• September 1, 2008
  • By Denis Pombriant, founder and managing principal, Beagle Research Group

Evolution from Without

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Evolution is really a simple process, an algorithm that can be brought down to four steps: Create diversity; test the diverse entities in the real world; let the best reproduce; and repeat. I think about it a lot in business, where it’s just as prevalent as it is in nature but where it attracts few headlines.

Of course, reproduction has a variable definition. In the natural world it’s unambiguous, but in the business world—especially the software business—it can be equated with capital. Capital is the reward the market gives to good designs (along with a bit of notoriety, such as the notice given to companies in this awards issue of CRM magazine).

Interestingly, though, the nature of capital changes over the course of a company’s lifecycle. Early on, a company’s capital is tied up in cash and the visions of its founders—but later, capital can be equated with what some economists have termed “know-how.” In classical economics, the necessary economic inputs for production are land, labor, and capital, but know-how—the sum total of an organization’s ideas, plans, and production capabilities—eventually replaces all of them as the economic driver in a modern company.

A big part of know-how is derived from customers. Having bought and used a product or service, the customer develops not just an understanding of that offering but, more important, the know-how for what its next iteration ought to be. To capture and leverage know-how, companies must find better ways to understand what their customers know.

In market after market today that’s what I see: innovative products and services coming to market and establishing themselves—and then customers are expecting the next iteration. That is why so many of the award-winning and leading companies in this issue are focused on CRM 2.0.

CRM 2.0 is an attempt to provide the tools to help companies derive know-how from their customers so that they can lead their respective markets. At its heart, CRM 2.0 is a loose federation of solutions designed in one way or another to capture know-how from customers—and, more generally, the world outside the company—so that a company can leverage it in the design of products, services, messages, and experiences. We frequently refer to this aspect of leveraging customer knowledge as co-creation of value.

When we leverage customers’ know-how in this way we are fulfilling the evolutionary algorithm’s mandate to create diverse solutions and to test them in the real world. We are also improving the odds that any single idea will be on target (reproduction) because, contrary to the approach of throwing everything against the wall to see what sticks, we ask about stickiness up front.

I believe we can improve the evolutionary algorithm—at least in CRM—even further. As good as today’s CRM 2.0 solutions are, they suffer from a 1.0 problem: a lack of integration into a larger process. For example, there are numerous point solutions that attempt to help in one small part of the customer lifecycle. Some products provide market intelligence; others manage drip marketing and lead nurturing campaigns; still others provide forums for customers to express their opinions—good or bad—about products, services, and experiences. Clearly, all of these activities are facets of the same gemstone yet too often they exist in isolation.

A few months ago I began writing and saying in my speeches that a customer module was missing from CRM. (See “The Customer Module,” Reality Check, June 2008.) The customer module should be at the intersection of CRM, the place where all of the tools that a company uses to capture know-how reside, and where its data is integrated.

In the context of know-how, the idea of CRM 2.0 becomes clearer: It becomes easier to see why CRM 2.0 is needed and that it’s not just another front-office fad. Business processes involving the customer will never be perfectly predictable the way classical economists might like, but using CRM 2.0 integrated through a customer module will improve the probability of understanding customer motives—and that would be a big step forward.

Denis Pombriant is the founder and managing principal of Beagle Research Group, a CRM market research firm and consultancy. He can be reached at denis.pombriant@beagleresearch.com.

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