It’s not enough to think outside your box

SUMMARY:

Building an external team that’s driven by the customer’s need, compounding from the complementary strengths of the partners, is a new leadership opportunity, says Salesforce’s Peter Coffee

Peter Coffee

Calling an event “first annual” is risky, but “second annual” has the legitimacy of proving that the first time wasn’t a fluke. I was therefore glad to have the chance to keynote this month’s second annual Quote to Cast conference (yes, “Cast” – a trout-fishing pun) in Missoula, Montana.

Once again, I got to spend a few days in an ecosystem of quote-to-cash and billing partners, discussing what I have previously called “the circulatory system of the business.” (A person with training can hold breath for minutes, just as a company can incur losses for quite a while without shutting down, but losing liquidity is like losing your heartbeat: you’re in real trouble, really quickly.)

When I keynoted last year’s debut Quote to Cast, I discussed some strategies for liquidity improvement that a company could pursue as a solo act: actions that accelerate the launch phase of the sales cycle (“The Rocket Strategy”), and that lengthen and regularize the revenue stream by offering subscriptions and other service-oriented models (“The Conveyor Strategy”). This year, my conference hosts at Advanced Technology Group chose an event theme of “Teaming for Success”; I therefore found myself thinking about strategies that can only be pursued by building an external network of teams.

Failure to build a robust, multi-company network can have literally fatal results. In 2014, a “friendly fire” incident in Afghanistan killed five U.S. soldiers when they were bombed by their own country’s aircraft. The soldiers were wearing infrared strobe lights, enabling them to see each other’s locations via night-vision gear, and “everyone – the soldiers – the bomber crew –the Air Force controller – all thought the B-1 targeting system was capable of detecting infrared strobes. They were all wrong,” reported the U.S. news program 60 Minutes in a segment aired late last year.

That kind of literal blind spot demonstrates, I believe, what U.S. Navy Admiral William Owens was talking about in 1996, when he castigated the tendency to “plan, program and budget for things as if they were discrete capabilities” (rather than what he called “a system-of-systems”). Vendors tend to offer, and customers have become resigned to needing to buy, what vendors call SKUs – and what their customers call the “too much assembly needed” elements of a technology stack.

Building an external team that’s driven by the customer’s need, compounding from the complementary strengths of the partners, is the new leadership opportunity and is the crux of a platform strategy. As Peter Weill and Stephanie Woerner observed in MIT Sloan Management Review in June of this year:

DBS Bank in Singapore recently decided to expand to India, where it didn’t have any customer base. It partnered with a popular coffeehouse franchise to create a branchless bank, where customers can access the technology at the coffee company’s stores to enrol and start banking immediately on their mobile devices. The bank could have set up branches and data centers in India, but its coffee-chain partnership was a far more efficient and lucrative model. Within a year, DBS had 1.2 million banking customers in India.

Disruption

Embarking on this path entails disruption of traditional business practices that market, sell, bill, and service products as vendor activities rather than “solving for the customer.” For example, I’ve had conversations with companies in the hospitality business where I told them they were far beyond the point of diminishing returns when it came to improving the experience I have in my hotel room. Better granite on the countertops? Higher thread count for the sheets? The marginal costs escalate, while the marginal perceived value declines.

What would an external team proposition look like, to a hotel chain? If my frequent-guest profile invited me to tell my mid-week hotel where I’d be coming from, on Tuesday, and where I’d be departing to on Wednesday, imagine the possibilities, being told:

We see you’re arriving at 6 p.m. on an AirlineX flight from CityZ; if you’re able to get the flight that arrives at 4, you’ll be here in time for Taste of the City, and we would be glad to book your reservation for the restaurant whose specialties are most like what you’ve been ordering when you ate in our on-site restaurants during the past three years. Shall we change your flight and reserve your table?

Would the hotel be giving up the higher profit margins of food and beverage, compared to those of the room alone, that they would have gotten from my eating at one of their own restaurants? Yes, but (i) their profile of me might well show that when I arrive before 8 p.m., I usually go out anyway, and (ii) they would be collecting (if they’re doing this right) a referral fee from the partner restaurant, potentially breaking even – while enhancing my hotel brand preference.

Most important, they would be getting me to perceive them as my differentiated travel partner, not just my commodity bed-and-a-shower provider: what is it worth, in a business like that, to have an effective right of first refusal for a heavy user of that genre of service?

When the “one customer, team of vendors” model becomes the kind of experience that customers routinely expect, there will be huge pressure on companies to develop competencies that today are considered somewhat exotic and even fringe. We’ll have to manage a fireworks show of who gets paid, how much, to do what, for whom, just from my answering a simple question. Not just automatic federated payment, but dynamic measurement of risk and real-time automated negotiation of revenue sharing, will quickly become as routine as something like search-engine optimization is considered to be today.

We have a relevant technology arriving, though, at a convenient moment, in the form of the “smart contract” capability of various distributed-ledger platforms (PDF download link) such as Ethereum and HyperLedger. We can do timely, intelligent personalization at scale. Those who get good at it will be the luxury hotel that owns my experience; the rest will be the plumbing in the basement. The profit margins are much more attractive upstairs.

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