Platt Perspective on Business and Technology

Rethinking vertical integration for the 21st century context 13

Posted in business and convergent technologies, strategy and planning by Timothy Platt on December 25, 2016

This is my 13th 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 1-12.)

I initially offered a set of topic points in Part 9, that I have been discussing since then and both as a matter of abstract principle, and in the more focused terms of a specific case study example: Apple, Inc. and its attempts at industry and marketplace domination:

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 have been discussing the first two of these points since then. I turn here to at least start delving into Point 3 of this list, doing so in terms of my analyses of Points 1 and 2 and my responses to them. And I begin this with the fundamentals:

• Business to business collaborations succeed because they offer types and levels of value to their participants that they could not achieve on their own, at least without accepting greater costs, increased risk or both. This, ultimately, is the essential defining criterion for any long-term successful business-to-business collaboration, and it is a point that I assume to be met from here on in this discussion, and as an all but axiomatic given.
• This point holds for simple dyadic collaborative relationships in which one business obtains service or support from one other business that is limited to one clearly defined functional area – or even just to one single narrowly defined function or service within such a functional area of activity.
• And it holds just as fully for contexts where two businesses are collaboratively supportive across more widely defined ranges of functional activity and need, and even bidirectionally. (Note: in the above bullet point, Company A might be selling a service to Company B, and that can be it and with all such interactions taking place in one direction. Here, I explicitly allow for two-way exchange of service and value.)
• And the above two points couch this type of system in terms of what are still simplest, two businesses-included, dyadic collaborations. But the basic principles that I address and raise here, apply just as fully to more complex, multi-business collaborative networks – and where some specific business-to-business collaborations involved there might be unidirectional and some might be bidirectional for services offered, and in any relative proportions of occurrence across the entire system for these two options.
• And my goal for this posting is to at least begin to clarify what I mean by “types and levels of value” as that phrase arises in the first of these bullet points. That means couching my analysis of this set of phenomena here, in terms of business leanness and agility, and resilience – commonly cited terms and concepts in this blog, and in terms of risk management. Collectively, this means collaborations offering greater overall positive benefits than it does cost and risk and for all participating businesses,
• Where risk and uncertainty represent loss of value too and even of direct monetary value, and certainly where funds have to be expended to attempt to limit and prepare for it. And reductions in risk correspondingly add to net value received, accordingly.

And this brings me to Apple, Inc. and to their current, portable and wirelessly connected platform, interactive online effort at industry and marketplace domination, through (largely) vertically and I add horizontally integrated means. And this is where I take the line of discussion that I have been offering up to here in this posting, out of the abstract.

• “Value” and what provides it and how it would best be measured, are business model dependent. Value really is in the eye of the beholder, and as soon as you look beyond that in general and abstract terms, to consider how it is viewed in specific business contexts, this fact becomes apparent.
• Consider the more general and abstract value criterion of capturing a larger share of the sales activity for the types of products or services that you offer, in at least some defined market and for some demographics there, and achieving higher income generated net of cost from that. That in fact sounds fairly specific as a measure of positive value generation. But I point out that this representation of value gained is so generic that it could equally be applied to any for-profit business. And with only minor adjustments, I have applied it and close variations of it to nonprofit and not for profit business contexts too, in discussing and analyzing their business models and their execution.

I at least begin to take this further out of the abstract by noting a fundamental business model decision that Apple’s executive team and leadership have made, that I have already cited in this series but that bears repeating here as I explore more if its consequences:

• Grossly oversimplifying here, Microsoft took off the way it did when it was founded because Bill Gates and his founding team realized a point of insight that while computer hardware was valuable and capable of generating entire industries, computers per se were little more than expensive awkward paperweights without operating system and program applications software to run on them. And the selection of operating system used would limit and control all other software selection decisions made. So a business that focused on software, and with a business model that would bring otherwise competing hardware manufacturers to use their operating system in particular, plus their operating system compatible application software and as a veritable standard, could come to dominate a vast industry too. Apple did not see this and the transferable lessons it carried the first time they sought industry and marketplace leadership but they did the second time they tried this.
• Apple in its first take at this sought to do everything in-house – and they still seek to do a great deal of that vast range of design, production and sales that way. They still pursue a highly vertically, and I add horizontally integrated in-house approach. But they now know that they do not have to do absolutely everything themselves to achieve what amount to the same results as if they did – and certainly when they can become a gatekeeper controlling what can work with what, the way that Microsoft did through their operating system.
• Marketing, and both traditional marketing and social media-and online community driven marketing, and particularly online social media marketing have made this possible for them. Apple realized that it does not have to do everything to control much and even most of everything that might connect into or enable or add to what they do produce and provide from in-house. And that certainly applies since effective branding and marketing first brought them to capture at least a minimal tipping point market share for devices sold, where potential content providers and other add-on or enabling providers would have to see value to themselves in working with Apple and in producing for their standards.

Where is Apple doing this? Consider their iTunes and Apple Store and related content access systems – where you have to buy outside music, books and more through them and through their proprietary file download and installation systems, for it to work on your Apple devices. And this holds for content actually downloaded to individuals’ Apple devices, but it also applies to content that is streamed to them, and either from Apple’s cloud storage system or through Apple compatible apps – that you have to acquire through their online app store.

And with this in mind, I turn to consider symmetrical and asymmetrical business collaborations and the question of who makes the business process-level decisions, and the business model supportive decisions here, that in effect set the terms of value gained for all involved participants. I will continue this discussion in a next series installment, with that set of issues. And in anticipation of that, I will discuss Apple and FedEx as working examples there, the way I cited Apple and Microsoft here in this 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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