The Innovators Dilemma and Selecting a Compliance Vendor

The Innovators Dilemma and Selecting a Compliance Vendor

In 1997 Clayton Christensen published The Innovators Dilemma: When New Technologies Cause Great Firms to Fail.  Taken from the Wikipedia page: Christensen suggests that successful companies can put too much emphasis on customers’ current needs, and fail to adopt new technology or business models that will meet customers’ unstated or future needs; he argues that such companies will eventually fall behind.

Christensen calls this “disruptive innovation” and gives examples as diverse as the personal computer industry, milkshakes, and steel minimills.

How does the Innovators Dilemma apply to selecting a compliance vendor? It applies across the board from budgeting, to scope and ultimately to vendor selection but first lets examine the concepts in further detail.

Christensen states: “An innovation that is disruptive allows a whole new population of consumers access to a product or service that was historically only accessible to consumers with a lot of money or a lot of skill.”

The thesis of the book is the incumbents in markets – especially large and well entrenched markets –  (so think the compliance software space) seldom survive fundamental technology changes in their industries.

 Let’s look at Salesforce.com.  In 1999-2000 Sales Force wasn’t doing enterprise-wide installations at Merrill Lynch, Dell and Cisco.  That would have been laughable.  They were serving a latent market need for mid-sized businesses to use CRM.  They offered a product that didn’t even try to compare with Siebel the dominant enterprise CRM at the time.  In fact, they tried to totally redefine the market.  ”Siebel cost you $2 million and 18 months to implement?  How about $50,000 and 3 weeks?”  They didn’t exactly grasp the top end of the market.

So what did happen?  And what does happen in many other industries?  First, over time Salesforce.com’s technology got better and better yet the price didn’t shoot up dramatically relative to Siebel.  And after a few years enterprise customers started looking at the cost disparity and saying, “maybe Salesforce.com is good enough to meet our requirements for 10x less the cost?”

Incumbents feel threatened.  Often their response isn’t to radically cut cost and try to hold on to customers.  They can’t.  They have big installed bases.  They have existing customers who already paid big prices who would be seriously pissed off if the next guy bought the same thing for 10x less.  The incumbents have expensive product features to maintain and often expensive sales channels and infrastructure. For example SAP needs to sponsor their hockey rink…who do you think is paying for that? http://www.sapcenteratsanjose.com/. You if you go with them of course. Further to that point on why the incumbent can’t easily compete… Imagine going to your sales people and saying your %-X commission on your 2MM deals is now going to be a %-X commission on 50k deals, (sell at a rate of 40-1) they are always going to try and sell the higher ticket good. If the incumbent did dramatically cut costs all they would seemingly do is start following the lead of the new entrant?  There you have the innovator’s dilemma.  The incumbents curse.  You can’t take a $5 billion revenue stream and say screw it They’re going to eat our lunch anyways – let’s just cut our revenue to $1.5 billion and wipe ‘em out.”

So the incumbent typically does the opposite.  They increase spending on features / performance / functionality, all with longer times to ship because they are big and clunky.  They gather with their cadre of high-requirement customers and have planning sessions about how they can make even more high performing products. All the while the new entrant is usually innovating faster because of leaner infrastructure and a more focused product.

The big issue for incumbents though is that often, customer requirements don’t grow exponentially relative to their existing baseline.  Overtime as the new entrant ads API’s, features and security, it starts looking a lot like the incumbent but it has secured the lower and mid-market and has the high end of the market knocking on its door. Today Sales Force is the world’s most dominant CRM and Siebel was forced to sell to Oracle.

So what is the trend in compliance if that’s what happened in CRM? Much of the same is happening just a bit slower.

The large incumbents in the compliance software space were PTC, SAP and Oracle that had compliance “add ons” to their enterprise PLM and ERP systems. What’s 3million dollars for a compliance module when you’re spending 100million on the ERP right? This left SMB’s out in the cold when it came to having a compliance solution.  So remember our initial quote

 “An innovation that is disruptive allows a whole new population of consumers access to a product or service that was historically only accessible to consumers with a lot of money or a lot of skill.”

Assent was able to offer a compliance solution to those who couldn’t afford one before with its first shipment of its SMB compliance solution starting at ~$40 000. Unlike the sales division, where every size business can potentially use CRM when it comes to compliance companies usually have a need for regulatory software when their market cap hits north of ~50MM.  Usually the uptake of a new technology in this case Assent’s cloud based compliance suite, usually takes place in phases. Typically the new software will be used by a few early adopters. As early adopters use and love the new technology, it becomes easier for the new company to gain traction and get referral business. As the company moves form their early adopters to the early majority there are able to build new features, solve more problems and become a more holistic solution. This is exactly what happened with Assent. With early adopters in the telecom and aerospace Assent was able to capture market share in every vertical, constantly updating the platform with new features, new API’s and new modules.

This brings us to today…

The incumbents in the compliance space are still SAP, PTC and Oracle but when you start your process of selecting a new compliance vendor your steering committee needs to ask.

–          Can you get better features and functionality for less using a newer (yes still highly established) entrant to the market?

–          Has new technology (Cloud Vs Installed) shifted the cost of the system down?

–          Are your hard earned company dollars going to fund private jets and hockey rinks or are you selecting a vendor who is 100% dedicated to compliance?

–          Can you get the equivalent to a 3MM dollar system for 300k with almost all the same integrations, features and support?

Who is the SalesForce of Compliance Software? At Assent we’d like to argue that it’s us. Don’t listen to us though, see for yourself. We’re now offering the “Assent Challenge”. Remember the Pepsi challenge in the 90’s? We’re doing that in the compliance space. If you think that another vendor is better than us in terms of features, price and expertise we’ll donate 1000$ to a nationally recognized charity. Book a demo today info@assentcompliance.com 

Image Attribution:  Dilemma by Standua Flickr Creative Commons

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