Platt Perspective on Business and Technology

Interoperability, third party provider support and first mover advantage – 3

Posted in business and convergent technologies, outsourcing and globalization by Timothy Platt on February 24, 2012

This is my third installment in a series on unique value propositions and sources of unique value in individual businesses, with a focus on businesses as they function in supply chains and larger value chains, and in complex business and economic ecosystems. In Part 1 of this series I outlined how these sources of unique value can arise and develop throughout the organization and not just in the qualities and features of its products and services as offered to end-users in its marketplace. In Part 2 I continued that and began a discussion of how to determine what to keep in-house and what might be appropriate for outsourcing. I take that discussion a step further here where I delve into some of the issues of transient and short-term, and sustaining and long-term value, and the calculus of tradeoffs that balancing them demands. And I begin that by noting a point that in the abstract should be obvious to all:

• Not all sources of value or even just of unique value to an organization are of equal importance, and either in the immediate here-and-now or when viewed on a longer timeframe.

This becomes more complex and a lot less certain when you look at the specifics, but thinking these issues through and operationally executing accordingly is an important part of developing and maintaining marketplace strength. And I take that at least a bit out of the abstract with a specific, if made-up case.

• You have a company that manufactures widgets and yours are the state of the art and known in the marketplace for that. But your real unique source of value in the widget market is not so much in the end product itself, which feeds into a mature marketplace with relatively fixed and mature technology offered. It is in your systems for order fulfillment and customer support. Your widgets are the best because you get the right ones, configured the right way into the right customers’ hands the fastest and you provide the best customer support for making sure that they gain rapid, effective value from them. This business success comes in part from adhering to excellent general and even industry-standard processes and practices. And some probably comes from brand and name recognition and the momentum of ongoing reputation. But your notable market position also stems from your holding and maintaining a constellation of unique value propositions, and ones that only in part reside in your widgets – in your directly marketed products themselves.
• Now your research and development team comes up with a new and even disruptively new technology alternative to the widget as we have all come to know it. This widget-2 can be sent out in a seemingly more generic form, but can easily, readily be customized onsite and updated to optimal fit to the consumers’ needs. Old widgets might arrive customized and even optimized, but as consumer needs change, they could not readily be adapted to account for that. And some of your product-side sources of unique value do translate directly from old style, mature technology widgets to this new technology base but many do not. They as such, are rapidly on their way towards being sources of unique value strictly for your out-going and legacy systems and product lines.
• Many and in fact most of your customers can and probably will switch over to the new emergent technology widget-2 and your marketplace analysis suggests opportunity for bringing in new customers because these devices can be maintained on a more real-time customer-centric optimized state than the old models ever could – yours or your competitors. But for a variety of reasons some of your market will simply retain the old at least for now. That might be because of cost-to-convert issues. Some of your customers might take more of a late or lagging adaptor approach and want to see how this new approach works in the marketplace before taking the risk of switching to it too. Why does not matter – just that there will be a legacy, old technology widget market even as the new widget-2 market takes off, and even if many and even most widget users switch over quickly. And for at least a significant transition period this market will be important to you.

Zooming in to look more closely at this, old widgets and new widget-2s are both manufactured through a series of standard and proprietary processes, and one proprietary stage that arises in directly corresponding form in both show what could be viewed as an old unique and valuable process, and a corresponding new one. The old assembly process made it possible to do that initial customization more easily and smoothly and with greatly reduced error rate, and the new one – very different in process details, does essentially the same thing for the new widget-2s for their initial set-up. Which is more valuable?

• Pre-widget-2, this process was a core, essential unique value proposition, and the corresponding process now developed for producing widget-2’s takes over that new-product value in and for the marketplace.
• Now the old widget process only holds unique value for the legacy market where old-style widgets will continue to be sold.
• Would it make sense to manufacture widgets-2s entirely in-house or would it make sense to outsource some of its components manufacturing, and particularly where the basic technology behind them is standard? Would it make sense to outsource old style widget production, and perhaps even end to end and for all stages, to reduce the production cost and gain maximum longevity of profitability in its legacy market?

That depends on a variety of factors.

• First, do any unique and proprietary processes or stages that would be divulged to outsourcing partners, offer specific value that would, in the wrong hands simply create new sources of competition for your business elsewhere? Do you work in and service the needs of other markets with other products that rely on this process as a source of unique value, and that unlike old style widgets are not going to be phased out any time soon?
• How long do you anticipate this legacy market to persist and at what scale, and how long will it take your customers who would switch over the new, to stop ordering the old and make the change? These are areas where Marketing with its market analysis capabilities, and Production among others, have to work together very closely if you are to reach the right decisions moving forward.
• An obvious question is one of how reliable any outsourcing partner would be in maintaining the confidentiality of your design and production details that you would, of necessity, have to share with them if they were to produce the old widgets for you.
• This all becomes a matter of cost/benefits analysis and knowing the history of any potential outsourcing partners is important here. If they are in a country that has a reputation for bringing in outside technology through outsourcing partnerships simply to try to take over those markets as primary producers and providers and with government subsidies where needed to facilitate that, you have to expect any value to your business from this to be short-lived. And there are real world sources of potential business partners and countries that do that and as what amounts to nationally supported policy, that bring in key technology owning businesses as partners and then take over their technologies as an industry development strategy.

I am going to switch directions in my next series installment and in a fundamental sense move away from one of the basic assumptions that I have built from in my first three postings here. So far I have developed my entire line of argument with an assumption that unique value and sources of it would be developed, and retained or lost control of, within the confines of specific, individual businesses. That is usually the case, and it is perhaps the most important – traditional at least, perspective to consider this from. Now I will more explicitly consider the way business models have to change as we work in a more globally interconnected world and in globally, ubiquitously interconnected business and market ecosystems. Consider supply chains and larger value chains that businesses operate in and compete from within. I am going to switch to the development of unique value propositions, and particularly in processes connecting together supply chains that are emergent to that level of organization and that do not reside, strictly speaking within any single business in the supply chain.

You can find this posting and series at Ubiquitous Computing and Communications – everywhere all the time and at Outsourcing and Globalization as the supply chain and value chain business ecosystems that are discussed here are increasingly global in reach and participation. You can also find related postings at Business Strategy and Operations and its continuation page, Business Strategy and Operations – 2.

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