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 20th 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.

Why CRM Is So Important

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.

Not Another Fad

There are a lot of companies — such as Apple — that have become very good at anticipating the customer, 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.