Connected Strategy

by Nicolaj Siggelkow

As you are considering new connection architectures or connected customer experiences, be it to increase the willingness-to-pay or to improve efficiency, you need to answer the following questions:

  What information flow will have to happen between these players? (This foreshadows the technological infrastructure that you might need to put into place, which you will analyze in more depth later in this workshop.)

  What incentives are you going to provide to the various players to be connected by you? (This foreshadows the revenue model that you will have to adopt, the subject of the next part of this workshop.)

  Use worksheet 10-2 to keep track of your work.

  Part II: Creating Your Revenue Model

  Step 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

  How do you make money? First, think about all the financial flows that you have with your customers. The following questions might help with this:

  What does the customer pay for?

  What are your different revenue streams? (e.g., initial sales, service)?

  Who is paying (e.g., the user, a third party)?

  When does payment occur? (At time of purchase? At time of use? Once or over time as in a subscription model?)

  Next, look for inefficiencies in your revenue model. Do you use this revenue model because you believe it is the right one, or are you constrained by connectivity to the customer? Recall from our discussion in chapter 8 that there are three typical inefficiencies:

  Limited information flow

  Limited trust

  Transactional friction

  WORKSHEET 10-2

  The connected strategy matrix: Imagine your company in each cell

  Now that you understand the current revenue model, consider ways to overcome these inefficiencies. For example, in chapter 8, we discussed the following improvements:

  Reduce inefficiencies due to a prior lack of monitoring ability.

  Make pricing contingent on performance.

  Get paid as value is created for the customer.

  Moreover, ask yourself who, besides the customer, benefits from your product and who in the ecosystem would benefit from the data that you are collecting. Through the right choice of revenue model, you might be able to benefit from value that is being created in the entire ecosystem, not just from your customer.

  Finally, turn to the new ideas you created in the previous steps and look for revenue models for them as well. What new revenue model would you implement if you were able to create new connected customer experiences (e.g., coach behavior or automated execution)? In other words, what new revenue models would be possible or required if you decided to move to new rows in the connected strategy matrix given your existing connection architecture?

  In the same manner, you also need to think about how changing your connection architecture would influence your revenue model.

  Part III: Choosing Your Technology Infrastructure

  Step 4: Deconstruct Your Connected Strategy into Technological Subfunctions and Then Catalog Currently Used Technological Solutions for Each Subfunction

  By this point, you have hopefully created a list of possible ideas for connected strategies for your organization. Refer back to the ideas you came up with in the workshop in chapter 6 and the ideas you came up with in parts I and II in this workshop.

  Next, we want you to deconstruct your connected strategy ideas by identifying the necessary technological functions that need to be carried out. As we discussed in chapter 9, this is best done along the steps of the customer journey and the additional dimensions of connected architecture and revenue model. Each of those then can be further deconstructed into subfunctions using the STAR approach, asking for each function what is needed along the dimensions of sensing, transmitting, analyzing, and reacting. Keep track of your analysis on worksheet 10-3.

  Each cell in worksheet 10-3 corresponds to a “job to be done.” List what possible technological solutions exist to complete each of these jobs in worksheet 10-4. Note that the same technology might solve several subfunctions. This step should not only involve an internal search of technology options that you get from your own technology experts, but also your observations of how other firms are solving this particular subfunction. As a starting point, here are some technologies, grouped using the STAR typology:

  SENSING TECHNOLOGIES

  In this category fit all technologies that directly measure aspects of the world that hold clues about the needs or desires of customers or that help users express their needs. This category includes all types of sensors, whether they are embedded in devices or in roads or are wearable or ingestible. This category also includes technologies such as gesture and voice interfaces, and conversational platforms that make it easier for customers to express their needs (and that ask for clarification if the need is not completely understood). Likewise, augmented and virtual reality technologies enable customers to express and understand their needs and desires—for instance, by showing customers different options in a very life-like setting.

  WORKSHEET 10-3

  Deconstruct your connected strategy into subfunctions

  TRANSMITTING TECHNOLOGIES

  The ubiquity of high-speed internet in homes and offices and of smartphones in the pockets of individuals has facilitated the transmission of data tremendously. New developments such as network slicing with 5G, Bluetooth Low Energy, LiFi (wireless communication using light), and LoRa (wireless data communication over ranges up to ten kilometers with low power consumption) promise big efficiency improvements in the future. We would also put blockchain technology in this category. Blockchains guarantee the veracity of the data that is being transmitted, adding an important level of trust to transactions that are carried out over networks.

  ANALYZING TECHNOLOGIES

  The rapid decrease in costs of computing, data storage, and transmission have made cloud-based solutions feasible and accessible to all organizations, regardless of their size. Every firm now has access to computing infrastructure that provides vast storage and tremendous computing power. Partly driven by these technical advances, remarkable progress has been made with respect to analyzing data via machine-learning and deep-learning algorithms. Future improvements in processing power using quantum computing will speed up this development even more.

  REACTING TECHNOLOGIES

  A whole range of technological advances are continuously pushing down the costs of reacting to customer requests. For instance, improvements in artificial intelligence are allowing automated responses at a vast scale that are becoming more and more personalized. Augmented reality can also be a very effective way of responding to a request by providing the user with rich information. Improvements in 3-D printing and advanced robotics decrease the cost of production at a low scale, and advances in autonomous vehicles and drones are reducing the costs of moving products to customers.

  * * *

  If you get stuck in a particular cell, it can be very helpful to use a classification tree to brainstorm and broaden the set of possible technological solutions for a particular subfunction. Recall from the description in chapter 9 that a classification tree starts with the “job to be done” on the left side and progressively refines the solution space.

  After you have filled out worksheet 10-4, you need to decide which particular technological solution to use for each subfunction. To systematize your decision making, it can be helpful to create a selection table, also described in chapter 9. The selection table contains all possible technologies you are considering for a subfunction and your assessments of each technology along various selection attributes, including convenience, reliability, and cost.

  Step 5: Identify New Technological Solutions and How Those Might Enable Further Innovations in Your Connected Strategy Not Identified So Far

  A big challenge for managers is to keep up with new technological developments.
We have found it very helpful to keep track of new technologies by asking what subfunctions a new technology can facilitate. Thus, as you discover or read about new technological advances, place them into worksheet 10-5 or use the matrix you have filled out in worksheet 10-4.

  WORKSHEET 10-4

  Possible technological solutions for each subfunction

  WORKSHEET 10-5

  New technological solutions that would enable a new connected strategy

  Cross-checking this against the “jobs to be done” you outlined earlier can give you insights into possible new ways of implementing your connected strategy: when a new technology emerges, it might enable a new connected relationship or a new connection architecture.

  This type of bottom-up innovation is oftentimes referred to as technology push. Rather than thinking about the needs of the customer, you start with a given technology that substantially improves the execution of a function. Then ask yourself, “How might we take advantage of technology X?” For example, you might ask, “How can our business benefit from advances in natural language processing or in augmented reality?” Place the answers to these questions alongside the new technologies in worksheet 10-5.

  Workshop Summary

  You have reached the end of the last workshop!

  Now is a good time to recap how these workshops connect to each other. In workshop 1, you sketched out the efficiency frontier for your industry and located your firm and your competitors relative to the frontier. Using a connected strategy, your goal is to push out this frontier and break the existing trade-off between willingness-to-pay and fulfillment costs.

  In workshop 2, we focused on creating a connected customer relationship that will allow you to increase the willingness-to-pay of your customers. To build such a relationship requires a deep understanding of the entire customer journey so that you can refine your ability to recognize your customers’ needs, translate those needs into an actionable request for a desired solution, and respond in a timely and frictionless manner. Lastly, if you can repeat this interaction many times, you might be able to climb up the hierarchy of needs of your customers, allowing you to become a trusted partner.

  In workshop 3, we focused on how you can create a connected delivery model that allows you to create connected customer relationships at low fulfillment costs. To this end, we asked you to think about different connection architectures, revenue models, and technology infrastructure solutions found in other industries. We hope that this trilogy of workshops has helped you apply the concepts of connected strategy to your own organization.

  We did our best to bring to life the interactive style of knowledge transfer that we love so much in our work with students and executive education audiences, but in this case using a very old and very unconnected technology—a book. We already pointed you to our website (connected-strategy.com) as one form of increased connectivity. The site has a substantial amount of curated content and also allows you to post questions and make suggestions for future content updates and new podcasts.

  Did we succeed in guiding you through the workshops, and have you thus developed your own connected strategy? If you already worked through some (or, ideally, all) of the three workshops in this book, congratulations—you are done with the homework assignments. Give yourself an A+. We are proud of you.

  If you read through this book but skipped the workshops (“I will get to this later”), maybe feeling intimidated by the many questions and exhibits or simply being too busy to do more than just read, please read on for just one more page.

  In our view, simply reading about connected strategies without taking any actions is just like sitting next to the pool wondering whether you should get wet. If this adequately captures your position, allow us to give you a final nudge (not push), hoping that you jump in.

  The hardest part in taking any journey (including strategic planning processes) is taking the first step. In this spirit, let us propose a set of alternative mini workshops with the request that you do one. This should not take more than ten (!) minutes. So we are not asking you to jump into the water, just to dip your toe in. Specifically, pick one of the following tasks and then decide for yourself whether you want to do more:

  Share the example of Disney’s MagicBand with a colleague on your management team and discuss what you can learn from this.

  As a customer, sign up with a firm that provides a connected relationship you have not experienced before.

  Ask one of your customers how she experiences the episodes during which she connects to your firm, and then ask yourself how your firm connects with this customer.

  Discuss with one of your employees how efficiency could be improved through better connectivity.

  Ask somebody on your R&D or technology team about what technologies they are currently working on and how that might improve the connectivity to your customers.

  Take a shot at one of them and see where this leads you …

  EPILOGUE

  Seizing the Connected Strategy Potential

  After a great family day in the Disney theme park, you head back to your hotel. Just as you leave, you meet him again. Captain Jack Sparrow calls out to your six-year-old by name and waves goodbye, capping a truly magical day. The power of these connected relationships is something to ponder. Ordering your food without worrying about payment logistics, following a customized itinerary through the park, and anticipating the great photo collection you can browse on your flight home (thanks to the automated documentation of your visit without your ever having to pull out a camera)—all of these have got you smiling and thinking about how you could use connected strategies to create competitive advantage for your business. Jack Sparrow never met your child before and was relying on your MagicBand to reveal your family’s identity. But that doesn’t bother you, nor do you mind Disney’s healthy profit margins thanks to the remarkable efficiency of the park’s operation. The magic of the connected strategy has your attention.

  Now imagine Jack Sparrow turns to you and says in his best gravelly pirate voice, “Thanks for your visit, matey. I found access to your financial accounts and I saw that your asset allocation seemed to be underdiversified. So I sold some of your bonds and bought gold for you. Arr, what else would you expect a pirate to buy?” This entirely fictitious example is a textbook application of our connected strategy framework. Jack recognized a potential need, found a solution, and acted promptly. In fact, he created an automatic execution customer experience for you. While some might be delighted, chances are you are not amused.

  In this closing section, we want to reiterate a few critical points. Connected strategy does not mean automating every possible transaction for every customer. Automatic execution has its place and will become feasible across ever-broader domains, but for many transactions what customers want is help in making better decisions, not someone (or something) else who makes decisions for them. The key to success for connected strategies lies in understanding the connectivity preferences of your customers. Some customers will enjoy receiving an automatically created photo album of their trip; others will find it an invasion of privacy. Some like to be coached in their behavior and derive value from being nudged; others find it overbearing. And no customer likes his or her data to be misused. In the excitement around technological advances that enable new connected strategies, it is important to resist the temptations to create connectivity just because we can and to monetize data indiscriminately just because no one is stopping us yet. Put your customer first and remember that not all your customers are the same. Building trust is at the heart of a connected strategy, and that trust can be easily lost. Trouble can ensue unless you show that the data your customer gave you creates value for him or her and is not used in undesired ways.

  Another misconception that we have hopefully removed is that a connected strategy is primarily about technology. Clearly, technology plays an important role, and quite often new technology is what allows new connected strategies to arise. But
as we have described in detail, the connected strategy is fundamentally a business model innovation. Not only will you need to adopt new technologies, but you may also have to change whom you interact with, how you charge for products and services, and how you structure your company internally. To build a connected strategy often requires restructuring your company to ensure the frictionless flow of information within your organization and between you and your customer.

  With the ability to increase the customers’ willingness-to-pay while reducing fulfillment costs, connected strategies have proved to be truly disruptive in several industries. For you, this is both an opportunity and a threat. We hope that our connected strategy framework and our workshop chapters will help you in creating your own connected strategy. At the same time, we hope that these tools will help you to look at changes in your industry from a new perspective, separating technological hype from true strategic challenges.

  There is no doubt that the dramatic increase in connectivity will continue. You may or may not be thinking about connected strategies in your industry, but it’s certain that others are. We have only seen the very beginning of connected strategies!

  SOURCES

  Prologue

  For more details on how Disney introduced the MagicBand, listen to the podcast on our book website, connected-strategy.com.

  For more information on the MagicBand, see Austin Carr, “The Messy Business of Reinventing Happiness,” Fast Company, April 15, 2015, https://www.fastcompany.com/3044283/the-messy-business-of-reinventing-happiness; and Christian Terwiesch and Nicolaj Siggelkow, “When Fun Goes Digital: Creating the Theme Park of the Future,” Knowledge@Wharton, April 4, 2018, http://knowledge.wharton.upenn.edu/article/future-theme-park-innovation/.