Platt Perspective on Business and Technology

Rethinking vertical integration for the 21st century context 14

Posted in business and convergent technologies, strategy and planning by Timothy Platt on January 30, 2017

This is my 14th 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 1-13.)

I focused in Part 13 of this series, on business-to-business collaborations and on how those relationships can become mutually beneficial, and on how they can achieve long-term stability from that. And in keeping with the progression of postings that that series installment and this one belong to, I did so in more abstract and general terms at first. And then I took that discussion at least somewhat out of the abstract through further elaboration of a specific case in point, case study that I have been developing here in this series, and from its earliest installments: Apple, Inc, and how it has sought to achieve dominance in its industry and markets.

One of the key areas of discussion offered in Part 13 was an at least introduction of the issues of how Apple has sought to become the decision making gatekeeper, for other businesses in supportive industries that they work with. I began that thread of this overall discussion, by way of comparison, by noting how Microsoft gained an at least near-monopolistic power over both computer software and hardware producers, this way. Then I briefly discussed how Apple has sought to play a similar role in developing a controlling relationship with businesses that would produce and offer products or services through their proprietary platforms to their customers. There, proprietary platforms include their iphones, ipads, laptops, wirelessly connected smart watches and more, as they have sought to expand out and dominate the range and variety of ubiquitously connectable nodes that people use every day, and everywhere and anywhere.

That line of discussion has led me to the set of issues that I would explicitly consider here, in this posting:

• Symmetrical and asymmetrical business collaborations, and the question of who makes the decisions in them, that in effect set the terms of value gained for all involved participants and how that value is realized.

I stated that I would continue Part 13’s discussion here in this next series installment, with an at least brief analysis of the set of issues inherent to that bullet point. And I will do so here, discussing Apple and FedEx as working examples for that, the way I cited Apple and Microsoft in Part 13. And taking the same organizing approach here that I followed in that posting, I will discuss FedEx in this context first.

• FedEx is one of the largest, most wide-ranging parcel delivery services in the United States, and more generally in the world. But they have a great deal of competition in that arena, from businesses such as the United Parcel Service (UPS) and a variety of other enterprises (see, for example this Wikipedia entry: Package Delivery.) And that very explicitly includes competition from nation state owned and regulated, and protected postal delivery systems.
• So FedEx has sought to set itself apart from its more strictly delivery service competition, private and public, by developing and marketing itself as a logistics service partner and provider, and as a backbone element for assembling stable, reliable, value creating supply chains too (see for example, for information on how they offer and carry out these services in the United States and for US based businesses.)
• And FedEx is in a strong position to leverage their overall corporate and marketplace reach from their more traditional delivery and related business lines, to make themselves a real powerhouse for this too – and an effective, wide-reaching competitor for any other businesses that would seek to take on the roles that they do in shipping and warehousing and tracking and documentation and all of the other logistics management services that they systematically and cost-effectively provide, in enhancement of their core delivery service business.

FedEx’s scale and its efficiency of scale give it a competitive advantage when offering its logistics and supply chain partnership resources, and for businesses in essentially any industry where delivery of material goods in and out of their doors are critically important for their ongoing operations. And their capability for offering cost-effective, robust, reliable supply chain value to prospective partner businesses, creates incentive for those businesses to shape and prioritize their operations in ways that would make them an effective fit for working with FedEx and its systems too – and particularly where they would use FedEx’s wider range of supply chain and logistics management services.

Apple Inc. has been actively pursuing a similar course here, in how it works with content providers and of many types, including music and audio, video and book and related downloadable text and static image content. And their scale of operations, and the market reach that this makes possible for content providers that work with them, actively encourages those partner businesses to offer their content products in Apple format and even preferentially, and for some businesses even exclusively – at least for early release, new product offering periods. Think newly online-released video and related content there, and new game apps where offering exclusivity through a single source such as an online Apple store, can contractually mean higher per-download fees for them.

I have been addressing the issues of asymmetrical business collaborations in these examples. And I note here to balance the above points made, that the control that businesses like Apple and FedEx can achieve in determining how supply chain systems that they enter into work, depends on the leveraging power that they can exert because of their disproportionate strength in these relationships and because of the asymmetry this creates. And I am writing here of how scale of operations and market recognition and acceptance, and even strong market following in that, can lead to greater control and authority in the business-to-business transaction processes that constitute supply chain activity, and even when larger and more powerfully positioned businesses and their supply chain participation and leadership do not in and of themselves lead to any fundamental changes in the material goods for FedEx, or informational goods for Apple, being moved or managed through those supply chains.

• Symmetrical business-to-business relationships would lead to both of a pair of collaborating businesses, or for larger systems all participating members having equal say in determining how connecting supply chain processes and activities are carried out and performance reviewed and evaluated, and in how resulting value created from that would be distributed.

I am going to step back from the specific asymmetrical business collaboration case study examples cited here, and the shorter timeframe considerations that I have been addressing in this posting, in my next series installment where I will consider how even a very successful in-house vertically integrated business venture can lose its edge and break down over time. And the working example that I will look into there is going to be the Eastman Kodak Company, as it was when it led the market, and globally for easy to use cameras and amateur photography. In anticipation of that, I note here that I would be couching that discussion at least in part in terms of change, and both evolutionary and more disruptively sudden, and how businesses do and do not actively effectively change in response to it. 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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