apply their prime directives in ways that help them keep customers, employees and shareholders happy by just doing good.  The prime directive idea is tied to corporate culture that that may be the best indicator of whether or not a company is Chatterizeable.  (Is that a word?)

    Published: 14 years ago