Total OPEX reduction (FTE) at AAPT following bundling rate, up from 14%, and online sales, up from 0%
How digital-first organisations are leveraging their ecosystem through rapid bundling and mass customisation.
IN 30 SECONDS
We are entering the era of the connected digital economy: the convergence of technologies is creating new ways for companies to deliver services and engage with their customers
Speed and customer experience are imperatives, no organisation can go it alone
Companies need a digital foundation layer to orchestrate and monetise new offerings and services bundles that connect partner ecosystems to deliver new, mass-personalised, offerings to customers
This requires changing mindsets from the very top of the organisation right through to front-line delivery
The digital revolution is only scratching the surface
We are in the midst of a remarkable digital age. Today’s web, social and mobile technologies, cloud computing and big data analytics are combining to deliver unprecedented and far-reaching impact on every aspect of our business and personal lives.
However, to think this digital revolution is comprehensive would be a grave mistake. Recent focus has been on front-end online services and mobile apps. Organisations are now being pushed by ‘born digital’ competitors (such as Amazon) and pulled by market opportunities. They are looking to use digital for a more fundamental transformation of their business models and value propositions, to tailor unique service offerings and customer experiences.
Future success requires going beyond the corporate boundary to engage with a kaleidoscope of ecosystem partners and service providers. Simply put, the world is changing too fast for any one organisation – however large – to do everything by itself. Enriching service offerings requires the ability to both handle complexity and reduce cost by highly automating and integrating key enabling services via a digital platform. We call this a B2B2X digital foundation, as it enables business to aggregate, orchestrate and bill ecosystem partner services (the business-to-business part, B2B) whilst creating new customer offerings (the business-to-consumer part, B2C).
Using digital to underpin and simplify these enabling services creates the space to focus on innovation, improve competitiveness and launch game-changing value propositions. The next frontier is about how the ecosystem can be leveraged to align to individual customer needs. Consequently, organisations that still see the ‘digital opportunity’ restricted to their marketing spend (note 1) are missing a fundamental trick – they are only scratching the surface of how digital can transform their businesses.
Time is not on any organisation’s side: in this world of instant gratification, businesses need to react faster, or watch their opportunities diminish and their customers move on
If customer engagement is the metric of success, partner engagement is the key lever. Time is not on any organisation’s side: in this world of instant gratification, businesses need to react faster, or watch their opportunities diminish and their customers move on. This is the new ‘moment of truth’ for customer service. Consumer trends and technology evolution move far quicker than internal product and service lifecycles, so working with a partner-based ecosystem for service bundling is fundamental.
Spinning up the digital operational experience
In 2010, the board of Deutsche Telekom agreed an audacious move to grow into new verticals and service areas not traditionally associated with the company. Just two years later it announced a partnership with a German health insurer to deliver a new offering aimed at helping Type II diabetes patients to self-manage their condition. The product/service combination incorporates a health-monitoring wristband (similar to a sports watch) and a glucose measurement device with a number of online tools to help coach individuals better to manage the disease.
By using the industry-standard Frameworx suite of operations tools (e.g. eTOM, SID and TAM), created consultatively by TM Forum, the project could build on existing best practices by reducing safety risks and compliance issues. It could also deliver quickly – roll-out to patients was five months after the announcement. Incorporating the benefits of keeping patients healthier, the annual savings were in the order of EUR 4,000 per patient (note 2).
Such a project would have been impossible without working with partners, building on open standards and considering digital operations – how to manage and run the service – in parallel with customer needs. According to a report by Nigel Fenwick, at Forrester Research Inc, ‘Digital business isn’t just about customer experience – it’s also a way to drive operational agility’ (note 3). Whilst any company can create a one-off success, the challenge is to deepen the customer relationship by offering (and being able to deliver) a rapid succession of highly innovative new service offerings as an integral part of the organisation’s modus operandi. Forrester calls this ‘digital operational excellence’ (note 4), without which all the digital hoopla of marketing, apps and websites stands for nothing.
Combining customer experience and operational excellence can result in richer interactions, which provide genuine, longer-term relationships with customers. In turn this drives corporate agility, marketing and experience management – with analytics-driven insight informing the offering, setting prices and making personalised recommendations. These goals are only achieved when every area of the business and its operating model changes, extending right down into processes, capability and culture.
Putting both digital and partnership at the heart of the business involves cultural, capability and organisational change requiring investment beyond a one-off digital marketing campaign
As a consequence, whilst some organisations are already reaping the rewards of digital, others are learning just how much of an impact new, ecosystem-based models can have on their operations, across the product and service lifecycle. Often this can require stepping over a host of legacy constraints caused by inward-looking, over-complex business models, linear value chains and ill-suited IT systems. Putting both digital and partnership at the heart of the business involves cultural, capability and organisational change requiring investment beyond a one-off digital marketing campaign. So, what is the best way forward?
DEFINING THE B2B2X DIGITAL FOUNDATION
While no two digital initiatives will be the same, by their nature, all will benefit from a foundation of services that can be built upon. Core services in the digital foundation layer are:
- Aggregation – capabilities to enable collation and integration of new and legacy services and systems, for example linking cloud-based analytics engines with both external data sources and existing customer data
- Orchestration – the ability to execute multiple services as an ensemble, managing their operational requirements and service delivery as a unified whole
- Monetisation – the automation of account management, service catalogues, transactions and usage monitoring (and subsequent billing) of a given service bundle
Seven steps to digital success
As examples such as Deutsche Telekom show, organisations cannot simply ‘do’ digital by themselves, rather they depend on increasingly rich, flexible, relationships to improve their B2B2X digital foundation constantly. On top of this, speed and agility can only come from collaborating with partners, as no single organisation can innovate or create new capabilities quickly enough.
Against this background, where should organisations start? We see the secret of success being based on the pillars below.
In this environment, information really is power as it provides a basis for organisations to customise and personalise new service offerings. The battle is to get better data and insight than your competitors. New insights define how products and services can be bundled, tailored and extended to meet demand in a way that is unique, innovative and differentiated. In a virtuous circle, the more services you sell a customer, the more data you collect and the better insight you gain, which drives better, more accurate recommendations and personalisation.
Adopt a data-driven approach
Given that many data sources are external, it makes sense for the first partnerships put in place to be those bringing the insights the organisation needs to drive its digital strategy: for example, public and corporate sources of big data can be linked to internal and legacy data sources to provide greater insights. Then, as relationships deepen, the organisation derives greater customer insight directly from customer interactions and from the addition of new sources, such as sentiment analysis, the television schedule or weather forecasts. This analysis helps the organisation to decide where to focus its attention and skills further.
Leverage the ecosystem
The next step is to move from approaches based on a traditional linear value chain towards a value network, using a partner ecosystem to create and deliver innovative new service bundles that blend capabilities from both internal and external sources. This needs to be underpinned by:
- Providing a common customer experience accessible through an integrated and federated service catalogue where new partners can be added, services updated and prices changed in real time (for example, Amazon)
- Removing maximum complexity from the back office, which incorporates fully automated provisioning and billing. This process uses legacy IT systems, services and data to fully orchestrate and deliver automation
- Offering great customer service across and beyond the point of sale, with issues tagged to services from each partner flagged up, swiftly escalated and transparently resolved
- Combining key digital elements of cloud-based platforms, social, mobile and big data
Achieving these goals requires a B2B2X digital foundation layer (box out) that can quickly bring new partners on board at contractual and service levels, for example combining offerings into a single service catalogue. Success in reaching these objectives also requires moving organisation structures towards the customer journey and the end-to-end service lifecycle. Partnering delays jeopardise or even nullify any planned benefits of a new service. This process has to be quick and agile.
Create bundles that add genuine value
Developing digital creates new service offerings that enhance the brand promise and delight the target market by offering enriched customer experiences. It is up to the organisation to layer genuinely value-added experiences on top of those delivered by its partners and create innovative ways to charge for them. Failure to do so increases the chances of a supplier deciding it can optimise its profits by cutting out the middleman and selling cheaper goods and services direct to end customers. Note that organisations can ‘white label’ their own services and service bundles, providing the foundation for autonomous company brands. This strategy is familiar to the financial sector: MBNA is a market leader in white-label credit cards, for example. Organisations can also find completely new revenue models such as freemium and subscription-based.
Recognise the need for speed
Constantly changing market dynamics – from demographic shifts to new fashions – create a moving window of opportunity for the organisation to create and deliver new service bundles, which need to be personalised to succeed. Speed is of the essence to take advantage of opportunities: there is no point in creating something for a market that has already moved on. A key enabler, therefore, is automation of processes and partnering, which includes the abstraction of business rules and dependencies that surround an offer from one partner to the next. This automation is designed to fully orchestrate the business lifecycle and its monetisation.
Give services as you receive them
Service bundles need to be delivered with a baseline assurance of service stability, performance and availability. Building on top of this, services can also be tuned according to changing behaviours and information available from the market: for example, from social networks. By delivering services internally and to other organisations, companies gain first-hand experience of the skills, knowledge and other expectations they can place realistically on their suppliers, as well as honing best practices around service provisioning, upgrades and maintenance.
Every stage of service delivery, from marketing through to sales and then customer service, needs end-to-end ownership of the service bundle to safeguard against reputational damage. If something goes wrong it is not enough to say to a customer, ‘Sorry, that is an external service, so there is nothing we can do.’ From the customer’s perspective, the service bundle provider should be fully responsible for all the elements of the service it is selling.
Balance proprietary with open
Service bundling recalls the age-old question of whether to ‘build, reuse, rent or buy’ proprietary technologies or to use open standards and platforms. Standards enable faster innovation and exploitation of the ecosystem but, by definition, choosing open technology means everyone can do it. Proprietary implementations lock in customers and give short-term advantage, but this comes with the risk that the technology will be incompatible with new standards as they emerge. Therefore the key is to create flexible digital architectures that can scale and evolve as the industry matures. Smarter digital businesses may provide an API on to their services, such as that recently announced by car hire company Uber (note 5).
Monitor margins against costs
The advantages of rapid delivery using external partners are tempered by the need to be competitively priced, which can reduce margins. The organisation should be monitoring the ongoing margins and costs of its bundled service portfolio so it can tune specific bundles, bring in new partners, take certain elements in-house and, if necessary, decide to end the life of services that no longer deliver an adequate return.
How can success be measured? The ultimate litmus test is mass personalisation: to be able to create an offer instantaneously that appeals directly to an individual. Mass personalisation requires continuous innovation: organisations need to add relevant new services from ecosystem partners and create attractive new offers targeted at individuals on an ongoing basis. This means changing traditional approaches to customer segmentation. Clearly, the faster this cycle can take place, the better – any time wasted is a lost opportunity to generate value.
Is your organisation geared up for the connected digital economy?
Whilst many companies still see ‘digital’ as a one-off social media campaign or the design of a pretty website, genuine digital success reflects an organisation’s ability to create meaningful customer experiences, deeper engagement and enhanced value, delivered on an ongoing basis.
We are entering the connected digital economy: technological innovation refuses to slow down, customer expectations rise and ‘born digital’ competitors harness the full potential of their business models. Failure to keep up can result in rapid loss of market share as illustrated (note 6) by the high profile casualties such as Blockbuster, EMI or Kodak.
The critical capability is still execution, not just finding and bringing partners on board, but being able to manage them as part of a cohesive whole to deliver on brand promise. However real-time bundling also brings risk; buying-in B2B2X digital foundations may require long-term contracts and not every new bundle is guaranteed to deliver results. However by organising around ‘hunter’ initiatives to proactively create new product and service bundles, ROI rewards will be high.
The critical capability is still execution, not just finding and bringing partners on board, but being able to manage them as part of a cohesive whole to deliver on brand promise
As well as a change of mindset and culture within siloed business functions, organisations right up to board level need to think and work in a more entrepreneurial fashion. We do not use the term ‘business transformation’ lightly: it is clear that companies need organisational structures that actively consider how to build the digital foundation and the role of partnering to enrich their service offerings and customer experiences. Whilst this process may be hugely challenging, as it involves the potential re-definition of strategic assets and may cannibalise existing revenue, all other options are increasingly limited.
The digital journey has passed the threshold where it needs to become the norm, rather than the exception. A key metric of future success will be based on how well – and how often – an organisation engages its partners and customers to launch innovative services tailored to customer needs by bundling together key elements from different partners.
- Digital success reflects the agility of an organisation to respond quickly to events by bundling products and services from multiple suppliers and partners in a unique, innovative and differentiated way
- Key factors include the development of a full ecosystem of partners to increase the ability to bring rapidly on board new offerings into a service catalogue, delivering new sources of value and a richer experience and relationship with the customer
- Bringing together an ecosystem of partners from different industries can deliver new value – packaging a new offer by integrating previously separate value chains disintermediates competitors and creates uniqueness and differentiation
- While any organisation can create a one-off product and service bundle, it is hugely challenging to innovate systematically and consistently over time
- To enable the digital customer experience, every area of the business that delivers the brand promise needs to adopt digital operational excellence. People need to learn to ‘trust the machine’ by using big data to drive algorithms and accelerate decision-making.
- Organisations need to balance speed-to-market with cost and risk, requiring executives to think and act more entrepreneurially
- The ability to extend digital into ‘mass personalised’ bundled services – the tailoring of a service to create a customised offering and experience aimed at the individual customer – is a key success metric