A:

Corporate philosophy has long held that the three major activities that drive a business – finding and retaining customers, developing new products and services, and maintaining the infrastructure needed to conduct business activities – have to be managed by a single entity. Allowing any of these processes to be managed by a third party is expected to increase interaction costs. Companies have begun to discover, however, that the needs of these three processes can conflict with each other, and that unbundling businesses may help them counter more specialized companies which could provide similar offerings more efficiently.

In recent years, companies have discovered that there are limits to the gains created by having all three processes in one organization. While the three major business activities are imperative to company success and must coexist, the fundamental needs of any single activity may conflict with another activity’s needs. Management has to make decisions that are the least painful to all three activities, but not necessarily the best for any one single activity.

Companies want their clients to spend as much money with them as possible, which has traditionally led companies to offer a broad range of products and services. Tech companies, for example, may offer software, hardware, cloud storage, and consultative services. Managing so many offerings can slow the company down, making it less innovative. At the same time, in order to achieve scale with so many offerings the company must sell as many units as possible.

Rather than try to manage all three major activities in house, companies may outsource them to others who can manage those activities more efficiently. Rather than buy expensive servers, for example, companies can use cloud services. Instead of developing software in house, a company may seek out a specialist to create the software and instead focus on attracting more clients. Unbundling activities that are no longer considered core functions is a radical step that can make companies squeamish, but is a necessary undertaking that will keep companies competitive in some cases.

RELATED FAQS
  1. What are examples of key operating activities in a company?

    Discover the things that make up a company's operating activities, including examples of some the key operating activities ... Read Answer >>
  2. How does portfolio management software work?

    Discover the functions of various complexity levels of portfolio management software, and learn how traders utilize portfolio ... Read Answer >>
  3. How can I use cash flow investing activities to determine if a company is growing?

    Learn how to use the sources and uses of a company's cash flow from investing activities to determine whether that company ... Read Answer >>
  4. What is the difference between passive and active portfolio management?

    Understand the difference between active portfolio management and passive portfolio management, and how each strategy benefits ... Read Answer >>
  5. What is the point of developing a business model?

    Learn some of the benefits of developing a business model and how business models are used. Consider an example of business ... Read Answer >>
Related Articles
  1. Investing

    Unbundling

    Unbundling is what happens when a parent company with a few lines of business decides to keep its core businesses and sell the rest of its assets, product/service lines, divisions or subsidiaries. ...
  2. Small Business

    What are Business Activities?

    Business activities are any actions in which a company engages to make a profit.
  3. Small Business

    Understanding Operating Activities

    Operating activities are the daily processes conducted by a company to generate income.
  4. Insights

    The Industry Handbook: Software Industry

    Discover how the software industry has changed throughout the years to become a mainstay for businesses from programming to software as a service.
  5. Investing

    Active Share Measures Active Management

    A 2006 study proves the effectiveness of a new way of sizing up your portfolio manager.
  6. Investing

    Should Investors Nix Actively Managed Funds?

    Index fund returns are on a tear but does this mean investors should nix actively managed funds?
  7. Financial Advisor

    Steps For Adding New Services To Your Finance Business

    Advisors who seek to add additional lines of business to their practices need to carefully consider all the factors involved.
  8. Tech

    3 Predictions for TV in the Next 10 Years

    Understand current technological trends in the TV industry and what has changed in the past. Learn about three predictions regarding the future of TV.
  9. Retirement

    Active vs. Passive Investing for Retirees

    For most investors, sticking with a passive strategy for retirement investing will probably result in the best long-term returns. But not always.
  10. Tech

    Cloud Investments: Profitable If Chosen Carefully

    By owning stock in cloud-based service companies, you can follow the latest trends and make money from the explosive growth in the cloud industry.
RELATED TERMS
  1. Unbundling

    The process of taking over a large company with several different ...
  2. Active Management

    The use of a human element, such as a single manager, co-managers ...
  3. Operating Activities

    A company's typical daily processes that generate income. Operating ...
  4. Active Investing

    An investment strategy involving ongoing buying and selling actions ...
  5. Business Software & Services Industry ETF

    An exchange-traded fund (ETF) that invests in business software ...
  6. Value Chain

    A high-level model of how businesses receive raw materials as ...
Hot Definitions
  1. Leveraged Buyout - LBO

    The acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. ...
  2. Current Assets

    A balance sheet account that represents the value of all assets that can reasonably expected to be converted into cash within ...
  3. Tax Liability

    The total amount of tax that an entity is legally obligated to pay to an authority as the result of the occurrence of a taxable ...
  4. Preferred Stock

    A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares ...
  5. Net Profit Margin

    Net Margin is the ratio of net profits to revenues for a company or business segment - typically expressed as a percentage ...
  6. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
Trading Center