Why Are Global Companies Moving Toward a Division of Labor?

Subtitle: From companies that hold everything to companies that only hold functions

Related Articles
“In 2100, will civilization be ‘space’ or ‘war’—and what we should pass on to our grandchildren is not ‘meaning’ but ‘the real thing’”

“Corporate philosophy is revealed not in a company’s words, but in how it is structured”

“Why are those who make things weak, and why are those who decide things strong?”

Introduction | Why did companies stop doing everything themselves?

Once, a strong company was a “company that could do everything.”

Researching.
Designing.
Making parts.
Assembling.
Transporting.
Selling.
Repairing.
Capturing customers.

The more a company could keep these within itself, the stronger it appeared.

Owning factories.
Employing craftsmen.
Having a sales network.
Possessing proprietary technology.
Releasing final products under its own name.

That was having a corporate body.

A company was like a single giant living creature.

It had a head, limbs, internal organs, blood vessels, and skin.

The research department was the brain, the factory was the limbs, logistics were the blood vessels, retail stores were the skin, and the brand was the face.

But modern companies are gradually beginning to dismantle that body.

Research is done in partnership with others.
Manufacturing is outsourced.
Logistics are left to specialized companies.
Payments ride on different systems.
Advertising is handled by agencies.
Sales depend on platforms.
Customer touchpoints are replaced by apps and UIs.

Companies are changing from entities that hold everything inside themselves to entities that connect necessary functions.

So, why are companies moving toward a division of labor?

It is not simply to cut labor costs.

Of course, cost reduction is a major factor.

But that alone does not reveal the essence of this change.

At a deeper level, the world itself has become too complex.

Markets have become massive.
Technology has become advanced.
Manufacturing has become precise.
Logistics have crossed national borders.
Environmental regulations have increased.
Finance has become complex.
Consumer demands have also become more granular.
Information has begun to flow in real-time.

It is becoming difficult for one company to hold all of that entirely.

That is why companies are dismantling themselves.

Instead of holding everything, they choose what to grasp.

I believe this is the fundamental change underlying the move toward a division of labor.

Chapter 1 | The Era of Vertical Integration—Holding Everything Was Strength

Strong companies of the past were close to vertically integrated.

They held everything from upstream to downstream within the company.

Procuring raw materials.
Making parts.
Assembling products.
Building sales networks.
Taking care of even repairs.

Of course, not every company was completely like this.

But at least as an ideal, “holding it yourself” looked like strength.

This is because if you hold it yourself, you don't have to depend on the outside.

If you have a factory, you have the power to make things.
If you employ engineers, you can improve things.
If you have a sales network, you can reach customers.
If you can even make parts in-house, you can manage quality.

There, corporate power was seen as the size of the body.

How much equipment do you have?
How many people do you employ?
How much of the field do you dominate?
How much can you complete in-house?

Companies were like small nations.

However, this strength also has weaknesses.

Holding everything also means bearing the weight of everything.

If you have a factory, capital investment becomes heavy.
If you employ people, employment responsibility becomes heavy.
If you internalize technology, you also bear the burden of responding to change yourself.
If you have a sales network, fixed costs also increase.
If you hold inventory, you also bear the risk of unsold goods.

If the world were stable, demand were easy to read, and technological change were slow, that would have been fine.

But the world is no longer like that.

Demand changes.
Technology quickly becomes obsolete.
Markets cross borders.
Raw material prices fluctuate.
There are geopolitical risks.
Environmental compliance is also necessary.
Consumer preferences are also finely divided.

When that happens, holding everything is a weight as much as it is a strength.

Vertical integration meant having a giant body.

But a giant body is slow to change direction.

Chapter 2 | When Markets Become Massive, One Company Cannot Hold It All

The first reason companies are moving toward a division of labor is that markets have become massive and complex.

Products used to be relatively simple.

Make, transport, sell.

Of course, there were difficulties back then, too.

But modern products are no longer just things.

For example, consider a smartphone.

It involves semiconductors, LCDs, cameras, communication standards, OS, apps, payments, cloud, logistics, sales networks, repair systems, data management, security, branding, and advertising.

Cars are the same.

It is not just engines and car bodies.

Batteries, semiconductors, software, sensors, communications, charging networks, autonomous driving, environmental regulations, insurance, data, and even subscriptions are involved.

It is now difficult for a single product to be completed entirely within a single company.

The fact that products have become complex also means that the necessary expertise has increased.

And as expertise increases, companies begin to think like this:

Wouldn't it be better to leave it to a partner who is stronger in that field than to do everything yourself?

Have a company good at manufacturing make it.
Have a company good at logistics transport it.
Have a company good at payments process it.
Have a company good at advertising deliver it.
Entrust it to a company good at data management.
Put sales on a platform.

At this point, the company changes from a complete body to a connected body.

Instead of holding everything inside itself, it combines external functions to establish products and services.

Here, the meaning of strength changes.

Being able to do everything is not strength.

Being able to appropriately connect necessary functions becomes strength.

Chapter 3 | Companies Change from Bodies to Networks

As the division of labor progresses, a company is no longer a single body.

Rather, it becomes a node in a network.

A company that designs.
A company that makes.
A company that transports.
A company that sells.
A company that processes payments.
A company that advertises.
A company that maintains.
A company that manages data.
A company that provides the UI.
A company that holds the customer touchpoint.

These connect to each other, and a single product or service is established.

Here, no company is a complete whole.

Each is responsible for one function.

One company specializes in manufacturing.
One company specializes in sales.
One company specializes in data.
One company specializes in branding.
One company holds the rules or standards.
One company holds the payment or authentication mechanism.

When this happens, a company can no longer be explained just by “what it makes.”

It becomes important where in the network that company holds its position.

Is it handling terminal tasks?
Does it hold the customer touchpoint?
Does it hold the standards?
Does it decide the price?
Does it have the data?
Does it have irreplaceable technology?

In a world of division of labor, not all functions have the same weight.

Rather, the more labor is divided, the clearer it becomes which functions are interchangeable and which are difficult to replace.

And modern companies try to move to places where they cannot be replaced.

Chapter 4 | Strong Companies Are Not Those That Make, But Those That Cannot Be Replaced

As the division of labor progresses, one cruel reality becomes visible.

That is,

The company that makes is not necessarily the strongest.

Of course, the power to make is necessary.

If there is no one to make it, the product does not exist.

If there is no factory, things do not take shape.
If there is no field, neither logistics nor services can be established.
But being necessary and being in a strong position are different.

This is important.

Even if you have the power to make, if there are other companies that can make the same thing, your price negotiation power will be weak.

From the perspective of the outsourcer, if they can switch to another factory, that factory is not strong.

Even if you make parts, if you don't hold the design, you are on the side that follows specification changes.

Even if you handle manufacturing, if you don't have the brand, you will not remain in the consumer's memory.

Even if you handle logistics, if you don't have the customer touchpoint, the relationship is owned by another company.

On the other hand, strong companies hold places that are difficult to replace.

OS.

Standards.
Brand.
Intellectual property.
Customer data.
Sales network.
Platform.
Payment.
Authentication.
Search.
UI.
Contract terms.
Pricing power.
Companies that hold these are strong even if they don't make things.

This is because you cannot participate in the market without going through that company.

Here, corporate strength becomes not manufacturing capability, but the power to decide the conditions of participation.

In other words, in the era of the division of labor,

A strong company is not a company that can make a lot, but a company that cannot be replaced.

This change is significant.

From the era of factories to the era of rules.

Corporate power shifts from physical production capacity to the control of design, ownership, standards, and connection points.

Chapter 5 | Division of Labor Is Efficiency, and Also the Dispersion of Responsibility

The division of labor has clear advantages.

Efficiency increases.
Expertise increases.
Costs can be kept down.
It becomes easier to respond to change.
Only necessary functions can be procured from the outside.
The risk of holding everything in one company can be reduced.

This is rational.

Therefore, the division of labor itself cannot be called evil.

Rather, modern complex products and services are difficult to establish without a division of labor.

But the division of labor has another aspect.

Responsibility becomes harder to see.

Who made it?
Who designed it?
Who decided the price?
Who guarantees the quality?
Who forced the field to work too hard?
Who imposed the environmental burden?
Who decided the working conditions?

As the division of labor progresses, these are dispersed.

The company selling the final product might say it is the problem of the manufacturing contractor.
The manufacturing contractor might say it is because the ordering conditions are strict.
The logistics company might say they have no choice but to meet the delivery deadline.
The sales side might say it is the result of consumers demanding low prices.
Consumers might say they don't know about such behind-the-scenes matters.

In this way, even though no one intended to hurt the whole, the burden gathers somewhere.

The division of labor is a mechanism for efficiency, and at the same time, a mechanism for finely dispersing responsibility.

Herein lies the ethical difficulty of modern companies.

Chapter 6 | The Division of Labor Exposes Corporate Philosophy

So, should the division of labor be avoided?

That is not the case.

The problem is not the division of labor itself.

It is what you put outside and what you keep inside yourself.

Here, corporate philosophy appears.

One company may outsource manufacturing but not let go of design.
One company may entrust sales to the outside but hold onto quality standards.
One company may share parts but protect the face of the brand.
One company may sacrifice profit margins but not compromise on field safety.
One company may prioritize efficiency and move customer touchpoints to the UI.
One company may outsource but take responsibility for defect response as its own.

In other words, the division of labor does not hide the company.

Rather, it exposes the company's true intentions.

What do you hold yourself?
What do you entrust to others?
What do you share?
What do you not compromise on?
Where do you take the loss?
Where do you pass the burden to others?

The company's ideology appears in that choice.

Corporate philosophy is revealed not in words, but in how it is structured.

Even if “Quality First” is written in the philosophy statement, if the structure is such that quality loses, that is the reality.

Even if they say “We value people,” if the design is such that the field runs on human sacrifice, that is the true intention.

Even if they say “Customer First,” if they pass the buck on defect response, they cannot be said to value customers.

Conversely, even if there are few words, a company that has a consistent line on what to outsource, what to internalize, what to share, and what to defend to the death has a strong philosophy.

The division of labor does not make corporate ideology harder to see.

If you look at it another way, it exposes the company's ideology as a structure.

Chapter 7 | At the End of the Division of Labor, Those Who Make and Those Who Decide Are Divided

As the division of labor progresses, companies are divided by function.

And beyond that, an even deeper division occurs.

It is the division between those who make and those who decide.

Those who make give shape to things.
They run services.
They maintain the field.
They assemble parts.
They transport products.
They serve customers.
They repair.

On the other hand, those who decide are in a different place.

They decide the design.
They decide the specifications.
They decide the price.
They decide the delivery date.
They decide the brand.
They decide the standards.
They decide the contract terms.
They decide which company to use.

Here, a difference in power is born.

Those who make are necessary.

But those who decide can change the configuration.

Those who make offer their own bodies, equipment, and time.
Those who decide choose those who make.
They decide the conditions.
They compare with others.
In some cases, they replace them.

In other words, in a world of division of labor, it is not that those who make become weak, but

They become weak because making is separated from deciding.

This is important.

It is not that the power to make itself is weak.

When the power to make is separated from design, ownership, price, and standards, that power to make is placed downstream.

And in the modern market, this separation is happening on a global scale.

Those who design.

Those who own.
Those who make.
Those who buy.
These are divided, and profits and sovereignty are distributed based on that configuration.

The question that lies ahead is,

Why are those who make weak, and why are those who decide strong?

Final Chapter | Companies Lose Their Bodies and Gain Configurations

Companies have stopped doing everything themselves.

Companies of the past had bodies.

Hands called factories.
A head called a research institute.
Blood vessels called logistics.
Skin called retail stores.
A face called a brand.

But modern companies are gradually putting those bodies outside.

The hands that make go to the outside.
The blood vessels that transport go to specialized companies.
The skin that sells goes to platforms.
The mechanism that pays goes to payment companies.
Customer response goes to the UI.
Memory goes to databases.

Companies are losing their bodies.

However, instead, they have come to have configurations.

Which functions to hold.
Which partners to connect with.
What to put outside.
What to make interchangeable.
What to defend to the death.

The strength of modern companies is determined not by the size of the body they own, but by where they hold their position in the network.

This is efficiency.

At the same time, it is also the dispersion of responsibility.

And above all, it is the exposure of corporate philosophy.

The division of labor is not just a management technique.

It is a problem of self-definition: what a company considers itself to be, what it entrusts to others, what it protects, and what it separates.

Therefore, seeing the future of the division of labor is also seeing the future of companies.

Furthermore, it is also seeing the configuration of power in the world.

From an era where those who own factories are strong to an era where those who own the rules are strong.

From an era where those who make create value to an era where those who decide own value.

Companies have stopped holding everything.

But precisely because they do not hold everything, the question of what they are holding is asked.

And we must next ask this:

Who is making?
Who is deciding?
Who is owning?
Who is bearing the responsibility?

The era of the division of labor is a convenient and efficient era.

But at the same time, it is also an era where it becomes harder to see who is really moving the world.