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Related Experiment Videos

Unbundling the corporation.

J Hagel1, M Singer

  • 1McKinsey & Company, Palo Alto, CA, USA.

Harvard Business Review
|July 1, 1999
PubMed
Summary
This summary is machine-generated.

Most companies perform three distinct functions: customer acquisition, product development, and operations. Declining interaction costs enable specialized firms to emerge, forcing traditional companies to unbundle and rebundle their core businesses.

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Area of Science:

  • Business Strategy
  • Organizational Economics
  • Digital Transformation

Background:

  • Companies traditionally bundle customer acquisition, product development, and operations due to high interaction costs.
  • Each business function has conflicting economic drivers: economies of scope (customer acquisition), speed (product innovation), and scale (operations).
  • Simultaneous optimization of scope, speed, and scale is impossible within a single, monolithic organization, necessitating trade-offs.

Purpose of the Study:

  • To analyze the impact of decreasing interaction costs on corporate structure.
  • To predict how companies will adapt to a frictionless economy.
  • To advise executives on redefining their core business in response to market changes.

Main Methods:

  • Conceptual analysis of business functions and their economic characteristics.

Related Experiment Videos

  • Examination of the role of electronic networks in reducing interaction costs.
  • Predictive modeling of future corporate structures and competitive landscapes.

    • Main Results:

    • Electronic networks are significantly reducing interaction costs, lowering barriers to entry for specialized competitors.
    • Companies previously bundled due to high interaction costs can now be separated and optimized independently.
    • New, specialized competitors will emerge, unburdened by the trade-offs faced by traditional, integrated firms.

    Conclusions:

    • Traditional businesses must unbundle their core functions and then rebundle into new configurations: large infrastructure/customer-relationship entities and agile product innovation firms.
    • Executives must critically reassess their core business identity ('What business are we really in?').
    • Failure to adapt to the frictionless economy by redefining business strategy will determine corporate fate.