It is a rule that early stage managers should find, protect and grow the core business, finding resources wherever possible to service that core in the form of variable expense, to be added to or shed at will as the company finds its niche and establishes a pattern of growth.
From administrative services supplied by personal assistants located in India, to designers and producers of prototypes in China, to call centers managed and located in the Philippines, there are efficient, well organized solutions for virtually every process needed by a company to surround its core.
In earlier college business administration courses, professors often touted the advantages of “vertical integration,” the process of bringing all production from raw materials through the finished product under one roof. With the advent of worldwide seamless communication and cheaper skilled labor available through virtual relationships, that old school thinking no longer holds, even for the largest corporations capable of performing all operations in house.
[Email readers, continue here…] Henry Ford located his auto plant near the river so that his steel mill could cool the raw product and feed the plant across the property. And in the 1960’s, I created a vertically integrated record manufacturing plant where raw materials came in one door and finished record albums out the door of the same building. It was considered the most efficient possible organization at that time. But it proved impossible to shed overhead during downturns. Labor and downturn cash flow issues and management distractions contributed to offsetting the positive effects of such a practice. I doubt Ford would organize his plant that way today, and neither would I. There are far too many alternatives that serve to protect the business during downturns, give management alternatives and provide superior results when not at the core of the company’s offering.
