Transformation Blueprint: Leveraging Network Effects

Focus On The Big Picture And Define Your Niche Market

The volume, velocity, and complexity of change thrust upon us leave little room to avoid transformation. The only constant is change, and transforming ourselves and our organizations is the only way to withstand such change. In this article series titled “Transformation Blueprint,” we explore the various levers of transformation available for an organization and offer practical tips and tools on how to activate them. This article explores network effects, why they are essential, and how to leverage them so that you can successfully transform your organization.

What Are Network Effects, And Why Are They Important For Transformation?

Network effects are a phenomenon whereby the more customers use the product, the more valuable it becomes. These effects are significant because they can decisively drive growth. The more the organization scales, the more it grows and increases performance results. As you focus on transforming your organization and growing your customer base and your brand, you will need leverage network effects. Some examples of network effects in the industry include eBay, Etsy, and Amazon in e-commerce; Uber and Lyft in rideshare; Grubhub and door dash in delivery, etc. In the context of Learning & Development, network effects facilitate value generation around your learning content as more and more customers use and share them amongst themselves. There are two types of network effects: direct and indirect. Direct network effects happen when more people using the product or service make it more valuable. In the early days, the telephone was such an example. The more people acquire a phone, the more they communicate with each other, making the phone more and more valuable.

Similarly, the internet has become more and more valuable since the early 1970’s when it was first created. Today, we cannot fathom living without it. In the context of Learning & Development (L&D), direct effects can be achieved when more and more learners access your learning content. Indirect network effects result when using one product generates interest in other products and ultimately increases the value of the original product. A great example here is Uber, whereby, in the beginning, more drivers joined at the prospect of serving more clients. This made more clients use Uber because they knew that with more drivers available, they could get a ride in seconds and get to where they needed to go. In the context of Learning & Development, the more learners access the learning courses your Subject matter experts offer; As the subject matter experts create web events, write blogs, and host podcasts, they attract even more learners, making the original courses even more valuable. Indirect network effects are more complex to achieve because they require two sets of user groups, such as buyers and sellers, drivers and riders, content creators, and content consumers, among others. In comparison, direct network effects can be slightly easier to achieve as you design your strategy to leverage your network effects.

Building A Strategy To Leverage Network Effects

Building a strategy to generate and leverage these effects is complex. However, there are three key tactics you can explore: aligning the purpose of the network effects with the organizational strategy, defining your niche customer base, and choosing a reliable and scalable platform.

Align With The Organizational Strategy

The strategy to leverage the network effects will need to be aligned with the transformation strategy and broader organizational strategy. Network effects connect people with the product and people with other people who use the product, so the strategy goal is scaled. In this stage, you will need to clearly define the customer needs, the products and services offered, and the metrics to measure the success of the network effects. Increased performance against the organizational strategy will result from scale and market share vs. pricing models, so increasing profits will be the result of increasing market share due to network effects instead of pricing strategies. Many organizations offer their products for free early so that they can quickly increase their market share.

Define Your Niche Customer Base

Successful effects translate into scalable communities of connected and connected customers through using your products and services. Again, the goal is to increase market share early. Hosting digital or in-person community events to bring customers together can help increase your customer base and also offer data to help you narrow your niche customer base. Once you do that, you can focus on growing that base. According to Harvard Professor Bharat Anand, a major consequence of network effects is that once you grow your market share, you can focus on improving the product and not worry so much about marketing and because selling to your customers essentially becomes your sales force.

Choose A Reliable And Scalable Platform

While you can build an online community of customers through your website, online software as a service (SaaS) platforms are typically more conducive to enabling you to leverage network effects. Platforms that are easy to use and access can foster trust building amongst customers and between customers and your organization; offer frictionless access to content; Enhance the ability to directly connect and engage with, as well as follow, other customers. Platforms also offer you the latitude to host online web events, offer learning experiences, conduct surveys, and collect meaningful data to help you analyze customer feedback, customer needs, and challenges. Successful examples of organizations using online communities and leveraging network effects include the website Chief, which is a private network for the most powerful women in leadership, and Ellevest, which is a financial company for women by women.

Conclusion

Network effects can be a powerful driver in your transformation efforts. Network effects can drive rapid market share capture and increase performance results. To foster and leverage network effects, whether direct or indirect, you must align your network effects strategy with the overall organizational strategy. Next, you must clearly define your niche audience and then relentlessly focus on capturing the biggest market share possible of that audience. Finally, you must choose a reliable and scalable SaaS platform to build a community, which is crucial to fostering and leveraging strong network effects.

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