Evolving Business Organizations

Evolving Business Organizations

I have a habit of mulling over what I have read recently while doing mundane tasks such as swimming laps (trying to maintain my health). The interesting article that I talked about in my last BLOG post (The Economist – “Partners in wealth”, January 19, 2006) is one of those. The gist of the article is that the evolving business organization of the future is a constant reconfiguration of both internal and external partners. “… made up of a number of strategically aligned businesses ‘linked closely where there are opportunities to create value by leveraging shared capabilities, but only loosely where the greater value lies in differentiated focus’.”

One of the examples given is how Boeing has organized the development of the future 787 commercial aircraft. Rather than performing the entire design, development and manufacture in-house, they have selected partners that are responsible for entire portions of the future aircraft. These partners are selected based upon their exceptional design and manufacturing capability for specific areas of aircraft design. The objective is to be able to offer better value to their customers in their global competition with Airbus.

What occurred to me is that for years the concept of globalization meant the out sourcing the day to day mundane tasks to low labor rate regions. Bank transaction processing is a prime example. The article alludes to the fact that some banking institution have discovered that they are giving up a prime opportunity to mine the transaction data for leads to market/ sell other bank products. The example that came to my mind was data relating to the source of the transaction. Knowing that the customer is making their payment from a money market account offers the bank a target market for bank financial services … e.g. those individuals that are currently using those types of services.

Our firm recently established a similar partnership with a North American customer. Based upon the customer’s early design documentation (schematic and enclosure layout drawing), we have partnered to complete the engineering design (BOM, PCB layout, dimensioned drawings), develop production tooling and manufacture in volume the complete product. The customer has relied upon our expertise in the design and manufacture of power supplies to achieve;

  • Shorter time to market,
  • Lower product cost,
  • Improved cash flow.

The other interesting concept that I found in the article is that “out sourcing” is not necessarily permanent. A business case can be made to “in source” certain functions, even though in-house processing may be more expensive in the short term. The concept is that by “out sourcing” certain mundane transaction processes, the business gives up the ability to mine the transactions for new business opportunities. The example that was given was the outsourcing of the processing of payments by banks. The banks have begun to realize that by aggressively data mining the transactions they may develop leads to sell other bank products. After thinking about this idea for a few minutes, I thought of the idea of capturing the source of the funds used by the customer to make the payment. For example, if the customer uses a money market investment account, this might be a lead for the sale of the bank’s investment account service.

Food for thought.

-- Timothy Chen