DawidSzarawdorz - Excerpt Scientific Article %22Is Hagel & Singer's concept of the unbudled...

Dawid Szarawdorz

SCIENTIFIC ARTICLE !

Is Hagel & Singer’s concept of the unbundled corporation still applicable in nowadays’

harsh business environment? As the concept of Hagel &

Singer’s unbundled corporation is sev-eral times mentioned in Osterwalder’s book Business Model Generation, this scientific article examines the actuality of Hagel & Singer’s concept in nowa-days’ business environment.

First of all, the problem state-ment has to be defined. Hagel & Singer’s concept refers to their first Harvard Business Review article, pub-lished in 1999. Regarding the defini-

tion of the problem statement, applic-able can be defined as ”appropriate”, ”capable of being applied or put to use” or as being ”fit or suitable for its purpose” (OED Online, 2014). Howev-er, in this particular context, applicable means that the concept is suitable from an macroeconomic perspective re-garding current circumstances. There-fore, the methodology used is desk re-search, whereby the focus lies on macroeconomics. Generally, it is as-sumed that by comparing the situa-tions of 1960 and 2014, a sufficient overview is given to answer the prob-lem statement or to give information and suggestions on further research.

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Dawid Szarawdorz

Strategic Management Development

In order to being able to grasp the entire framework of Hagel & Singer, a historic development of the main strategic management concepts is given, as their model of the unbun-dled corporation is based on several other theories. Nevertheless, only the most crucial ones are mentioned.

Igor Ansoff is a pioneer and commonly known as the father of strategic management. In 1957, Ansoff develops his product-mission matrix, also called Ansoff matrix. The strategic marketing planning tool adjusts a mar-keting strategy of a company to its overall strategy by portraying four dif-ferent growth strategies (Ansoff, 1957). Moreover, Ansoff’s book about corpo-rate strategy is the first one that merely focuses on strategic management, also laying down the first concept of divid-ing an organisation’s decision-making process into a strategic, administrative and operating level (Ansoff, 1965; 1975). It is to mention that several oth-er authors used his concepts as frameworks to build upon, such as Porter’s competitive strategy frame-work (Porter, 1980) and Hamel & Praha-

lad’s concept of core competence (Hamel & Prahalad, 1990).

However, Porter did not only deepen and enhance the Ansoff matrix but also de-veloped a complete-

ly new model in 1980. His generic

strategies (Porter, 1980) describe a framework to strategic planning, which has the intention to improve the competitive performance. The concept features three strategies, namely cost leadership, differentiation and seg-mentation/focus. Porter’s statement that no company can exceed simulta-neously at all strategies and organisa-tions have to choose a specific ap-proach (Porter, 1998) became famous and is commonly perceived as still valid in today’s business environment. This phenomenon is termed by Porter as being ”stuck in the middle” (Porter, 1998). Moreover, Porter’s 1980 work has become widely popular, being re-ferred to in almost half of the papers in the Strategic Management Journal from 1986 to 1990 (Miller & Dess, 1993).

In 1993, Treacy & Wiersema de-velop the three value disciplines, which reflect Porter’s three basic strategy concept but they have never officially referred to it. Their three value disci-plines are operational excellence, product leadership and customer inti-macy (Treacy & Wiersema, 1993). Con-trasting between both concepts, Porter’s model focuses on the market, while Treacy & Wiersema emphasise the focus on customer relationship. In


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general, they induced to shift the think-ing from a market-centred perspective to a customer-centred focus. Conse-quently, as their model has become famous, the ordinary relation between product and market was dissolved. Moreover, they highlight the impor-tance of the minimum threshold, meaning being competitive to a limit-ed extend in all three value disciplines. They add in order to be a market leader, an enterprise has to excel in at least one discipline (Treacy & Wierse-ma, 1993). Similar to Porter’s model, Treacy & Wiersema mention the risk of exceeding in all three disciplines, as factors that lead to excellence in one discipline are commonly incompatible with reaching excellence in others, stat-ing that ”choosing a discipline is the choice of winners” (Treacy & Wiersema, 1995). However, they also created the concept of masters of two, describing corporations that can exceed in two value disciplines simultaneously (Trea-cy & Wiersema, 1993). In doing so, the companies have resolved the inherent tensions between the operating model that each value disciplines demands and reduced potential trade offs.

Revisiting Treacy & Wiersema’s concept, Hagel & Singer (1999) write an article for the Harvard Business School Press and develop the unbun-dled corporation. Their concept in-cludes as well three types of strategies, termed customer relationship, product innovators and infrastructure man-agement (Hagel & Singer, 1999). Con-trasting, they explicitly use an inside-out perspective, emphasising that their model is based on core processes, meaning ”the management of cus-t o m e r s , i n n o v a t i o n a n d i n f r a -structure” (Hagel & Singer, 1999). Therefore, companies have to unbun-dle the corporation in order to min-imise trade offs through separation.

Macroeconomic Development When Ansoff published his work

in 1957, the post-war era was charac-terised by accelerated economic growth and a stable market environ-ment (Harper, 1992). ”The annual real GDP growth of developed market economies averaged around 5 per-cent” between 1950 and 1973, ”the U.S. dollar became the world’s major reserve currency” and ”the Japanese economy grew so fast that it had be-come the world’s second-largest capi-talist economy by the 1970s” (Jones, 2005). Moreover, the establishment of the European Economic Community in 1957, authorised free trade between the member countries, creating a large and attractive common market. Addi-tionally, ”much of the growth had been driven by the exchange of manufac-tured goods made in the developed world for the resources found else-


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where” (Jones, 2005). Despite the overall prosperity, Harper (1992) con-cludes ”firms grew even without good management [as] consumers were ea-ger to buy almost anything within rea-son”.

The fact that in the 1970s and 1980s ”most countries [experienced] high and volatile inflation” (Besley, 2008) reflects the general global situa-tion in that time period. Seven years before Porter published his book, the OPEC countries announced the first oil shortage, introducing a freeze in the global economy, followed by business failures, inflation and petrodollars (Gyl-lenhammar, 1993). Moreover, the sec-ond oil shock in 1979 resulted in an 11% unemployment rate in Western Europe during the mid-1980s, ”while the world economy’s growth rate had been slowing” (Gyllenhammar, 1993). Nevertheless, the global economy be-gan to recover, having its peak in 1992 with the establishment of the European Union. However, debt ratios were ris-ing, productivity growth was slowing down and unemployment reached new peaks, coupled with increased segregation of financial markets from reality (Gyllenhammar, 1993). More-over, ”many of the shifts in the eco-nomic environment […] were unantici-pated” (Lawrence & Young, 1986) and, therefore, had a great impact.

However, in the past 20 years, the global environment drastically changed. Globalisation, urbanisation, internet growth and an increased level of global knowledge mark this time period. An additional aspect of nowa-days environment is the increase in the

world’s median age (United Nations, 2013), resulting in a shift of the overall age structure. Furthermore, the world has been facing a decline in the popu-lation growth rate, a weakening in the birth rate and an increased unem-ployment rate (Central Intelligence Agency, 2013). Additionally, a global change regarding economic power can be identified, as it shifts from ”the United States and Europe to a number of fast-growing and large developing countries” (Ahearn, 2011). Some of the economic shifts and their impact on the business life were already antici-pated by Ansoff, Igor & Brandenburg (1969), such as increased interconnec-tivity and virtualisation. Regarding globalisation, Liang (2012) argues that ”financial globalisation leads to in-creasing global financial instability” and identifies the failure of the United States to manage its financial situation as the key aspect of the global financial crisis in 2008. Moreover, consumers tend to establish a greater connection towards a global orientation (Guo, 2013). This leads to the question ”how important national, regional, or trading zone population trends will be in the future”, implying that urbanisation is the ”most powerful demographic trend for the environment” (Torrey, 2008).

Comparing Management Perspectives and the Global

Economy Comparing the time lines of the

global economic as well as the strate-gic management development, several connections can be identified. First of all, it is observed that Ansoff estab-


Dawid Szarawdorz

lished his model in a period of global prosperity. The lasting economic growth of the post-war era demanded a strategic tool that facilitates corpo-rate growth. Furthermore, the tool was suitable for a stable environment, where only marketing was needed to sell. Additionally, the business situation consisted of selling manufactured, physical goods, which supported An-soff’s concept. Besides, his method was disruptive and can be considered as cutting-edge regarding that time period.

Secondly, Porter developed his approach after the global economy has begun to slow down, showing signs of inflation. Moreover, when con-sidering the oil shocks and the result-ing halt in the economy’s growth, his approach to improve the company’s competitiveness seems reasonable. The market focus of the generic strate-gies is comprehensible due to the competitive economic circumstances. However, as strategy became impor-tant in business life as recently as with Ansoff, not many businesses followed a specific strategy. Thence, it must have been understandable to compete by focusing on only one generic strategy.

Thirdly, a connection between the customer-focused frameworks of Treacy & Wiersema and the global cir-cumstances at that point of time can be established. Developments in the field of human resources (Beagrie, 2004) put emphasis on employees and cus-tomers. Besides, the economy was still showing signs of low productivity and growth, impeding to conduct business. These circumstances could have led to

a more customer-centred perspective, in comparison to Porter.

Fourthly, globalisation, urbanisa-tion and internet growth caused to fo-cus on an inside-out perspective, as customers were more easily targeted than before. Hagel & Singer’s frame-work also anticipated the drastic de-mographic shift in the global popula-tion, allowing to explore strengths first, instead of analysing the market.

Conclusion It can be concluded that the

overall economic state and situation influences the dominant perspective on strategy. During an economic up-turn, a growth strategy was needed. In times of increased market competi-tiveness, a framework in order to com-pete was required. Subsequently, a more human-centred perspective was necessary. The inside-out view was beneficial in order to focus first on the core business and, afterwards, on the market, while putting emphasis on a customer-oriented approach.

Nevertheless, Hagel & Singer’s strategic concept was developed be-fore the internet era, resulting in its negligence. This implies that they did not take into account the growing im-portance of the internet and the global virtualisation and connectivity. IT sys-tems, as well as internet-based pro-grams and applications have digitised today’s business, simplifying opera-tional activities and facilitating strategic decisions. Many firms rely on the inter-net as a tool to gain competitive ad-vantage (Ernst & Young, 2011). Addi-


Dawid Szarawdorz

tionally, the interconnectivity of most IT systems used in business makes it nec-essary to compete on an operational level, meaning the infrastructure man-agement. As supply chain manage-ment, total quality management and almost all other branches can be man-aged virtually, the acceptance of ne-glecting this kind of technology cannot be granted and will lead to reduced competitiveness, resulting in the fact that evermore businesses make use of digital advantage (Ernst & Young, 2011). Therefore, digitisation does not only yield benefits and also the impli-cations have to be considered, espe-cially when designing a strategic framework. An additional potential weak point is the reduction of control over customer relationships, the exter-nal pressure of competitors to keep up, digitalisation of channels resulting in increased competition and the in-creased need of innovative business models, which include digital aspects (Ernst & Young, 2011).

Further Research In general, it is to say that the

overall strategic focus shifted towards customers. However, a leading strategy is beneficial, allowing to reduce trade offs that can occur when following con-trasting strategies. Nevertheless, the findings show that the digitisation and the internet era should have been in-cluded in strategic frameworks. Hence, it is asked for further research on the validity, practicability and actuality of Hagel & Singer’s concept in nowadays’ business environment. Especially re-search on IT-intensive businesses in particular comparison to Hagel & Singer’s framework is necessary to suf-ficiently answer the question if their model still has validity in today’s harsh business environment. Another area of research can include the impact of the digitisation on Hagel & Singer’s framework.

!Reference List

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Ansoff. (1957). Strategies for Diversification. Harvard Business Review , 35 (5), 113-124.

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Ansoff, Igor, & Brandenburg. (1969). The General Manager of the Future. California Management Review , 11 (3), 61-72.


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Beagrie, S. (2004, November 2). Events That Changed Human Resources. Personnel Today , 22-26.

Besley, T. (2008). Inflation and the Global Economy. Bank of England Quarterly Bulletin , 48 (2), 207-213.

Central Intelligence Agency. (2013). The World Factbook 2013-2014. Washington, D.C, United States of America: Central Intelligence Agency.

Ernst & Young. (2011). The digitisation of everything - How organisations must adapt to changing consumer behaviour. Retrieved April 1, 2014, from Ernst & Young: http://www.ey.com/Publication/vwLUAssets/The_digitisation_of_everything_-_How_organisations_must_adapt_to_changing_consumer_behaviour/$FILE/EY_Digitisation_of_everything.pdf

Guo, X. (2013). Living in a Global World: Influence of Consumer Global Orientation on Attitudes Toward Global Brands from Developed Versus Emerging Countries. Journal Of International Marketing , 21 (1), 1-22.

Gyllenhammar, P. (1993). The Global Economy: Who Will Lead Next? Journal Of Accountancy , 175 (1), 61-69.

Hagel, J., & Singer, M. (1999). Unbundling the Corporation. Harvard Business Review , 77 (2), 133-141.

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Jones, G. (2005, August 22). Restoring a Global Economy, 1950–1980. (Harvard Business School) Retrieved April 1, 2014, from HBS Working Knowledge: http://hbswk.hbs.edu/item/4961.html

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