Strategy planning in the pre-1990’s consisted of plans which were carefully crafted, vetted and executed – determining the success or failure of organizations and industries. Two strategists of this era were the famous Jack Welch and Michael Eisner. Eisner and Welch were leading their organizations into highly profitable markets; this was accomplished through acquisition, organic growth, mergers and spin-offs.
The two differed in their approach however; Jack Welch who led General Electric (GE) from 1981 to 2001 was initially known as Neutron Jack, after slashing thousands of jobs and stripping GE’s SBU’s down from 350 to 18 in the mid 1980’s. Welch left GE as one of the most prominent CEO’s of the last century. Eisner’s strategy was similar to Welch’s, with a different twist and operating in a different industry; acquiring companies and leveraging related diversification strategies to attain and distribute Disney’s content to audiences across the world. Disney grew during Eisner’s reign, until the 1990’s and early 2000’s. During the 1990’s many things went wrong for Disney, as it was unable to introduce movie hits, and unable to develop WestCOT, Disney’s America, and ultimately the lack of understanding how Industry Clockspeed played into its demise. In 2004 Eisner was removed from his chairman position and the following year resigned as CEO, a year before his contract expired.
The research and case study applications pertaining to business strategy are vast. Academia is minting new content daily, and yet companies and leadership with the likes of GE’s Welch era are struggling to come to light. The advancement of computer technologies and thus integration into the daily lives of people has brought on a new dimension in the realm of business.
Companies are now competing for more than just market share; the consumer’s time has become of essence. The time component lies not only with the consumer, the industries in which companies compete in are evolving at new speeds. Each business is evolving at different rates, and with such new dynamism there are variables impacting product, process and organizational evolution.
Charles Fine introduces the concept of Clockspeed in his 'Clockspeed – Winning Industry Control in the Age of Temporary Advantage' book (1998). The idea is that a company like Disney within certain product categories competes in one of the fastest-clockspeed industries (e.g., movies); movies can have a life span of hours or days. Disney’s profits would come from a successful movie launch one weekend, at which point critics and viewers will have made up their mind by Sunday night as to its success or failure.
In addition to the fast product clockspeed, the process clockspeeds are constantly changing. The way content is delivered (consider Disney’s acquisition of ABC) are routinely negotiated, sealed and changes are occurring daily for those in the industry who are relying on cable networks.
This example of a fast-clockspeed industry is only further accelerated with the invention of the Internet (today’s content platforms), advancement of delivering information to the home, office and mobile devices (Netflix), and changes to consumer preferences in how they access content.
On the other side of the spectrum we have the slower-clockspeed industries. GE Aviation, which manufactures and develops aircraft engines and systems for the military and commercial sectors falls into the slow-clockspeed industry. The industry moves at a rate of 10-20 years, simply because of the complexities related to technological breakthroughs and ability to overcome cost hurdles. The airline manufacturers are even slower, Boeing’s 747 passenger jet is still producing profits – 30 years after its product was launched.
So what do clockspeed and comparison of Disney and GE have to do with strategy? Consider this, if strategic planning is occurring annually, and you are in a fast-clockspeed industry, are you and your managers too late in the strategy development process? Table 1 provides an idea of different industries and their respective clockspeeds.
A Dynamic StrategyIf GE’s business units were mostly in a slow or slower-clockspeed industry, was Jack Welch that much more adept at business strategy than his colleague Michael Eisner, or was his empire more fortunate? Was Eisner in the wrong place at the wrong time, failing to understand the impact technology was going to play on speeding up the clockspeed in the markets that Disney was going to need to compete in?
In 2006 Disney purchased Pixar for $7.4 billion, a company who was originally a supplier to Disney. Disney, in an effort to help revive its own animation failed to deliver successful box-office hits and was ultimately left with few alternatives. Pixar is an example of Disney’s miscalculated understanding of how technology was about to reshape the movie industry again.
GE’s Welch referred to the term clockspeed a bit differently.
“If the rate of change inside an institution is less than the rate of change outside, the end is in sight.”
—Jack Welch (while CEO of General Electric)
Knowing this, Welch embarked on a different journey. GE’s portfolio of businesses is a representation of companies with medium-slow clockspeed entities, which can thus be managed at a different rate and where strategy planning and execution evolve over a period longer than six months.
Blue Ocean Strategies in Fast-Clockspeed Industries
The term Blue Ocean stems from W. Chan Kim and Renee Mauborgne’s 'Blue Ocean Strategy' (2005) in which the authors term Blue Ocean’s as uncontested market spaces. Businesses competing in such market space do not have any competitors.
In some instances these Blue Ocean’s appear due to design process breakthroughs (iPhone), process breakthrough (Toyota), business model breakthrough (Bundled Internet, Phone) or technological breakthrough (F22 Raptor). The theory focuses on developing a competitive landscape where gaps are evident, then attacking those gaps by providing a service or good that becomes the industry benchmark, something competitors cannot imitate.
The theory is sound as has been proven successful with companies like Cirque de Soleil and Southwest Airlines. As industry clockspeeds are evolving driven in part by technological advancement; it is becoming increasingly difficult to invest significant capital in research and development to introduce products which lead to Blue Oceans. Tendencies are emerging where such investments ultimately lead competitors to reverse-engineer and replicate while improving upon your newly introduced product e.g., Samsung – Apple Smart Phones. Slow moving clockspeed industries are at a significant advantage when utilizing the Blue Ocean framework. Companies like Apple and the introduction of their iPhone gave them a small head start, which was leveraged utilizing a savvy business model (iTunes) to drive profitability and a high rate of adoption amongst a vast group of consumers. Samsung has now not only caught up with Apple’s highly successful iPhone, but has significantly surpassed it in product capabilities. Samsung’s latest phones have processing power at almost twice that of the iPhone and Samsung’s stock price has been rewarded generously when compared to Apple’s this year.
So before you embark on developing a strategy, consider the implications your industries clockspeed will have on research and development initiatives, product launches, process engineering and organizational evolution you allocate resources too. How do you fare against your competition today? Are you catching up, or leading the pack?