The virtual corporation emerges
09/01/1998
The virtual corporation emerges
Daniel G. Queyssac
In a capitalistic system, it is generally accepted that the more important a corporation is in contributing to the system, the higher the corporation`s value. This value is derived by the relevance to the worldwide economy in which the sector or corporation is involved. This, in turn, defines the potential revenue and profit growths and, consequently, its capitalization on the financial market as shaped by the investment community.
Stemming from the first concept of the corporation in the 17th century to the onset of the industrial revolution in the late 18th century, labor was the most important factor defining the value of a corporation or its usefulness to society. During most of the 19th century up to the late 20th century, the definition changed to mean production - hard assets represented by bricks and mortar and, mostly, machinery. Now, we are witnessing a shift to brain innovation or intellectual property (IP) as the major way of valuing a corporation. In other words, we`ve seen an evolution from muscle power to machine power to people brain power - people to hardware to software.
The next step seems easy to predict: machine brain power or artificial intelligence. Semiconductors will be to brain power what steam was to machine power. Jerry Sanders of AMD seemed to foreshadow this step right on the mark when years ago he remarked that semiconductors would be the oil of the 1990s.
The growing shift to IP is illustrated by Microsoft`s valuation of $11 million/employee - 22,000 employees in a $250 billion corporation. General Motors, on the other hand, a classic corporation in the "mean production" stage of corporate evolution, rates at $80,000/employee - 600,000 employees in a $48 billion corporation. Microsoft`s valuation is more than 100 times greater than GM.
These considerations should make executives ponder redefinition of their company`s business. For most industries, the general conclusion should be that they are in the business of providing total solutions to selected, leading customers - identifying with customers` problems and maximizing value for customers. In this context, hardware may be only a small part of the total solution compared with the volume of intellectual content represented by innovation and software.
The implications of the above mean that the total product being offered to the market and the knowledge of how to bring added value to the customer`s application are far more important than internal production capability or capacity - our traditional concept of manufacturing. The capability to rapidly transform knowledge into a working solution will require fast access to a large number of highly specialized professionals. Size and concentration of personnel become irrelevant when compared to the quality and value of the intellectual eminence a given company can access. I`ve observed that there are a lot of very intelligent people out there, and many of them do not work for one single corporation or even for a corporation at all.
As the move from hard assets to intellectual property takes place, the necessity to access the best brains requires a change in a corporation`s operational fabric. Indeed, the virtual corporation is taking shape where loosely coupled center of competencies (COCs) are put together via both direct contact and electronic means to achieve a given task with the most possible efficiency. The COCs can be an integral part of the corporation or completely separate entities; they can be a fully staffed remote site or a single individual working at home. Some of these remote COCs should certainly include universities with projects centered on the institutions` fields of specialization.
This is the model being implemented by the most efficient corporations today. These corporations are becoming managed networks of specific competencies put together to achieve a given objective. The many implications of such a shift are:
Designers need to become systems integrators structured by industries. They should use outside COCs to a maximum extent. This is valid for hardware and crucial for software.
Software is becoming mission critical. Software capabilities need to be internally developed and acquired to the level of at least specification writing and the ability to interface intelligently with customers.
Manufacturing should be limited to advanced technologies and final test or assembly of a product to ensure quality and brand standard.
Internal structures have to be developed to handle the interface with subcontractors` networks and COCs.
Emphasis has to be put on setting up resources inside the corporation to locate, track, and identify COCs worldwide.
Companies should start thinking of themselves as providers of customer solutions rather than suppliers of given products.
For a given corporation, we will likely see the network of COCs and subcontractors evolve, grow, and shrink on an ad-hoc basis while core competencies will remain the same or evolve very slowly, retaining all IP and the most advanced technologies and manufacturing. This transformation from a vertical structure to a loosely coupled horizontal one through association with COCs will have the following benefits:
the ability to conduct many programs in parallel in order to shrink time to market;
accessibility to specific knowledge and highly competent, trained personnel;
flexibility to add or subtract specific knowledge according to tactical needs;
accessibility to worldwide talent across a broad spectrum of organizations and disciplines;
accessibility to IP generated by venture capital through association with start-ups;
time to market with the most optimized solutions;
prevention of a "not-invented-here" syndrome by farming out and splitting programs; and
the ability to choose between several solutions and have time to let the market weed out weak solutions, picking a winner.
This general evolution will certainly reach the IC manufacturing industry and undoubtedly present another challenge to remaining competitive.
Daniel G. Queyssac is president and COO of front-end business at ASM America Inc., 3440 E. University Drive, Phoenix, AZ 85034-7200; ph 602/470-5700, fax 602/437-3875.