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. What are the primary activities of Michael Porter's value chain?

    Understand the primary activities of Michael Porter's value chain, and learn how a company can optimize those activities ... Read Answer >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
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

    The Top 10 Hidden Factors Affecting Software Stocks

    Want to invest in software? Here are the most important factors affecting profits, revenues, and stock price of software companies
  4. Small Business

    Understanding Operating Activities

    Operating activities are the daily processes conducted by a company to generate income.
  5. Investing

    Want ETFs But Hate To Buy And Hold? Try Active ETFs

    Choosing between passive and active ETFs depends on your beliefs about active management's value.
  6. 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.
  7. Small Business

    The Basics Of Value Chain Analysis

    Value chain analysis establishes an action plan to understand and implement actvities that create values to a firm's clients, resulting in firm profits.
  8. Investing

    Active Share Measures Active Management

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

    Should Investors Nix Actively Managed Funds?

    Index fund returns are on a tear but does this mean investors should nix actively managed funds?
  10. 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.
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. Active Investing

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

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

    A high-level model of how businesses receive raw materials as ...
  6. Cloud Computing

    A model for delivering information technology services in which ...
Hot Definitions
  1. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  2. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
  3. Mezzanine Financing

    A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies. Mezzanine financing ...
  4. Long Run

    A period of time in which all factors of production and costs are variable. In the long run, firms are able to adjust all ...
  5. Quasi Contract

    A legal agreement created by the courts between two parties who did not have a previous obligation to each other. A normal ...
  6. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
Trading Center