Managing Innovation and Creating Growth/BIG Idea Group (BSSE, Monday, Week 12)
building-and-sustaining-successful-enterprisesyear-twoA way to think about modularity and interdependence in the value chain:
-- Modularity is conformable (like mortar or clay)
-- Interdependence is solid (like bricks)
Buildings (and value chains) are built with alternating layers.
Thus (for semiconductors):
Fab Equipment = Interdependent (ex. Teradyne)
Fabrication => Modular (?)
Microprocessor design => Interdependent (ex. Intel)
Laptops => Modular (ex. Dell)
Two interdependent companies don't usually work well together. Need a layer of modularity...
BIG Idea Group => Fabulous business model but awful for customers. Mattel, et al. is outsourcing their highest value-add activity --- commoditizing themselves.
Personal opinion: "core competency" counter-argument (Mattel's core competency is marketing!) is irrelevant and facile; the profits in the industry won't accrue to marketing given industry structure.
Big company executive: "We're just not innovative enough!" => Actually, all of your downstream activities shape/limit what comes out of the bottom of the funnel.
If you're a big company, think carefully before you outsource the hard stuff.
One idea: NetFlix needs the best suggestion engine in the world. They offer $1M reward to the best submission. Some random dude outside firm develops best engine; NetFlix suggestion engine is ridiculously good/shapes business model.
Obviously hard to do this for everything, but...