During a recent online exchange related to the future of the smart home, my attention was called to an interesting theory from a Harvard Business School Professor & Disruptive Innovation Expert named Clayton M. Christensen.
The theory is known as the “The Law of Conservation of Attractive Profits,” and it holds some fascinating lessons about what happens to profits when value chains are disrupted.
While Christensen’s theory focuses mostly on specific products, it holds striking parallels when applied to the smart home as a whole, and the CEDIA integration channel in particular.
Differentiating Used to be Easier
Christensen describes how “products are most profitable when they’re still not ‘good enough’ to satisfy consumers. This is because to make them performance competitive, engineers must use interdependent, proprietary architectures.”
When applied to the connected home, this description fits perfectly. For decades, integrators have been taking disparate and proprietary systems in the home that were never intended to work together and blending them together to provide a seamless, connected experience.
As an integrator in this landscape, differentiating the finished product you deliver relative to your local competition used to be a fairly straightforward process. This is because, as Christensen describes, “each company [could piece] its parts together in a unique way.”
Falling Barriers and Increasing Standardization
The connected home, however, is ever-evolving, steadily becoming what Christensen would describe as “good enough.”
Numerous changes in the landscape have lowered many technological barriers to implementation — think widescale adoption of IP-control, the push for open-API’s, widely-available code libraries, large-scale driver development, drag-and-drop programming, GUI-based network configuration, and pre-configured UI’s.
A Shifting Value Chain
These technological changes are driving an increasingly standardized approach to the connected home, especially when compared to that of decades past.
For example, consider how many of your competitors are deploying systems comprised of similar core products, driven off an identical client-facing UI as yours?
According to Christensen’s theory, this evolution means that in order to remain attractive relative to other companies in their market, integrators must “change the way they compete.”
The crux of this argument is that this evolution does not mean that attractive profits evaporate. Rather, Christensen argues that attractive profits simply move elsewhere on the value chain.
Service as the Real Differentiator
In our industry, this shift will increasingly push attractive profits towards companies that provide the best overall client service experience. According to Christensen, “The innovations for which customers will pay premium prices become … the ability to responsively and conveniently give customers exactly what they need, when they need it.”
For decades, solving the technological challenges surrounding the connected home have been a driving factor in our value proposition. In fact, the very idea of bringing together disparate systems that simply weren’t intended to work together is what gave birth to the title of “integrator.”
It wasn’t long ago that you could stake a claim in your local market strictly on your technical prowess. After all, when implementing a fully-integrated connected home required writing lines of custom code it could truly be said that only a select few could pull it off.
But times have changed. And while there is still an immense amount of skill required to properly execute in our space, many of the technological barriers of yesteryear are rapidly disappearing, bringing more and more competitors into your local market. And as these competitors come the table, pitching the same products as you at a significantly lower installed-price, how can you differentiate your company in the client’s eyes?
There’s no better answer than to center your company’s value proposition on the client service experience you provide. When seen from this perspective, the commoditization of certain smart home products ceases to look like a threat. Instead, today’s increasingly standardized products simply become tools you can leverage to create better experiences for your clients.
By backing these products up with exceptional service, you can continue to create and maintain highly-valuable client relationships even as the value chain around the connected home evolves.
For more information about service and using it to create RMR, visit www.onevisionresources.com/blog.