You can download a copy of this essay at downloads
The CRM Market Has Gone Majority continued
The Innovator’s Dilemma
Gorillas and adoption curves form up around innovations. The kind of innovation that starts a new curve is called a disrupting technology. The kind that powers an existing curve through successive stages of adoption—also called an S-curve—is called a sustaining technology. This is a distinction that underpins much of Clayton Christensen’s thinking around what he calls the Innovator’s Dilemma. He says,
Most new technologies foster improved product performance. I call these sustaining technologies. . . What all sustaining technologies have in common is that they improve the performance of established products, along the dimensions of performance that the mainstream customers in major markets have historically valued.
Occasionally, however, disruptive technologies emerge: technologies that result in worse product performance, at least in the near-term. Ironically, in each of the instances studied in this book, it was disruptive technology that precipitated the leading firms’ failure.
If you haven’t read Christensen, his thesis and conclusions are unequivocating. Using an examination of the disk drive and excavator markets, he demonstrates pretty conclusively that winners on one technology curve are almost without exception losers on the next. The rational behavior of managers—to allocate capital and resources to known customers and known customers needs—dooms them to fatal vulnerability from attacking, disrupting technologies that derive their market power from positions of importance in new, suddenly vital value networks. Back to Christensen.
First, disruptive products are simpler and cheaper; they generally promise lower margins, not greater profits. Second, disruptive technologies are first commercialized in emerging or insignificant markets. And third, leading firm’s most profitable customers generally don’t want, and indeed initially can’t use, products based on disruptive technologies.
When a market for a class of technology reaches the majority phase of the adoption curve, that market is telling the world it no longer wants disruptive technologies. It wants sustaining innovations based on existing technologies. That doesn’t mean that there isn’t a market for disruptive new technologies, just that the established market isn’t interested. For example, mainframe buyers didn’t want 8-inch drives. They wanted cheaper and better 14-inch drives, so the folks that made them kept working on making that and the supporting technologies better.
Meanwhile, 8-inch drives started out too slow and too pricey by the cost per megabit standards of the day. But their smaller size and lower power needs were great for the emerging mini computer value network, and that’s where they first got traction. At some point the cost per megabit caught up, at which point the 14-inch drive makers were dead. They had almost nothing to offer save familiarity. By that time, the 8-inch technology was better, faster, cheaper, as or more reliable, and smaller. Game over. As Christensen says,
Generally disruptive innovations were technologically straightforward, consisting of off-the-shelf components put together in a product architecture that was often simpler than prior approaches. They offered less of what customers in established markets wanted and so could rarely be initially employed there. They offered a different package of attributes valued only in emerging markets remote from, and unimportant to, the mainstream.
I would argue that the mainstream market for CRM software, and particularly the large enterprise space, is buying the software equivalent of 14-inch drives. The gorilla, Seibel, is sure behaving this way, pouring resources into fleshing out the depth and breadth of its existing products. Their long-delayed release of a web-architecture is exactly what you would expect of a firm deeply beholden to its large customer base with its majority buying behaviors, as well as its investors who value market rate returns on their invested capital. The majority of Siebel’s customers care less about the exciting possibilities of pure-Internet than they do about upgrades and enhancements to a current and understandable technology and feature set.
Majority behaving clients of the other-segment gorillas might be expected to extend their CRM buying preferences to those same providers based on their familiarity with that gorilla, and the supporting value network of operating systems, hardware platforms, and integrators and partners. All of that makes them feel safe.
Majority acceptance of a category means lots of firms likely to buy. By definition, that means big companies are in the market. Market leaders play to the needs of their majority customers and prospects by investing in sustaining technologies, which further solidifies the market around a value network of particular technologies, standards, and players.
The Disruptive Opportunity
I believe second tier chimp and monkey players are left with two viable positions. The first is a majority-like play in the middle market. This is perhaps intellectually unappealing if you crave the cache and market plaudits that accompany a client list deep with Global 100 clients. With all that said, it is a defensible move for chimps and monkeys.
The other possibility would be to pursue a new vision of CRM that features either a truly next-generation architecture or combines existing yet still new technologies in ways that the market leader can’t or won’t. For example, you could explicitly seek to position yourself as a key player in the emerging .net value network (in which case, you better get at it). In Christensen’s words, “Disruptive technologies typically enable new markets to emerge. There is strong evidence showing that companies entering these emerging markets early have significant first-mover advantages over later entrants.”
Market leaders don’t play the disruptive game very well if at all. Their rational planning processes and large size require big markets and big opportunities if they’re going to grow. It’s why firms like Siebel, SAP, Oracle, and their playmates at Accenture, PWC, et al cannot afford to lose in the large enterprise space, and why second tier players will not be allowed to win.
It is also why they will leave the chimps and monkeys alone to exploit new business forms and emerging opportunities. These opportunities are too small now, and by the time they grow, it will either be too late or they’ll just buy the new leaders assuming they can still afford to.
As Christensen says, “It is in disruptive innovations, where we know least about the market, that there are such strong first-mover advantages. This is the innovator’s dilemma.”
But mark these words. If you’re a second tier player in a majority market, and you insist on chasing after customers and partners committed to sustaining a value network you’re not part of, you are doomed to chimp status at best. At very best.
You either need to pick a focused segment or niche and rally there, or declare for a disruptive vision and seek out partners and players who value the new paradigm. By definition, it will not be the same people occupying the majority. The questions are: do you have such a vision; do you think the emerging opportunity will be the next truly disruptive market; and can you find and ally with the other power players in the new game.
What you can’t do is play a bit of this and a bit of that. You’ll get crushed. At least that’s how I see it.
Send mail to
webmaster@kevinhoffberg.com
with questions or comments about this web site.
Copyright © 2002
Kevin Hoffberg
Last modified:
05/03/06