Game in the Brain

After Total Cost of Ownership we have the “margin” or some would call profit. My take on it is that is a very indirect form cost. I’ve talked about this before so I won’t dwell on it further, what I’m going to focus on is Consolidation – providing more comprehensive services.

If we are very scientific we can be able to accurately and perceptively observe some indirect cost that have an effect on our production or service. We factor this in as part of the TCO. Now if we look at how industry work, as we move slowly into the supply chain we notice that everyone who contributes to the materials you work with, has their own TCO.

lets use food production. There is the rice we eat in a canteen. There is a TCO to that rice. Part of that TCO is the TCO of the supplier, who exacts a Margin to the Canteen. There is the Rice Supplier, who is then supplied by the distributions person the rice or the rice producer himself with rice. These have their own TCO and margin. So if you take the whole TCO of rice you are eating in the canteen there is many sub-sets of TCO+margin with in it. Although the Margins and the TCO go to different people.

Now that you have that mental model, look at Turn Key Solution. This is the kind of business that is become Niche and common for various kinds of business. There is a complex solution like starting up an Office. There is the Infra, Hiring/Manpower, also the Logistics of an Office. Slowly technology (both soft and hard) allows some businesses to incorporate more services/products this adds to the TCO of the product. Now it becomes mastery of logistics, logistics also is about dealing as well as min-maxing no. securing exclusivity, good prices from suppliers, and marketing to the client.

The Turn Key solutions provider tries to get more services and products away from the “retailers” (the last step of distribution before the product reaches end users) so that they can bring down the TCO to the client, by consolidating the all the margins away from other entities and channeling it all to them. Because of centralization and specialization the Margin, which is also a form of very indirect cost, is more efficiently used.

Whats this all about?
All I’ve just talked about is trends that have opposing forces at work. Some forces make it more cost efficient to focus on fewer products and services as much as there are forces that make us diversify. Its like web of life with various points of the web experiencing pulls from many different directions rippling out over the web.

In such an ambiguous relationship, one thing stands clear and easy to define. The ability of technology and automation to allow us to specialize and centralize. In the next 10 years, as computing power increases more user friendly automation tools will be affordable (its final evolution is autonomous robots).  Medium and Small businesses will finally have the efficiency of a small accounting or analysis staff with a program and a 20 hour skill training. Technology now seeks to achieve this; to be the everyman’s tool to have the business tools (legal, accounting, and marketing) once wielded by giant corporations.