CHANNEL OPERATION

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CHANNEL OPERATION

• Integration and Power

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AGENDA

• INTRODUCTION
• INTEGRATION
• COSTS AND BENEFITS
• WHEN TO OUTSOURCE
• DECISION ENVIRONMENTS

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AGENDA

• POWER
• NATURE
• DEPENDENCE
• PRACTICE

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INTRODUCTION

• Fundamental Questions/Issues
• Make or Buy
• Acquiring and Using Power

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INTRODUCTION

• Importance
• Enduring Impact
• Necessary
• Channel Value
• Share of Value

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AGENDA

• INTEGRATION
• COSTS AND BENEFITS
• WHEN TO OUTSOURCE
• DECISION ENVIRONMENTS

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COST AND BENEFITS OF INTEGRATION
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COST AND BENEFITS OF INTEGRATION

• Classical
• Single Transaction
• Arms Length
• Interchangeable

• Now
• Shared
• Relational
• Quasi-integrated

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COST AND BENEFITS OF INTEGRATION
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COST AND BENEFITS OF INTEGRATION

• Costs
• Capital
• Personnel
• Opportunity

• Benefits
• Control
• Profit
• Value Chain
• Value from Value Chain

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WHEN TO OUTSOURCE
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WHEN TO OUTSOURCE

• Efficiency
• Taken as starting point
• Goals
• Markets
• Coase

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WHEN TO OUTSOURCE

• Reasons
• Motivation
• Risk Reward Payoff Matrix
• Run the Numbers
• Replaceable Parties

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WHEN TO OUTSOURCE

• Reasons
• Specialization
• Core Competency
• Economies of Scale (in area)

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WHEN TO OUTSOURCE

• Reasons
• Survival of Fittest
• Low Barriers to Entry
• New Entrants
• Low Margin, High Turn

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WHEN TO OUTSOURCE

• Reasons
• Economies of Scale
• Density of Effort
• Size of Effort
• Specialization
• Learning Curve

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WHEN TO OUTSOURCE

• Reasons
• Market Coverage
• Pyramid
• Loyalty
• Synergies
• Amortization

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WHEN TO OUTSOURCE

• Reasons
• Independence
• Good from customers perspective
• Not good from manufacturers Perspective

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DECISION ENVIRONMENTS

• When Competition is Low
• Company-specific Capabilities
• Idiosyncratic Knowledge
• Small-numbers Bargaining
• Opportunism
• Transaction-specific Assets

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DECISION ENVIRONMENTS

• When Competition is Low
• Company-specific Distribution Capabilities

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DECISION ENVIRONMENTS

• When Environment is Uncertain

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DECISION ENVIRONMENTS

• Reduce Ambiguity
• Performance
• Circumstances
• Really New products or services
• Lack information
• Lack timely information
• Lack oversight
• Activities versus outcomes

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AGENDA

• POWER
• NATURE
• DEPENDENCE
• PRACTICE

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NATURE OF POWER

• Defined
• Potential for influence
• Would not have done anyway
• Not the same as cooperation

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NATURE OF POWER

• Good or Bad?
• System Optimization
• Inevitable
• Merely a Tool
• May be used for good purpose
• May be used for bad purpose

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NATURE OF POWER

• Required by Channel
• System Optimization
• Component Sub-optimization
• Natural Tendency
• Push Costs
• Push Investment
• Push Risk
• Garner Revenue

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DEPENDENCE

• A Question of
• Utility
• Scarcity of Resources
• Human
• Knowledge
• Capital
• Physical

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DEPENDENCE

• Measuring
• Direct
• Utility
• Profit
• Sales
• Bases of Power (5)
• Scarcity
• Competitors
• Switching Costs

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DEPENDENCE

• Measuring
• Indirect/Proxy
• Profit
• Sales
• Role Performance

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DEPENDENCE

• Measuring
• Bottom Up/Bases of Power

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IN PRACTICE

• Balanced
• Net Dependence
• Symmetry
• Win Win
• Blocks Exploitation

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IN PRACTICE

• Countering Imbalance
• Develop Alternatives
• Organize Coalition
• Exit

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IN PRACTICE

• Influence Strategies

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SUMMARY AND CONCLUSIONS