De-verticalization. I am the trustee of a small trust whose investments are managed by the Bernstein division of Alliance Capital Managment. Bernstein had been a stand-alone, privately held investment firm for many years, and made its money not only from investing people's money, but also selling its research to other investment firms. A few years ago, the owners (who were the senior partners) sold themselves to Alliance. (Too bad.) But the Bernstein research function lives on, and from time to time the people in that division publish some of their research conclusions in a format that is readable to laymen.

This week I received a new essay from Bernstein, entitled The New Industrial Revolution: De-verticalization on a Global Scale. I highly recommend it.

Some excerpts of the "executive summary" are as follows, but read ye all of it, all of the essay:

"De-verticalization is the process of separating functions and services from a vertically integrated business. Companies are undergoing this change because
they can operate more effi ciently and achieve better results by relying on partners to perform certain functions, rather than by maintaining control of these processes themselves.

"As de-verticalization unfolds in a given industry, supply-chain partners focused on particular aspects of the value chain emerge. Frequently, these partners develop greater economies of scale and superior skill than their in-house counterparts. The development of these partners reduces redundancy of operations in an industry and lowers the barriers to entry.

"De-verticalization is a profoundly destabilizing, continual process. The competitive edge gained by deverticalizing is usually fleeting because established rivals copy effective strategies, and lower barriers to entry encourage new competitors to emerge. Thus, companies must continually find new functions to de-verticalize in order to maintain their edge, and any given industry may go through many rounds of de-verticalization."

I have reflected on how this kind of thinking is expressed in the Amplifier idea.