“A hundred years ago, the motor industry’s supplier network was too small to cope with growing demand. Henry Ford decided the solution was to own the whole value chain. He bought and established coal and iron-ore mines, rubber plantations, a railroad, freighters, sawmills and numerous other suppliers to keep the largest car company in the world running. It was a success, helping the Ford Motor Company become arguably the most influential business of the 20th century. Competitors followed suit, and for the next half a century, vertical integration became the gold standard of business strategy.
But times have changed. As the global economy became increasingly interlinked, vertically integrated companies simply weren’t as efficient as their specialized counterparts. In the past four decades, vertical integration has fallen out of favour. Nowadays, almost every part of a Ford car comes from an external supplier.”
These points are discussed in ‘International Banker’. As open banking gathers pace, the vertically integrated firms are likely to struggle. Technology will allow different suppliers to link to user-friendly platforms. There will be a ‘dog fight’. Vertically integrated firms will want to sell you their benefits; if they don’t they will not survive. But is it simply slower attrition as the end is the same. What open banking will do is create a catalyst for new ideas and firms to develop and provide better user experiences and at lower costs.
If you allocate your capital to a vertically integrated firm…change could be coming sooner than you think.
And if you are not sure if you are dealing with a vertically integrated firm, ask them? And if you get a sales answer….