Harvard Business Review ran an interesting article, "Strategic Sourcing: From Periphery to the Core", written by three Bain partners in its February 2005 issue. As usual, the article is not available online for free, although a relevant excerpt of the article should be available here.
The article focuses on the story of the restructuring of 7-Eleven over the past decade. Beginning in 1991, the company systematically looked at all of its activities and over time relinquished direct ownership of many parts of its business. In fact, if you step back from what they did, 7-Eleven morphed into a much more focused customer relationship business - concentrating on in-store merchandising, pricing, ordering and customer data analysis - and turning to others to do everything else.
Those of you who have followed my writing know that I have long predicted a systematic unbundling of most corporations into one of three more focused businesses - infrastructure management, customer relationship or product innovation and commercialization.
When I explain this to most executives, they pull back, driven by visions of a shrinking business. On the contrary, I maintain that this unbundling is a necessary precursor to aggressive and profitable growth. Witness the experience of 7-Eleven which consistently outperfomed its competitors. As the HBR article reports, same store merchandise growth has been almost twice the industry average over the past two years, revenue per employee comes in at about 2.5x higher and inventory turns are 72% more than the industry average. Over the past five years, 7-Eleven's stock appreciation has outpaced all major competitors. So much for a shrinking business.
As the article indicates, 7-Eleven has exploited the economies of scope of a customer relationship business by working with a broad range of product and service vendors to define new products and services tailored to the needs of their customers. In one example, 7-Eleven has deployed multipurpose kiosks in its stores to deliver ATM functions through American Express, money wires through Western Union and check-cashing from CashWorks.
Unbundling does not mean fragmentation of business. On the contrary, two of the business types - infrastructure management and customer relationship - have strong economies of scale and scope that will lead to significant concentration - ultimately, on a global scale. The 7-Eleven story is just one example of the growth and profitability potential created by sharper focus.