3:26 PM Wednesday December 2, 2009
This is a great note on a familiar topic—vertical chain integration—with tremendous insight from Rita McGrath (which shouldn’t surprise anyone). This topic is appropriate for discussing organic growth because as you begin to fill the gaps in the Capability Platform required to meet a new Business Design—and if you are truly stretching yourself in your planning, you must have some gaps in your capabilities-- there is always a make or buy (M&A, JV, alliances) decision.
"As a recent article in the Wall Street Journal noted, a spate of companies in the high technology/high-end services space has rediscovered the joys of vertical integration…...
…..Now, whether you're talking HP buying EDS, Xerox acquiring ACS, IBM buying PwC, or Pepsi acquiring its bottlers, the firm that controls all the essential operations of a company by one governing entity (at least in theory) is back.
……To summarize: Vertical integration makes complete sense for a company that innovates by dramatically changing the customer's experience. Why? Because a customer-experience-innovation strategy depends on creating experiences that are easy, seamless, affordable, and, if possible, more pleasant than alternatives (for more on this idea, see Ian MacMillan's and my concept of the "consumption chain" published in HBR). In most product categories, where customers have to put their offers together by acquiring products and services from different providers, the chain breaks down. An innovator who can figure out how to eliminate annoyances and poor interfaces in the chain can build an incredible advantage, based on the customers' desire for that unique solution. Of course, until the unique solution is available, customers will put up with "broken" chains. Fix the problems, however, and the rewards can be substantial"