Monday, January 04, 2010

Why Vertical Integration Is Making a Comeback
Rita Mcgrath
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"


1 comment:

Bob Cooper said...

The introduction of Nexus One shows that Google learned from Apple’s iPhone success and Microsoft failure to date to penetrate the mobile market: to fully impact the consumer experience, a supplier has a better chance of success if fully integrated. The introduction of the Android operating system on a Motorola phone has had limited penetration.
Google Unveils Nexus One Phone
WSJ, JANUARY 5, 2010, 3:05 P.M. ET

MOUNTAIN VIEW, Calif. — Google Inc. unveiled Tuesday its much anticipated Nexus One smart phone, raising the stakes in the online search giant's bid to gain more control over how people surf the Web while they're on the go.

The device is manufactured by Taiwan's HTC Corp., but is designed by the search giant, runs the company's Android operating system and bears the Google brand (the full integration does not compel you to make every component but you have to be responsible for the complete package as delivered).

Google will sell the Nexus One directly to consumers via its own Web site.

Google's Web site says the device will later be available in the spring through Verizon Wireless in the U.S. and Vodafone Group Plc in Europe. Pricing wasn't disclosed.

The arrival of the Nexus One marks a shift in Google's mobile strategy, which has been to work with a variety of hardware and carrier partners to make Android widely available to consumers.