The Executive Vice President and Global Chief Strategy Officer of R/GA gave a talk during Singapore Design Week 2017 at the Innovation by Design Conference 2017. He talked about designing ecosystems and how horizontal integrations in business models were no longer as effective as they used to be.
So what are the different integrations and which ones are effective?
- Horizontal Integration
- Firstly, the Horizontal Integration. It’s more commonly used in the 20th Century. For example, Coca Cola. They created new brands like Diet Coke but also acquired brands like Minute Maid. They have since been offering a wide range of beverages like tea, water and orange juice as well. The approach of adding brands under the big umbrella to dominate a certain space, is called a horizontal integration.
- Vertical Integration
- Then there is the vertical integration where companies go down a supply chain and sift out possible routes of minimizing costs and handle things right from the manufacturing stage, even if it means acquiring them.
But as companies begin to acquire and invent new brands, it has severely commoditized the market with several hundred choices for the consumer, and businesses are finding it hard to have substantial growth.
- Functional Integration
- Stepping into the 21st century, a new integration is emerging and it’s the Functional Integration. It refers to building a value filled connected ecosystem. In this connected age, the only way to grow is to get the consumer to buy more things from you, your brand, and not by offering them a different brand in the same market.
- Functional Integration – Apple
- Take Apple for an example. They came up with a myriad of elements in their ecosystem – their OS, iTunes, iPod, App Store, iPad, iCloud, Apple Watch. All of which are interconnected. With their OS and Macs, iTunes was in every single one of them for free. The music app then led to the iPod, having music on the go. With the iPod it led to additonal functions like making phone calls, the iPhone. With the iPhone, it needed apps so the App Store was in place, which led to the iPad and sharing files on iCloud. With the most recent one being a wearable, the Apple Watch.
Other brands like Amazon, Google and Nike are adopting this approach as well. For Nike, it is their Nike+ ecosystem.
“We’re not in the business of keeping media companies alive. We’re in the business of connecting with consumers.”Trevor Edwards, President of Nike
“Once you have established a direct relationship with a consumer, you no longer need to advertise to them.”Stefan Olander , Vice President of Digital Sport for Nike
Barry Wacksman then showed a clip about a connected home, Beko. To further emphasize how functional integrations can work in a space, be it the workspace, your car or even at home.
That is why for R/GA, they are not just a marketing partner, they are a full service digital agency creating products, services and communications to help grow client’s businesses in the connected age.
Two Q&A Takeaways
- How can the functional approach be applied to corporate structures smoothly?
- Corporate companies need to restructure. Currently, there are different brands under Company A, with different Brand Managers. They are working separately and in different teams. There’s no way they can think like an ecosystem since everyone is in charge of their own sections, not fully knowing what the other is capable of, or doing. The best solution would be for the role of Chief Marketing Officer and the Chief Innovating Officer to work together to enable one single group, one ecosystem.
- The importance of collaborating with other designers.
- When you buy a product or experience, you’re really buying into a brand and what they stand for. For example, Fossil. They are doing watches, wearables and accessories with their aesthetic being rather classic and vintage. If you already like the Fossil brand, you’re more likely to buy their ‘sub-brands’ like their collaborations with Michael Kors. It’s the Fossil aesthetic and brand that you’ve already bought into, so you’ll be more open to the idea of a watch by Fossil & Michael Kors as well. This enhances both brands yet it keeps customers coming back to your brand.