What constituted the basic business unit was relatively easy to define a year ago. It was a group of people who met together to provide a product or service, using the talents of each.
But modern businesses practices have led to a degree of fragmentation. Many of the facilities that businesses used to offer in-house are now farmed out to external providers, leaving many wondering what the boundaries of a company really in 2018.
Take the finance department, for instance. It’s role used to be preparing company accounts, filing cash flow statements, and dealing with tax issues. But now many companies pay an external accounting service or use software. There’s no need to hire expensive financial analysts.
A similar thing is happening in marketing too. Old-school firms like MasterCard and Barclays used to employ legions of people to conceive and create their marketing content. But with so many agencies proficient in that activity, most companies now outsource this activity too, allowing them to scale back on costs and focus on their core services.
As we approach 2019, there are signs, yet again, that the boundaries of firms are shifting once more.
The End Of Traditional Supply Chains
Once upon a time, businesses had to craft close relationships with vendors, ensuring well in advance that all components of the supply chain were in place. But technology has changed how supply chains work in many industries, compressing the time it takes to go from conception to realization.
Take the product design industry. In the past, real estate developers like CBRE would have had to spend weeks consulting with architects and wait months for them to construct designs for a new development. But today, thanks to the combination of computerized architecture, a portfolio of drawings, artificial intelligence, and instant communication, developers can get designs approved in a matter of hours.
Product developers are benefiting from this too. Rapid prototyping using 3D printing negates the need to use traditional molds, accelerating time from conception to production.
Businesses Contract Rather Than Hire Talented People
Many lament the rise of the gig economy. But it turns out that there are remarkably simple reasons why companies are employing fewer employees – and it’s not just to do with saving money.
The main reason has to do with the complexity of modern product development. A firm that produces complex devices like smart refrigerators needs a team of talented people with incredibly diverse skills sets. It needs people who understand artificial intelligence, networking, compressors, insulation, touchscreens and software integration. Getting a smart fridge to do what it does is no easy task.
Developing new products isn’t always a full-time job. And even if it was, it’s unlikely that companies would want to pay for a complete staff of people, just in case. It’s much better, therefore, to hire talented people as and when they’re needed. Gifted people can then work for multiple companies, providing their expert knowledge and consulting expertise.
Companies may also benefit from the “social economies” gained from constant exposure to outside influence. Company cultures can sometimes become stagnant, especially if the same people work together day in, day out. People can avoid stepping out of line for fear of losing influence or missing out on promotions. Firms fail to innovate.
But contractual talent solves this problem. Outsiders are less likely to be concerned with their standing in any particular company and are, therefore, more likely to speak out on issues to do with product or company culture. Outside influences can be helpful for growing businesses and ensuring that executives remain self-critical.
The Outsourcing Of Rote Tasks
Getting back to the core question, what is the boundary of a business? Many would argue that the true border of a company is the provision of its core services – the way that it adds value to customers. The rest is just fluff.
2019 is likely to bring with it a host of new auxiliary services which will further focus businesses on their core activities. Already we’ve seen answer services, external accounting, marketing and finance, and companies that provide firms with fulfillment and logistics solutions.
2019 is likely to see the most innovation in the digital space. Platform providers will continue to consolidate, providing networks for firms to sell their goods and manage their operations.
Adaptation Will Be The Norm
In 2018, most entrepreneurs are yet to embrace the reality of constant change. Many view themselves as being leaders of businesses that offer a fixed range of services to meet a market need. Entrepreneurs remain focused on refining and improving those products, but they don’t think carefully about how to amend those products to adaptation in the future.
What this means for long-term success is clear: leaders who shoehorn their companies into particular niches risk losing out when market conditions change. Ideally, entrepreneurs and their teams should strive to create products that can be adjusted in response to changing conditions.
Perhaps the most crucial task for executive teams going forward is research. No, not all teams will be able to predict all possible disruptions in their industry, but having research as a critical item on the agenda makes it more likely that businesses will have some warning that change is on the horizon.
The boundaries of businesses may, therefore, start to look at a lot more like Google and Amazon and less like Kroger. Google, for instance, has wings of its business invested in artificial intelligence, human health, and device manufacturing. Amazon isn’t just an online retailer, it’s in the home assistant, web services, and cloud computing markets too. Nvidia is another excellent example. Although the company still makes the lion’s share of its money supplying graphics cards to gamers, it’s investing in what it thinks will be the next big market for its products: self-driving cars. Over the next decade, that may turn into its primary source of revenue, just as Amazon’s web services branch may turn into its primary source of income.
So while businesses might be reducing the number of traditional tasks that they take on in-house – mainly administrative functions – they are also increasing the scope of their business, doing whatever circumstances suggest they must.
The Role Of Automation
Finally, it’s worth talking about the way the automation will affect the boundaries of business in 2019. As automation progresses into the new year, companies will begin to scale back the human element in many of the tasks they regularly perform.
Perhaps the most obvious place this is occurring right now is in the fulfillment industry. Companies like JD are currently investing in centers which require only a couple of workers to ensure that the machines are working correctly. A center that would once have employed thousands now employs just a handful.
Some companies may become essentially “workerless.” We already see a few early examples, like Twitter, which hire just a handful of people yet make enormous profits. Hence, the boundaries of companies may stop with the machinery, and people in many industries may be surplus to requirement.
Automation may also eliminate a lot of the annoying tasks that businesses must pay for at present. Automation is, therefore, good news for companies who want many of the functions they currently outsource at a lower cost. New technology, ironically, could eliminate the opportunities for support businesses who cannot compete with instant and automated bot-driven alternatives.
The boundaries of companies are continually changing. But as we head into 2019, they’re likely to get even fuzzier. Companies may eventually be placeholders, rather than teams of close-knit people – entities which only get together for the task of production when circumstances demand it, and not otherwise.
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