Matthew Langham over at The Silent Penguin stirs the pot with a seemingly radical idea: Opening the business plan?
Consider this list from Michael Porter. It enumerates reasons why firms in an industry remain fragmented. For example if most of the value your firm creates comes from personal service there is little benefit to be gained from merging a number of such firms into one big firm. It’s a good list.
In a stable fragmented industry the firms are safe in their niche. Porter goes on to mention that fragmented industries are more collegial – which I read to be a sign of open collaboration. Of course competition is only one reason why actors like to keep their privacy. Just to give one example – fear of embarrassment is a good reason to retain a lot of privacy.
That leads me to assume that members of a fragmented industry can be substantially more open about their business with each other. If the firm has three functions, A, B, C and A is such that it keeps the industry fragmented the firms can collaborate on how to execute on all three functions because improvements in any of these functions don’t lead to increased competition.
It appears that this would lead to a situation where fragmented industries are much more creative than concentrated one. The N firms in a fragmented industry each search for innovations independently. Their search is informed by close contact with the customer/problem. When ever they discover some improvement, or even an idea for an improvement, they take it back to one or more of the industry forums and “trade it” or throw it into the collective pot. This process tends to the practical.
Highly concentrated industries who fear the other members of the industry have a harder time doing that and they have to adopt the R&D lab approach for seeking innovation. That tends to ivory tower irrelevance.
What bemuses me is that standard rules of engagement in a concentrated industry encourage keeping secrets. There, knowledge exchange with peer firms is a sin. Meanwhile, members of fragmented industries are convivially exchanging knowledge because it’s vital to their rapid evolution.
This all blows up in your face when somebody discovers a way to consolidate an industry that is currently fragmented. When Home Depot or Staples, to take two examples, rolls up the hardware and stationary store businesses for example.