Marketing Innovation, Value Migration and Technology Spending

Adrian Slywotzky wrote a book titled, “Value Migration” where he discussed the flow of economic and shareholder value away from an outmoded business design toward others better equipped to create utility for customers and profit for the company. He provided three types of examples, where value flows between industries, between companies and between business designs within a company.  We will soon see value migration take place between the CIO and the CMO functions.

Gartner forecasts CMOs will spend more on IT than CIOs by 2017. This could be a significant value migration event, but will your company be ready to take advantage of this opportunity?  We know IT can create competitive advantage looking at such classic examples as package tracking, airline reservation systems and applications leveraging hand-held devices. We also saw how companies were able to take advantage of the Internet to disintermediate, reintermediate, create new pricing models e.g. auctions, change customer experiences, create dynamic online community, provide real-time customer service and of course create entirely new businesses which are in turn platforms for new business models e.g. Amazon.  With new technology spending in marketing, will we see the same type of game changing advances?

The Internet of things promises to blur the lines between products, services and experiences and thus create even more new opportunities or threats. The Internet of things is even more technologically driven and thus will further marketers influence over technology spending.

CMOs have an opportunity to leverage IT and technology the same way, and create competitive advantage and/or shareholder value. Having these new dollars to spend on technology is a big opportunity for marketing. However, similar to how social media received an increasing amount of dollars previously allocated to traditional media, some CMOs used social media to gain market share while others did not. The same will most likely happen if CMOs do not have a marketing innovation strategy to guide their new spending.

We believe this new spending should be guided by a marketing innovation strategy, which is in part CIO/CTO strategy, but also incorporates R&D strategy in general and technology strategy in particular, or is referred to as the management of technological innovation.

The increased spending by marketing on technology could create competitive advantage or not much of anything at all, as companies follow the industry leader and eventually adopt proven best practices. Adopting best practices will be seen as, “table stakes.” In other words this increase of spending may not make a company’s marketing any more efficient or effective, give it competitive advantage or create shareholder value, and that will be a missed opportunity. An example of this is when a new service such as online banking emerges; the first few companies that adopt the technology may gain some market share or reinforce a positive reputation with its customers. The banks that incur the expense for implementing online banking much later, may not gain any share, customer satisfaction, or reputation benefits, but are still left with the new costs, because now it is, “expected” that the bank provide such a service for its customers.

When it comes to value migration, we have to look at the threat side as well. The Internet created an opportunity for Apple via iTunes and was a threat to retail record store chains such as Tower Record Stores.  This is different from the typical product or industry life cycle such as video movie rentals, where VCRs created a new industry. Video rentals were later replaced with substitutes e.g. movie rental on demand, as the value migrated somewhere else. What’s different is the new technologies aren’t substitutes, but enable a new wave of disruptive innovation, which provides new ways of competing and new business models. That is, for those who can see how to take advantage of it.

We all see marketing becoming more technological and scientific. CMOs often complain about being overwhelmed by the flood of new technologies hitting the market daily. What we don’t see is companies,  the brands or their trusted advisors building capacity either.  The companies that see this shift as an opportunity are in the best position to capture the value as it migrates from the CIO to the CMO.

IT has come a long way since CIOs had a hard time justifying or explaining how their IT purchases had any real ROI. In fact, some didn’t even bother to make that case saying IT expenses were similar to infrastructure or a utility e.g. gas, electric, water and telecommunications expenses that were necessary to run the entire operation. But over time, IT got better in explaining its spending, both expenses and capital investments in terms of ROI. Marketing is used to thinking in terms of ROI for campaigns, programs, and sales support, but thinking though the ROI of capital expenses such as IT may be new as there are different criteria to consider.

Marketing does not have to reinvent the wheel developed by the CIO and the CTO in terms of making technology investments. But incorporating the lessons learned by the CIO will not be enough to provide the CMO competitive advantage as he or she looks to innovate their marketing in terms of strategy, products or processes. Innovating marketing will require a combination of vision, strategy and analytical discipline.

CMOs need to build their marketing innovation capacity in terms of strategy and management. They can do this internally by creating a new role and responsibility or looking to outside resources. Ad Agencies, Digital Agencies, Management Consulting firms, industry analysts among others stand to capture or miss a major opportunity by helping companies develop a marketing innovation strategy, advising them on how to manage marketing innovation and providing tools for creating marketing innovation ideas. The problem is many organizations will miss this opportunity because early on, there won’t be enough companies asking for the service to justify providing it. This is similar to ad agencies that were slow to offer web or digital services because they did not see much market potential in proving digital services, especially when the majority of clients were still spending all but a fraction of a percent on traditional media.

Value migration provides a real opportunity and a real threat in terms of marketing innovation for the company as well as the service provider. Will value migration prove to be a threat or an opportunity for your company?