Creating Connected Delivery Models

By Nicolaj Siggelkow and Christian Terwiesch

This is Part 2 of 3 of our trilogy summarizing key learnings from our book Connected Strategy. To create new connected relationships (see our previous post) without increasing fulfillment costs (and, ideally reducing them), firms have to form new connections in their value chains. By increasing the connectivity to suppliers and by connecting previously unconnected entities in the ecosystem, firms can reshape the connection architectures that describe the design of the operations that fulfill demand at reduced costs.

The last couple of years have witnessed an enormous success of so-called platform strategies. Such platform businesses are not directly involved in serving customers by providing them with goods or services. Instead, their focus is on connecting the producers and customers of such products or services. For example, Uber does not own cars. It connects drivers and their cars with passengers who want a ride. Apple’s app store primarily does not sell Apple software. It connects app developers and their software with customers who want to use it. Rather than owning real estate, Airbnb focuses on connecting folks who have empty rooms, apartments, or houses with travelers in need.

A platform really serves two sets of customers. First are those who provide the products or services that are transacted on the platform, be it app developers, drivers, or landlords. And second are those who consume those products or services, such as owners of smartphones, passengers, and travelers. Platform businesses need to appeal to both sets, which is why they are often called two-sided markets. Success is typically achieved by providing a platform for payment, trust building, and dispute resolution and by providing liquidity to the market, making sure there are enough customers to make it worth the providers’ effort to join the platform and vice versa.

Though platforms crucially depend on connectivity, the term “platform business” is somewhat misleading as there exist a number of fundamentally different forms of platforms. In order to understand the differences among them, we need to take a more detailed look at how such platforms actually work. In our research, we have identified five different business models that utilize very different connections in the value chain. We hence define five different connection architectures:

-         Connected Producers: Traditional producers such as Disney, Nike, and Daimler have created platforms within parts of their businesses by changing how they connect to their customers and by moving from episodic interactions to continuous connected customer relationships. A runner might use the Nike platform to log her miles, but this platform is more of a technology platform than a two-sided market.

-         Connected Retailers: Traditional retailers ask customers to come to their store and to buy what they have. Connected retailers make the choice process and the ordering of, payment for, and receipt of the product much more convenient for a customer. From Amazon for books, and Netflix for movies, to meal-kit providers for groceries, connected retailers create a much closer relationship with customers, which allows customization and the reduction of pain points along the entire customer journey.

-         Connected Market Makers: These firms create a market (a platform) by connecting supplier firms with customers. Examples include Expedia, Priceline, and Amazon Marketplace. Connected market makers are the bazaar operators of the twenty-first century. They neither buy nor sell; they just make sure the right buyer is connected to the right supplier. This approach sounds like the dream of every operations manager: it seems as if this approach requires almost no capital (capacity, inventory) while also being free of any operational risk. However, to succeed with this connection architecture, a firm needs to be able to attract both buyers and sellers and provide them with liquidity and trust.

-         Crowd Orchestrators: In contrast, these firms can’t rely on existing suppliers. A key task of a crowd orchestrator is to mobilize individuals to serve as suppliers—for example, of driving services (Uber), shopping help (Instacart), accommodations (Airbnb), or financial resources (Kickstarter). The key challenge is to attract customers while the set of suppliers is still small. Once a critical mass is reached, though, two-sided network effects kick in: the more suppliers that are available, the more customers will come; the more customers that come, the higher the incentives for more suppliers to join.

-         Peer-to-Peer Network Creators: These firms form and organize communities of users, blurring the lines of consumers and providers. Again, network effects play an important role in the sustainability of firms with this connection architecture. If the value a customer derives from a network increases with the number of participants (e.g., as the number of posted reviews increases), then larger networks will tend to attract more new users, increasing network size even more.

A final thought (for now) on the growth of platforms and networks. Connection architectures such as crowd orchestrators and peer-to-peer networks are enabled through advances in technology—ride sharing just does not work without mobile computing and geolocation. With technology further advancing, there is no reason to believe that this growth will stop any time soon. But that by no means implies that connected producers and connected retailers are the dinosaurs of connected strategy.

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This content is adapted from our forthcoming book, Connected Strategy: Building Continuous Customer Relationships for Competitive Advantage. The book is coming out in May, please check it out on:

-         Amazon: https://www.amazon.com/Connected-Strategy-Continuous-Relationships-Competitive/dp/1633697002/

-         or on our book website: https://connected-strategy.com/

In the book, we show how companies can fundamentally change the way they connect with their customers and other players in their ecosystem. Savvy firms are shifting from occasional, episodic interactions—where customers realize they have an unmet need and then look for ways to fill it—to staying continuously connected to their customers, providing services and products even before customers become aware of their needs. The book integrates many examples, how-to advice, and tools in the form of “workshop chapters.”

As you probably know, the world of publishing has also changed quite a lot. Publishers do not run big campaigns anymore, but rely on authors to create buzz through their own social networks, and pre-orders have become the new key factor that might start a snowball effect. As a result, there are a few ways in which you could help us:

1)         Please pre-order the book if you are interested

2)         Share news about the book in your own social network. For instance, you could share this post.

3)         Once you’ve read the book, please leave a review on Amazon.    

If you like to get additional material (e.g., podcasts, templates for the worksheets, filled-out examples), please go to our website at connected-strategy.com.