|By Dustin Amrhein||
|December 16, 2010 09:00 AM EST||
In many cases, the end of the year gives you time to step back and take stock of the last 12 months. This is when many of us take a hard look at what worked and what did not, complete performance reviews, and formulate plans for the coming year. For me, it is all of those things plus a time when I usually get to catch up on my sadly neglected reading list. First up on my reading list this year: Clockspeed : Winning Industry Control in the Age of Temporary Advantage by Thomas Fine.
I am sure many of you have either read Clockspeed yourself or heard it mentioned in various circles. I am fast approaching the end, and while the book itself is not new (originally published in 1999), it seems, based on my own impressions and several other notable reviews, that the lessons of this piece are timeless.
I'm not going to do much justice to the book in just a couple of sentences, but for those of you not familiar with this work, here is a bit of background. The main premise put forward by Fine is that any competitive advantage a business holds is temporary. How temporary depends on the clockspeed of the particular industry in which the business competes, and as you might imagine these speeds vary widely across industries. In light of all advantage being temporary, Fine contends that a company's supply chain is the single most important competency it holds.
Fine provides ample reasoning behind his theory that a company's supply chain is their golden nugget. More interestingly, Fine backs his beliefs with concrete case study data from business history. For me, the most interesting case study is that of the IBM personal computer -- I am an IBMer after all. Fine recounts the events that lead up to IBM competing in the personal computer market, and then focuses on IBM's decisions regarding how to compete in that market.
Specifically, he notes IBM's seemingly conscious decision to take a modularized approach to delivering the PC. The supply chain included parts built within IBM, but importantly, not every part came from within IBM. Most notably, IBM chose to go with processors from Intel and operating systems from Microsoft. In choosing this horizontally integrated approach to building the PC, IBM opened the door for a larger number of competitors to enter the market. These competitors came in, built IBM compatible PCs, and eventually eroded IBM's dominance in this market. Why? Fine argues that consumers evolved to care more about what was on the inside of the PC (specifically the Microsoft operating system and Intel processors), and less about who built the box to house these components.
While this is an interesting bit of history, I believe we are coming upon a point of time when this may repeat itself all over again. This time the subject of interest will not be the PC, but instead, PaaS solutions. Last week, I talked about different approaches for delivering PaaS solutions. Looking back at those different models in the context of supply chain management, I suppose I could characterize them as being vertical (depth in deployment/management capabilities), horizontal (breadth in deployment/management capabilities), and hybrid (depth & breadth in deployment/management capabilities).
The question is which of these approaches will be the first winner in the PaaS market? As I said last week, in a perfect world, the hybrid approach would win out, but I believe we are far off from anyone being able to deliver something viable in this mold. So, will it be horizontally or vertically composed PaaS solutions that become the first dominators?
The story above may seem to argue against the horizontal approach, but the fact is, this is just one anecdote from a book packed with them. Fine is careful to point out that supply chains with a vertical orientation are appropriate in some cases, while in other cases the horizontal approach wins out. Even then, the orientation chosen by the industry is not a decision made once and never revisited. Fine explains that a vertically oriented industry is under constant pressure to reorganize horizontally, while the inverse holds true for horizontally oriented industries.
That said, the PaaS industry has some interesting decisions to make. No one in the industry wants to risk becoming simply ‘the box' that manages the crucial components, nor would they want to deliver a solution lacking critical capability because no one company can develop all capabilities in-house. While the answers here are not easy, the current state of the market seems to be leaning heavily towards a vertical orientation.
Most of the PaaS solutions we see now concentrate on providing operational depth for application platforms at the expense of providing breadth. In my opinion, this seems like the right approach for this largely nascent market. In trying to gain traction and attract a community of users, PaaS solutions need to provide clear and ‘instant' value for those users. It is hard to do this if you cannot narrow in on a specific subset of use cases.
As PaaS works into the mainstream over the coming years, the supply chain approach taken by these solutions providers will be interesting to watch. Will vertical orientation continue to dominate the early PaaS years? Who will be the first leader to shift towards horizontal orientation, and what will the ramifications be? All of these are interesting questions and ones that only time will tell.
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