Global Intelligence Briefing for CEOs - American Business
by Herbert Meyer, 2007
Herb Meyer served during the Reagan administration as special assistant to the Director of Central Intelligence and
Vice Chairman of the CIA's National Intelligence Council. In these positions, he managed production of the U.S.
National Intelligence Estimates (NIE) and other top-secret projections for the President and his national security
advisers.
Meyer is widely credited with being the first senior U.S. Government official to forecast the Soviet Union's
collapse, for which he later was awarded the U.S. National Intelligence Distinguished Service Medal, the intelligence
community's highest honor. Formerly an associate editor of FORTUNE, he is also the author of several books.
Four Major Transformations
Currently, there are four major transformations that are shaping political, economic and world events. These
transformations have profound implications for American business owners, our culture and our way of life.
This page discusses the Restructuring of American Business.
4. Restructuring of American Business
The fourth major transformation involves a fundamental restructuring of American business. Today's business environment
is very complex and competitive. To succeed, you have to be the best, which means having the highest quality and lowest
cost. Whatever your price point, you must have the best quality and lowest price. To be the best, you have to
concentrate on one thing. You can't be all things to all people and be the best.
A generation ago, IBM used to make every part of their computer. Now Intel makes the chips, Microsoft makes the software,
and someone else makes the modems, hard drives, monitors, etc. IBM even outsources their call center. Because IBM has all
these companies supplying goods and services cheaper and better than they could do it themselves, they can make a better
computer at a lower cost. This is called a "fracturing" of business. When one company can make a better product by
relying on others to perform functions the business used to do itself, it creates a complex pyramid of companies that
serve and support each other.
This fracturing of American business is now in its second generation. The companies who supply IBM are now doing the
same thing - outsourcing many of their core services and production process. As a result, they can make cheaper,
better products. Over time, this pyramid continues to get bigger and bigger. Just when you think it can't fracture
again, it does. Even very small businesses can have a large pyramid of corporate entities that perform many of its
important functions. One aspect of this trend is that companies end up with fewer employees and more independent
contractors.
This trend has also created two new words in business - integrator and complementor. At the top of the pyramid, IBM
is the integrator. As you go down the pyramid, Microsoft, Intel and the other companies that support IBM are the
complementors. However, each of the complementors is itself an integrator for the complementors underneath it. This
has several implications, the first of which is that we are now getting false readings on the economy. People who
used to be employees are now independent contractors launching their own businesses. There are many people working
whose work is not listed as a job. As a result, the economy is perking along better than the numbers are telling
us.
Outsourcing also confused the numbers. Suppose a company like General Motors decides to outsource all its employee
cafeteria functions to Marriott (which it did). It lays off hundreds of cafeteria workers, who then get hired right
back by Marriott. The only thing that has changed is that these people work for Marriott rather than GM. Yet, the
headlines will scream that America has lost more manufacturing jobs. All that really happened is that these workers
are now reclassified as service workers. So the old way of counting jobs contributes to false economic readings. As
yet, we haven't figured out how to make the numbers catch up with the changing realities of the business
world.
Another implication of this massive restructuring is that because companies are getting rid of units and people that
used to work for them, the entity is smaller. As the companies get smaller and more efficient, revenues are going down
but profits are going up. As a result, the old notion that "revenues are up and we're doing great" isn't always the
case anymore. Companies are getting smaller but are becoming more efficient and profitable in the process.