B
eing a “pro-business” state, Virginia typically follows trends in business. So, it will be interesting indeed if the Old Dominion follows this new trend.
This morning’s Wall Street Journal has an intriguing front page story about how big businesses are retreating from the decentralized, outsourcing model that had been in vogue for a few decades. In its place, big companies are sparking renewed interest in the traditional, vertically-integrated approach in which the firms control the supply, the production, the marketing, the sales, and the planning.
The latest advocate is Larry Ellison, CEO of Oracle who wants to buy Sun Microsystems. He plans to make it “vertically integrated” firm that produces software, computers and computer components.
Other firms retreating to the 100-year-old corporate model include PepsiCo, General Motors, Arcelor Mittal and Boeing. Pepsi wants to buy back a lot of bottlers and Arcelor is moving back into the raw materials business by buying mines in Brazil, Russia and the U.S.
What’s with this return to the Andre Carnegie days? It seems that with the downturn, companies no longer can rely on de-verticalization and outsourcing. Bad times have made it harder for first, second and third tier suppliers and producers to operate. They are very short of cash and credit and can’t meet obligations.
For a prime example, look at Boeing. Its upcoming Dreamliner passenger jet is supposed to set the market for commercial aircraft for years to come. But following management styles du jour, Boeing has outsourced making parts for the plane through a highly complex and far-flung global network of independent suppliers. These firms haven’t made the mark. The Dreamliner has faced delay after delay.
What has all this got to do with Virginia? Mind set, that’s what.
When I returned to the state in 2000 after and 18-year-long departure, I noted that outsourcing, privatizing and minimizing governments roles had become a mantra. It wasn’t a political clan thing. It didn’t matter if you were George Allen or Jim Gilmore or Mark Warner or Tim Kaine. Everything was outsourced, including trimming vegetation on the sides of highways, operating roads, and upgrading and running the state’s IT system. Everything that is, except for operating the state’s ABC stores.
In fact, privatization became a kind of church liturgy that you recite without really thinking about it means. That’s what got us in the VITA/Northrop Grumman mess with huge cost overruns and lousy service.
With its budget woes, the state will be hard-pressed to follow the corporate trend into vertical integration. Another problem is that considering that the state might run things as well or better than private enterprise is political heresy. A lot of the dinosaurs who run the place or write for this b log will harumph and continue their laud of Thomas Jefferson and limited government.
Unfortunately, that’s the way it is. But don’t forget, back in the founding years, had TJ gotten his way we would not be a big, powerful country today. We’d be a nation of small farms and shops, sort of like Holland.
Peter Galuszka
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