Value Creation in the 21st Century
The nature of value creation has shifted dramatically in the past few decades. The value of tangible objects continues to decline in favor of intangible and intellectual capital. The explosion of transformer-driven AI tools has accelerated this process considerably since 2023. Tangible assets like factories, equipment, and distribution networks are no longer the primary sources of growth or value. Instead, value has migrated to the customer, meaning businesses must focus on delivering customer-centric value to remain competitive.
Why has value migrated to the customer?
The proliferation of choices: With increasingly abundant choices, customers’ choice criteria come down to subtle differences in customer preferences driven more by emotion and taste than basic needs.
Information access: The internet gives customers more transparency and control, allowing them to compare products at increasingly granular levels and demand better value.
Commoditization: As product differences get copied and commoditized, it’s harder to find sustainable sources of differentiation without continuous product and business model innovation.
Removal of traditional barriers: Platforms like Amazon and DoorDash have shifted power to consumers by offering immediate access to everything now. In most categories, “Locking up” distribution is no longer the competitive moat it once was.
The rise of outsourcing: Yesteryear’s sources of competitive advantage, including manufacturing, can be contracted out in many cases, even complex industries like semiconductors. Intellectual Capital “Pureplays” like NVIDIA, Airbnb, and Uber create tremendous value while holding few assets.
How have businesses responded to this shift in dynamics?
The key to succeeding in a customer-centric world is harnessing intellectual capital in various forms. According to a study by Ocean Tomo, 90% of the market value of the S&P 500 companies is now derived from intellectual capital. For high-growth companies like NVIDIA, this number is closer to 98%. Intellectual Capital includes everything from patents, designs, and proprietary technologies to brand assets, proprietary content, and customer data. Businesses that effectively manage their intellectual assets are best positioned to succeed in this era of customer-centric value creation.
Intellectual capital can be grouped into four critical areas for practical purposes. Companies can succeed in a customer-centric world by effectively coordinating their management of these four areas.
1. Customer Understanding: The ability to gather, analyze, and act on customer data is fundamental to understanding how to be relevant in a sea of sameness. Superior insights and the ability to deploy those insights into value-creation models allow businesses to anticipate needs and provide differentiation.
2. Intellectual Property: Creating, leveraging, and protecting proprietary innovations, designs, patents, and technologies is a critical differentiator in today’s market. Strong IP positions around technologies and content safeguard businesses' ability to stay differentiated in the face of commoditization.
3. Brand Strength: A meaningful, recognizable brand is a valuable intangible asset that drives consumer trust and loyalty. Companies with strong brands can command price premiums and navigate market disruptions more effectively.
4. Customer Experience Optimization: Delivering a seamless, personalized customer experience (CX) across all touchpoints is essential for attracting and retaining customers. Delivering excellence in CX requires combining different disciplines, including strategy, operations, technology, and design.
The Future of Value Creation
The present and future of business success lie in managing these four key areas—not just in isolation but in concert. Each element impacts the others, creating a dynamic, interdependent value-creation system. Customer insights drive strategic decision-making, positioning, brand focus, product roadmaps, innovation, and CX design. Similarly, the line between CX designs and proprietary product or service technologies should be seamless and invisible to the customer to maximize the impact.
The price of failing to coordinate these areas effectively can be counted in failed IT projects, diluted brands, and product launches that miss the mark. This is not just a theoretical concern: 43% of IT projects “fail outright,” and many more are dogged by poor scoping, cost overruns, and failure to achieve their potential (in the range of 70-90%, according to Gartner and Forbes). Product launches fare worse: about 95% of new product launches fail.
To achieve sustainable growth, businesses must adopt a coordinated approach that organizes disparate sources of intellectual capital around the customer. This is where modern companies face one of their most significant challenges. Traditionally, organizations are structured around functional lines—marketing, operations, R&D, and sales—each focusing primarily on specific activities rather than outcomes. This model is often imperfectly aligned with the complexity of managing customer value creation in the 21st century, which requires cross-functional collaboration and the ability to pivot quickly based on real-time data.
One potential game-changer here is Artificial Intelligence (AI). As AI increasingly takes over repetitive tasks and automates the gathering and interpretation of data across departments, it will break down these traditional silos. AI can synthesize data from across an organization, allowing companies to more effectively coordinate efforts around the core drivers of customer value creation. Instead of being limited by functional divides, businesses will be able to focus on optimizing the entire chain of value-creation—spanning customer insights, product and business-model innovation, brand positioning, and customer experience.
Eventually, organizations will need to shift their structures more profoundly to fully realize the promise of these new technologies (AI in particular). This is already starting to happen as technology increasingly blurs the distinction between “sales” activities and “marketing” activities; these functions are beginning to merge into a more holistic “Revops” function at forward-thinking companies. In a Revops world, digital and human interactions merge across the sales funnel and customer lifecycle on an “as needed” basis. Human contact with sales professionals is supplemented by automated or semi-automated “lead nurture” activities that feel increasingly seamless to the customer. Increasingly, it’s hard for a customer to know when they are dealing with a human or an expert system.
The opportunity is immense, but so is the challenge. To succeed in this new era, companies must reimagine their structures and embrace AI-driven solutions that integrate intellectual capital management across the enterprise. Early adopters will lead the way in capturing and creating value, while those who don’t risk falling behind.
While it's not news that companies need to "embrace AI", having clarity about what you hope to accomplish from this embrace will significantly improve the outcome v. a simplistic "productivity drive" approach.
Getting arms around the challenges
A comprehensive approach to addressing these challenges and opportunities requires significant cross-departmental coordination from senior leaders. Addressing this systematically encompasses strategy, research, operations, marketing, technology, and other departments. A successful transition requires organizational design, strategic initiatives, and operational changes to business processes.
For all this complexity, looking at customer insights in the light of this framework is a simple place to start. The most critical starting point for harnessing intellectual capital as a growth engine is maximizing what you know about your current and prospective customers. Modern data systems allow you to “know your customer” at many levels of granularity, from overarching trends (80% of C Store customers come into the store looking for a beverage) to 1:1 CRM-driven insights (Brian likes Almond milk in his morning cup of coffee).
An effective survey of your customer landscape can unlock critical insights that will allow you to clarify strategic imperatives around large groups of unmet customer needs and address more specific customer needs in smaller and smaller groups by crafting responsive customer journeys at the segment level. With the power of AI coming online rapidly, customer journeys will be increasingly customized to the individual. Imagine an “app” where the user flow and journey are not the same for all users but uniquely customized to what each user wants from the interaction. While this might sound fantastical, it’s not far off, and we are already starting to see this emerge.
Companies looking for an entry point in this world need a strong understanding of the hierarchy of unmet needs among current and prospective customers on both a qualitative and quantitative level.
Getting started can be as easy as committing to a deep dive into customer insights. This can be a jumping-off point for determining the strategic clarity and focus the business has in its positioning and what it intends to work on in the coming months and years.
If you would like to talk about the ideas in this article directly, you can schedule a meeting with a member of our leadership team.
