Remaking Customer Markets

Unlocking growth with digital

More than ever, the customer experience is what matters most. Yet thanks to the ability of today’s digital technology to dissolve traditional industrial or economic boundaries and to spark sudden and lasting shifts in what customers come to expect, markets are becoming digitally contestable—created for customers’ overt or latent needs and wants.

Our report “Remaking Customer Markets: Unlocking growth with digital” explores how companies can position themselves for growth and high performance in the years ahead.

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1. Executive summary

Businesses that exploit digital technologies to break into new sectors can enjoy greater rates of growth.

Accenture surveyed 500 C-level executives from 10 countries—Brazil, China, France, Germany, India, Italy, Russia, Spain, the United Kingdom and the United States—to discover their views on new growth opportunities. To discover what we found click on the circles below:

From downturn to digital

Unconventional growth

Digitally contestable markets

Leading from the front

Industry at the limit?

As companies’ leaders look beyond the economic downturn to recovery, they face the double pressure of managing both uncertain macroeconomic conditions and digital disruption.

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Although 64 percent of companies’ respondents plan growth within their existing business model in the next five years, a larger share—80 percent—are planning growth via new business models. And while digital capabilities are key enablers of unconventional growth, business leaders see traditional capabilities, such as personal networks and relationships, as the most important.

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Businesses’ growth plans are taking them into markets populated by players from different industries that often collaborate and compete to satisfy evolving customer needs—fueled by digital technology. Accenture has identified six digitally contestable markets that are disrupting traditional industries.

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Business capabilities needed to perform in a world of digitally contestable markets are three-fold:

  1. Market sensing: translating fast-changing customer needs into products and services and understanding trends beyond their own industry.
  2. Organizational realignment: redirecting the organization's resources quickly to respond to threats and capitalize on opportunities.
  3. Ecosystem orchestration: marshaling a wider array of potential providers and collaborators and taking on different ecosystem roles.

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The Accenture analysis calls into question traditional concepts of industry, pointing to a digitally-enabled future in which approaches to business strategy, operations and regulation will need to evolve. The analysis poses fundamental questions to both business leaders and policy makers.

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2. From downturn to digital

Barely any aspect of life today is untouched by the power of digital technologies, encompassing social media, mobile computing, data analytics and the cloud.

Heightened levels of uncertainty and volatility, coupled with the profound impact of digital technology on business, are driving companies’ executives to innovate to better serve changing customer needs.

Managing on all fronts

While there are signs of recovery, the scars of the downturn run deep. Sixty percent of our survey respondents identified macroeconomic conditions as the most significant influence on their corporate strategy over the next five years. By contrast, 38 percent of respondents see structural change (such as the impact of technology on consumer behavior) as the main influence.

Grappling with structural change

Traditional industries find themselves assailed by technology startups, freelancers and other innovative niche players who enter their market with apparent ease and seize market share based on an ability to deliver superior customer experiences.

In the process of pursuing the growth opportunities that digital technology makes possible, businesses are often deviating further and further from their original industry and market focus—and needing to adopt new strategies and capabilities.

Business still focused on macroeconomics

Accenture research shows company strategy is influenced by:

60%
Macroeconomic conditions
38%
Structural changes
Source: Accenture global business leader survey 2013
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3. Unconventional growth

Every week sees new stories of unconventional deals, partnerships and developments whereby industry incumbents are making forays into new, sometimes apparently unrelated territories.

Companies' executives are exploring market opportunities in broader sectors of the economy and with a wider network of stakeholders. Increasingly, businesses are keen to share elements of the value chain rather than own all of them. In pursuing new growth opportunities, both digital technologies and personal networks and relationships are considered to be critical.

To new industries—and beyond

While 64 percent of our survey respondents plan to grow their existing business, a greater share—80 percent—are planning to pursue non-traditional growth, in large part by venturing into or with other industries (60 percent). One-third of businesses are planning to pursue new market opportunities in, or in collaboration with, the public sector and/or the non-profit sector. More than one quarter are intending to harness the power of stakeholders through approaches such as consumer coproduction, open innovation, and crowdfunding.

Collaborating as well as competing

Our survey found that while 39 percent of respondents plan to grow through acquisition, 78 percent intend to use more flexible or contingent forms of partnership and collaboration. These collaborations include strategic alliances (63 percent) and joint ventures (46 percent). Many companies’ leaders are realizing that they are able to turbocharge growth in other industries by either selling or sharing their data openly.

Companies are pursuing growth outside their industry

Accenture research shows growth aspirations:

80%
Growth from
new business

Digital is an important enabler

Accenture research ranks importance of digital:

71%
Digital capability critical

Growth relies on digital and “analog” capabilities

Accenture research highlights priorities:

58%
Nuturing personal relationships
Source: Accenture global business leader survey 2013

Digital is the enabler—but personal networks are key

Business executives have moved beyond traditional eCommerce channels to embrace mobile computing, social media and data analytics as key elements of their growth strategies, with 71 percent of survey respondents choosing at least one digital capability as important. However, business executives see “personal networks and relationships” as the most important single capability, with 58 percent identifying them as critical to achieving their growth plans.

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4. The emergence of digitally contestable markets

Digital technology is opening up traditional industries to new levels of competition, encompassing multiple industries, connecting multiple sectors and agents and organized around improving user outcomes.

Accenture has identified six digitally contestable markets—staying healthy, paying, shopping, learning, producing and traveling —which work alongside one another to serve rapidly evolving customer needs and expectations.

Growth rates are higher in digitally contestable markets

Digitally contestable markets represent a significant source of potential revenue and they are set to realize higher rates of growth than that which is seen in traditional industries:

  • In Germany, while we forecast that financial services will grow by 1.9 percent per year over the period 2012 to 2018, our assessment of all the relevant growth in the sectors serving the paying market points to a growth forecast of 2.5 percent.
  • In the United Kingdom, the healthcare sector is forecast to grow at 1.0 percent from 2012 to 2018, versus a market view of 1.6 percent per year.
  • In the United States, the retail sector is set to grow by 2.7 percent per year over the period 2012 to 2018, while we estimate a growth forecast of 3.8 percent.

The revenue opportunity is big

The market space that digital technology is opening up around the retail, financial services and healthcare industries is significant. Based on Accenture analysis, we estimate that in 2018 the total revenues realized by these digitally contestable markets can amount to:

  • €747.4 billion in Germany—€154.3 billion or 26 percent higher than in the core sector in 2012.
  • £519.2 billion in the United Kingdom—£111.8 billion or 27.4 percent higher than in the core sector in 2012.
  • US$5963.7 billion in the United States—US$1684.5 billion or 39.4 percent higher than in the core industry in 2012.

Staying healthy

What is happening? An increase in availability and cost effectiveness of healthcare provision from using big data and open-source technology. The market for staying healthy is moving from provider-centric to patient-centric.

Where next for customers? Digital technology will offer patients a single point of access to improve wellness options.

Where next for businesses? Digitally-enabled healthcare will improve productivity across the industry, increase efficiency and enhance quality of care.

Access the full report for a day-in-the-life of a customer in the digital world.

Paying

What is happening? Increasing use of social and mobile technologies to enhance payment and financial service options for customers, changing the ease with which we pay for products and services and the way we access credit.

Where next for customers? Easier transactions and money management through mobile payments, digital banks and digital money transfers.

Where next for businesses? Peer-to-peer networks will become a leading source of funding, opening up opportunities for new vendors.

Access the full report for a day-in-the-life of a customer in the digital world.

Shopping

What is happening? Tailored retail experiences built upon a wealth of data on individual preferences, are being delivered by players from a diverse set of industry origins, fueling a revolution in the way people browse, select and pay for their shopping.

Where next for customers? Biometrics will allow shoppers to pay using fingertips or retina scans, enhancing ease and security, while analytics will better tailor pricing and offers to suit individual customer needs.

Where next for businesses? Machine-to-machine connectivity will create networks of smart tools so manufacturers can behave like retailers and sell spare parts or services directly to end users.

Access the full report for a day-in-the-life of a customer in the digital world.

Learning

What is happening? A massive personalization and democratization of education. Digital technology is disrupting a world of bricks-and-mortar education institutions as, in principle, students can access education from anywhere and at any time.

Where next for customers? Students will be able to access all their learning services from a single, easy to navigate, digital learning environment.

Where next for businesses? Leading businesses will help learning institutions create curricula that reflects industry needs and open up online platforms to connect students around the world.

Access the full report for a day-in-the-life of a customer in the digital world.

Producing

What is happening? The reinvention of industry value chain through new manufacturing technologies, changing the way that we are making products as well as where value sits.

Where next for customers? 3D printing and crowd platforms will eliminate barriers between producers and consumers to offer more innovative goods, faster.

Where next for businesses? The Internet of things gives manufacturers the opportunity to develop smart value chains that can be monitored and managed in real time.

Access the full report for a day-in-the-life of a customer in the digital world.

Traveling

What is happening? Increased use of data and machine-to-machine communications in smart, connected transportation systems and their substitutes, changing the way we get from one destination to another around cities and across countries.

Where next for customers? Smart sensors and machine-to-machine technology will enrich the driver experience and automate processes such as accident notification or repairs.

Where next for businesses? Real-time information from smart, hyperconnected transport systems and the era of the driverless car will improve how companies run their businesses and serve their customers.

Access the full report for a day-in-the-life of a customer in the digital world.

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5. Leading from the front

Businesses need to become more effective at matching demand (customer needs and preferences) with supply (both in terms of the company and its wider ecosystem).

In a world where the customer is increasingly loyal to function rather than form, three capabilities can help: market sensing, organizational realignment and ecosystem orchestration.

Market sensing: the ability to anticipate and integrate fast-changing customer needs as well as evaluate trends in other industries.

Eighty percent of high performers said they are well positioned to understand trends outside their traditional industry, compared with 52 percent for low performers.

Organizational realignment: the ability to redirect the organization quickly to respond to changing threats and opportunities.

Ninety-one percent of high performers became more agile during the recession; only 48 percent of low performers did so.

Ecosystem orchestration: the ability to marshal a wider array of potential providers and collaborators in service or take on different ecosystem roles at the same time.

Eighty-four percent of high performers believe they are well positioned to build external networks in their ecosystems—only 39 percent of low performers agree.

High performers excel in three capabilities

Accenture research reveals market maker talents:

High performer
Low performer
Source: Accenture global business leader survey 2013
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6. Industry at the limit?

Digitally contestable markets throw into question existing
industry boundaries.

In light of digitally contestable markets, the standard definition of an industry—a group of firms that produce goods and services that are close substitutes, and who supply a common group of buyers—no longer seems adequate for understanding value creation.

Companies have long participated in multiple industries, forming conglomerates for example. However, today, digital technology makes that participation easier, cheaper and faster. Also, as new sources of value are created, they will—by definition—sit outside the existing structure previously imposed. Companies looking to narrow definitions of industry for competitive threats have been blindsided. Lastly, a narrow conception of industry neglects the role of different stakeholders in value creation.

Companies are working more often in parallel with organizations from other sectors (such as government agencies and non-profits) and different market players (customers and investors) in the pursuit of common objectives. Business leaders need to ask fundamental questions about the markets they serve and the assumptions upon which they are planning for the future. Businesses that are proactive in reassessing their place in a world where customer markets are being reshaped by digital technology will be able to lead from the front, turning disruption to their advantage. The future is there for the taking.

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7. About the research

Four pieces of primary research underpin this study.

Interviews with practitioner experts in the dynamics of six ecosystems/markets experiencing digital disruption. We commissioned online research company 10EQS to conduct these interviews. The work was complemented by extensive secondary research and analysis by both 10EQS and Accenture.

Econometric modeling of the historic and future growth performance of three markets experiencing digital disruption. Accenture commissioned research company Oxford Economics to undertake this work.

An online survey of 500 business executives across a wide range of industries and 10 major countries: Brazil, China, France, Germany, India, Italy, Russia, Spain, the United Kingdom and the United States. Accenture commissioned research company Kadence International to administer the survey.

Interviews with several business academics and experts, exploring sources of corporate agility outside the enterprise including Professor Julian Birkinshaw (London Business School), Dr Gary Hamel (author and management expert), Professor Ioannis Ioannou (London Business School), and Professor Andy Neely (Director, Cambridge Service Alliance, University of Cambridge).

Remaking Customer Markets Unlocking growth with digital

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Accenture Customer Markets Study 2014: Digitally Contestable Markets Accelerate Growth 
Our study reveals businesses that exploit digital technologies to break into new market sectors can enjoy greater growth rates—and they are adopting flexible partnerships and alliances and fostering personal networks along the way. Read more findings here.
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