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.