Speed as competitive advantage

October 24, 2018

The world is moving at an ever increasing pace. This is a common headline in the business press and it sells well. We are being sold the fact that technological change is barreling us towards either a utopia or dystopia depending on whom you ask.

This is not completely unfounded of course. The rise of digital technologies are indeed connecting the world at an unprecedented level, which I personally believe is a good thing. Most leaders I’ve spoken to believe that their organizations need to move faster as a consequence. What I’m curious about is what does “moving faster” really mean?

Feedback loops and network effects

A fundamental change from the industrial economy to today’s knowledge economy is the ability to rapidly improve a product or service. Having a digital touchpoint with the customer enables the creation of virtuous feedback loops. Specifically, a feedback loop is created when relevant data is captured that permits further optimization of the customer experience. Network effects are the ultimate expression of a feedback loop that is self-reinforcing.

In a network effect, the more users employ a product, the more data they contribute; the more data they contribute, the smarter the product becomes (which can mean anything from core performance improvements to predictions, recommendations, personalization, etc. ); the smarter the product is, the better it serves users and the more likely they are to come back often and contribute more data – and so on and so forth. This effect is remarkably profound with search engines for instance. Every additional query enables improvement of the search results.

At level below network effects, we have feedback loops. Online software platforms use this to their advantage. An online service can use data to improve user experience, product features and even provide better recommendations. An online payment processor like Stripe provides preventive fraud detection due to its scale and number of transactions captured. Technology focused companies know this well and apply data science techniques across many areas of their business to rapidly improve. Feedback loops are of course not limited to simply product usage. Interesting new loops are being exploited in employee satisfaction, operations, manufacturing and so on. However, the one with the most strategic importance for an organization is tied to product usage and ultimately the customer.

In the realm of physical goods, manifestations of feedback loops are more opaque and are engendering tension along the value chain.

Getting access to the customer at all costs

Manufacturers are clamouring to obtain more customer data. As they sell their products to distributors and retailers, they miss out on the ability to create a positive feedback loop of their own. Retailers hold more leverage typically as they look to sell customer data back to the manufacturers. With the rise of ecommerce, retailers are also creating new revenue streams selling digital shelf space. Manufacturers are slowly waking up to the fact that they need to build their own proprietary sources of customer data as they see their margins erode from traditional distribution channels.

This of course is occurring in an environment where connectivity is allowing new competitors to grow profitably and steal market share. Direct to consumer brands are emerging and competing with manufacturers aggressively. Empowered by easy to use platforms like Shopify, they are able to compete by acquiring customers and fulfilling orders online.

Gaining access to the customer has become the battle cry in many corporate boardrooms. In my estimation, it is simply a function of the need to create strong feedback loops.

Doubling down on the customer

As I’ve written previously, customer experience is the new strategic imperative for every organization. As feedback loops accelerate and permeate across multiple industries, organizations need to move more quickly to respond to increasing customer expectations. When we talk about velocity, the key tenet is to increase the speed and efficacy of feedback loops.

At a high level, there are two important avenues to pursue.

First, it is critically important to internalize digital competencies. A strong digital team will take advantage of feedback loops be it on ecommerce or at point of sale. Too often organizations seek to outsource key components of their marketing or tech stack. Things like building a website or app are definitely not core and commoditized in nature. However, other areas like online customer acquisition or business intelligence analysis are increasingly important to internalize. In businesses where there are no direct digital touch points and thus no inherent customer feedback loops, these functions are easily seen as less strategic. Therein lies the catch-22; a feedback loop cannot be built if certain of these functions are not handled in house and continuously improved & iterated upon.

Second, the information captured from customer touch points needs to be leveraged using data science. This will yield a competitive advantage as more & more customers use the product. Any customer information should be examined with the following question; can we make any predictions that will help improve the customer experience? If access to direct customer data isn’t a short-term option, there should still be a myriad of ways data science will be useful (forecasting demand, optimizing the supply chain, etc.). The tools and software to do this are more and more accessible to any organization.

The rapid improvement of machine learning techniques are democratizing the ability to rapidly iterate on a product, predict future needs and ultimately improve the customer experience. This is what real speed is about.