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Abhay Chaturvedi

How to Unlock More Customer Value: The Keiretsu in the Digital Age
Abhay Chaturvedi SVP, Hi-Tech Industries, | August 2, 2021
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The digital era, and digitization as a whole, has reshaped nearly every type of relationship— those between school-age friends, students and teachers; patients and doctors, citizens, the media and the public sector; and of course, business colleagues and partners.

In the business domain, existential pressures on corporations to compete profitably, innovate, and serve customers are reshaping business models. To effect change at unprecedented speed and scale while prioritizing customer needs, organizations are turning to new partnering relationships that the digital era makes uniquely possible. This is especially true for vendors in the high-tech segment.

With goals of serving customers better and delivering new value faster, if your organization is open to transparent customer-centric collaboration, fostering a digital-era keiretsu approach with an ecosystem of partners is a great way to start.

What we are seeing in this technology cycle is the deterioration of the old corporate supplier-customer model. Corporations have become digital enterprises that, through partnerships, can readily exchange services and knowledge-based assets, seamlessly integrate work processes, and combine differentiating expertise to meet end-customers’ needs. Even the lines between talent associated with functional teams across employers are blurring. This puts end customers at the center of modern business models as partners collaborate within the extended network to contribute their portion of value to the overall customer value stream.

The digital-era keiretsu. Corporations have become digital enterprises that, through partnerships, can readily exchange services and knowledge-based assets, integrate work processes and combine differentiating expertise to meet end-customers’ needs.

Let’s consider this extended partnering model, the new keiretsu adapted for our digital era. Harkening back to the zaibatsu of medieval Japan and the keiretsu partnering ecosystems that helped Japanese companies recover after World War II, a 21st-century keiretsu model of corporate partnerships has been reborn— the digital-era keiretsu.

The digital-era keiretsu. Harkening back to the zaibatsu of medieval Japan and the keiretsu partnering ecosystems that helped Japanese companies recover after World War II, a 21st-century keiretsu model of corporate partnerships has been reborn.

The Keiretsu in the Industrial Era (Short Recap)

  • Japan’s economy collapsed after World War II. To recover and compete against strong global players, Japan’s auto industry restructured itself through close-knit partnerships. For example, with Toyota at the center of Japan’s keiretsu ecosystem, suppliers of parts and raw materials, financial institutions, and sales and distribution channels all contributed to the physical, financial, and service resources necessary to compete successfully and satisfy market demand. What bound keiretsu partners together was, to a great extent, shareholder cross-ownership.
  • As Japanese keiretsu matured, they became rigid and less responsive to changing conditions, and more defensive (protectionist). The success of Japan’s industrial keiretsu created anti-competitive sentiment outside of Japan.

Eventually, industrial keiretsu were pressured by expanding global supply chains and held back by inward-facing priorities often marred by competition between partners with divergent interests.

The Digital-Era Keiretsu: What’s Different and Better

Customers at the Center

During the industrial era, the primary manufacturer (e.g., Toyota Motor Corporation) was generally at the center of the partnering ecosystem. With digital-era keiretsu, end customers are at the center. For instance, in residential real estate, the end customer— the home buyer— is at the center, with partners such as real estate agents, mortgage, and insurance companies, property inspection services, lawyers, and deed offices all digitally connected to end-to-end processes. They all contribute to the value stream to facilitate transactions.

  • The partner network enables smart, proactive knowledge-, resource- and talent sharing, distributed risk allocation, and joint vigilance among partners to prioritize customer needs. And keiretsu members are likely to participate in multiple, non-exclusionary keiretsu simultaneously.

Keiretsu

Fig. Keiretsu in the Digital Era: Hi-Tech Example

In the days of the zaibatsu, the organizing principle of business was the family. This shifted to cross-shareholder ownership with the advent of the industrial keiretsu. With digital-era keiretsu, value for the end customer is the organizing principle. For instance, in digital-era healthcare, patient care relies on disparate networks of partners for the frictionless exchange of digital information to support diagnosis, care, insurance reimbursement, and billing. A digitally connected network of primary care providers, specialists, labs, insurance companies, and the public sector collaborate through unprecedented levels of transparency centered on services delivered to patients. This digitally connected network may evolve organically or be driven by a primary technology vendor such as HCL which can forge technical partnerships with the broader group of contributing members.

  • Partners, working with shared information, are jointly responsible for, and contribute to, the overall customer experience and value.

Motivation and Cooperation

Few things foster cooperation better than an existential threat. In post-war Japan, operating outside a keiretsu was risky. As a result, industrial keiretsu evolved naturally and quickly. Today, the sources of existential pressure on enterprises are dauntingly diverse (global competition, technological one-upmanship, changing consumer expectations, etc.). These pressures force enterprises to think and act faster than in-house resources can readily accommodate. For instance, when an online service fails to meet performance requirements, all partners that contribute to that service (internal IT services and support teams, cloud providers, external software suppliers, etc.) can be held to account or put on notice. The power that end customers wield over vendors, given the many ways customers voice their needs or intentions to switch vendors, elevates the customer’s voice which causes the pressure to innovate within the partner-stakeholder network focusing on end-customer value.

  • Partnering to meet customer demands can often be more agile and creative than going it alone by building capabilities in-house or buying them externally. Customers receive greater value, which increases their loyalty to the network of partners. As customer loyalty increases, the commitment among partners also increases.

Flexibility, Innovation, and Speed

Industrial keiretsu partners were often co-located, had distinct assets (factories, capital, distribution channels) and were mutually dependent. Flexibility, innovation, and speed were likely far lower priorities than in our digital era. In the new-era keiretsu, digitization facilitates and accelerates everything. For instance, consider build-buy-partner strategies in the digital era. Entire businesses can be refactored to meet market needs. When Broadcom acquired software businesses from CA Technologies and Symantec, they looked for a partner for professional services who could help them immediately deliver greater value to end customers. Through a partnership with HCL, Broadcom customers can seamlessly access HCL’s technical depth coupled with industry expertise all delivered at scale.

  • Digital-era partnerships can be coined and implemented in a few short weeks, and end-customer value can be integrated across partners and delivered to customers at light speed. Innovation, agility, and focus are enhanced— not undermined— through partnerships.

With the goals of serving customers better and delivering new value faster, if your organization is open to transparent customer-centric collaboration, fostering a digital-era keiretsu approach with an ecosystem of partners is a great way to start.