Booz Allen Hamilton on Virtual Scale

The Resilience Report is a monthly update on business complexity and strategy-based transformation, from Booz Allen Hamilton. It's part of the consulting firm's monthly online magazine called Business + Strategy. To see a list of current reports you can click here.

It's a difficult enough task just managing suppliers -- and you're actually paying them to work for you.

The August 1st report drew my attention because it speaks to a topic that has to be among the top five that are most on the minds of high tech marketers: scale. Almost every high tech white paper ever written talks about advantages of scale. That's what standards are for. That's what middleware and Internet services are for. That's what virtualization is for. That's what globalization is for. That's what supply chain management is for. And so on. It's also why most high tech founders (and their VC backers) hope to grow their companies large enough so they will be acquired. Prove the concept then cash out.

The title of the Booz Allen article is "Virtual Scale: Alliances for Leverage." The point it makes is that you don't have to be big in order to achieve advantages of scale. You can partner with other firms. You can share marketing, procurement, manufacturing, logistics, back office operations -- almost anything. The authors say that you can increase revenues 14% and profits 7% if you do it right.

You can even partner with competitors, the authors say, by sharing things that have no relevance to your marketplace positioning (like high-volume sourcing of commodity parts).

Of course, in high tech, almost all companies are small -- which helps explain the obsession with scale. High tech companies also tend to be very idiosyncratic -- an issue the Booz Allen authors don't touch on. Entrepreneurial firms like to do things their way. Scale matters but so does nuance. That's why the scale up methods of choice are 1) make your product scalable; and 2) merge. Both options let you focus on "hard" technology and financial skills without getting into "soft" areas like ongoing partnerships. It's a difficult enough task just managing suppliers -- and you're actually paying them to work for you.

Bottom line: I think most high tech firms are absolutely interested in achieving advantages of scale. I just don't think they will ever adopt alliances on any large scale as a way to get them.