This paper introduces the notion of industry clockspeed to classify industries by an aspect of their dynamic characteristics. The clockspeed framework suggests a dynamic theory of the firm where the "inner core" competency of an organization is the ability to continually design and assemble of chains of competencies to deliver value to the marketplace.
Just as the manufacturing management community discovered in the past decade the enormous power of the product design activity for leverage in improving product manufacturing performance, the viewpoint here is that thorough consideration of supply chain design can reap enormous advantages for the activities undertaken in supply chain management.
If an industry has a clockspeed, how might one measure it? Let me suggest several submetrics: process technology clockspeed measured by capital equipment obsolescence rates; product technology clockspeed measured by rates of new product introduction or intervals between new product generations; organizational clockspeed measured by rates of change in organizational structures; and "other asset" clockspeeds.
In process technology clockspeed, consider the semiconductor industry as compared to automobiles. A firm such as Intel sinks approximately a billion dollars into a wafer fabrication plant and expects that plant to be essentially obsolete in four years. If they don't get their money out in that time, they will not have the capital to build the next generation of plants. In comparison, a billion dollar engine or auto assembly plant for Ford will be expected to earn significant cash flow twenty years from now. Furthermore, Ford operates very productive twentyyear-old plants with twenty-year-old equipment. Intel has no such relics in its portfolio. Neither Intel nor Ford is necessarily sub-optimizing in this comparison, they merely operate in industries with different process technology clockspeeds.
Two further complexities of measuring clockspeed must also be addressed. First, aside from measuring an industry's mean clockspeed, one must consider its variance. Sturgeon (1996?) has observed that both the semiconductor and the circuit board industries are reasonably fast clockspeed, but that microprocessor development has followed a low variance path as predicted by Moore's law, whereas circuit boards were slow-moving until the advent of surface mount technology, which represented a burst of improvement in the technology. Second, industry clockspeed may not be stationary in all (or any) industries. In particular, life cycle effects may exist. One could imagine an industry pattern whereby early bursts of technological discovery generate a fast pace which slows down as the industry matures. Alternately, a slow-moving industry could be hit with an innovation or an increased level of competition which drives the clockspeed up.
First, clockspeed provides an alternative perspective from which to classify industries. Although a number of industry classification constructs exist, e.g., by capital intensiveness or by concentration ratio, the clockspeed concept suggests a classification that explicitly recognizes the dynamic nature of industry and technology, providing the potential to refine industry-level and inter-industry understanding of Schumpeterian dynamics.
This paper extends that argument to suggest that the capability of ongoing concurrent design of products, processes, and the intra- and inter-organizational network of competencies required to deliver value to the marketplace is perhaps THE meta-core (or inner-core) competency above all others. Especially in a fast-clockspeed environment, this ability to develop continually a series of temporary competitive advantages, may be the essence of the firm in a dynamic world. A more dynamic theory of the firm would therefore view a firm as the capability to design and assemble assets, organizations, skill sets, and competencies for a series of temporary competitive advantages, rather than a set of activities held together by low transactions costs, for example.