Unbundling the Corporation By John Hagel III and Marc Singer HBR March-April 1999

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?

Concept of Transaction Costs Why do (large) firms exist? Ronald Coase’s concept of “transaction costs” Search costs Information costs Bargaining costs Decision costs Policing costs Enforcement costs

NEW INDUSTRY - 1995 HORIZONTAL OLD INDUSTRY - 1980 VERTICAL Unbundling The Corporation NEW INDUSTRY - 1995 HORIZONTAL OLD INDUSTRY - 1980 VERTICAL Sales and Distribution SUPER-STORE MAIL INTERNET DEALERS RETAIL Application Software WORD WORDPERFECT WORD STAR Operating Systems DOS/WINDOWS OS/2 MAC UNIX Computer Hardware HP IBM DELL COMPAQ ETC Processors INTEL MOTOROLA RISC IBM WANG APPLE NEXT UNIVAC DEC slide 6 7

Rethinking the Corporation 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

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

Rethinking the Traditional Organization

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 E*trade and Banking industry Auto Industry and AutobyTel

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