The modern customer and the modern company

There was an important and insightful post from JP Rangaswami last week. JP is far ahead of me in incorporating the work of the recently-deceased Ronald Coase into his worldview (but I'm trying to catch up), and he absolutely nails why resilience and preparedness for change is increasingly essential to organisational survival:

[When a] customer is free to move ... Keeping unit costs down is important, but not as important as reducing the cost of change ...

[The] skills that matter are radically different ... You now have to care about what customers want, you have to learn to listen to them, you need to understand how to relate to them. And your communications need to become customer-centric.

[This organisational adaptation is] not easy ... You have to learn how to value the cost of change, not just unit costs. For decades we’ve been building monolithic systems — people, process and technology — that had as their prime objective reducing unit costs. Standardise the hell out of everything. Tariff up the cost of change ...

If products can’t adapt at the speed demanded by customers, they will die. From a customer’s perspective, their transaction costs have gone down rapidly with the advent of the web, and, more recently, their costs of change have zoomed downwards as well ... they can move away with ease. Lock-ins get scarcer every day ...

[But] when companies are aware of customer needs, when companies listen to customers, when companies value the relationship with a customer, the customer becomes a constant. Again.

The constant customer existed once. Because she had nowhere else to go.

The constant customer can exist again. Because she chooses to stay.

Read the whole post. It's long but well worth your time. However, while I feel that JP is fundamentally correct, I want to put one big and important caveat on what he says.

While I agree that lock-in is disappearing in terms of capability, it is at risk of being replaced by a lock-in on information. If at the conclusion of a transaction, the information captured by your service provider remains needed and valuable, you're incurring a delayed investment of time and money to perform a data export and migration exercise before you can switch to a new provider, and/or a delayed loss of value from abandoning the existing information.

In Coasian terms, this is a classic "cow farmer-vs-crop farmer" rent-seeking tradeoff. Do you pay additional to your service provider so that they agree to minimise the effort required to export data later? Or do you accept that one of the reasons that you can receive a service at lower prices is that the service provider captures highly siloed information to improve network effects and decrease departure rates?

In summary, companies will retain the power to retain customers somewhat against their will (ironically -- or perhaps not -- JP's employer SalesForce.com is well-placed to greatly benefit from this change in the source of customer lock-in). But the nature of that lock-in is transforming, there is no two ways about it...

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