A fascinating examination of the new strategies used by the most advanced corporations that are propelling the current industrial revolution.
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About the Author
William H. Davidow (at right) is a general partner at Mohr, Davidow Ventures in Menlo Park, California. He has held senior marketing positions at Hewlett-Packard and Intel, and he is the author of Marketing High Technology. Bro Uttal (at left) is a consultant who focuses on problems of technology management. He coauthored this book while a member of the Board of Editors of Fortune magazine.
Read an Excerpt
In 1781 William Murdock, an assistant to instrument maker James Watt, developed a gearing system called a "sun and planet" that converted the piston motion of Watt's celebrated new steam engine into rotational power to drive a shaft. The impact of this simple power transfer scheme was, by any measure, astonishing. Wrote technology historian James Burke, "One year after the 1781 patent on the sun and planet system, every graph on the British economy begins a sharp upward curve."
One reason for this immediate effect was that ironmaster Henry Cort used the Watt engine in 1782 in a new process for producing wrought iron. Cort's system, fifteen times more productive than conventional techniques, suddenly made it cheaper to build many structures with iron than with wood--setting off an explosion in the construction of buildings, machinery, bridges, and, in time, railroads.
The result of this and other applications of the new power technology was the Industrial Revolution, the most fundamental reorganization of mankind since the rise of agriculture and cities 7,500 years earlier. The revolution rent the fabric of society, then rewove it in an entirely different pattern. The structures of everyday life changed forever--and with them the nature of families, governments, cities and farms, language, art, even our sense of time. In many important ways, today we don't even think in the same way as those who lived before the Industrial Revolution.
The nature of iron making had not fundamentally changed for several millennia, until Mr. Cort managed to improve production by a little more than one order of magnitude. Yet that fifteen-timesimprovement was enough to precipitate the most sweeping revolution in recorded human history.
The most important power source of our own generation is information processing. Semiconductor integrated circuits and computers, the steam engines of information processing, have, over the past thirty years, managed to match Cort's performance increase more than once each decade. The warehouse-size computer of 1945 can now be found in your digital watch--on a silicon chip the size of a baby's fingernail. Denos C. Gazis of the IBM Research Center, reflecting on the progress of processing technology, has estimated that "my own personal computer has about five times as much power and storage capability as IBM Research provided to our entire Yorktown laboratory when I joined the company in 1961."In the time it takes to read this page, a modern supercomputer can perform one trillion multiplications.
This electrifying pace of change has no precedent in human memory. To speak of total efficiency improvements in the billions is literally beyond human imagination. Yet this is the power source at the heart of modern life. Such dizzying change cannot help but have a fundamental, permanent effect upon the world's industries and the people who work in them. As a result, we are in the midst of a new business revolution, one as sweeping and far-reaching as its predecessor. It is already being experienced in the offices of corporations throughout the world.
The goal of this book is to examine these transformations to see how they interrelate with one another toward a larger purpose--and in the process put forth a vision of the corporation of the twenty-first century.
The importance of this vision cannot be overstated. By the year 2015 the United States will either be a leader in this new business revolution or it will be a postindustrial version of a developing country. Either a nation of independent knowledge workers or a colony of economic serfs. It will either enjoy a high standard of living or suffer increasing impoverishment--it will be either an economy transformed or a graveyard of industrial skeletons.
We are not alone. This same scenario holds true for all economically advanced nations. The winners will catch and ride this great historic wave and pull away at an astonishing rate. The losers will be inundated.
The centerpiece of this business revolution is a new kind of product. This product (or service), though it has roots in the distant, artisan past, can only be built now thanks to the latest innovations in information processing, organizational dynamics, and manufacturing systems. Most important, it can be made available at any time, in any place, and in any variety.
Some of these products already exist in our daily lives. For example, prescription eyeglass lenses are ground and placed in custom frames within sixty minutes by companies like Lenscrafters and Pearle Vision Express. Polaroid gave us sixty-second photography years ago, but even it has been largely surpassed by one-hour developing and printing of high-quality conventional photographs. Electronic cameras play pictures on a TV set a moment after they have been taken or print them in a few seconds at our desks. Camcorders create instant movies. Personal computers and laser printers have made instant desktop publishing a reality in millions of offices and homes around the world. Some of the world's most sophisticated products, electronic gate arrays, which used to take months to be produced in $100 million factories, can now be designed and produced on an engineer's desk in minutes on systems costing less than $10,000.
Instantaneous services are available, too. We can get the oil changed in our cars in ten minutes. Travel reservations are made with electronic speed. We can obtain cash instantly at ATMs and transfer millions of dollars over telephone lines in microseconds. The thought of waiting days for international checks to clear, a fact of life just a few years ago, is now all but inconceivable. Federal Express carries documents and packages across the country for us in hours, yet even its speedy document transportation service has begun to look slow with the advent of the fax machine. And Taco Bell's new Express fast-food stores aim at fulfilling each customer's order in less than twenty seconds.
What these products and services have in common is that they deliver instant customer gratification in a cost-effective way. They frequently can be produced in diverse locations and offered in a great number of models or formats. That such instantaneous products and services are already becoming pervasive, a regular part of our daily lives, in no way diminishes their importance. On the contrary, it underscores their effectiveness. They are so remarkable, so distinct from anything that came before that they deserve a special name. In this book they are referred to as virtual products. The ideal virtual product or service is one that is produced instantaneously and customized in response to customer demand.
A virtual product (the term will be used to mean both physical products and services) mostly exists even before it is produced. Its concept, design, and manufacture are stored in the minds of cooperating teams, in computers, and in flexible production lines. While the perfect virtual product can never exist, there is little doubt that many will come close. For example, the Japanese are striving to "virtualize" the production of automobiles by putting in place systems that will produce cars to domestic order in just seventy-two hours.
A note on definition: Traditionally, for something to be virtual meant that it possessed the powers or capabilities of something else. In the late 1950s, scientists developed what they called "virtual computers"--machines quick enough to handle several users sequentially while giving each user the impression of being the only one using the computer. This added the connotations of interaction and adaptability to the term. Virtual computers seemed to the user to exist anytime and anyplace they were needed, which in time led to the phrase "virtual reality."
We have extended the idea of virtuality one step further to reflect what is going on around us today--formerly well-defined structures beginning to lose their edges, seemingly permanent things starting to continuously change, and products and services adapting to match our desires. Not only will virtual products have great value for the customer, but the ability to make them will determine the successful corporations of the next century.
That ability won't come easy, however. Building a virtual product will require a company to utterly revise itself, control ever more sophisticated types of information, and master new organizational and production skills. Doing that will change most contemporary firms so completely that what will emerge from the process, a "virtual corporation," will have little in common with what existed before. Again, such a firm in its purest form will never exist. But the advantage will lie with those firms that best pursue such a goal. The closer a corporation gets to cost-effective instantaneous production of mass-customized goods and services, the more competitive and successful it will be.
The virtual corporation began as a vision of futurists, became a possibility for business theorists, and is now an economic necessity for corporate executives. All of this has occurred in little more than a decade. This not only underscores the inevitability of this new business model but also hints at the speeded-up sense of time that will characterize it.
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