IT Business: Maintaining Relationships in a Disruptive Business Model

The IDC Top 10 Predictions for 2008 (just published) make a strong case for market leaders to embrace 'disruptive business models' in order to capitalize on hyper-emerging markets such as SMB and Brazil. Russia, China, India. "Disruptive" implying embracing ‘whatever channels, media and processes work for that market’.

The inference is toward customer-centric marketing. The function of customer-centric marketing is to increase loyalty, frequency and continuity within the customer relationship for sustainable business growth. Continuity means stick-handling significant change (business model, processes, values, economic climate et al). The substrate of each relationship is consistent support of the customer’s values. (You can substitute 'customer' with: reseller, distributor, strategic partner or investor.) Success will depend on your flexibility to support relationships through changing paradigms.

Managing the Relationship Lifecycle

In customer-centric marketing, the relationship attachment is understood as being formed by the customer, once they have located a supplier that represents their values. The lifecycle of the relationship depends on the supplier's focus on the customer’s values, even when they change. Should the supplier fail to deliver to the customer's values, the customer will breach the relationship.

To maintain a relationship throughout a lifecycle requires the supplier to mature its relationship along a customer value curve through whatever changes in technology, economics and business function the customer experiences.

This is counter-culture to those technology vendors that pull out of legacy technology and force customers to change in order to establish a new revenue plateau. This creates a fresh opportunity to lose a customer. Regrettably, it is also counter-culture to many customers that have become cynical through vendor-centrism to purposely exclude their vendors from knowing when and how their values change. This is a symptom of a lack of trust, that takes demonstrable proof of commitment to bring you into the inner circle of customer needs. But that is the goal of a true customer-vendor partnership.

Redefining The Business Model Based On Relationships

Since new customer relationships form on a continuing basis, it is critical for the vendor to understand how many different types of relationship it must support across different values. To put all Enterprise, or SMB customers under a single set of values is too rudimentary, as there are multiple sets within each segment.

This is where the Disruptive Business Model takes shape. In a customer-centric framework, all relationships invoke disruptive business models. Since the mechanics of the relationship are customer-driven, all processes, technologies, deliveries and service levels are customer-oriented. This means that the vendor framework needs to be adaptive in the delivery of its solutions and services. Supporting the customer relationship is a matter of saying “Yes.” and then delivering on all counts. Channels to market can be redefined, service delivery processes, media and points of engagement are all up for consideration.

Having run a customer-centric business service for the past 11 years, the service I provide doesn’t change, but how it is provided is governed by each client. Extrapolating from a small business to a large business is easier than you might think, because customer values are shared across multiple customers. In the same way that psychologists catalog personalities, an astute marketer can catalog customer values into distinct categories. What is distinctive about customer-centric marketing is that the values are always relative to the product, whereas, in demographic analysis, segmentation is relative to the target audience. It means you have to reverse the telescope to understand your market segments from a customer-centric perspective (see: Which End of the Telescope Do You Use? previous blog entry.)

Embracing the Disruptive Business Model

To orient your service relationship to embrace new markets demands a customer-centric approach to delivery. Your business model will be dictated by the customer segment and values. This requires a synthesis of targeted customer research and blue-sky thinking in your approach to satisfying their needs. Asking the right questions is critical, duck-tape solutions are suicidal. Learning and adapting to the answers your customers provide will allow your relationship to grow. Nurturing the relationship will drive loyalty, frequency and continuity.

It is important to dissociate emerging markets from mature markets, as their culture and their impetus have no affinities. Dissonance occurs when a market maker adopts a new model of service delivery for a particular segment and, in its haste to win kudos, markets to all segments. This can breach entrenched relationships that were already committed to a different model and value set.

Example: HP and Dell.

When HP pushed its direct business model to compete with Dell, it created many conflicts within the reseller channel over the mechanics of the process. For Dell now to do the reverse and incorporate channel resellers to its business model is more an issue of semantics, than the mechanics. Yet, both strategies should have been equally open to both parties. The difference is that HP's direct model was publicized broadly before it was established, whereas Dell's reseller model was established quietly before it was made public. Dell can demonstrate a track record of end-user and reseller benefits to support its public policy. Had HP quietly created a build-to-order, direct model for a specific market segment without disrupting the entire spectrum of its channel strategy it would have more strings to its bow today. The HP push for unilateral change resulted in a few years of dismal performance until it refocused on the channel.

In the IT market today the channel has the upper hand and HP is succeeding by maintaining its focus. In 20-20 hindsight, had Dell worked as earnestly on the channel in key segments at the time that HP focused on its Direct Model, I believe that Dell would have run HP out of town by now.

Ensuring the Long-Term Viability of Your Business

To embrace new customer-centric delivery systems extends the future of your business. Otherwise your customer base will stagnate. The number of vendors that have been submerged by more adaptive businesses reads like a Hollywood Boulevard of famous names that fell by the wayside.

Moreover, the skills you acquire in the process of adaptation will eventually become of value to your mature markets. Just don't foist new processes onto mature market segments for supplier-centric reasons, because you might kill off valuable customers.

I have personally witnessed this calamity in a vendor that moved to a new technology platform 4 years ahead of the market and found itself unable to upgrade its legacy customers to support its R&D investment. The business survived, but never recovered.

Conclusion

I believe that IDC is advising a customer-centric approach to emerging markets through the challenge of embracing disruptive business models, even if it doesn’t use such terminology. BRIC and SMB are large scale market propositions that can be broken into subsets of many unique customer values. Taking a unilateral decision to use disruptive business models as a "One solution fits all" is a dangerous gambit. In embracing the concept of disruptive models, a vendor commitment to change has to be balanced with a good grip on existing relationships, to keep everything customer-centered. This is the technique of maintaining relationships while moving over to disruptive business models: you must comprehend that every new relationship has the potential for disruption, and the only norm is your commitment to supporting it.

This is a philosophy that penetrates deeply into the business and needs to be embraced throughout the corporate culture, not just on an opportunistic basis. I anticipate that the vendors who will succeed in following IDC’s insights will be those that are able to maintain multiple models to support multiple relationships, and that the ones that will fail will be those that impose change for self-serving interests.