Platt Perspective on Business and Technology

Rethinking vertical integration for the 21st century context 8

Posted in business and convergent technologies, strategy and planning by Timothy Platt on June 16, 2016

This is my eighth 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 and its Page 4 continuation, postings 577 and loosely following for Parts 1-7.)

I stated at the end of Part 6 that I would start to systematically work my way through a set of questions that I briefly repeat here to facilitate greater ease of reading this posting, and for moving forward from here:

1. What makes global online interactive connectivity so powerful an enabler, in making a more vertical integration system work?
2. How does this compel a rethinking and a redefining of what “lean and agile” means?
3. And how will that affect and even redefine business-to-business collaborations, as individual enterprises determine what they should do themselves in-house and what they would more effectively outsource, for example to supply chain partners?

And I added that I would address these questions and the emerging role of global online interactive connectivity that they seek to address, starting with at least a brief discussion of:

• Information flow and accessibility, and
• How new and emerging communications and shared computing frameworks are reshaping business systems friction,
• And through that, the range of what can be made operationally functional and cost-effective.
• And the perhaps more technical issues of single and multiple sourced information and information validation, and
• Noisy systems and their impact on friction levels faced.
• And uncertainty – and how systems noise here, and friction and uncertainty are related.

Then I turned in Part 7 to begin to in effect, reframe these issues from a more strictly technical and business process perspective to a more interpersonal one, as businesses and collaboratively interacting and competing systems of them and the markets that they seek to serve are all comprised of people, who act independently and individually but who also act on the basis of their relationships with others.

I continued developing this ongoing narrative, at least significantly in terms of a specific case study example of how these issues play out, that I have repeatedly referred back to: Apple, Inc. And I have done so with a goal of taking the questions and issues that I posed in Part 6 and again in Part 7 out of the abstract, by framing them in a specific real world context. My intention there is to make this overall discussion more hands-on useful in analyzing and understanding, and strategically and operationally developing other businesses too, for what they do and do not retain and do in-house and for what they collaboratively have other businesses do for them and with them.

I have to add here that I began at least mentioning and making note of Apple, Inc. in this series soon after beginning it, in Part 3. And I began to explicitly discuss that company as its story is relevant here, in more detail in Part 5 and Part 6. Then I expanded upon that developing narrative in Part 7, continuing to highlight Apple as representing a very special and unusual case study example. As discussed in those series installments:

• Apple can very legitimately be viewed as a single real-world business that has pursued what is essentially the same in-house vertically integrated business model twice in a row, but that has achieved very different levels of success from attempting that, those two times.

The answer that I have been suggesting up to here as to how this difference came about, centers on the fact that this one company pursued a specific business model approach the first time, with its innovative user friendly desktop computers, and failed to break out of niche market status in its industry then, because it was attempting this business development approach prior to the global opening up of the online, interactively connected marketplace and social media. But when Apple developed and brought their more portable interactively communicative devices to market after this transition, pursuing essentially the same in-house vertically integrated business model – and when they build their entire marketing program and all of their customer-facing effort in terms of these emerging anywhere-to-anywhere, and by everyone, information sharing and communications capabilities, they succeeded.

• Apple in effect redefined its basic brand from one of being an iconoclastic innovator that sought to do everything possible in-house, to being an iconoclastic innovator that enables and expands the interactive online experience and in ways that their competition cannot match let alone surpass – and that does (selectively almost) everything possible that would be needed for this in-house.
• And I would argue that there are two most fundamentally important parts to that reformulation. One of them is in how Apple has reframed their basic business vision and understanding from that of a primarily inward-facing, control-everything approach, to a more market-defined outwardly facing approach,
• And the other can be found in the parenthetically expressed “almost everything” of my formulation of this transformation and of how it has been shaped.

And that, with additional content added here, is basically where I concluded Part 7 of this series and this narrative up to here. I stated at the end of Part 6 that I would start to systematically work my way through a set of questions that I briefly repeated here to facilitate the continuity and ease of reading this posting. And after completing my Apple Inc. digression here, I will at least start to discuss the above stated question 1.

I want to continue my Apple case study narrative here by noting that the emergence of ubiquitous computing and communications per se, are only one factor that has made their second try at this business model a success. That is probably already obvious to anyone reading this posting; this emerging technology-based capability and Apple’s efforts to capitalize in it and leverage it into becoming a source of real business success is very significant here for its realized value-creating impact, but it is only one factor involved in making this possible and in making it happen. But more importantly, I wanted to conclude at least this portion of this case study narrative by addressing and hopefully setting aside a modern just-so story that is all too often given credence as a causal mechanism here, but that does not in fact survive close scrutiny intact.

The old narrative is in fact easy and enticing. When Apple first offered its desktop computers to the world, businesses and their staff comprised the largest demographic in the still small though growing single user computer (desktop computer) market. Yes, there were hobbyists and academics (students and school faculty and others), and other non-business customers and potential customers who were interested in small personal computers and who wanted to buy and use them. But the business community was the core consumer group that any computer manufacturer had to effectively target and reach out to, if it were to succeed in capturing significant market share and certainly in those early days of this industry. And most businesses were owned and run by people who knew computers as large and expensive and even vastly large and expensive devices, and systems of them, that could only be used by professionally trained and experienced computer programmers. And the reasoning assumed from that, was that managers and owners who made the purchasing decisions for what office equipment to invest in and use, thought that a computer programming-like interface such as Microsoft DOS was more “professional looking” so it must be better than a more “toy and hobbyist-like” graphical user interface. So they bought those DOS systems with their text-only application programs, and their crude text-only screens and their employees all had to learn at least enough DOS in order to do their jobs – and even if those jobs where primarily officer support and clerical in nature and these employees were not computer programmers. DOS systems did arrive in this marketplace first so they did have first mover advantage. And according to this narrative they looked more “professional” and Apple products looked more “hobbyist.” So they continued to prevail in the workplace and even as Apple products arrived as potential competitors for this business.

Apple’s first computer model: the Apple Lisa, did in fact go to market before it was ready and with a great many problems and both for its software systems stability and for its basic usability. But Apple did actively and rapidly come to address these early growing pain problems. And most businesses did in fact keep using their older DOS technology computers and even well after Apple’s graphical user interface computers became what should have been powerful competitors for a larger market share – and well after high quality, highly functional and usable office productivity and other business-relevant software arrived on the scene: including Apple operating system compatible versions of Microsoft Office software, among other offerings. Apple remained more of a niche market contender with fiercely loyal followings in colleges and universities and in select industries, with the arts definitely included there. But for all of their inadequacies, DOS computers held on – at least until 1995 when Microsoft launched their first graphical user interface operating system and application software versions for the types of central processing unit chip architecture that they saw as their own. (Note: “their own” in this context means hardware that could run their operating system software directly, so their operating system code would not need the “translating” support of emulator or similar support software. Apple central processing unit and supporting chips, by comparison, could not do this and by intentional design on Apple’s part.)

This narrative is attractive and it is at least in part true. But that “in part” leaves a great deal out. And with that general observation noted, I turn to consider some firmly established reality about how businesses work.

• Personnel expenses are, at least traditionally among the largest essentially fixed operating costs that most businesses face, and that principle was firmly and essentially completely valid when Apple first arrived and during the transition period in desktop computer development and acceptance that I write of here.
• When new employees, or already established ones who need to learn new technologies and their tools, have to go through learning curve periods to come up to speed in their work, they go through periods where they are working less efficiently and less productively and this carries a direct and immediate, and unavoidable cost to their employer – if employee skills development are to be allowed for and supported at all.
• The learning curve requirements and support staff requirements with their expenses are much more significant for a command line, computer programming-like user interface as is found in DOS systems, than they are for more user-intuitive systems such as graphical user interfaces. DOS costs more to bring in-house and keep there, and this additional cost requirement is repeated when any new employee is brought in and when any new software is added to a business’s system that is based upon it, with their new command line codes that have to be learned and used.
• So from a bottom line financial consideration, it would have made more sense for most businesses that used desktop computers, to migrate a lot earlier then they did to more employee user-friendly graphical user interface computers – like Apple computers, than they did. A vague perception of “looking more professional” does not offer more due diligence value than a clearly understandable “more cost-effective and productivity enhancing” does.
• So why did DOS continue to prevail for as long as it did, when Apple was offering what for real world business purposes, should have been a compelling stronger business solution alternative?

And this brings me directly to question one, from above:

1. What makes global online interactive connectivity so powerful an enabler, in making a more vertical integration system work?

And I begin addressing that here by raising a crucially important issue that I have in fact at least peripherally touched upon here in this posting but without proper identification: alignment. I am going to continue this discussion in a next series installment where I will focus on that, and on better, more real-time aligning the systems and processes of a business with each other, and with their market and its customer-members. 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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