MappingtheTelecomValueChain:ARoadmapforCommunicationsNetworksProfessorCharlesFineMassachusettsInstituteofTechnologySloanSchoolofManagementCambridge,Massachusetts02142May2001

charley@mit.eduhttp://www.clockspeed.comTel:1-617-253-3632,Fax:1-617-258-7579

Excerptsfrom1.FruitFlies&TemporaryAdvantage2.ValueChainDesign&3-DCE3.eBusinessPhenomena: BusinessModelInnovationTelecomValueChains:AfruitflyexampleMappingtheTelecomValueChain:ARoadmapforCommunicationsNetworksEvolutionintheindustrialworld:INFOTAINMENT

isfasterthanMICROCHIPS

isfasterthanAUTOSevolvefasterthanAIRCRAFTevolvefasterthanMINERALEXTRACTIONTHEKEYTOOL:Cross-INDUSTRYBenchmarkingofDynamicForcesValueChainDesigninaFast-ClockspeedWorld:

StudytheIndustryFruitfliesEvolutioninthenaturalworld:FRUITFLIES

evolvefasterthanMAMMALS

evolvefasterthanREPTILESTHEKEYTOOL:Cross-SPECIESBenchmarkingofDynamicForcesCisco’sEnd-to-EndIntegrationforitsFulfillmentValueChainCisco

CustomersContractManufacturersComponentSuppliers&Distributors?Newproductdevelopmenton-linewithsupplybase?TechnologySupplyChainDesign: InnovationthroughAcquisition?Singleenterpriseinformationsystem?Dynamicreplenishment,directfulfillment,mergeintransit?CustomerordersthroughCiscoConnectiononlineFinishedProductflowsdirecttocustomervialogisticssupplierOrderinfoflowsdirecttoCiscoandsuppliersCisco’sStrategyforTechnologyValueChainDesignIntegratetechnologyaroundtheroutertobeacommunicationsnetworkprovider.2.Leverageacquiredtechnologywith -salesmuscleandreach -end-to-endIT -outsourcedmanufacturing -marketgrowth3.LeverageventurecapitaltosupplyR&DVolatilityAmplificationintheSupplyChain:

“TheBullwhipEffect”CustomerRetailerDistributorFactoryTier1SupplierInformationlagsDeliverylagsOver-andunderorderingMisperceptionsoffeedbackLumpinessinorderingChainaccumulationsSOLUTIONS:CountercyclicalMarketsCountercyclicalTechnologiesCollaborativechannelmgmt.(CincinnatiMilacron&Boeing)Equipment-80-60-40-200204060801001961196319651967196919711973197519771979198119831985198719891991%Change,YeartoYear%Chg.GDP%Chg.VehicleProductionIndex%Chg.NetNewOrdersMachineToolIndustrySupplyChainVolatilityAmplification:MachineToolsatthetipoftheBullwhip"UpstreamVolatilityintheSupplyChain:TheMachineToolIndustryasaCaseStudy,"E.Anderson,C.Fine&G.ParkerProductionandOperationsManagement,

Vol.9,No.3,Fall2000,pp.239-261.“Weareexperiencinga100-yearflood.”J.Chambers,4/16/01INDUSTRYCLOCKSPEEDISACOMPOSITE:

OFPRODUCT,PROCESS,ANDORGANIZATIONALCLOCKSPEEDSTHE

AutomobileMANUFACTURINGCOMPANYorganizationAutomobileINDUSTRYCLOCKSPEEDTHEAutomobileproducttechnologyTHEAutomobilePRODUCTIONPROCESSprocesstechnologyAutomobileCLOCKSPEEDISAMIXOFENGINE,BODY&ELECTRONICSAutomobileENGINEslowclockspeedBODYmediumclockspeedELECTRONICSfastclockspeedISSUE:MOSTAUTOFIRMSOPERATEATENGINEORBODYCLOCKSPEEDS;INTHEFUTURETHEYWILLNEEDTORUNATELECTRONICSCLOCKSPEED.DynamicsbetweenNewProjects

andCoreCapabilityDevelopment:PROJECTSMUSTMAKEMONEYANDBUILDCAPABILITIESCORECAPABILITIESNEWPROJECTS(Newproducts,newprocesses,newsuppliers)Leonard-Barton,WellspringsofKnowledgeClockspeeddrivesBusinessStrategyCadenceTheStrategicLeverageofValueChainDesign:WholetIntelInside?1980:IBMdesignsaproduct,aprocess,&avaluechainIntelMicrosoftIBMCustomersTheOutcome: Aphenomenonallysuccessfulproductdesign Adisastrousvaluechaindesign(forIBM)IntelInsideLESSONSFROMAFRUITFLY:THEPERSONALCOMPUTER1.BEWAREOFINTELINSIDE (Regardlessofyourindustry)2.MAKE/BUYISNOTABOUTWHETHERITIS TWOCENTSCHEAPERTOOUTSOURCE3.VALUECHAINDESIGNCANDETERMINE THEFATEOFCOMPANIESANDINDUSTRIES, ANDOFPROFITANDPOWER4.THELOCUSOFVALUECHAINCONTROL CANSHIFTINUNPREDICTABLEWAYSAutomotivePowerDynamics

ofTechnologyValue/ContentAutosSteel

-styling-structuralintegrityElec.AutosElectronics-$/vehicle-customerinterfaceSteel19652005...asthemostintegralsubsystemintheautomobile,drivingshiftsintherelativestrategicandfinancialimportanceofvariousmembersinthesupplychain?Willelectronicsreplacesheetsteel...StrategicDesignofAutomotiveElectronicsValueChainsToyotaChryslerMercedesSupplierVisteonFordAutoOpnsDelphiGMNAOSupplierCustomersDensoInside?JCIInside?DelphiInside?VerticalIndustryStructure

withIntegralProductArchitectureIBMDECBUNCHMicroprocessorsOperatingSystemsPeripheralsApplicationsSoftwareNetworkServicesAssembledHardwareAllProductsAllProductsAllProducts(A.Grove,Intel;andFarrell,Hunter&Saloner,Stanford)ComputerIndustryStructure,1975-85HorizontalIndustryStructure

withModularProductArchitectureComputerIndustryStructure,1985-95MicroprocessorsOperatingSystemsPeripheralsApplicationsSoftwareNetworkServicesAssembledHardwareIntelMacTIetcMicrosoftMacUnixHPSeagateetcIntelMacTIetcIntelMotoAMDetcEpsonetcMicrosoftNovelletcLotusAOL/NetscapeEDSetcMicrosoftetcHPDelletcIBMCompaqetc(A.Grove,Intel;andFarrell,Hunter&Saloner,Stanford)THEDYNAMICSOFPRODUCTARCHITECTUREANDVALUECHAINSTRUCTURE:THEDOUBLEHELIXMODULARPRODUCTHORIZONTALINDUSTRYINTEGRALPRODUCTVERTICALINDUSTRYFine&Whitney,“IstheMake/BuyDecisionProcessaCoreCompetence?”P(pán)RESSURETOINTEGRATEPRESSURETODIS-INTEGRATEORGANIZATIONALRIGIDITIESHIGH-DIMENSIONALCOMPLEXITYNICHECOMPETITORSPROPRIETARYSYSTEMPROFITABILITYSUPPLIERMARKETPOWERTECHNICALADVANCESTHEDOUBLEHELIX

INOTHERINDUSTRIESTELECOMMUNICATIONS--“MABELL”wasVertical/IntegralBABYBELLS&LONGLINES&CELLULARareHorizontal/ModularToday’sVerizonisgoingbacktoVertical/IntegralAUTOMOTIVE--Detroitinthe1890’swasHorizontal/ModularFord&GMinthemid1900’swereVertical/IntegralToday’sAutoIndustryisgoingbacktoHorizontal/ModularTELEVISION--RCAwasVertical/Integral1970’STHROUGH1990’SwereHorizontal/ModularToday’smediagiantsaregoingbacktoVertical/IntegralBICYCLES--SafetyBikesto1890’sboomtoSchwinntoShimanoInsideTELECOMS:INTHEBEGINNING,THEREWASVERTICALINTEGRATIONANDMARKETPOWERTELEPHONENETWORKVOICECOMMUNICATIONAT&TCABLE&BROADCASTNETWORKSVIDEOENTERTAINMENTCableOperators&NetworkBroadcastersDATANETW0RKSCORPORATEDATAIBM,DEC,ETC.CONTENTINFRASTRUCTUREDAVECLARK,LCS,MITIPBEGATCONVERGENCE&LOSSOFMARKETPOWERTHEHOURGLASSSHOPPING,PORTALS,SEARCH,MUSIC,VIDEOS,JOKES,CHAT,EMAIL,PORNOGRAPHY,DATA,ETC.,ETC.CONTENT(Howephemeral?)IPFIBEROPTICNETWORKS,CABLEMODEMS,DSLCONNECTORS,SWITCHINGSUBSTATIONS,ETC.,ETC.INFRASTRUCTURE(HowtoachieveROI>CoC?)IPALLOWSCONTENTANDINFRASTRUCTURETOBEDEVELOPEDINDEPENDENTLYDAVECLARK,RPCP,MITControllingtheChannelThroughClosenesstoCustomers: consumerresearch,pricing,promotion,productdevelopmentRetailerRetailerRetailerCustomersP&GControllingtheChainThroughDistribution:TheEndofP&GInside?ControllingtheChannelThroughClosenesstoCustomers: ChainProximityRetailerRetailerRetailerCustomersP&GWalMartWalMartPrivateLabelControllingtheChainThroughDistribution:Bewareof

WalmartOutsideBattleforChannelControl-ProprietarySystemsv.ClosenesstoCustomersIntelCompaqDellGatewayCustomersAMDNexgenVolatilityAmplificationin“TheBullwhipEffect”and

ClockspeedAmplificationin“TheSpeedupEffect”CustomerRetailerDistributorFactoryTier1EquipmentWebSiteDeveloperChipmakerEquipmentMakerPCMakerInventories&Ordersfluctuatemoreasyoulookupstream,toughonsuppliers,but

Clockspeedsaccelerateasyouheaddownstream,closertothefinalcustomer

CompetitiveIntensityfromReducedTradeBarriersandInternetCommerceTechnologicalInnovationinComputing&Communications++MutuallyReinforcingClockspeedDrivers:

TechnologicalInnovation&CompetitiveIntensityIndustry&OrganizationClockspeedsIndustry&OrganizationClockspeeds++MediaSupplyChains:AnIndustryat

LightspeedVideo/Audio:Movies&Art&News&SportsWireless:-broadcastTV-CDMA,TDMA,GSM-satellite/microwaveLand-basedTelco:-copperPOTS-fiber-DSLCustomersTelevisionCableNetworksPC/laptopTheboxThePipe(Access,Metro,Backbone)TheContentCommunication:voice&video&emailEducationInternet,etalShoppingWiredPhonePagerNews/articles/books(newspapers& magazines)VCRRetailOutlets-Borders:-Blockbuster-Seven-ElevenWirelessphoneDelivery(e.g.,Fedex)PDABankingALLCOMPETITIVEADVANTAGEISTEMPORARYAutos:

Fordin1920,GMin1955,Toyotain1990Computing:

IBMin1970,DECin1980,Wintelin1990WorldDominion:

Greecein500BC,Romein100AD,G.B.in1800Sports:

Bruinsin1971,Celticsin1986,Yankeesnoend

Thefastertheclockspeed,theshorterthereignFruitFlies&TemporaryAdvantage2.ValueChainDesign&3-DCE3.eBusinessPhenomena: BusinessModelInnovation4.TelecomValueChains: AfruitflyexampleMappingtheTelecomValueChain:ARoadmapforCommunicationsNetworksVALUECHAINDESIGN:

ThreeComponents1.Insourcing/OutSourcing(TheMake/BuyorVerticalIntegrationDecision)2.PartnerSelection(Choiceofsuppliersandpartnersforthechain)3.TheContractualRelationship(Arm’slength,jointventure,long-termcontract, strategicalliance,equityparticipation,etc.)IMPLEMENTATIONOFVALUECHAINDESIGN:EMBEDITIN3-DCONCURRENTENGINEERINGPRODUCTPROCESSVALUECHAINRecipe,UnitProcessDetails,StrategyPerformanceSpecificationsProductArchitecture,Make/BuycomponentsTime,Space,AvailabilityTechnology,&ProcessPlanningManufacturingSystem,Make/BuyprocessesIntegralproductarchitectures

feature closecouplingamongtheelements

-Elementsperformmanyfunctions

-Elementsareinclosespacialproximity

-Elementsaretightlysynchronized-Ex:jetengine,airplanewing,microprocessorModularproductarchitectures

feature separationamongtheelements

-Elementsareinterchangeable

-Elementsareindividuallyupgradeable

-Elementinterfacesarestandardized

-Systemfailurescanbelocalized-Ex:stereosystem,desktopPC,bicycleARCHITECTURESIN3-DINTEGRALITYVS.MODULARITYVALUECHAINARCHITECTUREIntegralvalue-chainarchitecture

featurescloseproximityamongitselements

-Proximitymetrics:Geographic,Organizational

Cultural,Electronic

-Example:Toyotacity

-Example:MaBell(AT&TinNewJersey)

-Example:IBMmainframes&HudsonRiverValleyModularvalue-chainarchitecturefeaturesmultiple, interchangeablesupplierandstandardinterfaces

-Example:Garmentindustry

-Example:PCindustry

-Example:GeneralMotors’globalsourcing-Example:TelephonesandtelephoneserviceDESIGNINGARCHITECTURESFORPRODUCTS&VALUECHAINS:THENEEDFORALIGNMENTINTEGRALMODULARPRODUCTARCHITECTUREVALUECHAINARCHITECTURE(Geog.,Organ.,Cultural,Elec.)JetenginesMicroprocessorsMercedesvehiclesPersonalComputers

BicyclesChryslerVehiclesCiscoINTEGRALMODULARPolaroidNortelAutomotiveSupplierParksDESIGNINGARCHITECTURESFORPRODUCTS&VALUECHAINS:MODULARITYVS.OPENNESSINTEGRALMODULARARCHITECTURALSTRUCTUREARCHITECTURALPROPRIETARINESSPentiumChip

MercedesVehiclesSAPERPPalmPilotsoftware&accessoriesPhones&serviceWeb-basedERPCLOSEDOPENIBMMainframesMicrosoftWindowsChryslerVehiclesLinuxINFORMATIONARCHITECTUREMUSTREFLECTBUSINESSMODELIn/Outsourcing:SowingtheSeeds

ofCompetenceDevelopmenttodevelop

dependenceforknowledgeordependenceforcapacity+++AmountofWork

DoneIn-houseknowledge+/orsupplyAmountofInternalLearningInternalCapability++AmountofWorkOutsourcedknowledge+/orsupplyAmountofSupplierLearningSupplierCapabilityDependenceIndependence+Japaneseindustrysize&capabilityJapaneseappealassubcontractorsU.S.industrysize&capabilityU.S.firms’appealassubcontractorsBoeing

outsources

toJapan(MitsubishiInside?)JapaneseIndustryAutonomy++++-+TechnologyDynamicsintheAircraftIndustry:

LEARNINGFROMTHEDINOSAURSSOURCEABLEELEMENTSPROCESSELEMENTSSUBSYSTEMSPRODUCTSI4

V6V8ENGINEERINGASSYTESTCONTROLLERVALVETRAINBLOCKDEPENDENTFORKNOWLEDGE&CAPACITYINDEPENDENTFORKNOWLEDGE&DEPENDENTFORCAPACITYBESTOUTSOURCINGOPPORTUNITYWORSTOUTSOURCINGSITUATIONCANLIVEWITHOUTSOURCINGAPOTENTIALOUTSOURCINGTRAPITEMISMODULARITEMISINTEGRALStrategicMake/BuyDecisions:

AssessCriticalKnowledge&ProductArchitectureAdaptedfromFine&Whitney,“IstheMake/BuyDecisionProcessaCoreCompetence?”INDEPENDENTFORKNOWLEDGE&CAPACITYBESTINSOURCINGSITUATIONOVERKILLINVERTICALINTEGRATIONStrategicMake/BuyDecisions:

AlsoconsiderClockspeed&SupplyBaseCapabilityAdaptedfromC.Fine,

Clockspeed,Chap.9DEPENDENTFORKNOWLEDGE&CAPACITYDEPENDENTFORCAPACITYONLYDECOMPOSABLE(Modular)INTEGRALClockspeedSuppliers

FewManyFastSlowClockspeedSuppliers

FewManyFastSlowClockspeedSuppliers

FewManyFastSlowClockspeedSuppliers

FewManyFastSlowOKWatchit!TrapBestOutWorstOKINDEPENDENTFORKNOWLEDGE&CAPACITYClockspeedSuppliers

FewManyFastSlowClockspeedSuppliers

FewManyFastSlowOver-killBestInQualitativeanalysisofstrategicimportanceusesfivekeycriteriaCustomerImportance:

HighMediumLowTechnologyClockspeed:FastMediumSlowCompetitivePosition:AdvantageParityDisadvantageCapableSuppliers:NoneFewManyArchitecture:IntegralModularPossibleDecisions(Knowledge&Supply):

InsourceOutsourcePartner/AcquirePartialInsourcePartialOutsourceInvestSpinOffDevelopSuppliersCompetitivePosition:AdvantageParityDisadvantageCriteriaareapplieddifferentlyforProductsthanforSubsystemsValuechainelementswithhighcustomerimportanceandfastclockspeedaregenerallystrategic(unlesstherearemanycapablesuppliers)Competitivepositionisseldomtheprimaryconsiderationforstrategicimportance,ratheritservesasa“tie-breaker”whenothercriteriaareinconflict

Whenmanycapablesuppliersexist,knowledgemaybeconsideredcommodityanddevelopmentshouldbeoutsourcedArchitectureisconsideredaconstraintforthesourcingdecisionmodel,controlsthelevelofengineeringthatmustbekeptinhouseforintegrationpurposesModeldevelopedbyGMPowertrain,PRTM,&Clockspeed,Inc.SourcingStrategyDecisionTree-

HighCustomerImportancePathCustomerImportance?TechnologyClockspeed?CompetitivePosition?HighLow

FastSlow

CapableSuppliers?NoneMany

CompetitivePosition?Architecture?FewStrongMinimalOutsource-Invest

MinimalOutsource-Invest

Integral

MinimalOutsource-Equity/AcquireandPartnerMinimalOutsource-Equity/AcquireModular

Architecture?Integral

MinimalOutsource-Equity/Acquire&PartnerOutsourceAllModular

WeakCapableSuppliers?NoneMany

FewMinimalOutsource-InvestforParity,DevelopSuppliers

Architecture?Integral

MostlyOutsource-Specify&IntegrateOutsourceAllModular

CapableSuppliers?NoneManyFewMinimalOutsource-MaintainInternalKnowledge(possiblydevelopsuppliers)

Architecture?Integral

PartialOutsource(lessintegralcomponents)OutsourceAllModularStrongWeakPartialOutsourcePartialOutsource-InvestinInternalCapabilityHighCustomerImportancePathModeldevelopedbyGMPowertrain,PRTM,&Clockspeed,Inc.SourcingStrategyDecisionTree-

LowCustomerImportancePathCustomerImportance?HighLowTechnologyClockspeed?FastSlowCapableSuppliers?NoneManyCompetitivePosition?FewStrongDevelopSuppliersandOutsourceDevelopSuppliersandOutsourceAllOutsourceAllWeakCapableSuppliers?NoneManyArchitecture?FewIntegralPartialOutsourceSpin-offandDevelopSuppliersModularOutsourceAllArchitecture?IntegralMinimalOutsource-MaintainandDevelopSuppliersMinimalOutsource-DevelopSuppliersModularCompetitivePosition?CapableSuppliers?NoneManyFewMinimalOutsource-DevelopSuppliersCapableSuppliers?NoneManyFewArchitecture?IntegralPartialOutsourceOutsourceAllModularStrongWeakPartialOutsourceMostlyOutsource,DevelopMoreSuppliersand/orSomeIntegrationCapabilityArchitecture?IntegralMinimalOutsource-MaintainModularMinimalOutsource-DevelopSuppliersOutsourceAllLowCustomerImportancePathDataisstillpreliminaryModeldevelopedbyGMPowertrain,PRTM,&Clockspeed,Inc.ActualknowledgeworkcomparedtooutcomeofDecisionFramework

PercentageofKnowledgeWorkCurrentlyDonePercentageofKnowledgeWorkthatShouldbeControlled100%0%50%0%100%OutsourceAllMostlyOutsource-Specify&IntegrateNoOutsourcingPartialOutsourceMinimalOutsource-Equity/Acquire&PartnerSpin-offandDevelopSuppliersMinimalOutsource-MaintainInternalKnowledgeMostlyOutsource-DevelopMoreSuppliersModeldevelopedbyGMPowertrain,PRTM,&Clockspeed,Inc.EverydecisionrequiresqualitativeandquantitativeanalysistoreachaconclusionQuantitativeModel(Financial)QualitativeModelEVAStrategicImportanceQuantitativeValueLowHighQualitativeValueLowHighKnowledgeSupplyInvest&BuildHarvestInvestmentDivest/OutsourceImproveEconomicsModeldevelopedbyGMPowertrain,PRTM,&Clockspeed,Inc.

ChryslerEatoncastingsupplierclaysupplierOrganizationalValueChainenginesvalvelifterscastingmanufacturingprocessclaychemistryTechnologyValueChainSupplyChainManagementQualityassuranceNVHengineeringR&DCapabilityChainValueChainMappingUnderlyingAssumption:Youhavetodrawthemapsbeforeyoucanassesstheirdynamics.Sincealladvantagesaretemporary,theonlylastingcompetencyistocontinuously

buildandassemblecapabilitieschains.

KEYSUB-COMPETENCIES:1.Forecastingthedynamicevolutionofmarketpowerandmarketopportunities

2.AnticipatingWindowsofOpportunity

3.3-DConcurrentEngineering:Product,Process,ValueChain

FortuneFavorsthePreparedFirmVALUECHAINDESIGNIS

THEULTIMATE

CORECOMPETENCYCAPABILITIESPROJECTS1.BenchmarktheFruitFlies2.MapyourSupplyChain

-OrganizationalValueChain

-TechnologyValueChain

-CompetenceChain3.DynamicChainAnalysis ateachnodeofeachchainmap4.IdentifyWindowsofOpportunity5.ExploitCompetencyDevelopmentDynamics with3-DConcurrentEngineeringPROCESSFORVALUECHAINDESIGNCAPABILITIESPROJECTSBOEINGHELIXDOUBLESTRATEGYIN3-D:CASEEXAMPLESBoeing:Static3-DinairplaneProjects Dynamic,StrategicValueChain,

unintegratedw/Product&ProcessIntel:ModularProductvs.Process IntegralProcessandValueChainChrysler:ModularProduct&ValueChain (weakonprocess?)Toyota:Integral3-DinNagoya (weakonglobal3-D?)ComponentsofProduct,Process,andValueChainStrategyProduct

?CustomerNeeds?MarketSegments?ProductArchitecture1.Sourcing:Make/Buy2.PartnerSelection3.RelationshipDesign(spot,alliance,equity,etc.)4.LogisticsSystemDesign5.InventorymanagementPolicies6.RelationshipManagement7.ValueChainArchitectureProcess

ValueChain

?MissionStatement?OperatingObjectives?Policies&Procedures-Structural:Bricks,Tech,Org-Infrastructural:HR,BusinessProcesses1.FruitFlies&TemporaryAdvantage2.ValueChainDesign&3-DCE3.eBusinessPhenomena: BusinessModelInnovationTelecomValueChains:AfruitflyexampleMappingtheTelecomValueChain:ARoadmapforCommunicationsNetworksBenchmarkingtheeFliesE-tailing:

Attack:

Amazon,WebvanMarketdisruptioninhopesofmakingaplace

Defend:

Walmart.com,FDefensecanrequirecostlySCrevampingB2B:

E2Eintegration:

Cisco,DellIntegrationpaysoffwithmodularproducts

MarketplaceCreation:

FreemarketsReverseauctionsreduceshorttermcosts Covisint

CommonstandardsreducedsupplierinvestmentcostFree&OpenDigitalContent:

Peer-toPeerSharing/Theft:

NapsterIndustry-shakingdisruptionsrequirevaluechainSWATteamInternetEraPhenomena:eCompetitioninBusinessModelInnovationE-tailing:

Attack:Amazon,Webvan

Defend:

Walmart.com,F,OfficeDB2B:

E2Eintegration:

Cisco,Dell

MarketplaceCreation:eSteel,Ariba,Freemarkets,Covisint

ProductDevelopment:CiscoCustomerasProductManager:

ProductInnovation/Pricing/Design/Spec/Tracking/Delivery:

Dell,HermanMiller,Reflect,iMotors,Fedex,PricelineFree&OpenDigitalContent:

ConstructiveCollaboration:Linux,Lego,PalmPilot“AnarchisticConstructive”Conversation:Cluetrain

UbiquitousSharing/Theft:Napster,FreeNet,GnutellaInternetEraPhenomena:eCompetitioninBusinessModelDesignDOT.COMCOMPETITION:FOCUSONTHESUPPLYCHAIN

CASE#1:

WALMART.COMGOTNOTRACTIONWalmartStoreCustomersWalMartProcurementSupplierSupplierWalmartStoreWalmart.comShipperDOT.COMCOMPETITION:FOCUSONTHESUPPLYCHAIN

Napster’sNewSupplyChainStrategy

(gototheendandstealeverything!)IdentifyTalentDevelopSongsRecordMusicPromoteMusicPressCD’sSelltoRetailVerticallyIntegratedMusicGiantsCustomerConsumptionStealSongsMatchingSupplyChainStrategieswithProducts

IComputerIIIGroceryIVBooks&CDsIIFurnitureDeliverycostUnitpriceDemanduncertainty(C.V.)L HHLPull

PushPullPushProf.DavidSimchi-Levi,MITCisco’sValueChainDesignProductDesign?minimalprototypeiteration?sharedproductdatabases?highlymodularproducts?jointwithsuppliers?innovationthroughacquisition?outsourcedmanufacturing(e.g.,Solectron)?outsourcedlogistics(e.g.,Fedex)?independentforknowledgeinITsystemProcessDesignValueChainDesign?ordersgofromCCOwebsitetoCM’s?productsgofromCM’stocustomervialogisticssupplier?order&forecastdataonlinetosupplychainChrysler’sExtendedEnterpriseModelKeyElementsofthemodel:1.BuildTrustinRelationships -askforsuggestionsandactonthem -honestlyandaggressivelyseekmutualbenefits -communicatefrequentlyandbroadlyacrosstheorg. (understandeachother’sproblems) -managetherelationshipconstantly -pre-selectsuppliersveryearlyandworktogether -actforlong-termgain,avoidshort-termtemptationsStallkamp:“Youareoursupplierforeverifyoucanbetheleaderincost,quality,technology,anddelivery.Ifyoufallbehind,wewillgiveyouachancetocatchup.Ifyoucannotcatchup(withourhelp),wewilldropyou.”KeyElementsofthemodel(continued):2.Sharecostsavings -startwithtargetcostsandlearnjointly -provideeconomicincentivesforpartnerships -sharedatawithscorecardsonperformance -collaboratetoreducesystemcostsalongtheentirechain -bettertohavealow-costsupplierthanalow-pricesupplier3.Developproductsjointly -utilizeco-located,cross-functionalteams;commonCATIA4.Developbothastrategytowardeachsupplier (howstrategic;areasofjointinterest),and astrategyforeachcommodity (e.g.,weonlysourcetiresfromGoodyear&Michelin)Chrysler’sExtendedEnterpriseModelLowerdevelopmentcosts: jointincentives,ECN’scomeearlyFasterdevelopmentspeed: earlyinvolvement,fewerlateECN’sLowerprocurementcosts: lesstimehagglingandsolicitingbidsLowerproductioncosts: suppliersgetscale,moreadvancedplanningImprovedquality: jointincentives,betterdesignsChrysler’sRESULTSThreeSecretstosuccess:

Relationships,Relationships,Relationships1.FruitFlies&TemporaryAdvantage2.ValueChainDesign&3-DCE3.eBusinessPhenomena: BusinessModelInnovationTelecomValueChains:AfruitflyexampleMappingtheTelecomValueChain:ARoadmapforCommunicationsNetworksFiberandCable-basedNetworks OpticalNetworksWirelessNetworksNetworkCommunicationsRoadmap:StartwithStaticMaps“Wedefinea‘killertechnology’

asonethatdeliversenhancedsystemsperformanceofafactorofatleastahundred-foldperdecade.” C.H.Fine&L.K.Kimerling,"BiographyofaKillerTechnology:

OptoelectronicsDrivesIndustrialGrowthwiththeSpeedofLight,” publishedin1997bytheOptoelectronicsIndustryDeveloment Association,2010MassAve,NW,Suite200,Wash.DC20036-1023.

”KillerTechnologies”oftheInformationAge:Semiconductors,MagneticMemory,OptoelectronicsKillerQuestion:WillIntegratedOpticsevolvelinearlylikeSemiconductorswithMoore’sLaworlikeDiskDriveswithrepeatedindustrydisruptions?10110010-1102104106108NumberofchipcomponentsFeaturesize(microns)1010101210181014101610-210-3ClassicalAgeHistoricalTrendSIARoadmap2010CMOS199520002005197019801990RoadmapforElectronicDevices4oKQuantumAge77oK295oKQuantumStateSwitchHorstD.SimonInternationalTechnologyRoadmapforSemiconductors‘99Year2005200820112014Technology(nm)100705035DRAMchiparea(mm2)526603691792DRAMcapacity(Gb)864MPUchiparea(mm2)622713817937MPUtransistors(x109)0.92.57.020.0MPUClockRate(GHz)3.56.010.013.5Moore’sLaw197019751980198519901995200020052010103104105106107108109TransistorsperchipYear80786PentiumProPentium804868038680286808680804004?Source:JoelBirnbaum,HP,LectureatAPSCentennial,Atlanta,1999DiskDriveDevelopment1978-1991DiskDriveGeneration14