The Hindu Business Line : The next big distributed knowledge process

According to a recent news story, Lenovo is setting up a global marketing hub in Bangalore for its brands. The hub will formulate and track its brand strategies and help optimise the use of the firm’s brand assets deployed across the globe. While the news may not be completely unexpected, what is certainly surprising is the amount of time it has taken for brand management to be widely recognised as a business process that can be de-linked from a corporation’s headquarters and even outsourced.

Over the last decade or so, we have seen the emergence of what could be called a brand-and-source global economy (BSGE). In this new and still emerging environment, a separation is taking place between brand owners and what we could call product fulfillers. Today, the owners or holders of brands are increasingly less likely to be the producers of the products or services that are marketed under it. For example, a brand owner in the US may design its products in Europe, manufacture them in Asia, and distribute them globally.

This trend has resulted in a structural shift in what a corporate entity is and what it does and does not do. Many entities have undergone organisational peeling or an unbundling of the tasks that they perform as an organisation and the associated competencies that they need to develop internally. In a BSGE environment, many tasks that were traditionally performed within are increasingly being distributed and spun off to where they can be performed best and often at lower cost. And, because some of these processes have been distributed to entities across national boundaries, terms such as outsourcing and offshoring have become a part of everyday management vocabulary.

However, it is perhaps ironic that globalisation and outsourcing are often talked about in the same breath. Globalisation represents the move towards a unified singular market for both production and consumption and the notional dissolution of national boundaries. The concept of offshoring, on the other hand, is tied to the acknowledgement of the importance of national boundaries and a clear separation between what is inside those boundaries and what is outside. And when the intellectual component of what is developed outside is high, it gets labelled as an outsourced knowledge process. However, if consumption and production markets are becoming truly global, then it is perhaps inappropriate to strategise in terms of outsourcing versus in-sourcing.

Instead, an organisation should be thought of as a combination of a holding entity and distributed processes. And, with the emergence of cost-optimised centres of excellence for a variety of processes, including design, manufacturing, customer relationship management, software development, customer service, accounting and financial portfolio development, there is increasingly less need for holding entities to develop a range of competencies and deploy a variety of assets. Specifically, with regard to processes that require a high intellectual component, it is important for these entities to think beyond knowledge process outsourcing (KPOs). Instead, they should think more generally in terms of core knowledge processes (CKPs) and distributed knowledge processes (DKPs).

Core knowledge processes are those that are strategically important and best performed within the holding entity. On the other hand, distributed knowledge processes are those that may be reasonably critical for the organisation but can be spun off to entities beyond the organisational boundary. Over time, the holding organisation should evolve into a network where few processes are performed within the organisational entity and most others are spun off to specialist entities located anywhere.

Brand management as a distributed knowledge process

Traditionally, branding has been viewed as an endowment process whose purpose is to separate competing products or services from one another in order to maintain differentiation and extract a price premium from the marketplace. This has resulted in a product-plus mindset for the conceptualisation, development, and management of brands. Under this paradigm, a product or service comes first and it is later branded appropriately to achieve certain strategic objectives in the marketplace. As a result of this product-plus mindset, brand management has been largely held within the confines of the holding organisation and has been thought of as a core knowledge process which cannot be easily distributed to external entities.

However, the process of brand management shares many characteristics with other processes that have been successfully distributed or outsourced. It requires a blend or a combination of three core skills: analytics, mathematics and aesthetics. The analytics pertains to the logic of brand management and the selection of good versus bad strategies. The mathematics pertains to the sizing of brand management problems and the evaluation of the quality of solutions based on data and models. And finally, the aesthetics pertains to elements of creativity as well as the knowledge of product category-specific issues such as being able to identify good package designs from bad ones.

If we view the brand management process not merely as a creative process but as one requiring these three skills then it is easy to see that it is ripe for being treated as a reasonable and strategically important DKP. It has all of the following characteristics that have been associated with business processes that have been successfully distributed in the past:

Separability: A key feature of a DKP is that it can be separated from the rest of the organisational activities of the holding entity, conducted at a different location, often by a different enterprise, and then integrated back into the holding entity. If we move away from a product-plus mindset, we can easily think of brand building and management as an almost holistic, independent, and complete process that can be executed by an external provider and then folded back in. In fact, much like a software product, a brand can be fully developed by an external service provider and then marketed to holding entities for merging with a product or product class to create integrated branded offerings.

Arbitrage: One of the objectives of migrating processes outside the organisation is to lower the cost of production by taking advantage of specialised, low-cost providers. Brand building and management is a knowledge process that lends itself well to being conducted by specialised entities at lower cost than by holding entities that ultimately deploy these brands in product markets. These entities can therefore take advantage of the lower cost of brand development by specialised entities anywhere around the world and then unleashing them in markets where they could be harnessed for maximum value extraction.

Leverage: A knowledge process is especially worth distributing if the holding entity can leverage the benefits of superior performance. Processes that have little magnification or leverage effects from improved quality are worth outsourcing only because there might be savings in the cost of capacity. Brands tend to have a strong magnification effect because the market and pricing power they are capable of generating far outweighs the cost of developing or refining them.

Scale effects: It is prudent to outsource those processes and tasks where the concentration of capacity, in terms of either the physical assets being deployed or the intellectual power being harnessed, results in significant cost savings. Brand development and management requires the interaction among specialists in areas of analytics, mathematics, and aesthetics and synergies from close interactions among them would result in cost savings from these skills being amassed in centres of excellence.

Developing brand management as a DKP

So what would it take to set up the brand building as a viable and vibrant DKP here in India? First, it would require a change in mindset from thinking of brands as product-plus to that of products as brands-plus. This change should unleash brand building as an independent and standalone business process where brands could be developed as platforms even without a client or product in place. The development of viable brand solutions would provide a proof of concept for the notion of a “brand as a platform” and would spur further brand building activity and help holding entities migrate towards accepting branding as a distributed knowledge process.

Second, brand builders will have to embrace evidence-based marketing and adopt brand building not as a creative process but as a strategic process. They would have to treat a brand as an engineered product whose feature set can be unbundled and developed in parts and the development process itself can be modularised. The benefit of this approach would be two-fold. On the one hand, it would help subject the elements of a brand’s feature set to evaluation metrics and assist in the re-engineering or refinement of the brand. On the other hand, it would facilitate the evaluation of the team members involved in the development of the individual modules that are integrated to create a brand as an engineered product.

Third, unlike what has been witnessed in many sectors where KPOs are flourishing, developers who participate in brand building as a DKP will have to resist the temptation of treating their service as merely distributed knowledge producing capacity. If they do, this DKP sector will become commoditised and largely provide only arbitrage benefits to its client sector. The service providers should instead aim to deliver productised capacity wherein their knowledge capacity is converted into appropriate intellectual property that can be deployed to serve the holding companies that would be their clients. The ‘productisation’ of knowledge capacity will help maintain separation among DKP service providers, prevent the migration of clients to lower cost centres over time, and increase their own valuation because of the presence of an intellectual property component.

Finally, these firms will have to support the cultivation of a focused talent pool that is indoctrinated with the brand-plus mindset, and trained for the creation of productised brand building capacity. This set will have to be complemented by an army of what could be thought of as brand application engineers who will customise these productised offerings to a global client base. As we have seen time and again, there is no shortage of raw intellectual power in the country. If it is organised and harnessed correctly, there is no reason why brand management cannot be created as a vibrant DKP right here. And, if done well, then the Indian service sector can migrate from being the World’s Back Office to the World’s Brand Office.

(The writer is Associate Professor of Marketing at the Terry College of Business, University of Georgia, and a consultant in the areas of brand strategy and service management. This article first appeared in ISB Insight, the journal of the Indian School of Business)

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