Business

Software and Dematerialization

| Jorge Arango

Over my lifetime, I’ve seen computers become cheaper, smaller, lighter, and ubiquitous. As they’ve become central to more products, those products gain new capabilities. But more than that, their makers gain access to new business models. Consider what is happening to cars. This is from a recent report on The Verge:

Cars are more full of computers and software than ever before, which has made it possible for automakers to add new features or patch problems on the fly with over-the-air software updates. This has also presented these automakers with new ways of making money. Take Tesla, which pioneered them and currently sells access to a variety of features after purchase. It even used to ship cars with battery packs that had their range limited by software, and owners could pay a fee unlock the full capacity.

BMW now wants to take this to a far more specific level. The German automaker announced on Wednesday that all cars equipped with its newest “Operating System 7” software will soon receive an update that makes it possible for the company to tinker with all sorts of functions in the car, like access to heated seats and driving assist features like automatic high beams or adaptive cruise control. And the company unsurprisingly plans to use this ability to make money

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The Blind Spot in Digital Initiatives

| Jorge Arango

A few weeks ago, I saw a meme that resonated with me. It had the format of a survey question, and it went something like this:

Who initiated your company’s digital transformation?

A) CIO
B) CTO
C) COVID-19

Cue nervous laughter: all-too-real. Our response to the pandemic has wrought major changes. For one thing, everyone who can do so is now working from home. Businesses are scrambling to figure out how to best serve their customers in this new reality. There’s also a palpable sense that many of these changes will persist after the immediate crisis passes. As a result, many companies are looking for new ways to provide value over digital channels.

Most recognize that there are two aspects to digital initiatives. On the one hand, there are technical considerations: selecting and configuring infrastructure, developing applications on that infrastructure, and so on. We can think of these as the “how” of the initiative: How will we serve these customers? Should we host systems on our premises, in the cloud, or some kind of hybrid solution? Should we develop solutions internally, or should we buy an off-the-shelf product? Etc. These types of questions have traditionally been the domain of IT teams.

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Remaining Relevant When Markets Disappear

| Jorge Arango

This morning I got an email from United Airlines. Under a headline that says “Explore the world from home,” the message offers a reminder:

We know you may not be traveling soon, but our award-winning inflight magazine, Hemispheres, is still here to share incredible destinations with you.

From the dunes of New Mexico to the Scottish Highlands, we hope this month’s Hemispheres provides a bit of inspiration for when you’re ready for your next adventure.

Our collective response to the COVID-19 pandemic has radically changed many aspects of “ordinary” life. For one, self-isolation means little or no travel. Airlines and hospitality companies are suffering as a result. As noted in National Geographic, the World Travel and Tourism Council projects that the pandemic will cost the industry 75 million jobs and $2.1 trillion in revenue.

Companies like United, and their employees, are suffering. But people and organizations are resilient. We look for ways of continuing to provide value even when facing such tremendous disruption. Reading about visiting the dunes of New Mexico or the Scottish Highlands isn’t the same as actually being there. But can I imagine a meeting that went something like this:

Manager A: How can we remain top-of-mind when nobody’s traveling?

Manager B: Let’s think… What assets do we have that can remind folks of what they loved about travel?

Manager A: Well, our in-flight magazine has stories about exotic destinations…

It’d be foolish to think United will pivot to become a publisher of travel stories. I don’t expect Hemispheres is a big business under normal circumstances, and it’s probably much less so now that companies are pulling back on advertising. However, I appreciate the airline’s effort to remind me of the role they usually play in my life. The connection helps sustain loyalty.

Like United, Airbnb also sees its business impacted by the reductions in travel. They, too, are trying something different. This week, the company announced a new service called Online Experiences, “a new way for people to connect, travel virtually and earn income during the COVID-19 crisis.” These “experiences” — which you do through your computer — include baking with a family in San Francisco, meditating with a Buddhist monk in Japan, and taking dance lessons in Ireland.

I don’t think anyone at Airbnb believes this new service will replace the revenue they’ve lost from the decline of travel. But as with the United email, it’s a gesture that reminds us of the company’s spirit. Both cases are examples of companies looking to remain relevant when their primary markets have disappeared. I expect we’ll see many more over the coming weeks.

Banning Targeted Advertising?

| Jorge Arango

Gilad Edelman writing in Wired:

The task of regulating an increasingly out of control digital environment often looks like a multifront war against various enemies: privacy breaches, hate speech, disinformation, and more. What if we had a weapon that could bring all those armies to their knees?

The article highlights a “nascent movement” of people who believe the business model underlying these environments — targeted, personalized advertising — is the main problem. Rather than focusing on front-end efforts to legislate what happens in these places, a more impactful approach would be to make the business model itself illegal.

If you’ve read Living in Information, you won’t be surprised to know I agree with the assessment that business models are critical. That said, I don’t think there’s a one-size-fits-all approach to this issue. I can easily imagine targeted advertising would make some information environments more useful while also supporting user goals.

As a user myself, I’m willing to give up some of my privacy if I get something tangible in return, and I clearly understand who’s using my information and for what purposes. For example, I don’t mind if the place where I do my shopping shows me ads that meet my needs. I’m there to buy stuff, after all, and the place knows who I am and my preferences and shopping patterns. Knowing those things, it can tell me about new products that will make my life better. That has value to me.

I don’t feel the same way about places where I meet with family and friends or have civic conversations with my neighbors. The general idea behind targeted advertising — that the system will learn my preferences so it can better persuade me — is profoundly at odds with my goals in those environments.

Why Don’t We Just Ban Targeted Advertising?

Designers as Team Players

| Jorge Arango

A useful reminder by Enrique Allen in Designer Fund’s blog:

Often as designers, our natural tendency is to emphasize the importance of our craft, instead of focusing on the impact it has on the bottom line.

The post goes on to describe a high-level framework of twenty areas (“levers”) where design can impact the bottom line, including specific ways that the organization can make and save money.

For designers to be effective, we must be aware of the business’ needs and aspirations. We’ll only be taken seriously to the degree that we can help the organization succeed towards the dimensions it cares about.

Of course, that doesn’t mean these are the only dimensions worth pursuing. For example, the design process may uncover a situation in which a particular business decision may be at odds with the needs and aspirations of the organization’s customers. Designers can then help resolve the impasse.

But we can only do so if we’re taken seriously by our colleagues. And we’ll only be taken seriously to the extent we’ve shown commitment to helping the business grow. As I’ve written before, it’s misguided to think of design as “fighting for the users.” Instead, our aim should be to bring various forces – including the users’ needs — into balance.

Designers enjoy a unique vantage point in the organization. We are connectors. We’re tasked with understanding the needs and concerns of various stakeholders — including our users — and making things that meet those needs efficiently and effectively. We test and refine these things, over and over. Through this process, design can bring alignment and clarity to the organization.

There’s incredible power latent in modeling possibilities. The degree to which we can employ this power towards the common good will depend on the degree to which we act as team players.

The 20 Levers for Return on Design | Designer Fund

JFK’s Apollo Vision Statement

| Jorge Arango

Complex projects require coordinating and aligning the efforts of many people in different roles and groups. The job is possible only if everyone is clear on what they’re striving towards, and are compelled to do so. This calls for leaders to clearly articulate the project’s vision.

The importance of having a clear, compelling vision is one of the great lessons of the Apollo moon program. U.S. President John F. Kennedy laid out the vision in a speech delivered to Congress in 1961. This speech was meant to convince lawmakers of the worth of investing in space exploration. Essentially, the President was asking his stakeholders — Congress, and more broadly, the people of the U.S. who they represent — for funding for the project. This is something anyone working in a leadership position can relate to.

President Kennedy’s presentation is a model of how to clearly articulate and sell a vision, so it’s worth studying its highlights. The speech starts by framing the space program in the broader geopolitical context of the Cold War. The Soviet Union had by this point made several impressive technological advances, including launching Sputnik (the first artificial satellite) and sending the first man into space. U.S. efforts were seen as lagging behind the Soviets’, so the President started his remarks with the following statement:

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Design as an Antidote to VUCA

| Jorge Arango

A short presentation I shared as a videoconference with Rosenfeld Media’s Enterprise Experience Community.

In the early 1990s, the U.S. Army War College created an acronym to describe the geopolitical situation following the Cold War: VUCA. It stands for volatility, uncertainty, complexity, and ambiguity, four characteristics they saw as defining the multilateral post-Cold War world. The rise of information technologies — and the internet in particular — has radically transformed our political, economic, and social reality. We are all now living in a generalized state of VUCA. We see signs of it everywhere — including the enterprise.

Design can be a powerful organ for organizations dealing with VUCA. In this presentation, I give some reasons why. I also cover some reading materials that have led me to this line of thinking. I was gratified to see participants in the videoconference suggest other resources worth investigating if you’d like to delve into design’s more strategic value; I’ve added those recommendations into my reading list.

Books I referenced in my presentation:

I also called out these recent Medium posts:

Other folks in the call suggested the following additional resources. (I’ve listed them here in the order in which they were suggested.)

I have a lot of reading to do! I was familiar with some of these resources, but not all of them. That’s one of the upsides of sharing incipient ideas with a smart group of folks like the Enterprise Experience community: you get to hear from other folks who know more about other parts of the domain. I’ll be digging into these books, posts, and videos for sure!

Towards Greater Diversity in Design Teams

| Jorge Arango

The websites and apps you interact with are parts of systems. These systems are often commercial organizations with responsibilities to various stakeholders, including the owners of the business, its employees and managers, its customers, and — more broadly — the rest of us who live in the society where the organization operates.

The people who “own” these digital products and services — product owners, business line managers, etc. — are tasked with being good stewards of these systems. They’re called to steer them towards greater value for stakeholders in the short and long term even as conditions around the systems change. Design decisions will change these systems — even if slightly. For example, the team could develop a new feature, fix an existing (and underperforming) feature, or address an entirely new user audience.

These are systemic interventions. Their effects are seldom limited to the task at hand; a seemingly minor alteration could have a large impact downstream. As a result, product owners must look out for second- and third-order effects; they’re looking to intervene skillfully as the system faces perturbations in its context.

To do this, product owners must become aware of the possible options open to them and their potential effects. Their ultimate goal is to achieve dynamic stability: for the system to continue serving its intended purposes as it evolves over time to address changing conditions. This calls for these folks to become systems thinkers.

One of the central tenets of cybernetics — the science of systems — is the Law of Requisite Variety. It’s relevant to people who aim to control systems. In cybernetics, the word variety has a special meaning: It refers to the number of possible states of a system. The Law of Requisite Variety suggests that skillful control of a system requires (at least) an equal number of possible responses to its number of possible states. This is usually articulated as a maxim: only variety can destroy variety.

Translation into humanspeak: a system with few possible states requires a small range of responses, whereas a system with many possible states requires a broad range of responses. This idea has proven to be useful in a variety of fields, including sports, ecology, management, medicine, and more. The more complex the system you’re dealing with, the more states it can be in. Controlling such systems requires at least an equal amount of flexibility in your ability to respond to changes.

Of course, not all digital products and services aim to serve the same purposes. Some are simpler — and less ambitious — than others. Simpler systems will have — and require — less variety. But many digital products and services are very complex and can have many possible states. A digital system that aspires to become the de facto environment where we interact — socially, commercially, civically, etc. — will have a huge range of possible states. The folks who design and manage these systems face a great deal of variety. To intervene skillfully, they need a larger range of possible responses. Among other things, this calls for greater diversity in their teams.

How to Measure Network Effects

| Jorge Arango

Li Jin and D’Arcy Coolican, writing for Andreessen Horowitz:

Network effects are one of the most important dynamics in software and marketplace businesses. But they’re often spoken of in a binary way: either you have them, or you don’t. In practice, most companies’ network effects are much more complex, falling along a spectrum of different types and strengths. They’re also dynamic and evolve as product, users, and competition changes.

They go on to outline sixteen ways in which network effects can be measured, grouped into five categories:

Acquisition

  • Organic vs. paid users
  • Sources of traffic
  • Time series of paid customer acquisition cost

Competitors

  • Prevalence of multi-tenanting
  • Switching or multi-homing costs

Engagement

  • User retention cohorts
  • Core action retention cohorts
  • Dollar retention & paid user retention cohorts
  • Retention by location/geography
  • Power user curves

Marketplace metrics

  • Match rate (aka utilization rate, success rate, etc.)
  • Market depth
  • Time to find a match (or inventory turnover, or days to turn)
  • Concentration or fragmentation of supply and demand

Economics-related

  • Pricing power
  • Unit economics

I love it when somebody adds granularity and nuance to a concept I previously understood only in binary terms. This post does that for network-centric businesses.

16 Ways to Measure Network Effects