Beyond CRM 2.0
Last week, and for many other weeks, I discussed CRM 2.0 but today I am thinking more about the world beyond 2.0. Maybe it will be CRM 3.0, or maybe some wise guy like Paul Greenberg will change the numbering and call it CRM 20xx, who knows?
My reading and research tells me that there will be a need for something else, partly because the market won’t just evaporate but more importantly, because the market is going to change again and I think dramatically. The change will be caused by the cost and availability of fuels used in transportation. Here are some quick facts to ponder.
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The U.S. Department of Transportation announced last week that cumulative travel for 2008 is down by 2.1% at 934.8 billion vehicle miles traveled, compared to the same period in 2007.
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Also, mid-size SUV sales were down last month 38% over May of last year; car sales, which had accounted for less than half of the industry volume in 2007, rose to 57% in May.
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Sales of new hybrid cars passed three percent in April 2008.
Because all this data is from the U.S. Department of Transportation I am sure it’s pretty accurate. To net this out we are traveling less, our cars are not getting better mileage — there are over 200 million cars on our roads and most of them are the same cars as last year. The average of a car on a US road is eight and a half years and the life expectancy is sixteen years. Although I don’t have similar information for air travel, I presume airlines are logging fewer seat-miles or however they measure capacity utilization.
Travel and energy consumption go hand in hand with economic output. There has always been a correlation between energy used, miles driven and the health of the economy. The only notable exception I know of was when the country went for smaller cars in a big way during the Reagan administration. At that point we actually saw economic activity improve while fuel consumption increases lagged.
At more than four dollars per gallon, you don’t need to be an economist to see that the same conditions are in place today and the evidence of lower miles traveled and increases in purchases of smaller vehicles including hybrids, are laying the ground work. This all will have an impact on CRM and at this moment I don’t see any vendors anticipating a change or preparing to do something about it.
My biggest concern is that, unlike the 1980s, the shift this time will be more drastic and permanent. I am one of a growing number of people who think that the planet is at about the half-way point in the available petroleum supply. In other words, half of what we started with has already been used. Don’t take my word for it, the term of art is “peak oil” and you can run a search on it and get almost five million hits in the blink of an eye.
Peak oil is a lot more than a bunch of Doomsday prognosticators running around the countryside, which you’ll see if you do that search. In a finite world any sane person would have to expect that the supply of petroleum or any other commodity, no matter how large, is finite. So bear with me for a moment longer and consider some implications and their effect on CRM.
First of all, there’s no need for any one to panic. There are lots of alternatives that can help preserve our way of life and traveling. However, we are at the beginning of a massive infrastructure change-over which could take a generation and the interim period is what we need to consider.
If fuel prices continue to increase — a reasonable assumption given rising demand for a limited (and most likely dwindling) supply — then we can expect more downward pressure on travel. Less travel means fewer face-to-face sales calls, and a greater reliance on technologies that will enable us to work with and administer customers in indirect settings. Less travel might mean fewer trips to the mall too, so I would expect that B2B and B2C commerce will be affected and that automatically means CRM.
Under those conditions there will be greater need for the Internet, greater bandwidth requirements and the need for additional technologies to support voice capture, video communications and simulated presence (for lack of a better term). All this on-line activity will transform the package delivery service business too. Moreover, the cheapest way to ship freight is rail and we can already see smart investors buying up railroad shares.
According to MarketWatch, part of the Wall Street Journal Digital Network, Bill Gates is a big investor in Canadian National Rail and the quoted value of the investment is a cool $1,589,028,000. Other very rich investors are taking stock in rail too. Warren Buffet’s Berkshire Hathaway, Inc. recently said it owned eleven percent of Burlington Northern, another major railroad. Rail is a long way from technology so why would people like this bother with those investments if they didn’t have an inkling of what is happening?
The railroad example is just one in a constellation of opportunities that await us in transportation, technology and even in CRM. The continuing tightness in the energy markets will definitely cause some dislocation and pain. It is the classic example of a disruption in the market place, but there is opportunity here as well, even in our own backyard. If you are a CRM company it is smart to begin asking how you can play in this changing marketplace.
The on-demand economy
The world is beginning to run up against significant resource constraints — the amount of arable land, available energy, peak oil, climate change and much more. What all these things have in common is the dawning realization that everyone can’t have everything they want, or at least they can’t own it. They may be able to rent it though and that’s a major shift.
In prior eras such as the middle ages, there was a small upper class and a lot of very poor people. The upper classes owned all the property and all of the productive assets. Petty nobility held the land in the name of the monarch and peasants rented it for a percentage of the harvest. The same was true of infrastructure assets so for example, if you grew wheat and wanted to grind it into flour you paid your local lord (in flour of course) for the privilege.
Studying this phenomenon gave rise first to economics and later to communism as some analysts from the poorer side became aware of just how lopsided the distribution of resources was. David Ricardo developed a concept called “rent seeking” (a mildly pejorative term today) in which owners of assets did little more than collect rents on their lands to support their life styles. Meanwhile, Marx and Engels popularized the term “means of production” to reference economic assets like land, labor and money.
In the twentieth century inventive economists like Kenneth Boulding asserted that all the means of production, the famous land, labor and cash, could be reduced to one thing in the modern economy which they called “know-how”. Know-how is the sum total of all capabilities “stored” in people’s brains, on blueprints or in plans and models and any other intellectual device that maintains the “smarts” for how to make or do something.
In the modern world and the U.S. for example, furniture and textiles are made in the Carolinas because that’s where the know-how is; the same can be said for space travel Houston and Cape Canaveral. You can say similar things about areas like Silicon Valley (and small parts of it like Route 92 in San Mateo where so much of the on-demand industry resides) Boston and New York (law, publishing and communications, finance) multiple urban areas that specialize in medicine, Los Angeles (entertainment, music, film), Chicago (commodities, futures and options). The list is extensive and this sample leaves out a lot, but you see the point.
You could argue that these activities are not geographically bounded, good movies are made in New York for example, but the point is that there are a small number of hubs where innovation in a particular endeavor are concentrated.
Many would say that we still have a lopsided distribution of wealth but the distribution of productive assets is more even, because the most productive asset in the world is the human mind, hence the importance of know-how. The distribution of productive assets is driving and being driven by things like on-demand because on-demand significantly lowers the cost of employing your most productive asset. Need to get somewhere but can’t afford a car? No problem, there’s Zipcar. Need technology to employ your productive asset and leverage your ideas? No problem, computers are cheap and for everything else, there’s on-demand.
On-demand’s big challenge
There is one challenge out there that I can see which could overturn the whole apple cart though. The on-demand society is fundamentally a pay as you go affair with little financial buffer capacity. In a world where people own things, no one living on a wage can afford to buy everything which is one reason humans invented finance. In the prior age, finance did what on-demand does with the critical difference that on-demand can be turned off much faster than the repo man can be engaged.
Miss a mortgage payment and it’s serious but you will not be sleeping on the street tomorrow. The same is true for a car payment. But lose a job, max out your credit card and you won’t be able to rent a Zipcar. So, curiously, while on-demand can significantly lower the cost of entering an economy, the lack of buffer capacity makes it easier to fall out too. That may be the great challenge of the on-demand movement.
Fortunately there is at least one place to look for an analogy. The on-demand industry’s roots go back, not to technology but to the era of commodity utilities. Water, gas, electricity, telephone, cable, sanitary services and more are delivered to the user on-demand, often by a municipality but sometimes by private companies.
We have come to regard many of these commodities as essentials of modern life and many utilities are regulated by municipal and state governing organizations principally, but not exclusively, to ensure that no person without the means to pay automatically or quickly loses access to these commodities. We have also implemented laws that, among other things, enable a creditor to place liens on property to ensure payment.
On-demand technology services have not reached the level of essential commodities yet, though some might dispute that idea when it comes to cable service. Nevertheless, some of the same issues of access may become important in the future. What rights might a bankrupt company or its successors have to access its CRM data held in an on-demand system if use charges have not been paid? I am sure legal minds have already contemplated this and other issues but it is now time for all of us to think about these issues too.
Terrible two-dot-ohs
I was at the Enterprise 2.0 conference in Boston last week. Good show, nice people, well run and it was held at a swanky new Westin on the waterfront. It got me thinking, though, about the “two-dot-oh” phenomenon and how badly it needs a rethink.
See, the problem — whether we’re dealing with Enterprise 2.0 or (maybe) CRM 2.0 or Anything 2.0 — is that the 2.o is a misnomer like when Microsoft periodically changes the numbering scheme for Windows. No matter what the numbering scheme says, we’re all like the Greek mythological character, Sisyphus starting out in the morning with a boulder and a hill to climb. Try as we might something in us instinctively knows how to do 1.0 much better than 2.0.
To me the misnomer disconnect goes like this: the numeral informs us that we are no longer in Kansas, metaphorically speaking, and that we have crossed a divide into something that while new, is an extension or enhancement of whatever was 1.0 before. There is even the inference that we’re better off now because 2.0 is greater than 1.0. In reality, it’s Groundhog Day and the alarm is just going off informing us that we have another opportunity to make the same mistakes we made yesterday.
In many of the 2.0 things that I am watching, everything is new again and we seem to be starting from scratch. By the way, in an evolutionary system that’s really the best way to be; you might inherit your genes from both parents but you aren’t saddled with their mistakes, obligations or debts (unless you are royalty but that’s a very special case). However, the thing about Anything 2.0 is that too often it makes such a clean break with the past that there is little to no inheritance of the good stuff even if the good stuff can be narrowed down to hard won experience of what not to do.
A telltale sign of 1.0 is that these editions of markets are focused on nouns. Innovative vendors sell things — disk drives, computers, databases, and cars that come in one color — which buyers buy for their apparent intrinsic worth. In contrast, the 2.0 edition, if you are lucky enough to find one, focuses on active verbs. You buy a 1.0 product to have it — assuming you’ll know what to do with it, which you will not unless you hire a consultant to show you at which point you will realize that that’s not what you wanted — and you buy the 2.0 version to fill in the blank at the end of this sentence: “So that I can (blank).”
In a lot of places where the 2.0 moniker has been rushed into place though, we’re not really there yet. In my humble opinion — and please forgive this metaphor — 2.0 has become the new 1.0. Why the aversion to calling a one, a one? Fear of customer burnout, perhaps? Maybe, but the fact is that for a while we have needed a second act for a lot of what we started in the last couple of decades and the 2.0 metaphor fits that need perfectly, if we can truly muster up the products.
As you can see, I am conflicted by all this but I suspect the conflict is attributable to which 2.0 phenomenon I am looking at.
For example, Enterprise 2.0 looks at the social networking phenomenon and says “Yikes! We don’t relate to our thirty-something and, gulp, sub-thirty-something employees and customers! Buy some nouns!” And off we trot to the Internet to get some cloud computing, social networking stuff or what have you.
Curiously, though, I think CRM 2.0 presents a very different reaction. Rather than looking at the people, both employees and customers, that we might be challenged to relate to, we look at the same new social technologies and say, “Oh boy!” There we see a rich assortment of cool things that we almost intuitively know how to use and we say, “Now I can (blank)” basically fulfilling the 2.0 aspiration of buying technology to get things done.
What a stark contrast. I suspect that the guys in the enterprise will have some success regardless of the numeral they attach to the latest wave, but a lot of that success will be attributable to the CRM 2.0 effort. CRM really is into a 2.0 phase; we’ve all used CRM 1.0 and watched as its results became more and more limited while the market place changed.
None of this will significantly alter the way countless two-dot-oh initiatives are going to market but it might cause a few buyers to do a double take and that can cause change. Remember, the next generation of products is supposed to be about the customer, so stand firm when you go into the market place. Tell vendors you’ve had enough nouns and that you want to understand their verbs now.
Welcome to the know-how era
Lately I have been working on a keynote speech that I need to deliver in a few weeks and in the process of doing my research I came across some very interesting ideas that fit in well with my research focus. In the last half of the twentieth century a number of thinkers became increasingly dissatisfied with the classical model of economics and began looking for an explanation that better represented the facts that they saw daily.
One of the biggest issues staring economists in the face was the idea that economic systems don’t always seek equilibrium. The classic idea of supply and demand roughly equaling each other out doesn’t quite hold, especially in new and dynamic markets. The dynamic market — such as CRM which quite often stares me in the face — never finds equilibrium and in fact it is likely to fizzle out once demand is satisfied or when a disruptive innovation comes along.
That reality is more at home in an explanation that borrows heavily from evolution and for a lot of reasons makes much more sense than simple equilibrium. All this is old news to many people, especially if they’ve ever analyzed a sigmoid or “S” curve maturity model.
What got my interest though was the thinking of the late Kenneth Boulding a towering figure in economics and systems theory who was one of the first to see the connection between economics and the other social sciences. Prior to that synthesis the neo-classical economists all tried to treat economics as a kind of physics, but the lack of correlation between the two led at least one wag to refer to his neo-classical economist friends as having “physics envy.” Maybe you had to be there to appreciate the joke.
At any rate, Boulding saw that the necessary economic inputs for production were not the traditional land, labor and capital but “know-how” — the sum total of ideas, plans and production capabilities in an organization. Know-how is the big idea I took from Boulding because I think it explains where we are in the CRM market today and why CRM 2.0 is so important.
Early in a company’s life, know-how is vested in the minds and productive capacities of the founders and innovators. Venture capital is important because it enables emerging companies to buy into the organization the know-how that the founders lack or that their limited persons can apply. Once a company burns through its funding it ought to be in a position where it has product and positive cash flow, if not it dies (a victim of the down side of evolution).
What’s interesting though is that at that point, somewhere in the exponential growth phase, the repository of know-how transfers — to one degree or another — to the customer. Having bought and used a product, the customer develops an understanding of the innovation and, most importantly, develops the know-how of what the next iteration of the product or service ought to be.
In market after market today that’s what I see. Innovative products and services have come to market and established themselves and customers are already expecting the next iteration. That is why CRM 2.0 is so important.
There are a lot of companies that have become very good at anticipating the customer such as Apple and I suspect that it is because they stay very close to their proto-customers. In contrast, I also suspect that a company like Microsoft applies a slightly different and more expensive algorithm to the same economic challenge. Microsoft’s approach appears to be to develop a portfolio of cool products and to nurture them enough so that if one hits it in the market they will be ready with a solution. One attempts to lead the market, the other to follow very closely. Of course, the reality is not that black and white, so don’t take this literally and sell some stock.
CRM 2.0 is an attempt to provide the tools to help companies lead their respective markets. It is a loose federation of solutions designed in one way or another to capture know-how from customers so that perceptive and receptive companies can leverage it in the design of products, services, messages and experiences.
A few months ago I said that a customer module was missing from CRM. The customer module needs to be the place where all of the tools that a company uses to capture know-how reside and share data. When discussed in this context I think the idea of CRM 2.0 becomes clearer. It is easier to see why CRM 2.0 is needed and that it is not just another fad in the front office. Business processes involving the customer will never be perfectly predictable the way classical economists might like, but using CRM 2.0 and a customer module will improve the probability of understanding customer motives and that would be a big step forward.
New era
After a long build up I think we’re finally at the real beginning of a new era in computing. The previous (nearly) ten years have laid an important foundation by which I mean on-demand computing but if you thought that was it, I think the next few years could blow you away.
Take a look at the driving forces in computing today — they at least include economics, technology and population and that’s probably just scratching the surface. Most interesting in my mind is that CRM is really the driving force for much of what is happening and much that will happen.
Here’s how I see it. Economics has always been a major driver in our business but I think we’ve seen it kicked up a notch. Old school economics were about productivity and the technology sector responded with increasing computing power (thanks to Moore’s Law) and the software to consume it and thus provide the productivity.
However, today economics is being driven by population — more people than ever are becoming computer literate and that literacy is a great marker for improving living standards which naturally drives needs for most things CRM.
In the last few years we’ve seen a lot of movement along the lines of Web 2.0 and CRM 2.0 which is good, but will it be enough? The thing few people really want to admit is that CRM got started as an attempt to organize the front office, not necessarily service the customer. Tools were put in place either to help managers bring scientific management principles to sales (SFA) or to organize the chaos of customer service.
We all know the story. Along the way the customer changed — we found our voice and our wallets and became demanding — and CRM began to get out of synch with the market. That’s when vendors began throwing software at the problems like a hiker offering his backpack to a charging Grizzly. For the moment the bear is barely sated but far from fooled.
The latest wave of social networking and community solutions offer a tantalizing view of a future in which vendors and customers collaborate and co-create value, but as good as it is, I have my doubts. I think there’s still too much software development from the bottom up when we need to be thinking a bit more from the top down — strategically.
As good as many of today’s CRM 2.0 technologies are, they still suffer from a point solution mentality. A vendor might say, I see a business problem and I can fix it, regardless of the fact that the problem might be part of a cascade of issues. Like the story about a butterfly flapping its wings in the Amazon rain forest and influencing the rain patterns on the east coast, there are more moving parts than can be modeled with any precision.
Dealing with customers is part social science. We can have all the physics envy we want but it won’t change the fact that where physics has mathematical certainty, social science has the bell curve and probability. Nonetheless, we can do a better job in customer facing applications if we take a bigger picture view of what we are doing. We need to think more about the process than we think about solving the point problem. The companies that I see working on the bigger picture today include Salesforce.com, Oracle and nGenera — to name only a few — and each has taken the view that some kind of platform is required to bring everything together.
By far, Salesforce has demonstrated this understanding best. With the AppExchange and Force.com, the company has brought forth a logical platform that supports whole business processes by bringing applications together. I am less sure that the partners recognize this and their responsibility for inventing a new future — they seem more interested in the short term need to integrate a couple of applications for a specific engagement.
You can’t blame the partners because that’s what is paying the bills but you can say this is an opportunity for future growth. My counsel is for groups of vendors to band together to own and brand a business problem and its solution. By problem and solution I mean something like order to cash in pharmaceuticals, for example, something less specific will not attract the firepower needed or present the opportunity to make the effort worth while.
Oracle may be on the same line. So far, Fusion looks more like an attempt to stitch together a crazy quilt of CRM 1.0 acquisitions but there is great potential within the architecture to do more on a process level. I think the next few months — and announcements from Oracle — will tell the tale.
Then there’s nGenera, which buddy Paul Greenberg blogged about the other day. nGenera appears to be taking the bull by the horns and is buying up companies (the latest one is Talisma) in an attempt to craft end-to-end customer facing solutions. Whether nGenera will fare any better than any of the other companies with the same strategy that have graced the scene in the last few years remains to be seen. Given the work already done on many fronts with XML and Web services, I’d have to say these guys bear further looking into.
Lastly, and this cannot be over stated, as the demand for customer facing solutions accelerates, engineers in other parts of the world are seeing the same needs and opportunities and they are watching from places with lower labor costs. What happens next is largely in our hands but I would like our chances better if we thought bigger.
