By Tim Williams, Ignition Consulting Group
If your firm uses the term “full service” on its website, here are two good reasons you should stop. First, “full service” is one of the phrases that has officially joined the lexicon of expressions so overused they’ve lost their meaning — words like “quality” and “excellence.” So saying you’re full service throws away the opportunity you have to say something else that is actually defining and differentiating. It’s a waste of space and a waste of time.
But the other equally important reason is that it doesn’t mean what you intend it to mean. No company of any size could ever be “full service” in the sense that it offers every possible service in the category. If you’re an agency that describes itself this way, you probably don’t mean to imply that you’re staffed to provide every conceivable advertising and marketing solution. What you likely mean is that you can produce a piece of work from start to finish. That’s not “full service,” it’s vertical integration.
Vertically-integrated companies exist around the globe in many different categories. ExxonMobile is a vertically integrated company. They own almost every piece of their own supply chain: the oil wells, the pipelines, the ships, the refineries, and many of the retail outlets.
One of the earliest examples of attempted vertical integration was Ford in the 1920s. Henry’s Ford’s massive River Rouge Complex had not only its own steel mill but even its own electricity plant. Ford’s goal was to be able to turn raw materials into running vehicles. Today, you can imagine that’s not a very economically-sustainable approach.
You can do some of it, but not all of it
During the golden age of Hollywood, the big studios were all examples of vertically-integrated companies. Warner Brothers, Paramount, MGM and 20th Century Fox owned their own sound stages, filming equipment, props, costumes, and virtually all the talent required to produce a movie: actors, directors, editors, and even film composers, who were all actual employees of the studio. The biggest of the studios not only produced and distributed films, but even owned and operated their own movie theaters.
Today, movies are made in almost the completely opposite way. The studios own very little and instead film creators assemble best-in-class talent, which then disbands after the film is made. Why the change? In part because the vertical integration model is tremendously cost intensive. But the second, even more important reason, is that in today’s hyperspecialized world, it makes more sense to employ a best-in-class approach not when making a piece of entertainment but when producing the world’s newest generation of aircraft. The Boeing 787 Dreamliner is made up of sections supplied by specialized producers in countries literally around the world. The wings are made by a manufacturer in Japan. The landing gear comes from France. Cargo access doors from Sweden. The center fuselage from Italy.
Couldn’t Boeing do all of this by itself? No, actually. Each of these components has state-of-the-art technology that Boeing wouldn’t be able to replicate without a massive investment of resources.
Under one roof?
To bring this back to the world of agencies and professional services firms, it’s simply not necessary to have every resource “under one roof.” This is more the business model of the industrial age, created in the early days of mass production by the likes of Andrew Carnegie in steel and Clarence Birdseye in food.
The argument then was that vertical integration created not only market power (hence the industrial-era monopolies) but economies of scale. But neither of those dynamics apply to knowledge work. What gives agencies market power is exceptional ideation and problem solving, not in-house production resources. And in knowledge work, adding more services, departments, and people (presumably to be “full service”) actually produces diseconomies of scale. How many professional firms achieve twice the efficiencies with twice as many employees?
Another form of integration — horizontal integration — describes a business with lines of related products in the same category. Coca-Cola, a company whose business is comprised of over 400 beverage brands, is a horizontally-integrated company.
But the type of integration that makes the most sense for professional services firms is what Barry Wacksman and Chris Stutzman of RGA call “functional integration.” Their recent book Connected By Design showcases companies like Apple, Amazon, BMW, and Nike who produce different types of products and services, but which share common functionality.
In the case of Apple, their line-up of smart phones, laptops, online music services and digital watches represent products that aren’t inherently similar, but they’re all connected by a common ecosystem; they are functionally integrated.
Integration as an ecosystem of utility
Its important not to confuse functional integration with diversification. These are two different strategies. Successful functionally integrated companies develop a limited portfolio of carefully-selected products/services that compliment one another in synergistic ways. “Every successful Functional Integration effort has utility as a core objective,” say Wacksman and Stutzman.
This type of ecosystem is easiest to understand by looking a companies like Amazon, whose blockbuster online retailing business and dominance in bookselling also supports its Kindle line. The Amazon Cloud Drive business springs naturally from it’s technology and memory-intensive business model.
With some original thinking, similar synergies can be created in the business models of advertising agencies, law firms, research firms, consultancies, and professional services businesses of all kinds. In effect, a strategy of functional integration can make your firm greater than the sum of its parts.