Clockspeed Drivers and Outsourcing for Speed

Studying the evolution of fruit fly industries provides other insights into supply chains. For example, many in the supply chain community are familiar with the bullwhip principle (i.e., the "first law of supply chain dynamics"), which states that the magnitude of demand volatility a company faces increases the farther upstream it resides in the supply chain (Forrester 1958, Sterman 1989).Thus, personal computer manufacturers experience less demand volatility than semiconductor manufacturers, who, in turn, experience less demand volatility than their semiconductor equipment suppliers.

Study of clockspeeds in the fruit fly industries has led me to posit what I call clockspeed amplification—"the second law of supply chain dynamics" (Joglekar and Fine 1998).This hypothesis states that the industry clockspeed a company faces increases the farther downstream it is located in the supply chain. Thus, personal computer manufacturers experience faster clockspeeds (e.g., shorter product life cycles) than semiconductor manufacturers, who, in turn, experience faster clockspeeds than the semiconductor equipment suppliers.

This insight helps us understand the unprecedented clockspeeds experienced in our economy in the 1990s and helps us peer into the future as well. In particular, when some core technology far upstream in the value chain experiences a fast clockspeed, the rapid rates of change experienced there accelerate as they cascade down the supply chain. So the "killer technology" rates (Fine and Kimerling 1997) experienced this decade in semiconductors and fiber optic cable, as examples, have driven hyper-fast clockspeeds in the information and communication industries, which, in turn, contribute to the supply chains of virtually every other industry on the globe.

If rapid rates of technological innovation are clockspeed accelerators, what are the decelerators? One key clockspeed damper is system complexity. Dell is able to come out with new computer models much more frequently than Lockheed-Martin turns out new fighter jets because a fighter jet is a far more complex system than a PC is. Modularizing a product's architecture breaks it down into simpler subsystems and often enables a faster development pace.

Within the defense industry, for example, complex computer systems for signal and image processing on aircraft, surface ships, and submarines have been modularized from the other subsystems and successfully outsourced to Mercury Computer Systems. The Aegis naval defense systems, recently in the news with the potential Taiwanese export order, the unmanned spy planes flying over Bosnia and Kosovo, and the sonar systems in much of the Navy's submarine fleet, are all equipped with Mercury's specialized computers.

Such modularization and outsourcing not only significantly reduces product development times for the defense suppliers, but eases the way for frequent and profitable upgrades as more powerful imaging technology is developed. As another example, makers of complex medical imaging systems such as General Electric, Marconi, Philips, and Siemens, have also outsourced imaging computer systems to Mercury Computer to speed their development cycles and improve the performance of their machines. Magnetic Resonance Imaging (MRI) and Computed Tomography (CT) systems have advanced as rapidly as almost any technology in the medical field, leading to on-the-spot diagnoses in many hospitals. By outsourcing Mercury's advanced technology, these suppliers have cut their time to market and stolen a march on some less resourceful competitors.

Finally, in the telecommunications domain, wireless service providers such as Ericsson, Lucent, Motorola, and Nortel may soon find that outsourcing opportunities such as inserting Mercury Computer's signal processing technology may double or triple base station capacity and provide the higher data rates needed by the advancing Internet-based applications. Having wireless wideband early is likely to determine the leaders in this rapidly developing field and outsourcing the technology could be the answer for many of today's suppliers. OEM firms will have to weigh the merits of speed and technology innovation from outsourcing. In the highly competitive environments of the Internet age, victory often goes to the fleetest of execution.