If I’m not mistaken, the primary goal of any business is to maximize profits by selling goods or services (or a bundle of both) to customers. In our industry, based on its history, you might be tempted to swap the word “make” for “maximize,” but we all struggle to attain that primary goal.
We’ve witnessed an evolution regarding how some achieve the what-at-times-seems-to-be elusive goal of maximizing profits. I say “evolution,” as the process has been taking place for decades. During the past 10 years, however, that natural evolution has felt much more like a very painful revolution. This process is known as outsourcing production, more commonly referred to as brokering product.
The concept dates back centuries and has its roots in cultures that focused on “trade” versus those that focused on “making” things. Over the past quarter century, our industry, like many, has seen this concept manifest itself into “new” market segments, such as EMS and ODM.
On a macro scale, we clearly are looking at the natural evolution of an age-old business concept. However, on the micro scale, in the bunker and trenches of the daily struggle to make a buck by making and then selling that good or service, experiencing the evolution work its way through our levels of the supply chain has been anything but natural or evolutionary!
Our industry has become far more specialized than it once was. The technology we have aided in creating has enabled a global economy to take hold, which in turn has made specialization not just possible, but highly profitable. Designers who have a particular technical or end-market expertise can electronically collaborate with someone across the world with complementary knowledge and skills to satisfy a common customer that neither alone could have handled. Printed circuit board companies that have niches or limited resources can offer customers a wider array of capability and products via developing relationships with other companies throughout the world.
Such opportunity has been embraced by those in the industry trying to increase the number and breadth of tools in their toolbox, and by customers themselves, who once may have insisted on vertical integration, but now are very comfortable with virtual integration. But, there are risks with virtual integration – risks for the customer, as well as risks for the company going virtual.
The risks for customers have been talked about for years. They include questions/concerns such as, Exactly where is product coming from – and where are proprietary data and intellectual property going? Will quality be assured? Will delivery be acceptable? Will problems be resolved quickly? The list reflects real concerns any customer should, and does, have regardless of from whom or where they source.
The risks for suppliers – companies trying to fatten their tool box via going virtual – are a bit more complex. Here, it boils down to the basics of knowing what you know, staying true to what you do best, and ensuring your integrity stays intact.
Knowing what you know often is where problems begin. Every company has a core competency – an expertise or product capability well known, fully understood and backed with the best in technology or service. When augmenting that core competence with the capability, service or capacity from a virtual partner, make sure you don’t begin believing that that is in fact now your core competence.
By forgetting to stay focused on what you know – and pretending to know what you don’t – the steep slope from competence to incompetence becomes more than a little slippery. A good fabricator of mid-technology circuit boards may not be able to support the demands that customers place on technical involvement when they broker, say, complex HDI product. A designer who understands electronics may have a rough time if they begin to field questions related to RF signals. But the temptation is too often very strong to begin believing you have become expert in all.
Closely related is staying true to what you do best. While all businesses need to stay in sync with the times, if you forget your roots – your core competency – it’s hard to stay true to what you do best. It’s far more lucrative to stay committed to being the best in the niche you are in than to try to emulate a virtual partner whose skills, strengths and problems you may not have any visibility into, let alone understand. In short, it’s sticking to your knitting, knowing when to go to your virtual partner, and knowing when to tell customers “I don’t know” that need to stay squarely in your sites and focus.
This all leads to ensuring your integrity stays intact. When you are upfront with customers and partners about your core competency, and understand and deploy virtual partners openly and with candor, you have a good shot at success. It’s when you begin to believe that you are your virtual partner that you start the slippery slope into the abyss known as incompetence.
Leveraging others’ capability and capacity can boost profitability. But understand the risks when adding tools to your capability tool box.
Peter Bigelow is president and CEO of IMI (imipcb.com); email@example.com. His column appears monthly.