Welcome to a paradoxical new era for business.
As today’s companies grow ever larger, the traditional market segments they serve continue to splinter and shrink. For many multinational corporations, fractured “long-tail” markets, coupled with the need for ever-larger customer segments to sustain growth, mean that the game has changed—fundamentally. Long accustomed to targeting huge, geographically distinct mass markets, companies must now focus on aggregating sales across and among these arenas to generate the sales volumes they need to grow and thrive.
But guiding a massive enterprise through the roiling aggregation waters is like trying to float a battleship in a million bathtubs: The water’s there, but how do you capture enough of it to provide the buoyancy your company needs to stay afloat?
Achieving growth that moves the dial in this new competitive environment—especially in the midst of persistent economic uncertainty and market volatility—requires first seeing and understanding the unique technology-driven era that’s making both the problems and solutions possible. Accenture research on business growth has revealed four technologies that leading organizations will rely on in the next three to five years as they make aggregated sales a reality.
First, they’ll use sophisticated analytics to gather the massive amounts of data required to identify and serve new customers worldwide. Second, cloud computing will help them to combine services by providing users access to remote computing power and software on a pay-per-use basis. As a result, all companies will be able to access the advanced computing power they need to identify global customer segments at the click of a mouse, without large upfront capital investments.
Meanwhile, two other technologies—mobile connectivity and online social media—will allow these companies to connect with customers wherever they are located and spot themes shared among individuals worldwide, respectively.
These technologies are helping companies target and serve consumers across the street or around the world with nearly equal ease. But they aren’t by themselves fostering the global market integration opportunity that’s currently forming. Instead, these technological developments are driving three shifts in the competitive landscape that are ushering in the new Age of Aggregation.
1. Converging business activities and players are blurring industry boundaries
In many industries, today’s leaders may sometimes wonder what business they’re really in. The crisp, clean lines that once separated markets are blurring as companies seek new ways to grow. The early winners in this new environment have excelled at recognizing and exploiting the growing overlaps among formerly standalone industries, as well as the fresh intermediary steps in value chains that offer new opportunities.
The digitization of data is affecting the way products are created and delivered, which, in turn, is encouraging new participants to enter the fray at every point in industry value chains. Companies that possess distinctive business capabilities—in finance, for example, customer service or logistics—in one industry can now often successfully enter other sectors, especially when they have achieved the benefits of scale.
Take Walgreens in the United States. Is it a pharmacy chain or a healthcare provider with a role in supporting emerging accountable care organizations? Such questions are resonating across industries and around boardrooms, as more and more companies attempt to position themselves to capture value in formerly unimagined ways. Apple already excels at this game, disrupting the music and publishing industries by becoming a de facto content gatekeeper in both areas with its iTunes and iPad offerings. Elsewhere, a global food giant is exploring potential opportunities in the pharmaceuticals sector.
2. Rising incomes and the desire for affordable luxury are melding to create a new global middle class
Strong growth in emerging economies is leading millions of consumers in those markets into the ranks of a fast-growing global middle class. In fact, according to the Economist Intelligence Unit, emerging markets will drive about two-thirds of world economic growth in dollar terms across a range of industries over the next five years, at the expense of developed economies.
Companies will find the new spending power in these markets irresistible. There, citizens with annual household incomes between $5,000 and $30,000 already represent a surging mass market all by themselves, and these newly empowered consumers shop eagerly for stylish and high-quality goods, at more affordable price points.
Meanwhile, although older consumers in developed markets—now beset by debt, rising healthcare costs and uncertain retirement prospects—have become more frugal in their spending habits, they are demonstrating a similarly pronounced interest in stylish, but affordable, products.
Accenture expects the coalescing of these two consumer segments to become the center of gravity for global consumption in the long term. These converging trends add up to arguably the largest mass consumer market in history—a geographically fractured but cumulatively huge global middle class. We estimate that this new global middle class will rise from approximately 1.8 billion households in 2009 to nearly 4.9 billion in 2030. Furthermore, it seems likely this trend will be a long-term phenomenon, with income growth through 2020 in developed countries expected to moderate.
Successfully exploiting these trends will depend on a company’s ability to serve similar needs across multiple consumer clusters simultaneously. For instance, the older consumer in developed markets, living on a fixed income, might seek out the same value-focused near-luxury car or discounted travel options that appeal to younger middle-class families in emerging markets.
Some pioneering companies have already refocused their businesses on the emerging-market middle class. Fast-moving consumer products giant Unilever has been a trailblazer in harvesting value from these markets, which contributed the majority of the company’s revenues in recent years. In fact, because Unilever’s developed-market revenues actually shrank from 2006 to 2010, developing-economy sales contributed all of the firm’s growth.
3. Savvy new emerging-market players are redrawing the competitive map
The arrival of aggressive global players from the BRIC countries and beyond has begun to tilt the competitive center of gravity away from developed economies. In the process, these new emerging-market leaders are moving past their traditional low-cost value propositions as they aspire to become true global peers with Western firms in terms of innovation, technology and research capabilities. This global leveling of capabilities could ultimately cause an increase in overall competitive intensity across industries that many Western players are not prepared to meet.
Emerging-market companies—led by energy, telecommunications and financial services giants from Brazil, Russia, India, China and Mexico—doubled their presence on the Fortune Global 500 between 2005 and 2010, accounting for nearly 20 percent of the total. Many took advantage of the global downturn to snap up distressed Western companies.
Getting their heads around the implications of this new age of aggregation might be one of the toughest challenges facing today’s company leaders. Instead of pushing value into a physically defined market, companies must pluck it from similar customer segments worldwide. Sales territories and channels now span the world, and go-to-market strategies need to reflect both the similarities and differences of international customer segments (see sidebar).
As a result, companies need to think through a newly expanded set of options.
They must first redefine their business strategies to include the new markets and segments noted here. They must then redraw their product/market matrix with an eye toward refining existing offerings and creating new ones, and work out the issues that surround expanded retail channels, logistics requirements and supply chain management considerations.
Companies must also redraw positioning maps to take into account the entry of new competitors from emerging markets and other industries, and to incorporate the newly expanded set of customer values and demands that are surfacing as companies bring scattered market segments together.
Take, for instance, the concept of reverse innovation, where products such as low-cost ultrasound machines are introduced to developed markets from emerging ones. This phenomenon is causing many leading companies to rethink their product strategies of providing leading-edge functionality at premium prices and, instead, explore less advanced but more cost-effective alternatives for value-focused customers.
Most important, leaders need to adapt their business processes to an altered environment where new “synthetic” markets arise as a result of a company’s own business savvy, not as a result of simple market trends. We call these markets synthetic because they are pulled together from previously disparate pieces to form a cohesive whole.
The practical effect of this is that new markets emerge as fast as companies can imagine them—considerably faster than traditional demographic and technology drivers. This will likely require a new paradigm of innovation and innovation agility, one that is more responsive to market shifts and less dependent on the insular R&D labs.
Procter & Gamble has become a leader in this kind of innovation, investing $100 million to $200 million in a specific program with the goal of improving the company’s performance. It has embraced the concept of “open innovation,” seeking product ideas and insights from virtually anywhere—customers, employees, even competitors.
As a result, the company has successfully overcome the “not invented here” syndrome, and actually partners with competitors to bring new technologies to market. Today, P&G receives more than 300 innovation ideas monthly via its innovation website, and traces $3 billion in annual sales growth to the open innovation channels.
Perhaps the most important aspect of this exercise is to ensure that identifying and entering these new markets and segments doesn’t simply become another “to-do” item on the chief strategist’s already long list of deferrable actions. This requires strong, visible top management leadership and commitment, and active companywide acknowledgement that the organization’s business model has changed in dramatic ways.
As momentum builds behind the technologies and trends that will make aggregation a reality, companies intent on occupying this broader and deeper competitive landscape can immediately focus on five concrete actions to prepare themselves for the opportunities ahead.
Target value wherever you find it. Exploit your already established competencies in other industry value chains.
A compelling example of this strategy can be seen in the publishing industry, as computer and high-tech players co-opt physical book sales via their e-book readers and tablets. The popularity of Apple’s iPad, Amazon’s Kindle and other e-readers has stolen sales from traditional book retailers, forcing key companies into bankruptcy.
Likewise, Best Buy looked beyond its traditional consumer electronics focus to partner its B2B unit, Best Buy for Business, with cardiology products manufacturer Cardiac Science Corp. As part of the partnership’s offerings, Best Buy’s Geek Squad computer and IT trouble-shooting service determines if physicians’ offices have the appropriate IT infrastructure to support the latest Cardiac Science medical devices. Global shipper UPS is leveraging its capabilities to help companies with an array of logistics management services, which range from designing and reengineering supply chains to providing complete “order to cash” end-to-end global solutions for critical parts order fulfillment and returns management.
Think big. Then think bigger. Design offerings that tap into the core of global income, and then create extensions to capture even more value.
In many ways, this approach was pioneered by some of Europe’s low-cost airlines, which, through a number of innovations, created an entirely new role in their industry. Elsewhere, Haier Co., the Chinese multinational home appliance maker, has succeeded with its inexpensive mini-refrigerators, air conditioners, dishwashers and similar products by first becoming the leading brand in China, and then expanding its coverage to include value- and price-focused customers in both developed economies and emerging markets.
The company effectively adapts its low-cost product designs to new markets as necessary, and adopts localized design, manufacturing and sales processes. As a result, the Haier brand earned the largest global market share in major appliances in 2009 and 2010, according to Euromonitor International.
However, companies should be ready to pull the plug on pilot marketing efforts that could inadvertently put franchise brands in unfavorable positions.
For example, in response to the global economic downturn, P&G test-marketed Tide Basic laundry detergent, which lacked some of the cleaning ability of regular Tide but cost about 20 percent less. While the cheaper version could appeal to today’s more frugal developed-market shoppers, P&G ended the test in mid-2010. At the time, some observers expressed concerns that Basic would dilute regular Tide’s premium market position.
Many developed-market companies continue to struggle with this new competitive calculus. It replaces the West’s current high-functionality/high-price marketing approach by lowering prices without sacrificing performance (and supersedes the prior low-price/low-functionality paradigm in emerging markets). Overcoming this hurdle will be one of the toughest challenges faced by companies looking to serve these markets.
Create synthetic markets. Target and sell to customers across geographic and other physical boundaries.
Companies no longer need to wait for markets to evolve. They can serve them as fast as they can identify them. As a result, firms need to be in the business of envisioning new markets as well as targeting them.
Examples of current synthetic markets include dispersed but like groups of expatriates, members of religions, or gamers and hobbyists. For example, Activision Blizzard’s World of Warcraft online game has attracted millions of paying subscribers worldwide. As a measure of its global success, the massively multiplayer online role-playing game has more players in China than it does in the United States, its home market, and by early 2011 had more than 11 million subscribers worldwide.
Let your capabilities set the pace. Rethink your approach to innovation to encourage individual initiative.
In the Aggregation era, markets appear as fast as companies can act on their insights. As a result, innovation speed is limited less by market hurdles than by the speed and agility of companies themselves. Now more than ever, competition is not just about what you do but how you do it. The value of effective streamlining and innovation rises exponentially as the impact of getting there first with the most becomes the absolute measure of success.
Innovation leader 3M encourages creativity within its workforce while efficiently managing resources throughout the product development process. The company tolerates failure that comes in pursuit of new ideas and allows employees to spend up to 15 percent of their time on projects of their own choice.
It follows a “loose-tight” management approach, granting employees the freedom to innovate but enforcing a disciplined product development process that includes structured elements such as stage-gates. As a result, the company is able to target and achieve stretch goals—fully 30 percent of its business unit revenues comes from products launched in the past four years.
Pursue “2-in-1 management.” Employ S-curve analysis to trace the rise, maturity and ultimate obsolescence of technologies or innovations and, correspondingly, their products and businesses.
The performance of many systems over time tends to describe an S-curve as those systems wax and wane. S-curves can thus serve as indicators of the expected remaining innovation headroom of current technologies, and provide warnings about the possible emergence of new replacements.
In the past, S-curves tended to unfold at a relatively leisurely pace, giving firms plenty of time to prepare for the transition to the next big thing. Today, leaders need to recognize that innovation S-curve timing is compressing, with disruptive alternatives popping up without warning at an increasing pace. As a result, new value delivery solutions and business models can often sneak up on slow-moving companies.
Success today increasingly requires top leaders to manage not one S-curve at a time, but two simultaneously—today’s and tomorrow’s. Take Netflix’s founder and CEO Reed Hastings, for example, who was recently lionized by Fortune for managing a successful business—mail-delivered movies on DVD—while concurrently launching and growing its successor (online downloaded movies).
We call leaders like Hastings “2-in-1” CEOs—visionaries with one foot in the future who remain well grounded in today’s competitive urgency. These leaders constantly scan the horizon for major market insights and the trends that will upset current market conditions and create opportunity. Such 2-in-1 leaders as Hastings and Apple’s Steve Jobs are pragmatic about turning their insights into action, knowing precisely when to scale up their new businesses, and they rely on their employees as key resources for turning vision into reality.
Viewed strategically, becoming a market aggregator changes some of the key rules of competition. It opens new avenues to agile players while driving slower-moving, more traditional organizations a step further behind. In order to benefit from this new growth engine, leaders need to rethink their ideas about markets and customer segments, become more proactively focused on spotting and going after synthetic markets, and recognize that the entire world is their new competitive battlefield.
For further reading
“Blurring borders,” Outlook, October 2011
“Jumping the S-Curve: How to sustain long-term performance,” Outlook, February 2011
Sidebar | Aggregation as strategy
The broad availability of new technological capabilities and the development of three trends—blurring industry boundaries, the rise of a global middle class and the entrance of emerging-market players on the global stage—have combined to animate a startling new business model: Instead of treating geographically separate markets as distinct revenue pools, companies can aggregate these sales across time zones, nationalities, cultures, social networks and interests to serve truly global customer segments.
To play this game, however, leaders need to cast off some traditional strategic notions. Instead of focusing on specific markets, for example, they need to follow comparable customers. As a result, “where” you play necessarily becomes a variable, not a set-in-stone strategic element: You play anywhere and, if possible, everywhere. It’s more about finding similarities among customers than defining them by their geographical differences.
Clearly, the elements of an aggregation strategy will differ from industry to industry, but the core idea remains the same: As technology increasingly enables consumers to shop the planet, businesses need to find creative new ways to deliver value to them on a worldwide basis (back to story).
About the authors
Wayne G. Borchardt is the global lead for Accenture’s Strategic Planning & Growth offering. With more than 17 years experience in consulting, Mr. Borchardt focuses on strategic planning, growth strategy, pre- and post-deal M&A, and broad transformation programs. Most of his consulting experience has been in the consumer goods, retail, pharmaceutical and healthcare sectors. He is based in Kuala Lumpur.
Jill S. Dailey leads Accenture’s Strategic Planning & Growth group in North America. She has more than 12 years of experience in consulting with global clients on strategy, new growth opportunities, international expansion, and mergers and acquisitions, especially in the healthcare industry. Ms. Dailey is based in Florham Park, New Jersey.
Paul F. Nunes is the Boston-based executive director of research at the Accenture Institute for High Performance. His work has appeared regularly in Harvard Business Review and in numerous other publications, including the Wall Street Journal. He is also the coauthor of Jumping the S-Curve: How to Beat the Growth Cycle, Get on Top, And Stay There (Harvard Business School Press, 2011). In addition, Mr. Nunes is the senior contributing editor for Outlook.
The authors would like to thank the following people for their contributions to this article: Kristen Anderson, Rogier de Boer, Henry Egan, Martin Frech, Richard Fu, Rita McGrath, Reshma Patil, Matthew Robinson, Vedrana Savic, Nicole van Det and Dimitri Xavier.