Welcome back to the 2nd installment of my mini-series on digital transformation (DT). From my previous vlog entry, we learn that DT is hard (~70% failure rate) because it’s a long process to changes the technology as well as the people, process, and culture any company. Despite the challenge, companies are lining up for this process, and there are both defensive and offensive reasons for them to do so.
Many digital visionaries already know the business imperative for DT. However, to gain company-wide support for such a colossal undertaking requires that everyone understand why you are doing it. Today, we will examine a defensive reason from a historical perspective, and next time we will discuss the offensive logic behind DT.
Before we dive in, I just like to emphasize that technology-driven business transformation, such as DT, is not new. It has actually happened before, and we can learn a lot from history. Moreover, a good way to foresee where we’re heading is to understand how we got where we are.
The 2 Gears Model of Modern Business
If we can roll back time about 150 years, how would business operate back then? That was a time where all trades and exchanges happened in one place, and that place is the market. All business transaction, whether it’s pricing or any product related inquiries, happen in the market, face to face, in real-time.
This has been the way of business for a long time. Until technology came and disrupted the market. First, advancement in transportation allowed businesses to deal with others much further away and expanded the market. Communication technologies further extend a company’s reach, and thus the market. They also enabled companies to operate much more efficiently, so companies scaled and grew as well.
While a big market and a big company are all great for business, it also created an artificial separation between the consumer market and the brands. Therefore, most modern day businesses operate under the 2 gears model—they need to acquire customers (marketing) and monetize them (sales/transaction). Companies focus on transactional efficiency, so the faster they can get people from acquisition to monetization the better they perform. Since businesses had over 100 years of practice in this, many large enterprises can do this very well.
Disruptive Technologies Demand New Business Model
However, technology innovation never stops. A new wave of social technologies came disrupted this way of business again. The disruptive power of social media was predicted in Clue Train Manifesto (published in 1999 when Facebook and Twitter didn’t exist yet) based on the simple thesis that the market has changed again. The new markets are conversations. But most conversations today are digital and take place on social channels. A logical response to this new market is to simply acquire digitally on social media. So, even though the market has completely changed, brands are still doing business as usual under the 2 gears model—they acquire and monetize.
The problem is that this is no longer sustainable in the age of social media. And the reason is that digital acquisition is very different from the traditional notion of customer acquisition. In the digital world, you don’t own what you acquire. A seemingly successful marketing campaign may acquire a million fans on Facebook, but you don’t keep any of those fans.
So what are you acquiring with the acquisition gear? In reality, this gear is merely acquiring people’s attention, so you haven’t acquired any customer until you monetize them. Although it’s true that you could monetize consumers while you captured their attention, consumers’ attention spans are short and they are getting shorter. The average attention span of consumers is ~8.25 second, which is shorter than the memory of a goldfish.
The implication of this for your business is that, even though you can monetize your audience when you have their attention, people’s attention shifts away quickly, so you have to spend the money you just earned from monetizing them to re-acquire them back. And you have to do this over and over again. That’s why marketers often find themselves running one campaign after another, and they have to do this again and again faster. Yet the campaigns are becoming less and less effective. That’s why this 2 gears model is no longer sustainable.
The 4 Gears: A Sustainable Business Model in the Digital Age
So can we make this model more sustainable in today’s social and digital world? And if so, how? The good news is that it is possible, but we can’t do it with just 2 gears. We need 2 extra gears, which bring us to the 4 gears model originally proposed by Geoffrey Moore in his famous book Crossing the Chasm.
The first of the 2 extra gears is engagement. At a high level, engagement helps you sustain monetization, because when you engage customers, you capture their attention longer, so you can monetize them longer. In reality, engagement helps you build stronger relationships with your customers, so they become loyal customers. Since loyal customers, by definition, are those who will continue doing business with you, this is how you can monetize them longer—through their loyalty.
The second extra gear is enlistment. Enlistment is still a novel concept in business. In short, it’s leveraging your customer to help you do work that’s normally done within your enterprise. A simple example of enlistment is advocacy, because you are leveraging your customers’ word of mouth to help you do marketing, which is normally done by marketers within your company. There are many other ways to enlist customers.
Enlistment helps you scale your acquisition because there are usually a lot more customers than you have employees in most businesses. Moreover, leveraging customers is also more effective because consumers trust other customers more than they trust brands.
When all 4 gears are spinning, you create a viral loop that feeds back on itself. Since this viral loop is a positive feedback loop, it will be sustainable if we can get all 4 gears to spin. The caveat is that if anyone of the gear slows down or stops, the whole viral loop can’t go faster than the slowest gear. So business must again learn to organize themselves in ways that allow them to spin all 4 gears simultaneously.
It used to be the case that businesses only have to focus on one thing—go to the market and sell. This is basically the 1 gear model that focus solely on monetization. Then transportation and communication technology disrupted this way of business by allowing businesses to do more. So companies have to learn to take advantage of these technologies and really do more with them (i.e. more than just monetization). Over the past hundred years or so, companies have learned to do more with these technologies and operate under the 2 gears model.
Today, many enterprises are organized in ways that allow them to spin both the acquisition gear (marketing) and monetization gear (sales/transaction) synchronously. This 2 gears model has become the new norm today, and it would be absurd to tell any growing company to stop their marketing operation. As history confirms, companies that leveraged technology and did more, also gained a substantial competitive edge in the market, because most companies that did not learn to take advantage of those technologies are not around anymore.
Today, history is repeating itself as social media disrupts the market. Social media allows us to do more, but we have to learn to take advantage of it and do more with it. That means we can’t just focus on the 2 gears (i.e. acquire and monetize). We must also use it to engage and enlist customers. Businesses must learn to operate under the 4 gears model and simultaneously spin all 4 gears: acquire, engage, monetize, and enlist. Those that do, will again have a competitive edge, but those that don’t, will be left behind while others that do move on.
*Image Credit: Gerd Leonhard, geralt, and Pexels.
Michael Wu, Ph.D. is Lithium's Chief Scientist. His research includes: deriving insights from big data, understanding the behavioral economics of gamification, engaging + finding true social media influencers, developing predictive + actionable social analytics algorithms, social CRM, and using cyber anthropology + social network analysis to unravel the collective dynamics of communities + social networks.
Michael was voted a 2010 Influential Leader by CRM Magazine for his work on predictive social analytics + its application to Social CRM. He's a blogger on Lithosphere, and you can follow him @mich8elwu or Google+.
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I'm glad to hear that my comment opened your mind. And also I am glad that you changing your thoughts about Niantic.
I know it's hard to believe that companies will actually listen to the customers in light of all the recent crisis with United Airline. This speaks further to the importance of customer centricity in this age of digital media. Traditional companies that are self-serving will eventually extinct if they don't learn the rule of the game in the digital age.
However, I do think that there are some companies that get this and genuinely want to deliver what customers want. It may take sometimes to turn the customer voice into market deliverables, but they genuinely want to do it. I think this is the case with Niantic.
That said, I also think that there room to improve, and that is on the communication front. They could definitely do better to update the consumer about the status of the release leading up to the actual release rather than going radio silence and then a big PR.
Finally, thank you for remembering me and reminding me of that HP Global Meet Up in SF 2015. I do remember that event. Thank you for all your support and interest in my work.
See you again next time.
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Hello Terry ( @misterrosen ),
Thank you for raising your concern and such an interesting questions.
I apologize that I could not respond earlier. But now, I finally got the opportunity to respond to some loose-ends conversations on my blog. So let me try to address your concern.
First of all, I am familiar with both Alfie Kohn and Edward Deming, and I have deep respect for their work respectively. But as you said, we live in a society where traditional evaluation is deeply ingrained. So it may just be a necessary evil for now, which can only be undone over time. It will take time to undo the wrong system we put in place due to our own ignorance. So we all have to walk a very fine line between the modern view (of Deming and Kohn) and the more traditional views.
Second, I don’t believe there is any contradiction in what I said with Kohn and Deming. The grading system is what’s destroying the intrinsic motivation, not the student’s desire to do better. He or she is simply a victim of the system that we put in place, because we train him/her to believe that getting a good grade is a good thing, because the society will reward him/her for it. Given the right environment, we all will try our best to optimize our gain. In this respect, a student wanting to get a good grade is no different from someone trying to get some food because he’s hungry. Having desire is not bad, it’s human nature. The system is what’s flawed.
Third, I do believe that both intrinsic and extrinsic motivation has its place. They both exist for a reason. Biologically and evolutionarily, we and other animals respond to both because they are both important for our survival. It is not the case that intrinsic motivation is always better than their extrinsic counterpart. It really depends on what you are trying to accomplish. Good leaders should know how to leverage both. Unfortunately many leaders today are too focused on the extrinsic, because they tend to work faster and have more measurable effects.
Finally, you are right that I probably have made an assumption that “nothing is wrong,” when I said “there is nothing wrong with wanting to get good grades.” But I felt that it’s a fair assumption, because we can easily find millions of things that is wrong with our world. If I want to be critical about it, I can easily go down the path that everything is wrong and we might as well reboot this entire world that we lived in. And even then there is no guarantee that the new system won’t create other problems.
One could easily argue that Kohn and Deming are wrong, because they publish their work to promote their selfish belief, for fame, and potential economic gain. We are too, because we have a job and trying to do things for our own economic gain, which is extrinsic too. Why do we accept payment? So is the economic system is wrong? Is capitalism is wrong because it’s not fair? But a purely utopian type of community is not perfect either because it kills motivation and encourages people to do the bare minimum. IMHO, I believe that everything that we do or said in this world is based on some assumptions. And these assumptions aren’t bad or wrong. They are merely our past experiences that shape our lives, our thinking, even our beliefs.
Thank you for your comment. It’s well taken. I don’t take disagreement personally, because I see it as an opportunity to further our knowledge. Besides, I like these academic debates, even though they could be very wrong and wasteful of earthly resources in someone’s eyes, since they often do not produce anything of value. But who is to decide what’s valuable? Isn’t that subjective? So if I am happy doing it should that be enough justification? But isn’t that just selfish? Why is this form of selfishness OK, and the student working by themselves and don't want to help other is not?
See the point? I don't think we can blame people for their sub-optimal behavior if the system is not perfect. But we can't blame the system either because they are created by less than perfect human beings just like ourselves.
Some of the problems we face are very complex. I don’t think we as a human species collectively are even close to having any real solutions to some of these problems we created. I can only hope for the best.
I hope you enjoy this discussion. I did.
See you next time.
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Thank you for the comment and inquiry. My apology for taking so long to reply.
For that, I'll give you this image composite. Hope you get a crack at it.
You are right. The hype for PokemonGo is over and the player base did go down. And that is expected, even for great games that are designed very well. There are very few games that can really stand the test of time.
But let me clarify a point before commenting on the game itself. Whether a game is well-designed or not has little to do with whether your business is well-ran. Although one can affect another, they are certainly not the same.
First, let’s look at the business.
In the case of PokemonGo, I still think it is a fairly well-designed game that is pretty innovative for its time. That is not to say that it doesn’t have any problem (more on this later). However, the business isn't run very well, both strategically and operationally.
Although I don’t know the detail operating constraint of the company, so it is hard to understand exactly why they don’t have a customer-centric strategy (i.e. don’t communicate with customers and don’t respond to their frustrations and needs). As you mentioned, maybe they want to, but cannot keep up with what the community is asking for. In that case, it would be a business operation problem.
IMHO, I think that in this age, it is more important for companies to have a customer-centric strategy than to have a killer product initially (if we only consider these 2 factors). Because companies that are customer-centric (but don’t have an innovative product) will learn from their customer and slowly improve their product to really meet the needs of the customers. Over time, they will eventually become more successful than companies that have an innovative product initially (but are not customer centric).
Unfortunately, Niantic was the opposite. They had an innovative product, but because they did not focus on being customer-centric, they can’t keep with the evolving needs of the customers. So even if they were successful initially, they will eventually fall behind compare to companies that do not have an innovative product initially.
Now, keep in mind that this is an overly simplistic view, because in real life, there are many more factors involved. There is competition, global operation constraints, global economics, etc. But if all things equal (which is rarely the case), I am saying that a customer-centric strategy is more important than a killer product initially in today’s world. Certainly, Niantic did not do well on this as a business and a company.
Now, let move on to the game.
As I said earlier, PokemonGo is a fairly innovative game. But from a gamification/behavior science perspective, it can certain do much better. For one thing, it violated one of the tenets of successful gamification I wrote earlier: The Better it Work, the Faster you Must Change. PokemonGo worked very well initially. It was an instant hit when they launch (they became the top grossing app in the US in 13 hours, and Nintendo’s Market value increase by $9 Billion in 5 days). However, they did not change fast enough. It’s more of the same game over and over again, so that was the beginning of the fall of their user base.
So, the moral of the story is that if you can’t change fast enough (for whatever reasons), it may be better to limit your release in phases, so it makes a smaller splash initially in exchange for the longevity of the game. Unless a big bang and a then a crash is what you want, of course (and surprisingly, sometimes people really want just that).
In terms of the design, PokemonGo has excellent onboarding, but they didn’t do so well for the scaffolding and the end game. They could have leveraged the principle of baby step and unlocking more effectively. Rather than making users collect all 151 (initially, they subsequently added more) of them at the beginning, break it up into smaller groups. That way it’s more achievable and players can get more frequent feedbacks and so they continue to play longer.
There are many ways to break up the game into many mini-games (levels). But the important point being that by designing more levels and milestones in the middle of the game, they can engage the players much longer. And players won’t suffer as much from the fatigue and boredom of getting the same kind of feedback from the same game over and over again.
Alright, this reply is getting a bit long, so let me take a pause here.
I hope this addresses your question.
Thank you again for the question and your interest, and hope to see you again next time.
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