What is Vertical Integration?

Most individuals have not given thought to whether it is better to buy all products/services from a single manufacture or from multiple manufacturers. Suppliers in the telephony marketplace and data manufacturers are marketing “One throat to choke” as the primary benefit to be had when purchasing all of one manufacturers products, like Cisco. After years of buying and selling, I believe it is best to purchase products from a varied supplier base for the following reasons:
1) People who focus on one thing do produce better results and the same goes for companies. How many Bo Jacksons have there been? Was Bo as good as Barry Bonds or Barry Sanders? Both Bo and Craig know the answer. In my opinion the same goes for Firewalls, Network Switches, Telephone Systems, and Service Suppliers etc.
2) Standards allow best of breed products to be produced. Your job as a product and services buyer is to objectively determine what product is best for your organization. Cost of Ownership, Feature Set, and Reputation all should be weighed before purchasing any product or service.
3) The bureaucratic environment within large organizations stifles innovation. Innovation happens most consistently within smaller organizations. Look at how big corporations are consistently buying up smaller rivals to improve time to market and increase market share. If large organizations were innovators, why the need for acquisitions?
4) Better customer service is derived from smaller, more focused organizations. Big companies excel at developing processes for addressing customer issues. These processes are necessary in large organizations to make sure customer service issues are handled. The problem with cumbersome processes is not all customer service issues will fall into a given process for resolution. When working with these mega organizations does your representative have the authority to cut through the red tape to get your service issue resolved quickly? Most often the answer is no.
5) Henry Ford worked on building a vertical – integrated manufacturing plant at his Rouge River facility beginning in 1917. His vision was to manufacture everything necessary to build a car in one place. By the 1960’s Ford realized decentralization and specialization was a more efficient business model. Today all automobile manufactures embrace a decentralized, multiple vendor approach to building products. This same philosophy applies to the telecommunications market.
So what exactly do large organizations excel at? Marketing! Creative marketing pounds home the message that their products and services are the best for your organization. Your job is to sift through that crafted message in order to determine accuracy of their statement while keeping in mind that history is on the side of decentralization and specialization of products and services no matter what the marketing message says.



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