The relationship economy and vendor relationship management


This is great! Doc Searls of The Cluetrain Manifesto fame has written an extremely rich and interesting piece titled Building an Relationship Economy. He begins by describing a series of stimulating conversations, during which Eric S. Raymond, author of The Cathedral and the Bazaar, one of the seminal pieces of the open source movement, suggested that there are three levels to markets: transactions, conversations, and relationships. Doc goes on to discuss several perspectives on the relational foundation to the economy, notably in open source projects, but also in public broadcasting.

Towards the end of the piece Doc alludes to ProjectVRM, which is a project to explore “VRM”:

VRM, or Vendor Relationship Management, is the reciprocal of CRM or Customer Relationship Management. It provides customers with tools for engaging with vendors in ways that work for both parties.

CRM systems until now have borne the full burden of relating with customers. VRM will provide customers with the means to bear some of that weight, and to help make markets work for both vendors and customers — in ways that don’t require the former to “lock in” the latter.

I will be following this very closely – there are already some very interesting resources on the site. I have to admit I’m guilty of writing a White Paper for Microsoft titled “How to Lock-in Your Clients,” though I think the spirit of what I write in the paper is in keeping with the project:

Wouldn’t it be wonderful if you could lock-in your clients, make them yours forever more? It’s a nice idea, however the reality is we live in an increasingly open world. Today it’s almost impossible to get clients to buy closed systems that would mean substantial switching costs if they then chose to move to another supplier. Given a choice, clients will always go for the option that gives them more flexibility. The trick is to create lock-in in a business environment in which systems and standards are more and more open.

In this world, the only way to lock-in clients is by consistently being able to create more value for them than your competitors can. This is a positive form of lock-in, in contrast to the negative lock-in of trying to make it expensive for clients to leave you. There are three key foundations for how professional services firms can keep clients coming back through positive lock-in.

1 You know your client better.

It is nothing new for professionals to have to know their clients well. It is just that now doing this better is the primary field of competition. Today, it is important not just to know your client better, but also to apply it in customizing your communication and service delivery, as discussed above. If you do, this creates a very powerful form of lock-in through the unique value you can create.

2 Your client knows you better.

If your clients understand the way you work, your people, your processes, and your capabilities, this means that they can get more value from you. They can align their processes with yours, and more easily apply your services internally. In order to switch suppliers, they would have to start from scratch in learning about how another company works to achieve these benefits.

3 You are embedded in your clients’ processes.

The fact that business processes can now be readily allocated across organizational boundaries has uncovered a whole new domain for professional services firms to embed themselves in their clients’ workflow. Once you have put in the effort required to become an intrinsic part of your clients’ work processes, they can experience how much more value you can get for them.

In fact my next book (still in the planning stages) will deal with precisely the topic of the ProjectVRM website/ wiki. How do you find the very best suppliers, and collaborate with them in such a way that you get the best out of them? This is indeed a direct complement to my first book, Developing Knowledge-Based Client Relationships. The book looks in detail from a professional’s perspective about how to build close, collaborative, relationships, that bring together the expertise of client and supplier in unique, high value ways. Clients now have to transcend the drive to commoditizing their providers, to create a playing field in which their professional suppliers can create fantastic things for them, and often the community at large. I believe this is a major emerging theme in the global economy, as reflected by Doc’s words and this initiative.

2 replies
  1. Grant Aldrich
    Grant Aldrich says:

    Hi Ross,
    I’m a big fan of your first book, and I try to find time to check in on your blog here and there as well.
    In our firm, we have used our CRM to double as as a VRM (which I am sure is still the most common deployment) to manage vendor relationships, qualify new vendors, capture knowledge about the vendor on a project basis etc. I agree that the drive to commoditize their services is not directly aligned with the demands of a knowledge based firm.
    It is more important that our vendors have the creative and technical ability to develop solutions based on the unique problems we address for each individual client.
    If we were qualifying vendors solely on the premise of minimizing cost, we would never be able to meet the demands of complex client projects and provide the necessary value to maintain client relationships.
    When do you think you will releasing your new book?
    Grant Aldrich

  2. Ross Dawson
    Ross Dawson says:

    Hi Grant, sounds very interesting! There are still a minority of firms thinking like this at the moment. Realistically the book won’t be out until next year – I have some pressing short-term commitments, it will take a bit of work to write :-) then there are the usual 6 months from finishing a book until it gets on the shelves…

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