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American business is being fractured

There’s been an interesting fundamental restructuring in American business. It’s called “fracturing,” according to Herbert Meyer, author and a former associate editor of Fortune magazine, and it appears to have some potential future applications for small businesses, including dealerships.

What is fracturing? The current IBM is a good illustration of it. A generation ago, IBM made every part of its computer. Now Intel makes the chips, Microsoft makes the software, still others make the modems, hard drives, monitors and so on. The result is that IBM has all these companies supplying goods cheaper and better than they could do themselves, thereby producing a better computer at a lower cost.

When one company can make a better product by relying on others to perform functions the business used to do itself, it creates a pyramid of companies that serve and support each other. That’s fracturing, explains Meyer.

Even very small businesses can fracture and have a pyramid of entities performing many of its important functions. One result of this trend is that companies end up with fewer employees and more independent contractors. Could all this mean we’re seeing the end of the employer and employee relationship and fracturing means functions such as service, for example, might be performed by independent contractors in the future?

Looking ahead, one implication of all this could be the new workforce contract might look something like this: Show up at my office five days a week, do what I want you to do, give me an invoice for the agreed upon amount and you handle your own insurance, benefits, health care and everything else.

Another implication of this business restructuring is that, because companies are getting rid of units and/or people that once worked for them, the entity becomes smaller. As the business gets smaller, it becomes more efficient, revenues may even go down but profits go up.

As a result of fracturing, the old business notion that revenues are up and we’re doing great isn’t always the case anymore. Businesses can be getting smaller but are also becoming more efficient and, ultimately, more profitable in the process.

Comments

8 comments on “American business is being fractured

  1. nate

    perfect plan for screwing up the long term economy and stability of the country. here’s how it really works, since i’ve seen it in action first hand since the 80′s in aerospace…

    the ex-employees compete as a small business and the lowest bidder wins the contract. each new job is a new contract. each new contract requires more bidding. the contracts needs to be re-negotiated every year, and the lowest bidder usually wins. year by year, contract by contract, the small business profit slowly dwendles down to nothing. pretty soon the only contract competitors are sweat shops full of illegal aliens and illegal child labor, with no benifits. eventually contract bids are only won by offshore companies using the cheapest foreign labor possible.

    think it’s only manufacturing? called a computer help line lately?

    the more ‘fracturing’, as you call it, the more people without insurance, the more people that can not afford to buy houses, cars or toys, or send their children to college. the more people without jobs. and it’s spiraling out of control at a very slow pace – toward a dead end road.

    eventually, this type of planning will bite the rich corporations in the butt. as a matter of fact, it’s already happening. who’s going to buy products when nobody has spare cash, or even jobs?!

    sad.

  2. Robert NorVelle

    Gee Nate, get a grip! Better still, get a clue. The “evil rich corporations” are damned by you for being too big and cursed for getting smaller by fracturing. Make up your mind……

    Sad Sack

  3. Susan

    Get a clue yourself, Richard. He didn’t say they were evil and he didn’t say they were too big. Those are your words.
    His scenario of constant bidding and constant moves towards the lowest price should be apparent to anyone. Product quality is a thing of the past. Cheapest is the new best. The packaging gets glossier and the product inside gets smaller. Or too hard/expensive to fix, let’s just replace it.
    I’m not totally opposed to the idea of outsourcing: if it’s done to achieve a better or equivalent quality product at the same price to consumers, it can be a good thing. Doesn’t seem to work that way often enough in the real world.

  4. Arcy Faulto

    You can thank the ongoing semiconductor revolution for giving us incredibly capable products very inexpensively that are made from such small, specialized parts that it’s not practical to fix them. Globalization means that any product with a significant labor content will be produced where that labor is the least expensive, provided there is enough infrastructure to support the process. It’s sort of amazing any boats are built in the United States at all. Thank God the market for what’s produced here isn’t any larger or they wouldn’t be.

    Not so for a dealership, which is pretty small even by “fracturing” standards. Also a service business which is not so easily exported. Customers want to be taken care of. The more money that is on the line with a complicated product like a boat, the more support they need. If you want to provide support you can differentiate yourself with, you need to attract and retain good people, not good independent contractors who will gladly work for your competitor tomorrow. Sadly, the only place this works is in the middle. Product too small? WalMart-like companies will sell it. Product too large? Customer will have his Captain drive it down to Mexico, or Dubai, to get major work done.

    Many years ago a mentor of mine bought me a two-inch thick steak as a lesson. If you are in the market for a two inch thick steak, price is not the issue. The issue is availability. What’s your unique niche? If most of your business doesn’t come from existing customers or referrals, you might not have one.

  5. Robert NorVelle

    Susan, ya gotta read Norm’s comments more carefully. If you don’t see the implication that “rich” and “big” implies evil in this poor man’s writing then you lack sensitivity and appreciation for what he is trying to say.

    I for one, do not totally disagree with his thesis, but I find his tone offputing and counterproductive to the points he is attempting to make.

    Don’t whine, be bold!

  6. Waterdog

    Norm,
    Computers are smaller & might be faster but they are not better.
    because a boat is faster & bigger doesn’t make it better.

    But, After this week it doesn’t matter as the country now is fractured.

    Key bank s gone, GE is being down graded, & has lost value every qtr. except for a questionable 2nd qtr report. Wachovia is in talks to buy Merril Lynch & the chinese banks are in talks to buy Wachovia
    That would leave goldman sacks as the only American owned (thanks to Warren Buffit) wall street brokrage house
    With out financing all business are indangered. Don’t believe it. Today the largest and oldest Chevrolet dealer anounced it was closing….
    Yes Norm the USA is fractured…..
    I have to get back to work now I have 6-8 weeks back log ;-))))

  7. Arch

    Everyone wants to blame everything BUT the biggest problem our industry has. AFFORDABILITY.
    When we start addressing that issue, instead of FRACTURING, CATERING TO MINORITIES, and the dozens of other worthless ideas and theories I read about, this industry is not going to rebound the way we all want it to. I did like the story on CUSTOMER RETENTION though. We all know keeping a customer is cheaper than finding a new one.
    Boating has just gotten too expensive. Compounding this problem is our economy and that discretionary income has been dropping for years. Instead of trying to reinvent the wheel, I actually think the time is right to go back to the basics. Sell a good product at a competitive price and deliver great service. Having good boat lines, a good selection of used boats, smart management, and great employees is the key.
    I’ve seen some dealers selling HIGH end boats be much more successful than dealers selling cheaper boats. But that is more a reflection of the lack of new boaters into boating and the repeat buyers moving up to better boats.
    FINDING YOUR NICHE is key too.

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