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POWER SHIFTS TO THE CONNECTED CUSTOMERS

From Vertical, Exclusive, and Individual to Horizontal, Inclusive, and Social

Charlie Frost was a conspiracy theorist who strongly believed that 2012 would bring the end of civilization. A couple of geologists in 2009 found that Frost's belief might be true. They discovered that the earth's core was about to explode and bring catastrophe to the world. And so the world's leaders gathered to find a solution and decided to build giant ships resembling Noah's Ark to save select groups of the world's population. The survivors on the ships would be expected to start a new civilization.

This story is completely fictional and is taken from the movie 2012. But many of the scenes in the movie symbolize the change we are experiencing today. The movie shows how the old standards of civilization – political, economic, socio-cultural, and religious standards – were being destroyed and being replaced by a more horizontal and inclusive set of social standards. It shows how leaders of the Western superpower countries were forced to drop their egos and collaborate. They even had to rely on China to build the giant ships. The ships also functioned as the symbols of a new world in which diverse people were connected with one another without any geographical and demographical boundaries.

Today, we are living in a whole new world. The power structure we have come to know is experiencing drastic changes. The internet, which brought connectivity and transparency to our lives, has been largely responsible for these power shifts.

We witness how exclusive powers surrender to the power of inclusivity. The G7, which is an exclusive group of powerful nations, could not solve the global financial crisis by themselves. They had to involve the G20 nations, which include China, India, and Indonesia. The economic power is now more inclusively dispersed. Large corporations also found it difficult to nurture innovation within their exclusive organizations. Companies such as Microsoft and Amazon eventually needed to acquire smaller yet more innovative companies such as Skype and Zappos. Even millionaires Bill Gates and Mark Zuckerberg were aware of the need for economic inclusivity. They donated their wealth to help the poor through the Bill and Melinda Gates Foundation and the Startup: Education (now part of the Chan Zuckerberg Initiative) organizations, respectively.

We are also seeing how a vertical power structure has been diluted by a more horizontal force. Take, for example, how at the top of the world's most populous countries is the “United States of Facebook” with its population of 1.65 billion people. We also see how people now go to Twitter for breaking news from citizen journalists whereas in the past, a large TV network like CNN would be the go-to channel. Even YouTube has taken Hollywood by storm. A survey commissioned by Variety magazine revealed that for 13- to 18-year-olds, YouTube celebrities are more popular than Hollywood stars. The entertainment giant Sony collaborated with YouTube to show that horizontal forces could not be hindered by vertical ones. Sony's North Korea–themed comedy movie The Interview was commercially released first via YouTube in response to an alleged cyberattack from North Korea.

The power shift also influences people. Now, the power lies not with individuals but with social groups. Dictators were overthrown by people led by unknown leaders. Wall Street financiers were shaken by the Occupy Wall Street protest movement. Ebola fighters were chosen as Time magazine's 2014 Person of the Year rather than U.S. President Barack Obama or Indian Prime Minister Narendra Modi.

These shifts have radically changed our world. In a world where the horizontal, inclusive, and social forces trump the vertical, exclusive, and individual forces, customer communities have become ever more powerful. They are now more vocal. They are not afraid of big companies and big brands. They love to share stories, good and bad, about brands.

Random conversations about brands are now more credible than targeted advertising campaigns. Social circles have become the main source of influence, overtaking external marketing communications and even personal preference. Customers tend to follow the lead of their peers when deciding which brand to choose. It is as if customers were protecting themselves from false brand claims and campaign trickeries by using their social circles to build a fortress.

From Exclusive to Inclusive

Gone are the days when being exclusive was the goal. Inclusivity has become the new name of the game. At the macro level, the world is moving from a hegemony to a multilateral power structure. The superpowers, mainly the European Union and the United States, realize that some economic powers are shifting to the rest of the world, most notably to Asia, which has experienced steady growth in recent years. It is important to note that the Western superpowers will still be powerful; it's just that other nations are gaining more power over time. Economic powers are no longer concentrated but are more evenly distributed.

This economic shift is often attributed to the demographic profile of the emerging market populations: younger, more productive, and growing in terms of income level. It has created strong demand for products and services, which in turn drives economic growth. Recent data, however, suggest that the reason might not just be demographic.

From the innovation perspective, emerging markets are also heading in a better direction. Recent data collected by Robert Litan suggests that innovation in the United States has been declining. The number of start-ups accounted for only 8 percent of total companies in the country, whereas 30 years ago, it was nearly 15 percent. In Litan's data, the number of bankruptcies exceeded the number of start-ups.

The trajectory for Asia is quite the opposite. According to the Organization for Economic Cooperation and Development, China will overtake the European Union and the United States in innovation-related spending by 2019. In 2012, South Korea became the most advanced country for innovation, spending over 4 percent of its GDP on research and development.

The political influence of the Western world is also declining, following the drop in its economic influence. Military powers that used to provide effective influence are slowly being replaced by the soft approach of economic support and diplomacy. China, for example, maintains a strong influence in Africa due to its support for developing better governance and a more sustainable development.

Business itself is moving toward inclusivity. Technology enables both automation and miniaturization, which bring down product costs and allow companies to serve the new emerging markets. The disruptive innovations across business sectors have brought cheaper and simpler products to the poor, formerly considered a “non-market.” Products and services once considered exclusive are now available to mass markets all over the world. Examples include Tata Nano's $2,000 car and Aravind Eye Care System's $16 cataract surgery.

This also works the other way around. With reverse innovation, new products can be developed and introduced in the emerging markets before being sold elsewhere. The frugality and cost-consciousness shown in developing products are becoming the new sources of differentiation. A well-known example of this is GE's Mac 400, a portable battery-operated electrocardiogram machine, which was designed to serve rural villagers in India. It was marketed elsewhere with portability as its core differentiation.

The transparency brought by the internet also enables entrepreneurs from emerging countries to draw inspiration from their counterparts in developed countries. They are building clone businesses marked by local twists in the execution. There are, for example, Amazon-inspired Flipkart.com from India, Groupon-inspired Disdus from Indonesia, PayPal-inspired Alipay in China, and Uber-inspired Grab in Malaysia. Customers in these countries experience the services without having to wait for American companies to establish their footprints there.

The walls between industries are also blurring. The convergence and integration of two or more industries are trending. Industries have the choice to either compete or synergize to reach the same customers. In most cases, they synergize.

Many medical centers are now integrated with tourism facilities so that the costs of health care and holiday can be optimized. United Kingdom – based Patients Beyond Borders estimated serving around 11 million medical tourists in 2013. Popular medical treatments and destinations include dental work in Costa Rica, heart operations in Malaysia, and cosmetic surgery in Brazil.

In some emerging markets where prepaid cellular phone usage is immense, the telecommunications sector is collaborating with financial services to provide payment channels for goods and services. A well-known example is the M-Pesa, a mobile-based money transfer firm in Kenya.

Within an established industry, the sub-sectors will also be difficult to distinguish. In the financial-services industry, the lines that now separate banking, financing, insurance, fund management, and other industry sub-sectors will fade away, making it imperative for financial institutions to find new ways to differentiate themselves. Vertical integration in one industry will create business entities that engage in comprehensive roles from material supply to production to distribution, making it difficult to define in which business a company is active.

At a more micro level, humans are embracing social inclusivity. Being inclusive is not about being similar; it is about living harmoniously despite differences. In the online world, social media has redefined the way people interact with one another, enabling people to build relationships without geographic and demographic barriers. The impact of social media does not stop there. It also facilitates global collaborations in innovation. Consider Wikipedia, which was built by a countless number of people, or InnoCentive, which broadcasts research and development challenges and asks for the best solutions. In fact, all social media that take a crowd-sourcing approach are good examples of social inclusivity. Social media drives social inclusivity and gives people the sense of belonging to their communities.

Social inclusivity is happening not only online but offline as well. The concept of inclusive cities– cities that welcome the diversity of their inhabitants – are often dubbed as a good model for sustainable cities. Similar to the concept of social media, the concept of inclusive cities argues that when cities welcome minorities who are often left behind and give them a sense of acceptance, that will only benefit the cities. Social inclusivity can also appear in the form of fair trade, employment diversity, and empowerment of women. These practices embrace human differences across gender, race, and economic status. Brands like the Body Shop are building a strong commitment to social inclusivity with values such as “support community trade” and programs such as “stop violence in the home.”

From Vertical to Horizontal

Globalization creates a level playing field. The competitiveness of companies will no longer be determined by their size, country of origin, or past advantage. Smaller, younger, and locally based companies will have a chance to compete against bigger, older, and global companies. Eventually, there will be no company that overly dominates the others. Instead, a company can be more competitive if it can connect with communities of customers and partners for co-creation and with competitors for co-opetition.

The flow of innovation that was once vertical (from companies to the market) has become horizontal. In the past, companies believed that innovation should come from within; thus, they built a strong research and development infrastructure. Eventually, they realized that the rate of internal innovation was never fast enough for them to be competitive in the ever-changing market. Procter & Gamble (P&G), for example, learned this early in 2000, when its sales from new products flattened. It later transformed its research-and-develop model into a connect-and-develop model. The more horizontal model relies on outside sources for ideas that in turn will be commercialized using internal P&G capabilities. Its rival Unilever has been moving in the same direction by capitalizing on its vast external innovation ecosystem. Today, innovation is horizontal; the market supplies the ideas, and companies commercialize the ideas.