7 success principles: how functional integration can digitally transform your business

Monday April 27, 2015 , 6 min Read

In a world of fierce global competition and rapid technological change, traditional strategies for gaining market share by relying largely on clever mass media advertising are no longer as effective. In the digital, social, and mobile age, functional integration via interactive inter-connected ecosystems have helped digital pioneers like Amazon, Apple and Google as well as mainstream players like Nike, GM, BMW and McCormick. New opportunities are emerging for startups to use these principles for themselves, or digitally enable other existing players.

Seven tips for such customer engagement are offered in the book ‘Connected by Design’ by Barry Wacksman and Chris Stutzman. Barry Wacksman is Chief Growth Officer at interactive marketing agency R/GA, and Chris Stutzman is Senior Agency Executive at R/GA. (See also my reviews of the related books: The Code Halos, Big Data at Work and Big Data Marketing).

Functional integration works best in domains where people are passionately involved, such as fitness (Nike), cooking (McCormick), beauty (L’Oreal), and driving (car brands), while perhaps less so in more commodity categories like paper goods, according to the authors. However, this digital glue will eventually become essential for omni-channel engagement and generation of new business.

Here are my takeaways on the seven principles described in the 236-page book, and the case studies described.

Utility is relevance

Produce something of use to your consumers, that is the only way to stay relevant. New offerings should layer on existing and prior products and services. Examples include Apple’s ecosystem where each new product has direct, tangible and snowballing benefits and locks into the existing pipeline.

McCormick is using similar principles in its digital service called FlavourPrint to build a palette of spices for collaborative filtering and recommendations of recipes. L'Oreal launched My Signature Beauty, a way of offering recommendations based on how much information consumers share about themselves.

Context is king

In the digital age, context is king, and the consumer’s needs and desires are top priority. The mass media age favoured interruption-driven brand messaging, but the digital age has created 10 new contexts for engagement. These include: information, transaction, participation, conversation, application, location, diversion, aggregation, visualisation and gamification.

In other words, consumers search for products on their own, look for related products to buy, share content, discuss products, use customised services, have location-aware tools, snack on content, flock to portals, track social influence and enjoy game-centric activities – all of which were very difficult in the pre-digital age. New digital tools and mashups of existing content continually create new digital contexts for customer engagement.

Examples here include GM’s app shop, as compared to Ford’s “product-first” orientation for its proprietary OnStar system. Car-sharing and car-pooling startups like RelayRides, ZipCar and CarPooling.com are disrupting the automotive industry. To keep up with digital innovation, BMW has launched an incubator called iVentures in New York.

Synergy captures customers

The old models of horizontal integration (grow sales by adding new products, brands, and line extensions) and vertical integration (grow profits by optimising each stage of the supply chain) have been transformed by digital ecosystems. In this new era, synergy helps deliver new value and converts customers into evangelists.

Fast feedback loops and willingness to cannibalise earlier offerings are key success factors here. Business effectiveness is not just via mass market messaging but via relationships enhanced online.

Companies like Apple (unlike Sony) focus on individual products not in isolation but as part of an ecosystem of value. The “glue of membership” in systems like iTunes, Amazon and Nike+ ensures deeper usage, increased loyalty and competitive moats. Synergies can also call for inter-organisational partnerships, as in the case of Apple and Nike. Such integrated players can disrupt a range of adjacent industries and beyond.

Reimagine value creation

“Power your imagination beyond what is knowable, provable or even possible,” the authors advise. Imaginative thinking is generally scarce at most large companies, unfortunately. “So many revolutionary new digital products and services come from small startups. Startup managers are freer to imagine, test and try out potentially transformational ideas,” according to the authors.

This applies to tweaking business models as well as envisioning future scenarios. Examples include Skylander’s seamless positioning in multiple categories such as video games, digitally connected toys and merchandising, which increases purchase rates as well as reduces switching rates.

Tesco has unlocked “accretive value” for integrated online and offline retail via apps and subway virtual stores in Korea. Multi-sided industry platforms help unleash new kinds of network effects, such as better driving practices through Progressive Insurance’s telematics devices and pay-as-you-drive insurance plans.

Redesign value delivery

To deliver on functional integration, company leaders need clarity on the “four Ts” of territory, technology, talent and teamwork. They need to figure out which territory to expand to, what data-driven technology configuration can be deployed, how to attract cutting-edge talent, and how to embrace agile teamwork.

Good people to recruit for large players include those who have worked on consumer-facing digital services, or were part of a digital startup. The IT department should be seen as a strategic partner and not just a platform provider, and the CMO should take on the role of chief experience officer.

Redirect toward value capture

Companies should aim towards high levels of functional value (utility, usability, accretion) as well as integration (connectivity, context, openness). “Technology and data are like sunlight and water to a growing ecosystem,” the authors explain.

Company leaders should be adept at spotting new trends, combining technologies, scaling prototypes, and focusing on the right data. Digital service KPIs should be based on acquisition of new customers, activation of new offerings and adoption of services. “Earned data yields earned intelligence,” according to the authors.

Lead like the world depends on it

Why are many companies unable to make the most of digital ecosystems even though success stories have been around for years? That is due to a combination of factors: failure to understand new kinds of value configurations, reluctance to cannibalise existing products, mission creep from existing initiatives and low prioritisation of the digital agenda.

Setting up separate “skunkworks” or venture funds are possible solutions in this regard; over 750 MNCs around the world have venture capital wings. Engagement with startups and the developer community helps here (also see my article, 15 innovation tips: how large corporations can successfully engage with startups).

In sum, this is a good book for incumbents and startups to figure out how to survive and grow in the dynamic and complex age of networks and ecosystems. “The future of scaleable business models lies in the connections made among data, software, products and services,” the authors conclude.

It would be good to end the review with some of the useful quotes mentioned in the book:

“Good marketing is solving things for people.” – Stefan Olander, Nike

“The digital consumer is a very engaged consumer.” – Alan Wilson, McCormick

“People willing to eat their own lunch are the ones who win in the end.” – Nick Podar, GM

“Brands that aren’t rethinking how to connect their products, services, and communications are leaving brand equity on the table.” - John Gerzema, BAV Consulting