Barry Wacksman Chris Stutzman Q&A with Barry Wacksman and Chris Stutzman, authors of "Connected by Design" What is functional integration? Functional integration is an emerging business model driving growth in the digital age. In the 20th century, the entire Fortune 500 pursued the same business models of horizontal integration (grow sales by adding new products, brands, and line extensions) and vertical integration (grow profits by optimizing each stage of the supply chain). The digital age has spawned a new business model that lies at the heart of the most successful companies today, including Apple, Google, and Amazon. These companies are winning by creating an “ecosystem of value”—an interconnected suite of products and services that drive growth by getting the same consumer to buy more from them, because they deliver greater value. "Connected by Design" introduces and explains this emerging business model and how companies outside of technology—from Nike to McCormick to GM—create their own connected ecosystems to pursue this new business model. How are social and now mobile technologies changing the way people engage and companies do business? Functional integration isn't possible in a pre-digital age. The “glue” that creates the connection between products is a suite of digital services, like iTunes does for Apple or Nike+ does for Nike. Much of our experience of technology today is through a mobile device, while our activities inside of platforms like Nike+ are increasingly shared through social media. In fact, Nike+ grew to encompass over 20 million members largely through social sharing. As members “shared” their data, other people became aware of the service through social media. In the past, this kind of brand awareness was only possible through enormous expenditures on mass media, like television and print. Is functional integration appropriate for every brand or product? What kinds of products work best with it? We think that just about every company will be transformed by this emerging business model, although it might happen faster in some categories over others. It works best in categories associated with a recognizable range of behaviors. People are invested behaviorally in things like fitness (Nike), cooking (McCormick), beauty (L’Oreal), and driving (car brands), while perhaps less so in more commodity categories like paper goods. But every company and brand will need to determine ways to deliver greater value to consumers in order to keep growing, and digital services have emerged as the primary opportunity to create something that can deliver value at scale. In fact, it would not have been possible to deliver this kind of value in the not-too-distant past. We are less than a decade into this new model. What do you see happening over the next 3-5 years in the digital space? The past decade has been the parallel unfolding of two sagas, the emerging business model of functional integration and the emerging culture of social sharing. The same disruption, digital technology, is powering both of these changes in business and society. We see continued disruption happening as corporations grapple with how to seize the opportunity of the emerging business model (while still largely organized around the models of the 20th century), while the lives of consumers continue to be disrupted by the role technology plays in their daily lives. The most successful businesses and brands will tackle both of these opportunities simultaneously.
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