Clockspeed

“Clockspeed: Winning Industry Control in the Age of Temporary Advantage *”

R. Nat Natarajan**

As companies come under increasing pressure to improve performance and deliver more value to the customers in a global market place they look for new sources of competitive advantage. The focus has now shifted from making products to the flow of the products and knowledge in the supply chain i.e., from the individual links to the linkages in the supply chain. Yet, supply chain management (SCM) is at an embryonic stage as far as concepts and frameworks for analysis are concerned. SCM issues have been addressed mostly from a tactical perspective such as managing JIT type supply arrangements. This book tries to fill this gap. It provides concepts, frameworks and tools that are useful in strategic management of the supply chain. Charles H. Fine, a professor of operations management at the Sloan School of Management at MIT, uses the methodology followed in biology, the study of very short lived fruit flies (Drosophila) to understand the evolution of the species. His thesis is that by studying business equivalents of fruit flies we can develop insights into supply chain dynamics and design. He has coined the term clockspeed to denote the rate of evolution in business. He has identified three key dimensions in business for which clockspeed can be measured: product technology; process technology; and organizational decision-making. For selected industries, the estimated clockspeeds for these dimensions are given in the appendix of the book. Based on clockspeeds, industries can be ranked from fruitflies (e.g. personal computers; toys and games) to turtles (e.g., shipbuilding; electricity; diamond mining). Higher clockspeeds for product and process technology imply that the internal clock in the organization for decision-making and restructuring must also tick faster.

Technology and competition are considered to be the drivers of clockspeed. Thus, companies have to consider the impact of policies such as spending on innovation and deregulation-- which affect these drivers—on the acceleration of clockspeeds and what it means to them.. An important lesson that Fine has drawn from the study of business fruitflies is that high clockspeed and high uncertainty environments lead to hedging strategies. Competitors become collaborators by entering into alliances and joint ventures to reduce the risks and control the industry standards. This observation has some explanatory power. Witness AT&T’s recent acquisition of cable TV networks and Microsoft investing in the stocks of AT&T to control the operating system for interactive TV services that AT&T wants to provide. Other perceptive hypotheses are advanced. For instance, sustainable competitive advantage is an idea that makes sense only when clockspeeds are low. In high clockspeed era and industries, any advantage is temporary. And, clockspeeds are accelerating everywhere. As you move closer to the end customer in the supply chain, the clockspeed is increasing, some times dramatically. These observations are based on the case studies –a strength of the book-- of the Leaders for Manufacturing (LFM) program of MIT. They raise a number of questions for further and more rigorous empirical research. Towards the end of the book, he applies the clockspeed analysis to the education business which is now faced with a variety of ways for delivering content. In the past, by tradition, in universities, things have moved at a glacial pace. Now they have to make some tough choices quickly as technology has accelerated the clockspeed.

Fine asserts, “no company is an island”(pp. 13 and 96). The destiny of the firm is firmly linked to what happens in its supply and demand chain. According to him, understanding the nature of these linkages and the dynamics of power and control in the chain is necessary for survival of the company. Moreover, incorporating such understanding into the business strategy of the firm becomes critical for success. Continuing the use of analogies and metaphors from molecular biology, he describes supply chain dynamics in terms of “Double Helix”. First he distinguishes between two types of chains. Integral end product architecture requiring high degree of engineering integration and doing things in house to protect the proprietary advantage (e.g., IBM in mainframes, Kodak in conventional photography) leads to vertical integration. This gives rise to the vertical-integral type chain. The other type of chain is characterized by modular end product architecture with common hardware or software platforms compatible with competitors’ products (e.g., IBM compatible PC clones). These products require modular components which can be supplied by many firms. This leads to the horizontal-modular chain, like the ones in multimedia, information, electronics, and communications industries. Fine then proposes a theory that unites these distinct chains into a yin-yang like dynamics. He describes the pressures that will lead to the disintegration of each type and argues that eventually integral-vertical chains will transition to horizontal-modular ones and vice-versa. This “Double Helix” theory is applied to explain the developments in bicycle, computer, and pharmaceutical industries and to trace the strategies and fates of companies in those industries. And, indeed in these engineering oriented and/or research intensive manufacturing industries the theory seems plausible. However, is it equally valid in many service industries which are not technology intensive and where the markets tend to be local?

Fine maintains that the most important core competency of the organization is the capability to design its supply chain. This is more than the capability for make or buy decision-making. It has to address the strategic questions of: what work to outsource; to whom to outsource to; and what kind of relationships have to be maintained with those selected suppliers. Fine also discusses the approach and the tools to develop this capability and to execute the firm’s supply chain strategy. First, the firm has to map its supply chain to understand the capabilities, the clockspeeds, the dependencies, and the vulnerabilities in the entire supply chain. This is to be followed by the practice of three dimensional concurrent engineering (3-DCE). This means simultaneously designing and integrating the architecture of the product, the process, and the supply chain. The application of these approaches and specific tools that go with them are illustrated. Fine claims that all this will not require radical changes in the organization, though the challenges in execution of 3-DCE seem daunting, particularly in high clockspeed environments. One can ask, whether all these concepts and tools can help any firm--not just the Dells, Intels, Toyotas, and Mercks of the world--develop the ability to carve its own role in the supply chain? Smaller firms which are in the middle of supply chains may find themselves being squeezed by firms in the front end serving the end customer (e. g., mass merchandisers) and by those at the back end producing raw materials (e.g., plastics, paper, basic metals). These front-end and back-end firms tend to have the advantage of size and concentrated market power. For such more typical and numerous smaller firms, the book at best may provide insights for adapting to the strategies of other firms. But then Fine did not set out to offer complete solutions for SCM. He merely hoped that the book will provoke fresh ideas about the issues (p. 15). Judged by that criteria, the book has clearly achieved that goal.

 

*Perseus Books, Reading, Massachusetts, 1998

**R. Nat Natarajan, is a professor of operations management and Mayberry faculty associate at College of Business Administration at TTU

Apply Now