Jan Bosch observes that the traditional, transactional relation between companies and their customers is no longer a reality in many contexts.
Once upon a time, the customers and users of the products we built were vague, amorphous beings. Although most in R&D suspected they were out there, they were no real, tangible personas. This led to many decisions being made based on technological capabilities and, sometimes, spurious ideas of what customers and users might appreciate.
At the same time, it caused a very clear gap between customers and users and the company providing the product. Generally, the model was similar to selling a widget, letting the user use up the widget and then returning several years later to sell the next widget. The interface between company and customer was clearly defined and there was a clear legal and financial boundary between the two.
With digitalization, however, we increasingly move toward continuous delivery of functionality to customers and continuous data coming back from products in the field, closing the feedback loop. In addition, continuous delivery of new functionality provides a qualitative feedback loop from customers who give verbal and written feedback on the new functionality that was delivered. They might even offer ample suggestions as to what functionality they would like to see next.
Furthermore, many companies are looking for ways to evolve successful products or product portfolios into product platforms where users and third parties develop extensions and user-generated data and content drive innovation and enhance user experience. Such a platformization has all kinds of benefits. This ranges from sharing the cost of innovation with customers to increasing the stickiness of offerings as the changing cost becomes significantly higher when customers deeply integrate their own solutions with the offering from the company.
All these developments are causing a situation where the boundary between a user and the company providing a product used by that user is increasingly blurred. The model quite fundamentally shifts from a party buying and a party delivering in a mostly transactional setting to a partnership where the company providing the product or offering needs to deeply understand the business of the customer and user and needs to take proactive responsibility for delivering an optimal solution for their needs.
Although the same legal structure with two separate legal parties still is in place, I’ve worked with several companies that have adjusted their business model to align better with their customers’ KPIs. Think of car companies getting paid for every kilometer of mobility provided to their customers or logistics companies getting paid for every on-time delivery of goods. This means that the company no longer gets paid for the product itself but rather in a continuous fashion based on the use and benefit the customer has from the product.
A benefit of this model is that if new functionality delivered to a customer leads to improved performance, not only the customer benefits but also the company itself as it gets paid more in response to the higher performance. Thus, the incentives of the company and its customers are perfectly aligned. This, again, leads to a more collaborative operating model in the business ecosystem.
Business ecosystems are typically built based on a platform of some kind that ensures that participants inside the ecosystem have a competitive benefit over outside parties. There typically also are some competitive relationships between inside parties. For instance, different apps in the same category compete with each other on the Apple app store. Some relationships are collaborative in nature where both parties do better the deeper they collaborate. Business ecosystems are generally stronger and more resilient when the number of collaborative relationships is higher; the continuous and collaborative relationship between a company and its customers strengthens the ecosystem and benefits all parties.
This brings me to my core message: R&D teams in quite a few companies have a much closer and intimate relation with their customers than with the rest of the company for which they work. Even if the separation in terms of legal structure is still in place, the aligned business models, continuous value delivery and continuous qualitative and quantitative feedback cause a situation where the distinction between the company and its users is increasingly vague and blurred. Although we can’t let go of it completely, it’s important to realize that the traditional, transactional relation between companies and their customers is no longer a reality in many contexts. We need to think much more in terms of collaborative and integrated relationships. To end with a quote from Damon Richards: “Your customer doesn’t care how much you know until they know how much you care.”
