“Third-Order” Engagement

Third-order engagement is the cutting edge of business strategy. It enrolls customers and partners in connecting your organization to additional customers and partners. Third-order engagement is not just the responsibility of the marketing and other outward-facing teams. It requires a fundamental rethink of the organization – and how its processes for creating value can be opened up to people outside the organization.

OK. But before we talk about third-order engagement, shouldn’t we first have some clue what plain-old first and second-order engagement are?

Fair enough…

First & Second-Order Engagement

Remember, engagement is a matter of balancing tasks and relationships. Engagement is the process of building relationships with people and putting those relationships to work to accomplish some goal.

First-order engagement is engaging employees in the work of the organization. It’s such an obvious aspect of the way work gets done that sometimes we forget to focus on it enough. Employee engagement is job number one for the leadership of an organization. Without it, it’s just a matter of time before the organization fails. Gallup estimates that employee disengagement costs the United States $300 billion a year in lost productivity alone. On the other hand, with high levels of employee engagement, an organization can accomplish mind boggling goals. And if profit’s what you want, firms with highly engaged employees have nearly four times the growth in earnings of those with less engaged employees.

Second-order engagement is employees engaging the customers and partners of the organization. Second order engagement touches lots of places in the organization, but primarily the outward facing staff in marketing, sales, business development and support. New engagement technologies such as social networks and relationship management databases (CRM) help employees dramatically increase the number of relationships they can manage while simultaneously improving the quality and impact of those relationships. Like employee engagement, second-order engagement is tough to do well. When you get it right though, it can make a huge difference. Gallup has tracked this too and found that “customers who are fully engaged represent an average 23% premium in share of wallet, profitability, revenue, and relationship growth than the average customer. Actively disengaged customers represent a 13% discount in those same measures.”

Third-Order Engagement

Third-order engagement is when customers and partners participate in engaging other customers and partners. This is the trickiest level of engagement because the organization is now working through people who don’t sit anywhere on its org chart – and that means it loses direct control over the engagement experience for some of its partners and customers. The upside, however, is that with the right systems and processes in place, it can exponential increase its reach and impact with customers, partners and other key constituents.

Third-order engagement has actually been around for many years. The first examples appeared in the 1940s with the “multi-level marketing” or “network marketing” strategies from companies like Avon and Tupperware. These firms gave sales reps the ability to enroll others in selling and to take a cut of the resulting downstream sales. This approach can get tricky when people are more interested in building networks of downstream sellers than in doing actual selling themselves, as it can lead to a kind of pyramiding that hurts latecomers and tarnish the reputation of the organization.

Strip away the pyramid incentives and focus people’s energy on sales and you end up with an “affiliate marketing“ program to empower other entrepreneurs in selling your stuff. This opportunity emerged with the rise of the Internet, with companies like CDNOW.com pioneering innovative ways for independent music enthusiast to sell the company’s CDs via their websites. Amazon eventually acquired CDNOW, but not without doing some serious pioneering on its own, with a range of web services to help third party websites sell Amazon’s stuff. The Amazon Associates program is still cutting edge third-order engagement – and you can see an example of it with the book recommendations widget in the right-hand column on this blog (proceeds go to my favorite nonprofit – Groundwire).

Reorganizing for Third-Order Impact

Organizations that excel at third-order engagement don’t just tweak existing processes. No, to take full advantage of third-order engagement, these organizations reinvent themselves. They invest in new tools, processes and strategies to maximize the impact of their networks of third parties sellers – and these investments go well beyond the marketing department. Amazon’s Associate program affects the way the company runs its consumer website and the way it invests its overall software development resources. The experience you have on eBay is fundamentally a reflection of the decisions the organization has made around how best to support its network of sellers.

Third-order engagement isn’t just about selling stuff though. Some of the most interesting examples of third order engagement are customers and partners engaging other customers and partners in actually building the organization’s core value proposition. Look at how Salesforce.com enables its partners to use its AppExchange to directly connect with new customers – and in so doing, add value to the Salesforce platform. I’ve written about how Twitter engages a core group of “information networkers” to build a powerful real-time information network used by well over a hundred million users. Facebook is created every day by a billion or so postings from its users. On the social change front, Social Venture Partners is pioneering powerful approaches to engaging philanthropists in spreading its brand of deeply engaged philanthropy.

These organizations lead their respective fields today because they have mastered the art (and in some cases business) of third-order engagement. They didn’t do it by tweaking. They did by reinventing their fields.

Imagine what might happen if you reinvented yours…