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Mapping the Telecom Value Chain: A Roadmap for Communications Networks Excerpts from Professor Charles Fine Massachusetts Institute of Technology Sloan School of Management Cambridge, Massachusetts 02142 May 2001 [email protected] http://www.clockspeed.com Tel: 1-617-253-3632, Fax: 1-617-258-7579 Mapping the Telecom Value Chain: A Roadmap for Communications Networks 1. Fruit Flies & Temporary Advantage 2. Value Chain Design & 3-DCE 3. eBusiness Phenomena: Business Model Innovation 4. Telecom Value Chains: A fruit fly example Value Chain Design in a Fast-Clockspeed World: Study the Industry Fruitflies Evolution in Evolution in the natural world: the industrial world: FRUITFLIES evolve faster than MAMMALS evolve faster than REPTILES INFOTAINMENT is faster than MICROCHIPS is faster than AUTOS evolve faster than AIRCRAFT evolve faster than MINERAL EXTRACTION THE KEY TOOL: THE KEY TOOL: Cross-SPECIES Benchmarking of Dynamic Forces Cross-INDUSTRY Benchmarking of Dynamic Forces Cisco’s End-to-End Integration for its Fulfillment Value Chain • New product development on-line with supply base • Technology Supply Chain Design: Innovation through Acquisition Customers Order info flows direct to Cisco and suppliers Cisco Finished Product flows direct to customer via logistics supplier Contract Manufacturers • Single enterprise information system • Dynamic replenishment, direct fulfillment, merge in transit • Customer orders through Cisco Connection online Component Suppliers & Distributors Cisco’s Strategy for Technology Value Chain Design 1.Integrate technology around the router to be a communications network provider. 2. Leverage acquired technology with - sales muscle and reach - end-to-end IT - outsourced manufacturing - market growth 3. Leverage venture capital to supply R&D Volatility Amplification in the Supply Chain: “The Bullwhip Effect” Customer Retailer Distributor Information lags Delivery lags Over- and underordering Misperceptions of feedback Lumpiness in ordering Chain accumulations Factory Tier 1 Supplier Equipment SOLUTIONS: Countercyclical Markets Countercyclical Technologies Collaborative channel mgmt. (Cincinnati Milacron & Boeing) Supply Chain Volatility Amplification: Machine Tools at the tip of the Bullwhip % Chg. GDP % Chg. Vehicle Production Index % Chg. Net New Orders Machine Tool Industry 100 “We are experiencing a 100-year flood.” J. Chambers, 4/16/01 80 % Change, Year to Year 60 40 20 0 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 -20 -40 -60 -80 "Upstream Volatility in the Supply Chain: The Machine Tool Industry as a Cas E. Anderson, C. Fine & G. Parker Production and Operations Managemen Vol. 9, No. 3, Fall 2000, pp. 239-261. INDUSTRY CLOCKSPEED IS A COMPOSITE: OF PRODUCT, PROCESS, AND ORGANIZATIONAL CLOCKSPEEDS Automobile INDUSTRY CLOCKSPEED THE Automobile product technology THE MANUFACTURING COMPANY Automobile organization PRODUCTION PROCESS THE Automobile process technology Automobile CLOCKSPEED IS A MIX OF ENGINE, BODY & ELECTRONICS Automobile ENGINE BODY slow clockspeed medium clockspeed ELECTRONICS fast clockspeed ISSUE: MOST AUTO FIRMS OPERATE AT ENGINE OR BODY CLOCKSPEEDS; IN THE FUTURE THEY WILL NEED TO RUN AT ELECTRONICS CLOCKSPEED. Clockspeed drives Business Strategy Cadence Dynamics between New Projects and Core Capability Development: PROJECTS MUST MAKE MONEY AND BUILD CAPABILITIES CORE CAPABILITIES NEW PROJECTS Leonard-Barton, Wellsprings of Knowledge (New products, new processes, new suppliers) The Strategic Leverage of Value Chain Design: Who let Intel Inside? 1980: IBM designs a product, a process, & a value chain Customers Intel IBM Intel Inside Microsoft The Outcome: A phenomenonally successful product design A disastrous value chain design (for IBM) LESSONS FROM A FRUIT FLY: THE PERSONAL COMPUTER 1. BEWARE OF INTEL INSIDE (Regardless of your industry) 2. MAKE/BUY IS NOT ABOUT WHETHER IT IS TWO CENTS CHEAPER TO OUTSOURCE 3. VALUE CHAIN DESIGN CAN DETERMINE THE FATE OF COMPANIES AND INDUSTRIES, AND OF PROFIT AND POWER 4. THE LOCUS OF VALUE CHAIN CONTROL CAN SHIFT IN UNPREDICTABLE WAYS Automotive Power Dynamics of Technology Value/Content 1965 2005 Steel Steel Autos -styling -structural integrity Autos Electronics Elec. -$/vehicle -customer interface Will electronics replace sheet steel . . . . . . as the most integral subsystem in the automobile, driving shifts in the relative strategic and financial importance of various members in the supply chain? Strategic Design of Automotive Electronics Value Chains Customers Ford Auto Opns GM NAO Denso Inside? Toyota Visteon Delphi Supplier Chrysler JCI Inside? Mercedes Delphi Inside? Supplier Vertical Industry Structure with Integral Product Architecture Computer Industry Structure, 1975-85 IBM DEC BUNCH All Products All Products All Products Microprocessors Operating Systems Peripherals Applications Software Network Services Assembled Hardware (A. Grove, Intel; and Farrell, Hunter & Saloner, Stanford) Horizontal Industry Structure with Modular Product Architecture Computer Industry Structure, 1985-95 Intel Intel Microprocessors Operating Systems Peripherals Applications Software Network Services Mac Moto Microsoft HP IntelEpson Microsoft Mac Mac Seagate Lotus Novell AOL/Netscape Microsoft Assembled Hardware HP Compaq IBM Dell (A. Grove, Intel; and Farrell, Hunter & Saloner, Stanford) TI etc etc AMD Unix TIetc etcetc etc EDS etc etc etc etc THE DYNAMICS OF PRODUCT ARCHITECTURE AND VALUE CHAIN STRUCTURE: THE DOUBLE HELIX NICHE COMPETITORS INTEGRAL PRODUCT VERTICAL INDUSTRY MODULAR PRODUCT HORIZONTAL INDUSTRY TECHNICAL ADVANCES HIGHDIMENSIONAL COMPLEXITY ORGANIZATIONAL RIGIDITIES SUPPLIER MARKET POWER PRESSURE TO DIS-INTEGRATE PRESSURE TO INTEGRATE PROPRIETARY SYSTEM PROFITABILITY Fine & Whitney, “Is the Make/Buy Decision Process a Core Competence?” THE DOUBLE HELIX IN OTHER INDUSTRIES • TELECOMMUNICATIONS-- – “MA BELL” was Vertical /Integral – BABY BELLS & LONG LINES & CELLULAR are Horizontal/Modular – Today’s Verizon is going back to Vertical /Integral • AUTOMOTI VE-- – Detroit in the 1890’s was Horizontal/Modular – Ford & GM in the mid 1900’s were Vertical /Integral – Today’s Auto Industry is going back to Horizontal/Modular • TELEVISION-- – RCA was Vertical /Integral – 1970’S THROUGH 1990’S were Horizontal/Modular – Today’s media giants are going back to Vertical /Integral • BICYCLES-- – Safety Bikes to 1890’s boom to Schwinn to Shimano Inside TELECOMS: IN THE BEGINNING, THERE WAS VERTICAL INTEGRATION AND MARKET POWER VOICE COMMUNICATION TELEPHONE NETWORK VIDEO ENTERTAINMENT CABLE & BROADCAST NETWORKS CORPORATE DATA DATA NETW0RKS DAVE CLARK, LCS, MIT IP BEGAT CONVERGENCE & LOSS OF MARKET POWER THE HOURGLASS SHOPPING, PORTALS, SEARCH, MUSIC, VIDEOS, JOKES, CHAT, EMAIL, PORNOGRAPHY, DATA, ETC., ETC. IP FIBER OPTIC NETWORKS, CABLE MODEMS, DSL CONNECTORS, SWITCHING SUBSTATIONS, ETC., ETC. DAVE CLARK, RPCP, MIT Controlling the Chain Through Distribution: The End of P&G Inside ? • • Controlling the Channel Through Closeness to Customers: consumer research, pricing, promotion, product development Customers Retailer Retailer Retailer P&G Controlling the Chain Through Distribution: Beware of Walmart Outside Controlling the Channel Through Closeness to Customers: Chain Proximity Customers WalMart Retailer Retailer P&G Retailer WalMart Private Label • Battle for Channel Control • Proprietary Systems v. Closeness to Customers Customers Compaq AMD Nexgen Dell Gateway Intel Volatility Amplification in “The Bullwhip Effect” and Clockspeed Amplification in “The Speedup Effect” Customer Retailer Distributor Factory Tier 1 Equipment Inventories & Orders fluctuate more as you look upstream, tough on suppliers, but Web Site Developer PC Maker Chip maker Equipment Maker Clockspeeds accelerate as you head downstream, closer to the final customer Mutually Reinforcing Clockspeed Drivers: Technological Innovation & Competitive Intensity + Technological Innovation in Computing & Communications + Industry & Organization Clockspeeds Industry & Organization Clockspeeds + Competitive Intensity from Reduced Trade Barriers and Internet Commerce + Media Supply Chains: An Industry at Lightspeed Customers The box Wired Phone Wireless phone PC/laptop PDA Television VCR Page r The Content The Pipe (Access, Metro, Backbone) LandbasedTelco: -copper POTS -fiber -DSL Cable Networks Wireless: -broadcast TV -CDMA, TDMA, GSM -satellite/microwave Retail Outlets -Borders: -Blockbuster -Seven-Eleven Delivery (e.g., Fedex) Video/Audio: Movies & Art & News & Sports News/articles/books (newspapers & magazines) Communication: voice & video & email Banking Education Shopping Internet, et al ALL COMPETITIVE ADVANTAGE IS TEMPORARY Autos: Ford in 1920, GM in 1955, Toyota in 1990 Computing: IBM in 1970, DEC in 1980, Wintel in 1990 World Dominion: Greece in 500 BC, Rome in 100AD, G.B. in 1800 Sports: Bruins in 1971, Celtics in 1986, Yankees no end The faster the clockspeed, the shorter the reign Mapping the Telecom Value Chain: A Roadmap for Communications Networks 1. Fruit Flies & Temporary Advantage 2. Value Chain Design & 3-DCE 3. eBusiness Phenomena: Business Model Innovation 4. Telecom Value Chains: A fruit fly example VALUE CHAIN DESIGN: Three Components 1. Insourcing/OutSourcing (The Make/Buy or Vertical Integration Decision) 2. Partner Selection (Choice of suppliers and partners for the chain) 3. The Contractual Relationship (Arm’s length, joint venture, long-term contract, strategic alliance, equity participation, etc.) IMPLEMENTATION OF VALUE CHAIN DESIGN: EMBED IT IN 3-D CONCURRENT ENGINEERING Recipe, Unit Process PRODUCT Performance Specifications PROCESS Technology, & Process Planning Details, Strategy Product Architecture, Make/Buy components Time, Space, Availability Manufacturing System, Make/Buy processes VALUE CHAIN ARCHITECTURES IN 3-D INTEGRALITY VS. MODULARITY Integral product architectures feature close coupling among the elements - Elements perform many functions - Elements are in close spacial proximity - Elements are tightly synchronized - Ex: jet engine, airplane wing, microprocessor Modular product architectures feature separation among the elements - Elements are interchangeable - Elements are individually upgradeable - Element interfaces are standardized - System failures can be localized Ex: stereo system, desktop PC, bicycle - VALUE CHAIN ARCHITECTURE Integral value-chain architecture features close proximity among its elements - Proximity metrics: Geographic, Organizational Cultural, Electronic - Example: Toyota city - Example: Ma Bell (AT&T in New Jersey) - Example: IBM mainframes & Hudson River Valley Modular value-chain architecture features multiple, interchangeable supplier and standard interfaces - Example: Garment industry - Example: PC industry - Example: General Motors’ global sourcing - Example: Telephones and telephone service DESIGNING ARCHITECTURES FOR PRODUCTS & VALUE CHAINS: THE NEED FOR ALIGNMENT VALUE CHAIN ARCHITECTURE (Geog., Organ., Cultural, Elec.) INTEGRAL PRODUCT Jet engines ARCHITECTURE Microprocessors INTEGRAL Mercedes vehicles Automotive Supplier Parks MODULAR MODULAR Polaroid Nortel Personal Computers Bicycles Chrysler Vehicles Cisco DESIGNING ARCHITECTURES FOR PRODUCTS & VALUE CHAINS: MODULARITY VS. OPENNESS ARCHITECTURAL PROPRIETARINESS CLOSED ARCHITECTURAL STRUCTURE Pentium Chip INTEGRAL MODULAR Mercedes Vehicles SAP ERP IBM Mainframes Microsoft Windows Chrysler Vehicles OPEN Linux Palm Pilot software & accessories Phones & service Web-based ERP INFORMATION ARCHITECTURE MUST REFLECT BUSINESS MODEL In/Outsourcing: Sowing the Seeds of Competence Development to develop dependence for knowledge or dependence for capacity Independence Dependence + Amount of Work Outsourced knowledge +/or supply Supplier Capability + Amount of Supplier Learning + Amount of Work Done In-house + knowledge +/or supply Internal Capability + + Amount of Internal Learning Technology Dynamics in the Aircraft Industry: LEARNING FROM THE DINOSAURS + Japanese appeal as subcontractors U.S. firms’ appeal as subcontractors + + Boeing outsources Japanese Industry Autonomy to Japan (Mitsubishi Inside?) + Japanese industry size & capability + - U.S. industry size & capability SOURCEABLE ELEMENTS PROCESS ELEMENTS ENGINEERING CONTROLLER ASSY VALVETRAIN TEST BLOCK I4 SUBSYSTEMS V6 V8 PRODUCTS ITEM IS INTEGRAL ITEM IS MODULAR Strategic Make/Buy Decisions: Assess Critical Knowledge & Product Architecture DEPENDENT FOR KNOWLEDGE & CAPACITY A POTENTIAL OUTSOURCING TRAP WORST OUTSOURCING SITUATION INDEPENDENT FOR KNOWLEDGE & DEPENDENT FOR CAPACITY BEST OUTSOURCING OPPORTUNITY CAN LIVE WITH OUTSOURCING INDEPENDENT FOR KNOWLEDGE & CAPACITY OVERKILL IN VERTICAL INTEGRATION BEST INSOURCING SITUATION Adapted from Fine & Whitney, “Is the Make/Buy Decision Process a Core Strategic Make/Buy Decisions: Also consider Clockspeed & Supply Base Capability Few Many Suppliers Few Many Clockspeed Fast Slow Fast Slow Clockspeed Fast Slow Few Many Watch it! Suppliers OK Clockspeed Suppliers Fast Slow Few Many Fast Slow Suppliers Few Many Suppliers Clockspeed Clockspeed Suppliers DECOMPOSABLE (Modular) INTEGRAL Clockspeed INDEPENDENT FOR KNOWLEDGE & CAPACITY Few Many DEPENDENT FOR CAPACITY ONLY DEPENDENT FOR KNOWLEDGE & CAPACITY Adapted from C. Fine, Clockspeed, Chap. 9 Fast Slow Qualitative analysis of strategic importance uses five key criteria Value chain elements with high customer importance and fast clockspeed are generally Customer Importance: strategic (unless there are many capable • High suppliers) • Medium • Low Competitive position is seldom the Technology primary consideration for strategic Clockspeed: importance, rather it serves as a • Fast “tie-breaker” when other criteria are • Medium • Slow in conflict Competitive Position: When many capable suppliers exist, knowledge may be considered commodity and development should be outsourced • Advantage • Parity • Disadvantage Architecture is considered a constraint for the sourcing decision model, controls the level of engineering that must be kept in house for integration purposes Capable Suppliers: • None • Few • Many Architecture: • Integral • Modular Possible Decisions (Knowledge & Supply): • Insource • Outsource • Partner/Acquire • Partial Insource • Partial Outsource • Invest • Spin Off • Develop Suppliers are applied for Products for Subsystems Model Criteria developed by GMdifferently Powertrain, PRTM,than & Clockspeed, Inc. Sourcing Strategy Decision Tree High Customer Importance Path High Customer Importance Path High Customer Importanc e? Low Technology Slow Clockspeed ? Strong Weak Competitive Weak Competitive Position? Position? Fast Strong None Capable Many Many Minimal Suppliers? Few Outsource Modular Few Architectur Invest for e? Outsource Fe Architectur Architectur Modular Modular Parity, e? e? - Maintain Integral w Integral Architectur Develop Mostly Integral Internal e? Suppliers Minimal Outsource Knowledge Outsourc - Specify (possibly Integral Minimal e - Equity & develop Modular Partial Outsource / Acquire Partial OutsourcIntegrate Minimal suppliers) - Equity / Outsour e - Invest Outsource Outsource Partial ce (less Acquire in Equity/Acq All Outso integral and Outsourc Internal uire & Outsourc urce Partner compon e All Partner e All Capabilit ents) y Minimal Outsource Minimal Invest Outsourc e - Invest Suppliers? None Capable Man Minimal Suppliers? y Non e Capable Model developed by GM Powertrain, PRTM, & Clockspeed, Inc. Sourcing Strategy Decision Tree Low Customer Importance Path Customer High Low Importance ? Fast Competitiv e Position? Strong Non Man Capable e y Suppliers? Architectur Modular e? Fe w Technolog Slow y Clockspee d? Weak Competitiv Weak Strong e Position? None CapableMany Suppliers? Few Minimal Outsource Outsour -Develop ce All Suppliers Mostly Minimal Architectur Outsour Outsource e? ce Modula , Develop Develop Integr r More Supplier al Minimal Suppliers s Outsour and/or Partial ce Some Outsource Maintain Integratio Partial Outsourc n Outsourc e All Capability e Integral Low Customer Importance Path None None Capable Many Suppliers? Few Architectur Modular Modular Architectur e? e? Capable Many Suppliers? Develop Outsourc Supplie rs and e All Outsour ce SpinMinimalIntegral off and Outsour Develo ce Minimal p Outsour Develop Suppli Supplier ce Partial ers s Maintain Outsour and ce Develop Supplier s Integral Few Outsourc e All Develop Supplier s and Outsour ce All Data is still preliminary Model developed by GM Powertrain, PRTM, & Clockspeed, Inc. Actual knowledge work compared to outcome of Decision Framework 0 % Percentage of Knowledge Work that 100% Should be Controlled Percentage of Knowledge Work Currently Done 0% 50% 100% No Outsourcing Minimal OutsourceEquity/Acquire & Partner Minimal OutsourceMaintain Internal Knowledge Partial Outsource Mostly Outsource Specify & Integrate Mostly Outsource Develop More Suppliers Spin-off and Develop Suppliers Outsource All Model developed by GM Powertrain, PRTM, & Clockspeed, Inc. Every decision requires qualitative and quantitative analysis to reach a conclusion High Knowledge Supply Qualitative Value Strategic Importance Qualitative Model Improve Economics Divest/ Outsource Customer Im portance: • H ig h • • M e d iu m Low Invest & Build Low Technology Clockspeed: • F as t • M ed iu m • S lo w Harvest Investment Com petitive Position: • Ad van t ag e • P arity Low • Disa d va n ta g e Quantitative Value Capable Suppliers: • No n e • F ew Possible Decisions: • M an y High • In s o ur ce Architecture: • In teg ral • M o d u lar • • • • • • O u ts o u rc e P a rt ne r/ A c q u ir e P a rt ia l In s o u rc e P a rt ia l O u t so u rc e In v e st Sp in O ff • D e v e lo p S u p pl ie rs Engine A EVA Engines EVA AS-IS BIC AS-IS Net Assets BMK Working Capital . WACC BMK BIC X AS-IS . AS-IS AS-IS BIC AS-IS Capital Charge AS-IS Fixed Assets Quantitative Model (Financial) BIC BMK AS-IS EVA COGS BMK Taxes . . . Transmissions EVA AS-IS BIC BIC AS-IS Engine B EVA GMPT EVA Revenue . BIC AS-IS PBIT NOPAT Model developed by GM Powertrain, PRTM, & Clockspeed, Inc. Value Chain Mapping Organizational Value Chain Chrysler casting supplier Eaton clay supplier Technology Value Chain engines valve lifters casting manufacturing process clay chemistry Capability Chain Supply Chain Management Quality assurance NVH engineering Underlying Assumption: You have to draw the maps before you can assess their dynamics. R&D VALUE CHAIN DESIGN IS THE ULTIMATE CORE COMPETENCY Since all advantages are temporary, the only lasting competency is to continuously build and assemble capabilities chains. KEY SUB-COMPETENCIES: 1. Forecasting the dynamic evolution of market power and market opportunities 2. Anticipating Windows of Opportunity 3. 3-D Concurrent Engineering: Product, Process, Value Chain CAPABILITIES Fortune Favors the Prepared Firm PROJECTS PROCESS FOR VALUE CHAIN DESIGN 1. Benchmark the Fruit Flies DOUBLE HELIX 2. Map your Supply Chain -Organizational Value Chain BOEING -Technology Value Chain -Competence Chain 3. Dynamic Chain Analysis at each node of each chain map 4. Identify Windows of Opportunity 5. Exploit Competency Development Dynamics with 3-D Concurrent Engineering CAPABILITIES PROJECTS STRATEGY IN 3-D: CASE EXAMPLES Boeing: Static 3-D in airplane Projects Dynamic, Strategic Value Chain, unintegrated w/ Product & Process Intel: Modular Product vs. Process Integral Process and Value Chain Chrysler: Modular Product & Value Chain (weak on process?) Toyota: Integral 3-D in Nagoya (weak on global 3-D?) Components of Product, Process, and Value Chain Strategy • Customer Needs • Market Segments • Product Architecture • Mission Statement • Operating Objectives • Policies & Procedures -Structural: Bricks, Tech, Org -Infrastructural: HR, Business Processes 1. Sourcing: Make/Buy 2. Partner Selection 3. Relationship Design (spot, alliance, equity, etc.) 4. Logistics System Design 5. Inventory management Policies 6. Relationship Management 7. Value Chain Architecture Mapping the Telecom Value Chain: A Roadmap for Communications Networks 1. Fruit Flies & Temporary Advantage 2. Value Chain Design & 3-DCE 3. eBusiness Phenomena: Business Model Innovation 4. Telecom Value Chains: A fruit fly example Internet Era Phenomena: eCompetition in Business Model Innovation Benchmarking the eFlies E-tailing: Attack: Amazon, Webvan Market disruption in hopes of making a place Defend: Walmart.com, Ford.com Defense can require costly SC revamping B2B: E2E integration: Cisco, Dell Integration pays off with modular products Marketplace Creation: Freemarkets Reverse auctions reduce short term costs Covisint Common standards reduced supplier investment cost Free & Open Digital Content: Peer-toPeer Sharing/Theft: Napster Industry-shaking disruptions require value chain SWAT team Internet Era Phenomena: eCompetition in Business Model Design E-tailing: Attack: Amazon, Webvan Defend: Walmart.com, Ford.com, Office Depot.com B2B: E2E integration: Cisco, Dell Marketplace Creation:eSteel, Ariba, Freemarkets, Covisint Product Development: Cisco Customer as Product Manager: Product Innovation/Pricing/Design/Spec/Tracking/Delivery: Dell, Herman Miller, Reflect, iMotors, Fedex, Priceline Free & Open Digital Content: Constructive Collaboration : Linux, Lego, Palm Pilot “Anarchistic Constructive” Conversation: Cluetrain Ubiquitous Sharing/Theft: Napster, FreeNet, Gnutella DOT.COM COMPETITION: FOCUS ON THE SUPPLY CHAIN CASE#1: WALMART.COM GOT NO TRACTION Customers Walmart Store Walmart Store Walmart.com Shipper Supplier WalMart Procurement Supplier DOT.COM COMPETITION: FOCUS ON THE SUPPLY CHAIN Napster’s New Supply Chain Strategy (go to the end and steal everything!) Identify Talent Develop Songs Steal Songs Vertically Integrated Music Giants Record Music Promote Music Press CD’s Sell to Retail Customer Consumption Matching Supply Chain Strategies with Products Demand uncertainty (C.V.) Pull Push H L I II Computer Furniture IV III Books & CDs Grocery L Pull Prof. David Simchi-Levi, MIT H Push Delivery cost Unit price Cisco’s Value Chain Design Product Design Process Design • minimal prototype iteration • shared product databases • highly modular products • joint with suppliers • orders go from CCO website to CM’s • products go from CM’s to customer via logistics supplier • order & forecast data online to supply chain • innovation through acquisition • outsourced manufacturing (e.g., Solectron) • outsourced logistics (e.g., Fedex) • independent for knowledge in IT system Value Chain Design Chrysler’sExtended Enterprise Model Key Elements of the model: 1. Build Trust in Relationships -ask for suggestions and act on them -honestly and aggressively seek mutual benefits -communicate frequently and broadly across the org. (understand each other’s problems) -manage the relationship constantly -pre-select suppliers very early and work together -act for long-term gain, avoid short-term temptations Stallkamp: “You are our supplier forever if you can be the leader in cost, quality, technology, and delivery. If you fall behind, we will give you a chance to catch up. If you cannot catch up (with our help), we will drop you.” Chrysler’s Extended Enterprise Model Key Elements of the model (continued): 2. Share cost savings -start with target costs and learn jointly -provide economic incentives for partnerships -share data with scorecards on performance -collaborate to reduce system costs along the entire chain -better to have a low-cost supplier than a low-price supplier 3. Develop products jointly -utilize co-located, cross-functional teams; common CATIA 4. Develop both a strategy toward each supplier (how strategic; areas of joint interest), and a strategy for each commodity (e.g., we only source tires from Goodyear & Michelin) Chrysler’s RESULTS Lower development costs: joint incentives, ECN’s come early Faster development speed: early involvement, fewer late ECN’s Lower procurement costs: less time haggling and soliciting bids Lower production costs: suppliers get scale, more advanced planning Improved quality: joint incentives, better designs Three Secrets to success: Relationships, Relationships, Relationships Mapping the Telecom Value Chain: A Roadmap for Communications Networks 1. Fruit Flies & Temporary Advantage 2. Value Chain Design & 3-DCE 3. eBusiness Phenomena: Business Model Innovation 4. Telecom Value Chains: A fruit fly example Network Communications Roadmap: Start with Static Maps Fiber and Cable-based Networks Optical Networks Wireless Networks ”Killer Technologies” of the Information Age: Semiconductors, Magnetic Memory, Optoelectronics “We define a ‘killer technology’ as one that delivers enhanced systems performance of a factor of at least a hundred-fold per decade.” C.H.Fine & L.K. Kimerling, "Biography of a Killer Technology: Optoelectronics Drives Industrial Growth with the Speed of Light,” published in 1997 by the Optoelectronics Industry Develoment Association, 2010 Mass Ave, NW, Suite 200, Wash. DC 20036-1023. Killer Question: Will Integrated Optics evolve linearly like Semiconductors with Moore’s Law or like Disk Drives with repeated industry disruptions? Roadmap for Electronic Devices Number of chip components 295oK 1018 Classical Age Quantum Age 1016 77oK 1014 4oK 2010 SIA Roadmap 2005 Quantum State Switch 2000 1995 1012 1010 108 Historical Trend 1990 6 10 1980 104 CMOS 1970 102 101 100 10-1 Feature size (microns) Horst D. Simon 10-2 10-3 International Technology Roadmap for Semiconductors ‘99 Year 2005 2008 2011 2014 Technology (nm) 100 70 50 35 DRAM chip area (mm2) 526 603 691 792 DRAM capacity (Gb) 8 64 MPU chip area (mm2) 622 713 817 937 MPU transistors (x109) 0.9 2.5 7.0 20.0 MPU Clock Rate (GHz) 3.5 6.0 10.0 13.5 Moore’s Law Transistors per chip 109 ? 108 Pentium 80786 Pro 107 80486 Pentium 106 80386 80286 105 8086 8080 104 4004 103 1970 1975 1980 1985 1990 Year Source: Joel Birnbaum, HP, Lecture at APS Centennial, Atlanta, 1999 1995 2000 2005 2010 Disk Drive Development 1978-1991 Disk Drive Dominant Generation Producer 14” 8” IBM Dominant Usage Approx cost per Megabyte mainframe $750 Quantum Mini-computer $100 5.25” Seagate Desktop PC $30 3.5” Conner Portable PC $7 2.5” Conner Notebook PC $2 From 1991-98, Disk Drive storage density increased by 60%/year while semiconductor density grew ~50%/year. Disk Drive cost per megabyte in 1997 was ~ $ .10 Optical Networking is Keeping Up! Voice growth Capacity OC768 OC192 OC48 OC12 Time TDM line rate growth Data growth Optical network capacity growth Optical Technology Evolution: Navigating the Generations with an Immature Technology 1 2 3 4 5 Timeline Now Starting Starting 3-5 years 5-15 years Stage Discrete Components Hybrid Integration Low-level monolithic integration Medium Monolithic integration High-level monolithic integration Examples MUX/ DEMUX TX/RX module OADM TX/RX module OADM OADM, Transponder Switch Matrix Transponder Core Technologies FBGs, Thinfilm, fused fiber, mirrors Silicon Bench, Ceramic substrates Silica Silicon InP InP, ?? InP, ?? How many Functions? 1 2-5 2-5 5-10 10-XXX Industry Structure Integrated Integrated/ Horizontal Integrated /Horizontal Dr. Yanming Liu, MIT & Corning DOUBLE HELIX DOUBLE HELIX Collaborative Supply Chain Development can support Shared Costs and Shared Learning in a fast-clockspeed environment Can Telecom learn from Sematech? “Coffee & Donuts” plus Technology Focus Intel IBM Advantest Supplier Supplier Nikon TI AT&T Moto. Fujitsu Chips AMAT Fujitsu Computer Fujitsu Supplier Canon et al. U.S. “Co-opetition in the 1980s” NEC Chips NEC Computer Ando NEC Optical Network Value Chain: Layers & Players Access Provider Netw Mgmt/Maint Network Owner Netw contr/install Netw Design Netw Elements Control Software Box Assembly Modules Actives Passives Fiber Silicon GaAs Optical Networks Roadmap Optical Taxonomy By Scott Clavenna and Peter Heywood http://www.lightreading.com Optical Networks Roadmap Optical Taxonomy By Scott Clavenna and Peter Heywood http://www.lightreading.com Opportunity: Provision services directly from DWDM systems Solution Structure: More integration between DWDM & the services layer. Evidence: the “optical packet node” and the intelligent optical switch. Carrier Wish List Longer distances Smaller footprint More channels per fiber Greater capacity per channel Improved optical channel monitoring Nortel, Fujitsu, and Hitachi have integrated DWDM into their Sonet/SDH equipment. Other vendors have promoted "open" systems that can be used in conjunction with any vendor's equipment and are not limited to carrying Sonet. Optical Taxonomy By Scott Clavenna and Peter Heywood http://www.lightreading.com OPTICAL VALUE CHAIN: MINI CASE EXAMPLE NORTEL NETWORKS plays at at least three levels of the Optical Network Telecom value chain: 1. Network design & installation 2. Modules (OC-192 network elements) 3. Components (lasers, amplifiers) QUIZ: Should Nortel sell their components business? Hint: How likely are the scenarios of: - An Intel Inside effect in components? - Networks become sufficiently modular as to be assembled by the customer? Optera Metro Network topology (C. Thompson & R. Berryman, MIT) Access Metro Regional Long Haul Media Value Chain (C. Thompson & R. Berryman, MIT) Content Pipe Aggregator Service Provider / Network Operator Web Portals Access Metro MSN Access Generator Backbone Network Builder Access Systems Solutions "God box" Multi-Service CO Nodes SMS SONET/DWDM CO Nodes Retail, Service Providers Box Builder Metro Systems Solutions Backbone Systems Solutions Home Gateways, servers (Nortel, Lucent, Nokia) Aggregation Transport Managed Wavelength Component Supplier Grooming Sw itching Services Hardware Boards Modems Drives etc Software Apps NOS Tools Semionductor / IC Webpages Component Supplier Games Components Hardware Software (Transport nodes, switches Applications (Network Planning & Provisioning) routers, aggregators etc) (ADMs, OADMs, Line Cards, Systems (Network OS, OSS) multiplexers, modems etc) (Boards, lasers, filters etc) Tools (Routing & switching algorithms) Chips (Network processors, ASICs) Protocols Boxes Modules Materials (SONET, IP, MPLS etc) Customer Enterprise Other Carriers Box Distributor Metro Entertainment Portals Streaming Video Financial Services Applications Phone Calls Service Backbone Network Owner ISP Portals (eg AOL) Gaming Portals Financial Portals Box Chips, memory etc (Intel, Motorola, Broadcom) Multi-tenant buildings Residential Customers Microphotonics Technology Bottlenecks (Prof. Rajeev Ram, MIT) 100 Channel OADM o o o o o o o mircoring – resonating ring Photonic crystals – photonic band gap Thin film filters AWG – Large Bragg gratings (isolation) – Fiber gratings (bulky) Diffraction grating (bulk) Waveguide Isolators LN-SOA (low noise silicon optical amplifier) Optical Computing o o Waveguides on IC Optical Sources on CMOS Wireless Value Chain & clockspeeds Hardware (Nokia, Moto, Palm, HP) fast C U S T O M E R Device fast O/S (Palm, Windows, Psion) slow Applications (phone, PDA, etc.) medium Standard (CDMA, GSM, etc.) medium Access Equipment (Nortel, Ericcson, etc. medium Provider (ATT, Cingular, Network Design (Sonet, ATM, IP) slow Vodaphone, AOL) Content fast (Yahoo, Quicken, IM, M-commerce, VoiceCommunic Product/Service packages fast Wireless Communications Market Analysis Industry Structure Supply Chain: Industry, Cell Phone, Network Business Cycle: Vertical/Integral vs. Horizontal Modular Evolution and Adoption of Services Market Share Standardization Internet Converging with Wireless Telecommunications Laws and “Laws” Guiding Development of Technology (J. Gower & S. Constance, MIT & Siemens) Wireless Marketplace Value of Exchanges Between Supply Chain Links Application Developers Content Providers Network Operators End-User Consumer Retail VAR Radio Shack Circuit City Exchanges Between Links Infrastructure Provider Device Manufacturers (J. Gower & S. Constance, MIT & Siemens) Information Partnership Cash-flow Exchange Wireless Marketplace Links Are Consummated on Exchanges Application Developers Applications provide efficient access to content Network Operators need applications to enhance services Infrastructure supports applications Content sites must develop brand and drive greater accessibility Content must meet target customer segments needs Consumer agrees on service contract Network Operators Infrastructure facilitates network management Content Providers VARs sell service contracts as middleman Retail VAR Radio Shack Circuit City Device must gain network access End-User Consumer VARs sell devices as middleman Users must be able to operate device Infrastructure Provider Device Manufacturers Air interface compatibility (J. Gower & S. Constance, MIT & Siemens) Wireless Marketplace Wireless Industry Structure: 5 Forces Market Entry •Proprietary learning curve •Economies of scale •Capital requirements •Brand identity •Switching costs •Expected retaliation •Proprietary products Supplier Power •Supplier concentration • Importance of volume to supplier •Differentiation of inputs •Switching costs of firms •Threat of forward integration Firm Rivalry •Industry concentration ratio •Fixed costs/Value added •Industry growth •Intermittent overcapacity •Product differences •Switching costs •Brand identity Substitutes (J. Gower & S. Constance, MIT & Siemens) •Switching costs of adopters •Buyer propensity to substitute •Relative price performance of substitutes Buyer Power •Bargaining leverage •Buyer volume •Buyer information •Brand identity •Price sensitivity •Product differentiation •Substitutes available Many Few Wireless Marketplace Industry Structure: 5 Force Analysis Market Entry Network Operator Network Operator Supplier Power Network Operator Power Many Entry Hard Infrastructure Provider Difficult Device Manufacturer Difficult Application Provider Easy Content Provider Easy Competition Rivalry Device Manufacturer Buyer Power Power Network Operator Intense Network Operator Strong Infrastructure Provider Intense Infrastructure Provider Intense Infrastructure Provider Weak Device Manufacturer Intense Device Manufacturer Intense Device Manufacturer Strong Application Provider Weak Application Provider Weak Application Provider Weak Content Provider Strong Content Provider Strong Content Provider Weak Substitutes Content Provider Unattractive Voice/Data Network Network Components Cell Phones Applications&Content Number Many Few Many Few Content Enabler Infrastructure Provider Application Provider Attractive Wireless Marketplace Wireless Device Supply Chain (Horizontal/Modular?) Software Radio Vanu Inc. Non-Circuit Component Manufacturers Circuit Board Component Manufacturers Application Developers OS & AP VAR Sellers Device Manufacturers Network Operators Upstream Voice and/or Data Customers Downstream EXAMPLES • Microphone • Speaker • Battery • Dial Pad • Case • • • • • DSP Microprocessor ROM Chips Flash Memory RF Transceiver • Operator System • WAP • iMODE • SMS • • • • • • Cell Phones • PDAs • Smart Phones • SIM Pads • Controls • LANs Radio Shack Circuit City Best Buy Sprint Store Verizon Store COMPANIES • Sharp • Phillips • NEC • Fujitsu • Panasonic • • • • • TI ADI Intel Motorola National S. • Aether Systems • Microsoft • Phone.com • Sun • • • • • Nokia Motorola Ericsson Siemens Samsung BT, FT, DT Radio Shack Sprint Cingular NTT Do Co (J. Gower & S. Constance, MIT & Siemens) • • • • • • Personal use • Enterprise use • Public services N/A Wireless Marketplace Wireless Device Components Micro-processor Phone Battery -lithium iodine Flash Memory -SID Chip Microphone & Speaker Digital Signal Processor Keypad and contacts (J. Gower & S. Constance, MIT & Siemens) Wireless Marketplace Wireless Network Supply Chain(Vertical/Integral?) Mercury Computers PSTN/Internet Component Manufacturers Cell Switching Component Manufacturers Base Station Component Manufacturers American Tower Infrastructure Providers Network Operators Upstream EXAMPLES • WAP Server • WAP Gateway • PSTN Gateway • GPRS Gateway COMPANIES • Nortel • Sun • Siemens • Motorola • Lucent Voice and/or Data Customers Downstream • Mobile Operators Switch Center • Packet Control Unit • Base Station Controller • Antennas • Radio transceiver • Channelizer • Modem • Transmission Interface • Base Station • Voice & Data Assembly Service • Tower • Services & Assembly Features • Switching • Billing Optimization • • • • • • • • • • • • • • • • • • Nortel Nokia Siemens Ericsson Motorola Lucent Nortel Nokia Siemens Ericsson Motorola Lucent (J. Gower & S. Constance, MIT & Siemens) Nortel Nokia Motorola Ericsson Siemens Lucent • • • • • BT, FT, DT Sprint Cingular Bell South NTT Do Co • Region Users • National Users • Global Users Voice & Data Wireless Marketplace Wireless Voice Circuit Switch Network Components Base Station Operations Step 1: Base Station Controller Converts signal from base station to land line friendly format BSC MSC Step 2: Mobile Switching Center Keeps track of users and sends them calls when necessary. Includes: Home locator, visitor locator, equipment identity, authentication, and message center Step 3: Mobile Operator’s Circuit Switch Voice Network Internal network supporting voice services MO CSVN GMSC Step 5: Public Switch Public Switched Telephone Network PSTN Step 4: Gateway Mobile Switching Center Connects a mobile network to the public switched telephone network and to other operators with which it has roaming agreements (J. Gower & S. Constance, MIT & Siemens) Wireless Marketplace Wireless Data Packet Network Components Base Station Operations Step 1: BSC Step 2: MSC BSC MSC Step 7 WAP Gateway Remote access server for WAP Step 2, 3, or 4: Serving GPRS Support Node It connects to various databases to locate and authenticate traffic. Acts as a router instead of a switch Step 8: Internet SGSN PCU Step 1, 2, or 3: Packet Control Unit Needed to adapt base station for packet data. Point at which data departs from a voice networkGPRS (J. Gower & S. Constance, MIT & Siemens) MO CSVN GGSN WAP GATE Net WAP SERVER Step 6: Gateway GPRS Support Node Converts data packets to & from GTP to TCP/IP Step 5: Mobile Operator’s Packet Switched data network Internal network for providing data services Step 9: WAP Server Where WAP Data is stored Wireless Marketplace (J. Gower & S. Constance, MIT & Siemens) Wireless Devices Becoming Horizontal & Modular -Massive adoption of handsets capacity US Abroad -Motorola-Devices Ericsson/Nokia/NTT Devices 1980-85 strained as outsourcing coordination becomes apparent -International demand & competition -Consumer Expectations Increase -Avg. # of Components 550 to 900 1999-2001 INTEGRAL PRODUCT VERTICAL INDUSTRY 1985-1990 2005E-2010E NICHE COMPETITORS Software Radio Emerges Phone Becomes Easy to Carry HIGHDIMENSIONAL COMPLEXITY ORGANIZATIONAL RIGIDITIES Complexity of phone increases Avg. # of Components 200 to 550 PRESSURE TO DIS-INTEGRATE 1996-97 MODULAR PRODUCT HORIZONTAL INDUSTRY 1997-1999 2G Digital Phone Shift to Messaging and Data PRESSURE TO INTEGRATE 2003E -US 1996 Telecom Act -DSP & Flash Chips accelerate as PC Sales slow Device Manufacturers Cell Phone Nokia, Motorola, Siemens, Ericsson, Samsong PDA Handspring, Palm, Compaq, Casio, Sony SIM Pads Sony, Siemens, Nokia Smart Phones Kyocera, Ericsson 2001-2002E TECHNICAL ADVANCES Outsourcing Devices -Flextronics & EMS SUPPLIER MARKET POWER PROPRIETARY SYSTEM PROFITABILITY -Qualcomm liciences Chip Sets for Phone -Motorola & Others follow Wireless Marketplace (J. Gower & S. Constance, MIT & Siemens) Wireless Infrastructure Still Vertical & Integral US Abroad -Network costs focus attention on Spectral Efficiency and Network Optimization -Pressure from Consumer for data services and from device manufacturers to provide faster data rates -Motorola, Nortel Ericsson,Nokia,Siemens 1980-90 AMPRS AT&T & Baby Bells BT, FT, Vodaphone, NTT 1990-1995 2001-2005E INTEGRAL PRODUCT VERTICAL INDUSTRY 2007E-2010E Convergence of Wireline to Wireless IP & 3G -US 1996 Telecom Act MODULAR PRODUCT HORIZONTAL INDUSTRY TECHNICAL ADVANCES NICHE COMPETITORS -American Tower, ArrayComm HIGHDIMENSIONAL COMPLEXITY ORGANIZATIONAL RIGIDITIES PRESSURE TO DIS-INTEGRATE 1995-2001 -US 1996 Telecom Act -Spectrum Auctions $$$$$ -Vender Financing SUPPLIER MARKET POWER PRESSURE TO INTEGRATE -2.5-3 G Costs, ROI cycle shrinks -IP Standardizing PSTN/Packet Interface -Demand for data service increases complexity PROPRIETARY SYSTEM PROFITABILITY 2006E Mobile Industry Evolution: THE DOUBLE HELIX Are we moving horizontally and towards modular products? AT&T & Motorola NICHE COMPETITORS Sprint, AT&T, Cingular, Voicestream, BT,DT,FT, INTEGRAL PRODUCT VERTICAL INDUSTRY MODULAR PRODUCT HORIZONTAL INDUSTRY GPRS, 3G, IP AMPRSHIGH-QoS TECHNICAL ADVANCES Flextronics & EMS SUPPLIER MARKET POWER DIMENSIONAL COMPLEXITY ORGANIZATIONAL RIGIDITIES Nokia, Ericsson, Motorola, Siemens, Sanyo, Panasonic, Cisco, Nortel, PRESSURE TO DIS-INTEGRATE PRESSURE TO INTEGRATE 2G-Digital, FCC PCS Licenses (J. Gower & S. Constance, MIT & Siemens) PROPRIETARY SYSTEM PROFITABILITY Qualcomms CDMA, WCDMA, CDMA 2000 3G System Specification for DSP/Memory[1] System Spec 2G Terminal 1998 2002 3G Terminal 2002 Memory Size 4 Mb 16 Mb 64 Mb Radio Channel Speech Coding Voice Control Video Coding Processor 30 MIPS 3-20 MIPS -8-16 bit 10 Mhz 30 MIPS 3-30 MIPS 50 MIPS -- > 200 MIPS 30 MIPS 50 MIPS > 200 MIPS 16-32 bit ARM [1] Source: Nokia announcement, Electronics Times, March 12 2001,page 65. Current Battery Technology -> Power Requirement: Analysis by Sonny Wu, MIT & Nortel < 200-250 mW Technology Curves for E2PROM, Java Card and NetCardio[1] Module Metric E2PROM Java Card NetCardio Module Memory Size Access Time Energy per 32b write[2] R/W Cycle Voltage CPU ClockSpeed Current Cost FLASH 8-30KB 100mSec 1J 500K 5V Embedded Flash 64KB 100mSec 2J 500K 3.0 V FeRAM 4-8MB 100 nSec 1nJ 1010 1.5 V None 8-16 bit ARM/MIPS 32bit ARM 5-10 Mhz $0.50 50Mhz $3-5 100Mhz $10*[3] [1] NetCardio is an MIT start up by the Author and other Sloan and EECS students working on next generation Smart modules for wireless applications using low power Encryption and FeRAM technology. [2] Data Source: “A survey of Circuit Innovation in Ferroelectric RAM” by A. Sheikholeslami, Proceedings of The IEEE, Vol.88,No 5, May 2000 [3] Cost estimated by David Lim of Sloan ( from Chartered Semiconductors) using Flash memory processing data. Analysis by Sonny Wu, MIT & Nortel Intelligent Wireless Module® Subsystem Spec Die Size: Performance: Power: Die Cost: Packaging: Testing: Overhead:[1] Subtotal Cost Radio/DSP 10 mm2 1000 MIPs 100 mW $5 $2 $3 $2-$5 $12-15 Encryption 50 mm2 1024 bit RSA 100 mW FeRAM 100 mm2 4 MB 50 mW Pricing of Module $20-25 each [1] assume volume scale of 200M to 500M units/year: equivalent to $1.0 B US of amortization of R&D and Mfg O/H 1. Low Cost Single Chip Module 2. Interoperate with wireless appliances 3. Enabler for Customized wireless services Analysis by Sonny Wu, MIT & Nortel Intelligent Wireless Module® Subsystem Spec Die Size: Performance: Power: Die Cost: Packaging: Testing: Overhead:[1] Subtotal Cost Radio/DSP 10 mm2 1000 MIPs 100 mW $5 $2 $3 $2-$5 $12-15 Encryption 50 mm2 1024 bit RSA 100 mW FeRAM 100 mm2 4 MB 50 mW Pricing of Module $20-25 each [1] assume volume scale of 200M to 500M units/year: equivalent to $1.0 B US of amortization of R&D and Mfg O/H 1. Low Cost Single Chip Module 2. Interoperate with wireless appliances 3. Enabler for Customized wireless services Analysis by Sonny Wu, MIT & Nortel Mobile Industry Evolution: THE DOUBLE HELIX Are we moving horizontally and towards modular products? AT&T & Motorola NICHE COMPETITORS INTEGRAL PRODUCT VERTICAL INDUSTRY Sprint, AT&T, Cingular, Voicestream, BT,DT,FT, MODULAR PRODUCT HORIZONTAL INDUSTRY GPRS, 3G, IP AMPRS-QoS TECHNICAL ADVANCES Flextronics & EMS HIGHDIMENSIONAL COMPLEXITY ORGANIZATIONAL RIGIDITIES Nokia, Ericsson, Motorola, Siemens, Sanyo, Panasonic, Cisco, Nortel, SUPPLIER MARKET POWER PRESSURE TO DIS-INTEGRATE PRESSURE TO INTEGRATE 2G-Digital, FCC PCS Licenses PROPRIETARY SYSTEM PROFITABILITY Qualcomms CDMA, WCDMA, CDMA 2000 WILL MOBILE INTERNET BRING BACK VERTICAL INTEGRATION AND MARKET POWER? CHOSEN CONTENT PRIVATE NETWORK CHOSEN CONTENT PRIVATE NETWORK CHOSEN CONTENT PRIVATE NETWORK CHOSEN CONTENT PRIVATE NETWORK OR WILL OPEN-ARCHITECTURE VOICE PORTALS REINVIGORATE THE HOURGLASS SHOPPING, PORTALS, SEARCH, MUSIC, VIDEOS, JOKES, CHAT, EMAIL, PORNOGRAPHY, DATA, ETC.ETC. IP/3G/POTS FIBER OPTIC NETWORKS, CABLE MODEMS, DSL CONNECTORS, SWITCHING SUBSTATIONS, ETC.ETC. WIRELESS VALUE CHAIN:MINI CASE EXAMPLE Wireless Base Stations (WSB’S) comprise 4 key subsystems: Radio Part Digital Signal Processing Modem WSB architectures are -integral & proprietary Suppliers include: Nortel, Moto, Ericsson, Siemens, Nokia Disruptive Modem advances (e.g., MUD) can double Base Station Capacity Transmission Interface Fiber & WireBased Network Modular WSB’s might (1) Stimulate new WSB entrants (ala Dell) (2) Stimulate standard subsystem suppliers (3) lower prices to the network operators (4) Speed base station performance imp. (5) Increase demand for basestations due to improved price-performance ratios. Wireless Marketplace (J. Gower & S. Constance, MIT & Siemens) Trends in the Standard Adoption Clockspeed Networks Spider webs around standards are becoming sticker Standards contracting towards a data solution Wireless LAN—Death of Home RF Slow Narrow bandwidth vs. Broad bandwidth Devices Convergence moving towards a single chip Components are shared among devices Quicker Middleware Carriers moving towards outsourcing The race is on for a operating system standard Will the operating system run on all devices Will software radio become the disruptive tech. Fast! Are ASPs back with wireless applications & solutions? Wireless Study (J. Gower & S. Constance, MIT & Siemens) Present Map of Wireless Investment in Standards Networks 1.0 G AMPS 2.0 G CDMA IS-95 2.5 G CDMA 2000 3.0 G LAN NAMPS TDMA GSM GPRS-eGSM Middleware Home RF Wi-Fi ESP RAM SRAMs FeRAM FLASH NOR-FLASH EPOC WAP/WML HTML HSCSD PDAs PalmDSP SDRAM Windows CE CDPD iMode DSP1609ND SDRAM NAND-FLASH Palm OS IDEN Bluetooth Phones TI-TMS320C54 AP EDGE-eTDMA PDC wCDMA DSP OS IDEN CDMA 2000 Pagers Devices FDMA SST-SuperFLASH MLinux FLEX NMS SMS MeXe IASw Wireless Study (J. Gower & S. Constance, MIT & Siemens) Trends within the value-chain Networks Spider webs around standards are becoming stickier Standards contracting towards a data solution Wireless LAN may drive standard convergence Narrow bandwidth vs. Broad bandwidth Devices Convergence moving towards a single chip Components are shared among devices Carriers moving out of manufacturing components Middleware The race is on for a operating system standard Will the operating system run on all devices ASPs are back with wireless applications Value Chain of Mobile Virtual Network Operator (MVNO) Integrated Spectrum & Radio Infrastructure Switches Authentication Center Distinct Number Series SIM Cards Billing, Customer Service Sales & Marketing Less Integrated MVNO: - Does not have Spectrum & Radio Infrastructure - Needs a host network - Has at least Billing, Customer Service, Sales and Marketing Eelco de Jong, MIT MVNO Example 1: Virgin Mobile -Launched in Nov. 1999 in UK, wants to become a global player, leveraging its worldwide brand -Host network: One 2 One (Deutsche Telekom) Virgin purchases wholesale minutes from One 2 One -Virgin does not require customers to buy a new handset only a Virgin SIM card (for US$ 20). Little handset subsidization. Simple pricing structure -Extensive content offering, targeting the mass-market -Low ARPU, but also low customer acquisition costs Eelco de Jong, MIT MVNO Example 2: Financial Times & Carphone Warehouse Announced in March 2001, joint venture between FT, Carphone and BT Cellnet Targeting business consumers, who will receive a WAP-enabled FT-branded phone - Financial Times will provide content - The retailer Carphone will provide billing, customer service, leveraging existing services in this area - Cellnet will provide the host network Eelco de Jong, MIT All Conclusions are Temporary Clockspeeds are increasing almost everywhere eCommerce is a clockspeed driver Value chain design is a key competency Study of eFlies can help with crafting strategy