Sloan--Mapping the Telecom Value Chain

MappingtheTelecomValueChain:ARoadmapforCommunicationsNetworksProfessorCharlesFineMassachusettsInstituteofTechnologySloanSchoolofManagementCambridge,[e-mail]:1-617-253-3632,Fax:[phone]Excerptsfrom1.FruitFlies&TemporaryAdvantage2.ValueChainDesign&3-DCE3.eBusinessPhenomena:BusinessModelInnovation4.TelecomValueChains:AfruitflyexampleMappingtheTelecomValueChain:ARoadmapforCommunicationsNetworksEvolutionintheindustrialworld:INFOTAINMENTisfasterthanMICROCHIPSisfasterthanAUTOSevolvefasterthanAIRCRAFTevolvefasterthanMINERALEXTRACTIONTHEKEYTOOL:Cross-INDUSTRYBenchmarkingofDynamicForcesValueChainDesigninaFast-ClockspeedWorld:StudytheIndustryFruitfliesEvolutioninthenaturalworld:FRUITFLIESevolvefasterthanMAMMALSevolvefasterthanREPTILESTHEKEYTOOL:Cross-SPECIESBenchmarkingofDynamicForcesCisco’sEnd-to-EndIntegrationforitsFulfillmentValueChainCiscoCustomersContractManufacturersComponentSuppliers&Distributors•Newproductdevelopmenton-linewithsupplybase•TechnologySupplyChainDesign:InnovationthroughAcquisition•Singleenterpriseinformationsystem•Dynamicreplenishment,directfulfillment,mergeintransit•CustomerordersthroughCiscoConnectiononlineFinishedProductflowsdirecttocustomervialogisticssupplierOrderinfoflowsdirecttoCiscoandsuppliersCisco’sStrategyforTechnologyValueChainDesign1.Integratetechnologyaroundtheroutertobeacommunicationsnetworkprovider.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:MachineToolsatthetipoftheBullwhipUpstreamVolatilityintheSupplyChain:TheMachineToolIndustryasaCaseStudy,E.Anderson,C.Fine&G.ParkerProductionandOperationsManagement,Vol.9,No.3,Fall2000,pp.239-261.“Weareexperiencinga100-yearflood.”J.Chambers,4/16/01INDUSTRYCLOCKSPEEDISACOMPOSITE:OFPRODUCT,PROCESS,ANDORGANIZATIONALCLOCKSPEEDSTHEAutomobileMANUFACTURINGCOMPANYorganizationAutomobileINDUSTRYCLOCKSPEEDTHEAutomobileproducttechnologyTHEAutomobilePRODUCTIONPROCESSprocesstechnologyAutomobileCLOCKSPEEDISAMIXOFENGINE,BODY&ELECTRONICSAutomobileENGINEslowclockspeedBODYmediumclockspeedELECTRONICSfastclockspeedISSUE:MOSTAUTOFIRMSOPERATEATENGINEORBODYCLOCKSPEEDS;INTHEFUTURETHEYWILLNEEDTORUNATELECTRONICSCLOCKSPEED.DynamicsbetweenNewProjectsandCoreCapabilityDevelopment:PROJECTSMUSTMAKEMONEYANDBUILDCAPABILITIESCORECAPABILITIESNEWPROJECTS(Newproducts,newprocesses,newsuppliers)Leonard-Barton,WellspringsofKnowledgeClockspeeddrivesBusinessStrategyCadenceTheStrategicLeverageofValueChainDesign:WholetIntelInside?1980:IBMdesignsaproduct,aprocess,&avaluechainIntelMicrosoftIBMCustomersTheOutcome:AphenomenonallysuccessfulproductdesignAdisastrousvaluechaindesign(forIBM)IntelInsideLESSONSFROMAFRUITFLY:THEPERSONALCOMPUTER1.BEWAREOFINTELINSIDE(Regardlessofyourindustry)2.MAKE/BUYISNOTABOUTWHETHERITISTWOCENTSCHEAPERTOOUTSOURCE3.VALUECHAINDESIGNCANDETERMINETHEFATEOFCOMPANIESANDINDUSTRIES,ANDOFPROFITANDPOWER4.THELOCUSOFVALUECHAINCONTROLCANSHIFTINUNPREDICTABLEWAYSAutomotivePowerDynamicsofTechnologyValue/ContentAutosSteel-styling-structuralintegrityElec.AutosElectronics-$/vehicle-customerinterfaceSteel19652005...asthemostintegralsubsystemintheautomobile,drivingshiftsintherelativestrategicandfinancialimportanceofvariousmembersinthesupplychain?Willelectronicsreplacesheetsteel...StrategicDesignofAutomotiveElectronicsValueChainsToyotaChryslerMercedesSupplierVisteonFordAutoOpnsDelphiGMNAOSupplierCustomersDensoInside?JCIInside?DelphiInside?VerticalIndustryStructurewithIntegralProductArchitectureIBMDECBUNCHMicroprocessorsOperatingSystemsPeripheralsApplicationsSoftwareNetworkServicesAssembledHardwareAllProductsAllProductsAllProducts(A.Grove,Intel;andFarrell,Hunter&Saloner,Stanford)ComputerIndustryStructure,1975-85HorizontalIndustryStructurewithModularProductArchitectureComputerIndustryStructure,1985-95MicroprocessorsOperatingSystemsPeripheralsApplicationsSoftwareNetworkServicesAssembledHardwareIntelMacTIetcMicrosoftMacUnixHPSeagateetcIntelMacTIetcIntelMotoAMDetcEpsonetcMicrosoftNovelletcLotusAOL/NetscapeEDSetcMicrosoftetcHPDelletcIBMCompaqetc(A.Grove,Intel;andFarrell,Hunter&Saloner,Stanford)THEDYNAMICSOFPRODUCTARCHITECTUREANDVALUECHAINSTRUCTURE:THEDOUBLEHELIXMODULARPRODUCTHORIZONTALINDUSTRYINTEGRALPRODUCTVERTICALINDUSTRYFine&Whitney,“IstheMake/BuyDecisionProcessaCoreCompetence?”PRESSURETOINTEGRATEPRESSURETODIS-INTEGRATEORGANIZATIONALRIGIDITIESHIGH-DIMENSIONALCOMPLEXITYNICHECOMPETITORSPROPRIETARYSYSTEMPR