Connected by Design

Seven Principles for Business Transformation Through Functional Integration

Barry Wacksman, Chris Stutzman

• Publisher: Jossey-Bass
• Year: 2014
• Print ISBN: 9781118858202
• eBook ISBN: 9781118907214
• Edition: 1
• Topic: Business
• Subtopic: Business Strategy
• Index: Business

In a world of fierce global competition and rapid technological change, traditional strategies for gaining market share and achieving efficiencies no longer yield the returns they once did. How can companies drive consumer preference and secure sustainable growth in this digital, social, and mobile age?

The answer is through functional integration. Some of the world's most highly valued companies—including Amazon, Apple and Google—have harnessed this new business model to build highly interactive ecosystems of interrelated products and digital services, gaining new levels of customer engagement. Functional integration offers forward-looking brands a unique competitive edge by using transformative digital technologies to deliver high-value customer experiences, generate repeat business, and unlock lucrative new business-to-business revenue streams.

Connected By Design is the first book to show business leaders and marketers exactly how to use functional integration to achieve transformative growth within any type of company. Based on R/GA's pioneering work with firms at the forefront of functional integration, Barry Wacksman and Chris Stutzman identify seven principles companies must follow in order to create and deliver new value for customers and capture new revenues. Connected By Design explains how functional integration drove the transformation of market-leading companies as diverse as Nike, General Motors, McCormick & Co., and Activision to establish authentic brand relationships with their customers, enter new categories, and develop new sources of income. With Connected by Design, any company can leverage technological disruption to redefine its mission and foster greater brand loyalty and engagement.

Part One

The Model

Chapter 1
The Growth Challenge of the 21st Century
Principle One: Utility is relevance.

The U.S. consumer's appetite for spicier food has been on a steady upswing at least since 2004, according to some industry reports. Between 2004 and 2009 alone, sales of spices and seasonings grew by 30 percent.¹ Younger generations in particular are expected to sustain an increasing preference for spicier, more adventurous cooking and dining. A 2012 report by Food Technology magazine showed that in the previous two years, the preference for spicy foods had grown 9 percent among Americans ages 25 to 34 and 13 percent among those ages 35 to 44.²

All these trends should register as great news for Maryland-based McCormick and Company. McCormick's brands occupy more than 45 percent of the U.S. spice and seasoning market, dwarfing its nearest competitors, and it dominates the category in grocery stores and supermarkets throughout the country. There remains plenty of room for growth in the size of the overall market, too, as surveys say that fully half of all the steak and chicken cooked in U.S. kitchens is seasoned with only salt and pepper or with no seasoning at all.³

Other trends, however, pose some challenges for McCormick's future domestic sales. Since the 2009 recession, consumers have become more price conscious and less brand loyal than ever before. The rising desire for spicy foods might not benefit McCormick at all if penny-pinching consumers prefer to fill their pantries with cheaper spices sold under generic and store-brand labels.

Competition from bargain-priced store brands is a problem for all the top U.S. food brands, from Campbell's to Skippy. In order to preserve market share, most major brands rely on coupons, temporary price reductions, and all sorts of marketing promotions to persuade consumers to pay a little more for superior taste and quality. But McCormick faces a peculiar obstacle in this regard. For most food brands, it is only one simple step from purchase to consumption, so the primary message of most food marketing is very simple. It tries to inspire the consumer to buy the product.

The consumer's relationship with spices and seasonings, by contrast, is fairly indirect. Spices are not impulse buys, like bottles of soda or packs of chewing gum. McCormick marketers, before they have any chance of inspiring you to buy the product, need to inspire you to prepare a meal. The enjoyment of McCormick products requires a whole series of preliminary steps—deciding to cook, choosing a recipe, assembling ingredients. This is the “flavor lifecycle,” as it's called within McCormick. A recipe or a meal idea that is promoted by McCormick begins the cycle. Next you need to follow through with planning the meal and putting McCormick products on your shopping list. Then there's the shopping trip and subsequent meal preparation—all necessary stages in the cycle before you and your family can finally enjoy the flavor of some new or different product from McCormick.

Because of the flavor lifecycle, McCormick marketing materials have typically highlighted simple recipes accompanied by vivid images of mouth-watering meals. The distribution and promotion of recipes is such an essential element of McCormick marketing that the company relies on a sophisticated sensory and culinary team in suburban Baltimore to generate new recipes to accommodate the evolving American palate. Information-rich marketing of this kind is ideal for the digital age, and McCormick has aggressively shifted its marketing mix accordingly. McCormick's social network hub for backyard barbequers, the Grillerhood, has drawn more than one million fans to its Facebook page. Digital marketing, which had consumed just 4 percent of the company's marketing budget in 2010, tripled its budget share to 12 percent in 2012.⁴

Now that McCormick recipes and their accompanying promotions are easier than ever before to distribute through social media, McCormick faces a new problem characteristic of the digital age: how to be heard above all the noise. The Internet is exploding with recipes, including those contributed by major cookbook publishers, cooking magazine websites, celebrity chefs, and cable TV channels. The number-one recipe website, Allrecipes.com, is one of the top 50 sites in U.S. Internet traffic, with 30 million unique visitors per month.⁵ The website claims to offer more than one million recipes, which amounts to more than 40 lifetimes' worth of meals.

Whenever you face a bewildering number of choices—or even a half-dozen choices—the natural questions that arise are, “Which of these choices are any good?” and “Which one would I like best?” Recipe sites are cluttered with “thumbs-up” recommendations and special lists of “Top Recipes” and “Most Popular Recipes” and “Top 10 Searches.” But popularity rankings and recommendations from anonymous strangers aren't always reliable in matters of personal taste. And even if you were to trust all those lists and recommendations, how then do you choose from among a half-dozen highly recommended, five-star-rated recipes, each supported by scores of glowing reviews and hundreds of raised thumbs?

A digital tool might offer a solution. Internet giants Amazon and Netflix have come to dominate their respective categories in books and movies by developing recommendation engines that offer their members suggested selections tailored to their members' individual tastes. By analyzing your purchase history, the algorithmic formulas that drive these recommendation engines can predict your preferences with a very high degree of certainty. If McCormick could develop a similarly personalized search resource for recipes, the company would have an invaluable tool for differentiating its recipes from those of all the other recipe sites. The company might also become something more than just another food brand in the minds of its customers. McCormick could be known as the Amazon of recipes, the Netflix of flavor.

Your FlavorPrint, Like Your Fingerprint

Every successful Functional Integration effort has daily utility as a core objective. Nike provides daily utility for its 21 million Nike+ members through its ecosystem of running devices and services. It's no coincidence that the three most fully functionally integrated companies—Amazon, Apple, and Google—are all makers of mobile devices, because mobile devices are a vital medium for providing daily utility within each of their respective ecosystems.

Functionally integrated ecosystems develop strong customer followings because they offer digital services that are useful and meaningful in their user's everyday lives. Services such as iTunes and Nike+ provide personalized customizable tools that provide users with direct, tangible benefits. Functional Integration drives long-term profitability only to the extent that it enables companies to build long-term relationships by offering such tools as entry points to their ecosystems.

A functionally integrated digital service is emphatically not a marketing campaign. Interactive marketing is more likely to offer entertainment, discussion, special offers, and little else. Although such efforts may succeed in achieving short-term purposes as marketing tools, they lack the essential utility, long-term vision, and commitment that exemplify functionally integrated digital services.

We began this chapter with the example of McCormick in order to show how a successful horizontally integrated company can draw on that success in taking the first important step down the path to Functional Integration. The simplicity and focus of McCormick's development of a digital recipe search tool is notable because in many respects, it resembles the first such efforts by all the big players in Functional Integration.

Apple's iTunes began in 2001 as an attractive, unpretentious library for organizing your personal collection of digital music. It didn't make any money for Apple when it launched because Apple didn't begin selling digital music through iTunes until 2003. Nike+ had a similar start as a free website that allowed runners to manually record their daily runs. Google began as nothing more than the most useful and reliable search tool on the web. Amazon started out as a user-friendly online bookseller.

Each of these fairly modest and free digital offerings provided handy, reliable tools that expressed the authentic relevance of the brand to each customer in highly personal ways. It was this specific quality of relevance through utility that set each company on its own particular course toward what are now very profitable functionally integrated ecosystems of digital products and services.

For McCormick to move in this direction of daily utility, it was important to take stock of the company's unique position in the food industry. Beyond the spices and seasonings sold with the McCormick label, McCormick and Company makes and distributes products under dozens of brand names around the world, including Lawry's, Zatarain's, Kamis, Schwartz, and Ducros. McCormick is also a global leader in providing flavoring products to fast-food companies, foodservice businesses, and other food industry members. CEO Alan Wilson once told analysts, “we believe no matter where or what you eat each day, you're likely to enjoy something that's flavored by McCormick.”⁶ As a result, within...

Table of contents

• Cover
• Praise for Connected by Design
• Title Page
• Copyright
• Dedication
• Introduction
• Part One The Model
• Part Two Mastering the Model
• Acknowledgments
• About the Authors
• More from Wiley
• Index
• End User License Agreement