Jan

28

Unbundling production from delivery can change the world

Filed Under business, changing the world, did you know, innovation, mobile, product management 

From this article from the McKinsey Quarterly,

Technology helps companies to utilize fixed assets more efficiently by disaggregating monolithic systems into reusable components, measuring and metering the use of each, and billing for that use in ever-smaller increments cost effectively. Amazon.com, for example, has expanded its business model to let other retailers use its logistics and distribution services. It also gives independent software developers opportunities to buy processing power on its IT infrastructure so that they don’t have to buy their own.

Interesting, but that (Amazon Web Services) seem like an obvious application since IT assets are consumed remotely/virtually, i.e. one isn’t actually physical interacting with it. Does unbundling apply outside of the virtual world too?

Unbundling works in the physical world too. Today you can buy fractional time on a jet, in a high-end sports car, or even for designer handbags. Unbundling is attractive from the supply side because it lets asset-intensive businesses—factories, warehouses, truck fleets, office buildings, data centers, networks, and so on—raise their utilization rates and therefore their returns on invested capital. On the demand side, unbundling offers access to resources and assets that might otherwise require a large fixed investment or significant scale to achieve competitive marginal costs. For companies and entrepreneurs seeking capacity (or variable additional capacity), unbundling makes it possible to gain access to assets quickly, to scale up businesses yet keep their balance sheets asset light, and to use attractive consumption and contracting models that are easier on their income statements.


Interesting. This model sounds very familiar, now where have I seen that? Oh that’s right, I’m thinking of the Village Phone - Grameenphone project, brainchild of Dr. Muhammad Yunus, who won a Nobel Peace Prize for helping the poor actually effectively combat poverty.

In this village phone economy, a single village might only have one person in it who actually owns a mobile phone. This person then rents this one phone out to the other villagers who might want/need to use it, making a small profit. The villagers who pay for this service cannot afford to buy their own phone, but need this service to access information crucial to their business (they need additional variable capacity). The phone owner is primarily interested in raising the phone’s rate of utilization to increase returns on invested capital (the cost of the phone, airtime charges, etc.) It’s a nice win-win for both seller and buyer.

Now imagine the lack of mobile phones. The would-be mobile phone owner has to find another way of making a living, and the would-be customers who can’t afford the phone anyway has no way of making phone calls to get/send information to people in distance villages who are crucial to their business. Everybody loses.

Unbundling production from delivery is good for the world ;)

McKinsey Quarterly requires a free registration to access that article. FoundRead has a summary here.

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