Beating the clock: Corporate responses to rapid change in the PC industry

California Management Review

Volumn , Issue 1, 1999, Pages 8-36

  Curry, James ^a   Kenney, Martin ^a  

^a NONE

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EID: 0033476282     PISSN: 00081256     EISSN: None     Source Type: Journal    
DOI: 10.2307/41166017     Document Type: Article

References (98)

1. Preoccupation with time management is not entirely new, Chandler showed how a multidivisional firm was organized to cope with new technologies, and implicit in organization was managing time. Alfred Chandler, Scale and Scope: the Dynamics of Industrial Capitalism (Cambridge, MA: Harvard University Press, 1990). Landes discusses the role of clocks in the making of the modern capitalist world. David Landes, Revolution in Time: Clocks and the Making of the Modern World (Cambridge, MA: Harvard University/Belknap Press, 1983). O'Malley points out the importance of railroads and telegraphs in the standardizing U.S. timekeeping. Michael O'Malley, Keeping Watch (New York, NY: Viking, 1990). The acceleration of commerce contributed to an increasing need to keep accurate time. Slightly later, Frederick Taylor began the formal study of time in production, in an effort to increase worker output. Just-in-time production explicitly recognizes the need to manage time.
2. Preoccupation with time management is not entirely new, Chandler showed how a multidivisional firm was organized to cope with new technologies, and implicit in organization was managing time. Alfred Chandler, Scale and Scope: the Dynamics of Industrial Capitalism (Cambridge, MA: Harvard University Press, 1990). Landes discusses the role of clocks in the making of the modern capitalist world. David Landes, Revolution in Time: Clocks and the Making of the Modern World (Cambridge, MA: Harvard University/Belknap Press, 1983). O'Malley points out the importance of railroads and telegraphs in the standardizing U.S. timekeeping. Michael O'Malley, Keeping Watch (New York, NY: Viking, 1990). The acceleration of commerce contributed to an increasing need to keep accurate time. Slightly later, Frederick Taylor began the formal study of time in production, in an effort to increase worker output. Just-in-time production explicitly recognizes the need to manage time.
3. Preoccupation with time management is not entirely new, Chandler showed how a multidivisional firm was organized to cope with new technologies, and implicit in organization was managing time. Alfred Chandler, Scale and Scope: the Dynamics of Industrial Capitalism (Cambridge, MA: Harvard University Press, 1990). Landes discusses the role of clocks in the making of the modern capitalist world. David Landes, Revolution in Time: Clocks and the Making of the Modern World (Cambridge, MA: Harvard University/Belknap Press, 1983). O'Malley points out the importance of railroads and telegraphs in the standardizing U.S. timekeeping. Michael O'Malley, Keeping Watch (New York, NY: Viking, 1990). The acceleration of commerce contributed to an increasing need to keep accurate time. Slightly later, Frederick Taylor began the formal study of time in production, in an effort to increase worker output. Just-in-time production explicitly recognizes the need to manage time.
4. Martin Kenney and James Curry, "Knowledge Creation and Temporality in the Information Economy," in Raghu Garud and Joe Porac, eds., Cognition, Knowledge, and Organizations (Greenwich, CT: JAI Press, forthcoming).
5. Richard D'Aveni, Hypercompetition (New York, NY: Free Press, 1994).
6. George Stalk and Thomas M. Hout, Competing Against Time: How Time-Based Competition Is Reshaping Global Markets (New York, NY: Free Press, 1990); Joseph D. Blackburn and Joseph C. Blackburn, Time-Based Competition: The Next Battleground in American Manufacturing (New York, NY: Irwin Professional Publishers, 1990); Charles Fine, Clockspeed: Winning Industry Control in the Age of Temporary Advantage (Reading, MA: Perseus Books, 1998).
7. George Stalk and Thomas M. Hout, Competing Against Time: How Time-Based Competition Is Reshaping Global Markets (New York, NY: Free Press, 1990); Joseph D. Blackburn and Joseph C. Blackburn, Time-Based Competition: The Next Battleground in American Manufacturing (New York, NY: Irwin Professional Publishers, 1990); Charles Fine, Clockspeed: Winning Industry Control in the Age of Temporary Advantage (Reading, MA: Perseus Books, 1998).
8. George Stalk and Thomas M. Hout, Competing Against Time: How Time-Based Competition Is Reshaping Global Markets (New York, NY: Free Press, 1990); Joseph D. Blackburn and Joseph C. Blackburn, Time-Based Competition: The Next Battleground in American Manufacturing (New York, NY: Irwin Professional Publishers, 1990); Charles Fine, Clockspeed: Winning Industry Control in the Age of Temporary Advantage (Reading, MA: Perseus Books, 1998).
9. L. J. Bourgeois and Kathleen M. Eisenhardt, "Strategic Decision Process in High Velocity Environments: Four Cases in the Microcomputer Industry," Management Science, 34/7 (1988): 816-835.
10. Gary McWilliams, "Michael Dell: Whirlwind on the Web," Business Week, April 7, 1997. This paper focuses on IBM standard PCs. Apple Computer is not discussed because it has only a 6-percent market share and is therefore nearly irrelevant to the microcomputer industry as a whole.
11. It is important to be careful when interpreting product life cycles in the PC industry. Though the life of the model may be only 3 months, actually the top-of-the-line model often simply becomes a mid-range product, rather than an obsolete product, when the new model is introduced.
12. Stan Shih, Me-Too Is Not My Style: Challenge Difficulties, Break Through Bottlenecks, Create Values (Taipei: Acer Foundation, 1996).
13. The velocity of change in the PC industry results from the extremely rapid pace of technological innovation in components. Surprisingly, the PC assemblers, though absolutely dependent upon technical change, have extremely low research and development (R&D) expenditures. The suppliers perform the R&D and develop new technology. For example, in fiscal year 1997 Dell spent 1.62 percent of sales on R&D and Compaq spent 2.25 percent.
14. Richard Langlois and Paul Robertson, "Networks and Innovation in a Modular System: Lessons from the Microcomputer and Stereo Component Industries," Research Policy, 21 (1992): 297-313.
15. James Chposky and Ted Leonsis, Blue Magic: The People, Power and Politics Behind the IBM Personal Computer (New York, NY: Facts on File Publications, 1988).
16. Bresnahan and Richards term this "vertical competition." Timothy Bresnahan and John Richards, "Local Competition in Information Technology," paper for the 11th Annual NBER-TCER-CEPR Conference "Competition Policy, Deregulation, and Re-regulation," December 18-19, 1998, International House of Japan, Tokyo, Japan.
17. David McKendrick, "Sustaining Competitive Advantage in Global Industries: Technological Change and Foreign Assembly in the Hard Disk Drive Industry," Report 97 06, The Data Storage Industry Globalization Project, IR&PS, University of California, San Diego, 1997.
18. Jacqueline Warnke, "Computer Manufacturing: Change and Competition," Monthly Labor Review (August 1996), pp. 18-29.
19. Joseph Maglitta, Special DELL-ivery," Electronic Business (December 1997), pp. 43-47.
20. Richard N. Langlois, "Creating External Capabilities: Innovation and Vertical Disintegration in the Microcomputer Industry," Business and Economic History, 19 (1990): 93-102.
21. Intergraph, Inc., 1998, http://www.intergraph.com/intel/order.htm
22. For a discussion of this problem from a slightly different perspective, see Michael Borrus and John Zysman, "Globalization with Borders: The Rise of Wintelism as the Future of Global Competition," Industry and Innovation, 4/2 (1997): 141-167.
23. Paul Carroll, Big Blues: The Unmaking of IBM (New York, NY: Crown Trade Paperbacks, 1993).
24. Gordon Moore is one of the founders of Intel, the world's largest semiconductor company and most important producer of microprocessors for the PC.
25. Don Clark, "A Big Bet Made Intel What It Is Today: Now It Wagers Again," Wall Street Journal, June 6, 1995. Intel's strategy was to sell its newest and fastest microprocessor at very high prices. As faster models are introduced, the prices for earlier models are significantly reduced.
26. McKendrick, op. cit.
27. Gabrielle Jonas, "Outlook Bleak for Disk Drive Makers," TechWeb TechInvestor, http://www.techweb.com/investor, January 7, 1998. There are several reasons for these falling prices, but one of the most important stems from the rapid technological progress in the semiconductor and HDD industries. For semiconductors, see Nile Hatch, "Learning Effects in Semiconductor Fabrication," Competitive Semiconductor Manufacturing Program, Engineering Systems Research Center, UC Berkeley, ESRC 96-26, 1996.; for HDDs, see Christian Terwiesch, Roger E. Bohn, and Scott M. Hampton, "The Economics of Yield-Driven Processes," Information Storage Industry Center, UCSD, Working Paper No. 97-04, 1997.
28. Gabrielle Jonas, "Outlook Bleak for Disk Drive Makers," TechWeb TechInvestor, http://www.techweb.com/investor, January 7, 1998. There are several reasons for these falling prices, but one of the most important stems from the rapid technological progress in the semiconductor and HDD industries. For semiconductors, see Nile Hatch, "Learning Effects in Semiconductor Fabrication," Competitive Semiconductor Manufacturing Program, Engineering Systems Research Center, UC Berkeley, ESRC 96-26, 1996.; for HDDs, see Christian Terwiesch, Roger E. Bohn, and Scott M. Hampton, "The Economics of Yield-Driven Processes," Information Storage Industry Center, UCSD, Working Paper No. 97-04, 1997.
29. Gabrielle Jonas, "Outlook Bleak for Disk Drive Makers," TechWeb TechInvestor, http://www.techweb.com/investor, January 7, 1998. There are several reasons for these falling prices, but one of the most important stems from the rapid technological progress in the semiconductor and HDD industries. For semiconductors, see Nile Hatch, "Learning Effects in Semiconductor Fabrication," Competitive Semiconductor Manufacturing Program, Engineering Systems Research Center, UC Berkeley, ESRC 96-26, 1996.; for HDDs, see Christian Terwiesch, Roger E. Bohn, and Scott M. Hampton, "The Economics of Yield-Driven Processes," Information Storage Industry Center, UCSD, Working Paper No. 97-04, 1997.
30. Bruce Grimm, "Price Indexes for Selected Semiconductors," Survey of Current Business, 78/2 (February 1998): 8-24.
31. Clayton Christensen, "The Innovator's Challenge: Understanding the Influence of Market Environment on Processes of Technology Development in the Rigid Disk," DBA dissertation, Harvard Business School, 1992.
32. Ernst Berndt and Zvi Griliches, "Price Indexes for Microcomputers: An Exploratory Study," in Murray Foss, Marilyn Manser, and Allan Young, eds., Price Measurement and Their Uses (Chicago, IL: University of Chicago Press, 1993), pp. 62-93.
33. John Steffens, Newgames: Strategic Competition in the PC Revolution (Oxford: Pergamon, 1994), pp. 254.
34. Examples of crisis vary. For example, the 1997 collapse of the Korean currency and economy prompted Korean firms to flood the world economy with DRAM chips at devastating prices. Any PC maker with DRAMs in their pipeline immediately lost value. Similarly, any event that slows consumer purchasing affects PC makers with PCs in the pipeline because the inventory continues its inexorable decline in value.
35. Business Week, "Compaq: How It Made Its Impressive Move Out of the Doldrums," November 2, 1992, pp. 146-151.
36. It also offered the first IBM-compatible luggable computer. Rick Whiting, "Personal Computer Have-Nots Fight for Bigger Slice of Market," Electronic Business, October 30, 1989, pp. 34-35.
37. Business Week, "Compaq: How It Made Its Impressive Move Out of the Doldrums," November 2, 1992, pp. 146-151.
38. In this sense, the much decried "bloatware" was great for the PC industry.
39. James Curry, "Vertical Control in Horizontally Organized Industries: The Case of PC Mainboard Production," El Colegio de la Frontera Norte, Departamento de Estudios Sociales Cuaderno de Trabajo, Working Paper, 1998.
40. C-Net, "Seagate Sees Major Q2 Loss," C-Net News.Com, http://www.news.com/ News/Item/0,4,17915,00.html, January 8, 1998.
41. Kelly Spang, "AMD Reveals a Proactive Approach to Intel Competition," Computer Reseller News, http://www.crn.com, April 20, 1998.
42. WSJ - Wall Street Journal Interactive Edition, "Intel Will Cut Prices of Chips as Rivals Eye Piece of Market," Wall Street Journal Interactive Edition, http://interactive.wsj.com, June 12, 1997.
43. StoreBoard, "Retail Desktop Market Share by Price Class, March vs. April," July 14, 1999.
44. The exception here is the server market, where the dramatic increase in Internet traffic is fueling demand for more Wintel-based server PCs.
45. Dean Takahashi and Evan Ramstad, "Cyrix's Low-Cost Chip Is Key to New Compaq PC," Wall Street Journal Interactive Edition, http://interactive.wsj.com/, February 20, 1997; Tom R. Halfbill, "Disposable PCs," Byte (February 1998), pp. 62-74; WSJ - Wall Street Journal Interactive Edition, "Cyrix's Low-Cost Chip Is Key to New Compaq PC," Wall Street Journal Interactive Edition http://interactive.wsj.com, February 20, 1997.
46. Dean Takahashi and Evan Ramstad, "Cyrix's Low-Cost Chip Is Key to New Compaq PC," Wall Street Journal Interactive Edition, http://interactive.wsj.com/, February 20, 1997; Tom R. Halfbill, "Disposable PCs," Byte (February 1998), pp. 62-74; WSJ - Wall Street Journal Interactive Edition, "Cyrix's Low-Cost Chip Is Key to New Compaq PC," Wall Street Journal Interactive Edition http://interactive.wsj.com, February 20, 1997.
47. Dean Takahashi and Evan Ramstad, "Cyrix's Low-Cost Chip Is Key to New Compaq PC," Wall Street Journal Interactive Edition, http://interactive.wsj.com/, February 20, 1997; Tom R. Halfbill, "Disposable PCs," Byte (February 1998), pp. 62-74; WSJ - Wall Street Journal Interactive Edition, "Cyrix's Low-Cost Chip Is Key to New Compaq PC," Wall Street Journal Interactive Edition http://interactive.wsj.com, February 20, 1997.
48. Kelly Spang, "Plunging Parts Pricing Keeps Sub-$1,000 PC Afloat," Computer Reseller News, http://www.crn.com, January 21, 1998.
49. David Gabel, "Server Disk Drives in the Spotlight - Hands-On Tests of High-Capacity, Fast Drives Aimed at Server Usage in Low to Midrange Niches," VAR Business, http://pubs.cmpnet.com/vb/MAIN/, April 13, 1998.
50. Sadly for Intel and every other company in the PC value chain, Microsoft's operating system software appears to be particularly invulnerable to cloning.
51. The question of product differentiation is quite interesting in the PC industry. Within the IBM standard, which is the subject of this article, there is essentially one standard architecture: Intel CPU-based systems running Microsoft operating system software. Insofar as the "Wintel" architecture is an open system that holds a dominant position in the market, the various component and application software producers must market products that conform to the standard. The primary points of differentiation concern CPU speed, the amount of memory, the software bundle, and the perceived quality and reputation of the marketer. In the past few years, some producers have attempted to differentiate their products through the design of the box, in most cases with a sophisticated design, in a color other than basic beige, or by adding special features or integrated speakers to the monitor. Incorporating high-quality sound and video is one possible avenue PC assemblers could take to differentiate their products, but one that is limited by market demand for low-price systems. One PC producer that has tried this approach, Sony, has met with only limited success. Another approach is to configure systems for broadly defined market segments, e.g., home systems (game-playing systems), small office systems, or corporate-market systems. PCs, though easily customizable, are essentially commodity products, which means that the successful assemblers are those which can mass produce a wide range of custom configurations and get them to market quickly.
52. Even Ramstad and Jon Auerbach., "Compaq to Acquire Digital, Once an Unthinkable Deal: The PC Maker Grew Rapidly As Competitors Shunned Risk," Wall Street Journal Interactive Edition, January 27, 1998.
53. This is a variation on Microsoft's strategy of providing Internet service subscription links, either to Microsoft's own internet service (MSN) or to Internet service provider partners, on the windows desktop screen.
54. C-Net, "Free PC Offers Boost June Sales by 35 Percent," C-Net News.Com, http://www.news.com/News/Item/0,4,39642,00.html, 1999.
55. Todd Lappin, "The Airline of the Internet," Wired, 4/12 (December 1996).
56. The open market for components, increasingly marketed with their own branding strategies is also somewhat problematic for the brand-name PC assemblers. Sony, a company with one of the strongest brand identities in consumer electronics, has met with considerable difficulty in transferring their brand identity into the PC market.
57. One of these eight, Packard Bell-NEC, based near Sacramento California, is a subsidiary of NEC, a Japanese firm.
58. IDC, "Big Fourth Quarter Tops Off Healthy 1998 in U.S. and Worldwide PC Markets, According to IDC," http://www.idc.com/Press'Current/012999Apr.htm, 1999.
59. Acer has a large presence in the OEM market, recently completing a $2 billion deal with IBM to supply computers. WSJ - Wall Street Journal Interactive Edition, "Acer Signs $2 Billion Pact To Supply IBM With PCs," Wall Street Journal Interactive Edition, http://interactive.wsj.com, December 11, 1996. In addition, Acer is the most aggressive Taiwanese brand-name producer, reflecting the conviction of its founder and CEO Stan Shih that Taiwan's computer industry must go beyond the limitations of OEM work into the potentially more profitable marketing end of the value chain (see Shih, op. cit.).
60. Acer has a large presence in the OEM market, recently completing a $2 billion deal with IBM to supply computers. WSJ - Wall Street Journal Interactive Edition, "Acer Signs $2 Billion Pact To Supply IBM With PCs," Wall Street Journal Interactive Edition, http://interactive.wsj.com, December 11, 1996. In addition, Acer is the most aggressive Taiwanese brand-name producer, reflecting the conviction of its founder and CEO Stan Shih that Taiwan's computer industry must go beyond the limitations of OEM work into the potentially more profitable marketing end of the value chain (see Shih, op. cit.).
61. See Lappin, op. cit.
62. Susan Pulliam and Evan Ramstad, "Heard on the Street: Compaq Deal May Mask Problems in PC Business," Wall Street Journal, February 12, 1998.
63. Carol Haber, "PC Pricing a Killer in IBM IQ," Electronic News, April 27, 1998, pp. 47-48.
64. David Angel and James Engstrom, "Manufacturing Systems and Technological Change: The U.S. Personal Computer Industry," Economic Geography, 71/1 (1995): 79-102.
65. Shih, op. cit.
66. Takahashi and Ramstad, op. cit.
67. CRN - Computer Reseller News, "COMDEX Fall 1997 Panel Talks: What is the ultimate goal of channel assembly programs? Is it more than just to take market share away from Dell and Gateway?" Computer Reseller News, http://www.crn.com, December 8, 1997.
68. Jim Carlton, "Ingram Micro Posts 40% Rise in Net; PC Distributor Solidifies Top Position," Wall Street Journal Interactive Edition http://www.wsj.com/, April 29, 1998.
69. Jesse Berst, "Why Your Computer Retailer Will Die, and Then Come Back to Life Again," ZDNet AnchorDesk, http://www.zdnet.com/anchordesk/story/story_1240.html, September 10, 1997; George V. Hulme, "Beyond Better Prices - Quality at the Root of Homegrown PCs," Computer Reseller News, http://www.crn.com, November 17, 1997; John Longwell, "Debating the Meaning of Assembly - When Terms Break Down," Computer Reseller, News http://www.crn.com, August 25, 1997.
70. Jesse Berst, "Why Your Computer Retailer Will Die, and Then Come Back to Life Again," ZDNet AnchorDesk, http://www.zdnet.com/anchordesk/story/story_1240.html, September 10, 1997; George V. Hulme, "Beyond Better Prices - Quality at the Root of Homegrown PCs," Computer Reseller News, http://www.crn.com, November 17, 1997; John Longwell, "Debating the Meaning of Assembly - When Terms Break Down," Computer Reseller, News http://www.crn.com, August 25, 1997.
71. Jesse Berst, "Why Your Computer Retailer Will Die, and Then Come Back to Life Again," ZDNet AnchorDesk, http://www.zdnet.com/anchordesk/story/story_1240.html, September 10, 1997; George V. Hulme, "Beyond Better Prices - Quality at the Root of Homegrown PCs," Computer Reseller News, http://www.crn.com, November 17, 1997; John Longwell, "Debating the Meaning of Assembly - When Terms Break Down," Computer Reseller, News http://www.crn.com, August 25, 1997.
72. CRN, op. cit.
73. Evan Ramstad, "Switch at Compaq May Lower PC Prices, Heat Up Competition," Wall Street Journal, March 31, 1997; James Gruener, "Compaq Introduces New Manufacturing Strategy," PC Week, July 10,1997.
74. Evan Ramstad, "Switch at Compaq May Lower PC Prices, Heat Up Competition," Wall Street Journal, March 31, 1997; James Gruener, "Compaq Introduces New Manufacturing Strategy," PC Week, July 10,1997.
75. Michael Kanellos, "Ingram to Make PCs for Big 3," C-NET News.Com, http://www.news.com/, March 10, 1998.
76. Maglitta, op. cit.
77. McWilliams, op. cit.
78. Michael Dell, "Interview: Michael Dell," Upside (April 1998), pp. 98-102, 140-146.
79. WSJ - Wall Street Journal Interactive Edition, "Dell Profit More Than Doubles, Topping Analysts' Expectations," Wall Street Journal Interactive Edition, http://interactive.wsj.com, August 20, 1997.
80. Joan Magretta, "The Power of Virtual Integration: An Interview with Dell Computer's Michael Dell," Harvard Business Review, 76/2 (March/April 1998): 72-84.
81. McWilliams, op. cit.
82. Andy Serwer, "Michael Dell Rocks," Fortune, May 11, 1998, pp. 59-70, 62.
83. It is not clear that Michael Dell always understood this. In the late 1980s, Dell made an abortive attempt to enter the retail market. It is only after this debacle that Dell optimized its model of direct sales. Mark Henricks, "Michael Dell," Spirit (May 1998), pp. 26-31.
84. During the last 16 years, prices have only increased in a few components during relatively short periods of time. Of course, if prices increase and there are shortages, Dell would have problems, but these should be no more difficult than for any other firm.
85. Serwer, op. cit.
86. WSJ - Wall Street Journal Interactive Edition, "Price Cuts Unveiled by Compaq: Will Likely Start New Skirmish," Wall Street Journal Interactive Edition http://interactive.wsj.com, July 10, 1997.
87. Gruener, op. cit.
88. Cade Metz, "Order Up! Compaq's New Strategy Cuts PC Prices Across the Board," PC Magazine (1997).
89. (Gruener 1997; Ramstad 1997)
90. Haber, op. cit.
91. Jim Carlton, "Packard Bell Plans Direct Sales of PCs to Business Customers," Wall Street Journal, June 18, 1997.
92. Fine, op. cit.
93. Oliver Williamson, Markets and Hierarchies: Analysis and Antitrust Implications (New York, NY: Free Press, 1975).
94. Ronald Coase, "The Nature of the Firm," Economica, 4 (1937): 386-405.
95. Masten et al. found that temporal issues can "be given a major determinant of organization form," which in their case referred to the "integrate" or "buy" decision. Integration in our case is driven by the customers' desire for a seamless solution. Scott Masten, James Meehan, and Edward Snyder, "The Costs of Organization," The Journal of Law, Economics, and Organization, 7/1 (1991): 1-25, 20.
96. Frederick Abernathy, John Dunlop, Janice Hammond, and David Weil, A Stitch in Time: Lean Retailing and the Transformation of Manufacturing (New York, NY: Oxford University Press, 1999).
97. Ibid.
98. Carliss Baldwin and Kim Clark, "Managing in an Age of Modularity," Harvard Business Review, 75/5 (September/October1997): 84-93.