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Page 71 GO IT ALONE!
In an award-winning 1999 article in the Harvard Business Review entitled “Unbundling the Corporation,” John Hagel and Marc Singer demonstrated that global electronic networks (that is, the Internet) would cause a dramatic realignment in what was necessarily “inside” and what was “outside” individual firms. Their argument can be abbreviated as follows: - “Electronic networks allow companies to communicate and exchange data far more quickly and cheaply than ever before. This has created a systematic reduction in interaction costs, which comprise the money and time expended whenever goods, services or ideas are exchanged.”
- Interaction costs are the daily tasks of coordination and exchanges within or outside firms. “In a very real sense interaction costs are the friction within the economy. Interaction costs determine how companies organize themselves and their relationships with other parties.” If the interaction costs for an activity are lower within a firm, then activities stay under the same roof. If not, they migrate outside the firm.
- An individual company participates in three separate businesses: (1) a customer relations, (2) a product innovation, and (3) an infrastructure (managing repetitive operational tasks).
- The low costs of interaction in an Internet economy will lead firms to specialize in aspects of these three areas and will create new arrangements among different firms specializing in different areas.
In essence, there will be an unbundling followed by new forms of rebundling, with different types of alliances arising to take advantage of these shifting dynamics.
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GO IT ALONE! Copyright 2004 by Bruce Judson. Reprinted by permission of HarperCollins Publishers. All rights reserved.
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