First Serve Strategies

Ever since the industrial revolution there has been an inherent problem for companies.  A problem stemming from the nature of being vertically integrated—where research, development, operations, sales and support were all managed under the same roof.  While vertical integration has its benefits—centralized control of information, complete ownership of the customer experience to name two—it creates motivational conflicts throughout the organization.

Most business ventures can be broken down into three core processes—product innovation, infrastructure and customer relationships.  The inherent problem comes from the conflicting objectives associated with these three processes.

Successful product innovation requires speed-to-market and differentiation.  By contrast, economies of scale and standardization are watchwords for companies trying to maximize infrastructure efficiencies.  In the words of Henry Ford, “Any customer can have a car painted in any color that he wants so long as it is black.”  It doesn’t take long for conflict to arise when product developers are striving to frequently and rapidly introduce completely redesigned products, which require variations in infrastructure like tooling, molds, presses, automation equipment and assembly line alterations.

If that doesn’t create enough conflict, those involved with the customer relationship process care mostly about scope, wanting to satisfy each and every customer’s needs.  “What do you mean it only comes in black?  My customer is a Kentucky Wildcat fan, and wants his in UK blue!”

Until recently, companies have learned to live with these conflicts in order to ensure effective information flow and quality control regarding customer solutions and interactions. Rapid changes in information technology over the past two decades, however, have allowed for the disintegration of companies, where companies are becoming less vertically integrated.

In Corporate America this shift is happening at glacial speed, but in the new and emerging venture space it is becoming more the rule than the exception.  Over the past five years I have reviewed hundreds of business plans.  Virtually all of them employ a business model that is disintegrated, where one or more of the three core business processes are outsourced to vendors or alliance partners.

In this hyper-competitive business environment, the astute entrepreneur understands the need to focus attention on the company’s points of differentiation (POD) rather than trying to build a vertically integrated company.  The dichotomy is that new venture creation is not a linear process.  Often, discerning a company’s POD is an iterative process, making it important early in the strategic planning process to protect core business activities that may be critical to maintaining competitive advantage.  After all, we don’t want to throw out the proverbial baby with the bath water.

©Mark P. Loschiavo

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