The most dangerous aspect of commoditization is the illusion many companies and industries have that it could never happen to them. Somehow, companies reason, they will be protected; their differentiation is solid and sustainable.
Customer relationship management, or CRM, appears may be among the industries falling prey to this illusion, mainly due to a prevailing, self-important mantra of delivering a single view to the customer and uniting demand chains.
These are noble causes in the name of service to the customer — but they’re also more susceptible than ever to falling into commodity hell.
The term “commodity hell” comes from a quote by GE’s Chief Executive Jeffrey Immelt, who said that managing innovation better may be the only way out of the “abyss called commodity hell.” Mr. Immelt’s quote is combustible enough to ignite more than enough arguments among CRM vendors, system integrators and the manufacturers and service companies they hope to sell to. That quote alone must start more debates than any other, especially when roadmaps and future product plans are at stake.
Reality Check, Please
Here’s a reality check: Commoditization happens everywhere, and if it didn’t CRM would most likely not exist today. So before you just toss aside the concept of commoditization as something that happens to those other companies that don’t have differentiated products, stop and really think: If your company is a CRM vendor, are you really generating anything new or just recycling R&D paid for from the IPO from several years ago?
If you’re a manufacturer, when was the last time you refreshed a product roadmap, not just for the analyst and press tours, but because you really had something new? If you’re basing your future on your past, you’re setting yourself to compete only on price. And when pricing has become the only differentiator, any industry, including CRM, has entered a death spiral.
Avoiding the Death Spiral
Ironically, when you look across many industries, you can see that commoditization didn’t have to happen as quickly as it did. Look at the InnovCenter from Eli Lilly as a case in point, or the ability of Southwest Airlines to commoditize itself.
There’s a group of researchers, analysts and authors doing some great work on how to avoid commodity hell. One of note is Dr. Peter Keen, Professor at Technical University of Delft, Netherlands. You can find his Web site here. You’ll definitely want to catch his next book, titled “Let Go to Grow, Not Just Survive,” now in press. He’s posted chapters here. His insights into how to avoid commoditization are worth checking into. I’ve read his latest book draft and it really got me thinking about how his concepts apply to CRM.
CRM’s Redemption from Commodity Hell
Clearly the path for many areas of CRM is mapping precisely to what Dr. Keen’s research shows is a sure bet to bring on commoditization. These include:
- Cost reduction has become the mantra of so many best-of-breed and platform vendors alike, hastening commoditization in the process
- Protecting systems by making them more rigid and even proprietary-like
- Resorting to price first and usability improvements last as a differentiator
- Bloated, unresponsive applications that have lost touch with the business processes they were meant to streamline.
Dr. Keen’s research includes many other symptoms of commoditization that map to the CRM landscape. The good news is that in his research he’s found approaches that entire industries take to alleviate commoditization hell. Here they are, and if you think about it, there are some aspects of CRM already on the path to these improvements:
- Commoditizing your company before the industry does it for you. Southwest Airlines is an example of this — where the company has standardized on the Boeing 737 so all training, maintenance, repair and overhaul, and pilot and crew rotation is commodity-like in approach. The result: Southwest’s market cap as of March 31, 2005 is US$11 billion, leading all other airlines worldwide. To see the magnitude of their market cap strength in that industry check out the Yahoo Finance Industry Center for Airlineshere. Exploiting standardization is the best defense to commoditization.
- Proprietary interfaces of all kinds kill companies. This is one of the points that Dr. Keen excels at explaining in his book, showing the costs of being proprietary relative to open. Examples include how GSM/SMS standards commoditized the European mobile phone industry, how USB is commoditizing the digital camera markets, and how 800-number standards have made global call-center outsourcing possible.
- CRM must become a coordination technology, not just a reporting and analytical one, to survive. The starkest example in Dr. Keen’s work is when IT infrastructure gets disconnected from business strategy — or worse when business strategy is only allowed to venture as far as IT lets it — commoditization happens fast. The implications for CRM are clear: Without solid footing as a true coordination technology, commoditization is quickly around the corner.
- “Componentizing” CRM is critical for its future. The era of composite applications and platforms is already developing full-force, and it may be the best hedge to commoditization that CRM has. Siebel’s UAN, SAP’s NetWeaver, Microsoft’s .NET and IBM’s WebSphere platforms all point toward componentized applications that can resist commoditization through unique value as part of a broader value set.
It’s not enough anymore to just have CRM systems align with your core processes — that is almost a path to commoditization in and of itself.
The fact is, CRM is on a collision course with commoditization — unless the coordination aspects of these applications get stressed more than their carrot-and-stick role in so many companies they get used for instead — and componentizing their functions to align with growing areas of a company instead of being perfect systems of record for the past.
In the end CRM will have to commoditize itself to survive.
Louis Columbus, a CRM Buyer columnist, is a former senior analyst with AMR Research. He recently completed the book Getting Results from Your Analyst Relations Strategies, which is available on Amazon.com.