Whither Capacity?

Capacity, must build capacity, you talk to Dick for five minutes (or less) and I promise he will mention capacity. As in, must have, so ... must build?

Build? Internally? Is that the only way to build capacity? Let's take a short walk down memory lane. Back to Henry Ford. Again.

Mr. Ford senior is famous for many things--the assembly line, anti-semitism, "any color as long as it is black"--among them is the River Rouge factory complex. Upon completion River Rouge was the largest integrated factory in the world. Ford believed efficiency came from controlling all aspects of production, vertically (raw materials to parts to power) and horizontally (all types and ranges of vehicles). Building capacity to H. Ford meant adding another building or coal mine.

Verticle integration went out of vogue in the 50s, replaced by building a chain of suppliers. The thought was, I concentrate on what I am good at, you on what you are good at, and by working together we'll both benefit.

Consider the Nike runners you own. While the shoes--and the shirt, tennis racket and golf balls--have the Nike swoosh logo, Nike did not make the shoes! Nike does not make shoes! Nike does not make anything. Nike designs and markets; others make and distribute the actual "swooshed" products.

This "do only what you are good at" business model reaches its most modern incarnation in Prahalad and Krishnan's, The New Age Of Innovation's idea that R=G. As the authors say,

Resources are accessed as needed from a global resource pool (R=G).

A company need not, nor maybe should not, build up its own verticle capacity and ability when other companies around the world already have, and are willing to rent/sell such to you.

Back to Acme. In our Skype yesterday Dick told me of his day-trip to an established company that offers the writing services Acme needs. The two entrepreneur owners, one Western, one Indian, discussed how to make cooperation work. Buy out? Buy in? Long term lease?

Both recognized that this was new territory, and they were making the map as the went along. Acme has never outsourced such a critical part of its service, and the Indian company had never met such a demand for its entire service. Wisely they put off making any final arrangement, deciding first to date rather than rush into a wedding.

I am unsure about Acme outsourcing (partnering, whatever) such a key part of its business. Maybe that is my age showing though: I gained business maturity (sic) during the time of "core competencies." I learned (and taught) that it was okay, even good, to outsource non-core fuctions (HR and IT are common examples) functions, but everything must be done to protect/build the company crown jewels, the skills that set the company apart from the corporate hoi polloi.

To my thinking, anything that touches the customer is core, but then Nike doesn't make the shoes that caress the soles, making production a core competency. Maybe I must broaden my thinking, must add "managing coutsourcing/partnering relationships" a new, R=G world. No doubt Dick and I will continue this discussion.

Before leaving, a word on horizontal integration. Horizontal integration, the ability to reach many different markets with essentailly the same service or product, is still in vogue. Rupert Murdock sells the same basic story (for example) in different types of media outlets in different countries. Yet I wonder how far the horizon will continue to stretch, how homogenous--one size fits all writ large--buyers worldwide will allow products and services to become. Prahalad and Krishnan suggest (strongly!) that the global marketplace is/will be guided by N=1 (see "Plans Are Decided By Customers" post), the concept that each service/product is unique to the purchaser. Will alterations around the edges offer the required level of customization (meaning horizons can stretch on uninterrupted) or will N=1 require a smaller and shorter horizon?

No answer today though, just the question.