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.

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  4. Horizontal Integration

    The acquisition of additional business activities that are at ...
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