Enterprise Software Manufacturers Rediscover the Wheel?
Large vendors are muscling into the customer innovation space. At any rate, they think they are. One company claims to have found empathy. Another is providing marketing tools for customer-centricity. Don’t you get the feeling that these are not the right approaches to customer-centricity and customer innovation?
After all, customer-centricity is a business mandate, not a marketing program. Companies can’t become customer-centric by bolting on some processes to existing business methods. And, it’s a bit difficult to develop corporate empathy after 50 years of locking customers into proprietary technology.
It’s a curious case. Using high profile customer-centric techniques, like design-thinking, without the customer-centric ethic.
Major software manufacturers remain product-centric. Company-centric.
These are companies known to sue customers when implementations fail, sue customers for indirect licenses, and sue customers after predatory software audits.
Why have Enterprise Resource Planning (ERP) Adopted Design Thinking?
There was a time when high operating costs for ERP operations were considered “the cost of doing business”. Operating costs were lower than mainframe alternatives. And, there was more choices for computing infrastructure because ERP software was ported to many systems. There were far worse choices than ERP.
ERP incumbents thrived through acquisitions, cutting competition down, as shown by the ERP Graveyard maintained by Ned Lilly.
Then came the cloud. The ERP vendors created products for Software-as-a-Service. Underwhelming products like ByDesign and Fusion that followed many legacy ERP assumptions. Meanwhile cloud-native vendors like Salesforce and Workday gained market share rapidly.
Cloud-native software is easier and less expensive to use and manage. Incumbents were at a disadvantage. Something had to be done.
The ERP vendors followed the legacy approach with acquisitions of cloud firms Ariba, Collides, Concur, Eloqua, Fieldglass, Hybris, Netsuite, RightNow, Successfactors and Taleo, among others.
These acquisitions didn’t stop the erosion of “organic” revenue growth. And, the Gartner Group called out these vendors as “legacy ERP” in early 2014. “The need for agility and responsiveness has led highly customized ERP implementations to an impasse, creating a subset of legacy ERP installations that must be dealt with constructively,” said Andy Kyte, vice president and Gartner Fellow. “Early ERP adopters, particularly large enterprises in energy, manufacturing and distribution industries, are paying the penalty of a decade or more of excessive customization. Businesses looking to improve administration today can take advantage of lower costs, better functional fit and process flexibility offered by blending cloud applications with on-premises applications in what we now refer to as ‘postmodern ERP.”
Acquisitions were not enough. Something else had to done – enter design thinking, and proprietary frameworks like Leonardo. It’s hard to explain what Leonardo is. Everything but the kitchen sink? Somewhat like the old Saturday Night Live skit about Shimmer: a dessert toping and a floor wax.
We’re faced with the barrage of vendor hyperbole. Exaggerated claims. Screaming press release headlines, every word capitalized. This marketing noise can hide how manufacturers are beginning to reduce services footprint in product implementations in order to compete with SaaS and agile vendors. That’s because design thinking and agile are scientific approaches that are more efficient than traditional waterfall methods. And, more successful.
We’re at the tip of an inflection point where products and services are coming together. Systems integration firms are building agile and digital transformation skills that are becoming less captive to major enterprise software vendors. And, the major enterprise software vendors are getting into the services business in big ways. But, these vendors are doing so in the wrong way.
Product-Centric vs. Customer-Centric Design Thinking
It struck me that ERP manufacturers have used a form of design thinking in the past. They design the problem: costly customization, proprietary legacy technology, disappointing project outcomes, and high operating costs. Then, design the solution: “run simple“. (As if it was the customer’s fault.)
What’s the difference between product-centric and customer centric?
Customer-centric:
- Focuses on problems rather than a portfolio of solutions, or so-called “best practices”
- Recognizes that the vendor could be the problem
- Looks to process and behaviour change rather than assuming that products are solutions
- Thinks customer first – customer-think
Product-centric:
- Leverages proprietary vendor software, such as vendor software frameworks, user interface design, and cloud technologies
- Uses sets of company experts to steer customers towards products including vendor domain experts, user interface experts (to “certify” solutions)
- Focuses on “industry best practices” to homogenize solutions
- Thinks product first – product-think
This product-centric notion: prototypes must use proprietary cloud, proprietary software, and proprietary user interfaces (no matter how elegant), is not what the theory of constraints is about.
Product-centric companies are all about expanding coverage through reusing existing functionality. Customer-centric companies are all about solving problems even when those problems may have little product implication.
Product-think vs. Customer think – the Heart of the Matter
It’s difficult for product companies to transition to customer-centricity. To consider customers as sources of innovation. Traditional product management believes that customers are too close to problems to provide any more than incremental insight. And, few companies exercise product management discipline in the development or new services.
Most software manufacturers think product first. Product-think. Product-think is all about best practices, standardization, and homogenization through the focus on similarities. Product-think vendors try to place customer needs into convenient slots. Square pegs forced into round holes. Product-think vendors follow the ceremony of design thinking and agile to build prototypes before sucked into the customization whirlpool.
Customer-think is all about appropriate practices for the situation. Many businesses run unique practices that are differentiated from competitors. “Best practices” are not best for them. Standard practices are not good enough. Technology should enable differentiation. Meanwhile, government organizations operate with legal mandates. So-called best practices are often not legal. And, many standard practices in ERP software are inappropriate for government. Customer-think is all about differences – what’s different among market segments, what’s different within market segments.
Product-think vendors lack of respect for customers, particularly in technology knowledge. These vendors see customers as behind the technology curve. That’s because customers focus on solving problems, and managing operations – they don’t obsess about technology as vendors do.
You’ve probably seen the major vendors explaining to customers: “what you need to understand is..” That’s because the vendors think they’re cleverer than customers. They use information asymmetry to sell inappropriate things. They make customers pay to attend annual conferences. Where they set expectations around product roadmaps – what customers will get, and when they’ll get them. They present new features as innovation.
Break the Broken Enterprise Software Business Model
The Enterprise Software and ERP business model is broken. Even SaaS companies are on an acquisition spending spree. This legacy business model is broken, especially in this era where power is shifting to customers. Where institutions and large companies no longer enjoy significant information asymmetry. How is the product-thinking legacy not fit for purpose?
This traditional model is all about rent-seeking. (Don’t be fooled, rent-seeking, lock-in, and developing virtual monopolies are taught as reasonable practices in many business schools.)Acquire more companies (especially the customers from these companies.) Lock customers into proprietary technology to increase switching costs. Attract services partners who act as co-conspirators through the promise of customization revenue. Release new products in search for problems. Make switching costs onerous. Seek to extract more wealth from customers. Repeat.
We need to break this broken model through genuine customer innovation.
Customer innovation is all about finding solutions to problems. About embedding into customer issues and opportunities. About social responsibility and ethics. About earning loyalty.