1613204_Unbundling the Corporation

8/3/2019 1613204_Unbundling the Corporation

http://slidepdf.com/reader/full/1613204unbundling-the-corporation 1/10

WHAT BUSINESS

ARE YOU REALLY IN?CHANCES ARE,

IT'S NOT

WHAT YOU THINK.

UNBUNDLINGTHE CORPORATION

by John Hagel III and M arc Singer

T N T HE L ATE 1 9 7 0 S , THE C OM P UT E R INDUS T R Y W AS DOM INAT E D B Y

I huge, vertically integrated com panies like IBM, Burroughs, and Digital1 Equipm ent. With their vast scale advantages and huge installed bases,they seem ed unass ailahle. Yet just ten years later, the power in the indu stryhad shifted. The hehemoths were struggling to survive while an army ofsmaller, highly specialized companies was thriving. What happened? Theindustry's sea change can he traced hack to 1978, when a then-tin y company,Apple Computer, launched the Apple II personal computer. The Apple II 's

open architecture unlocked the computer business, allowing the entry ofmany new companies that specialized in producing specific hardware andsoftware com pon ents. Imm ediately, the adv antages of the generalist - size,reputat ion, in tegra t ion-b ega n to wither. The new advantages - creativity,speed, flexihility-belonged to the specialist.

John Hagel III is a principal of McKinsey &) Com pany in Palo Alto, California.Marc Singer is a principal in McK insey's San Francisco office. They are the authorsof Net Worth: Shaping Ma rkets When C ustom ers Make the Rules (Harvard BusinessSchool Press, 1999}, from which this article is adapted.

To discuss the unbun dling of the corporation and its implications for strategy andorganization, join the authors in the HBR Forum: http://www.hbr.org/forum.



UNBUNDLING THE CORPORATION

The Story of the computer industry illustrates

the crucial role that interaction costs play in shap-

ing industries and companies. Interaction costs

represent the money and time that are expended

whenever people and companies exchange goods,

serviees, or ideas.' The exchanges can occur within

companies, among companies,

W T l C n VOU °̂ between companies and^ customers, and they can take

l o o k b c n e 3 . t h many everyday forms, includ-^ ing management meetings,

SUri3.Ce conferences, phone conversa-

r tions, sales calls, reports, and01 m o s t memos. In a very real sense,

interaction costs are the fric-

tion in the economy.

VOll find Taken together, interaction

/ eosts determine the way com-

Ponies organize themselvesand the way they form rela-

tionships with other parties.

1 * 1 r When the interaction costs of

Kinds 0 1 performing an activity inter-

nally are lower than the costs

of performing it externally, aeompany will tend to incorpo-

rate that activity into its own organization rather

than contract with an outside party to perform It.All else being equal, a company will organize inwhatever way minimizes overall interaction costs.

The arrival of Apple's open architecture dramati-

cally reduced interaction costs in the computer in-

dustry. By conforming to a set of well-documented

standards, eompanies could, for the first time, easily

work together to produce complementary products

and services. As a result, tightly coordinated wehs

of specialized companies-with names like Apple,

Intel, Microsoft, Sun, Adobe, and Novell-could

form and ultimately compete effectively against

the entrenched, vertically integrated giants. Many

of the new eompanies grew very large very quickly,

but they never lost their focus on earrying out spe-

cialized activities.

The moral of the story? Changes in interaetion

costs can cause entire industries to reorganize

rapidly and dramatieally. Today, that fact should

give all managers pause, for we are on the verge of

a broad, systemic reduction in interaction costs

throughout the world economy. Electronic net-

works, combined with powerful personal comput-

ers, are enabling companies to communicate and

exchange data farmore quickly and cheaply than

ever before. As more business interactions move

onto electronic networks like the Internet, basic

assumptions about corporate organization will be

overturned. Activities that companies have always

believed to be central to their business will suddenly

be offered by new, specialized eompetitors that can

do them better, faster, and more efficiently. Execu-

tives will be forced to ask the most basic and the

most discomforting question about their compa-

nies: What business are we really in? Their answers

will determine their fate in an increasingly friction-

less economy.

One Company,Three Businesses

when you look beneath the surface of most compa-

nies, you find three kinds of businesses-a customer

relationship business, a product innovation busi-

ness, and an infrastructure business. Although

organizationally intertwined, these businesses are

actually very different. They each play a unique

role; they each employ different types ofpeople;

and they each have different economic, competi-

tive, and even cultural imperatives. (See the exhibit

"Rethinking the Traditional Organization.")

The role of a customer relationship business is to

find customers and build relationships with them.

If you're a bank or a retailer, for example, your mar-

keting function focuses on drawing people into

your branehes or stores. Another set of employees -loan officers or store clerks, perhaps-assists thecustomers and tries to build personal relationships

with them. Still other employees may be responsi-

ble for responding to questions and complaints,

processing returns, or collecting customer infor-

mation. Although these employees may belong todifferent organizational units, they have a common

goal: to attract and hold on to customers.

The role of a product innovation business is toconceive of attractive new products and services

and figure out how best to bring them to market. In

a hank, for example, employees within various

product units or in a centralized business-develop-

ment function research new products like reverse

mortgages and ensure that the bank is capable of

bringing them to market successfully. In a retailer,

buyers and merchandisers perform the product in-

novation role, constantly searching for interesting

new products and effective ways to present them to

shoppers.

The role of an infrastructure business is to build

and manage facilities for high-volume, repetitive

operational tasks such as logistics and storage,

manufacturing, and communications. In a bank,

the infrastructure business builds new branches,

maintains data networks, and provides the hack-

office transactional serviees needed to process

deposits and withdrawals and present statements

134 HARVARD BUSIN ESS REVIEW March-April 1999




to custom ers. In a retailer, the in-frastructure business constructsnew outlets, maintains existingoutlets, and manages complex lo-gistical networks to ensure thateach store receives the right prod-

ucts at the lowest possible cost.These three businesses-cus-tomer relationship management,product innovation, and infra-s t ructure management-rarelymap neatly to the organizationalstructure of a corporation. Prod-uct innovation, for example, typ-ically extends beyond the bound-aries of a product developmentunit to include such activitiesas conducting market research,

qualifying component suppliers,training sales and support peo-ple, and designing marketing ma-terials. Rather than representingdiscrete organizational units, thethree businesses correspond towhat are popularly called "coreprocesses"-the cross-functionalwork flows that stretch fromsuppliers to customers and, incomhination, define a company'sidentity.

Managers talk about their keyactivities as "processes" ratherthan as "businesses" because,with rare exceptions, they assumethat the activities ought to coex-ist. Nearly a century of economictheory underpins the conven-tional wisdom that the manage-ment of customers, innovation,and infrastructure mu st be com-bined within a single company.If those activities were disbursed

to separate companies, the think-ing goes, the interaction costs re-quired to coordinate them wouldbe too great. It's cheaper to dothem yourself.

Working from that assump-tion, large companies have in re-cent years expended a lot of en-ergy and resources reengineeringand redesigning their core pro-cesses. They've used the latestinformation technology to elimi-

nate handoffs, cutwaiting time.

Rethinking the TraditionalOrganization

CustomerRelationshipManagementIdentify, attract, and build

relationships with customers

Product

InnovationConceive of attractive

new products and

services and

commercialize them

Infrastructure

ManagementBuild and manage

facilities for high-

volume, repetitive

operational tasks

As interaction costs fall, companies v f̂ill come under pressure to

unbundle their core processes, each of which has very differenteconomic, cultural, and competitive imperatives.

ProductInnovation

Economics

CustomerRelationshipManagement

Infrastructure"Management

Early market entry

allows for a premium

price and large market

share, speed is key

Culture

High cost of customer

acquisition makes it

imperative to gain

targe shares of wallet;

economies of scope

are key

High fixed costs make

large volumes essential

to achieving low unit

costs; economies of

scale are key

Employee centered;

coddling the creative

"stars"

Competition

Highly service

oriented;"customer

comes first"

Cost focuse d; stress on

standardization, pre-

dictability, efficiency

Battle for talent; low

barriers to entry; many

small players thrive

Battle for scope; rapid

consolidation; a few

big players dom inate

Battle for scale; rapid

consolidation; a few

big players dominate




and reduce errors. For many companies, streamlin-ing core processes has yielded impressive gains,saving substantial am ounts of money and time, andproviding customers with more valuable productsand services.

But as managers have found, there are limits to

such gains. Sooner or later, companies come upagainst acold fact: the economics governing thethree core processes conflict. Bundling them intoa single corporation inevitably forces managementto compromise the performance of each process inways that no amount of reengineering can overcome.

Take customer relationship management. Find-ing and developing a relationship with a customerusually requires abig investment. Profitabilityhinges on aehieving econom ies of seope - extendingthe relationship for as long as possihle and gener-ating as much revenue as possible from it. Only by

gaining a large share of acustomer's wallet andretaining tha t share over time can a company earnenough to offset the big up-front investment.

Because of the need to achieve economies ofscope, customer relationship husinesses naturallyseek to offer a customer as many products and ser-viees as possible. It is often in their interests to

create highly customized offerings to maximizesales. Their economic imperatives lead to an in-tently service-oriented culture. When a customercalls, people in these businesses seek to respond tothe customer's needs above all else. They spend a

lot of tim e interacting w ith cu stomers, and they de-velop asophisticated feel for customers' require-ments and preferences, even at the individual level.

Contrast that kind of business with a productinnovation business. Speed, not scope, drives theeconomics of product innovation. Once a productinnovation business invests the resources neces-sary to develop a product or service, the faster it

moves from the development shop to the market,the more money the business makes. Early entry

Today's integrated corporations...

into the market increases the likelihood of cap-turing a premium price and establishing a strongmarket share.

Culturally, product innovation businesses focuson serving employees, not customers. They dowhatever they can to attract and retain the talent

needed to come up w ith the latest and best productor service. They reward innovation, and they seekto minimize the administrative distractions thatmight frustrate or slow down their creative "s tars ."Not surprisingly, small organizations tend to bebetter suited than large bureaucracies to nurturingthe creativity and flcetness required for productinnovation.

If scope drives relationship management husi-nesses and speed drives innovation husinesses,scale is what drives infrastructure businesses. Suchbusinesses generally require capital-intensive facil-

ities, which entail high fixed costs. Since unit costsfall as scale increases, pumping large amounts ofproduct or work through the facilities is essentialfor profitability.

The culture of infrastructure businesses is char-acterized by aone-size-fits-all mentality that ab-hors all kinds of customization and special treat-ment. To keep costs as low as possible, they aremotivated to make their activities and outputs asroutine and predictable as possible. They accountfor every penny and frown on anything that doesnot directly contribute to efficient operations,

viewing it as a needless extravagance. Where cus-tomer relationship businesses focus on customersand innovation businesses focus on employees, in-frastructure businesses are impersonal - they focuson the operation.

When the three businesses are bundled into a

single corporation, their divergent economic andcultural imperatives inevitably conflict. Scope,speed, and scale cannot be optimized simultane-ously. Trade-offs have to be made. To protect its

...wi ll undergo a process of unbu ndling.




manufacturing scale, for example, a company mayprohibit its salespeople from selling another com-pany's products, thus limiting their ability to

achieve economies of scope. Or a company may in-stitute standardized pay scales that, w hile rationalfor the vast majority of its people, alienate its most

talented product designers. Or to protect customerrelationships, acompany may require adegree ofcustomization that slows product introductionsand creates inefficiencies in the production infra-structure.

The Regional Bell Operating Companies - the lo-cal telephone carriers in the United State s-pro videa good example of how these tensions can play ou t.The retail telephone operation within an RBOCis acustomer relationship business; it focuses onacquiring customers and keeping them happy. Thewholesale telephone operation is, by eontrast, an

infrastructure management business; itmaintainsthe RBOC's physical communications facilitiesand furnishes specialized support services likenetwork management. To maximize their scaleeconomies, the RBOCs could lease their wholesalefacilities to specialized telephone-service resellers,which focus on the customer relationship business.But the phone com panies are wary of entering intosuch relationships because they fear that the re-sellers will drain customers away from their ownretail phone business.

The RBOCs have, in other words, deliberately

limited the growth and profitability of their infra-structure businesses to protect their cu stomer rela-tionship businesses. Their deeision has encouragedspecialized infrastructure businesses, operatingtheir own fiber-optic networks, to enter the com-petitive fray in metropolitan areas, creating a furtherthreat to the RBOCs.

Most senior managers make such compromisesbecause they helieve, or assume, that they have noother option. How, after all, can a core process be

...before restructuring into new forms.

removed from a company w ithout somehow under-mining its identity or destroying its essence? Sucha mind-set, although historically justified, is nowbecoming increasingly dangerous. While traditionalcompanies strive to keep their core processes bun-dled together, highly specialized competitors are

emerging that can optimize the particular activitythey perform. Because they don't have to makecompromises, these specialists have enormousadvantages over integrated companies.

Organizational Fault Lines

Under the pressures of deregulation, global compe-tition, and advancing technology, anumber ofindustries are already fracturing along the faultlines of customer relationship management, prod-uct innovation, and infrastructure management.

Look at the newspaper industry, for example. Notso long ago, all three core processes were tigh tly in-tegrated in most newspapers. A paper took on fullresponsibility for attracting its customers-bothreaders and advertisers. It developed most of itsproduct-the news stories presented in its pages.And it managed an extensive infrastructure, print-ing its editions on its own presses and distributingthem with a fleet of its own truck s.

Today the industry isbeginning to look verydifferent. Much of the typical newspaper's productis outsourced to specialized new s services; the aver-

age metropolitan newspaper depends heavily onwire services, syndicated columnists, and publish-ers of specialty magazine inserts for the words andimages that fill its pages. In addition, many news-papers aspire to shed their scale-intensive printingfacilities and rely instead on specialized printersto produce the paper each day. As they move awayfrom product innovation and infrastructure man-agement, the newspapers are able to concen trate onthe customer relationship portion of the business-

The unbundling ofthe corporationinto its three component businesses -customer relationship management,product innovation, and infrastructuremanagement - isonly the first step inthe reshaping of o rganizations. Thecustomer-relationship and infrastruc-ture businesses can be expected toconsolidate as companies pursueeconomies of scope and scale.Theprodu ct business will likely remainfragmented, with many small, nimblecompanies compe ting on the basisof speed and creativity.




To see the future

of business

organization, you

only look athow Internet

companies are

today.

helping to connect readers and advertisers. Paperslike the Los Angeles Times, for example, are creat-ing special sections geared to particular regions orinterests, which enable advertisers to better targetspecific sets of readers. The unbundling is makingthe newspaper business much less capital inten-

sive, allowing more resources to be devoted tobuilding customer relationships.A similar unbundling is taking place inmany

areas of the banking industry. Credit cards, for ex-ample, began as aproduct offered by traditional

banks, which operatedtheir credit card busi-nesses as a tightly inte-grated bundle of activi-ties. Each bank designedand introduced its owncredit cards, acquired

and maintained its owncustomer relationships,and handled all the back-office processing for

every credit card trans-action (while relying onMasterCard and VISA toestablish general proto-

cols for those transactions). Over the past decade,however, the credit card business has rapidly unrav-eled as specialized players have focused on each ofthe three activities. Affinity groups-from the AARP

to American Airlin es-h ave assumed responsibilityfor finding customers and maintaining relation-ships with them. Specialized eredit-card companieslike CapitalOne and Providian Financial are focus-ing on product innovation, creating new featuresand pricing programs. And a range of infrastructurecompanies are processing transactions, managingcall centers, and performing other scale-intensivetasks. In fact, infrastructure specialists like FirstData now process more than half the credit cardtransactions in the Un ited States.

An infiux of specialized companies has also be-

gun to reshape the pharmaceutical industry. Someproduct innovators in biotechnology, like Genen-tech, Amgen, and Myriad Genetics, are focusing onspecific techniques such as gene mapping. Others,like Medicis Pharmaceutical and Bausch & Lomb,are concentrating on specific disciplines like der-matology. Rather than invest in tbeir own productdevelopment in all these areas, larger drug compa-nies are taking equity stakes in or allying withthese niche players. Roche Holding, for example,has purchased over two-thirds of Genentech, andMerck has entered into acollaborative research

and licensing agreement with Aurora Biosciences.

On the infrastructure side of the business, the bigdrug companies have hegun to outsource the plan-ning and execution of large-scale pharmaceuticaltrials to contract-research organizations like Quan-tum. And hig distribution specialists like McKessonand Cardinal now warehouse and deliver most drugs.

As the newspaper, credit card, and pharmaceuticalindustries went through the unbundling process,established companies faced a series of hard choices.They had to rethink their traditional roles and iden-tities, challenge their organizational assumptions,and in many cases fundamentally change the waythey operated. Now, as electronic commerce re-duces interaction costs throughout the economy,more and more companies will face equally tough,if not tougher, dec isions.

Organization and the Internet

To see into the future of business organization, youneed only look at how Internet companies are orga-nizing today. Portal businesses like Yahoo! are fo-cusing increasingly on custom er relationship man-agement while relying on other companies to

provide innovative Web-based products and ser-vices on the one hand and infrastructure manage-men t on the other. Many people still th ink of Yahoo!as a search engine, but in fact its searching productis provided by another company, Inktom i, an inno-vator whose expertise in parallel computing en-

ables its engine to search millionsof

Web pagesalmost instantly. And Yahoo! has forged relation-ships with big Internet-access providers like AT&T,which manage a large portion of the Internet's in-frastructure. Yahoo! is thus freed to concentrate onattracting customers, gathering data on them, andconnecting them with both advertisers and mer-chants. It is positioned to become what we call aninfomediary- a company whose rich store of cus-tomer information enables it to control the fiow of

commerce on the Web.-

Because electronic commerce has such low inter-

action eosts, it is natural for Weh-bascd businessesto concentrate on a single core ac tivity-w heth er itbe just customer relationship management, justproduct innovation, or just infrastructure manage-ment. That's not to say that all current Internetcompanies are pure players. Excite, for example,is principally a customer relationship business,but it has acquired several product-innovation com-panies, including Jango and Classifieds2000, in orderto offer new on-line services to customers quickly.Similarly, America O nline has incubated a numberof product businesses internally to ensure a steady

supply of content for its customers. We would argue




though, that such hybrid models are transitional,n ecess i t a t ed hy the infancy of e l ec t ro n ic com-

merce . As the Internet industry matures, mixedmode ls will hecom e less attractive and less sustain-ahle. (See the insert "WhitherAm a20n.com?")

As electronic commerce spreads out into other,

more traditional industries, theytoo

will begin tofracture. Take the automotive business, for exam-ple. Small entrepreneurial com panies like Auto-by-Tel and Autoweb.com have recently emerged on

the Web and are already beginning togain controlover cus tomer re la t ionsh ips . These companies 'sites provide car buyers with a broad range of infor-ma tion about cu rrent m odels and pricing. Th e sitesthen collect detailed data ahout the customers and

their preferences and use that information to refercu s to mers to appropriate automobile dealers. In1997, Web site referrals accounted for about 2% of

all nonfleet new-car sales. Although 2% is a smallpercentage, it represents 300,000 cars, or $6 billionin revenue - and those numbers are growing explo-sively. J.D. Power & Associates predicts that one-third of all new-car huyers will buycars using the

Web by the year 2000.

As the infomediaries gain more control over cus-tomer purchases and, even more important , overcustome r information, car companies will have torethink the role of the traditional autom obile dealer.Dealers may give up their customer relat ionshiphusiness entirely and focus narrowly on the infra-

s t ructure business-managing showrooms, for ex-amp le . The independent , on- l ine in fomediar ieswould take over the role of acquiring and m anagingcustomer relat ionships. As they develop a deeperunderstanding of each customer, the infomediariescould play an ever more central role in determiningwhich make and model a customer buys. In fact,they could come to fulfill virtually all of a cus-

tom er's car-related needs;

• selecting the auto loan with the best term s• selecting the insurance package with the hest rateand the most cost-effective trade-off hetween pre-

miu ms and deductibles• providing a list of qualified repair and m aint ena nceshops and towing companies• recommending car phone companies and phoneservice packages• p rov id ing remind ers of required servicing and

then recording maintenance information for the

customer's records.Auto manufacturers would love toaccess all this

valuable information, but they could never collectit as efficiently or effectively as the infomediaries.A carm aker might be able to gather data on the peo-

ple whobought its own models , but it would be

many

hard-pressed to assemble in format ion on peoplewho bought com petito rs' models. Instead, car man-ufacturers may d ec id e-o r be fo rced- to unbundletheir businesses, outsourcing the customer-rela-t ionship-management role to the infomediary and

focusing on product innovation. Who knows? A uto-

mohile manufacturers already outsource a signifi-cant portion of subassembly manufactur ing-per-haps some day, t h ey mig h t o u t so u rce all t h e i rmanufacturing operat ions to infrastructure man-

agement businesses.

In financial services, similar forces areat work.Companies like Microsoft, Intuit, andE'Trade are

using the Internet tobuild customer relationshipbusinesses , d rawing cont ro l of c u s t o m e r s ' pur-

chases away from traditional banks and brokerages.Building on the popularity of its Quicken personal-financial-management software, for example, Intuit

has at tracted hundredso f t h o u s a n d s of cus- ,

tomers to its Web site, As i n f omed i a r i e swhere it offers easy ac-

cess to products and ser- IISC tOvices from a broad range

of financial service pro-viders. Customers can / n m m n i p i ; w i llidentify the hest deals (-OllipdmeS Wlii

on CDs, mortgages, and

checkmg and savmgs ac- ^

counts. They can get tips Qnloff f r O I B

on tax planning, finan-cial planning, and re tire-m e n t p l a n n i n g . Andthey can access hrokershke E*Trade andCharles Schwab to trade on-line.

As Intuit and other infomediaries gather greaterstores of information about custom ers and their buy-ing behavior, they will be able toextend their con-trol over the relationship husiness. They will kn owindiv idual cus tomers ' c i rcumstances and prefer-ences, anticipate their needs, and identify appropri-ate products and providers. The infomediary might,

for example, notify a customer that mortgage rateshave dropped enough tomake refinancing worth-whi le , or, based on the way a customer uses his

credit card, it might recom mend a card with a higherannua l fee hut a lower intere st rate as a better alter-native. Or knowing the custom er has a new baby, itmight recommend a particular life-insurance pack-age or a m ut ua l fund for college savings.

As infomediaries build these customer relation-ships, traditional banks will find themselves in atight spot. The y might try to tu m into infomediaries,hut that 's unhkely. Most banks have proven reluc-

tan t to resell other institutions' products [except




*\11 r rP S S

when those institutions don 't sell competing prod-ucts). And even if banks did offer other companies'products, customers might question their objec-tivity as information suppliers. Even more funda-mental, most banks are still struggling to integrate

their computer systems so

f n that they can merge all theirLU inform ation about a cus-i n tomer - a prerequisite for an

effective customer-relation-

fractured SMP business.

Given these constraints,i s niany banks might have to

concede the role of customert l U S t t o relationship manager to the

*j' new infomediaries. Some, mig ht choose to focus on

, n • developing attractive prod-

tO u n b u n d l e uct ana service portfoliostha t cou ld be marketed, through the infomediaries.

Others might choose to

n e w concentrate on back-officeprocessing operations, pro-viding transactional sup-port for products like credit

cards, loans, and investment accoun ts. Each of thethree businesses will likely provide attractive op-portunities, but it's unlikely that one companywill be able to do them all and still con tinue to in-

crease its profits over the long haul.

A Road Map for Un bun dl ing

As more and more industries fracture, many tradi-tional com panies will find themselves cut off fromtheir customers. Just to reach their markets, theywill have to com pete or cooperate w ith an increas-ingly powerful group of infomediaries. To survive,they may have no choice but to unbundle them-selves and make a definitive decision about whichbusiness to focus on: customer relationship man-

agement, produet innovation, or infrastructuremanagement.As we've seen, the economics driving each of

these businesses are different, and those econom icswill determine their ultimate structures. Althoughindustries will fracture, they will not necessarilybreak into lots of small pieces. In fact, the struc tureof only one of the three businesses-product inno-vation-is likely to be characterized by large num-bers of sm all businesses competing on a level play-ing field where barriers to entry are low. The productinnovator's need to provide a fertile environment

for creativity tends to favor smaller organizations.

as does its need for speed and agility in bringingproducts to market.

The other two businesses will probably consoli-date quickly, as a small number of large companiesassume dominance. Since economies of scope areneeessary in the customer relationship businessit's likely that only a few big infomediaries willsurvive. America Online's decision to acquire Net-scape, with its popular Netcenter Web portal, pro-vides strong evidence that the consolidation of thisbusiness is already well under way. S imilarly, in theinfrastructure business, economies of scale createirresistible pressures toward the formation of large,focused enterprises.

Once a company decides where it wants to direcits energies, it will probably need to divest itself of

its other husinesses. That will be a big challengeFew senior managers of large companies have ever

attempted a systematic divestiture program. Thedivestitures that have occurred have usually beenspin-offs of recent acquisitions whose expectedsynergies never materialized. Even AT&T's highlypublicized divestiture of its computer and tele-communications-equipment businesses, NCR andLucent, falls largely into this category. For moscompanies, the closest analogue to the kind of divestiture we're talking about is tbe establishmenof outsourcing relationships in which infrastruc-ture management activities like logistics, manufacturing, or data processing are contracted to out-side providers.

Divestiture is, of course, a radical step. It's fair tosay that in most cases executives will need to perceive a significant and immediate threat beforethey will consider such aggressive surgery. For thareason, the first divestiture programs will probablybe launched by companies whose markets are i

the midst of major technological or regulatorychange, such as the computer, telecommunications, media, and banking industries. Companiein other industries will be able to learn from theisuccesses - and their m istakes.

If a company has chosen to com pete in customerelationship management or infrastructure management, where size matters, divestiture won't benougb. It will also need to build scope or scalthrough mergers and acquisitions. It is likely thaeach acquired company will have to go through similar process of unhundling, shedding unneedebusinesses to help fund the next wave of acquisitions and integrating the rem aining businesses intthe existing opera tion. The secret to success in fractured industries is not just to unbundle, but to unbundle and rebundle, creating a new organizatio

with the capabilities and size required to w in.

HARVARD BUSINES S REVIEW M arch-April 19

1613204_Unbundling the Corporation

Documents

Transcript of 1613204_Unbundling the Corporation