To further emphasize the power of this approach, recall our Disney example from the beginning of the book. Disney did not create the connected bracelet. Instead, Disney found this technology in hospital settings. The lesson is that, in almost all cases, companies already exist that have done a great job implementing a particular subfunction. Your job is to learn from the best, not to reinvent the wheel. This simple yet powerful observation also gets us back to Steve Jobs. He did not invent the graphical user interface when he and Wozniak launched the Mac. This function was created by Xerox PARC, which is where Jobs first saw it and, quickly scaling his mental classification tree, realized what could be done with it.
The output of the classification tree is a list of design alternatives. This list can be summarized in a selection table, as is shown in table 9-2. The selection table takes the design options as its rows and compares them along a set of dimensions—in our case, performance, cost, existing applications, and other comments. For illustration, we further divided performance into the subdimensions of user convenience and safety or reliability. Each option is then rated relative to the other options along each dimension.
Bottom-Up Innovation by Moving up the Stack
It is interesting to see how a stack changes over time. Consider Amazon’s Alexa, which was helping Aruna prepare coffee. At the top of the stack, the level of the user experience, sits a function we could label voice recognition. Voice recognition is what voice recognition software does, but how it does this is a matter for the lower levels of the stack.
Looking only at the stack’s top layer, one might say, “Voice recognition has been around forever,” a valid statement since companies like Bell Labs and IBM experimented with it over a half century ago. For example, at the 1962 World’s Fair in Seattle, IBM revealed a device called the IBM Shoebox, a computer the size of (you guessed it) a shoebox that had a revolutionary capability. The device had ten small lamps and a microphone. If somebody said “seven,” then lamp number 7 would light up. If somebody said “four,” lamp number 4 would light up, and so on. Engineers envisioned that we could soon dial a telephone number through voice commands.
Voice recognition was further improved with advances in computing technology. In the 1980s, a new approach to voice recognition emerged using a method known as hidden Markov chains. This technology would not simply listen to the sound and then try to match the sound with a word from a library, it would also factor in the probability of the word occurring by analyzing the words preceding it. If the previous word was grand, it is more likely that the following word will be son rather than sun.
The first mass-market application of voice recognition came with the software Dragon Dictate, a product initially retailing for some $9,000 and requiring substantial training to acclimate to the voice of a user. Dragon’s software improved throughout the 1990s to require less training and sold at lower costs.
As computers gained increased processing power, voice recognition was built into more applications. You might be surprised to learn that both Microsoft Windows and Apple’s Mac OS had voice recognition built in by the early 2000s. If you had a computer back then, most likely you did not use that feature because it was practically useless—unreliable and slower than just moving your mouse. So, voice recognition remained a niche market, constrained by its limited accuracy.
The breakthrough came in 2010 when Google added voice search to Android phones and Siri appeared as an iOS app the same year. Enabled by the internet, Google and Apple captured the voices of millions of users who performed billions of queries, every one of them adding to their library of spoken words, making voice recognition what it is today.
The story of voice recognition demonstrates how improved functionality, greater accuracy, less training, and lower cost are a result of new technologies happening deep down in the stack. Hidden Markov chains, more processing power, and the internet—none of these technological advances was related to voice recognition. But as new technologies become available that impact layers deep down in the stack, they improve the execution of a function at the technical level. This improvement then bubbles up through the layers of the stack, enabling better functionality at lower costs in the application layer at the top of the stack. An example is the recent success of electric cars. Enabled by better battery technology deep down in the stack, electric cars now have become competitive with combustion engines. The driving does not change, but the user gets faster acceleration and a lower carbon footprint because of the advances in technology.
Technologies bubbling up in the stack and enabling new functionality at the application layer have an important consequence for the design and origin of your connected strategy. So far, we have described a top-down process: you create a vision for a connected strategy, you deconstruct it into subfunctions, and you look for technical solutions for each subfunction. A complementary way to create new connected strategies is from the bottom up. You spot a new technology and ask yourself, “Which application will be significantly improved if I introduce this technology to the stack?” In these innovation efforts, we start with the how, look for substantial advances in performance or cost reductions, and then ask the modified what question: “What new user experiences are enabled by this technological advance?” For two business-to-business examples, see the two sidebars on digital twins and drone delivery.
DIGITAL TWINS
The idea behind a digital twin is deceptively simple: create a digital replica of a physical system, be that an airplane engine, a wind turbine, or a piece of critical equipment on an oil rig. Digital twins can be used in product development (e.g., exploring the best shape for a wind turbine blade), product manufacturing (e.g., simulating different manufacturing processes to build the blades), and product operations (e.g., assessing whether the performance of the turbine is degrading prematurely). Digital twins are an important tool for product-lifetime management, creating a so-called digital thread for the product. The idea of digital twins is not new, but vast improvements in sensors, the power of edge computing, data transmission, and data analysis via artificial intelligence have allowed digital twins to become a truly valuable and cost-effective tool. This is an interesting example of technologies bubbling up in the stack in order to make higher-level connected strategies possible.
For instance, German machine tool manufacturer Heller used underlying data-capture technology and Internet of Things software by Siemens to develop a system that allows its customers to receive information about the performance of their tools in real time and simulate different maintenance strategies. This information allows Heller to provide preventative maintenance or, if there is an unexpected machine overload, to intervene immediately, reducing machine downtime for its customers. Moreover, the availability of this information has allowed Heller to innovate with respect to its revenue model. For customers who previously could not afford the purchase of a machine tool, Heller now offers a new machine usage model: it provides its machines to its customers, ensures 24/7 uptime, and charges for the time the machine is running.
DRONE DELIVERY
As managers, in addition to monitoring how other companies perform specific subfunctions in our classification tree (recall our discussion of BMW vs. Wawa), our job is to monitor the environment and look for promising new technologies that have the potential to bubble up through the stack. Unmanned aerial vehicles have a long history in military settings, including both world wars. As the technology advanced, performance improved dramatically. These devices, now called drones, were made in much smaller versions for espionage and in much larger versions for launching missiles, such as the Hellfire air-to-ground missile. With further advances in technology, drones soon became even smaller, more reliable, and cheaper. In 2018, the German company Volocopter announced an agreement with the government of Dubai to launch a taxi service relying on autonomous flying cars in the form of a multirotor aircraft. At roughly the same time, internet giant Amazon filed a string of patents for delivery drones, in
dicating that drones have emerged as a potential substitute for UPS and FedEx trucks. This is especially true in areas where traditional delivery trucks are hard to operate, as illustrated by the startup Zipline, which is experimenting with drone delivery for replenishing medication to hospitals in rural Africa. As managers, we need to be continuously on the lookout for technologies from many arenas, as Jobs did with Xerox PARC.
Innovative Business Models Don’t Necessarily Require New Technologies
The key lesson of this chapter is that you can create innovative connected strategies without being a technology expert. You start with the business vision and then work from there, including deconstructing the customer journey into a set of subfunctions and then broadly exploring alternatives for each of them using classification trees. Alternatively, you may notice that technological advances have occurred that enable you to solve subfunctions in a better or more cost-effective way, allowing you to create new connected strategies.
In the process of populating the classification trees, you want to look for best practices for a particular subfunction both inside and outside your industry. Just cherry-pick what works well: pick a “sensing person arrival” subfunction from the hotel industry; pick “3-D face recognition” from a phone security system; and pick “execute payment” from a peer-to-peer payment platform. Then combine those pieces as you envision your own connected strategy.
You might view this approach of primarily relying on existing technological solutions as lacking in vision—where’s the originality? It seems somewhat risk averse, shying away from technological breakthroughs. We propose that this approach is a strength, not a weakness. First, the originality is often in the use of the technology, not the technology itself. Ride-hailing companies did not develop GPS, cell phones, or Google Maps, but using these technologies allowed them to create a new connected strategy. Second, technology is improving so quickly that new solutions arise all the time. Thus, the best implementation of a particular subfunction is always a moving target. And third, relying on existing technologies can reduce risk. The history books on technology are full of failures. Many of them were costly, especially in those cases in which firms tried to deliver too much too soon.
Also, notice that our framework allows for more visionary thinking than might appear to be the case initially. When Amazon announced its potential usage of drones around 2016, the business world was in awe. As we show in the sidebar, delivery of consumer packages by drone might indeed be a novel way to implement the subfunction “rapid delivery.” It might seem original; however, the military has long relied on drone technology, and drones have been used to deliver medication replenishment in rural Africa. A novel solution can come from the application of existing technologies in new settings. It does not always require fundamentally new technologies.
Finally, if you desire a visionary connected relationship that relies on yet-to-be-invented technology, we advise you to check out your local library’s science fiction section. Sound crazy? Consider a detail in the history of the MagicBand we have not shared so far. We mentioned that Disney executives were inspired by hospitals where dementia patients were tracked using bracelets. But from where did the hospital executives get the idea?
The story of tracking people goes back to an old Spiderman comic strip from the 1960s in which Spiderman is forced by his evil enemy, Kingpin, to wear what is described as an “oversized ID bracelet in the form of an electronic radar device.” In 1983, Judge Jack Love of Albuquerque, New Mexico, initiated the first judicially sanctioned use of monitoring devices. Inspired by the comic strip, Love envisioned defendants under house arrest or on parole wearing an ankle monitor that would signal its location. The world of science fiction has a long and remarkable track record of envisioning new functions before even the first technical applications exist. So keep on reading those comics and don’t miss the next James Bond movie.
10
Workshop 3
Building Your Connected Delivery Model
In this workshop, you will apply the frameworks we introduced in the last three chapters to help you build your own connected delivery model. Following the flow of the last chapters, you will do this in three parts. In part I, you will map your connection architecture and the connected customer experiences you create and compare them to your competitors’ by using the connected strategy matrix. Part II will help you think about your revenue model, i.e., how you capture some of the value that you create. Finally, in part III you will catalog the key technologies that are part of your technology infrastructure.
Once you have captured the status quo, each of the three parts will challenge you to rethink what you are currently doing and help you take advantage of a connected strategy:
Part I: Building Your Connection ArchitectureStep 1: Use the connected strategy matrix to map your own activities and the activities of your competitors.
Step 2: Use the empty cells in the connected strategy matrix to create new ideas for connected strategies.
Part II: Creating Your Revenue ModelStep 3: Understand your existing revenue model, identify its main limitations, and consider alternatives for your current activities, as well as for the ideas created in the previous step.
Part III: Choosing Your Technology InfrastructureStep 4: Deconstruct your connected strategy into technological subfunctions and then catalog currently used technological solutions for each subfunction.
Step 5: Identify new technological solutions and how those might enable further innovations in your connected strategy not identified so far.
Part I: Building Your Connection Architecture
Step 1: Use the Connected Strategy Matrix to Map Your Own Activities and the Activities of Your Competitors
In this step, we want you to use the connected strategy matrix to capture the status quo in your industry. You will do this by comparing your connection architectures and the connected customer experiences they create with what your competitors do, including longtime competitors as well as recent entrants to your industry. In the next step, you will use the connected strategy matrix as an innovation tool.
For this first step, start by making a list of your competitors, old and new alike. Next, turn to the matrix in worksheet 10-1 and use it to position your own activities, as well as those by your competitors. What customer experiences are you and your competitors creating? What connection architectures are used for that?
WORKSHEET 10-1
The connected strategy matrix: Inventory of your and your competitors’ actions
It is often particularly insightful to understand where new entrants are emerging. By mapping them onto the connected strategy matrix, you can see what kind of strategy they are using and how they differ from existing competitors. This might help you spot where you are vulnerable for disruptions.
Your first task in this workshop is to fill out worksheet 10-1. Remember, a firm can be in more than one of the cells in the matrix. Many firms try to create more than one connected customer experience. Likewise, while most firms operate only in one column, some firms (e.g., Netflix, Amazon, Nike) operate with multiple connection architectures, as we saw in chapter 7.
Step 2: Use the Empty Cells in the Connected Strategy Matrix to Create New Ideas for Connected Strategies
Giving managers a blank sheet of paper and imploring them to innovate is often a frustrating experience for everyone involved. Where do you even start? We find that the connected strategy matrix can serve as a helpful tool to guide your innovation process.
For each cell of the connected strategy matrix, especially for those cells in which you are currently not active, ask yourself the following questions:
What would it mean if we tried to operate in this cell?
What kind of service or product would we offer to our customers?
Which of the necessary activities would we engage in ourselves, and which would we provide through other players in the industry?
What kind of connec
tions to other players would we have to create to pull this off?
This exercise forces you to stretch your thinking (and your existing business model), particularly for those cells that lie outside your existing column—that is, your current connection architecture.
A second starting point for idea generation is to ask which inefficiencies could be reduced or what better services could be created if you could connect (currently unconnected) entity A with entity B. As we saw with the examples of grocery retailing and ride hailing in chapter 2 and then again in our discussion of connection architectures in chapter 7, efficiency can be improved by forming new connections. So, as you consider the different connection architectures, ask yourself the following questions:
What are the most expensive resources in creating our product or service now?
Where do we waste costs or capacity now, and how might this be reduced if we connected entity A with entity B?
How could a connection architecture be used to share or reduce the risks associated with fluctuating demand or other forms of volatility?
For instance, in the hospitality business, the most valuable resource for a connected producer is a hotel room. Capacity gets wasted when a room is idle, either because it was not booked in the first place or because of a last-minute cancellation. By connecting empty rooms with potential guests—as (connected market maker) Expedia or (crowd orchestrator) Airbnb does—new reservations are made and empty hotel rooms are reduced. In addition, peer-to-peer networks and crowd orchestrators can help provide additional capacity when demand is high.
Connected Strategy Page 19