Platt Perspective on Business and Technology

Rethinking vertical integration for the 21st century context 4

Posted in business and convergent technologies, strategy and planning by Timothy Platt on February 8, 2016

This is my fourth installment to a series on what goes into an effectively organized and run, lean and agile business, and how that is changing in the increasingly ubiquitously connected context that all businesses, and that all individuals operate in (see Business Strategy and Operations – 3, postings 577 and loosely following for Parts 1-3.)

I at least briefly discussed in-house specialization, and in-house vertical integration as two business model alternatives in Part 3 of these series. And to put this posting and its narrative into perspective, I begin it here by repeating two defining points that I raised there:

• Specialization, and certainly competitively successful specialization, generally means doing one thing or at most a few closely related things better than anyone else, and in ways that can out-compete any other business in a targeted marketplace and for its buying consumers from doing that.
• Bringing vertical integration in-house generally means doing and seeking to do a whole series of such things and sets of them, that under a simpler specialization model would be carried out by different, if contractually connected businesses with each focusing on the smaller sets of activities where they can create their own greatest, most competitive sources of value – and their own greatest profitability from that. All of the functions and activities, and all of the separate areas of design, production and distribution that go into such a vertical integration ensemble would be functionally connected, and would be pursued in-house in accordance with a single overarching business model. And this approach begins to make sense when due diligence considerations would indicate that it, long-term, would be most effective in both building and maintaining a best overall competitive position.

And I cited Apple, Inc. as an example of a business that has consistently pursued the second of these approaches from its beginning. And I added that I have at least occasionally raised Apple as a negative example there too, from before their move into tablets and smart phones and from when they remained a stubbornly niche market alternative in desktop computer manufacturing as their primary business. This approach did not kill them as a business when they were competing with other manufacturers in designing, building and offering desktop computers but it did limit their reach when they were primarily competing in that arena. Then that approach became a much more potent and effective one for them as they moved their focus to the still rapidly emerging fields of tablet computers and smart phones, that are ubiquitously wirelessly online-connected.

I ended Part 3 by posing a question that I said I would at least begin to address here:

• What are the defining qualities of the ubiquitously connected and communicating context that have made this possible?

And I added that as part of addressing that I would reconsider what specialization and vertical integration mean, and I begin all of that, with some initial thoughts concerning the above repeated question.

I have been writing about ubiquitous computing and communications in this blog for about as long as I have written about anything here, with my first posting on that topic dating back to October, 2009 (see the directory: Ubiquitous Computing and Communications – everywhere all the time and its Page 2 continuation.) And if I was to summarize what this expression means in a single brief set of points, it would be that:

• Ubiquitous in this context means the untethering of networked computers from wired networking systems,
• Coupled with the development and low-cost availability of progressively more compact and more powerful communications and computing end-user devices that can be network connected into this overall system.

And when end-user hardware is wirelessly connected into these wide-ranging and even globally connecting networks, what end-users seek to do become essentially their entire user experience, and the underlying networking and related technology that supports all of that activity becomes essentially invisible. It does not matter what is actually stored or processed in the device in a user’s hand and what might be stored and processed in a server computer, or even in a large supercomputer system that is physically located elsewhere. Ubiquitously connected becomes an ongoing immediately here and now experience, and one where distance between network nodes and networked resources effectively disappears.

But for purposes of this discussion, ubiquitous computing and communications is not about either the underlying computer and communications technology that supports it, or its transparency when an end-user connects into this globally reaching system. It is about the exchange of information, and in essentially limitless volume, from anywhere to anywhere and essentially instantaneously. And it is about how this allows for and supports change at an essentially unprecedented rate.

From a business and organizational perspective:

• Ultimately, the fastest rate that innovation can advance in a development and production system is set and limited by the slowest bottleneck rate at which critical information can be distributed and shared in such a system, and whether that bottleneck is technological in nature, or business process and corporate culture in nature.

And that point of observation brings me to the core question that I have been leading up to in this series installment:

• When does vertical integration productively, profitably allow for faster innovative development, and of a type that can lead to greater competitive strength and advantage, and when would a perhaps simpler specialization approach best achieve this?

I am going to address that question as the primary topic of my next series installment. Meanwhile, you can find this and related postings at Business Strategy and Operations – 3, and at Page 1 and Page 2 of that directory. And see also Ubiquitous Computing and Communications – everywhere all the time and its Page 2 continuation.

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