Digital Strategy No 2: Rethink your customers - and your partners

April 2017

Many years ago Bill Joy, one of the godfathers of Silicon Valley said ‘Whoever you are, the smartest people in the world don’t work for you’. Just think about that for a moment; as you do it becomes so obvious that this must be true. The company you work at was set up to perform a certain function, and to remove transaction costs (see Ronald Coase’s “The Nature of the Firm” (1937) and still relevant) people were hired to perform specific functions. Moreover they were likely hired as they fitted in with your overarching corporate vision. So people get hired who fit a role, rather than on the basis of how smart they are.

So you end up, typically, with efficient rather than effective companies, and ones where innovation struggles to get a look in. Mostly as a natural consequence of a perfectly rational desire to get on and do the job at hand. Which is exactly why companies seldom last long at the top of their industry; they continue to perfect the curve they are on whilst others build the next curve, which puts them out of business. Nothing new here; Charles Handy wrote about this in 1995:

In an analogue world breaking out of these tightly woven groups is hard; networking is, by implication, hard when it has to be done face to face. However much people laud the advantages of in-person collaboration, it doesn’t really scale. You end up talking and working with the same people over and over again. Which can be comforting, but hardly pushes the envelope.

In a digital world all this changes. You really can work with someone on the other side of the world as easily as someone on the floor above you in your office. As has been shown, within an office you rarely interact with anyone more than 150 feet away from you; in fact the vast majority of your interactions occur within 30ft. However, with the right digital tools ‘the death of distance’ does become a reality. You may well sit with, and benefit from, your immediate team but the opportunity to network, interact and learn from other teams becomes infinite. And as MIT’s Sandy Pentland has shown, it is when teams combine the energy of close interaction with the ‘exploration’ inherent in interacting with people in many other social groups, that innovation and productivity is unleashed. It is not knowledge that matters today, it is curiosity. Curiosity about what is possible, who is doing what, how and why and where are new things bubbling up. Curiosity about the future, and the past, have things got worse, how could they be better? And most importantly, who should I be working with, and selling to?

Accor, the hotel group, have just bought One Fine Stay, the website helping people to avoid staying in hotels. So their customer changes, as does their partners. As does their business model, as does their notion of who they are competing with.

Huffington Post is an online media company. Media companies employ journalists don’t they? Well not necessarily, almost all Huffington Post content is donated free of charge by 3rd parties grateful for the personal brand promotion.

Buzzfeed is another online media company. Who are their star employees? Data scientists; working out algorithmically what content attracts the most viewers, and engagement.

And Facebook is the big daddy of media companies, with 1.4 billion customers. But they produce no content either, and nobody pays to use the service. So is Facebook’s customer their users or the advertising agencies and brands they sell space to? The reality is that they have perfect alignment of interests, in that their job is to make the Facebook experience so great for vast numbers of people that the advertising simply follows the audience.

Zenefits is a US HR software company that gives away their software. How does that work? Well, they figured out that if they could get enough HR people using their software then their audience of customers (albeit non paying) would be worth a fortune to insurance companies wanting to sell them services. As so it was, much to the dismay of all those competitors whose business model depended on actually selling their HR software.

So who is going to do a Zenefits in your industry?

In real estate WeWork springs to mind. The traditional office landlord business model involved finding a tenant, signing them up to as many years lease as possible, and then sending them a rent invoice every three months. WeWork, (valued at $16 billion after six years in existence) in contrast do not sell office space, they sell an experience. And a brand, and it is that that people are buying into in droves. Of course they are actually selling office space, but to a different customer and in conjunction with a whole range of different partners to a traditional landlord.

Is this going to be 20% of the office market in five years, 40% in 10? Who knows. It is clear though that the WeWork type value proposition is fit for the digital age, and could not have existed in the analogue age. And that is the point; in the digital world our conception of who we work with, our partners, and who we sell to, our customers, is being upended. It is not that offices will not be needed in the future, or that work will disappear, but that the nature of an office, and the whole world of work, will morph into something very different from what it is today.

We are moving to an on-demand world (not a sharing economy as, like it or not, money is involved) and most of what we consume will be on an ‘as a Service’ basis. And real estate will be central to this. Today I need this, and tomorrow I need that. and very sorry, but your fixed term, no service, take it or leave it lease offering will not do.

What else have you got?