In big companies, management teams focus on achieving the right level of vertical integration. The pendulum has swung from Henry Ford's buying ships and railroads—and even a rubber plantation in Brazil to ensure his supply of tires—to Boeing's radical outsourcing of Dreamliner components, and more recently, back to greater ownership of upstream and downstream assets by companies as different as Pepsi and Oracle.
With every degree of verticalization now made possible by information and communications technologies, the right scope of operations for any given firm is an open question. Let me suggest, however, that it is the wrong question to obsess about. Efficient production—through whatever combination of ownership and partnering—is now table stakes. Customers assume you can cobble together an offering without defects at low cost. Meanwhile, what they really respond to is a brand experience that is coherent and consistently pleasurable. Today, your management team should be giving more thought to horizontal integration.
Customers' expectations have been raised by the handful of sellers, such as Amazon, Virgin Atlantic, and Apple, that manage to provide integrated experiences that are so distinctive and pervasive as to be branded—that is, uniquely associated with their names. But most companies aren't able to deliver such satisfying experiences because they're too "siloed" internally. Brand experience is the outward expression of what goes on inside an organization, and it's hard to wallpaper over structures split by inconsistent goals and cultures that do not value collaboration.
Decades of tweaking levels of vertical versus horizontal integration have left deep impressions on organizations. When your goal is to optimize sourcing, clean internal separations make the puzzle easier for managers: engineers do the engineering, marketers do the marketing, the designers do the designing, and so forth. A lack of overlap makes it easier to shift any given piece inside or outside the company's walls. When your organization is so compartmentalized, each group learns to do its own job according to its own metrics, without worrying about the folks down the hall. Managers describe their workflows as "waterfalls" but for the customers interacting with the company, the handoffs don't seem so fluid.
This kind of fragmentation commonly results from growth. In a tiny startup, the hand-picked team of coworkers collaborates naturally. Everyone is communicating and working toward a common purpose, or they would not be there in the first place. This was certainly true in the early days of Ziba, when it was just me, an engineer, three designers, and a project manager. We sat together in a single room and everyone knew what everyone else was doing, and why we were there. Now there are 110 of us in a dozen different disciplines, handling 25 complex projects simultaneously, and collaboration takes effort. Our ability to provide a client with an integrated experience used to be something I took for granted. Now my horizontal concerns keep me awake nights.
For a leader trying to ensure customers value their experience, three things are essential to the organization:
- a passionately articulated purpose ("to make money" is not sufficient),;
- a crystal-clear understanding of who all of this work is being done for; and
- people tasked to be integrators, to foster human connections and champion the organization's purpose
The first two are a matter of reinforcing the focus that allowed the enterprise to get off the ground in the first place. The most horizontally integrated companies are those that proclaim their purpose and values loudly, so internal groups can work with a common end in mind. Ideally, those goals are defined in terms of customer experiences: Patagonia's vision of a world of self-sufficient natural explorers, for example, or Costco's ideal of the empowered American family, both discerning and thrifty. As designers, one of the first tasks we undertake is understanding; why. Once your organization's purpose is clear, determining next steps is far easier, and success is far more likely.
The third thing on the list is a challenge that comes with growth. Malcolm Gladwell notes in The Tipping Point that organizations shift to a more hierarchical structure when they reach a threshold of something like 100 people. This size, Gladwell and other social scientists have suggested, is the upper limit if every member is to have a personal relationship with every other member. As organizations begin to sprawl, more active leadership is required to keep them from acting at cross-purposes. This is why an orchestra needs a conductor and a rock band does not; why a movie needs a director, but an improv troupe works alone. Small startups do not always need attentive managers, but large companies cannot offer an integrated experience without them.
My point in referring to these key managerial roles as integrators is to encourage collaborative behavior. This is not as simple as organizing and delegating tasks—it is a messy, ambiguous undertaking. Collaboration also demands a corporate culture that values client results over departmental efficiency or independent virtuosity. It demands a culture that rewards learning through failure and encourages people to outside their comfort zones. This is more than most companies are willing to do. Yet experience teaches us when individuals do not have to worry about making themselves look good, they are able to concentrate on delivering meaningful and memorable brand experiences.
Ambiguity and fuzziness have never frightened me as much as someone trained to follow the numbers. I studied design, which values synthesis and connection; fragmentation is what frightens me. We owe a debt of gratitude to the analytical thinkers who have sorted out, and keep sorting out, the right level of vertical integration for modern business. However, whether it is fair or not, customers today care more about the experience you provide than your internal efficiency. If you want your business to succeed, shift your focus to horizontal integration.