B within B is actually what accounts for the exciting growth in US productivity numbers in the last quarter. Further, I think that the whole idea of a divide between old economy and new economy companies is totally artificial. Look at David Birch's analysis of where the so-called gazelles are in the US: they are mostly in what he calls the slow growth sectors of the US economy. Birch, former MIT Business School professor and widely known analyst of the US economy, is the inventor of the term gazelle. A gazelle is a company growing at more than 20% per annum. He says that 7.6% of all the stone, clay and glass products companies, a recognized slow growth industry in the US, are gazelles. I could have picked any number of slow growing industries in which he has singled out a good number of gazelles. It is clear that the ones doing well have adopted many or all of those internally based computer technologies that I refer to as B within B.
The most recent issue of Management, the periodical issued by the Certified Management Accountants, devotes a whole section to E.Billing, Software for Strategic Planning for Mid-sized Companies, Activity Based Costing, Web-enabled Self Service for HR, for Budget Comparisons in Real Time and other accounting and internal management software. These are the people with the hands-on view of B within B. Software for strategic planning and budget comparisons in realtime is the real manifestation of B within B.
A report by C.E.Unterberg, Towbin, a well respected Wall Street brokerage firm, is entitled ASPs Will Help Drive Our Global Economy. It is easy to argue that an applications service provider, to which an organization might outsource its back office, is B within B rather than B2B. Most ASPs have a number of clients, but fundamentally their objective is to provide an internal service more cheaply than building and managing the necessary technological infrastructure internally. To my mind, that is closer to B within B than setting up a combined buying group, as the major automotive companies did recently: That is real B2B!
Let's take an old economy Canadian company like Dofasco Inc. as an example. It is one of the most efficient steel companies in North America, if not the world. I use Dofasco as an example because it is an old economy company using the most modern computer-based techniques, B within B, to turn out its product at such a low cost. These savings far exceed any that might be effected by Dofasco using B2B purchasing or B2B selling. Does it have a website? Does it matter, when, once the raw material comes in the door, it is processed in a highly technological and computer-driven manner? The result is a high quality, competitively priced product.
So one of the lessons to learn from all this is to keep an eye on those companies that are delivering software to enhance internal efficiency. Lots are out there, but a couple that come to mind are Rand A Technologies and Janna Systems. These may be more important in the long run than the Amazon.coms and eBays of this world, because these kinds of companies are focused on making the so-called old economy more efficient, and that is where overall productivity improvements are really going to come from.
Gordon Sharwood founded his investment bank for entrepreneurs in 1976 after a distinguished career in banking (chief GM of CIBC) and business (president of Acres/Traders Group and Guaranty Trust). Among his many affiliations, he is honorary director of Public Policy Forum and a founding director and honorary chair of the Canadian Association of Family Enterprise. He may be reached at 416-869-1598 and by e-mail at gordshar@idirect.ca.
