CHAPTER 4

The Connected Company

Mary would smile if she knew that she—and her generation—was forcing companies to redefine marketing and reinvent their business models. Learning from consumer habits, companies are integrating channels and have to get rid of the back-office mentality. Every single system has to be focused on the customer. Even organizational cultures are changing.

If consumers are changing, can companies continue to do business as usual?

Today’s consumers pose a great threat to traditional companies, or at least those who do not change with the times. Slowly, as companies evolve and find new ways to engage customers, they too must become connected companies. This chapter finds how companies are changing due to a tidal wave of changed consumer behavior.

Berman (2012) writes that businesses in every industry are under intense pressure to rethink their customer value propositions and ­operations. They have to rethink the very basis of their business, including:

• Reshaping customer value propositions;
• Remodeling business operations to deliver new customer value propositions;
• Transparency in operations and involving customers; and
• Rebuilding the business model, leading to broad industry transformation.

This means that companies have to reshape the very ways that they do business (Table 4.1). At the heart of this transformation are two main factors: control and transparency. Companies have to learn to operate in an environment in which they no longer control brands and ­information. Business strategy has long depended on stimuli–response based ­paradigm in which companies provided stimuli and waited for something to ­happen. Now this no longer works as the stimulus is out of their control. So, they have to learn to share more information with their trade partners and customers—if customers are living in glass bowls, so are they.

Table 4.1 Paradigm shift in business philosophy

From products to solutions	Brand managers do not own their brands; customers do. Brand loyalty is getting discounted as consumers have access to almost infinite choices online
From promotion to education	Companies do not control their use of marketing communications; Customers choose the communications they want to see Companies use individualized, targeted communications.
From place to access	Companies must integrate omnichannels for business operations; share information with trade partners and customers
From price to value	Transparency in pricing in an era of free-flowing and perfect information

In the new environment, technology becomes a mindset and is not just a tool to increase operational efficiency. Companies have to ­transform their operations using digital technologies for greater ­customer ­interaction and collaboration. New capabilities have to be built to survive.

“Even the most successful company cannot buy its way to change by applying a little lipstick and altering its appearance with a website. It must be willing to change more fundamental aspects of its way of life,” writes Kanter (2001).

We have identified eight transformations required in companies. They are no longer an option to change, but a necessity for survival. These have to be wide ranging and total, and are summarized in Table 4.2.

Table 4.2 Companies have to transform themselves in a number of ways to meet the needs of the modern, digitally connected consumer

Focus area	Transformations required
Product	Smart, connected products; adaptive personalization, mass customization, co-design of products with customers
Customer obsession	All functional areas to be focused on customer experience; breaking down of departmental silos; from push to pull
Omnichannel marketing	Integrating experience across all touch points: mobile, online, and physical, and of every conceivable information channel
Data analytics	Integrating information from all sources and using analytics to track customers and to create best offers for them
Integrated supply chains	Digitizing supply chains and sharing information about inventories with dealers and customers; connected inventories and logistics
People and culture	Train people for transparency and sharing, equip them with tools to serve connected customers, focus on empowering frontline staff
Communications	Amplified WOM machine; transition from push to pull, encouraging conversations, using social networks to engage customers across channels
Organization	Digital marketing organization; from chief marketing officer to chief experience officer

Today consumers have more power because of their ability to widely disseminate knowledge. They can, therefore force firms to be more ­transparent. All these themes of transformation are discussed below.

Product Transformation

Products are becoming smart and connected. Even as they work silently at customer locations, embedded sensors transmit data to ­manufacturers, giving advanced information about malfunctions to them. Products call home, giving operational data about machines. This results in ­better ­functionality and greater reliability. “The changing nature of products is also disrupting value chains, forcing companies to rethink and retool nearly everything they do internally,” explain Michael Porter and James E. Heppelmann (2014).

Smart, connected products are forcing best practices across the value chain. Consequently, companies must build entirely new technology infrastructure, consisting of layers of technology stacks, including changes in hardware, software applications, operating systems within the product itself, and communications ability with constant monitoring.

Customer Obsession

Companies have to develop a customer obsession because people choose their own channels and communication. This has been highlighted by Michael Porter (2001). He wrote that consumers will value a ­combination of online services, personal services, and physical locations over ­stand-alone web distribution. They will want a choice of channels, delivery options, and ways of dealing with options.

Functional departments working in silos are a thing of the past. Today all employees of a company, whether in the marketing function or not, have to learn to treat customers as people and understand their ­individual stories. From the point of view of the customer, all ­departments or employees represent the company and they do not want to be pushed from one department to another to resolve their issues. So, a free flow of information and collaboration is required and the silos have to be ­eliminated to deliver a consistent brand proposition.

Social media is adding to the integration. Deals on e-commerce sites get shared and retweeted on social media platforms, generating buzz. A host of sites depend on social media fans to post their pictures and comments about brands, thus spreading the message. Brick-and-mortar stores, travel websites, restaurants, and practically every business add their presence on social media. E-commerce sites try to acquire the social skin to utilize individual influence networks. Indeed, these platforms are intruding into each others’ grounds. E-commerce sites try to collect users by offering incentives for people to add their friends, while social media sites add e-commerce platforms, hoping to get a share of online buying. They look for traction by getting referrals, and want to be shared and tweeted by users.

All this activity affects the purchasing cycle even before the purchase journey begins. Consumers research products and look for referrals and warnings from their connections. Giamanco and Gregoire (2012) explain,

Social media’s greatest potential is at the front end of the sales cycle—during the prospecting, opportunity qualification, and pre-sales-call research that lead up to a face-to-face meeting.

Omnichannel Experiences

Brands have to enable their consumers to use all channels to engage with them: They must provide a seamless experience across channels, keeping consumer’s experience foremost in the era of everywhere commerce.

The shopper’s experience is becoming complex, and therefore harder to manage, says a report by Kanter Retail (2013). Thus, companies have to start with understanding their customers’ needs, and then fit content and experiences into their lives, and invest in technology to meet those needs. Digital functionality has to be treated not as a means of promotion or sales, but as a means to engage, complement, and enhance customer experience.

The distinction between online and offline worlds is fast getting blurred. While online shopping offers variety and ease, people still like to go out and shop. “It’s a ritual, it’s a fundamental anthropological need and it will never disappear,” writes Paul Todd in The Guardian (2014). So, while technology drives customization and personalization, the need to get out of the house and go shopping will always remain. This is the ­reason why commerce will be aided by e-commerce and not be eclipsed by it.

The shopping street will, however, adapt. In the omnichannel age, retailers are using a combination of all technologies to serve customers better. Technologies are combined to deliver customer experience in-store and outside it by anticipating needs and meeting them faster than ever before.

Data Analytics

Data generated by the always connected mobile shopper are used to deliver insights into customer behavior. They are analyzed for smarter decision making and identifying new business opportunities. There are three main data sources: data yielded by mobile networks about usage and location of the user; personal data collected through store visits, on social media and the like; and data collected from automatic sensors. In-store behavior, combined with network usage data, help retailers provide an omnichannel, seamless customer experience. A detailed discussion on data analytics is given in Chapter 5.

Supply Chains

Traditional channels focus on distributors and agents, while multi-
channel management is customer focused, write Rangaswamy and van Bruggen (2005). Now each stage of the decision-making process can be ­influenced by a different channel. Physical, electronic, communication and social media, delivery and sales channels—all are used to influence a person’s buying behavior. A CISCO report (2011) titled Unifying Customer ­Experience, says that companies must manage total customer ­experience across all channels through the following five steps:

1. Understand customers’ channel behavior: The first steps include ­knowing how customers search for and buy products, which ­channels they prefer, and how they react to different channels.
2. Integrate data across channels: As customers interact with ­companies across multiple channels, companies must have the means to ­aggregate data from them. Ideally, companies should have complete customer data integration or a single view of the customer across channels, writes Kumar (2012).
3. Use and evaluate multiple channels: Companies decide whether ­additional channels actually serve the customer in some way. ­Marketing dashboards and real-time monitoring of channels are used to evaluate multiple channels.
4. Allocate resources across channels: Optimal channel mix is worked out; the proportion of resources across channels and making the channel strategy cost effective are challenges at this stage.
5. Develop a channel strategy: A channel strategy requires synergy, ­generating and using data, maintaining relationships with channel partners, and building superior competitive advantage.

People and Culture

A rethink about organizational culture is required too. Fields (2014) describes four forces that are driving that change, which are as follows:

1. Social media: People use social media to comment or react on what interests them. Companies have to interpret these conversations, understand the background, norms, and language used by them, and then inject their messages into them.
2. The human business movement: People relate to people, not ­corporations. How then to get people involved with companies and their brands? In the era of transparency, companies have to learn to communicate in a simple, straightforward manner, hiding no information and without attempting to misguide their customers. In other words, they have to treat their customers as humans and also present a human face to them.
3. The purpose economy: Consumers look not only for products and brands, but also to solve their own and society’s problems. This is the basis of the sharing economy, in which things like cars, rooms, or bicycles are rented out to people who need them. One step ahead, the sharing economy is helping people to come together to solve some of society’s problems like poverty and literacy. Consumers look for opportunities to work with companies and organizations that bring value to their lives and to the society; so, companies have to inject social meaning in their brands. The purpose economy requires a larger purpose than merely selling products.
4. Rethinking the organization: Organizations have to be more open because relationships are based on give-and-take: they let in outside culture while removing all stops to interact with customers. Thus, they share platforms on which products and services are based, ­modifying them as the customer needs dictate.

Communications

Media habits and brand communications have changed. Chaffey (2009) mentions six ways in which consumption of media has changed and how companies can adapt to these changing patterns.

• From push to pull: Unlike mass media, the Web is a pull medium, where consumers decide what they want to see, only when they want to, selecting the information they want to see. As a consequence, companies have less control on their communications, so they have to devise ways to make people engage with them online.
• From monolog to dialog: Today companies have dialogs with their customers, in contrast with the one-way ­communication they had in the past. Dialogs help companies to collect intelligence about customers and refine their products and offers. However, at the same time, companies have to ensure that they are not wasting time by entering into a dialog with people who have no intention to buy. An example is of companies that collect online fans and likes, but these often consist of people who have no real interest in the company or its brands.
• One-to-one communication: Online communications enable one-to-one communication, reaching particular niches or delivering personalized messages to individual customers. Every customer is tracked individually and communications are sent at the exact time when a need arises, increasing ­relevance and acceptability.
• Many-to-many communications: When customers interact with each other, it results in many-to-many communications, or C2C conversations. Online auction sites and classified advertising show the power of many-to-many communications. However, one danger is that negative communications tend to get out of hand in such conversations.
• Lean-forward approach: Traditionally, companies would spend on mass media and then lean back and wait for customers to come. Now customers lean forward to get information. ­However, if they do not find what they are looking for immediately, they quickly move on. Companies have to learn to lean forward to meet customer expectations.
• Integration of media: Traditional media cannot be ignored, and they become an accomplice to online companies to guide customers to websites or applications. Online-only companies have to use mass media to drive traffic. Companies thus have to try to achieve synergy in the use of media.

Organization Structure

When everything has changed around them, it is only logical to expect that companies too will have to change. Achieving customer obsession implies that marketing must pervade the entire organization: All ­interactions at all touch points must be responded to quickly.

Traditional marketing operates in silos: marketing, sales, service, and distribution. For instance, marketing is concerned with brands, while sales is assigned to a different department, completely divorced from the others. CRM is yet another separate silo, while physical consumer ­experience is farmed out to retailers. More often than not, one arm of the organization does not know what the other one is doing. However, the customer is not concerned with how a company is organized, but wants that the claims made by the company are upheld by all departments and every employee operating as one unit. Departments have to merge to present one integrated whole, leading to wide-ranging changes to the marketing organization.

One development is to rebrand the marketing department and its ­officers. Sklar (2014) writes that the role of traditional chief ­marketing officer (CMO) is dead. The CMO is now a chief customer officer, chief client officer, or chief experience officer to enable deeper customer engagement. Each MOT has to be managed to deliver one seamless and integrated experience for the customer. Clearly, the whole organization has to get involved, not just the marketing department.

The marketing organization thus sheds its hierarchal structure. A report, Marketing 2020 (2013) published by Effective Brands, describes the marketing organization of the future as highly integrated, such as hub-and-spoke structures whereby the chief experience officer (the ­erstwhile CMO) is placed in the middle, and managers for all functions are connected as spokes to the center (Figure 4.1). There are no ­functional departments or silos. Marketing organizations manage experiences by integrating three functions: Think (through analytics), Feel (through engagement), and Do (through product and content).

Figure 4.1 The marketing organization of the future

A report by Gregg, Maes, and Pickersgill of McKinsey (2014) says the pressure is rising on companies to become receptive and responsive. They must listen for the signals from customers and improve their engagement levels. Advanced analytics help understand customer moods and intent, which are used to create a response system that engages customers across all touch points and channels. Court (2007) writes that the change in marketing is resulting in broadening of the CMO’s role. The marketing function is now built on a larger role as the voice of the customer across the company as it responds to changes in the marketplace.

Changing Role of the CMO

The new role enhances, but also complicates the CMO function. The focus is now on differentiating the customer experience and building better customer relationships. It requires connecting marketing with the entire organization. Marketing officers will be required to accomplish the following main functions:

1. Discover data-driven insights: Technology has to be used by marketing officers to listen to customers, engage them, co-opt them in product development, and drive customer loyalty and advocacy. In that sense, it takes over the task of chief information officers. Thus, CMOs will have to use data to find insights for growth. Future CMOs will be problem solvers with strategic marketing skills, rather than traditional market research capabilities. CMOs will have to be analysts who derive insights that can improve growth and marketing ROI.
2. Design strategies in a multichannel world: The CMO must be one who designs customer experience across all touch points and channels. Marketing today has the job of integrating experiences across the consumer’s buying journey. Sales, service, and distribution can no longer be seen as separate units, for instance, and information has to flow freely among them; all parts of the organization have to be glued together with a single objective, and this is certainly not an easy task.
3. CRM: Tracking customers in real time gives a boost to CRM ­programs. CRM analytics employ online analytical processing and data mining from mobiles and automatic sensors. New tools can identify sales opportunities by combining diverse data with social media activities. Such tools can find associations, recognize patterns, make predictions, and help in improved customer analysis that helps in product development, promotions, solving the problems of ­customers, sales leads, and so on. Predictive modeling helps identify future consumer needs and tells how customers will respond in the future. Customer sentiment, retention, and costs can also be monitored in real time.
4. Marketing: Sales, service, delivery, and even advertising and ­promotion cannot be treated as separate activities. Today every ­promotion can be tracked in real time, which means that ­immediate corrective action can be taken, but only if it is connected to the ­marketing operation.
5. Engagement and content: Companies have to engage customers whenever and wherever they interact with a company—in a store; on the phone; responding to an e-mail, a blog post, or an online review. This can only happen if marketing pervades the entire organization. As we have mentioned, people do not wish to engage with brands on social networks, so marketing has to get into their customers’ lives and create platforms and content to get people involved.
6. Feedback and quick response: Social media, review sites, and blogs have to be monitored for both positive and negative feedback. ­Marketing officers have to be tuned to what people are posting on the net, in real time, like Nestle’s Data Acceleration Center described in Chapter 7. Companies can respond to negative buzz quickly and avert serious damage, or support positive feedback wherever it is happening.

Increasingly, brands are being defined in social networks through shared experiences, writes Solis in his book, The End of Business as Usual (2012). “It is now the responsibility of the brand to lead experiences toward customer satisfaction, loyalty and profitability,” he writes. He also writes, “Connected consumers are open to interaction if they trust the company and believe there’s something in it for them.”

Challenges in Integration

Integration of channels is certainly not an easy task because managers do not like to give up their area of control. The major barrier to ­engagement is, therefore, organizational rather than conceptual. Integration calls for data-sharing and open systems, so managers’ resistance has to be ­overcome. In its report, The Changing Role of the CMO, Vivaldi Group (Bernhard and Olderog 2014) likens today’s marketing as soccer, in which the ball is passed between players who must constantly move and ­collaborate. “Brands have to be constantly on the go (sans media breaks!) on this new playing field, ‘This sports analogy captures the changing landscape of the CMO.’” it says.

Paul Hagen (2011) of Forrester Research reports on data gathered
on 155 Chief Customer Officers (CCOs) and explains that most company departments are focused on meeting short-term revenue goals. There is enough data available in departments, but no one understands the ­customers’ perspective.

A look at complaints posted on online review sites shows mishandling of communications by companies. Some of the common complaints posted on such sites include:

• E-mails are not answered.
• Telephone numbers provided by websites do not exist or put the customer in automated loops by interactive voice response (IVR) instead of taking complaints.
• Customers do not know how and where the defective goods are to be sent.
• After-sales service was unsatisfactory.
• Companies are not following warranties and guarantees.

Such problems show that companies are not able to achieve integration across channels because different departments do not play as a team. The reasons why companies are not able to do this are as follows:

1. Leadership: Companies will succeed in omnichannel marketing not simply because they have more or better data, but because they have better leadership teams. Big data does not preclude the need for human insight. The success or failure of integration depends on business leaders who can build great teams.
2. Talent management: Big data calls for rare skills in cleaning, ­organizing, and integrating large data sets. Furthermore, these data ­scientists should also be well versed in the language of business. Such a ­combination is rare—either there are data experts or good businessmen. Thus, the importance of talent management and retaining teams becomes extremely important in modern organizations.
3. Technology: Technology remains a constantly shifting target. New apps and practices makes today’s technology outdated as new ones are developed all the time. Companies have to keep abreast of all new developments and harness all new devices and apps to make them a part of their big data strategy.
4. Decision making: Data and problem solvers have to be brought together so that the technology is geared toward making business more efficient.
5. Back-office mentality: Customer interaction is usually divided into two distinct areas: the front office and the back office, without integration of the two. The back office is usually farmed out to ­contractors who have no stake in serving consumers. The sooner this mentality is got rid of, the better for the company.
6. Company culture: Finally, a huge shift in the company’s culture is required, according to McAfee and Brynjolfsson (2012). Managers have to move away from hunches and instinct, but develop a culture of data analytics. Many companies use the HiPPO approach, that is, following the advice of the most highly paid person’s opinion. Data are used to support decisions the boss has already made using their intuition. Instead, data should drive decisions, not HiPPOs.

Companies that can overcome these problems stand to gain from the big data revolution. Companies that cannot change themselves may find staring at extinction.

Accelerating Change

The sooner that companies realize the integration, the better will they be prepared to meet the expectations of connected customers. Change is accelerating. An IBM report points to several trends that are forcing change, which are as follows:

1. Accelerating pace of innovation: Rapid innovation in mobile technology and development of apps is accelerating change. As new forms of retailing evolve, the competitive advantage of traditional retailers will decrease unless they too evolve.
2. Evolving retailers: Innovation will result in new retail formats and structures. So, retailers will have to innovate and respond to ­consumer habits. Traditional retailers will have to reposition themselves, ­integrating themselves with online developments. Many retailers have indeed succeeded in doing so.
3. Major shifts in distribution channels: Customers want complete ­transparency and information. Thus, brands and companies have to adapt to changes as they happen, integrating their marketing with supply chains and making it all transparent to customers.
4. Creative destruction: Creative destruction, which refers to evolution—destruction of older, less-adaptive businesses, making place for more nimble and efficient players—will continue to transform retail. Today’s business will have to incorporate mobile platforms, social networks, and automatic sensors to serve customers ­better. Those who do not make use of these developments will find it ­difficult to survive.

The next chapter describes the tools available to companies to analyze the huge amount of data being generated. Every move made by consumers is tracked, and data analytics helps realize that objective.