Collaboration: The way forward for High Tech Industry

In his classic best-seller ‘The Goal’, Eliyahu M. Goldratt discusses about the three fundamental ways of making money for a going concern namely,
Increase throughput (the rate at which the system generates money through sales)
Reduce Inventory (all the money that system has invested in purchasing things which it intends to sells)
Reduce Operational expenses (all the money the system spends in order to turn inventory into throughput)

With changes happening at such a fast pace, more so in the high tech industry where change is the hygiene factor, (remember Alvin Toffler’s ‘Future Shock’ where he talks about the shattering stress and disorientation that we induce in individuals by subjecting them to too much change in too short a time), companies are increasingly finding it tough to address Goldratt’s basic principles in remaining competitive. Given the current circumstances, the high tech industry is looking at increased collaboration with suppliers, customers, freight carriers to cater to the fast paced changing needs of the market. Think of a situation 100 years ago where players in this industry started right from procuring the raw material, building the product and then selling it to the customer. Slowly the trend started in the direction where companies started partnering with external partners to handle some part of the supply chain. And right now we are in a situation where the entire manufacturing is handled by contract manufacturers and the distribution is done by third party logistics providers.
Now comes the question of does it make sense to do so? Are we not exposing our skill set to external parties who can be potential competitors? The answer is you don’t have a choice. You have to change at a pace which you cannot do alone. Secondly with the economy in such turmoil, you have to find ways of reducing your inventory and operational expenses. Why not have somebody handle the entire manufacturing so that you don’t have inventory of components in your books. And of course you have the classic cost factor. It makes perfect business sense to produce at the least cost. So we see many of the contract manufacturers setting shop in the lower cost Asia-Pacific region.
But how do the OEMs ensure that they thwart potential competition from the contract manufacturers who can move up the value chain? Well, the contract manufacturers work on a technology which is prevalent in the industry. There is no trade secret as such. For example, while the Contract Manufacturer will print the labels which are affixed on the cartons but the Label Printing rules are controlled at the OEM’s premises. And another classic way is patent it. So let people copy it and you make money out of it.
And innovation is the key. While OEMs try to stay ahead of the market through their innovative technologies, the partners work on the more established technologies. It reminds us of the era before Taylorism when it was believed that managers do the thinking while workers carry out the routine job.
To put this in a different way, Gary Hamel and Prahalad wrote about the concept of Core Competency - Those things that define what is special about an organization, what sets it apart from other organizations. High tech companies are increasingly doing that where they focus on the innovation while the other processes in the value chain are being handled by their partners. The increased emergence of Web 2.0 technologies has brought about breakthrough changes in ways of collaboration. Coming back to the Game Theory principles, it is only strategic collaborative interactions among the stakeholders in the high tech industry, which can lead to Nash equilibrium. So the mantra is ‘Collaborate or Perish!’

Please post your comments. For more insights, please contact me at Sandeep_chatterjee@infosys.com