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Book Reviews: Clockspeed: Winning Industry Control in the Age of Temporary Advantage - Charles H. Fine

Although it’s primarily a book about strategic supply-chain design, Charles Fine’s “Clockspeed” offers several useful insights for those in the wafer fab world. Fine begins the book with a discussion of what he calls “fruit-fly” or “fast-clockspeed” industries. These are industries where the natural lifecycle of a product is short, new product introductions come at a fast and furious pace, and companies must constantly innovate or be pushed aside. For example, movie studios and retail electronics are fruit-fly industries. Automobiles and airplanes, by contrast, are slow-clockspeed industries. He argues that by studying the fruit flies, we can see evolutionary patterns that would take decades to appear in the slow-clockspeed industries -- much as scientists study multiple generations of fruit flies. And, if the clockspeed of all industries is naturally increasing (a reasonable hypothesis), then companies in slow-clockspeed industries can use the experiences of the fruit flies to guide them as the industry clockspeed rises.

From his study of fruit-fly industries, Fine argues that:

The natural evolution for companies and products is to cycle between a vertical phase, where a few major players offer packages of highly integrated products, and a horizontal phase, where a host of niche players offer modular products. The faster the industry clockspeed, the faster the cycle between vertical and horizontal phases. It’s important that you know where your industry is along this cycle, and use this information to your advantage when putting together your supply chain.

The faster the clockspeed of your industry, the more temporary your competitive advantage. The only sustainable competitive advantage is the ability to transition from one temporary advantage to the next.

The closer you are to the final customer, the faster your clockspeed. For example, Dell works in a high-clockspeed industry, supplying computers directly to consumers and businesses (new product offerings every few months). Dell purchases microprocessors from Intel (new microprocessor generations every few years). Intel buys equipment from Applied Materials (new equipment platforms every three to six years). While the upstream companies (Applied) work in slower-clockspeed industries, giving them more time to respond to competitive pressures, they pay a price for this in volatility (see next point).

The farther you are from the final customer, the more volatile your business cycle. Small ripples in demand at the consumer level are magnified many times over as you move upstream in the supply chain. At the time of this review, we’re seeing graphic evidence of this in the bookings for equipment suppliers. When you are examining your supply chain, you need to consider the health of your upstream suppliers and whether or not they can withstand this bullwhip effect.

Applied to wafer fabs, one implication of Clockspeed is clear. Since fabs naturally operate several layers removed from the end-consumer, we should expect the good times to be great, but the bad times to be harsh. For fabs more distant from the end-consumer, the bullwhip effect will be even greater (E.g. telecommunications device fabs, which sell to network equipment manufacturers, which sell to telecommunications infrastructure companies, which sell to telecommunications providers, which sell to end-consumers). Fabs need to make money during the good times, and try not to get burned badly by the downturns (e.g. writing off inventory that becomes obsolete).

You may only read part I of Clockspeed (parts II and III deal with supply chain design and strategic decision-making), but you’ll emerge with a better understanding of how your company fits into its extended supply chain, and how the behavior of this chain impacts your company and your future.