Accelerating out of the Great Recession by David Rhodes & Daniel Stelter

Author:David Rhodes & Daniel Stelter
Language: eng
Format: epub
Publisher: McGraw-Hill Education
Published: 2010-04-15T04:00:00+00:00

Maintain a Flexible Business Model

Maintaining a flexible business structure allows for quick adjustments to changing economic conditions. Designing a flexible organization at the start reduces the likelihood of having to make difficult cuts down the line. One obvious way to accomplish this is to avoid a vertically integrated business model. At its extreme, a fully integrated model means that a single company controls not only the manufacture of products (or delivery of services) but also their distribution and sale. But choosing not to integrate assumes that certainty of supply or quality is not of such overwhelming importance as to dwarf all other considerations.

As we related in our story of the U.S. automobile industry, this was a key reason for the success of GM and Chrysler. Limited backward integration at GM and Chrysler enabled them to scale down and then later scale up production, with much of the risk borne by the suppliers. To maintain a flexible organization, GM even adopted a policy that no more than 33 percent of parts would be manufactured internally. At both GM and Chrysler, maintaining this flexibility provided the added benefit of allowing them to easily shift production between different types of vehicles, enabling them to switch the focus to their discount brands during the Great Depression.

Flexibility also emerged as an important contributor to success during Japan’s Lost Decade. Many of the companies that prospered outsourced production and developed flexible labor structures. Clothing manufacturer and retailer Uniqlo was one of the first clothing companies to outsource production to China. It also increased its use of part-time and temporary workers, thereby developing a more flexible labor structure and making labor costs even more immediately variable. By 2003, 82 percent of Uniqlo’s labor force was accounted for by temporary or part-time workers, a far higher percentage than its competitors.

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