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Evolution Through Dis-integration

How the future of the financial services industry will be shaped by dramatic changes in the value chain


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Industries typically evolve along common paths and consolidate as they become more mature. In this consolidation, we see leading players vertically disintegrate their value chains in a bid to become “leaner” and more competitive. Vertical dis-integration is defined as the emergence of new intermediate markets that divide a previously integrated process between specialized areas. This division of responsibility allows a firm to specialize and concentrate on the parts of its business where it has a competitive advantage to help reduce costs and increase profitability.

In his article “The Nature of the Firm,”1 Ronald Coase argues that businesses tend to expand until the costs of organizing an extra transaction within a company become equal to the costs of carrying out the same transaction by means of an exchange in the market. Thus, business units that produce goods or services that can be acquired in the market at lower prices tend to be dis-integrated.

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1 The Nature of the Firm, R.H Coase, Economica, New Series, Volume 4, Issue 16 (Nov., 1937), 386-405.

As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

 

 

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