Ronald Coase died earlier this month. He’d had a good innings, he was 102 when he passed away. I never met him; I never saw him speak. But he influenced me greatly nevertheless, an influence that continues to this day and is the reason for this post. Thank you Ronald Coase.
Coase, together with Peter Drucker and Jerome Garcia, formed an unlikely triumvirate in my (then) teenage head. Drucker helped me understand what the purpose of business was and what management meant. Coase let me see how and why firms organised and operated. And Garcia showed me what it meant to bring the customer into the equation. Between them they set the basis of how I approached business life, a basis that itself was founded on the accidents of my birth and upbringing: born in an India just ten years into independent existence, growing up in a libertarian closely-knit loosely-Hindu journalist family and home, educated by Jesuits over the best part of fifteen years, all in a Calcutta that could at best be described as a democratically elected communist city with an imperial past and an imperious present.
You can see why I found the stuff people like Stewart Brand, Larry Brilliant, Howard Rheingold and Kevin Kelly were doing heady and exciting. Of particular interest to me was how they took the empowerment of the individual and made it both individual as well as collective, something that sat well with my roots. You can see why I found The Cluetrain Manifesto unputdownable.
Ah, Cluetrain. That brings me nicely round to why I wrote this post, the topic of the “constant customer”.
The constant customer is a theme that’s been running through my mind for some decades now. Coase’s work helped me understand why a firm formed, how firms could lower transaction costs, what those transaction costs were. Drucker, with his purpose-of-business-is-to-create-a-customer approach, made sure I realised that without the customer, the firm meant nothing. And Garcia et al came along and showed me that in days to come, there would be no such thing as customer lock-in. That they would be free to leave. That they could and would choose to stay, if the circumstances were right. Cluetrain then reminded me that it wasn’t happening, and that it would.
And it is.
When I watched Marc Benioff talking about the Customer Company, he spoke about customers being connected in whole new ways, and about companies needing to “pivot” to the customer. And it made me think even harder about the “constant customer” theme. [Disclosure: As most of you know by now, I work for salesforce.com; this is just in case you didn't].
When customers have neither choice nor mobility, they can, to a large extent, be ignored. And so they were ignored. Focus was placed instead on optimising products, on reducing transaction costs associated with products. Companies that built experience in a particular product set could then scale up both volume as well as reach, and everyone was happy. Model T happy. Any colour you like as long as it’s black. Focus on the product, not the customer.
Being a product company made sense. Products didn’t complain or talk back. And customers had nowhere else to go anyway.
In it, they spoke about a number of key shifts; here I focus on two: from stocks to flows, from experience curves to learning curves. When trying to understand what they meant, I found myself going back to the theme of the constant customer. A “stocks” world was one where you worked on optimising products, occasionally (hallelujah!) changing them, staying incremental as much as possible, looking hard at reducing unit costs. The market moved slowly, the customer couldn’t move anyway. And so in a stocks world it was natural that companies that could scale experience did so and did so successfully.
In a “flows” world, the market is no longer static, and the customer is free to move. There is no “constant customer” any more. Keeping unit costs down is important, but not as important as reducing the cost of change. Because change you must. That’s what pivoting to the customer requires. That’s what is implied in moving from the experience curve to the learning curve.
In a stocks world you can focus on the product and not care about the customer; the skills that matter are principally related to engaging with the product. You worried about what the product “wanted”, you “listened” to the product, you “related” to the product. And all your communications were product-centric.
In a flows world, the skills that matter are radically different, they’re now about engaging with the customer. Flesh-and-blood people. You now have to care about what customers want, you have to learn to listen to them, you need to understand how to relate to them. And your communications need to become customer-centric.
This movement from stocks to flows, from experience to learning, it’s not easy. For one thing you have to value different things. You have to learn how to value the cost of change, not just unit costs. For decades we’ve been building monolithic systems — people, process and technology — that had as their prime objective reducing unit costs. Standardise the hell out of everything. Tariff up the cost of change. And throw volume at it until blood emerges from stones. At a level of abstraction, that’s what the outsourcing model was, that’s why private equity likes stable-market cash cows.
If products can’t adapt at the speed demanded by customers, they will die. From a customer’s perspective, their transaction costs have gone down rapidly with the advent of the web, and, more recently, their costs of change have zoomed downwards as well. They can find what they want more easily, whenever, wherever. They can discover the price to pay, quickly, easily. And they can move away with ease. Lock-ins get scarcer every day.
So when the customer’s cost of change is low, the company needs to adapt and learn. Companies need to move from monolithic architectures to platforms and ecosystems, so that they can begin to move at the pace of the customer and the market.
When companies move at customer speed, when companies are aware of customer needs, when companies listen to customers, when companies value the relationship with a customer, the customer becomes a constant. Again.
The constant customer existed once. Because she had nowhere else to go.
The constant customer can exist again. Because she chooses to stay.
But this requires a “flows” mind, a “learning” approach, adaptive platforms and ecosystems, an ability to listen to the customer, an ability to respond.
An ability to pivot to the customer, perhaps.