Platt Perspective on Business and Technology

Rethinking vertical integration for the 21st century context 5

Posted in business and convergent technologies, strategy and planning by Timothy Platt on March 13, 2016

This is my fifth 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 1-4.)

I began Part 4 and its core discussion by posing briefly stated summary definitions of what business specialization and vertical integration are, and in terms that would indicate something of the relationship between them as strategically considered business model alternatives. And I then went on to discuss the pivotal role that communications and information sharing, and I add collaborative information development play in all of this. And that brought me to a point in this overall discussion where I would offer what is arguably one of its most important questions:

• 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 drafted my defining statements as to what vertical integration and specialization are in this context, in terms of their respective capacity to develop and maintain long-term competitive strength and advantage for the organization. And I note here at the start of this posting that that consequential parameter is going to have to enter into any significantly useful answer to this question. And to highlight at least one more significant piece of that puzzle, any such answer is also going to have to be couched at least to a significant degree in communications and information development and flow terms too – which means in terms of business systems friction minimization. My goal for this series installment is to at least begin to more fully map out what would enter into a valid answer to that question and how those puzzle pieces might fit together.

Let’s start addressing the puzzle of this posting by reconsidering one more term that I also specifically noted in Part 4, and that as stated there, has played a recurringly important role in this blog as a whole and since its inception: ubiquitous computing and communications (and also see the directory: Ubiquitous Computing and Communications – everywhere all the time and its Page 2 continuation.)

• Faster and more wide-ranging, more ubiquitously point-to-point, broad bandwidth-enabled communications and information sharing allows for more rapid development and co-creation of essential data, and for more rapid sharing of it.
• And at the same time, this type of infrastructure capability allows for and supports a comparable increase in capacity to do essential due diligence on information as it is created, stored and shared, so all of this data and all of the more processed knowledge that is developed from it can be more thoroughly and cost-effectively updated as needed, and vetted.
• This all has significant risk management consequences. And from a strategy and operations perspective it means lowering both the level of effort required and of risked faced when expanding and developing a business, and even across significantly wider-ranging geographic expanses.
• This means more effectively tapping into and connecting with wider-ranging market spaces and consumer and end-user communities for the types of products and services that your business would provide.
• This means lowering the threshold of risk and effort needed to expand out what your business does and offers, that it would bring to these wider-ranging markets.
• And being able to connect with and meet the needs of wider-ranging, numerically larger and more diverse markets and consumer communities makes it possible to specifically target finer and finer distinction market demographics that are drawn from them as specific market audiences.
• This impacts upon the range of what the business can profitably, effectively do in addressing market needs
• And even as it makes it easier and more cost-effective to do more things within the business and its operations in order to create this range of marketable products and services.

Let me offer a point of conjecture here, in this context that I admit up-front is primarily offered for its being controversial, and to prompt thought and consideration:

• I initially made note of Apple, Inc. in this series in Part 1 where I wrote that it has pursued a highly vertically integrated business model since its beginning. And I noted that this approach left them a niche market participant at best for their original business focus on producing desktop computers, while this same approach has catapulted them into becoming one of the largest and most market-dominating tech giants globally for producing tablets and smart phones, and for the still nascently emerging field of wearable computer/communicators.
• Apple entered both of these technology arenas early, when first desktop computers and then small smart hand-helds and wearables represented new and still forming industries, and still forming and emerging marketplaces. And Apple has offered cutting edge and even brilliant product designs and features, and particularly for their usability and their user interfaces, and all along.
• To perhaps belabor the obvious of this with an Apple desktop computer example, early Apple computers offered the first intuitively usable graphical user interfaces that essentially anyone could use, when IBM and their other competitors were limited to arcane command line interfaces that worked best in the hands of people with computer programming skills and experience, and certainly if they wanted to use anything like the full range of features and options provided.
• So Apple entered both of these new and emerging technology arenas early and when they were in a position to significantly define what could be effectively competitively offered, and what the marketplace for these offerings would demand and expect.
• They failed in this with those early desktop computers, but they have succeeded with their current wirelessly connected portable technology offerings. Why the difference?
• They are pursuing the same basic vertical integration business model in both cases, and with similarly user-friendly and attractive proprietary levels of quality that should at least in principle have given them an equal opportunity to become the market and industry leader, and both times. Why did this fail the first time and succeed the second?

And this brings me to the point of conjecture that I have been building up to:

• Apple failed to break out of niche status in its early desktop computer years because the positive value that it sought to capture from pursuing an in-house vertical integration approach was overwhelmed by the down-side consequences of business systems friction and from failure to maintain a sufficiently lean and agile approach in its operations, as became inevitable from its lack of organizing focus on what it did.
• But it succeeded in breaking out of its niche limitations the second time with those wirelessly connected smart phones and tables and more, because the wider reach of ubiquitous computing and communications and from anywhere to anywhere has made this possible.

And this example is very telling in thinking through specialization and vertical integration in the 21st century business, and perhaps particularly because this same company used the same such business model in promoting and developing and offering essentially equivalently novel and innovative new product offerings, but with this difference in communications and information sharing context defining the results of earlier and later attempts at business success.

I am going to continue this discussion in a next series installment. Meanwhile, you can find this and related postings and series at Business Strategy and Operations – 4, and also at Page 1, Page 2 and Page 3 of that directory. And see also Ubiquitous Computing and Communications – everywhere all the time and its Page 2 continuation.

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