Unbundling the Corporation

1
Unbundling the Corporation

• By John Hagel III and Marc Singer
• HBR March-April 1999

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Key Arguments

• Falling interaction costs
• ...represent the money and time that are
  expended whenever people and companies exchange
  good, services, and ideas.
• Entire industries will have to reorganize rapidly
• Computer industry, Newspapers.
• Nature of business changing
• generalist to a specialized player
• size, reputation and integration
• Creativity, speed and flexibility
• These advantages belong to the specialist
• What business are we really in?

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Concept of Transaction Costs
Why do (large) firms exist? Ronald Coases
concept of transaction costs

• Search costs
• Information costs
• Bargaining costs
• Decision costs
• Policing costs
• Enforcement costs

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Unbundling The Corporation
NEW INDUSTRY - 1995 HORIZONTAL
OLD INDUSTRY - 1980 VERTICAL
SUPER-STORE
MAIL INTERNET
Sales and Distribution
DEALERS
RETAIL

Application Software
WORD STAR
WORD
WORDPERFECT
Operating Systems
UNIX
DOS/WINDOWS
OS/2
MAC
Computer Hardware
HP
DELL
IBM
ETC
COMPAQ
Processors
INTEL
MOTOROLA
RISC
IBM
WANG
APPLE
NEXT
DEC
UNIVAC
slide 6
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Identify, attract, and build customer
relationships with customers
People Economics Compete Culture
Customer Relationship Management
Infrastructure Management
Product Innovation
Conceive of attractive new products and services
and commercial them
Build and manage facilities for high volume,
repetitive operational tasks
As the interaction costs fall, companies will
come under pressure to unbundle their core
processes, each of which, has very different
economic, cultural, and competitive imperatives.
Rethinking the Corporation
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Rethinking the Corporation

• Customer Relationship Management
• identify, attract, and build customer
  relationships with customers
• Product Innovation
• Conceive of attractive new products and services
  and commercial them
• Infrastructure Management
• Build and manage facilities for high volume,
  repetitive operational tasks

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Rethinking the Traditional Organization
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Organization and Internet

• Industries bundling include
• RBOC, Newspaper, Banking, Pharmaceutical
• Emergence of Infomediaries on the Internet
• a company whose rich store of customer
  information enables it to control the flow of
  commerce on the web
• Informediary will focus on customer relationship
  management
• Yahoo
• Etrade and Banking industry
• Auto Industry and AutobyTel

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Road Map for Unbundling

• Decide which part of the value chain to focus on
• Product innovation business will be dominated by
  many small business
• For the other two infrastructure and customer
  relationships consolidation will be norm
• AOL and Netscape example
• Focus, divest, unbundle and rebundle
• Build scale and scope for infrastructure and
  customer relationship businesses