My Vendors have Vendors: The disintigration of American Business

So I’m working on a website with an agency. I tell myself “I don’t know photoshop, I’m not super-creative, nor do I have time to learn,” so I hire a marketing agency who will build the creative for my campaign. Standard operating procedure. They turn around and say to themsleves, “we don’t know how to code animations, we don’t know how to host a website, and we don’t have time to learn,” so they hire a development agency to take their art and turn it into animation – to turn it into a website. Standard operating proceedure. Sounds very reasonable, right?

The result: Utter chaos. I understand the goals of my campaign & the message to be communicated. but not how to execute it. Agency knows how to build creative that resonates, but doesn’t know the goals, the message, or how to code. And the web design team knows how to code, but not my goals, or the agency’s the creative vision. And when you put it all together, the end result is managed chaos. This is specialization taken to an extreme. And in every industry, you see examples of how, more than ever before, business is becoming highly specialized with hundreds of interlocking companies, and “ecosystems” of companies that feed off other companies.  A whole discipline of “Project Managers” has emerged, whose only specialization is learning how to manage this chaos.

Another example – In the book “The 4-Hour Workweek” Timothy Ferriss suggests we should all hire a personal assistant in India to learn about outsourcing & delegating. This person can handle online research such as booking travel or buying gifts, ordering groceries, or planning a weekend Ski Trip for you and 11 of your closest friends, for just dollars per hour. Ferriss – a writer – even outsourced a chapter of his book. All of this makes me wonder if someday we won’t take this free-market-highly-specialized model even further. As the frictional costs of outsourcing decline, and beter information becomes more freely available, this vision of hyper-specialization doesn’t seem quite so far off. 

In economics 101 we call “specialization” a good thing because it leads to higher productivity. We call it “comparative advantage” – I’m better at making ham so I’ll make ham and trade you for cheese. You’re better at making cheese, so you can make cheese & trade me for my ham. Result is net-net, more ham & more cheese are created than if we’d each tried to be self sufficient. But what if there’s 10 products instead of 2 – am I supposed to swap my ham for a bit of cheese, a bit of bread, a bit of lettuce, etc.? What if the guy who has lettuce is vegan and doesn’t eat ham? I need an intermediary – like cheese – that I can swap for his lettuce. There’s friction in how this trading happens. So someone invents money. And money then reduces the transactional friction, and heightens the possibilities for specialization.

The first force that is reshaping business is lower frictional costs associated with plugging people and companies in and out. At one time, Ford built the entire car – soup to nuts – by becoming vertically integrated. They owned the mines, the smelters, the parts manufacturing plants, the car manufacturing plants, and the dealerships. Fifty years later, they bought their parts from tightly integrated 3rd party manufacturers, and then in turn shipped their cars over to tightly integrated 3rd party dealers. Today you can design a spec of almost anything, a website or an auto part or a toothbrush – and find a company in China or India who says they can build it for you. 

The second force shaping this change is the free flow of information. This comes into play both when finding the right person to outsource to, and in making the outsourcing work smoothly. It used to be the case that if I wanted to hire a great candidate, I had to scour contacts & hire head hunters. Today I have, I have career center websites that agegate resumes across hundreds of universities, and I have websites that review everything like Vault and Yelp. Imagine a Yelp for B2B that let’s me instantly find highly-reviewed companies that provide any part, product, or service I’m looking for. Imagine everyone operating like this. What if every person was their own company.  You balk at the idea – “I don’t have the first clue about how to set up a company” – buy no need – what if there was a company that would handle all the tax, legal, and accounting concerns. You might have your own page on a site like LinkedIn or Yelp – Prasid Consulting Services LLC. or something fancy like that – where customers could review projects you’ve done for them, and where you can post your resume. You would reach out to contacts to set up a 15 minute conference call – finding a time on their Outlook calendar that appeared free – and using a video conference via Windows Live Messenger (free service) and the webcam already built into your PC.

And once you’ve found the perfect person to oursource to, the free flow of information is crucial to successfully outsourcing the project. Once you design your spec, you have a host of technology solutions to ensure you can collaborate as though you were working right next to each other. Information technology like Microsoft’s LiveMeeting and Office Live Workspaces, like conference call numbers, webcams, and virtual whiteboards, like email and SharePoint, allow increasing specialization, because they reduce the transactional friction involved with working remotely, with storing information in a place where everyone has access, and in plugging people in and out of projects as needed. As a result, when I decided that I needed someone to help manage the an on-campus event for me, I was able to engage a staffing firm, recruit a candidate, interview, hire, put a contract in place, get the project scoped, planned, launched, executed, and paid for, in less than a month. She came, took over the project, interviewed  everyone to figure out what was needed, created a plan, and executed it, reported results, and moved on to the next project.

The future is companies that are highly specialized, flat, modular, nimble, and constantly in flux, working in tandem with other companies to achieve project-based goals, competing in a market with perfect information, driving prices lower, to deliver products and services that they must stake their reputations on. Alternatively, the future is companies that aren’t real, that aren’t aligned along unified sets of values, where no one is working towards a bigger picture because everyone is myopically focused on the task at hand, and where every day is a negotation, a struggle, between tiny competing self-interested entities, and the most time is spent in gridlock “project managing” these relationships that are constantly in flux.


One thought on “My Vendors have Vendors: The disintigration of American Business

  1. Excellent day! This is kind of off topic but I want some help from an established weblog. Is it quite difficult to set up your personal weblog? I’m not extremely techincal but I can figure points out pretty quickly. I’m thinking about setting up my own but I’m not confident exactly where to start. Do you might have any suggestions or suggestions? Appreciate it

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