Worksheets

from
Siggelkow & Terwiesch

Connected Strategy
(HBR Press, 2019)

© Siggelkow & Terwiesch (2019)

Overview: Firm Description
Industry: Aircraft engine manufacturing
• Design and manufacture engines to power
commercial, military, and business aircraft
• Typically part of larger industrial companies
(e.g. GE, United Technologies)
• Industry dominated by “Big 3”: Pratt and
Whitney, GE, and Rolls Royce
• Typically only one or two engines will be
designed and certified to work on an
aircraft
• High initial R&D spend which is earned back
over the life of the program
• willingness to pay drivers include: fuel
efficiency, reliability, and cost of
maintenance
• 1000s of new aircraft expected to take to
the skies over the next decade led by growth
in China and developing economies
• We believe this industry has parallels to
other B2B and industrial goods businesses
such as turbines and oil and gas
© Siggelkow & Terwiesch (2019)
Hypothetical firm
• For purposes of this example, we will adopt
the perspective of one of the “Big 3” engine
manufacturers
• While no industry is immune from the
threat of new entrants, the aircraft engine
manufacturing space (especially for
commercial and Western military
applications) is quite stable
• As plane manufacturers move to only
qualifying a single engine on new planes and
the anticipated number of new planes being
developed by Boeing and Airbus is <10 over
the next 20 years, aircraft engine
manufacturers are looking to find additional
sources of revenue
• This analysis focuses on how engine
manufacturers may interact with airlines
through connected strategies
Chapter 3
(Rewards of Connected Strategies)

© Siggelkow & Terwiesch (2019)

Step 1: Diagnostic questions concerning your current connections
with customers
Questions
How often do you currently connect to your
customers?
What kind of information do you receive
about your customers’ needs?
How does information flow from the
customer to you? For instance, does the
information flow rely on the customer
taking the initiative, or does the
information flow happen in more a
continuous and autonomous manner
How long does it take for a customer need
to reach you?
How long does it take for you to react once
you have a customer need?
What do you learn each time a customer
connects to your firm? How are you
integrating these episodic interactions into
a single connected experience for your
customers?
Answers
• Our primary connection occurs when airlines are evaluating engine
options for fleet purchases
• Some additional touchpoints around maintenance and servicing
• Detailed performance and cost requirements
• Given our engine is qualified for the aircraft and they aren’t
customizable, primary focus will be on price and estimated MRO
(“maintenance, repair, and operations”) schedules and costs
• Post-sale, negotiate with airlines and MRO facilities to receive data
• Modern engines equipped with sensors and monitoring systems will
send real-time data to the engine manufacturers for evaluation
regarding anomalies, maintenance, and performance
• This could be source of future connections and revenue
opportunities
• Now it takes relatively long but in the future data will come real
time
• Additional customer needs will come on ad hoc basis
• Developing quick fixes and patches for engine problems may take
days, weeks or months depending on complexity
• Developing a new product to meet customer needs takes years and
would be done in conjunction with aircraft manufacturer
• We learn about potential product defects, the needs of the market,
and competitor’s moves
• Customer issues get captured in ERP system and design questions
will flow to engineering teams through informal channels
• Disjointed experience for customers
© Siggelkow & Terwiesch (2019)
Step 2: Brainstorm the effects of a Connected Strategy could have
for your organization
Imagine a world in which customers could instantaneously communicate their needs to you. You
are by their side as they go through life, anytime and anywhere. How would this increase in
connectivity allow you to improve how you serve your customers? More specifically:

Questions Answers

How could you use this information to
increase the willingness-to-pay of your
customers?
How could you use this information to
decrease your fulfilment costs?
• Allow us to capture greater share of our customers’ MRO spend
• If we can provide engines with proven lower lifetime ownership
costs, will increase upfront willingness-to-pay for engine
• Could produce and procure spare parts in higher volumes at lower
prices, thus allowing us to reduce fulfillment costs

Next, imagine a world in which you know a customer need even before the customer knows this
need itself.

Questions Answers

How could you use this information to
increase the willingness-to-pay of your
customers?
How could you use this information to
decrease your fulfilment costs?
• Sell service contracts with pre-emptive maintenance that will
enable higher fleet utilization and less unanticipated maintenance
that require planes to be taken out of service
• Pre-emptive maintenance cheaper for us to provide and customers
to receive than standard as-needed servicing

© Siggelkow & Terwiesch (2019)

Step 3: Start identifying drivers of willingness-to-pay

Willingness to Pay

Consumption Utility: How happy is Accessibility: How easy is it for the Cost of Ownership: How much does
the customer with the product or customer to get the product or service? it cost for the customer to use and
service? maintain the product?

Performance Fit Location Timing Usage cost Maintenance

over product cost over
• Increased • Alignment • Engine • Lost flying life product life
durability with other installed time to
• Greater fuel engine types during airlines is • Large • Maintenance
efficiency used in aircraft costly payment and repair of
• Faster airline’s fleet assembly • Spare parts upfront for engines is an
speeds • Tie in to • Availability available engines and expected
• Greater maintenance of spare immediately aircraft recurring
range providers and parts (and • Experienced • Engine most cost as long
• Lighter ground staff’s even spare maintenance expensive as the plane
weight existing engines) at and service component operates
• Longer knowledge key airports available at of plane • Mandated
cycles or short-notice • Ongoing service checks
between maintenance maintenance at regular
required facilities and service intervals
mainten- costs once
ance plane part of
fleet

© Siggelkow & Terwiesch (2019)

Step 4a: Sketch the efficiency frontier for your industry that reflects
the trade-off between willingness-to-pay and fulfillment costs

High
New efficiency
frontier with
connected engines
Mfg 1
Willingness
to pay Mfg 2

Mfg 3

Low

High Fulfillment costs Low

© Siggelkow & Terwiesch (2019)

Step 4b: Follow-up questions after sketching the efficiency frontier
Questions
Where are you relative to the efficiency
frontier?
If you are not on the efficiency frontier,
what efficiency improvements do you plan
to pursue in order to reduce your fulfilment
costs?
Assuming you are on the efficiency frontier,
do you feel that you are in the right spot on
the frontier?
What are the trends in your industry? Is
there pressure on lowering costs or do you
see your firm win over its rivals by
providing products and services with a
higher willingness-to-pay?
Are there new technologies that have
allowed some of the firms already in the
industry or potentially new entrants to
push out the frontier? Do you see new
business models breaking the trade-off
between willingness-to-pay and fulfillment
costs?
Answers
• Currently below the efficiency frontier
• See competitors coming to market with connected engines
• Incorporating sensors and the piping into new engines to enable
real-time data analytics
• Subsequently, build platform to analyze data in real-time and
develop after-market service offering to clients
• We still have a ways to go before we feel we are on the efficiency
frontier – willingness to pay could be increased and fulfillment
costs could be made lower through connected engines
• Strong trend towards aircraft manufacturers picking an exclusive
partner to provide engines (e.g. only one engine option on 777X
planes); engine manufacturers looking to find new sources of
revenue
• Dual desires to lower costs on initial engines and provide
products/services that can elicit a higher willingness to pay
• Sensors and connected engines are allowing firms in industry to
push out the frontier – raising overall willingness-to-pay and
lowering fulfillment costs
• Business models with engine manufacturers monetizing new
sources of data to improve efficiency and lower lifetime engine
ownership costs are breaking the industry’s traditional trade-off
around willingness to pay
© Siggelkow & Terwiesch (2019)
Chapter 6
(Creating Connected Customer Relationships)

© Siggelkow & Terwiesch (2019)

 Step 1: Map the current customer journey of one customer experience

Customer Journey
Why does the customer engage How does the customer go about identifying, ordering, What products and services are
in the interaction? and paying for the desired product? provided to the customer?

Latent need Awareness Search for Decide on Order & pay Receive Experience Post-
of need options options good/ purchase
• Airline • Airline is • Airline • Airline • Airline • Timeline
dependent service experience
wants to aware of works weighs pays • Airline will • Airline
expand its need as with purchase through on aircraft customize engages
service soon as airplane price, cost to aircraft mfgr’s plane with
offering they draft mfgrs, operate, mfgr., backlog interior to engine
and needs their consul- reliability, pays us • Could take their mfgr. for
additional business tants, and forecasted directly, anywhere needs mainten-
planes to plan internal MRO costs or leases from
ance and
achieve teams to • Engine planes several
support as
this assess choice from months to
needed
business different determined aircraft several
objective aircrafts by aircraft leasing years for
selected service delivery

© Siggelkow & Terwiesch (2019)

 Step 2: Identify customer willingness-to-pay drivers and pain points

Willingness-to-Pay Drivers and Pain Points

Why does the customer engage How does the customer go about identifying, ordering, What products and services are
in the interaction? and paying for the desired product? provided to the customer?

Latent need Awareness Search for Decide on Order & pay Receive Experience Post-
• N/A
of need options options • Long lead • Airlines
good/ purchase
• In addition
• Airline aware • Airlines times take service experience
to price,
that on- invest force delivery of Given the
airlines • Planes with •
going significant airlines to planes high cost of
think about high
maintenance time forecast from planes and
utilization utilization
is required selecting future aircraft engines,
levels (any levels that do
but total cost new fleet needs mfgr. ample
time not require
of ownership aircraft years in • Flight and customer
aircrafts unscheduled
may not be and advance mainten- support
aren’t in the maintenance
top of mind engines • Lease v. ance crews post-sales
air, they are drive higher
losing buy trained on willingness- • Airline
money) decision procedures to-pay responsible
• Huge prior to for profitable
upfront cost launch operations

© Siggelkow & Terwiesch (2019)

 Step 3: Capture the information flows for this customer experience

Information Flows
Why does the customer How does the customer go about identifying, What products and services
engage in the interaction? ordering, and paying for the desired product? are provided to the
customer?
Latent Awareness Search for Decide on Order & Receive Experience Post-
need of need options options pay good/ purchase
service experience
• Rough • Details • Specific • Response to • Contract • Formal • Service • Maintenance
specs of RFP aircraft detailing docs contract requests
for aircraft detailing mfgr and engine, signifying • Memos Service
Description of aircraft order exact reqs engine mfgr
•
price, ownership detailing contracts
Information order proposals delivery handover engine • Performance
timeline performance data

Custome Customer Customer • Aircraft

• • Custome • • Customer • • Customer • Customer
Trigger r mfg
r

• Ad hoc • Ad hoc • One time • One time • One time • One time • One time • Continuous
Frequency
• Limited • Limited • Detailed • Detailed • Detailed • Limited • Detailed • Rich info
Richness flow

Customer effort • Substantial • Substantial • Substantial • Substantial • Substantial • Substantial • Substantial • Substantial

• Engine • Customer • Customer • Customer • Customer

Action by • Customer • Customer • Custome
mfgr and mfgrs and mfgrs and mfgrs and mfgrs
r
• Use
• Use data on • Leverage • Tie MRO • Offer • Set-up • Increase • Real-time
preventative
current existing and aircraft MRO connection data sharing
maintenance
engine and relationships servicing engine contracts between and
Improvement savings to
plane to pitch contract leasing to begin airline and preventative
sell aircraft
Ideas performance benefits of based on
into options at engine maintenanc
to new engines initial handover mfgr. e
engine
anticipate order
options
re-order

© Siggelkow & Terwiesch (2019)

 Step 4: Identify the deeper needs of the customer

In the eyes of the customer, the purpose of the relationship with our firm is to…

Deliver
Why profitable
returns

Be fuel Control MRO

Earn revenue
efficient costs

Procure Ensure fleet is

engines to maintained
How power their and ready for
fleet of planes service

© Siggelkow & Terwiesch (2019)

Step 5: Understand the current relationship with your customer
across separate (repeated) customer experiences
A) Identify the customer and retrieve data

Questions Answers

How do you identify the customer and connect him or
her to prior customer experiences?
Is this identification requiring time and effort form the
customer?
Is this identification costly to your firm?
• Through order histories – given the relatively
concentrated sales, easy to determine history
• No, this identification can be done internally by our
company
• No, a simple data pull from an ERP system should
suffice

What organizational incentives are in place (or what
disincentives need to be removed) so that various parts
of your organization share the information they have
about a particular customer?
• Entire organization is incentivized around growing
revenue and order book for our engines
• Need to remove barriers between sales and servicing
teams as needed

B) Customization

Questions Answers

How do we improve customization for a particular • Offer bespoke servicing contracts to fit the geography
and additional needs of the customers
customer based on information that we have gathered
about this customer?
What feedback do we gather from the customer to • Anecdotal feedback from executive conversations and
satisfaction surveys
understand whether a particular solution worked well?
Can the customer make direct suggestions to us of how • Yes, they can reach out to sales, account management,
and service teams
to improve our product or service?
© Siggelkow & Terwiesch (2019)
Step 5: Understand the current relationship with your customer
across separate (repeated) customer experiences
C) Population-level insights
Questions
How do we currently use population (or market-
segment) level data to improve our product
assortment?
How do we currently use population (or market-
segment level data to refine features of existing
products?
How do we currently use population (or market-
segment level data to create entirely new products?
D) Why-How ladder questions
Questions
At what level in the Why-How ladder are most of our
transactions currently taking place?
What would be alternative value propositions to the
customer that are either more focused (HOW) or
broader (WHY)?
© Siggelkow & Terwiesch (2019)
Answers
• We take feedback from airlines and aircraft
manufacturers when building engines and ancillary
offerings such as predictive analytics platform
• Rarely, once engines have been certified for a specific
airframe, very few changes are made unless safety or
performance issues emerge
• We take feedback from airlines and aircraft
manufacturers when creating new products; however,
we only develop a handful of new products each
decade
Answers
• Most of our interactions take place towards the bottom
at the “how” level
• We could reframe our offerings as effectively managing
reliability and costs throughout the engine’s life – thus
helping customers achieve greater efficiency and
profitability long past the time of sale
 Step 6: Identify new opportunities associated with connected relationships
Automated Execution

Coach
Behavior Curated Offering

Respond-to-Desire

Latent need Awareness Search for Decide on Order & pay Receive Experience Post-
of need options options good/ purchase
• Make Use data Easily Have cost Have airline • Offer
lifetime cost
• • • •
trainings to
service experience
from identify savings pay for • Develop • Schedule
savings with connected which from connected airline to turnkey regular
new plane platform to engine connected engine ensure they data meetings
and engine preemptive options analytics contract are fully analytics with airline
more -ly deduce work with strong part when they utilizing system that to share
apparent when fleet connected of sales sign order connected will go live insights and
replacemen platforms pitch engine and when collect
t needed its wealth airline start feedback
of data flying new
plane

Responses to Pain Points

Required Information

• Historical • Data from • Forecasts • Projected • Pricing plan • Training • Plug in to • Data flow
or projected airlines’ that make cost savings for long- curriculum airlines’ collected
data on existing lifetime cost that come term and existing from
cost savings fleet of savings with from connected materials databases engines and
that come planes and new plane running engine data on how to and transferred
from engines and predictive, analytics use connection to the
running connected connected platform connected to our connected
predictive, engines platform and support engine systems engine
connected clear platform platform
platform
© Siggelkow & Terwiesch (2019)
 Step 7: Find ways to utilize information gathered from repeated interactions to
improve the Recognize-Request-Respond cycle
Experience 1 Experience 2 Experience 3 Experience 4
Provide Check with Sell spare
Customer
training airlines to parts and
selects our
and understand servicing
engine for
support to performanc support as
plane
MRO team e and issues needed

Customization Improvements
• Use data collected from connected engines to better sell our engines, data analytics platform, and Fulfillment of deeper
after-market support to each airline individually customer needs
• Develop maintenance plans unique to every aircraft, not just simply developed by following
industry norms and averages • Increase profitability
of airlines’ operations
by proactively
managing servicing
Optimization of Product and Service Offering needs, reducing
servicing costs, and
• Offer support for connected engines across airline’s fleet through software analytics platform minimizing aircraft
• Create economies of scale by having all our engines tie in to a common analytics platform downtime

Creation of New Products and Services

• Establish ourselves as stronger players in the aftermarket
• Turn data analytics platform into new source of revenue and long-term connection to airlines
• Develop new maintenance contracts supported by connected engines and predictive analytics

Efficiency Improvements
• Through monitoring and predictive analytics, reduce instances of planes being taken out of service
for emergency maintenance – improving efficiency and reducing airlines’ costs
• Predict when replacement parts and maintenance will be required, reducing costs of rush delivery
or emergency maintenance
© Siggelkow & Terwiesch (2019)
Step 8: Assess your data-protection policies to maintain trust with
your customers

Questions Answers

What procedures do we have in place to • We have sales teams and local operations in most key geographies
in which we do business. However, need to be more centralized in
stay informed about data protection and
managing data protection and privacy regulations as this
privacy regulations in all the geographies in historically has not been a core focus area.
which we are active?
How do we keep up with how public • We can use our local teams on the ground, our contacts at aviation
regulatory authorities, and/or consultants.
opinion is changing with respect to these
issues?
How do we currently obtain customer • We would obtain customer consent to use and manage data when
signing initial contracts. All use cases would be made transparent.
consent? How transparent is it to our
customers what happens to their data?
What do we do to keep the data current • The data would be updated in real-time; so, will always be
current.
and accurate?
What are our activities to keep the data • We will be responsible for managing data security. We will build
state of the art controls and security protocol into the database.
safe and under what conditions do we
notify customers of any breaches?

© Siggelkow & Terwiesch (2019)

Chapter 10
(Creating Connected Delivery Models)

© Siggelkow & Terwiesch (2019)

Step 1: Use the Connected Strategy Matrix to map your own activities and the
activities of your competitors

Connected Connected Connected Crowd P2P Network

Producer Retailer Market Maker Orchestrator Creator

• Design new • Brokers

Respond-to- engine in sourcing spare
Desire response to parts for
new aircraft airlines and
development MRO firms
from aircraft
graveyards

• Suggest • MRO firms

Curated engines and with
Offering planes that warehouses of
best fit fleet spare parts
based on data
analysis
• Manage fuel
Coach efficiency fleet-
Behavior wide offering
recs based on
data analysis

• Build feedback • Engine orders • Software

Automatic loop for replacement companies
Execution incorporating parts offering
connected automatically standalone
engine • Engine sends predictive
learnings into maintenance analytics tools
future design reminders

Our activities
© Siggelkow & Terwiesch (2019) Competitor activities
Step 2: Use the empty cells in the Connected Strategy Matrix to create new ideas

Connected Connected Connected Crowd P2P Network

Producer Retailer Market Maker Orchestrator Creator

• Design new • Develop and sell • Brokers sourcing • Maintain • Industry-wide

Respond-to- engine in predictive data spare parts for database of best practices in
Desire response to new indicating when airlines and MRO freelance maintenance and
aircraft airline fleets are firms from certified repair database
development due for renewals aircraft maintenance
graveyards employees

• Suggest engines • Offer • MRO firms with • Develop and sell

Curated and planes that comprehensive warehouses of aggregated
Offering best fit fleet engine rental spare parts aviation datasets
based on data solution for R&D,
analysis governments

• Designing • Suggest how • Manage fuel • Industry-wide

Coach aircraft around airlines can efficiency fleet- common
Behavior capabilities of redeploy planes, wide offering weather
new engines flying patterns recs based on database
data analysis

• Build feedback • Engine orders • Software • Industry-wide

Automatic loop for replacement companies service alerts and
Execution incorporating parts offering suggestions
connected engine automatically standalone pooled from all
learnings into • Engine sends predictive airlines
future design maintenance analytics tools
reminders

Our activities
Competitor activities
© Siggelkow & Terwiesch (2019) New ideas
Step 3: Understand your existing revenue model, identify its main limitations
and consider alternatives for your current activities as well as for the
ideas created above
Questions
What does the customer pay for?
What are your different revenue streams?
Who is paying?
When does payment occur?
Questions
Next, look for inefficiencies in your revenue
model. Do you use this revenue model
because you believe it is the right one, or
are you constrained by connectivity to the
customer?
Now that you understand the current
revenue model, consider ways for
combatting these inefficiencies
Answers
• Customer pays for the aircraft engine and aftermarket servicing
• Selling the engine, providing aftermarket service, and now
potentially this new predictive analytics revenue stream
• Airlines, aircraft leasers, and MRO firms
• Payment for engine occurs when aircraft is delivered, aftermarket
servicing and predictive analytics revenue on ongoing basis
Answers
• Selling engines to customers is core to our revenue model
• However, aftermarket maintenance and repair accounts for a large
part of airline’s overall spend and represent potentially untapped
growth area
• Aim to sell every single new engine with a predictive analytics and
aftermarket service contract
• Use analytics capabilities as competitive advantage to sell our data
platform and MRO service
© Siggelkow & Terwiesch (2019)
 Step 4: Deconstruct your Connected Strategy into technological sub-functions and
then catalogue currently used technological solutions for each sub-function

Comprehensive engine rental solution

Recognize Request Respond Repeat Connection Revenue
Architecture Model
Become aware Search and Order Pay Receive Experience After sale Learn and Connect Monetize
of the need decide on improve parties in customer
option ecosystem relationship
Sense • Hear from • Work with • Commu • Develop • Check • Auto- • Continue • Aggreg- • Work • Offer
aircraft aircraft n-icate schedule delivery matically to ate data with analytics
mfgr. leasing with for schedule monitor monitor from leasers to for
Airline is company airline to payment rented engines across all offer aircraft
looking to if work with engines • Collect engines addtl. systems
order applicable details of finance airline for engine related to
planes order feedback insight rental engine
solutions
Transmit • Send sales • Deliver • Capture • Set up • Signed • Send • Continue • Improve • Greater • Sell add
materials detailed order in recurring hand- regular to send commun shared on
to airlines cost ERP payment over health regular -ications insights analytics
highlighting projections system schedule paper- reports commun- to across services to
cost savings and meet through work and ications to airlines airlines rental
of engine in-person wire mainten- airlines
rental with transfers ance
airlines schedules
Analyze • Review • Refine cost • Refine • Work to • Ensure • Review • Review • Review • Improve • Sell
airline’s estimates estimate match engine is data in data from service ability to aggregat-
order, and sales of payment plugged real-time all engines costs to analyze ed data
estimated pitch mainten with into planning to improve macro to
service life, based on -ance estim- analy- predictive identify rental data from airplane
likely airline’s costs for ated tics mainten- trends profitab- across mfgrs
routes feedback planning costs platform ance and issues ility airlines
flown, etc. purposes
React • Develop • Deliver • Prepare • Prepare • Begin • Perform • Continue • Increase • Offer • Offer
pitch pitch for to have to ensure engine mainten- to pre- shared additional
highlighting engine engines seamless monitor ance perform emptive services as support
cost saving rental and execution -ing and • Install mainten- mainten additional tiers
opportun- solution at support upon mainten spares if ance -ance value
ities for lower cost ready by aircraft -ance longer- • Send from
airline than delivery delivery program term insights rental
owning date work to • E.g. best
engines required engine- practices
ering guide

© Siggelkow & Terwiesch (2019)

 Step 5: Identify new technological solutions and how those might enable further
innovations in your Connected Strategy not identified so far

Comprehensive engine rental solution

Recognize Request Respond Repeat Connection Revenue
Architecture Model
Become aware Search and Order Pay Receive Experience After sale Learn and Connect Monetize
of the need decide on improve parties in customer
option ecosystem relationship
Sense • Smaller, • Cheaper, • Machine • Proprie-
cheaper, more learning tary
more durable sensor
durable sensors networks
sensors for
planes

Transmit • Improved • Improved • Secured

datalinks datalinks data
to planes to planes exchange
• 5G • 5G and
networks networks ware-
houses
Analyze • Big data • Predictive • Analysis • System • Machine • APIs into • Connect
• Predic- analytics toolkit to to learning airline’s additi-
tive • Lifetime generate aggre- built database onal
analytics value and reports gate into and aircraft
cost from data data analy- mainten compon-
models from tics -ance ents to
multiple engine systems smart
airlines analytics
system
React • APIs and • Custom • Rebates • Real- • Push
links into rental based on time alerts to
airlines’ agree- efficient link mainten
other ments engine into -ance
systems usage flight groups
plan
soft-
ware

© Siggelkow & Terwiesch (2019)