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Virtualized business: the interface between costs and customers

Jonathan Cooper-Bagnall
Apr 17, 2015 4:30:00 AM

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Making something out of nothing

There is a simple, but very powerful image circulating around social media this week, that really struck a chord with us. So much so, that we thought we would share it with you here:

Making something from nothing
(Source: Tom Goodwin/Wetpaint)

The graphic (created from an article by Tom Goodwin that appeared in TechCrunch) highlights a growing trend driving successful businesses, changing the long-held belief of what constitutes a ‘business’. What it shows is that some of the world’s newest, rapidly growing and most successful companies don’t actually make, produce, or even own the products and services that they are selling. As Goodwin's article suggests, “these companies are indescribably thin layers that sit on top of vast supply systems (where the costs are) and interface with a huge number of people (where the money is)”. 

The article/graphic makes the point that in a ‘software is king’ world, it is the customer interface the counts. And that is exactly where, and how, these new companies have flourished.

While we won’t argue that premise, we think there is a bigger argument to be made. Because what this graphic really shows applies to both the new kings of commerce and the old (the Facebooks and the Fords): We live in an age of the hollowed-out company, whereby organizations externalize their cost base, becoming increasingly reliant on suppliers for everything from innovation to IP. We call this corporate virtualization.

And corporate virtualization demands that companies not only focus on the customer interface (where the money is), but address the other critical layer: the supplier interface (where the operations/mechanics/problems/opportunities are).

So what does this mean for your business, or for wider business strategy?

For those who fail to effectively manage and engage with their supplier interface the risks are clear. Copious and consistent reports of supply chain and supplier related failures that significantly impact the most successful companies (most recently Tesco and Chipotle) are proof that a neglected or improperly managed supplier base is no longer an option for a business, neither in the eyes of its regulators, nor more importantly, its customers.

And, with 69% of business revenues being spent with external suppliers, there is a treasure trove of opportunity for those who are able to effectively manage, utilize and collaborate with their suppliers. From supplier-led innovation to risk mitigation - that large chunk of revenue investment could and should be creating value in more ways than one.

Henry Ford once said "a business, in my way of thinking, is not a machine. It is a collection of people who are brought together to do work". Given that Ford probably wouldn’t recognize his own business today if he compared it to the operation 100 years ago, we thought that the quote needed a slight update – to read: A business is a collection of employees and suppliers who are brought together to do work.

In short, corporate virtualization is changing the nature of business, redefining long held beliefs and changing conventions. It impacts both the customer interface and the supplier interface and extends to the heart of your business.

Click here to download our guide to corporate virtualization and to find out how you can get ahead of this growing trend toward externalization.

As always, if you have any thoughts or comments, please add them to the box below.

 Corporate Virtualization

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