Amoeba Business Model in IT Industry

1. What is Amoeba's business model?

Amoeba's business model originated from Kazuo Inamori. At that time, he was in charge of both R&D and marketing alone. He was in a lot of misery, and was very eager to have many clones of himself who could take responsibility for various important departments. In consequence, he subdivided the company into small groups called "Amoebas" and entrusted them with management responsibilities, thus cultivating many business leaders with a sense of management.

The Amoeba business model is to divide the entire company into many small organizations called Amoebas, each of which operates independently as a separate profit center in the manner of a small enterprise or a small store. For example, each process in the manufacturing department can become an Amoeba, and the sales department can be divided into several Amoebas by region or product.

However, like other famous business models, there are advantages and limits to Amoeba's business model.

Source: Freepik

2. Pros of Amoeba Business Model

• Decentralization and experimentation. Allowing employees to practice self-management.

When the company grows bigger and bigger to a certain scale, it will definitely occur that the headquarters cannot reach the grassroots management. At this time, if we still insist on centralized management, it will inevitably trigger the "large company disease", which will lead to the decline of the enterprise. In consequence, decentralization becomes an issue that large companies have to consider. But how to proceed with decentralization after all? What is the decentralization standard? How to evaluate performance after decentralization? Amoeba answers these questions well by applying a set of management accounting theories created by Mr. Kazuo Inamori. Once the problems are solved, decentralization can fully motivate each employee in each organization, so that the "elephant" can dance.

• Inamori Accounting makes it possible to show the daily results in a realistic and timely manner.

Traditional accounting generally takes the form of period accounting, where operating results are measured on a monthly, or quarterly, or even annual basis. So how it can improve and guide your business since it is clear that it takes a long time to know your business performance and problems? On the contrary, if you immediately know the working result, whether you improved or regressed, and where the problems are still unsolved at the end of one day, you will reflect at that time and then make a plan to do it better the next day. Such an accounting system that knows the actual situation in time is really a superior superior superior work in management.

• Amoeba's accounting results can be directly linked to the company's finances, so it's very practical and allows no slack.

The total accounting results of each Amoeba are equal to the overall business results of the company. To be able to do this, one has to marvel at Mr. Inamori's great wisdom. You know, the company is composed of many departments and includes so many fixed costs, and it is not easy to allocate all these factors to each Amoeba in a reasonable way.

Source: Freepik

• Effective transmission of market pressure.

The "department wall" is pushed down completely through the development of internal marketization, which truly transfers the operation pressure to all employees, mobilizes all employees to operate the enterprise intelligently, and jointly copes with the fierce market competition.

3. Cons of Amoeba Business Model

• Easy to lead to indifference and even vicious competition among Amoebas.

The fate of the Amoeba determines that its members are easy to focus on the achievements of their own Amoeba, while being indifferent or even viciously competitive with other Amoebas. In a relatively process-independent company, this is not a big problem, but when processes need to work together, the existence of Amoeba will sometimes have the opposite effect. In order to successfully proceed Amoeba business model, we must first consider whether we have enough confidence in controlling human nature.

• Process Amoeba requires companies to have certain basic skills.

It requires careful attention to numbers when Amoeba operates. This has two meanings: First, is the enterprise site already equipped to visualize with all numbers? The second is whether employees can strictly follow the requirements to record the numbers faithfully and accurately every day? These two conditions are necessary and not one of them can be dispensed with. If the current status of the company is that the site still relies on subjective management, and the requirements for employees are still in a rough and tumble manner, such companies are advised not to rush to process Amoeba yet, because that is a way that requires very strict details, and any small mistakes will cause the company as a whole to make mistakes.

• The purpose of Amoeba's accounting indicators is primarily to cut costs.

The accounting indicators for Amoeba are: Value added per hour = (internal sales - costs) / actual operating time. Judging from these indicators, internal sales are fixed and the actual operating hours are difficult to break through, so in order to increase the added value per hour, we can only make efforts to cut costs. However, making a business profitable depends not only on cutting costs but also on improving turnover, and the latter contributes significantly more to profitability than the former, which unfortunately is lacking as speed is not addressed in the Amoeba indicators.

Source: Freepik

4. Conclusion

In summary, Amoeba is indeed a very good management system, but as learners, we should not only learn the specific operation methods of Amoeba, but also understand the conditions and ideas of processing Amoeba. Finally, a piece of advice to those companies that have successfully processed Amoeba. What brings profitability to a company is not cost-cutting but speed, the latter contributing much more to profitability than the former. A successful and excellent entrepreneur is destined to be a successful practitioner, but a good practitioner may not be able to accurately summarize the important factors that make him successful.