23rd May 2011
Social CRM may never reach its potential if firms are still governed by command-and-control management and goods-dominant logic. But is it realistic to expect this to change? Bob Lusch believes so.
A great deal of the conversation surrounding social CRM still talks in very company-centric terms. It focuses on social media as a channel. It looks at social through the lens of sales, customer service or marketing. It talks about people in terms of their ‘influence’. And, of course, there is huge interest in the associated tools and technologies.
But what if it was different? What if social CRM wasn’t really about channels, influencers, departments and technology? What if it wasn’t about your business at all?
The leading thinking suggests that social CRM could transcend all of this. Thinking about it in terms of sales, marketing or service is too parochial when we could be providing a platform for value co-creation with customers.
Indeed, in a recent article on MyCustomer.com, Social CRM at a crossroads: Where to next?, customer-centric innovator Dr Graham Hill went as far as to suggest that while businesses may approach social CRM as a new technology or just another communication channel to market, using it as an enabler for value co-creation throughout the customer and product lifecycles is "the only sustainable track".
He added: "This is the only track that is designed specifically around maximising the value created for customers as well as for organisation; through the intelligent use of social CRM at just those touchpoints where it makes sense. It is also the only one that provides the organisation with the sustainable success from social CRM that they are looking for."
Maximise social CRM’s value it may, but in order for this to become a reality, businesses will need to to cast off the value-in-exchange and embedded-value concepts of goods-dominant logic (GDL) to embrace the concept co-creation of value that is informed by service-dominant logic (SDL). And with goods-dominant logic having held court since the industrial revolution, is there really any hope of that happening?
A flawed logic
A concept mapped out by Bob Lusch and Steve Vargo some seven years ago, SDL takes the view that value is created when a customer consumes or uses a product/service, compared to the traditional GDL assumption that value is created when a product is manufactured and sold. In the SDL world, value is not something that is added in the process of manufacturing or released when the product is sold – its value is ‘in use’.
While GDL is the predominant logic at present, it is a flawed logic, says Lusch. "If we take a company that makes cars, the car actually gets integrated into everyday life, so it’s not only a wonderful car from a mechanical and engineering perspective, and the comfort and driving experience, but that car also needs petroleum, servicing and financing. It also becomes a communication platform. You also have to insure it. So if you are just in the automobile business you don’t see all the possibilities of all the services that could be integrated with that product, because you become so specialised and focused on producing an automobile.
"The bottom line is that with an SDL we are trying to look at how actors need to come together, whether they are consumers, suppliers, firms or different stakeholders, and how we integrate efforts within the firm. The industrial organisation bureaucracy created increased specialisation and separation, and with separation people get alienated and frustrated as employees and customers."
But how can SDL unseat GDL as the common logic – businesses have been happily making profits for hundreds of years with a goods-dominant logic, so where is the motivation for them to reinvent their business for SDL and value co-creation?
As it happens, this motivation is already on our doorstep, according to Lusch – and furthermore it is fundamentally connected to the roots of social CRM. Coincidence?
"In the 1700s, the quickest information travelled was through rail road. The reason we had a separation between workers and the firm and middle management and top management and all the specialists is that communication flowed very slowly. And the reason that SDL is becoming more popular now is the information revolution," explains Lusch.
"With SDL, many people can be talking to many other people. You have systems specialists talking to other systems specialists to better integrate things together – and of course one of the best systems specialists is actually the customer. If a customer is a surgeon using high-tech medical equipment from GE, that surgeon knows the equipment best, not the engineers at GE. The customer knows Jaguar better than Jaguar. Or the experience of eating at a restaurant. And now they can share their thoughts with other individuals because of the information revolution.
"Any company that wants to have a command-and-control bureaucratic structure is not going to be able to do that now because the genie is out of the bottle and through the internet all of these actors are able to interface and talk with each other."
Lusch also believes that the present economic environment will provide a push towards SDL. Under goods-dominant logic, businesses have a tendency of getting ahead of themselves during periods of growing demand, such that when the economy slows they are left with a stockpile of products, demanding that firms cut back on labour, inventory and raw materials. However, if organisations sell a flow of services instead, they have a much more stable model. For instance, if a company provided a serviced building rather than selling the premises, there wouldn’t be a big sale immediately, but a regular fee would be collected so the revenue becomes stable. "Trying to think through how you develop and help stimulate an economy based on flows instead of big stockpiles of things is really important I think," says Lusch.
Peter Drucker once said: "The greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic." The combination of economic instability and the disruptive technology spearheading the information revolution are certainly creating a time of turbulence – but are firms ready evolve from goods-dominant logic to service-dominant logic? And, more pointedly, is this a discussion that is even taking place within organisations – or is it a dialogue exclusive to practitioners?
Certainly come corporate conversations are being held around product co-creation and collaboration with the customer, and more and more open innovation programmes are being set up by enterprises. But is there any evidence to suggest that boardrooms are really chewing over SDL?
Lusch is adamant a change is coming.
"The biggest change we see, surprisingly, is not in companies that are traditionally thought about as ‘services companies’ and selling intangibles. The biggest changes are in companies that are selling tangible goods, because these goods, through increasing outsourcing and offshoring, have become commodities and so the way you different your good is through the customer experience as well as realising that perhaps people don’t want to necessarily own the product per se."
Lusch points to Rolls Royce with its Power By The Hour performance-based contracts for engines and other avionics products that were sold to commercial airlines. A programme that was introduced 20 years ago, in more recent times aircraft suppliers such as General Electric and Pratt & Whitney have offered similar schemes. And this may be only the thin end of the wedge, says Lusch.
"Now BAE and Lockhead are saying well maybe we just maintain those planes, and military pilots fly them but everything else we’ll do for them. Because really what the military wants is access to the service that comes with the jet. And so I think you’re seeing more and more companies out there understanding that when a new office is built, a company doesn’t want the building per se, they want the information infrastructure, temperature and humidity within a certain degree, the windows washed, the carpets cleaned. Do a number of innovative companies in the construction business, who would have traditionally constructed and sold buildings, are now constructing, financing and operating the buildings for you, including all the telecommunication channels and services and heating and air conditioning and so on. So we are seeing a lot more happening."
Nonetheless, Lusch concedes that SDL isn’t for the faint of heart. There is no halfway house. It requires a commitment – both strategic and cultural – from the top to the bottom of the organisation. In short, for SDL to be realised within businesses, to put us on the "sustainable track" of social CRM, it will require a major overhaul.
"Companies try to adopt service-dominant logic but if they still have the traditional management and account controls it won’t work. You need controls. There’s nothing wrong with control. That is where you manage your expenses and so on. But a lot of those measures are based on a really goods-dominant notion – that if I sell the item then I get a huge sale and I have made my quarterly goal as opposed to seeing a flow of services."
He concludes: "The most important thing to recognise about markets is that they are really coordination mechanisms, and the way we coordinate our activities is through information. And so you have to think about how you get involved with the customer in co-creating the brand, using social media to your advantage, even though you can’t control it. You only have to look at what is happening in the Middle East through Twitter and Facebook, where a grassroots or net roots movement becomes much more powerful than any type of command-and-control from one government, trying to force its values on other groups."