In the case of Apple, however, the opposite seems to be happening. Apple is finding ways to add its own flavour to a host of technologies through its vertical integration strategy and is using this to produce the differentiated products that we all love. One of its advantages is in its shorter lead-times, which are enabled by not having to talk to all sorts of suppliers before getting things done. Another advantage is its ability to design products containing its own components, a classical vertical integration strategy. This helps Apple turn received wisdom on its head. Google now appears to be trying to take a leaf out of Apple’s book by becoming more vertically integrated. Will it succeed?
This is a difficult call. But several arguments weigh against Google’s decision. First, Google is effectively following the herd (Apple) here. Playing a game of catch-up is always difficult, and particularly so when the firm you are trying to catch up with is as successful as Apple. Second, it is not clear Google can be a successful manufacturer of mobile devices. Unlike Apple, it lacks any background or experience in the production of goods and thus has not been able to build up the capabilities needed to be successful in that game. Firms, which outsource, need to have sufficient capabilities to monitor and manage their suppliers effectively. But firms, which vertically integrate activities, need a strong ability to undertake the activities on top of this. If they do not have this, they might be better off outsourcing the activities. Third, one way or the other, by becoming a hardware producer Google will start to compete with the other users of its Android mobile operating system, such as Samsung and HTC. It is difficult to see how that can make everybody happy at the same time, particularly if growth rates in the smartphone segment start to decrease, as they inevitably will, and Android manufacturers start to compete harder.
Finally, it is not clear whether there will be any consumer response to Google’s new strategy. Are consumers happy to buy a mobile device from a firm which already holds much of their data? With pockets as deep as Google’s you can probably afford a gamble financially, and the Motorola takeover will also give Google an interesting addition to its patent portfolio, but there is a downside to this particular deal that Google will hope does not materialise. If it does, outsourcing might have been better than vertical integration after all.
This is a difficult call. But several arguments weigh against Google’s decision. First, Google is effectively following the herd (Apple) here. Playing a game of catch-up is always difficult, and particularly so when the firm you are trying to catch up with is as successful as Apple. Second, it is not clear Google can be a successful manufacturer of mobile devices. Unlike Apple, it lacks any background or experience in the production of goods and thus has not been able to build up the capabilities needed to be successful in that game. Firms, which outsource, need to have sufficient capabilities to monitor and manage their suppliers effectively. But firms, which vertically integrate activities, need a strong ability to undertake the activities on top of this. If they do not have this, they might be better off outsourcing the activities. Third, one way or the other, by becoming a hardware producer Google will start to compete with the other users of its Android mobile operating system, such as Samsung and HTC. It is difficult to see how that can make everybody happy at the same time, particularly if growth rates in the smartphone segment start to decrease, as they inevitably will, and Android manufacturers start to compete harder.
Finally, it is not clear whether there will be any consumer response to Google’s new strategy. Are consumers happy to buy a mobile device from a firm which already holds much of their data? With pockets as deep as Google’s you can probably afford a gamble financially, and the Motorola takeover will also give Google an interesting addition to its patent portfolio, but there is a downside to this particular deal that Google will hope does not materialise. If it does, outsourcing might have been better than vertical integration after all.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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IIPM: Indian Institute of Planning and Management
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
