We know that we live in a world that is undergoing many changes – in technology, health, energy, and in the way we work and live within society. This has caused huge impacts on organizations and on Brands. Some people call our reality the Intangible or the Knowledge Economy.
Today, the main point is that knowledge (or “intangible”) is the largest basis for value creation. Because of this, the transition that State, companies and institutions go through, as well as the people in them, becomes evident.
Companies as value creation.
The economic and business philosophies that have been in place since the Industrial Revolution are based on value extraction, rather than value creation. What does this mean?
The fact is that since the Industrial Revolution, the predominant business management philosophy has been based on economic theory. The majority of current tools, processes, and technologies are based on models of the “economic man,” considered to be greedy by nature. This principle, which still guides most executives and shareholders, is the bedrock of institutions such as banks, government, schools, universities, and many others.
What does Economics have to do with this? Now, we know that the fundamental principle of Economics is that, when open markets and pure competition are in place, companies will always seek to create barriers to entry, and obstacles to the free flow of resources in the market, distorting it or creating imperfections. After all, a company’s main reason of being is the serving maximization of its own profits. In some cases, it is believed that it would be the role of the State, for example, to intervene in order to ensure that the market operates smoothly, aiming for the social well-being of the general population. In this case, the State would regulate the system. In other theories, Adam Smith’s “Invisible Hand” (and later, Laissez-Faire), 1776, should be sufficient to ensure “market balance” or the overall well-being of a country. Even without a consensus on Economics, the fact is that an imaginary war has been created between companies, on one side, and the market, on the other.
Companies and their shareholders are seen as extremely greedy institutions and people, who are only interested in their own gain, i.e., their own profits. They are seen as not having much commitment towards their employees or even society (the market). One of the consequences of this vision was the nationalization movement in Europe, and the creation of a highly regulated environment in the U.S., both for the internal market and the external one.
A good example of the implications of the acceptance of these principles in business is the Competitive Strategy Theory (1980) by Michael Porter, one of the greatest influencers in business strategy:
“In Michael Porter’s theory of business strategy, a company finds itself stuck between the competitive forces that puts it not only against its direct competitors, but also against its suppliers, consumers and future competitors. According to him, the main challenge faced by the company’s managers is to maintain a competitive advantage at all costs, and to reap the greatest benefit from it. The essence of the theory is quite simple: the company’s objective is to capture the maximum amount of value contained in its products and services. The problem is that there are others – consumers, suppliers and competitors – who are seeking the same thing. When there exists pure and free competition, companies will not achieve profits greater than the market value of their resources. Therefore, the objective of the strategy is to prevent pure and free competition, which will hinder the social well-being of the general population, according to the Economy.” (Passage from the book “The Individualized Corporation” (1997), by Sumantra Ghoshal & Christopher A. Bartlett.)
However, that’s not what has happened in the last 100 years. We know that, in most countries, quality of life has been continuously improving. In large part, this improvement is due to the capacity of companies to increase their productivity and to innovate on their products and services.
With this in mind, the company’s management perspective – which up to that point was only concerned with products or services – has broadened as a consequence of a transactional focus on its consumers. Now, in addition to products and services, other aspects are considered, such as corporate governance, social and environmental responsibility, among others.
As Nobel prize-winner Herbert Simon tells us, calling modern society a market economy is a big mistake. Above all, it is an organizational economy, where value is created inside organizations. These organizations involve a large number of people, who work in a collective and coordinated manner for a corporate purpose.
The successful organizations of the twenty-first century have achieved their success, not really because of their well-defined, formal, and hierarchical power structure, but more importantly because they develop effective management processes for value creation. They have put aside rigid control systems for their employees, and focused instead on developing their capacities as human beings.
The have been focusing less on following a rigid strategic plan, and more on creating a shared purpose or vision for the corporation. They believe that it is the constant drive to meet the needs of people (consumers) that determines the appropriate structure of the company.
The Concept of Branding
What does Branding have to do with this?
The concept of Branding is created by the relationships between the company’s agents and its stakeholders, including consumers, distributors, sales channels, government, suppliers, opinion leaders, the media, and more. Thus, Branding represents the value created for the public after the experience with the products and with the company. The company comes before the Brand, and we will only know if the former creates value (and how) after evaluating the value of its Brand among its audiences.
After all, the Brand is the value the public sees. Obviously, it’s much more than the product. The Brand’s value comes from the product’s quality and price, the store’s service and atmosphere, news about the company, the quality of the company’s management, its recognition, its consumers’ loyalty, the company’s processes, technology and systems, distribution and logistics, the capacity of its employees, an interview of the CEO on TV, etc. A consumer’s experience with the Brand may be in the purchase and use of a product or service, client care received, or any other form or relationship, whether direct or indirect.
The Brand has the power to impact the value drivers of a business, and to provide its owner with an economic contribution which may be measured and managed, turning its strategic management into an important and powerful tool.
This is one of the central points of our proposition: Branding is a cultural phenomenon with a corporate purpose that synthesizes a company’s beliefs, values, objectives, and mission towards its stakeholders or audiences which it relates with, whether directly or indirectly.
We must call the reader’s attention to the fact that this proposition is not just about simply incorporating cultural elements into a Brand, as though such elements would be added to the Brand from outside, or imposed on the Brand, as we still see in several advertising and other communication methods. Remember: it’s one thing to say that your Brand acts with social responsibility; really acting with social responsibility is a different thing. It is not an idealizing or external attitude, but rather an internal one; it is in company’s DNA and, therefore, is part of its essence.
That is why, in the process of strengthening and adding value to the Brand, we seek to ensure consistency between the Brand’s culture and image. This way, we ensure that the value created by the Brand within its market is consistent with the adaptation of its organizational structure and with what keeps it alive; that is, its purpose and its ideology.
Even though corporate assets are becoming more and more intangible, their performance must still be rigorously measured. Appropriate accounting and financial practices are vital. In addition, today the return on investment for Brands is critical to companies’ upper management, especially for the CEO and marketing/branding, strategic and financial directors.
The Brand, as a company’s primary intangible asset in the current century, is now treated as an asset in legal terms, and in certain cases can be activated and incorporated into companies’ balance sheets; this is in effect in Europe and in the U.S., and even in Brazil (since 2011). Studies among publicly traded companies around the world show that, on average, 53% of companies’ market value is related to intangible assets, especially the Brand. For example, Apple’s market value is US$ 128 billion.
In summary, Branding has the power to influence demand by the consumer, partners, society, sales channels, and distribution. It is able to attract the loyalty of employees, to influence terms and conditions of supply, in addition to ensuring investors’ interests, transforming the business’ performance and its financial results.