I am like the mouse in the trap. I have pretty much given up on the cheese and am just trying to get my head out of the trap. – Weary owner of a major league baseball team after announcing its sale.

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In the midst of the current economic meltdown it is hard to get a handle on what is short-term trauma resulting from the shock of the current crisis and what is the longer term structural shift that represents fundamental change for business and the economy.

The tumult of Wall Street, Detroit and the coming shift in healthcare appears to represent structural shifts in market needs, business models and the role of government. One of those shifts involves the role of specialization.

For decades fortune has smiled on the enterprise growing large by becoming more specialized and segmented. It has been the structure de jour for dominating in size, differentiation, efficiency and profitability. Yet in recent months, we are seeing that specialization and scale have taken a hit. Is it possible that we have driven Henry Ford’s divisions of labor and specialized assembly line over a cliff? Let’s examine four examples.

Large financial services providers became dependent on highly specialized and at times risky products like credit default swaps to juice up the earnings of their core businesses such as banking or insurance. Like steroids in professional sports, once one group gained a competitive advantage it became much more difficult for others to remain competitive without them. By the mid part of this decade the financial sector was producing over 40% of U.S. corporate profits, up from the mid teens in the late 70s and early 80s. By comparison, the older, core businesses looked pedestrian and the lion’s share of the attention, rewards, resources, and focus was on these new specialties. Making money the old fashioned way – earning it by working hard at the core business – looked less attractive. Not surprisingly these core businesses became less competitive and profitable. As a result their workers, customers and shareholders all became less excited about what they produced.

Detroit’s automotive business is now about to become much smaller and primarily owned and controlled by the unions, the government and possibly a foreign company. Somewhere along the way, while the auto companies were expanding into credit cards, finance, and too many overlapping products, they lost their focus on their core business of building the type and quality of cars the market desired.

Healthcare is no different. One of the healthcare’s big challenges is that so many doctors have become specialists, leaving a shortage of primary care doctors who deal with the whiney sick kids, the grumpy old folks and all in between. Max Baucus, chairman of the Senate Finance Committee says that primary care doctors, who coordinate the care of our growing population of older people with conditions like congestive heart failure, diabetes, and Alzheimer’s are grossly underpaid compared with specialists. It hasn’t helped that Medicare set prices for primary care artificially low compared to specialty care. The specialists make more money, are less overworked, have more control over their schedules and are generally given higher status. It is not surprising that primary care doctors are in short supply.

Likewise in higher education. “Graduate education is the Detroit of higher learning,” says Mark C. Taylor, head of the religion department at Columbia University. He laments that higher education has become so separated and specialized that mostly they produce products – graduate degrees – for which there is no market and develop skills for which there is diminishing demand, all at a rapidly rising cost per student of more than $100,000 in student loans. He cites a colleague who boasted that his best student was doing his dissertation on medieval theologian Duns Scotus’ use of citations. To survive, Taylor advocates a complete restructuring that breaks down silos of specialization in order to better align their “product” to the needs of society and the marketplace.

Wall Street, Detroit, healthcare and graduate education – you could hardly find four parts of our economy that are more diverse. Yet all are under pressure to become less insulated, separate and specialized in order to reduce the risk of becoming irrelevant.

It seems our ability to dig out of our current hole requires local bankers, doctors, teachers, and car manufacturers to return to the basics. Fewer esoteric and risky products, work units less specialized and better integrated to the main business, more responsive to core market needs – that is where the restructuring is leading us.

A number of industries have chased big dreams and even shot the moon. At times their leaders achieved near rock star status and wealth. This next phase will be different. It will be about eliminating the big risks, doing the basics well and paying attention to the core business. It won’t be as sexy or as profitable for the specialists but it will be good for the core business and their customers. Memo to business: The cheese has been moved once again.

(Column appeared originally in ABA Bank Marketing magazine – June 2009)

By ROBERT E. HALL

Not to be reproduced without written permission. All rights reserved. © Copyright Robert E. Hall 2009