Using a ‘Connected Strategy’ to Create Long-Term Customer Relationships

June 18, 2019

Connected strategy

AMA Quarterly sat down with Nicolaj Siggelkow and Christian Terwiesch, the authors of Connected Strategy: Building Continuous Customer Relationships for Competitive Advantage (Harvard Business Review Press, 2019). Siggelkow and Terwiesch, Wharton School professors and co-directors of the Mack Institute for Innovation Management, talked about the reasons all business leaders must consider a connected strategy to produce and sustain a superior customer experience. A portion of the interview:

Why did you write the book?

Nicolaj Siggelkow: Both Chris and I are co-directors here of the Mack Institute, and both from the members and the participants in executive education programs that we are running, [it’s] sort of clear that a number of firms are really restructuring the ways they are interacting with their customers. [They’re changing] from having a few episodic interactions with customers, where you sort of wait for the customer to come to you—the best example is the medical field, where you interact with it only if something bad happens to you, when you see a doctor or go to a hospital—to a much more continuous relationship with customers having many more smaller interactions, where we can really get that information about customer needs almost in a continuous way. Now this starts allowing us to partially anticipate the needs of customers and understand their deeper needs.

To us, the interesting thing was that we’re seeing this in almost any industry. Medical, retail, entertainment, financial services, transportation, you name it. The nice thing about being at this [Mack] institute, we had the insight into these various industries. And there seems to be something general going on that inspired us to think about this topic of connected strategies….

What have been the challenges you’ve seen with executives who are trying to take the lead and set up these new systems? Are they struggling with technology?

NS: The intriguing thing is, and we do have a selective sample—most of the people we have talked to see [connected business strategies] happening and feel like they have to do something, because they look at Amazon and they look at other firms—it’s not so much a question of trying to convince them that they have to do something, but the challenges are in how to implement these systems.

Connected strategies are most fundamentally changing the business model. It’s not technology. Technology is an enabler, but quite often all of these technologies [needed] are already out there. It’s more about “How can I piece them together?”—not “I have to develop a new technology!”—to create these new strategies. But they need to think about how to change their business model. In our case, at Wharton, it’s not thinking about the customer for two years or four years, but over a lifetime. Also, how do I restructure my business model or revenue model from having just one operation? How do I keep track of you?

And that brings me to the second part, the whole data/privacy/trust part. That’s a huge element. How do we manage that? There is the operational data security piece, but also, do we use your data in a responsible way that you as a customer really see the benefit of, after you have sent me all this data.

I think we’re at the first wave of these [connected business] strategies. At first, businesses were like, “Oh cool, I can get all of this data!” And now they’re sitting on all of this data and have no idea what to do with it. So they resell it, and customers now get contacted by all these weird advertisements. So there’s the challenge. It’s not just about data privacy and security, it’s about how do I use this data in a way that provides not only value for me but for the customer.

Christian Terwiesch: And among larger corporations, there’s a sort of battle about who within the company owns the customer. There’s an online channel and a brick-and-mortar retail channel. If the customer goes online and does a lot of homework, and then buys in the store, the customer ends up being a “lost” customer to the online channel, and that creates all sorts of perverse incentives.

We highlight Disney as a company that has done this really well. We have interviewed former Disney executives. If you think about Disney, your interaction, your family’s interaction—you have the theme parks, the movies, the video games, the retail stores—you’re a very different customer in one branch than in another. But Disney has had to think about these channels so they’re not competing against each other for a share of wallet.

For example, if you’re playing a Disney video game, if you’re struggling on level 13 in the Pirates of the Caribbean game, and you go into the theme park, wouldn’t it be so awesome if whatever challenge you have on level 13 of the Pirates of the Caribbean game, the answer is just showing up on the screen of your phone as you’re standing on line at the theme park? Technologically it’s not that hard, and with the MagicBand, Disney has developed technology that makes it possible. The challenge is really organizational: How do you share your contacts? How do you reorganize the company so that all product lines are serving the same goal, that is, creating a unified customer experience?

NS: One line that we heard that I think resonates very well with a lot of managers is, “We force our customers to work through our own organizational chart.” For example, with Disney, you have to deal with the theme park operation, and then the food operation, and then the hotel organization, and you as the customer have to work through the organizational chart.

CT: I think Disney has done this well, but other companies who have grown more through mergers and acquisitions, it’s different organizational units, it’s different management cultures, it’s different information systems. All of these things don’t like each other, and there’s this jungle of the org chart, and it becomes a difficult maneuver to get through it.

NS: This links back to the issue of how companies say “We want to be more customer-centric.” How do they treat this customer as this one customer, but this may require these companies to restructure their organization. It’s not a technological fix. Yes, technology plays a role, in gathering information, but there are lots of other things that need to be done, like changing incentive structures, reporting requirements, and data-sharing agreements inside the organization to make it actually work.

Photo above: Christian Terwiesch (left) and Nicolaj Siggelkow, Wharton School professors and co-directors of the Mack Institute for Innovation Management
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