Introducing my research on ecosystems and functional integration strategies.
Hi everyone and welcome to my first article for 2016. In addition to building Nuwe, this year I’m taking on a brand new challenge…
I’ll be working towards a doctorate, undertaking research into how modern enterprises manage their ecosystems. My particular area of interest is the logic of ‘functional integration,’ for companies managing a portfolio of business models focused on building high value for their consumers.
The main objective of my research is to provide a framework for managing ecosystemsthat leverages a mix of traditional and digital business models to grow. The research is driven by the rising phenomenon of functional integration, which large brands such as Nike and Apple have been exploiting with great success. In the digital, social, and mobile age, interactive interconnected ecosystems have helped digital pioneers like Amazon and Google as well as mainstream players like GM, BMW and McCormick. New opportunities are emerging for startups to use these principles for themselves, or digitally enable other existing players.
Today, fierce global competition and rapid technological change have made traditional strategies for gaining market share no longer as effective as they were. Thus we need to understand and frame a new growth strategy dictated by the power of digital technologies and their transformational nature.
The ultimate result of a functional integrated ecosystem is an exponential creation of consumer value that could not be possible through the individual elements alone, leveraging last-generation connectivity technologies. The conception, design and execution of these kinds of ecosystems represents a completely new dimension of growth enabled by the digital age. We need to look deeper into the results obtained by the pioneers of this integration strategy and frame it in ways that can be measured and applied.
Business model configurations are especially important in technology-based environments where firms often require distinct business models that operate in tandem to develop multiple revenue streams with the same technology. Thus there is a need to frame a growth strategy pattern that leads to the creation of functionally integrated ecosystems.
As an example, I’ll be approaching this complex subject by using a real life example of a beautiful functional digital service integrated into a traditional business model: the Nike + Human Race that took place in 2008.
It was the first professional running event in history that fully embraced the digital age by connecting real participants, from anywhere in the world, to a 10K run organized in major cities around the globe. This was made possible by the addition of the Nike+ technology consisting of a device in the runner’s shoes and a cloud platform to collect the data.
We all know that Nike’s business is selling sports garments and not online subscriptions so we need to look a little deeper into the numbers to understand their innovative strategy. Nike market share was approximately 47% in 2007 before the Human Race and climbed to over 61% in 2008. In 2006 Nike spent over 70% in TV advertising to grow its market share while in 2007 Nike spent less than 45%. With the digital age content has been more accessible than ever and thus the traditional advertising model was no longer effective.
Companies needed to find a new way to engage consumers to sell their products. They needed to leverage the major technology innovations of our time: cloud computing, wireless sensors, big data and mobile services. This what Nike+ has done very effectively: it created a little device that fits in their shoes connected to the iPod capable to collect real-time data about people’s run, send them to the cloud and allow users to access services via their mobile. The example of Nike is a driver for this research since the results in building extra consumer value were so clear and important that we can consider functional integration as a rising growth strategy for the digital age.
Barry Wacksman, Chief Growth Officer at R/GA named this new strategy ‘Functional Integration’ and introduced it to the market at the 58th Cannes Lions International Festival of Creativity in 2011.
I believe we need to understand at a deep level how functional integration works, and the circumstances that make it an effective growth strategy.
This is the central aim of my research project, as I hope we can begin to build a comprehensive understanding of strategic functional integration in the digital age.