Vertical Integration

From Wikipedia, the free, on-line encyclopedia, comes this:

In microeconomics and management, the term vertical integration describes a style of management control. Vertically integrated companies are united through a hierarchy with a common owner. Usually each member of the hierarchy produces a different product or service, and the products combine to satisfy a common need. It is contrasted with horizontal integration. Vertical integration is one method of avoiding the hold-up problem. A monopoly produced through vertical integration is called a vertical monopoly, although it might be more appropriate to speak of this as some form of cartel. Andrew Carnegie actually introduced the idea of vertical integration. This led other businessmen to using the system to promote better financial growth and efficiency in their companies and businesses.

The article goes on to describe other stuff about vertical integration. Read the whole piece and follow the references and links.

This is more outmoded now. It's important to know about for the vocabulary, and many companies are still vertically integrated. Anecdotal information suggests that many companies are flattening out. They're realizing that vertical integration is not necessarily of greatest benefit. And you can look like a big, vertically integrated company but just be bunch of smaller units, each independent, but agreeing to work together where it is in their interest to do so.

There's no hard and fast rule about what's better. It's all about the enterprise and how things work best for it. In many industries the old value chain that held these vertically integrated companies together has been blown up by the shift to the virtual economy.

You need to think long and hard about how your company should be organized.

What do you think about this? I'd like to know. Post a comment.

Entrepreneurship 2.0 is my entrepreneurship course. The ideas in it supply the life's blood of my professional activities: teaching, writing, and real estate. For entrepreneurial real estate go to www.yourstopforrealestate.com/blog and for entrepreneurial writing to www.kearneymusicschoolmurders.blogspot/com.

Supply Chain

From Wikipedia, the free, on-line encyclopedia:

A supply chain or logistics network is the system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer. Supply chain activities transform natural resources, raw materials and components into a finished product that is delivered to the end customer. In sophisticated supply chain systems, used products may re-enter the supply chain at any point where residual value is recyclable. Supply chains link value chains.

Entrepreneurs have to pay attention to their supply chains. It's the way they have a business. It helps them compete against other entrepreneurs. There's even a verb now, "supplychaining" which means using your supply chain to create competitive advantage.

Actually, this isn't new. Industry has been using "just in time" supply to make sure that supplies reach the assembly just before they are needed. This keeps production moving smoothly and material doesn't sit around too long deteriorating or risking some even that would damage it and reducing costs of production.

What do you think about this? Read the Wikipedia article and the references cited there. And post a comment.

Entrepreneurship 2.0 is my entrepreneurship course. The ideas in it supply the life's blood of my professional activities: teaching, writing, and real estate. For entrepreneurial real estate go to www.yourstopforrealestate.com/blog and for entrepreneurial writing to www.kearneymusicschoolmurders.blogspot/com.

Value Chain

The concept of a "value chain" was first put forth by Michael Porter in Competitive Advantage (New York: Free Press, 1985) as

A set of linked activities that occur to create a product or service, beginning with the acquisition of raw materials through delivery of the final service after sale.

This quote is not from Porter, but is from Rita Gunther McGrath and Ian MacMillan, in The Entrepreneurial Mindset; Strategies for Continuously Creating Opportunity in an Age of Uncertainty (Boston, MA: Harvard Business School Press, p. 94). Wikipedia has an article on it as well. If you want to read more about value chains, get ahold of these sources and read them and their references.

Value chains are important for entrepreneurs to know about. They offer a powerful way of analyzing our businesses by breaking down our businesses into all the steps we have to go through to get our product sold or service delivered. They also give us a way of seeing how we can enhance our services by looking at each step in the chain and see how we can enhance each step. They also hold a key to what new businesses you could create.

What do you think? Post a comment. I'd like to know what you think.

Entrepreneurship informs all my professional activities. For entrepreneurial real estate, go to www.yourstopforrealestate.com/blog and for entrepreneurial writing to www.kearneymusicschoolmurders.blogspot.com