Digital change demands a revolution in the software vendor-customer relationship

Profile picture for user Christian Pedersen By Christian Pedersen October 15, 2020
In today's fast-moving world, software vendors must collaborate with customers to develop innovative solutions to their business needs, argues Christian Pedersen, Chief Product Officer at IFS

Hockey stick and puck on an ice rink © Vasilev Evgenii - shutterstock
(© Vasilev Evgenii - shutterstock)

Business processes were once relatively static. New technologies would drive incremental process improvements, shaving off minutes or hours of work, or increasing productivity by several percentage points.

In this environment, a software vendor work with their customers to identify improvements in their products that would help their customers achieve these process improvements. A mobile maintenance tool may eliminate time maintenance technicians spend on data entry at the end of their shift, increasing wrench time. Improved financial consolidation tools eliminate time spent closing out the books for the month.

But in their book, McKinsey partners Chris Bradley, Martin Hirt and Sven Smit document how even before COVID-19, businesses were transforming themselves in ways that demand more than incremental improvement of static processes. In Strategy: Beyond the Hockeystick, they identify a new cadre of digital leaders that can make big changes in their organizations quickly and well. They describe these moves in a recent article, stressing that each of these moves must hit statistical inflection points to disrupt the market:

  • Productivity improvements are still in the mix, but only if productivity improves by 70% versus competitors over 10 years

  • Differentiation moves through innovations like driving artificial intelligence (AI) into products and services resulting in margin improvements 25% above the median

Managing portfolios of resources and businesses will be important in three separate areas, they say:

  • Resource reallocation as companies shift 60% of their capital spending across businesses or markets over 10 years

  • Merger and acquisition activity that scales to 30% of a company's market capitalization over ten years

  • Capital program management at scale, with a ratio of capital expenditure (capex) to sales over 1.7 times the industry median over 10 years

Truly customer-centric development

Because things are moving so fast, the software vendor must look not just at the customer problem to be solved today but ensure the customer will be able to make the big moves required to grow and succeed. In a real customer-centric approach, the software vendor must start by defining the experience the customer is getting over the decades they run an enterprise software product.

Historically, a software vendor would originate a product idea and a research, and a development team would identify a technical way to deliver it. Because they were 'customer-centric', at various stages of this process, the software vendor would solicit feedback from the customer or prospect community.

This is customer-involved — not customer-centric.

A true customer-centric approach must take into consideration not just current business processes, but all the processes a customer may use to create value in the future. We are not just trying to reduce hours from a current process but increase agility so the customer can do things completely differently as needed.

Structural changes to the software vendor

Our industry is changing — and needs to change even more — towards a unified approach to product management, product development and even product marketing. The importance of product management has increased dramatically, and the women and men in these roles must have a diverse knowledge base and skill set. This role has become more technical and requires someone who can deeply grok the technology side and the business acumen to understand the rapidly changing strategic outcomes the customer organization must achieve.

While product management has often been siloed with marketing, today these individuals must sit with the research and development team so they can appreciate and leverage the latest and greatest technology and solution thinking.

In the past, a product manager understood the customer use case, but today they are redesigning the use case collaboratively with the customer. If we only involve the customer through soliciting feedback, we can only help them replicate their past experiences.

Structural changes to the customer organization

While user experience used to involve leveraging human-computer interaction thinking to improve the user experience (UX), we will increasingly take the 'user' out of UX. Software will be used less, but do more, enabling executives to focus on other things.

A director of accounts payable and her or his team may today use enterprise software hands-on to manage the complexities required to ensure revenue hits the books. But the software vendor and that accounts payable team can now choose to obscure these complexities by using robotic process automation (RPA) and artificial intelligence (AI). Rather than driving incremental reductions in days outstanding and hours devoted to managing collections, this collaboration must focus on how roles or processes can be automated.

Working together, the software vendor and its customers must determine the most graceful and appropriate way to automate administrative detail so executives and management can focus on what is happening next rather than current operational detail. Currently, AI and RPA in enterprise software such as enterprise resource planning (ERP) suites often simply add value to very specific processes. An inventory management algorithm may use predictive modeling to determine when to re-order a certain part, streamlining the work of the supply chain management and purchasing team. But we will instead streamline the entire process of acquiring parts and material required to meet projected demand, even taking advantage of fluctuating commodities prices. We will be so busy focusing on moving the business forward, we need to delegate these operational details to technology.

Progressive technology enabled by progressive business thought

As stated, this has implications for the software vendor, because research and development and product management can no longer be housed in ivory towers, insulated from customer realities. Failing this, we will only replicate the current situation where more forward-looking projects such as internet of things (IoT) initiatives fail at a rate of 76%.

Many of these projects are technically successful but never come into production. Why is that? Oftentimes it is because of that disconnect between research and development and the customer situation which prevents full adoption. Technologists may fall in love, for instance, with proprietary augmented reality (AR) hardware that is not practical for the customer, preventing a years-long effort from bearing fruit. A customer-centric approach may result in an AR project that relies instead on mobile devices already used in the business. This is a simple example, but it is highly illustrative.

Development with the end point in mind

Today's software vendor must be both humble, deferring to the needs of the customer, and bold, to establish new ways of satisfying those needs. Rather than new product features, we must collaboratively identify new business outcomes the software must support.

This requires a commitment to the future on the part of the customer organization, and a new level of customer-centricity on the part of the software vendor. Collaborative teams that get this right will be the ones behind the market leaders in a new, disruptive time.