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Nov 30

Buying Expertise

Posted by: Steve Marr

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To build expertise in your business, sometimes you need to step outside and pay for the expert assistance you need. One major example was Amazon purchasing Kiva Systems for a hefty $775 million several years ago. When I first I heard of the acquisition, I scratched my head wondering what Amazon was thinking. In this instance, they were thinking ahead.


Amazon has been relentless in improving the productivity of their warehouse operations and reducing labor costs. Kiva had developed cutting edge technology in robotics and warehouse distribution applications. Amazon bought the technology that would give their warehouse lower operating costs and a competitive advantage.

Rather than continuing to market the robotic technology to the marketplace as Kiva did, Amazon took 100% of it to use in their warehouse. This required other interested customers to find alternative suppliers. Generally a customer like Amazon might make a strategic pact with a supplier to obtain the entire product they need while negotiating price and pressing for a new product innovation. Amazon must have believed they were better off acquiring the company to bring development and production in-house rather than work with other suppliers.

While I have some difficulty arguing with the success of Amazon, I wonder if it could have cost less to contract separately with Kiva, while keeping the door open to work with others in the future.  One of the risks is that if Kiva falls behind in research and development, Amazon loses the whole competitive advantage that Amazon paid dearly to monopolize.

In the past General Motors purchased EDS to gain a competitive advantage in computer technology, but over time EDS lost its luster. EDS automatically received billions of dollars in contracts from General Motors without going through a competitive bidding process which likely ended up making it more expensive than necessary.  Furthermore, EDS failed to stay as current as possible in cutting edge technology.  GM paid EDS billions for a lost step.

Knowing the future is difficult to predict as we learn from the words of James:

Come now, you who say, “Today or tomorrow we will go to such and such a city, and spend a year there and engage in business and make a profit.” Yet you do not know what your life will be like tomorrow. You are just a vapor that appears for a little while and then vanishes away. Instead, you ought to say, “If the Lord wills, we will live and also do this or that.” But as it is, you boast in your arrogance; all such boasting is evil. Therefore, to one who knows the right thing to do and does not do it, to him it is sin. (James 4:13-17, NIV)

Look toward the future and consider what investments may be predicated. Then, take your decisions to the Lord and ask for guidance through prayer since the future is unpredictable.
When you feel you need to buy expertise in a person, technology, or equipment that could become obsolete in the future, depend on the Lord for guidance. Only God knows the future and can direct you the right way into it.

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