“The Internet makes it possible to do things outside the company that previously would have been more sensible to undertake inside.”
This is a bold statement that has deep and fundamental implications for all businesses. The key logic of vertical and horizontal integration that justifies mergers has always been the economy of scale, and frequently revolves around the economies of common information systems within a single organisation and a single operational methodology. It is the promise of Internet Technology that a company will be able work as closely with a partner as it can with its own branches or people.
The implications of the change in economic imperatives have implications far beyond the narrow bounds of the global behemoths; it offers opportunities to every small to medium sized business. For the fragmentation of large corporations is the opportunity for small nimbler players to offer products and services that would have been closed to them in previous times.
When the car companies in Detroit are expecting to invests over $1bn per year for the next five years in gearing up for the change, and expects to cut $900 to $1,300 per car and reduce the time taken to create a new model by 40% in the process; you know that this has got to be a big deal. But the suppliers will have to do their bit too. They will have to understand how they offer their services under this new regime. They will need the basic technology that makes them an acceptable partner/supplier to the car company, above all they will have to have the in-house skills that enable them to be responsive to the opportunities that arise.
And this process is being replicated across all industry sectors, driving changes that affect the way we live work and play.
The most important strategic issue for most companies, is to prepare for these opportunities. The best tactic for achieving that goal is to grasp every chance to improve the company’s own infrastructure. Get the technology in place, take up the grants that are being offered to help make the investment, become aware of he opportunities within your own business sector and learn how to make the most of the technology to compete effectively for the increasing chunks of global business that will become available. At the same time find ways to build partnerships that enable you to offer unique packages that compete with the internal services offered, and master the difficult art of managing these alliances.
If you have the business skills and the technical infrastructure to offer a great service to a demanding customer, then the opportunities of change will outweigh the risks.
By Stephen Milton BSc ARCS MBA
Managing director of Denaploy Ltd an Internet Technology service provider, and Director of EMC Ltd a corporate finance consultancy.