New Rules for Value Creation
For decades, firms have relied on the dual strategies of horizontal and vertical integration to expand their footprint. However, in our increasingly consumer-controlled, opt-in world, we’ve seen the emergence of a new dynamic for explosive-growth companies: creating value through functionally integrated ecosystems.
A Shift Towards Functional Integration
As the pace of device and channel innovation accelerates, businesses require the vision and technological agility to rapidly anticipate dramatically shifting consumer expectations. Yet companies have been slow to recognize the secret to survival is not merely incorporating the newest device or social channel into their marketing strategy. Rather, the imperative for today’s marketer is to make it a priority to build a value-creating platform that can deliver connected and integrated customer experiences.
Historically, mature companies tended to be organized around portfolios of products. However, many have come to realize that this fragmentation creates disconnected experiences — pushing individual products in an attempt to squeeze out growth. This approach assumes that customer equate value to products only.
On the other side of the equation, there are companies that are functionally integrated, and focus on building seamless, interconnected services and experiences, not just products for their end consumers[i].
An archetypal example is Apple: With the addition of each new product or service customers opt in to (MacBook, iTunes, iPad, iCloud, etc.), they receive exponentially more value. Each new inter-related product creates an additional node in the ecosystem, triggering new value creation. Functional integration is defined as this unified set of services.
Disrupting adjacencies is the new paradigm
Another common practice of integration-minded companies is to disrupt adjacencies; in other words, they leverage existing assets to move into new markets rather than disrupt existing ones. Continuing the previous example, Apple moved from selling music hardware — the iPod — to selling music via iTunes. If this path sounds familiar, it should — functional integration has fueled not only Apple, but other pioneers like Google, Amazon and Nike.
Now, even more mainstream players, like Turkcell, have taken up the reigns, recently evolving their offering from telco to a diversified set of interconnected services across healthcare, banking, cloud services and messaging platforms.
This new generation of successful innovators have learned, then mastered, the art of blurring the distinction between products and services in ways that deliver greater value to consumers. Against the backdrop of a relentlessly competitive economy, this skill helps defend these companies’ innovations against competitive threats, as customers face switching costs, were they to defect to another brand or supplier.
Customer-Managed Relationships Anchor Functional Integration
Even more fundamental to the success of each functionally-integrated company is the recognition that their customers now have the upper-hand in brand relationships. Because of this new consumer power, brands must focus on creating holistic, well-orchestrated systems to enable better customer-managed relationships (CMR) across these digital consumer services.
Inherent to the broader paradigm shift in consumer behavior is the expectation that across all of these new platforms and interfaces, consumers should be able to manage all of their own information — including their profiles, transaction history and behavior. In fact, they now expect the entire system to be designed with their needs outweighing those of the product or company.
With this shift towards consumers managing interactions with brands on their own terms, the principles of CMR are fundamentally poised to address the challenges of functional integration.
1) From Brand-Led to Consumer-Controlled
It’s clear that brands no longer dictate relationship dynamics to their customers. In other words, people engage when and how it suits them. Successful companies create connected ecosystems that are adaptive to their customers’ needs, and create experiences that change as their understanding of the customer changes. It’s no longer about a generic, one-size-fits-all approach; it’s about delivering mass personalization at scale.
2) From Opting Out to Opting In
People are highly individualistic and self-centric, and are increasingly selective in what they are willing to consume. They decide whether or not to let you into their lives. Brands must shift from optimizing for “share of voice” and move towards a “share of experience” mindset to drive relevancy and consumer passion.
The companies embracing CMR also recognize the consumer context surrounding the moments of interaction — time, place and circumstance — and strive to deliver contextual relevance based on this sensing capability. For an organization to excel at CMR, they must allow users to explore and be in charge. The users’ behaviors should control access to elements such as content, information, incentives and features. Likewise, they should influence what they experience in the immediate future. Consumers expect immediate gratification and convenience — however, proactivity without insight is presumption; brands need to use technology to translate purchase intent into real value.
3) From Marketing to Mattering
Consumers face a tyranny of choice: more brands, more places to buy and more opportunities to source, compare and challenge than ever before. People will only welcome you in if you add value to their life. This forces brands and agencies, alike, to rethink value creation, and re-imagine how an interconnected ecosystem can best deliver utility to its end users. People know companies have their data, and expect them to use it judicially. Brands succeed when they create meaningful experiences and allow people to do something they couldn’t do before.
Conclusion
Becoming functionally integrated requires moving from a portfolio of disparate products to a value-creating ecosystem. Already, the tasks we perform every day require a transit across multiple devices and environments, spanning the digital and physical domains. True digital transformation occurs with the development of the capabilities required to unify those disparate connections. The sum of the ecosystem should be an indispensable set of services. And within these more pervasive systems, the ability to enhance and enable customer-managed relationships will be increasingly critical for value creation. As such, CMR has become the essential glue for intuitive omnichannel engagement
[i] Wacksman, Barry, and Chris Stutzman. Connected by Design Seven Principles of Business Transformation Through Functional Integration. Hoboken: Wiley, 2014. Print.
