Thursday, May 24, 2007

Silos part 2: the importance of connection

Earlier this week, I posted on an article by Ranjay Gulati of Northwestern University in this month's Harvard Business Review, "Silo Busting: How to Execute on the Promise of Customer Focus" (link - $$). Gulati brings up another area in which companies are adjusting to provide solutions that better fit customer needs: increasing connections between companies.

It's an accepted fact that more and more companies are pursuing alliances to extend their capabilities or to shed noncore functions. Gulati reinforces what often gets lost in all the talk about alliances: these moves occur primarily because it helps companies deliver solutions that customers will buy.

Extended capabilities help fill out solutions that would be incomplete with only the company's own products. Outsourcing helps companies reduce their unit costs, thereby enabling more cost-effective solutions, and allows them to focus more investment and management attention on activities that are more central to serving customers (like account management).

Relying more on partners has a downside. A company can become too dependent on partners and suppliers. It can grow competitors by educating other companies about its business. And managing cooperation is more difficult between two different companies with their own strategies and cultures than it is between different departments of the same company.

But the extended firm is here to stay. If you don't think you can manage alliances, you better get some education quick.

(Photo: "Silo2" by saulinis via stock.xchng)