RdmapWL&Clkspd Fine 5 01

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

charley@mit.edu
http://www.clockspeed.com
Tel: 16172533632, Fax: 16172587579
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 FastClockspeed World:
Study the Industry Fruitflies
Evolution in Evolution in
the natural world: the industrial world:
INFOTAINMENT is faster than
FRUITFLIES
MICROCHIPS is faster than
evolve faster than
AUTOS evolve faster than
MAMMALS
AIRCRAFT evolve faster than
evolve faster than
MINERAL EXTRACTION
REPTILES
THE KEY TOOL:
THE KEY TOOL:
Cross-INDUSTRY
Cross-SPECIES Benchmarking
Benchmarking of Dynamic Forces
of Dynamic Forces
Cisco’s End-to-End Integration for
its Fulfillment Value Chain
• New product development on-line
with supply base
Customers • Technology Supply Chain Design:
Innovation through Acquisition
Cisco Finished Product flows direct to

Order info
customer via logistics
flows direct to supplier
Cisco and suppliers
Contract
Manufacturers
• Single enterprise information system
• Dynamic replenishment, direct fulfillment,
merge in transit Component
• Customer orders through Cisco Suppliers &
Connection online 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 Factory Tier 1 Supplier Equipment
Information lags
Delivery lags SOLUTIONS:
Over and underordering Countercyclical Markets
Countercyclical Technologies
Misperceptions of feedback
Collaborative channel mgmt.
Lumpiness in ordering (Cincinnati Milacron & Boeing)
Chain accumulations
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
60
% Change, Year to Year
40
20
0
1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991
-20
-40
-60
"Upstream Volatility in the Supply Chain: The Machine Tool Industry as a Case
E. -80
Anderson, C. Fine & G. Parker Production and Operations Management,
Vol. 9, No. 3, Fall 2000, pp. 239-261.
INDUSTRY CLOCKSPEED IS A COMPOSITE:
OF PRODUCT, PROCESS, AND ORGANIZATIONAL
CLOCKSPEEDS
Automobile INDUSTRY CLOCKSPEED
THE THE
Automobile Automobile
product technology
THE MANUFACTURING
Automobile COMPANY
organization
PRODUCTION
PROCESS
process technology
Automobile CLOCKSPEED IS A MIX OF
ENGINE, BODY & ELECTRONICS
Automobile
ENGINE BODY ELECTRONICS

medium clockspeed fast clockspeed
slow 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 NEW PROJECTS

CAPABILITIES (New products,
new processes,
new suppliers)
Leonard-Barton, Wellsprings of Knowledge

The Strategic Leverage of Value Chain Design:
Who let Intel Inside?
0: 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 Autos
structural integrity
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 Visteon
Auto Opns
GM
NAO Delphi
Toyota
Denso Inside? Supplier
Chrysler JCI Inside?

Supplier
Mercedes Delphi Inside?
Vertical Industry Structure
with Integral Product Architecture
Computer Industry Structure, 197585
IBM DEC BUNCH
Microprocessors
All Products
All Products
All Products
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, 198595
Microprocessors Intel
Intel Mac
Moto TI etc
AMD etc
Operating Systems
Microsoft Mac Unix
Peripherals IntelEpson Mac TIetc etcetc
HP Seagate
Applications Software
Microsoft Lotus Novell etc
Network Services
AOL/Netscape Microsoft EDS etc
etc
Assembled Hardware
HP Compaq IBM Dell etc
etc
(A. Grove, Intel; and Farrell, Hunter & Saloner, Stanford)
THE DYNAMICS OF PRODUCT ARCHITECTURE
AND VALUE CHAIN STRUCTURE:
THE DOUBLE HELIX
INTEGRAL PRODUCT MODULAR PRODUCT

NICHE VERTICAL INDUSTRY HORIZONTAL INDUSTRY
COMPETITORS
TECHNICAL
ADVANCES
HIGH-
DIMENSIONAL SUPPLIER
COMPLEXITY MARKET
POWER
PRESSURE TO PRESSURE TO
ORGANIZATIONAL DIS-INTEGRATE INTEGRATE
RIGIDITIES 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
• AUTOMOTIVE--
– 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
T
EN VOICE VIDEO CORPORATE DATA
T COMMUNICATION ENTERTAINMENT
N
CO C.
& ers ET
o rs ast C ,
t
a adc E
RE
&T er D
p ro
AT ,
TU
O B M
le ork B
UC
b I
Ca etw
TR
N
AS
FR
CABLE & DATA

TELEPHONE NETW0RKS
BROADCAST
IN
NETWORK
NETWORKS
DAVE CLARK,
LCS, MIT
IP BEGAT CONVERGENCE & LOSS OF MARKET POWER
THE HOURGLASS
T l? )
EN ra
SHOPPING, PORTALS, SEARCH,
D
T m e
PE T AN
MUSIC, VIDEOS, JOKES, CHAT, EMAIL,
Y
EN B E
N ephe
TL
PORNOGRAPHY, DATA, ETC., ETC.
COow
DE RE T
ND O
IN TU TEN
(H
C N
PE RU CO
R E
LO ST S
U ?)
VE RA W
C T C
DE INF LLO
Co
D
RU OI
> IP
A
T ve R
IP
A S ie
FR a ch
N
I ow to
FIBER OPTIC NETWORKS, CABLE MODEMS,
(H
DSL CONNECTORS, SWITCHING DAVE
SUBSTATIONS, ETC., ETC. 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
P&G
Retailer
Retailer
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
AMD
Customers
Compaq
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 PC Maker Chip maker Equipment

Developer 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 &
Industry & Organization
Organization Clockspeeds
Clockspeeds
+ Competitive
Intensity from
Reduced Trade
Barriers and
+
Internet Commerce
Media Supply Chains: An Industry at Lightspeed
Customers The box The Pipe The Content

(Access, Metro, Backbone)
Wired Phone Video/Audio:
Land
basedTelco: Movies & Art
copper POTS & News & Sports
Wireless phone
fiber
DSL News/articles/books
PC/laptop Cable (newspapers &
Networks magazines)
PDA Wireless:
broadcast TV
Communication:
Television CDMA, TDMA, GSM
voice & video & email
satellite/microwave
Retail Outlets Banking
VCR
Borders:
Blockbuster Education
Pager SevenEleven
Shopping
Delivery (e.g., Fedex)
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
1. Fruit Flies & Temporary Advantage

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
PROCESS
Performance
Specifications Technology, &
Process Planning
Details,
Strategy
Product Architecture,
Time, Space, Availability Manufacturing System,
Make/Buy components
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 MODULAR
PRODUCT
Jet engines
ARCHITECTURE Polaroid
Microprocessors
Nortel
INTEGRAL Mercedes vehicles
Automotive Personal Computers

Supplier Parks Bicycles
MODULAR Chrysler Vehicles
Cisco
DESIGNING ARCHITECTURES FOR
PRODUCTS & VALUE CHAINS:
MODULARITY VS. OPENNESS
ARCHITECTURAL
PROPRIETARINESS
CLOSED OPEN
ARCHITECTURAL
STRUCTURE Pentium Chip
Linux
INTEGRAL Mercedes Vehicles
SAP ERP
Palm Pilot
IBM Mainframes software & accessories
MODULAR Microsoft Windows Phones & service
Chrysler Vehicles 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
Dependence Independence
Amount of Amount of
Work Work
Outsourced Done Inhouse
+ knowledge + + knowledge +
+/or supply +/or supply
Supplier Amount of Internal Amount of
Capability Supplier Capability Internal
Learning Learning
+ +
Technology Dynamics in the Aircraft Industry:
LEARNING FROM THE DINOSAURS
Japanese
+ appeal as
subcontractors U.S. firms’
appeal as
subcontractors
Japanese + +
Boeing outsources
Industry
Autonomy to Japan
(Mitsubishi Inside?)
+
Japanese U.S.
industry industry
size &
+ size &
capability
- capability
SOURCEABLE ELEMENTS
PROCESS ELEMENTS
ENGINEERING
CONTROLLER ASSY
VALVETRAIN
TEST
BLOCK
I4 V6 V8
PRODUCTS
SUBSYSTEMS
Strategic Make/Buy Decisions:
Assess Critical Knowledge & Product Architecture
INDEPENDENT FOR
DEPENDENT FOR
KNOWLEDGE & INDEPENDENT FOR
KNOWLEDGE
DEPENDENT FOR KNOWLEDGE & CAPACITY
& CAPACITY
ITEM IS INTEGRAL ITEM IS MODULAR
CAPACITY
A BEST OVERKILL
POTENTIAL OUTSOURCING IN
OUTSOURCING OPPORTUNITY VERTICAL
TRAP INTEGRATION
WORST CAN BEST

OUTSOURCING LIVE INSOURCING
SITUATION WITH SITUATION
OUTSOURCING
Adapted from Fine & Whitney, “Is the Make/Buy Decision Process a Core Competence?”
Strategic Make/Buy Decisions:
Also consider Clockspeed & Supply Base Capability
DEPENDENT FOR DEPENDENT FOR INDEPENDENT FOR

KNOWLEDGE & CAPACITY CAPACITY ONLY KNOWLEDGE & CAPACITY
Few Many Ou t
st Few Many k r-
s
DECOMPOSABLE
Be
Few Many ap
Be Suppliers Ove
Clockspeed Clockspeed Clockspeed
ill
Tr
Fast Slow Fast Slow

(Modular)
Fast Slow
Suppliers
Suppliers
OK
Watch
it!
rst
OK
Clockspeed
In
o
Clockspeed
INTEGRAL
Clockspeed
W
Fast Slow Fast Slow Fast Slow

Few Many
Suppliers
Few Many
Few Many
Suppliers
Suppliers
Adapted from C. Fine, Clockspeed, Chap. 9
Qualitative analysis of strategic
importance uses five key criteria
Value chain elements with high customer

Customer importance and fast clockspeed are generally
Importance: strategic (unless there are many capable
• High
• Medium suppliers)
• Low  Competitive position is seldom the
Technology primary consideration for strategic

Clockspeed: importance, rather it serves as a
• Fast
• Medium “tie-breaker” when other criteria are
• Slow
Competitive in conflict
Position:
 When many capable • Advantage
• Parity
suppliers exist, knowledge • Disadvantage
may be considered
commodity and Capable Suppliers:
development should be • None Possible Decisions
• Few
outsourced • Many
(Knowledge & Supply):
• Insource
 Architecture is considered a • Outsource
Architecture: • Partner/Acquire
constraint for the sourcing decision • Integral • Partial Insource
model, controls the level of • Modular
• Partial Outsource
engineering that must be kept in • Invest
house for integration purposes • Spin Off
• Develop Suppliers
Model Criteria
developedare applied
by GMdifferently for Products
Powertrain, PRTM,than for Subsystems
& Clockspeed, Inc.
Sourcing Strategy Decision Tree -
High Customer Importance Path
Low
Customer
High Customer Importance Path High Importanc
e?
Technology Slow
Fast
Clockspeed
?
Strong Competitive Weak Strong
Competitive
Weak
Position? Position?
None Capable Many

Suppliers?
None Capable Many
Minimal Non Man Minimal Suppliers?
Outsource - Few e Capable Outsource -
Minimal Modular
Architectur Minimal Suppliers? y Few
Invest e? Invest for
Outsourc Modular
Architectur Outsource Fe Modular
Architectur
e?
Integral - Maintain Parity, e?
e - Invest w
Integral Internal Architectur Develop Mostly
Integral
Minimal
Knowledge
e? Suppliers Outsourc
Outsourc
e- (possibly Integral e-
Minimal
Outsource Equity / develop Partial Modular Partial Specify &
- Equity / Acquire Minimal suppliers) OutsourcIntegrate
Outsour
Acquire Outsource - Partial ce (less e - Invest Outsource
and Equity/Acq Outso integral in All
uire & Outsourc Internal
Partner urce compon Outsourc
e All
Partner ents) e All Capabilit
y
Model developed by GM Powertrain, PRTM, & Clockspeed, Inc.
Sourcing Strategy Decision Tree -
Low Customer Importance Path
Customer
High Low
Importance Low Customer Importance Path
?
Technolog
Fast y Slow
Clockspee
d?
Competitiv
Strong e Weak StrongCompetitiv Weak
Position? e
Position?
Non Man None

e
Capable
y
None CapableMany None Capable Many Capable Many
Suppliers? Suppliers? Suppliers? Suppliers?
Fe Minimal Few Develop
Architectur
Modular w Few Few
e? Outsource Outsourc Supplie
Outsour Outsourc
-Develop e All rs and
Minimal ce All Modular Architectur
Architectur Modular e All
Integral Suppliers Mostly Outsour
Outsour Architectur e? e?
Outsource ce
ce - e?
Modula , Develop MinimalIntegral Spin-
Develop Integr Integral Develop
r More Outsour off and
Supplier al Supplier
Minimal Suppliers ce - Develo
s Minimal s and
Outsour and/or p
Partial Outsour Develop Outsour
ce - Some Supplie Suppli
Outsource ce - Partial ce All
Maintain Integratio rs ers
Partial Maintain Outsour
Outsourc n
Outsourc and ce
e All Capability
e Develop
Supplier
s
Data is still
preliminary

Actual knowledge work compared to
outcome of Decision Framework
Percentage of Knowledge Work Currently Done

0% 50% 100%
Knowledge Work that 100%
No
Outsourcing
Minimal
Outsource-
Should be Controlled
Equity/Acquire
Minimal & Partner
Outsource-
Percentage of
Maintain
Internal
Knowledge
Partial
Outsource
Mostly
Outsource -
Specify &
Integrate Mostly
Outsource -
Develop More
Suppliers
Spin-off and
Develop
%
0
Suppliers
Outsource All

Every decision requires qualitative and
quantitative analysis to reach a conclusion
Knowledge
Supply
High
Improve Invest &
Economics Build
Qualitative
Value
Strategic
Qualitative Model Importance
Customer
Im portance:
Divest/ Harvest
Outsource Investment
• Hig h
• M ed ium
• Low
Technology
Low
Clockspeed:
• Fas t
• M ed iu m
• S lo w
Com petitive
Position:
• Ad van t ag e
Low High
• P arity
Quantitative
• Disa d va n ta g e
Value
Capable Suppliers:
• No n e
• F ew
• M an y Possible Decisions:
• Insource
• Outsource
• Partner/Acquire
Architecture:
• In teg ral • Partial Insource
• M o d u lar • Partial Outsource
• Invest
• Spin Off
• Develop Suppliers
Engine A
EVA PBIT Revenue
EVA
Engines −.
EVA
NOPAT
AS-IS
BIC
AS-IS
AS-IS
COGS
BIC
BMK
AS-IS
BIC
AS-IS
BIC
Engine B
EVA
GMPT
EVA Taxes
AS-IS
BIC
.
.
. Capital
Charge Net Assets
+.
AS-IS
BMK
Working
Capital
Quantitative Model
Transmissions
EVA
−. X WACC
(Financial)
AS-IS
AS-IS
BIC
BMK
AS-IS Fixed
BMK
Assets
AS-IS
BIC

Value Chain Mapping
Organizational Value Chain
casting clay
Chrysler Eaton supplier supplier
Technology Value Chain

casting clay
engines valve lifters manufacturing chemistry
process
Capability Chain
Supply Chain Management Quality assurance NVH engineering R&D
Underlying Assumption: You have to draw

the maps before you can assess their dynamics.
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 PROJECTS
Fortune Favors the Prepared Firm

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
e ss
c
c t
P ro • Mission Statement
o du • Customer Needs • Operating Objectives
Pr
• Market Segments • Policies & Procedures
• Product Architecture -Structural: Bricks, Tech, Org
-Infrastructural:
HR, Business Processes
ain 1. Sourcing: Make/Buy

Ch 2. Partner Selection
ue 3. Relationship Design
al (spot, alliance, equity, etc.)
V 4. Logistics System Design
5. Inventory management Policies
6. Relationship Management
7. Value Chain Architecture
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 Supplier
Store
Walmart WalMart
Store Procurement
Walmart.com Supplier
Shipper
DOT.COM COMPETITION: FOCUS ON THE SUPPLY CHAIN
Napster’s New Supply Chain Strategy
(go to the end and steal everything!)
Identify Vertically Integrated

Talent
Develop Music Giants
Songs
Record
Music
Promote
Music
Press
CD’s
Sell to
Retail
Steal
Songs Customer
Consumption
Matching Supply Chain
Strategies with Products
Demand
uncertainty
(C.V.)
Pull H
I II
Computer Furniture
IV III
Push L Books & CDs Grocery Delivery cost
L H Unit price
Pull Push
Prof. David Simchi-Levi, MIT
Cisco’s Value Chain Design
Product Process
Design Design
• minimal prototype iteration • orders go from CCO website to CM’s
• shared product databases • products go from CM’s to customer
• highly modular products via logistics supplier
• joint with suppliers • 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
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
1018 295oK
Classical Age Quantum Age
1016
1014 77oK
1012 4oK
2010
SIA Roadmap 2005 Quantum State Switch
1010 2000
1995
108 Historical Trend
1990 CMOS
6
10
1980
104
1970
102
101 100 10-1 10-2 10-3
Feature size (microns)
Horst D. Simon
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
7
Pentium 80786
10 Pro
80486
10 6 Pentium
80386
80286
105
8086
104 8080
4004
103
1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Source: Joel Birnbaum, HP, Lecture at APS Centennial, Atlanta, 1999
Disk Drive Development
1978-1991
Disk Drive Dominant Dominant Approx cost per

Generation Producer Usage Megabyte
14” IBM mainframe $750
8” Quantum Mini-computer $100
5.25” Seagate Desktop PC $30
3.5” Conner Portable PC $7
2.5” Conner Notebook PC $2
rom 1991-98, Disk Drive storage density increased by 60%/year
while semiconductor density grew ~50%/year. Disk Drive cost
er megabyte in 1997 was ~ $ .10
Optical Networking
is Keeping Up!
Voice growth
TDM line rate
OC768 growth
OC192 Data growth
Capacity
OC48 Optical network

OC12 capacity growth
Time
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 Hybrid Low-level Medium High-level
Components Integration monolithic Monolithic monolithic
integration integration integration
Examples MUX/ TX/RX TX/RX OADM, Transponder

DEMUX module module Transponder
OADM OADM Switch Matrix
Core FBGs, Thin-Silicon Silica InP, ?? InP, ??

Techno- film, Bench, Silicon
logies fused fiber,Ceramic InP
mirrors substrates
How many 1 2-5 2-5 5-10 10-XXX

Functions?
Industry Integrated Integrated/H Integrated/
DOUBLE DOUBLE
Structure orizontal Horizontal HELIX HELIX
Dr. Yanming Liu, MIT & Corning

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
Advantest Fujitsu
Supplier Computer
IBM
Nikon Fujitsu
Supplier
TI Chips
Fujitsu
AT&T
AMAT
Supplier
Moto
Canon NEC
NEC
Chips
. Computer
et al. Ando
U.S. “Coopetition in the 1980s” 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
Opportunity: Provision services directly Carrier Wish List
from DWDM systems • Longer distances
Solution Structure: More integration • Smaller footprint
between DWDM & the services layer.
• More channels per fiber
Evidence: the “optical packet node”
and the intelligent optical switch. • 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 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 Box Customer

Aggregator Service Provider / Network Operator Service Enterprise
Web Portals Access Metro Backbone Other Carriers
ISP Portals (eg AOL) Network Owner Box Distributor Multi-tenant buildings
MSN Access Metro Backbone Retail, Service Providers Residential Customers
Entertainment Portals Network Builder Box Builder
Gaming Portals Access Metro Backbone Home Gateways, servers
Financial Portals Systems Solutions Systems Solutions Systems Solutions (Nortel, Lucent, Nokia)
Generator "God box" Multi-Service SONET/DWDM Aggregation Transport Managed Wavelength Component Supplier
Streaming Video CO Nodes SMS CO Nodes Grooming Sw itching Services Hardware Software
Financial Services Boards Apps
Applications Modems NOS
Phone Calls Drives etc Tools
Webpages Semionductor / IC
Games Component Supplier Chips, memory etc
Hardware Software (Intel, Motorola, Broadcom)
Boxes (Transport nodes, switches Applications (Network Planning & Provisioning)
routers, aggregators etc)
Modules (ADMs, OADMs, Line Cards, Systems (Network OS, OSS)
multiplexers, modems etc)
Components (Boards, lasers, filters etc) Tools (Routing & switching algorithms)
Chips (Network processors, ASICs) Protocols (SONET, IP, MPLS etc)
Materials
Microphotonics Technology Bottlenecks
(Prof. Rajeev Ram, MIT)
• 100 Channel OADM

o mircoring – resonating ring
o Photonic crystals – photonic band gap
o Thin film filters
o AWG – Large
o Bragg gratings (isolation) –
o Fiber gratings (bulky)
o Diffraction grating (bulk)
• Waveguide Isolators
• LN-SOA (low noise silicon optical amplifier)
• Optical Computing
o Waveguides on IC
o Optical Sources on CMOS
Wireless Value Chain
& clockspeeds
Hardware (Nokia, Moto, Palm, HP) fast

Device O/S (Palm, Windows, Psion) slow
C fast
U Applications (phone, PDA, etc.) medium
S
Standard (CDMA, GSM, etc.) medium
T
Access
O Provider Equipment (Nortel, Ericcson, etc. medium
M (ATT, Cingular,
Network Design (Sonet, ATM, IP) slow
E Vodaphone, AOL)
R
Content fast Product/Service packages fast
(Yahoo, Quicken,
IM, M-commerce,
VoiceCommunic
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
Application Content
Content
Developers
Developers Providers
Providers
Network
Network End-User
End-User
Operators
Operators Consumer
Consumer
Retail
Retail VAR
VAR
Radio
RadioShack
Shack
Circuit
CircuitCity
City
Exchanges Between Links

Infrastructure
Infrastructure Device
Device
Information
Provider
Provider Manufacturers
Manufacturers Partnership
Cash-flow
(J. Gower & S. Constance, MIT & Siemens) Exchange
Links Are Consummated on Exchanges
Applications provide
efficient access to
Application
Application content Content
Content
Developers
Developers Providers
Providers
Content sites
Network Content must must develop
Operators need meet target brand and drive
applications to customer greater
enhance services segments needs accessibility
Infrastructure Consumer agrees on service

supports Network
Network contract End-User
End-User
applications Operators
Operators Consumer
Consumer
VARs sell service
contracts
as middleman
Retail
Retail VAR
VAR VARs sell
Infrastructure Radio devices as
Device must gain RadioShack
Shack
facilitates network Circuit
CircuitCity
City middleman
network access
management
Users must be able to operate
device
Infrastructure
Infrastructure Device
Device
Provider
Provider Manufacturers
Manufacturers
Air interface
compatibility
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 Firm Rivalry Buyer Power

•Industry concentration ratio
•Supplier concentration •Bargaining leverage
•Fixed costs/Value added
• Importance of volume to supplier •Buyer volume
•Industry growth
•Differentiation of inputs •Buyer information
•Intermittent overcapacity
•Switching costs of firms •Brand identity
•Product differences
•Threat of forward integration •Price sensitivity
•Switching costs
•Product differentiation
•Brand identity
•Substitutes available
Substitutes
•Switching costs of adopters
•Buyer propensity to substitute
(J. Gower & S. Constance, •Relative price performance of
MIT & Siemens) substitutes
Industry Structure: 5 Force Analysis
Market Entry Entry
Network Operator Hard

Network Device
Many
Infrastructure Difficult
Operator Provider
Manufacturer
Device Manufacturer Difficult
Application Provider Easy

Supplier Power Competition Rivalry Buyer Power Power
Power Content
Network Provider
Operator Easy
Intense Network Operator Strong
Network Operator Many Infrastructure Intense Infrastructure Weak
Provider Provider
Infrastructure Intense
Provider Device Manufacturer Intense Device Manufacturer Strong
Device Manufacturer Intense
Application Provider Weak Application Provider Weak
Application Provider Weak
Substitutes
Content Provider Number
Strong Content
Content Enabler
Provider Weak
Few
Content Provider Strong Infrastructure

Content Voice/Data Network Many Provider
Provider Application Provider
Network Few
Components
Unattractive Cell Phones Many Attractive
Wireless Device Supply Chain (Horizontal/Modular?)
Software Radio
Vanu Inc. VAR
VAR Sellers
Sellers
Non-Circuit
Non-Circuit Circuit
Circuit Board
Board Application
Application Voice
Voice and/or
and/or
Device
Device
Component
Component Component
Component Developers
Developers Manufacturers Data
Data
Manufacturers Manufacturers Network
Manufacturers Manufacturers
Manufacturers OS
OS &
& AP
AP Network Customers
Customers
Operators
Operators
Upstrea Downstrea
m m
EXAMPLES
• Micropho • DSP • Operator • Cell Phones• Radio Shack • Personal
ne • Microproces System • PDAs • Circuit City use
• Speaker sor • WAP • Smart • Best Buy • Enterprise
• Battery • ROM Chips • iMODE Phones • Sprint Store use
• Dial Pad • Flash • SMS • SIM Pads • Verizon • Public
• Case Memory • Controls Store services
• RF • LANs
COMPANIES
Transceiver
• Sharp • TI • Aether • Nokia • BT, FT,
• Phillips • ADI Systems • Motorola DT N/A
• NEC • Intel • Microsoft • Ericsson • Radio
• Fujitsu • Motorola • Phone.co • Siemens Shack
• Panasoni • National m • Samsung • Sprint
c S. • Sun • Cingular
• NTT Do
Co
Wireless Device Components
Micro-
processor
Phone Flash
Battery Memory
-lithium -SID Chip
iodine
Micropho
ne &
Speaker Digital
Signal
Keypad Processor
and
contacts (J. Gower & S. Constance, MIT & Siemens)
Wireless Network Supply Chain(Vertical/Integral?)
Mercury Computers American Tower
PSTN/Internet
PSTN/Internet Cell
Cell Switching
Switching Base
Base Station
Station Infrastructure Voice
Voice and/or
and/or
Component Component Component Infrastructure Network
Network Data
Component Component Component Providers Data
Manufacturers Providers Operators
Operators
ManufacturersManufacturers
Manufacturers Manufacturers
Manufacturers Customers
Customers
Upstrea Downstrea
m m
EXAMPLES
• WAP Server • Mobile • Antennas • Base Station• Voice & Data • Region Users
• WAP Operators • Radio Assembly Service • National
Gateway Switch Center transceiver • Tower • Services & Users
• PSTN • Packet Control • Channelizer Assembly Features • Global Users
Gateway Unit • Modem • Switching • Billing
• GPRS • Base Station • Transmission Optimization
Gateway Controller Interface
COMPANIES
• Nortel • Nortel • Nortel • Nortel • BT, FT, DT
• Sun • Nokia • Nokia • Nokia • Sprint Voic
• Siemens • Siemens • Siemens • Motorola • Cingular e
• Motorola • Ericsson • Ericsson • Ericsson • Bell South &
• Lucent • Motorola • Motorola • Siemens • NTT Do Co Data
• Lucent • Lucent • Lucent
Wireless Voice Circuit Switch Network Components
Step 1: Step 3: Step 5:

Base Station Mobile Operator’s Public Switch
Base Circuit Switch Voice Public Switched
Controller
Station Network Telephone Network
Converts signal from
Operations Internal network
base station to land
line friendly format supporting voice
services
BSC MSC MO GMSC PSTN

CSVN
Step 2: Step 4:
Mobile Switching Center Gateway Mobile Switching
Keeps track of users and Center
sends them calls when Connects a mobile network to
necessary. the public switched telephone
Includes: Home locator, network and to other
visitor locator, equipment operators with which it has
identity, authentication, roaming agreements
and message center
Wireless Data Packet Network Components
Step 2, 3, or 4: Step 7
Base WAP Gateway
Station Step Serving GPRS Support Node
1: It connects to various Remote access
Operations server for WAP
BSC databases to locate and
Step authenticate traffic. Acts as
2: a router instead of a switch Step 8:
MSC Internet
MO WAP WAP
BSC MSC SGSN GGSN GATE
CSVN Net SERVER
Step 6:
PCU Gateway GPRS Support
Node
Step 1, 2, or 3: Converts data packets to
Packet Control Unit & from GTP to TCP/IP
Needed to adapt base Step 5: Step 9:
station for packet data. Mobile Operator’s WAP Server
Point at which data Packet Switched data Where WAP
departs from a voice network Data is stored
network-GPRS Internal network for
(J. Gower & S. Constance, MIT & Siemens) providing data
Wireless Marketplace (J. Gower & S. Constance, MIT & Siemens)
Wireless Devices Becoming Horizontal & Modular

-Massive adoption of handsets Device Manufacturers
capacity strained as outsourcing
US -Motorola- coordination becomes apparent
Cell Phone Nokia, Motorola,
Siemens, Ericsson,
Abroad Devices -International demand & competition Samsong

Ericsson/Nokia/NTT Devices
-Consumer Expectations Increase
PDA Handspring, Palm,
-Avg. # of Components 550 to 900
1980-85 1999-2001
Compaq, Casio, Sony
SIM Pads Sony, Siemens, Nokia
Smart PhonesKyocera, Ericsson

INTEGRAL PRODUCT MODULAR PRODUCT
VERTICAL INDUSTRY HORIZONTAL INDUSTRY
1985-1990 2005E-2010E 1997-1999 2001-2002E

NICHE Software Radio 2G Digital TECHNICAL
COMPETITOR Emerges Phone ADVANCES
S Shift to
Phone Becomes Outsourcing
Messaging and
Easy to Carry Devices
Data
HIGH- PRESSURE PRESSURE -Flextronics
SUPPLIER
&
DIMENSIONAL TO TO EMSMARKET
COMPLEXITY DIS- INTEGRATE POWER
INTEGRATE
PROPRIETARY
ORGANIZATIONAL
RIGIDITIES 1996-97 2003E SYSTEM
PROFITABILITY
Complexity of phone -US 1996 Telecom Act
-DSP & Flash Chips -Qualcomm liciences Chip Sets for
increases Avg. # of Phone
accelerate as PC Sales
Wireless Infrastructure Still Vertical & Integral

-Network costs focus attention on
US -Motorola, Nortel Spectral Efficiency and Network
Optimization
Abroad Ericsson,Nokia,Siemens -Pressure from Consumer for data
services and from device
1980-90 manufacturers 2001-2005E
to provide faster
data rates
INTEGRAL PRODUCT
AMPRS AT&T & Baby Bells VERTICAL INDUSTRY
BT, FT, Vodaphone, NTT MODULAR PRODUCT
2007E-2010E HORIZONTAL
1990-1995 Convergence of INDUSTRY
-US 1996 Telecom Wireline to TECHNICAL
Act Wireless IP & 3G ADVANCES
NICHE
COMPETITOR
S SUPPLIER
-American Tower, PRESSURE MARKET
ArrayComm TO POWER
HIGH- DIS-
PRESSURE
DIMENSIONAL INTEGRATE PROPRIETARY
COMPLEXITY 1995-2001 TO
SYSTEM
-US 1996 Telecom INTEGRATE PROFITABILITY
Act
ORGANIZATIONAL
-Spectrum Auctions $ 2006E
RIGIDITIES $$$$ ROI cycle shrinks
-2.5-3 G Costs,
-Vender PSTN/Packet
-IP Standardizing Financing Interface
-Demand for data service increases
Mobile Industry Evolution: THE DOUBLE
re HELIX
we moving horizontally and towards modular products?
Sprint, AT&T, Nokia, Ericsson,

Cingular, Motorola,
AT&T & Motorola Voicestream, Siemens, Sanyo,
BT,DT,FT, Panasonic,
INTEGRAL PRODUCT
Cisco, Nortel,
MODULAR PRODUCT
NICHE VERTICAL HORIZONTAL INDUSTRY
COMPETITORS INDUSTRY
TECHNICAL
ADVANCES
AMPRS- GPRS, 3G, IP

Flextronics & EMS
HIGH-QoS
SUPPLIER
DIMENSIONAL
MARKET
COMPLEXITY
POWER
PRESSURE TO PRESSURE TO
ORGANIZATIONAL DIS-INTEGRATE INTEGRATE
SYSTEM
PROFITABILITY
2G-Digital, FCC
PCS Licenses Qualcomms CDMA, W-
CDMA, CDMA 2000

3G System Specification for DSP/Memory[1]
2G Terminal 3G Terminal
System Spec 1998 2002 2002

Memory Size 4 Mb 16 Mb 64 Mb

Radio Channel 30 MIPS 30 MIPS > 200 MIPS
Speech Coding 3-20 MIPS 3-30 MIPS 30 MIPS
Voice Control - 50 MIPS 50 MIPS
Video Coding -- -- > 200 MIPS
Processor 8-16 bit 10 Mhz 16-32 bit ARM
[1] Source: Nokia announcement, Electronics Times, March 12 2001,page 65.
Current Battery Technology -> Power Requirement: < 200-250 mW
Analysis by Sonny Wu, MIT & Nortel

Technology Curves for E2PROM, Java Card and NetCardio[1] Module
Metric E2PROM Java Card NetCardio Module

Memory FLASH Embedded Flash FeRAM
Size 8-30KB 64KB 4-8MB
Access Time 100mSec 100mSec 100 nSec
Energy per 32b write[2] 1µ J 2µ J 1nJ
R/W Cycle 500K 500K 1010
Voltage 5 V 3.0 V 1.5 V
CPU None 8-16 bit ARM/MIPS 32bit ARM
ClockSpeed 5-10 Mhz 50Mhz 100Mhz
Current Cost $0.50 $3-5 $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.

Intelligent Wireless Module®
Subsystem Spec Radio/DSP Encryption FeRAM

Die Size: 10 mm2 50 mm2 100 mm2
Performance: 1000 MIPs 1024 bit RSA 4 MB
Power: 100 mW 100 mW 50 mW
Die Cost: $5
Packaging: $2
Testing: $3
Overhead:[1] $2-$5
Subtotal Cost $12-15 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

Intelligent Wireless Module®
Subsystem Spec Radio/DSP Encryption FeRAM

Die Size: 10 mm2 50 mm2 100 mm2
Performance: 1000 MIPs 1024 bit RSA 4 MB
Power: 100 mW 100 mW 50 mW
Die Cost: $5
Packaging: $2
Testing: $3
Overhead:[1] $2-$5
Subtotal Cost $12-15 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

Mobile Industry Evolution: THE DOUBLE
re HELIX
we moving horizontally and towards modular products?
Sprint, AT&T, Nokia, Ericsson,

Cingular, Motorola,
AT&T & Motorola Voicestream, Siemens, Sanyo,
BT,DT,FT, Panasonic,
Cisco, Nortel,
INTEGRAL MODULAR PRODUCT
NICHE PRODUCT HORIZONTAL INDUSTRY
COMPETITORS VERTICAL
INDUSTRY TECHNICAL
ADVANCES
AMPRS-QoS GPRS, 3G, IP
Flextronics & EMS
HIGH-
SUPPLIER
DIMENSIONAL
MARKET
COMPLEXITY
POWER
PRESSURE TO PRESSURE
ORGANIZATIONAL DIS-INTEGRATE TO
INTEGRATE
SYSTEM
PROFITABILITY
2G-Digital, FCC
PCS Licenses Qualcomms CDMA, W-
CDMA, CDMA 2000
WILL MOBILE INTERNET BRING BACK
VERTICAL INTEGRATION
AND MARKET POWER?
T
T EN
CHOSEN CHOSEN
CHOSEN CHOSEN
CONTENT CONTENT CONTENT CONTENT
CON
RE
t e
i n ’s lm lM
CTU
r T a l
Sp T
N ode
P Te
TRU
iM
RAS
PRIVATE
PRIVATE PRIVATE
INF
PRIVATE NETWORK
NETWORK NETWORK
NETWORK
OR WILL OPEN-ARCHITECTURE
VOICE PORTALS REINVIGORATE
THE HOURGLASS
T SHOPPING, PORTALS, SEARCH,

EN MUSIC, VIDEOS, JOKES, CHAT, EMAIL,
DE B D
T
LL S I EN TO AN
N
;
NT E
PORNOGRAPHY, DATA, ETC.ETC.
LY
CO
S A T EP E T
ER PO IND TUR EN
E
BL
T
D UC N
LA
PE TR CO
E
AI
R
S
TU
LO AS S
AV
W
C
DE IN LLO
Y
U
TR
IP/3G/POTS
A
VE FR
S
IP
A
FR
IV
UN
IN
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 Fiber &
Transmission Wire-
Based
Digital Signal Modem Interface
Network
Processing
WSB architectures are Modular WSB’s might

-integral & proprietary (1) Stimulate new WSB entrants (ala Dell)
Suppliers include: Nortel, Moto, (2) Stimulate standard subsystem suppliers
Ericsson, Siemens, Nokia (3) lower prices to the network operators
Disruptive Modem advances (4) Speed base station performance imp.
(e.g., MUD) can double (5) Increase demand for basestations due
Base Station Capacity to improved price-performance ratios.
Trends in the Standard Adoption

Clockspeed
Networks Spider webs around standards are
becoming sticker
Standards contracting towards a data
solution
Slow Wireless LAN—Death of Home RF
Devices Narrow bandwidth

Convergence vs.towards
moving Broad bandwidth
a single chip
Components are shared among devices
Carriers moving towards outsourcing
Quicker
Middleware The race is on for a operating system standard

 Will the operating system run on all
devices
 Will software radio become the disruptive
Fast! tech.
Wireless Study (J. Gower & S. Constance, MIT & Siemens)
Present Map of Wireless Investment in Standards

1.0 AMPS NAMPS
Networks
G
2.0 CDMA IS-95 TDMA GSM FDMA IDEN PDC
G
2.5 CDMA 2000 GPRS-eGSM EDGE-eTDMA IDEN HSCSD
G
3.0 CDMA 2000 wCDMA
G
LAN Home RF Wi-Fi Bluetooth
Pager Phones PDAs

DSP s
TI-TMS320C54 ESP PalmDSP DSP1609ND
Devices
RAM SRAMs FeRAM SDRAM SDRAM
FLASH NOR-FLASH NAND-FLASH SST-SuperFLASH
Middleware
OS EPOC Palm OS Windows CE MLinux FLEX NMS
AP WAP/WML HTML CDPD iMode 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
Devices convergence
Convergence moving towards a single chip
Narrow bandwidth vs. Broad bandwidth
Components are shared among devices
Carriers moving out of manufacturing
Middleware components
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 Authenti- Distinct Billing,
SIM Sales &
& Radio Switches cation Number Customer
Cards Marketing
Infrastructure Center Series Service
Less
Integrated
MVNO:
MVNO:
- -Does
Doesnot
nothave
haveSpectrum
Spectrum&&Radio
RadioInfrastructure
Infrastructure
- -Needs a host network
Needs a host network
- -Has
Hasatatleast
leastBilling,
Billing,Customer
CustomerService,
Service,Sales
Sales
and Marketing
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

RdmapWL&Clkspd Fine 5 01

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Mapping the Telecom Value Chain:

A Roadmap for Communications Networks

1. Fruit Flies & Temporary

Cisco Finished Product flows direct to

Customer Retailer Distributor Factory Tier 1 Supplier Equipment

Automobile INDUSTRY CLOCKSPEED

ENGINE BODY ELECTRONICS

ISSUE: MOST AUTO FIRMS OPERATE

CORE NEW PROJECTS

Leonard-Barton, Wellsprings of Knowledge

IBM Intel Inside

1. BEWARE OF INTEL INSIDE

2. MAKE/BUY IS NOT ABOUT WHETHER IT IS

Chrysler JCI Inside?

(A. Grove, Intel; and Farrell, Hunter & Saloner, Stanford)

INTEGRAL PRODUCT MODULAR PRODUCT

CABLE & DATA

Customer Retailer Distributor Factory Tier 1 Equipment

Web Site PC Maker Chip maker Equipment

Customers The box The Pipe The Content

2. Value Chain Design & 3-DCE

3. The Contractual Relationship

Recipe, Unit Process

Integral product architectures feature

Integral value-chain architecture

VALUE CHAIN ARCHITECTURE

Automotive Personal Computers

INFORMATION ARCHITECTURE MUST

WORST CAN BEST

DEPENDENT FOR DEPENDENT FOR INDEPENDENT FOR

Fast Slow Fast Slow

Fast Slow Fast Slow Fast Slow

Value chain elements with high customer

Technology primary consideration for strategic

None Capable Many

Non Man None

Model developed by GM Powertrain, PRTM, & Clockspeed, Inc.

Percentage of Knowledge Work Currently Done

Model developed by GM Powertrain, PRTM, & Clockspeed, Inc.

Model developed by GM Powertrain, PRTM, & Clockspeed, Inc.

Technology Value Chain

Underlying Assumption: You have to draw

Fortune Favors the Prepared Firm

1. Benchmark the Fruit Flies DOUBLE HELIX

2. Map your Supply Chain

ain 1. Sourcing: Make/Buy

Benchmarking the eFlies

Free & Open Digital Content:

Identify Vertically Integrated

• innovation through acquisition

Key Elements of the model (continued):

Lower development costs:

Three Secrets to success:

Fiber and Cable-based Networks

“We define a ‘killer technology’ as one that

Year 2005 2008 2011 2014

Disk Drive Dominant Dominant Approx cost per

OC48 Optical network

Examples MUX/ TX/RX TX/RX OADM, Transponder

Core FBGs, Thin-Silicon Silica InP, ?? InP, ??

How many 1 2-5 2-5 5-10 10-XXX

Dr. Yanming Liu, MIT & Corning