Connected Strategy

Building Continuous Customer Relationships for Competitive Advantage

Nicolaj Siggelkow, Christian Terwiesch

• Publisher: Harvard Business Review Press
• Year: 2019
• Print ISBN:
  9781422152225
• eBook ISBN:
  9781633697010
• Topic: Business
• Subtopic: Business Strategy
• Index: Business

Two Wharton experts in competitive strategy and operations show how connectivity is transforming the way firms create value for customers and provide a framework for designing and implementing continuous, connected relationships, profitably.

• Sheds new light on how industries and companies are transforming how they create value for their customers through continuous, connected interactions with them.
• Explains how to design and implement customer experiences profitably in an increasingly connected world.
• Provides a framework (the 4Rs) for the kinds of design decisions that go into creating a continuous, connected strategy and shows how to make the choices that are right for your business.
• Outlines the four pathways for creating connected strategies (respond-to-desire; curated offerings; coach; and automated execution).
• Integrates "workshops" throughout the book that provide the tools for creating, designing, and implementing connected strategies.
• Based on consulting and teaching executives in a broad array of industries, from start-ups to Fortune 500.
• Illustrates concepts and strategies with detailed company examples.

Audience:

• Senior executives who drive strategy and the design of the customer experience.
• Managers at every level who are involved in any aspect of executing strategy and delivering the customer experience.
• Consultants, especially those at the intersection of strategy, operations, and customer experience.
• Academics, especially those teaching strategy or operations.

Announced first printing: 25,000
Laydown goal: 4,000

1

The Connected Strategy Framework

A good way to start understanding connected strategy is to consider the traditional relationship between customers and companies. Traditional interactions start when customers realize they have an unmet need. This need could be the desire to see Mickey Mouse and ride a roller coaster, the dream of mastering financial accounting, or the urge to get into shape before summer arrives. Customers then figure out how they want to fulfill this need. They browse theme parks on Expedia, they look for accounting books at Barnes & Noble, or they consult with friends or the local gym on how to train for a triathlon.

At some point, customers attain a level of knowledge that sparks action to put some money on the table. They book a ticket to Disneyland, they buy an expensive textbook, or they sign up for a weeklong training camp. But there is considerable friction in the traditional transaction: customers spend a significant amount of effort to search, request, and receive the product or service they desire.

Firms sit on the other end of these traditional transactions. Yes, they can use marketing dollars to influence the customer along the journey to place an order, but they have limited connections to that customer. Their episodic interactions start only once the customer has placed an order, and they end on delivery of the product.

In traditional interactions, firms work hard to provide high-quality products and services as quickly as possible and at a competitive cost. They manage and perfect their marketing and operations within the model of episodic sales, but they are inherently limited by the lack of deep connections with their customers. Traditional episodic interactions between customers and firms usually require customers to invest significant effort in figuring out a solution to their needs, then requesting and receiving the product or service. Moreover, there often exists a gap between what the customer wants and what the firm provides. This gap can be a temporal gap (the customer must wait), or a gap between what the customer really wants and what the firm has to offer.

A firm that is able to move from episodic interactions with its customers to a connected relationship overcomes these shortfalls. Consider again the power of the MagicBand. Disney used to have only a handful of interactions with its visitors, and those happened at well-defined intervals—when they came to the park and bought a ticket, or when they ordered cheeseburgers at the restaurant. Now, sensors track the guests via their MagicBand every step and every second. The MagicBand not only reduces the effort in ordering and receiving cheeseburgers or souvenirs, it tailors the experience by making suggestions to the visitor.

Similarly, McGraw-Hill originally interacted with a reader only when selling a book, and even that connection was delegated to a retailer, similar to the case of Nike. But today, every time the reader looks at the book or tackles a practice problem, a connection is established that allows the publisher to learn about the reader, curate its offering, and coach the student when he or she is stuck. Meanwhile, in health care, the connected strategy moves the doctor-patient relationship from an episodic encounter every few months to a continuous flow of data from the patient to the care team, enabling medical needs to be addressed before they become severe.

Moving away from episodic interactions toward a connected relationship turns a theme park into a magical experience, transforms a book publisher into a creator of learning journeys, and revamps a hospital system into a proactive care organization. Such deeply connected relationships create more loyalty and higher profits.

Connected strategies don’t just happen; they need to be carefully designed. They have two key elements: a connected customer relationship and a connected delivery model. The connected customer relationship is what delights the customer. The connected delivery model is what allows the firm to create these relationships at low cost. Each connected customer relationship and delivery model is the result of strategic choices along several design dimensions. Let’s look at these in figure 1-1.

FIGURE 1-1

The connected strategy

At the heart of the connected strategy is the connected relationship between customers and a firm. We find it helpful to think about four design dimensions of a connected customer relationship, which we will refer to as the four Rs of connected relationships. First, the information that flows from the customer to the firm allows either party to recognize a customer need. Once a need is recognized, the customer or firm identifies a product or service that would satisfy this need, leading to a request for a desired option. In turn, this triggers the firm to respond, creating a customized, low-friction customer experience. By interacting with customers frequently, a firm is able to repeat the interactions with its customers, allowing it to continually refine the cycle of recognize-request-respond and to convert episodic interactions into a true relationship with its customers.

To create connected customer relationships in a cost-efficient way, a firm needs to create a connected delivery model. The delivery model is the result of three key strategic decisions. First, the firm has to decide whom to connect with whom in its ecosystem. What connections need to be created between and among its suppliers, its customers, and itself? We call this the connection architecture. Second, the firm has to decide how money will flow through this architecture, allowing it to monetize the value that results from breaking the trade-off between customer happiness and efficiency: it has to design a revenue model. Lastly, the firm has to make a range of technological choices that facilitate all the elements of a connected strategy. It has to decide on its technology infrastructure.

This book is designed to help you both understand and create connected strategies for your own organization. We have structured the book into three parts. In part I, we show in detail how connected strategies allow you to break your existing trade-off between customer happiness and efficiency. Part II helps you understand how to build connected customer relationships. Finally, in part III, we describe how to build a connected delivery model. Each part concludes with a chapter we call a workshop. In these workshops, we offer exercises that have been tested and refined with executive education audiences. These workshops will help you assess your firm’s current activities and create your own connected strategy.

To provide you with a road map of what lies ahead, here is a brief preview.

Part I: The Rewards of Connected Strategies

In chapter 2, “Breaking the Trade-off between Superior Customer Experience and Lowering Costs,” we discuss several case studies that illustrate how connected strategies can overcome the trade-off between customer happiness and efficiency—a trade-off that is foundational to most traditional strategic planning frameworks. By tracking guests in a theme park, selling smart books, and taking care of patients’ health rather than thinking of them as appointment slots, a connected strategy creates value by breaking the existing trade-offs between the value that a customer receives and the cost that the firm incurs. The reward of a connected strategy is providing more value to the customer at a lower cost to the firm.

We explain how current innovations in the grocery retail sector, including meal-kit delivery services, augmented reality displays, and stores without checkout lines, are increasing both customer satisfaction and efficiencies.

Using a detailed case study of the ride-hailing industry, we then discuss how firms such as Uber and Lyft not only have improved the passenger experience compared with cab companies but are able to do this at much lower fulfillment costs. By connecting passengers with drivers, ride-hailing companies have created a market for driving services. Further, by allowing prices to vary depending on supply and demand, drivers are given an incentive to work when and where it is most valuable. Matching supply with demand in a dynamic world requires new forms of connectivity that extend well beyond a person jumping into the street to flag a cab or calling a grumpy dispatcher to send a taxi. Once that connectivity is put in place, resources can be used much more efficiently.

We finish the chapter by discussing how connected strategies can lead to competitive advantage and by reflecting on the importance of data privacy in the context of connected strategies.

Chapter 3, titled “Workshop 1: Using Connectivity to Provide Superior Customer Experiences at Lower Costs,” contains a series of worksheets that will start you on the process of creating a connected strategy for your organization.

Part II: Creating Connected Customer Relationships

In part II of the book, we analyze in depth how you can create a connected relationship with your customers—a relationship in which episodic interactions are replaced by frequent, low-friction, and customized interactions enabled by rich data exchange.

In chapter 4, “Recognize, Request, and Respond: Building Connected Customer Experiences,” we investigate the first three design dimensions of a connected relationship. The dimension of recognize encapsulates the information flow between the customer and firm that leads to the recognition of a customer need. We discuss various ways in which you can shape this information flow: this flow might be initiated by the customer, or it might be autonomous. Once the information reaches the firm, the firm needs to interpret and convert it (or help the customer to convert it) into a request for a desired option. Lastly, the firm needs to respond to this request and fulfill the desired option in a low-friction manner. This full interaction between customer and firm creates a connected customer experience. Through our research, we have identified four different types of connected customer experiences. These are:

Respond-to-desire

Curated offering

Coach behavior

Automatic execution

Let’s take a look at each, returning to our examples from the prologue. Amazon is a great case of what we call a respond-to-desire connected customer experience. Once the customer expresses a need, Amazon responds rapidly and conveniently. At Disney, a key function of the MagicBand is to create a respond-to-desire experience. When a customer wants to enter a ride, pay for a cheeseburger, or open her hotel room, a swipe with the MagicBand is all that is needed.

The McGraw-Hill textbook example illustrates curated offering. Having many interactions with each customer allows the firm to learn about the customer’s needs. With that knowledge and trust, the customer is no longer alone in finding solutions. Here, the firm and the customer look for solutions jointly. McGraw-Hill does not just help the student figure out the corporate valuation problem on page 247, but instead detects that the student is still struggling with net present value calculations and asks him to repeat the content on page 35.

Companies that create connected strategies often create more than one connected customer experience. Returning to our Disney example, it’s clear that the MagicBand does more than create a respond-to-desire experience. With the MagicBand, the customer can communicate a decision that she no longer wants to take a ride on Magic Mountain. Instead, she tells Disney (or Disney knows from past experience) that she wants to experience an action ride and a yummy meal in the next two hours. Disney then takes this information and creates a personalized itinerary. Moreover, Disney is even able to customize the experience of different rides. For instance, if a visitor has created an avatar in one of Disney’s video games, this avatar will appear on the “Wanted” poster that the visitor sees during the Pirates of the Caribbean ride.

We call the third type of connected customer experience coach behavior. Firms like Nike try to change the behavior of customers toward what is good, smart, or healthy. Nike does not force you to go running more often, but it can offer to help you achieve your fitness and health goals. Similarly, the virtual tutor in a smart textbook says, “Jeremy, you have not yet completed the assigned readings for this week,” just a...

Table of contents

• Cover
• Title Page
• Copyright
• Dedication
• Contents
• Prologue: The Magic of Connected Strategy
• 1. The Connected Strategy Framework
• Part One: The Rewards of Connected Strategies
• Part Two: Creating Connected Customer Relationships
• Part Three: Creating Connected Delivery Models
• Epilogue: Seizing the Connected Strategy Potential
• Sources
• Index
• About the Authors and Acknowledgments