Internet Enabled ‘Corporate Unbundling’ Business Model

John Hagel’s concept of ‘unbundling of corporate’ talks about a company being an unnatural bundle of three very different types of businesses- product innovation & commercialization business, customer relationship business and Infrastructure management business.

To me, the genesis of outsourcing industry is in having these 3 diverse businesses- with very diverse economics, skill-sets and cultures-tied together within a company. E.g. customer relationship business (sales) would thrive on ‘economies of scope’ whereas infrastructure business’s (service delivery & assurance) key KPIs would be driven by ‘economies of scale’, ‘time to market’ would be the critical performance parameter for a product innovation (concept to market) business. When the margins come under pressure, CEOs would be faced with a tough choice of cutting the flab and sustaining the margins. In past, situations like this forced CEOs to do some soul searching and ask questions such as ‘what business are we really in?’ E.g. If the company was in the business of selling Telecom products, what business did it have to have in-house call centre or a software development or a product development department, thereby adding to opex and putting pressure on already strained margins.

Pondering over cost optimization options led to the thought of outsourcing of call centers, software development, product development etc to those locations, where these costs would be much lower and margins would be sustained, if not improved. Thus unbundling of corporate led to creation of an outsourcing industry in late nineties with ‘comparable services at lower cost’ being the key value preposition. Important point to note in this story is of enablement or facilitation of unbundling by rapid evolution of internet and communication technologies in late nineties. Internet’s recent prodigy ‘cloud computing’ is expected to take this corporate unbundling process to the next higher orbit.

First wave of ‘internet enabled unbundling’ ensured margin sustenance by outsourcing call centers, software development and product development etc to those locations where resource cost base was much lower. Second wave of ‘cloud enabled unbundling’ is about saving capex (by eliminating the need to buy/own physical hardware, expensive software and capital intensive storage capacities for ‘in-life’ IT operations) as well as reducing opex by running very thin IT operations and buying only the amount of computing power as required at a pre-defined rental fee (‘on-demand’ service model). This will rid CIO of need to burn midnight oil planning capacities for cyclical nature of service uptake.

To quote an example (and there are many), cloudware application company like Nustreet is actively leveraging this unbundling business model and running cloud based ‘subscription’ revenue model on Windows Azure platform, which allows companies to begin using software applications (at a rental fee) almost immediately, with very minimal upfront investments in hardware or software licenses