Recession-proofing with CRM

Recession talk is all around us and CRM has a role in helping any company get through the slump. How?  Take our quick quiz.

A recession happens when

a.       the economy falls off a cliff

b.      your neighbor loses a job

c.       you lose a job

d.      the economy stops growing

Yes, all answers are right, though economists and people who work inside the Washington beltway might give more credence to the last choice.  You might say, “That’s fine but what does this have to do with CRM?”  You’ll see.

The economy has been growing in a range of 3% to 4% per year which is generally enough to create jobs for the people who enter the market.  About four to five percent of the workforce is at any one time out of work but that’s more of a “float” phenomenon, in other words, it takes time to find that next position once you’ve left your old one.

So, the point I am trying to make is that even in a recession, if in fact we’ve crossed that line, there is still significant economic activity.  For example, the US economy generated about $13.13 trillion in activity in 2006 — the most recent data that I can find — also known as the GDP or gross domestic product.  Absent a recession, GDP should increase every year and the question becomes how to participate in that GDP and CRM can play a significant role in a down economy.

In my analysis, there are two significant parts of a market’s life cycle, the product innovation phase and the process innovation phase.  The first phase occurs when markets and categories are new and vendors jockey for position or market share.  In the product innovation phase, vendors make rapid improvements in their products as a way to differentiate from the competition.  No one worries too much about customer facing business processes — the second phase — at this point because all effort is invested in product and market share.

At some point, however, some competitors drop out and you are left with a core set of competitors who have survived a natural selection process that helped them figure out the business they are in and the products they supply.  That’s when the second phase, process innovation, kicks in.

In the process innovation phase, the competitive differentiation moves from product features to customer facing business processes.  In other words, you need to find ways to make your company easier to do business with — easier than the competition at least.  The companies that have reached this point have pretty good products which might vary by five or ten percent and appeal to slightly different audiences; but those differences are not as significant as getting orders right, agreeable payment terms, simple to understand and execute contracts and the like.  If you doubt this, consider how easily customers switch vendors when things go wrong.

As luck would have it, the process innovation phase of a market and a recessionary economy look a lot alike from this perspective.  In my view even without a recession we would be looking at a market place where product innovation has yielded to the business process.  Some clear markers include the great interest in the direction that has been called Sales 2.0, which encompasses a lot more than selling.  Social networking concepts, analytics, innovative new applications all work their way into the Sales 2.0 idea.  In one way or another, the emphasis in dealing with customers is in getting it right the first time.

Say you make products with many permutations and large bills of materials.  For you, getting orders right the first time is important and that drives — or should drive — an interest in things like configuration, pricing and quotation systems.  These systems help ensure products go out the door as the customer wanted them — with all the subsidiary parts and pieces — reducing the potential for returns, re-orders, credits, and on-site visits to correct a configuration, all of which cost money.

Or consider a company that licenses intellectual or other property that requires a complex contract to cover all contingencies.  The contracting process can add weeks to deal closings and involve attorneys (and their fees) all of which slow down deal flow and reduce margins.  Contract management systems that anticipate the nuances and build them into agreements can short circuit the customer’s legal people from needing to object.

There are lots of other examples too, but my point is that we are in a moment when, for a variety of reasons, we need to think about using some of the new applications that help us as vendors present a kinder and gentler face to the customer.  In many ways a recession is a classic time for excellence in business process execution but at the same time many industries are in a phase when process execution is paramount.  It’s kind of a perfect storm.

Spending money on new technology may not be the first thing on many people’s minds when the economy contracts but as usual the first competitors to take action will be the ones who reap the greatest rewards.  Fortunately, many or even most applications that deliver process improvement are available on-demand at a fraction of the costs that would normally be associated with traditional software.  A recession might not be a lot of fun but we have never had so many tools for combating one.

Comments

[Jason M. Lemkin]

I agree that on-demand in general is well positioned in recession. But, people may buy less of it per vendor. As a SFDC customer, we used to share seats across our company. We're more confident now, so everyone has their own seat. If times are tough, might we be a little less cavalier in who gets a seat? Fear the same thing may happen at our company / ISV as well ... customers continue to buy, and even more customers buy to take advantange of on-demand economics in general, but each customer may buy less of the product ...