Don't Just Listen, Connect

Appliances that read your mind. Health monitors that lurk under your skin. What used to be science fiction is now business fact. Companies will profit from that development, says John J. Sviokla -- if they make the right connections.

In the reace to close the gap between you and your customers, how close can you go? When does "very close" become "too close"? For John J. Sviokla, it no longer makes sense to speak in such terms. When it comes to interacting with customers -- to learning about what they want to buy and showing them what you have to sell -- the key factor is not distance but connectivity.

Digital technology is making possible a wide range of offerings that break the skin (in some cases literally) that has traditionally separated companies from customers, or customers from products. "We're going to see much more embedded intelligence in products. That's a given," says Sviokla. Companies, he adds, will "move from managing individual customer relationships to managing a network of products out in the field."

Sviokla, 44, is vice chairman and leader of the digital-strategy practice at DiamondCluster International Inc., a consulting firm based in Chicago. His clients include Goldman Sachs and General Motors (for which he consulted on the creation of Covisint, the ambitious B2B exchange launched by the Big Three automakers).

Before joining DiamondCluster (then called Diamond Technology Partners) in 1998, he was an associate professor at Harvard Business School. There, along with colleague Jeffrey Rayport, he taught the school's first course on e-commerce and penned the Harvard Business Review article that introduced the term "marketspace" to the world.

In an interview with Fast Company, Sviokla made a series of connections between where technology is today and where companies must be tomorrow.

What will the boundary between companies and customers feel like five years from now?

It will feel less like a boundary and more like a connected network. We're going to see much more embedded intelligence in products. That's a given. For example, without being told, companies will know what kind of washing machine a customer has, if it's still under warranty, and if it needs parts -- or if the time has come to get rid of it. Merloni, an Italian white-goods manufacturer, is already embedding technology into its washing machines that will provide exactly that kind of feedback.

Lexus is doing something similar with its cars. When you bring a Lexus in for service and your dealer hooks it up to a computer to run diagnostics, a profile of your driving habits gets uploaded to the Lexus engineering department. That lets the company build a more accurate picture of how people experience its products.

The boundary between where a product ends and where a customer begins is changing. And it's a fundamental change -- one that will let companies move from managing individual customer relationships to managing a network of products out in the field.

How will companies benefit from moving in that direction?

Managing a network of products leads to increases in profitability, because customers are usually willing to pay extra for a superior process. And a superior process is often much harder for other companies to imitate than a superior product. Companies will also find additional revenue streams as they move further along the product life cycle in terms of financing and selling new services.

Take a company like Carrier, which is launching a Net-enabled air conditioner. Carrier will be able to look at power consumption and tell if a compressor needs to be replaced, cleaned, or repaired. Once a company has something like that, it can go to a consumer and say, "If you delay the time when you start this air conditioner by three hours, we can help you save 10 cents per kilowatt-hour."

But it's not really about using the Net to turn an air conditioner on and off. It's about getting tighter with customers through a kind of giant Nielsen-ratings system that gives feedback on how products are actually being used. Customers will assume that a company can interrogate the products that they own, whether that product is sitting in their house or in their car or in their hands.

How close can companies really get to their customers? Is there an ultimate boundary?

Well, telematic medicine will lead health-care and insurance companies under the skin of their customers. Under-the-skin adjustment and monitoring of insulin levels for diabetics, for example, has been shown to be tremendously more effective than self-administered injections. This will start with conditions like diabetes, but it's not difficult to imagine patients with heart disease swallowing a telematic monitor that helps them watch how much salt and cholesterol they consume, and warns them whenever they approach unhealthy levels.

Will people sit still for that kind of thing?

Patients are going to demand it. Think about it: The average car today has several dozen sensors. By the time I'm 50 or 60, I'll have a half-dozen sensors in my body. Isn't my health as important as my car? Also, insurance companies will say to patients, "If you're willing to submit to these new therapies, we'll give you a better rate."

In a certain sense, human beings are just organically expressed microcode. A lot of people will get creeped out by that, but when you look at what is happening in nanotech, infotech, and biotech, you'll see that they're all getting down to the molecular level. In each case, scientists are moving atoms around -- whether the goal is to store bits of data, to change protein expressions, or to build microsensors.

In a world like that, when is the customer in charge, and when is the device in charge?

Essentially, it's a question of how to allocate what I call "microdecision rights." The logic of automation has always been to take the human out of the loop. But there is a new kind of dynamic automation in which people can be in control when they want to be, or they can let a machine be in control. The model here is the way airplanes work today. People can delegate a network to make decisions about what food to replenish in their refrigerator, say, or what tunes to play on the radio, or else they can make those decisions on their own.

This is starting to happen in financial services, where the integration of the Web, personalization, and customer service is farthest along. You can ask to be alerted if a stock starts moving, but you can also turn off the alert and say, "If this or that parameter comes up, execute a trade."

What does all of this have to do with the way that businesses approach customers?

It's going to push companies to start thinking of customers as people who form a connected network. All kinds of products will have a network connection embedded in them. Living in a wireless world means more than pervasive computing; it means pervasive connectivity.

Companies that start thinking about their customers as a network will have an opportunity to codesign some really great products with their best customers. That's already happening. Intuit involved customers in the design of Quicken, for example, and architects can now give you a view of what a house will look like once it's built. But as we get deeper and deeper into what technology can do, companies will say to their lead users, "Here's the design environment. Let us know what you're looking for, and we'll try to do it."

Paul C. Judge (pjudge@fastcompany.com) is a Fast Company senior editor. Contact John J. Sviokla by email (john.sviokla@diamondcluster.com).

Sidebar: Laundry Math

For millions of Europeans, a sleek Merloni appliance stands as a symbol of cool domesticity. But in offering a line of Net-enabled washing machines, Merloni isn't going after added cachet value. Rather, the Italian appliance manufacturer aims to create a new business around building tight connections with consumers.

Merloni, which introduced its digital washer in 1999, plans to roll out a new version next month that will enable the company to sell an innovative service: pay-per-use laundering. Merloni will give consumers a free machine and then charge them a fee each time they use it. The machines will monitor their own performance, track energy consumption, and chart users' laundry habits.

Digital appliances are also a crucial element of Merloni's strategy to become Europe's largest provider of household-maintenance services. Merloni's repair personnel already make about 600,000 customer visits each year in Italy alone. As those repair workers knock on doors to do preventive maintenance, they will offer comprehensive service contracts for customers' plumbing, wiring, heating, and cooling systems.

"These new businessesprovide huge potential for reacquiring contact with customers," says Fabio D'Angelantonio, 32, marketing manager of Merloni's new consumer-care business. And Merloni hopes to turn renewed connections into new profits. Says D'Angelantonio: "This could be even larger in terms of earnings than our existing product lines, because customers pay a premium for these types of services."

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