Mr. Darwin, meet Mr. Smith

Posted: April 18, 2007 in CRM

Last week I got into the idea of evolution as it relates to the technology market and used Microsoft and salesforce.com to illustrate the need to keep multiple plans percolating so that a company can take advantage of a move in the market. 

Evolution is an important filter through which I view the world; some people see baseball metaphors but I wonder about Darwinian implications.  When I started my company, Beagle Research Group, people naturally thought I had named it for my dog.  In fact, I have a dog, but it’s not a beagle.

When I was naming my company I was thinking about the HMS Beagle, the ship that carried Charles Darwin around the world on a five year voyage during which he collected the data and specimens he would need to formulate the theory of evolution.  A lot of people confuse the idea of evolution with some of the more controversial implications involving people and monkeys, and less than half say they "believe" in it, but I won’t go there.

The easiest way to understand evolution is in its most universal context, change through time.  It’s a simple algorithm involving a few basic components — start with something, make modifications, test them in the real world and those that fit the given need the best will persist while the less successful won’t.  Then repeat it all over again.

A company with multiple products in development follows this approach.  It is really nothing more than having multiple variations in a population and letting selective pressures determine which ones become important.

We see this progression all the time from venture capitalists with a portfolio of companies to TV shows.  The ones that do the best get more resources and a chance to play another day while the others get canceled.  It might seem harsh, but who is going to be willing to fund something that doesn’t work?

There is actually a new way of thinking about economics, called complexity economics, which views economics through the Darwinian lens and comes up with some better explanations for the way the world works than the classical economics handed down to us from people like Adam Smith. 

Just as I won’t get into monkeys here, it is not my intent to go deep into complexity economics either, there isn’t enough space.  If you’d like to know more though, I can recommend "The Origin of Wealth:  Evolution, Complexity, and the Radical Remaking of Economics," by Eric Beinhocker.  The book is published by Harvard Business School Press and the jacket says Beinhocker is an adviser to McKinsey & Company, so dob’t let the "radical" in the subtitle throw you: this is not "The Communist Manifesto."

Beinhocker provides the theoretical underpinnings for Clay Christenson’s observations in "The Innovator’s Dilemma," which I think does a good job of explaining the ebb and flow of individual innovations.  If I had to boil it down, the reason for loss of market share it would be failure to innovate and I wonder if we’re seeing some of that failure today in enterprise software.  I don’t know how else to explain the tepid response many vendors have so far given to the Software-as-a-Service movement.

More importantly for CRM though, is the fact that our industry is subject to the same forces pulling and pushing other industries around even while it does some pulling and pushing of its own.  The recent and continuing focus on the customer experience is a classic example of evolution working for both CRM and its customers. 

At the broad market level, many companies have discovered that the Wild West atmosphere of the early high tech era is gone.  In place of boundless opportunities in countless new markets, companies have increasingly found that they need to sell something else to the same customers who bought in the hay day or face dire economic consequences. 

So what is evolutionary theory telling CRM?  It’s time to change.  CRM’s customers need help discerning the forces acting on them in their markets.  These forces are principally, though not exclusively, end customers who want things — new things and improvements to old things.  But what to do first?

To meet these needs companies may have to develop new or expanded business processes which will be supported by new and different applications.  If Christianson was right, and I think he was, then you won’t find many existing software suppliers building and integrating these applications.  Many of these new applications will come from new companies devoted to these new ideas. 

Also, because these emerging companies want to work with the latest platform technology it means a large number of them are developing for the on-demand market.  Next week I will visit salesforce.com’s new incubator.  The idea of the incubator is pretty simple: bring together a bunch of innovators and give them the tools and business help they need to develop new solutions, make modifications and test them in the real world.  Then repeat it all over again.

One of the interesting things in my mind is that an incubator strategy might at least partially supplant conventional venture capitals.  Even the wizards of business evolution are not immune from a little natural selection.  Imagine that.

So, what did you think?

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