Time Wars: Is There a Financial Undertow from Accelerating Technical Advance?

Even if you succeed in being first to market with an innovative product or service, a follow-on strategy of precipitous price cutting aimed at retaining market share and derailing competitors can have severe financial consequences. OVERVIEW: "We spend too much on technology, and we don't earn enough from it!" This quote, attributed to Siemens' CEO Heinrich von Pierer in 1994, anticipates the essential question explored in this article: Is the strate of ever-heavier commitments to internal R&D spending to establish an advantage in time-based competition inherently self-limiting? Investment-mix shifts to support accelerating technical advance as well as deteriorating rates of new cash returns to those shifts have been widespread throughout U.S. manufacturing since the mid-1970s. While no causal linkage between the two trends is detectable in the aggregate, there is a strong possibility that such a linkage functions at the level of specific sectors and industries. This has implications,/br both broad and deep industrial restructuring as well as the deployment of time-based competition as a corporate strategy. For more than a century, the dominant dynamic shaping U.S. industry has been firm-to-firm competition. Reflecting the contemporaneous origins of the mass production factory and the industrial R&D lab during the late 19th century, the conventional industrial model came to be defined by sovereign producers making and marketing what they designed and developed. Today, however, that model is under pressure from a variety of forces. A surge of strategic alliances, joint ventures and related forms of industrial cooperation during the past decade has energized entirely new industrial arrangements in which competition is as likely to be played out among ad hoe, multi-firm, free-form production alliances as between sovereign firms. In the process, the very conceptual boundaries of individual producers, products and even entire industries have begun to blur. In order to appreciate the "reach" of these new arrangements, one has only to observe how the once-defining features of telephones, television and computers have migrated into new hybrid product forms and how advanced microelectronics and materials technologies are increasingly the basis for product differentiation in markets as diverse as those for automobiles, airplanes, and appliances. Logic of Time-Based Competition The changes reworking the dominant U.S. industrial model involve more than the emergence of new production structures across an industrial landscape, however. They also involve new models of competition as well. Perhaps the most consequential of these focuses on the ways in which time has begun to eclipse cost as the dominant competition metric (1-3). The logic of time-based competition (TBC) poses a direct challenge to conventional cost-reduction efforts aimed at tightening factory operations and increasing equipment utilization. Indeed, under certain circumstances, TBC may even render such capital efficiency strategies counterproductive (4). Today, competitive success in a wide variety of industries is likely to depend more on relentlessly wringing time--not simply cost--out of R&D, production and logistics arrangements, whether those arrangements take the conventional form of vertically-integrated sovereign firms or the sprawling web-like production alliances linking vertically-disintegrated producers. This can mean that the extra margin of benefits that accrue to being first--or at least fast--to market can outweigh the costs of underutilized equipment and workers. TBC recognizes that lean production arrangements optimized at the level of the factory or even the individual piece of production equipment cannot by themselves provide the surge capacity required to respond to rapidly shifting demands of time-sensitive customers willing to pay a price premium for such speed. TBC and Rapid Technical Advance While the "lean manufacturing" paradigm of the 1980s was primarily factory-focused (5), TBC scrutinizes the entire product cycle from lab to loading dock. …