Excellence in Communicating Organizational Strategy SUNY Series in International Management Andrezj Kozminski, Patricia Sanders, and Sarah Sanderson King, editors Excellence in Communicating Organizational Strategy Edited by Donald P. Cushman and Sarah Sanderson King STATE UNIVERSITY OF NEW YORK PRESS Published by State University of New York Press, Albany © 2001 State University of New York All rights reserved Printed in the United States of America No part of this book may be used or reproduced in any manner whatsoever without written permission. No part of this book may be stored in a retrieval system or transmitted in any form or by any means including electronic, electrostatic, magnetic tape, mechanical, photocopying, recording, or otherwise without the prior permission in writing of the publisher. For information, address the State University of New York Press, 90 State Street, Suite 700, Albany, NY 12207 Production by Marilyn P. Semerad Marketing by Anne M. Valentine Library of Congress Cataloging-in-Publication Data Excellence in communicating organizational strategy / edited by Donald P. Cushman and Sarah Sanderson King. p. cm. Includes index. ISBN 0-7914-5033-3 (alk. paper) — ISBN 0-7914-5034-1 (pbk. : alk. paper) 1. Business communication. 2. Industrial management. I. Cushman, Donald P. II. King, Sarah Sanderson, 1932– HF5718.E96 2001 658.4'5—dc21 00-046419 CIP 10 9 8 7 6 5 4 3 2 1 To our brothers, sister, and in-laws: Albert and Olga Police Anthony Police Floyd Police Sam and Patricia Police Donna and Gene Hopper, with whom we have shared many interesting discussions about achieving excellence. And to the memory of those who could not be with us today to argue their points— Fred, Jimmy, Frank, John, Rosella, Kay, Henry Joe, Esther, and June vii Contents 1. Excellence in Communicating Organizational Strategy: An Introduction Donald P. Cushman and Sarah Sanderson King 1 2. Stimulating and Integrating the Development of Organizational Communication through High-Speed Management Donald P. Cushman 11 3. Killer Strategies for Competitiveness: The Case at Microsoft Donald P. Cushman and Sarah Sanderson King 27 4. High-Speed Management Strategies for Competitiveness: The E-land, a Korean Multinational Yong-Chan Kim 57 5. Intersections between Crisis and Management: A Case Study B. Thomas Florence and Branislav Kovačić 81 6. Excellence in Communication During a Crisis: The Case of Indian Point 3 Nuclear Power Plant Joseph T. Pillittere II 91 7. R&D and Marketing Strategy for Cross-Cultural Cooperation: A Cross-Pacific Study between China and the U.S. Yanan Ju 109 8. Strategies for Survival in the Global Marketplace: A Study of the Australian Pharmaceutical Industry Robyn Johnston 121 9. Beyond Benchmarking Institutional Advancement: Jump-Start to Fund-raising Excellence Rod Miller 139 10. Intuition and Metacommunication Strategies in Times of Change Ernest F. Martin Jr. 163 11. The Strategic Impact of Affect on Decision-Making John Penhallurick 187 12. Training Strategies for Excellence: Selecting the Appropriate Models for the Specific Task Susanne R. Morris and Robert C. Morris 205 13. Strategies of Leadership Excellence for Corporate Survival Richard J. Dieker 221 14. A Summary and Conclusion to Excellence in Communicating Organizational Strategy Donald P. Cushman and Sarah Sanderson King 251 List of Contributors 255 Index 261 1 1 Excellence in Communicating Organizational Strategy: An Introduction Donald P. Cushman and Sarah Sanderson King Organizations have goals or desired ends they want to achieve. Simi- larly, organizations have strategies or preferred means for achieving those goals. In addition, organizations utilize implementing structures or special organizational processes aimed at guaranteeing that their preferred strategies are in fact undertaken in the appropriate ways in order to achieve their desired ends. This book seeks to shed new light on the communication strategies involved in those processes by providing fourteen chapters that examine, analyze, and execute the communication strategies involved in organizational performance. For example, at the General Electric Corporation, Jack Welch in the mid-1980s, articulated GE’s organizational goals as (1) to become the most competitive and (2) to become the most highly valued firm in the world. GE’s communication strategies or preferred means for achieving these goals were (1) to become the most profitable and (2) to become the most valued firm in the world. GE’s implementing structures for guaranteeing that the preferred communication strat- egies were in fact undertaken were (1) to hold and invest in only high-growth businesses in which GE could become number 1 or 2 in market shares in the world and (2) to put in place a continuous improvement program called “workout” which could improve GE’s performance by reducing costs and increasing margins, quality, and speed to market in order to become the low-cost high-quality pro- vider of products and services for GE’s customers (Cushman and King 1997). Organizations that function in this manner rely heavily on a strategy of employing effective communication in order to integrate, coordinate, and control the information flow to all of an organization’s stakeholders, employees, suppliers, investors, and customers. For example, in order to guarantee excellence in its communication strat- egy, GE put in place three new implementing structures. First, Welch revamped GE’s organizational culture in order to make employees more self-reliant, rapid in response, and change-oriented. Second, Welch developed a world-class education and reeducation system headed by GE’s management training center at Croutenville, New York. Third, he restructured GE’s monitoring and reward system to make it more performance, team, and change-oriented (Cushman and King 1997). Excellence in communicating an organization’s strat- egy results, according to Jack Welch, from a persistent effort over time to clearly articulate a firm’s goals and strategies and a leader’s passion in monitoring and evaluating the effectiveness of a firm’s implementing structures (Welch 1992). Between the mid-1980s and 2000, GE’s profits rose from 32nd to first in the world at $10.7 billion, and its stockholder value rose from 45th to first in the world at $480 billion (Palm Beach Post). It will be the purpose of this collection of essays to explore in some detail the theoretic, strategic, and practical linkages for creating excellence in communicating a firm’s strategy. This chapter provides an overview or road map of the contributions in this volume, their focuses, major claims, and the data supporting those claims. Chapter 2 in this book contains an award-winning piece en- titled “Stimulating and Integrating the Development of Organizational Communication Through High-Speed Management.” Its author Donald Cushman attempts to articulate a general theory of communication called High-Speed Management which can serve as an organizing principle capable of integrating all communication research. Such an integrative theory, according to Cushman, must meet three specific criteria. First, it must have generality, be simple enough to apply to the wide range of organizational communication activities. Second, it must have necessity or account for the driving force in these com- munication activities. Third, such a theory must have explicative power, must explain what governs and guides organizational com- munication processes. Cushman then attempts to articulate just such a theory, the theory of High-Speed Management. This theory rests on two simple proposi- tions: First, reducing the cycle time an organization takes in getting its product and/or services to customers yields significant organizational outcomes. Decreasing organizational cycle time yields increases in pro- ductivity, quality, profits, market shares, management and worker com- mitment, and customer satisfaction with an organization’s products and services. Second, improving an organization’s communication pro- cesses is the central ingredient necessary for reducing organizational cycle time. Reducing communication bottlenecks, standardizing infor- mation transfer, and appropriate adaptation to and speed of communi- cation response are the central outputs that lead to decreasing an organization’s cycle time. Next Cushman discusses the implementing structures for lo- cating communication problems and then generating solutions to those problems by utilizing (1) environmental scanning, (2) value chain analysis, and (3) continuous improvement. An example of the use of these three tools is providing by analyzing communications within the General Motors Corporation. Next, data is provided on how improved communication effectiveness leads to reduced cycle time and the positive outcomes previously listed. Finally, a review of the literature on High-Speed Management is summarized to indicate how this theory can and has stimulated and integrated research in organizational communication. In 1998, this essay was selected as a finalist by the Arizona State University in a contest for developing an original communication theory capable of stimulating and integrating organizational communication research. Chapter 3 of this collection is by Donald P. Cushman and Sarah S. King on “Killer Strategies for Competitiveness: The Case of Microsoft.” Here they analyze what many consider to be the most competitive firm in modern times. Cushman and King begin by pro- viding a conceptualization of sustainable competitive advantage rooted in customer demand, a firm’s core competencies, and a breakpoint in product development. Next, they report the results of a large study which locates the most successful strategies employed by multinationals who achieve sustainable competitive advantage. These were (1) locating a domestic product niche with limited ex- ports, (2) exporting high-quality politically supported products, (3) exporting high-quality innovative products, and (4) exporting con- tinuously improved business processes. Attention is then turned to analyzing Microsoft’s unique suc- cess in the software industry. Bill Gates, Microsoft’s CEO, articulated an organizational goal of pioneering and orchestrating the evolution of mass markets within the computer software industry. Next, he put forward five business strategies for achieving those goals. These involved (1) developing new products, (2) continuously improving old products, (3) pushing volume sales, (4) leveraging industrial standards, and (5) integrating and simplifying products. Finally, Gates introduced four killer implementing strategies for employing com- munication excellence to guarantee the fulfillment of those strate- gies in a manner which shut out Microsoft’s competitors: (1) the use of Microsoft’s unique brand of teamwork to insure effective product development and continuous improvement; (2) the setting of indus- try standards through product development, acquisitions, and alli- ances; (3) the volume marketing through competitive pricing, exclusive contracting, and software bundling; and (4) the leveraging of standards to limit competitor sales. Finally, Cushman and King demonstrate how Microsoft em- ployed its goals, strategies, and implementing structures to gain control of the five gateways for gaining access to the Internet. In so doing they observe how Bill Gates was able to respond to an indus- trial breakpoint, the rise of the Internet, by turning Microsoft’s focus on PC software to Internet software in just six months while shutting out his competitors in controlling access to the five Internet gate- ways. Microsoft’s speed, effectiveness, and dominance of this indus- trial breakpoint relative to its competitors is a theoretic, strategic, and practical move worthy of careful study. The use of goals, strat- egies, and implementing structures is different from those employed by GE and may in terms of outcomes be more effective. In 1987 Microsoft earned more profits from less sales than any major firm in the world while moving into the top five behind GE in global stock- holder value (Fortune). In chapter 4, Yong-Chan Kim analyzes High-Speed Management Strategies for Competitiveness: E-land, a Korean Multinational. Here Kim provides a communication audit which reveals how a well- developed corporate culture can link communication to organiza- tional outcomes in a powerful and productive manner. The E-land Corporation, a Korean-based multinational conglomerate in clothing and construction, developed a unique corporate culture based on (1) Christian principles, (2) a youth movement, (3) male and female management equality, and (4) a learning organization which pro- vided E-land with a sustainable competitive advantage. The focus on Christian principles avoided the pitfalls or corruption which now plagues most Korean firms. Hiring competent male and female col- lege graduates allowed E-land to strengthen its management team in an area where competition for male graduates created a competitive shortage. Emphasizing a youth movement in which progress from line to top management took half the time of most Korean firms made the organization attractive to competent young graduates, while creating a learning environment which, in turn, created a collegiate spirit in the firm. The implementing structures for linking communi- cation to these values are traditional, but the outcomes, unique. The growth and performance of E-land speaks for itself: sales rose from $500,000 to $1.5 million in just three years. In addition E-land has become one of the most preferred firms for work by new college graduates in Korea. E-land’s goals, strategies, and implementing struc- tures may become the model for leading Korean and Asian firms out of their current economic crises rooted in organizational and gov- ernmental corruption while energizing Asian youth. Thomas Florence and Branislav Kovačić in chapter 5 address the issues involved in the “Intersections Between Crises and Man- agement.” The authors begin by constructing a crisis management model based upon Lester Thurow’s (1996) metaphor involving (1) plate tectonics and (2) punctuated equilibrium as central concepts in understanding chaotic activity. Organizational crises, like earth- quakes, cannot be understood in terms of their visible manifesta- tions. Instead, one must look below the surface of the frictions caused by its plate tectonics. In organizational crises a friction develops between (1) organizational ideology, (2) economic stability, (3) cul- tural business practices, (4) the legal implications of corporate ac- tivities, and (5) government intervention. These organizational tectonic plates floating in the molten lava of the mass media rub against each other creating faultlines or public disputes such as (1) labor/management, (2) environmental concerns, (3) competitive alliances, (4) legal issues, (5) income, (6) safety net, and (7) global economic disasters. These disputes surface in and are influenced by the mass media. Such disputes are dynamic and feature a process of punctuated equilibrium which offers openings for the constructive resolution to the conflict. A discussion is then provided of several types of equilibrium and disequilibrium and the types of message strategies appropriate to constructive solutions in each. Issues re- garding risk management, public anger, goal management, crisis stages, responses to attacks, and the implementing structures in terms of message design are analyzed. Chapter 6 by Joseph Pillittere II extends our understanding of excellence in communication strategy during a crisis when he ex- plores “Excellence in Communication During a Crisis: The Case of the Indian Point 3 Nuclear Power Plant.” Pillittere argues that action must establish credibility and build trust before, during, and after a crisis or perceived crisis. This is best accomplished by (1) having a crisis management plan in place and practicing it, (2) responding quickly to all inquiries, (3) being truthful, (4) listening carefully with an open mind to a firm’s stakeholders, (5) employing simple lan- guage with visuals and with prepared messages where possible, (6) if you don’t know the answer, saying so, and then finding out and responding, and (7) when possible, distributing in printed form news releases to all stakeholders. Next Pillittere provides a case study of the effective use of these principles in a perceived crisis by segments of the press in regard to a repair being made at the Indian Point 3 Nuclear Reactor in upstate New York. In the case study a potential crisis with the press was prevented by establishing credibility and trust with local officials, the press, and community leaders. While maintenance was being performed on a reactor, an accident occurred which had no harmful effects. By treating the accident as a potential crisis and keeping its stakeholders clear on what was going on, the nuclear plant prevented a perceived crisis when one newspaper provided misinformation on the problem. When other journalist sources spoke with the government, community leaders, other journalists, and the public, the convergence of these sources provided collaboration for the noncrisis event. Chapter 7 by Yanan Ju addresses “R&D and Marketing Strategy for Cross-Cultural Cooperation: A Cross-Pacific Study between China and the U.S.” Ju begins by asserting that in today’s global economy with fax machines, telephones, and E-mail, the U.S. and China are seconds apart in electronic communication. However, they are hours, days, and months apart in understanding the content of communi- cation due to massive cultural differences. To support his claim he examines communication between two firms—Company A (a U.S. firm) and Company B (a Chinese firm) who formed a joint venture to produce electric motor bikes. He explores the differences in terms of tasks, ways of working, and means of communication coordina- tion aimed at developing a value-added relationship between firms. At the task level, Company A handled the R&D while Company B handled manufacturing and marketing. The U.S. firm designed a 50cc small bike for sale in China. However, the cost of nickel-metal-hydride batteries was such that the Chinese firm wanted a 125cc bike which could carry passengers. Company A, not understanding Chinese culture, believed it had designed a low-cost bike by U.S. standards. Company B found the basic costs in developing a 50cc and 125cc bike about the same with the Chinese market viewing the costs as high. So unless the bike could be used to carry people or haul heavy loads, it would not sell. At the work level of coordination even more problems devel- oped. In the U.S. we have a capitalist economy and great respect for the law. In China they have a socialist economy governed by quanxi, the giving of financial rewards for favors. In a socialist economy, the communist party is like a mother-in-law. Without the mother-in-law’s endorsement, nothing happens, and when it does happen, it follows the preference of the mother-in-law involved. Quanxi is a web of blood and social relationships that only works to support ‘buddies” who reciprocate favors. In China when people first meet they are strangers; when they meet again, they are acquaintances; by the third meeting they have the potential to become buddies when they reciprocate support. U.S. firms have difficulty understanding this system. They rely on profits and legal contracts. These are not con- sidered important in China. Profits are necessary but only if distrib- uted appropriately among an established network of buddies who reciprocate rewards. In addition, in China oral commitments among buddies are much more important than mere legal documents. In China, the law is easy to change; buddies are not. At a communication level, understanding is rooted in nonverbal face-to-face communicating among buddies over a meal. In the U.S. it is rooted in verbal agreements among firms that are put in writing. Ju argues that time and trial and error are substantially slowing joint ventures between the U.S. and China. He argues for a more careful study of cultural differences to speed up the understanding process and any increase in the value-added coordination to generate profits and mutual respect. Chapter 8 by Robyn Johnston explores “Strategies for Survival in the Global Marketplace: A Study of the Australian Pharmaceutical Industry.” Johnston explores three national strategies employed in Australia to raise a nation’s competitive edge in the global economy. First, between 1986 and 1996, the Australian government entered into negotiation with the Australian Council of Trade Unions to lib- eralize union agreements. These liberalizations included that a por- tion of wages was to be determined by local performance and awarded at the enterprise level. Work rules were also localized. These included flexible work hours, shift loads, paid holidays, annual leave, and the potential for work on any day of the week. In addition, rigid job specifications were eliminated and work teams allowed. Second, the role of manager changed in this same time from monitoring and control to coaching and facilitating organizational improvement. Skills in communication and motivation were increasingly considered central factors in upward mobility. Skills development for managers became necessary for advancement, particularly skills in visioning, strategizing, continuous improvement, and entrepreneurship. Third, the nation’s educational systems and firm’s training system were focused on developing learning organizations. The nation’s voca- tional education and compulsory postsecondary school educational systems became more skills-oriented. Unions began to require firms to train and retrain workers as part of the contract. Nation-wide standards were established for certification of successful skills train- ing. Training agendas were established in labor contracts, and in- creases in pay were tied to increased skills attainment. Finally, the author traces out how these strategies helped the firms in the phar- maceutical market industry expand Australia’s global performances in this industry. Chapter 9 by Rod Miller entitled “Beyond Benchmarking for Institutional Achievement: Jump-Start to Fund-Raising Excellence” explores the strategies employed to unite a board of directors, the CEO, and a professional development staff of a major Australian university in setting targets, developing fund-raising strategies, and putting in place implementing structures following a benchmarking study of the most successful universities in the world of fund-raising. Strategic targets were set; partnerships were formed with 200 lead- ing organizations in the community, and 500 prominent individuals were selected as prospects for contributions. The activities of the board members and staff in mounting a significant fund-raising ef- fort are then detailed and preliminary results given. Ernest Martin in chapter 10 addresses the issues involved in “Intuition and Metacommunication Strategies in Times of Change.” The author argues that in times of rapid change successful manag- ers develop highly profitable hunches or intuitions which account for their firm’s success. Martin then explores how and why produc- tive intuitions are separated from human folly through positive and negative feedback, self-realization, and ethics. Integrity, courage, and ethics are then explored as the personal characteristics behind a firm’s vision, values, and action. Next, he expands our conception of effective communication by demonstrating how intuition provides the basis for metacommunication effectiveness. Metacommunication involves energy, a variety of frequency domains, and a multidimen- sional holographic model of nonverbal communication interpreta- tions. Awareness of these intuitional bases of metacommunication is a refinable skill, a skill which can be developed through training and which provides the energy, motivation, and interpretative processes that underpin an organization’s vision, values, and actions. Chapter 11 by John Penhallurick explores “The Strategic Im- pact of Affect on Decision-Making.” Here the author reviews the lit- erature on emotion and its effect on organizational decision-making processes. Emotion is viewed as a type of intelligence when ap- praised and expressed properly under controlled perimeters which focus on flexible planning, creative thinking, motivation, and redi- recting attention to key problem areas. The often overlooked con- structive case for the use of emotion to enhance organizational performance is then put forward. Susanne and Robert Morris in chapter 12 explore “Training Strategies for Excellence: Selecting the Appropriate Models for the Specific Task.” Two critical variables are analyzed, namely, a firm’s needs and the time the firm has to learn and implement the training to support those needs. A firm’s needs are divided into two levels— known and unknown needs. Time is divided into two levels—uncon- strained and constrained. Four models for training are then explored to meet a firm’s specific needs and time frame: (1) a general compe- tency model is developed for firms with unknown needs and an unconstrained time frame; (2) a packaged/handbook strategy is developed for firms with unknown needs and a constrained time frame; (3) a professional/specialist model, for known needs and constrained time frame; and finally, (4) a just-in-time model, for known needs and a constrained time frame. Characteristics and examples are then put forward to illustrate the use of each training strategy and the implementing structures involved in each model. Chapter 13 by Richard Dieker, “Strategies of Leadership Excel- lence for Corporate Survival,” explores the need for a transformation from current need deficiency leadership strategies, which are not working, to transcendental leadership strategies. Harmful effects of deficiency need leadership include aggressive, fearful, or defensive behavior; lack of foresight or vision; an inability to delegate; an inabil- ity to take unpopular actions when needed; and damaging motivation by taking personal recognition for others’ accomplishments. Tran- scendental leadership focuses on the development of vision in four major areas: the organization and its mission; the realization of great- ness in the members of the organization; continuous monitoring and development of the self as a leader; and finally, the ability to translate this vision into appropriate leadership behavior. Dieker then discusses developing the skills necessary for transcendental leadership by indicating the appropriate implementing strategies leaders must em- ploy to become such a leader. A checklist inventory for measuring progress in developing these skills is provided. Chapter 14 by Cushman and King provides a conclusion to this collection by abstracting from each of the chapters the central les- son and implications for achieving “Excellence in Communicating Organizational Strategy.” We hope this brief map for exploring the rich and insightful chap- ters in this book will whet the reader’s appetite for what can only be described as the gourmet main course you will find as you read on. References Cushman, D. and King. S. S. (1997). Continuously Improving an Organization’s Performance. Albany: SUNY Press, 42–43. Fortune (April 28, 1988). The Fortune 500, F7. Palm Beach Post (January 20, 2000). Jack Welch, Leader of the Century, D1. Thurow, Lester C. (1996). The Future of Capitalism: How Today’s Economic Forces Shape Tomorrow’s World. New York: William Morrow. Welch, J. (March 15, 1992). Statement in the Award Report. Quoted in “A Balance Between Values and Numbers,” New York Times, D1. 11 2 Stimulating and Integrating the Development of Organizational Communication through High-Speed Management Donald P. Cushman What idea or theory has the greatest potential to stimulate and integrate the development of organizational communication? This chapter seeks to answer this question by dividing the issues into three parts: First, we shall explore the criteria and operations by which one can judge an idea or theory’s potential to stimulate and integrate the development of organizational communication. Second, we present one such theory for consideration, the High-Speed Man- agement theory of organizational communication. Third, we shall investigate the evidence available that this theory has the potential to stimulate and integrate organizational communication. Criteria and Operations for Judging an Idea or Theory’s Potential to Stimulate and Integrate Organizational Communication At least three criteria appear in evaluating such proposed ideas and/or theories. First, and idea or theory must have generality. It must be simple enough to apply to a wide range of organizational communication activities in the private, public, and not-for-profit sectors of organizational communication behaviors. Second, an idea or theory must have necessity. It must utilize a normative system or belief which can govern and guide the communication activities of all organizational stakeholders, be they investors, voters, contribu- tors, leaders, managers, workers, suppliers, customers, or clients. Third, an idea or theory must have power. It must govern and guide (Arizona State Award Winning Essay) the central communication activities of organizations, namely, their (a) organizational integration processes, or the communication ac- tivities involved in leadership, establishing a positive corporate cli- mate, and utilizing effective teamwork; (b) organizational coordination processes or the communication involved within and between orga- nizational units as well as the interactions between stakeholders; and (c) organizational control processes or the monitoring, evalua- tion, and adjustment to organizational performance. At least three operationalizations are necessary for employing the above criteria. First, we must examine the assumptions that un- derlie the idea or theory to make sure they are active in organiza- tional stakeholders’ thinking and behaviors. Second, we must examine the central constructs and relationships between the constructs to make sure they are conceptually and operationally distinct and yield clear and strong observable outcomes. Third, we must examine the implementing structures such ideas or theories suggest to be sure they generate the desired communication and limit undesirable outcomes. High-Speed Management Theory of Organizational Communication The time it takes to perform an organizational activity, function, or process has become an important measure of that organization’s effectiveness. In private-sector organizations, a firm’s speed in get- ting a product or service to market is the chief determinant of or- ganizational success (Fraker, 1984; Stalk, 1988). In the public sector, the time it takes candidates to develop an agenda or image, the time it takes to pass legislation, and the time it takes to deliver a public service to a client have become the chief determinants of a candi- date’s, legislature’s, or agency’s effectiveness (Cullin and Cushman, 2000). In the not-for-profit sector the time it takes to raise funds and the time it takes to deliver services have become the chief measure of organizational effectiveness (Miller, 2000). Time has become an important measure of an organization’s effectiveness because of its ease of use, its relative lack of bias, and its predictability of other desirable organizational outcomes (Fraker, 1984). Over the past several years, Drs. Donald P. Cushman and Sarah S. King and associates have developed the theory of High-Speed Management in Organizational Communication as one means for stimulating and integrating all the available theory and research on organizational communication. This effort has been summarized in over thirteen authored and edited books and in over fifty journal articles or chapters in books (see the later section, “An Investiga- tion of the Evidence Available that High-Speed Management Theory Has the Potential to Simulate and Integrate Organizational Manage- ment,” and the bibliography for documentation). This theory is grounded in two apparently well-supported propositions. First, reducing the cycle time an organization takes for getting its products and/or services to customers, clients, voters, and aid recipi- ents yields significant organizational outcomes. Decreasing organiza- tional cycle time yields increases in productivity, quality, profits, market shares, and management and worker commitment and cus- tomer, client, voter, and aid recipient satisfaction with that organiza- tion (Dumaine, 1984; Ruffin, 1992; Vesey, 1991; Stalk, 1988). For example GE reduced the time it took to deliver a washer or dryer to market from three weeks to three days saving millions of dollars in costs and increasing productivity, quality, and customer satisfaction (Ruffin, 1992). Recent surveys conducted by Kaiser and Associates and McKinsey and Company of 50 and 150 multinational corpora- tions located in the U.S., Europe, and Asia found that all listed time- based communication strategies as their top priority for improving organizational performance (Cushman and King, 1994a and 1994b). Why? Because speed of response tends to provide order of magni- tude improvement in productivity, quality, and profits and worker, management, and customer satisfaction (Dumaine, 1984; Ruffin, 1992; Vesey, 1991). Second, improving a firm’s organizational communication processes is the central ingredient necessary for reducing organizational cycle time. Removing communication bottlenecks, standardizing informa- tion transfer, developing rapid response systems, improving commu- nication quality, and adaptations to customers, clients, voters, contributors, and aid recipients are the central outputs that lead to decreasing organizational cycle time. The research supporting this assumption has been integrated and presented along with actual case studies of private-sector organizations in Cushman and King (1995e). They synthesize the literature on communication and leadership, corporate climate, teamwork, R&D and marketing, manufacturing, Management Information Systems, and MIS interfaces as well as per- formance monitoring and evaluation. In the public sector Cullin and Cushman (2000) provide an integration of the communication research in this area. They synthesize the communication research across dis- ciplines on agenda setting, image building, campaigns, legislative pro- cesses, and the delivery of governmental services to aid recipients by agencies. For example, Jack Welch, GE’s CEO between 1989 and 2001, reengineered all the firm’s organizational integration, coordination, and control processes so as to reduce cycle time in delivering prod- uct and/or services to market. The first reengineering effort was a quick market intelligence system designed to link customer and competitor intelligence with GE decision makers. Monday through Thursday, issues were generated by GE’s sales force regarding cus- tomer needs, competitor moves, problems in products and service delivery and quality. On Thursday the manager who had responsi- bility for each issue made a decision aimed at resolving the issues raised. On Friday, via Internet linkage, the decision maker spoke with the person who raised the issue to see if the solution was satisfactory. If the decision was not satisfactory, the manager ad- justed the decision. Similar communication systems were set up to respond to worker problems and suggestions, to manager need for support, and to diffuse successful improvements in communication processes throughout the organization. These new improved com- munication systems were estimated to have saved GE $500 million a year while improving GE’s productivity, quality, and customer, worker, and manager satisfaction with the organization (Donion, 1993:6). Similar results can be found for both large and small orga- nizations in the public, private, and not-for-profit sectors (Cushman and King, 1988a, 1988b; King and Cushman, 1998, 1991, 1994a, 1994b, 1995d, 1997a; Cushman, 2000). Having explored briefly some of the evidence which underpins High-Speed Management’s two basic assumptions, we are now in a position to examine the theory itself. High-Speed Management Theory High-Speed Management employs three analytic systems in order to determine what changes must be made in an organization’s commu- nication systems, and its integration, coordination, and control pro- cesses, in order to reduce that firm’s cycle time to the satisfaction of its stakeholders. Let us explore High-Speed Management’s three analytic systems: (a) environmental scanning, (b) value chain analy- sis, and (c) continuous improvement analysis in turn. Environmental Scanning. Each organization has customers, clients, voter, and/or contributors who must select their products and/or services if that organization is to succeed. Each organization be it private, public, or not-for-profit has competitors or organizations that can provide similar products or services. An audience analysis is required in order to determine the appropriate way of communi- cating with these customers, clients, voters, and/or contributors effectively. Two concepts are necessary for understanding environ- mental scanning: competitive dynamics and core competencies. The competitive dynamics for a product or service are the weighted dimensions along which the customer, client, voter, and contributor chose to exercise their options to act. For example, in 1997, survey and focus group research indicated that in the pur- chasing of a midsized car, a customer’s choice to act was influenced 70% by styling, 20% by brand name, and 10% by quality and perfor- mance (compiled from various reports in Automotive News, 1997 and 1998). Thus organizations that are to be effective must be pre- pared to communicate with customers in terms of these choices in an ethical manner (Cushman and King, 1995b; Nicotera and Cushman, 1982). The core competencies for a product or service consist in the customer, client, voter, and/or contributor perceptions of which organizations can best provide the attributes located in the com- petitor dynamic. For example, in 1997, the customers who purchased cars thought that Toyota, Honda, and Ford were equally competent in styling: Toyota and Honda were equal in brand name and price; and Toyota was competent in performance. Customers thus turned to these organizations to purchase cars. In short, an environmental scanning analysis can be provided for customers, clients, voter, and contributors of any organization, be it public, private, and not-for-profit. Value Chain Analysis. Once an organization has an understanding of its customers, clients, voters, and/or contributors and competi- tive dynamics and core competencies, it is ready to perform an analysis of its own and its competitors’ value chain. Such an analy- sis allows us to locate where to begin improving an organization’s communication processes. For example, Figure 2.1 and Tables 2.1 and 2.2 contain a value chain analysis of GM and Ford Motors operations in 1997. These data were gathered from financial reports, survey research, and process mapping reports from each firm. Figure 2.1 also contains a chart of GM and Ford’s business processes and the cycle time re- quired to complete each process. Note the dramatic time disparity between GM and Ford in product development. This means that Ford can produce two new vehicle models adjusted to customer preferences in the time that GM produces one new model. So at- tempts to improve GM’s performance must begin here. In addition product development is the central process involved in intersecting the key attributes of the customers competitive dynamics. Figure 2.1 Business Process Level: Time Product Development Product Delivery Customer Service and Management Communication Time for Business Processes Example: Value Chain to Bring a New Vehicle to Market Product Product Customer Company Development Delivery Service GM 3.5 years 9 months 3 months Ford 1.5 years 4 months 3 months Table 2.1 contains the central outcomes or performance mea- sures that follow from GM and Ford’s cycle time data in regard to productivity, profit, and customer satisfaction. Note GM’s shrinking market shares between 1980 and 1998. Each 1% drop in market shares is 100,000 cars in the U.S. market or one factory per year is no longer needed. Also note Ford’s superiority in productivity, factory utilization, profits, and labor costs. This suggests the need for a close study of Ford’s integration, coordination, and control commu- nication processes involved in the product development process if GM is to halt its declining market shares. Table 2.2 contains a map of the communication strategies employed by GM and Ford in the R&D and marketing coordination process. Note how Ford’s integration, coordination, and control process takes less time. This is because the use of product develop- ment teams weighted in favor of customers, guaranteeing that the competitive dynamics and core competencies govern the product development process and this creates customer satisfaction. Table 2.1 High Speech Management Outcome Data for Auto Market 1997 GM FORD % Market Shares 1980 Worldwide 45 20 % Market Shares 1998 Worldwide 31 24 Vehicles Sold Worldwide (millions) 8.7 6.9 Vehicles Sold U.S. (millions) 4.7 3.8 Revenues Worldwide (billions US$) 178 154 Profits Worldwide (billions US$) 6.7 6.9 Factory Utilization (%) Worldwide 60 80 Profits per Car (U.S.) US$ –$105 $1,500 Productivity Unit Output per Worker (U.S.) 27 45 Productivity Increases over 1996 (%) U.S. 4.0 8.2 Labor Cost per Car (US$) $2,558 $1,500 Administration and Sales Cost as % of Sales 8.2 5.6 Source: Morgan Stanley 1998, Reported in Kerwin, 1998. Table 2.2 Process Mapping of R&D/Marketing Interface, 1997 TASK GM FORD Strategy Technology-based Balanced R&D Role Dominant Balanced Marketing Role Limited Balanced Customer Role Limited Dominant Form Division meetings Production development team Interactions Sequential Coexistence Topic Focus Engineering Customer satisfaction Timing 6 meetings per year Constant interaction 1.5 years for 3.5 years Source: Project Mapping Teams. Once again a value chain analysis can be performed on any public-sector, private-sector, or not-for-profit organization employing process mapping and communication audits to locate the most ap- propriate areas for communication improvement. We are now in a position to reengineer the communication process involved in the R&D and marketing interface at GM through continuous improvement. Continuous Improvement Applications. Improving an organization’s basic communication process, the communication involved in orga- nization integration, coordination, and control, normally proceeds in two steps and involves one of several continuous improvement processes. First, one must locate the data on the best way to restructure the processes involved. Such data can come from three sources: a review of the literature, training by a consultant who has restruc- tured such processes before, or benchmarking an organization that performs this communication process well. Second, one must design an intervention and implement it through one of two continuous improvement implementing processes—either management-driven contract management or worker-driven self- managed, cross-functional benchmarking or outside linking teamwork. A review of the communication research on effective R&D and marketing intervention is contained in Table 2.3. A benchmarking of Ford’s R&D and marketing interaction processes is contained in Table 2.2. GM has employed the wrong strategy, structure, and topic de- velopment to compete effectively with Ford. Note the superiority of a balanced over a technology-driven strategy. Note the advantage of the participation by customers on a product development team. Finally, note the appropriate topics for interaction. It is clear from this analysis that if GM is to improve its perfor- mance relative to Ford it must reengineer its R&D and marketing communication interface. In so doing GM needs to employ a strat- egy that balances R&D and marketing influences on a product devel- opment team where customers hold the balance of power in resolving conflicts. This team needs to employ constant coextensive interac- tion via computers and to provide the role inputs presented (see Table 2.3). Such a reengineering will reduce substantially the product’s development time and improve its focus on the customer’s competitive dynamics (perceptions of core competencies and needs), which need to exert a major influence over this communication process if GM is to improve. Such a reengineering should employ both contract management to set cycle time reduction targets for Table 2.3 Most Effective R&D/Marketing Structures Strategy Balanced between R&D and marketing Form Team Interactions Coextensive Role of Customer Dominant Topic of Dominance Customer satisfaction Interaction Topics Marketing’s Role R&D’s Role Customer’s Role 1. Provide customer 1. Get involved with 1. Provide competitive requirements to marketing to develop dynamic R&D products according to market needs 2. Provide customer 2. Involve marketing in 2. Provide perceptions feedback on product setting new product of core competencies performance goals and priorities 3. Provide competitors’ 3. Involve marketing in 3. Evaluate market strategies to R&D screening new product segmentation ideas 4. Share test market 4. Modify product 4. Evaluate market results with R&D according to market strategy recommendations 5. Find commercial 5. Involve marketing in 5. Provide information applications for new generating new product on customer needs product ideas or ideas technologies Sources: Cushman and King (1995a: 16–19) and Gupta, Raj, and Wileman (1985). improving the product development process and cross-functional and outside linking teams to improve outcomes characteristic through improved communication processes. These changes will significantly improve the integration, coordination, and control com- munication processes at GM. GM is currently with the assistance of consultants undertaking just such continuous improvement changes. Continuous improvement applications can be performed on public-sector, private-sector, and not-for-profit organizations aimed at reducing cycle time through improved communication processes. We are now in a position to evaluate High-Speed Management com- munication as a powerful tool for stimulating and integrating orga- nizational communication. An Investigation of the Evidence Available that High-Speed Management Theory Has the Potential to Stimulate and Integrate Organizational Communication The latter half of the twentieth century has witnessed another revolution in communication. This communication revolution has introduced into the academic arena a marketplace of the practical and technological world with the premise that that which is most valuable is that which can be applied. . . . Knowledge is therefore perceived as the adaptation of theory and research to the arena of practical activities. Truth is that which works in application. —King (1989:3) Organizational communication theory and research, like a living organism, always grows and evolves in response to the challenges and opportunities of the times. Thus any attempt to stimulate and integrate organizational communication must foster this growth and evolution by allowing this process to proceed in as open and non- political marketplace as possible. We have argued here that High- Speed Management provides just such a stimulative and integrative device. When time is taken as a measure and studies in cycle time reduction as an outcome variable, just such an open and nonpoliti- cal process for inquiry is created. This process allows for multiple philosophic assumptions, a variety of communication constructs and relationships, and numerous implementing procedures for improv- ing communication outcomes. Evidence supporting this claim can be drawn from the activi- ties of a small set of academics, managers, and consultants from across disciplines and across cultures. A group of forty researchers from five continents—North America, Europe, Asia, Africa, and Aus- tralia—have focused on researching public, private, and not-for-profit organizations. They have over the past six years (a) held confer- ences and produced publications aimed at stimulating and integrat- ing the organizational communication literature, (b) conducted case studies and benchmarked organizational communication processes of the most successful firms in the world, and (c) undertaken major consultancies aimed at testing High-Speed Management as a com- munication theory in use. Let us briefly review each of these efforts. Conferences and Publications Each year between 1993 and 1998 a conference has been held in different parts of the world which has brought together between thirty and forty participants (not always the same people) aimed at presenting research papers that stimulate and integrate organiza- tional communication theory and research. These conferences have been supported by national governments, private-sector organiza- tions, educational institutions, European business associations, and the U.S. Fulbright Commission. Several books and journal articles have been published which report the most significant research presented at these conferences. Edited books include Kozminski and Cushman (1993) Organizational Communication and Management: A Global Perspective; King and Cushman (1994c), High-Speed Manage- ment and Organizational Communication: A Reader; Cushman and King (1995b), Communicating Organizational Change: A Management Perspective; King and Cushman (1997), Lessons from Recession; and Cushman and King (2001), Excellence in Communicating Organiza- tional Strategy. In addition to the research published from these conferences, researchers became interested in integrating the communication lit- erature in specific areas of High-Speed Management theory. Cushman and King (1995a) mapped the communication processes involved in the integration, coordination, and control of private-sector organiza- tions. Cullin and Cushman (2000) mapped the communication pro- cesses involved in governmental organizations. King and Cushman (1992) mapped the leadership communication processes employed by Socialist nations (Poland, Armenia, Yugoslavia, and China) in moving from a socialist to capitalist economy. Ju and Cushman (1995) mapped effective communication in the teamwork processes. Obloj, Cushman, and Kozminski (1995) mapped the effective communica- tion processes involved in various continuous improvement pro- grams. These publications individually and collectively document a stimulation and integration of organizational communication within a High-Speed Management theoretic perspective. Case Studies and Benchmarking Frequently public, private, and not-for-profit organizations discover through rapid adaptations to the issues and competitors facing them more effective communication processes than researchers reveal. It is therefore becomes necessary to develop case studies of outstand- ing organizations from throughout the globe. Case studies and benchmarking of these firms represent an important contribution to the communication literature on effective communication processes. Cushman and King in a series of journal articles in International Communication Focus (1995–1997) and Focus on Management Change (1995–1998) have presented case studies of GE, ABB, Microsoft, Toyota, Chrysler, IBM, and Dell. Each of these studies chronicles a high-performance communication integration, coordination, and control system. In addition, Cullin and Cushman (2000) include stud- ies of U.S., British, Singapore, and Australian governmental commu- nication processes. Finally, in a new volume by Cushman and King (in press), case studies of various organizational communication functions (e.g., leadership, teamwork, and marketing) from through- out the global economy are presented. Such case studies attempt to stimulate and integrate organizational communication. Consulting: Education and Interventions Over the past several years Cushman, King, and associates have been involved in significant education and intervention projects in the private and public sectors. First, Cushman and King have been invited to present five-day seminars on High-Speed Management in nine ABB international MBA programs and a three-day seminar in Siemens’ internal MBA program. In addition, three to five-day High- Speed Management seminars have been presented to public and private-sector organizations in the U.S., Bolivia, Australia, Italy, Ger- many, Hungary, Poland, Singapore, Indonesia, Japan, Korea, Malay- sia, Thailand, and China. Cushman and King have been involved in several major inter- ventions including a five-year restructuring of the Victoran Public Service in Australia; a five-year benchmarking of the U.S., Singapore, and German education systems for Malaysia followed by a reen- gineering of the Malaysian National Education system; a one-week reengineering of a multinational corporation’s corporate culture in Bolivia; a six-week downsizing of a medical center in the U.S. by $20 million dollars; and a five-year project to privatize governmental agricultural farms in Egypt. This sampling of consulting interven- tions from Cushman and King is aimed at demonstrating the effec- tive use of High-Speed Management theory applications in the global economy. High-Speed Management is therefore a stimulating and integra- tive force in organizational communication. In conclusion, as Cushman and King (1995c:1) wrote The purpose of human communication is to share symbolic information, to establish, maintain, and terminate relationships among people and human institutions. Occasionally, very occa- sionally, a research scholar will pose a question or raise an issue regarding the communication process that when an an- swer is provided will attract the attention and focus the energy of a group of scholars over a short period of time. . . . Less fre- quently, but perhaps more significantly, a question is posed, an issue raised, an answer provided by a group of scholars employ- ing diverse methodology that must be considered controlling in its insightfulness and enduring in its suggestiveness and thus foundational to the study of human theory. References Automotive News (compiled from various reports, 1997 and 1998). Cooper, R. (1985). Overall corporate strategies for new product programs, Industrial Marketing Management, 14, 179–183. Cullin, R., and Cushman, D. P. (2000). Managing Governmental Competitive- ness: Speed, Consensus and Performance. Albany: SUNY Press. Cushman, D. P., and King, S. S. (1988a). High-technology and the role of communication in High-Speed Management. Informatologia Yugoslavia, 20:241–249. Cushman, D. P., and King, S. S. (1988b). The role of mass media in world community. In The World Academic Conference of the Seoul Olympiad 88: The World Community in Post-Industrial Society, Korean Olympic Committees, Seoul Korea, 326–349. Reprinted in Informatologia Yugo- slavia, 20:131–151. Cushman, D. P., and King, S. S. (1993). High-Speed Management: A revolution in organizational communication in the 1990s. In S. Deetz (ed.), Com- munication Yearbook 16, 209–237; reprinted in M. Goodman (ed.), Corporate Communication: Theory and Practice, SUNY Press, 1994; and reprinted in Y. Ju and D. P. Cushman, Organizational Teamwork in High-Speed Management, SUNY Press, 1995, 15–38. Cushman, D. P., and King, S. S. (1994a). High-Speed Management and high performance organizations. Management, November/December: 2–3. Cushman, D. P., and King, S. S. (1994b). Communication and change. In W. Cummings and M. Cross (eds.), Proceedings of the Seventh Conference on Corporate Communication. N.J.: Fairleigh Dickinson, 41–51. Cushman, D. P. and King, S. S. (1995a). Communication and High-Speed Man- agement. Albany: SUNY Press. Reprinted in Malaysian in Malaysia. Cushman, D. P., and King, S. S. (eds.) (1995b). Communicating Organizational Change: A Management Perspective. Albany: SUNY Press. Cushman, D. P., and King, S. S. (1995c). Organizational ethics. In A. Kent (ed.), Encyclopedia of Library and Information Science, vol. 56. New York: Marcel Dekker, 301–317. Cushman, D. P., and King, S. S. (1995d). High-Speed Management and orga- nizational communication theory. In B. Kovačić and D. P. Cushman (eds.), Watershed Research Traditions in Human Communication Theory. Albany: SUNY Press. Cushman, D. P., and King, S. S. (1995e). High-Speed Management cycle time reduction and high-performance organizations. Focus on Change Man- agement, April: 3–6. Cushman, D. P., and King, S. S. (1995f). Reengineering high-performance organizations. International Communication Focus—North America, April: 9–11. Cushman, D. P., and King, S. S. (1995g). The accidental king of corporate turnaround: Lou Gerstner of IBM. Focus on Change Management, Oc- tober: 17–22. Cushman, D. P., and King, S. S. (1996a). Toyota: The renaissance of a world leader. Focus on Change Management, March: 8–12. Cushman, D. P., and King, S. S. (1996b, December/1997, January). Excellence in communicating organizational competitiveness: The case of Microsoft. Focus on Change Management, 22–25. Cushman, D. P., and King, S. S. (1997d, December/1998, January). Creating implementing structures that generate winning performance. Focus on Change Management, 3–9. Cushman, D. P., and King, S. S. (1997c, December/1998, January). GE: In- creasing productivity through effective internal communication. Inter- national Communication Focus, 8–9. Cushman, D. P., and King, S. S. (1997b). The Repositioning of Asea Brown and Boveri. Focus on Change Management, March: 11–16. Cushman, D. P., and King, S. S. (1997a). High-Speed Management: The Role of Communication in Continuously Improving an Organization’s Perfor- mance. Albany: SUNY Press. Cushman, D. P., and King, S. S. (2001). Excellence in Communicating Organi- zational Strategy. Albany: SUNY Press. Cushman, D. P., and King, S. S. (in press). Benchmarking Organizational Communication Processes. Donion, J. P. (1993). Alfred Sloan, move over. Chief Executive Magazine, 1–8. Dumaine, B. (1984). How managers can succeed through speed. Fortune, February 13, 119, 54–59. Fraker, S. (1984). High-speed management for the high-tech age. Fortune, February 13, 119, 34–60. Gupta, A., Raj, S., and Wileman, D. (1985). R&D and marketing dialogue in high-tech firms. 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Organizational Communica- tion and Management: A Global Perspective. Albany: SUNY Press. Miller, R. (2001). Beyond benchmarking for institutional advancement, Jump start to fund raising excellence. In D. P. Cushman and S. S. King (eds.), Excellence in Communicating Organizational Strategy. Albany: SUNY Press. Nicotera, A., and Cushman, D. P. (1992). Organizational Ethics: A Within- Organization View. Journal of Applied Communication Research, No- vember 10:437–463. Obloj, K., Cushman, D. P., and Kozminski, A. (1995). Winning: Continuous Improvement in High Performance Organizations. Albany: SUNY Press. Ruffin, W. (1992). Wired for speed. Business Month, January, 56–58. Stalk, G., Jr. (1988). Time—The next source of competitive advantage. Harvard Business Review, July/August, 66:41–51. Vesey, J. (1991). The new competitors: They think in terms of speed-to- market. Academy of Management Executives 5, 22–33. 27 3 Killer Strategies for Competitiveness: The Case at Microsoft Donald P. Cushman and Sarah Sanderson King Competition is a lot like cod liver oil. First it makes you sick. Then it makes you better. —American Micro Devices (1996:22) The emerging global economy has forced a very serious reconsid- eration of our understanding of the economic basis of sustainable competitive advantage. First, quick market saturation, unexpected competition, and the rapid succession of technological breakthroughs have each in turn served to create a volatile global economic environment by signifi- cantly shortening the time frame within which any one firm can maintain a competitive advantage. Second, attempts to constrain this global economic volatility have served to further undermine our traditional understandings of product cost, differentiation, and scope as the basis for a sustain- able competitive advantage. For example, the development of inte- grated manufacturing systems which can produce 1 or 100,000 of a product at the same cost has undermined our traditional notion that high volume leads to a sustainable competitive advantage based on low cost. Similarly, reverse engineering and a dramatic reduction in the cycle time it takes to develop a new product and get it to market has seriously called into question the ability of product differentia- tion to serve as a basis for sustainable competitive advantage. Third, technological breakthroughs and the effective computer- ization of many organization tasks have led to transformational changes in the types of organizational skill required to compete effectively. This in turn has led to both continual and rapid shifts in the core competencies a firm must develop either internally or by external alliances, rendering problematic stable core competencies as a basis for sustainable competitive advantage. Finally, all of these trends taken collectively have led some thoughtful observers or organizational competitiveness to proclaim the death of sustainable competitive advantage. For example, James F. Moore (1996) in his provocative book, The Death of Competition: Leadership Strategy in the Age of Business Ecosystems, argues that former bitter rivals must now learn how to collaborate or they will not survive given the structural economic forces at work in the emerging global economy. He then cites Microsoft Corporation, AT&T, Hewlett Packard, and Netscape Communication Corporation as sup- port for his claim. It will be the purpose of this chapter to (1) develop a conceptual and empirical basis for understanding sustainable competitive advan- tage in the global marketplace, (2) apply that conceptual and empiri- cal analysis to Microsoft Corporation’s dominance of the PC software industry, and (3) draw some conclusions regarding the significance of this conceptual and empirical framework for establishing a firm’s excellence in communicating organizational competitiveness. Developing a Conceptual and Empirical Basis for Understanding Sustainable Competitive Advantage Sustainable competitive advantage can be a considerable asset if it truly confers a lasting benefit and helps toward achieving the objectives set by a company’s business strategy. —Coyne (1996:1) Business strategies are created in order to determine the way in which organizations can move from their current position to a new and stronger position vis-à-vis their customers and competitors. This is what is meant by improving a firm’s competitiveness. A universal conception of competitiveness does not exist. Some view competitiveness as a communication process, the ability to per- suade customers to choose their offerings over some other alter- natives. Others view competitiveness as the ability to continuously improve a firm’s value chain responsiveness to environmental change and competitors’ activities. Still others believe a firm must develop certain core competencies relative to other firms in the same industry and market (Feurer and Chaharbagh, 1994:49). Our attempt to resolve these issue will proceed in two stages: (1) pro- viding a conceptual framework for understanding what a sustain- able competitive advantage is and (2) providing an empirical operationalization of the organizational strategies capable of yield- ing such an advantage. Conceptualizing Sustainable Competitive Advantage Central to an understanding of sustainable competitive advantage are the concepts of (a) competitive dynamic, (b) core competency, and (c) industrial breakpoints. Competitive dynamic refers to the weighted dimensions along which customers evaluate a product or service when making a purchase. For example, in the U.S. auto mar- ket in 1995, the competitive dynamic for purchasing a car included the automobile’s style (40 percent), a car’s price (30 percent), brand loyalty (20 percent), and vehicle quality (10 percent) (Automotive News, 1996:21). Collectively, these dimensions determine customer purchasing patterns. Core competencies are the skills a firm has which customers are persuaded best provide the above desirable dimensions in a product. Note that core competencies include two separate elements: (1) a communicated expectation that a given firm can deliver on the appropriate dimensions and (2) the reality of the firm’s ability to meet these expectations in the required area. If customers’ expecta- tions are not met, the core competencies of the firms are adjusted appropriately in the next customer evaluation. The composite of each firm’s customer evaluation along with all the competitive dy- namic dimensions yields the industry’s core competency leaders in market shares. For example, in 1995, U.S. customers of medium- sized cars (e.g. Lumina, Camry, Taurus, Accord, and Intrepid) asso- ciated auto style (40 percent) with (1) Honda, (2) Ford, and (3) Chrysler; price (30 percent with (1) Chrysler, (2) Honda, and (3) Ford; and auto quality (10 percent) with (1) Toyota, (2) Honda, and (3) GM. Overall, Honda edged out Ford in the customers’ perception of core competencies and in sales, followed by Chrysler, Toyota, and General Motors (USA Today, 1996:B1). An industrial breakpoint, according to Stroebel (1995:11–12), is characterized by a new offering in the market that is so much superior in terms of the value perceived by the customer and the delivered cost of the offering that it changes the rules of the competitive game. A breakpoint is typically accompanied by a sharp shift in the industry’s growth rate and a dramatic realign- ment of market shares. Industrial breakpoints appear to be divided into two main types, di- vergent and convergent. Divergent breakpoints, according to Stroebel (1995:12), usher in an increasing variety of competitive product offerings. They occur, initially, at a discontinuous juncture in an industry, when the direct innovation of entrepreneurs and others results in divergent experiments, with competitors racing to develop the new products and or services which will redefine the indus- try standards. For example, Chrysler’s development of the Jeep Cherokee sports vehicle or Toyota’s development of the Lexus midprice-range luxury cars represent divergent industrial breakpoints. Convergent breakpoints involve a more standardized set of offerings, with com- petition being focused on improving an organization’s business sys- tems in delivering existing products in a more effective manner. For example, Toyota’s lean manufacturing with its Kaisan and Kaban systems and Limited’s point of sale inventory system represent con- tinuous industrial breakpoints. Table 3.1 Types of Industrial Breakpoints Divergent Convergent Product centered Organization process centered Direct innovation Process integration R&D or acquisition created Continuous improvement created Stakeholder network Process reengineering Taken collectively, the concepts of competitive dynamics, core competencies and industrial breakpoints allow for a very specific operationalization of the basis of a conceptual sustainable competi- tive advantage. Such a conceptualization has three components: • First, customers must hold a relatively stable view of the dimensions constituting a product or service’s competitive dynamics. • Second, customers must perceive a significant difference be- tween competing firms in regard to their core competencies. • Third, the differences the customer perceives in regard to the core competency gap can be expected to endure at least until the next industrial breakpoint. For example, Chrysler’s development of the minivan ten years ago has yielded that firm a sustainable competitive advantage which has existed awaiting the next industrial breakpoint. Having conceptually and operationally defined sustainable com- petitive advantage, we are now in need of an empirical specification of model strategies capable of yielding and then maintaining a sus- tainable competitive advantage in the global marketplace. Empirical Description of Successful Competitive Strategies Allan Morrison and Kendall Roth (1992) provide just such a specifi- cation in their seminal monograph, “A Taxonomy of Business Level Strategies in Global Industries.” Two basic questions are addressed in their research: (1) what are the distinct patterns of business level strategic behaviors that differentiate competitors in the global in- dustrial context and (2) do economic performance difference exist among the distinct patterns? They surveyed 144 executives of firms operating in eleven manufacturing and consumer goods industries of the global economy. Morrison and Roth (1992) employed eighteen measures of stra- tegic positioning, multiple measures of internationalization (i.e., in- vestment, coordination, and political scales), and multiple measures of a firm’s economic performance (i.e., return on assets [ROA], re- turn on investment [ROI], and increase in sales). This data was then factor-analyzed yielding four distinct models of successful competitive strategies operating in the global economy. These four models em- ployed strategies which explored (1) a domestic product niche with limited exports, (2) exporting high-quality politically supported of- ferings, (3) exploring high-quality innovative products, and (4) a continuously improved business process exporting strategy. The mod- els presented in table 3.2 indicate the strategic positioning, interna- tionalization, integration, and economic performance measures which clustered in each model. Table 3.2 Global Strategies for Achieving Market Shares Model 1: Domestic: Product Niche with Limited Exports a. Lowest percent of exports (12%) to total sales normally involving only one other country b. Lowest international investment, political influence, and integration scores. c. Narrow product specialization focus d. Emphasis on manufacturing leadership due to process innovation and efficiency e. High quality, reasonable cost, mature products f. Lowest ROA, ROI, and second lowest sales growth Model 2: Exporting High Quality Politically Supported Offerings a. Exports 33% of total shares to two other countries b. Low levels of internationalization of finance and integration c. High level of political influence to support exports d. Minimal attention to manufacturing leadership and cost controls e. Production mainly in home country along with reliable distribution f. Lowest or next to lowest ROA, ROI, and sales growth Model 3: Exporting High-Quality Innovative Products a. Second highest percent of exports (37%) to total sales, going to ten countries b. High internationalization of finance, political influence, and integration c. Minimal political influences from home government d. Emphasis on reputation for quality and marketing e. Narrow high-priced product specialization f. R&D focuses on costly bells and whistles which influence marketing more than product technology g. Highest or next to highest in ROA, ROI, and sales growth Model 4: Continuously Improved Business Process Exporting Strategy a. Highest percent exports (59%) total sales going to fourteen countries b. Highest percent of foreign assets to total assets 24% c. Highest in international political influence and integration d. Emphasis on innovations in manufacturing and marketing processes e. Tight capacity utilization f. Strong emphasis on skilled sales force g. Strong emphasis on control of distribution channels h. Either highest or next to highest in ROA, ROI, and sales growth These then are the empirically established strategies employed by successful global competitors in eleven industries aimed at es- tablishing a sustainable competitive advantage. The Exporting Inno- vative Products Strategy (Model 3) and the Continuously Improved Business Process Exporting Strategy (Model 4) appear equally suc- cessful from an economic performance perspective and closely par- allel our conceptualization of divergent and convergent approaches to capitalizing on industrial breakpoints. However, the empirical mod- els refine our conceptual analysis by pointing out that the Divergent Product Innovation Model frequently takes a distinct marketing flavor by focusing on bells and whistles rather than product superiority alone and that the Convergent Continuous Improvement of Business Processes Model focuses on advances in manufacturing, distribution, and sales. We have conceptualized sustainable competitive advantage through the precise definition of (1) competitive dynamics, (b) core competencies, and (c) industrial breakpoints. We have operational- ized the empirical strategies employed in the global market to ob- tain a sustainable competitive advantage as (1) a domestic product niche with limited exports, (2) exporting high-quality politically supported offerings, (3) exporting high-quality innovative products, and (4) a continuously improved business process strategy. We are now in a position to apply our conceptual and empirical analysis of sustainable competitive advantage to the Microsoft Corporation’s attempts to dominate the PC software industry. Analysis of Microsoft’s Attempts to Establish a Sustainable Competitive Advantage I personally believe that Microsoft is the most powerful economic force in the United States in the second half of the 20th century. Some of Microsoft’s control over competing, at all levels, is obvious. Much, however, is invisible. Even longtime insiders are just beginning to understand the nature of that power, how Microsoft acquired it, preserves it, and exercises it. —Schmidt (1996:51) Microsoft’s competitors within the computer industry speak of their will to dominate markets (i.e., seek a sustainable competitive advan- tage) with concern, fear, and admiration. Michael Kapar, CEO of Lotus Development Corporation, argues “The question of what to do about Microsoft is going to be a central public policy issue for the next twenty years. Policymakers don’t understand the real character of Microsoft yet—the sheer will to power that Microsoft has.” (Gleick, 1995:39) Lawrence Ellison, CEO of Oracle, another Microsoft com- petitor argues that “Bill Gates and Microsoft do not just want to compete in the computer industry. Rather, they seek to dominate every aspect of the market, to eliminate their competition.” (Cortese, et al., 1996:86) In 1994, Fortune magazine conducted two polls of managers, customers, and stockholders. The first found Microsoft to be the most innovative firm in America. The second found Microsoft to rank second as the most admired firm in America (Jacob, 1995:54). The Microsoft Corporation is considered by most observers to be one of the most competitive firms in the world. In just twenty-one years its CEO, Bill Gates, went from a Harvard dropout to amass a $15 billion fortune and become one of the richest men in the world. The Microsoft Corporation in the same timeframe went from a two-person firm with $16,000 in sales to one of the world’s most powerful corpo- rations with 18,000 employees, $5.3 billion in sales, and $1.4 billion in profits. In addition, over 3,000 of its employees are now millionaires based on their stockholder value in Microsoft (Jones, 1995:14–15. Each day 170 million people use personal computers. Each day 140 million of them begin by entering Microsoft MS DOS operating systems. Seventy million PC users then enter Microsoft Windows operating systems on IBM-compatible, Apple, Macintosh, and Power Mac’s PCs. Then, 100 million users select one of Microsoft’s many software application packages to begin their work. Microsoft holds an 85% market share in computer operating systems, an 80% share of the office applications market, a 64% of the word processing mar- ket, and 80% of the business spreadsheet market (Schlender and Kirkpatrick, 1995:87). In addition, Microsoft’s 25% profit margins are significantly higher than most firms in the industry. In order to un- derstand how Microsoft obtained such a sustainable competitive advantage, let us (1) explore the firm’s macro competitive strategy, (2) explore the operationalization of that strategy or tactics em- ployed in the marketplace, and (3) trace the firm’s competitive po- sitioning at one breakpoint in the computer industry. Microsoft’s Macro Competitive Strategy Microsoft’s products and services are aimed at empowering people and organizations by providing them with an easy way of finding and using information. In order to compete successfully in the soft- ware industry, Bill Gates believes that Microsoft must “pioneer and orchestrate evolving mass markets” (Cusumano and Selby, 1995:127). This involves pioneering in software applications and operating sys- tems which can dominate their respective markets while forging an industrial consensus among key stakeholders in the global market- place as to “appropriate standards” needed to regulate the applica- tion interface (API). Microsoft employs five strategic principles in guiding their macro competitive strategy. 1. Enter evolving mass markets early or stimulate new mar- kets with good products which can become the industry standard. 2. Incrementally continuously improve products and periodi- cally make old products obsolete. 3. Push volume sales to ensure that products become and remain the industry standard. 4. Leverage the industrial standard to develop new products and market linkages. 5. Integrate, extend and simplify products and services to reach new mass markets. (Cusumano and Selby, 1995:127) “Microsoft is one of those rare companies where leadership, strategy, people, culture and opportunities come together to create an extraordinary effective organization” (Cusumano and Selby, 1995:400). To see how and why this happens, we need to explore the firm’s focus on (1) the benefits of continuous improvement programs and (2) a focus on setting industry standards. Unique Economics of Information Benefits of Continuous Improvement. Developing a “good” product in the software industry is a complex activity. It involves working within several rather fixed and important parameters. First, there are technological parameters to the hardware, what the basic archi- tecture of the hardware can do. Second, there are historical param- eters involving past applications, operating systems, and marketing segments which must be preserved in a new program to maintain or expand a mass market. Third, there are the emerging areas for new operating systems, applications, and market segments needed to create or maintain a mass market. Fourth, there are the strengths and weaknesses of various interface capabilities between these pa- rameters and their users. Finally, computer software is a rapidly evolving business where in three years all the products, services, and knowledge we have today may be outdated, thus timing in get- ting a product to market which fits all these stakeholder needs is a challenge. In order to successfully navigate all these important param- eters plus the normal volatility in the global economy of unexpected competition, quick market saturation, and/or technological break- throughs, it is necessary to get products out in the market and then use your resources as a large, financially sound, and rapidly re- sponding firm to develop and/or acquire existing and/or new tech- nologies in order to meet your stakeholder needs more effectively than your competitors. That is why most initial Microsoft offerings are not industry leaders but through continuous improvement achieve the status of industrial standards. That happened with Q- DOS and MS-DOS, Windows and Windows 95, Word and Office Sys- tems, and others. A second ingredient is required in order to create a mass market. Focus on Setting Industry Standards. The age of mass production for mass markets could not begin until the world agreed on standards for nuts, bolts, parts, and their interface. Establishing standards acts as a catalyst for economic development. In the past, many of these mass production standards were set by governments, international organi- zations, or industry consortia, but seldom by a single firm. The more complex the products, the more precise the standards must be, and computer software is a very complex product. In understanding the two-decade history of Microsoft’s increasing control over the com- puter industry, nothing matters more than its strategic management of the creation, marketing, and manipulation of standards. It works like this. In order to successfully work within all the parameters for creating software listed above, all the key players in an area of the industry must meet and negotiate a common standard which includes the integration of their past, current, and future prod- ucts and technologies. Let us say you are an expert in a small firm in voice recognition and turning that recognition into a printed text. One day you get an invitation from Microsoft to come to a set of meetings on standards. You cannot not go or your products and interests could be excluded. Then under Microsoft’s guidance, you and several other firms negotiate the rules governing the applica- tions program interface (API). Not many large firms have the power to call such a set of meetings, but Microsoft does. The result, according to Gleick (1995), is that Microsoft in co- operation with virtually the entire speech software industry, will release next year the Microsoft Speech Software Development Kit containing all the necessary tools to develop applications which meet the standards set. The problem of setting new standards which will create a mass market is solved. However, in these standards meetings, Microsoft receives and files away an enormous body of intelligence on the speech software industry. It discovers where the competitors have been, where they are going, and how they will get there. It then has the competitive intelligence necessary to develop a balanced soft- ware program for meeting the complexities of the parameters in a given area. Microsoft has held such conferences on standards in such areas as E-mail, network integration, and multimedia applica- tions. Microsoft is not the only firm attempting to set standards, but it is one of the largest and most effective at doing so. Cusumano and Selby (1995:163) in their seminal study of Microsoft’s competitive effectiveness summarizes our analysis when they argue: Microsoft’s goal was emphatically not the maximization of rev- enue or even market share; it was creating relationships with customers, software developers and microprocessor firms like Intel to give as many reasons as possible to support—strategi- cally, financially, and technically—Microsoft’s operating systems. These networks of relationships are what makes a standard some- thing more than a product. The standard is not the product of a company, it’s the byproduct of these networks. Managing stan- dards means managing networks. What happens if you support Microsoft in setting these stan- dards? Many firms prosper. Intel, DEC, Compaq, and others have profited immensely. And what happens if you oppose Microsoft’s standards and support a competing standard? Again, some firms have prospered such as Sun, Netscape, and Oracle, by setting internet browser standards. However, other firms have dramatically lost mar- ket shares, as in the case of Lotus 1-2-3, Borland International’s Para- dox, and IBM’s OS/2 operating system. Standards confer near monopoly power in most areas of computer software. Recently, sev- eral banking and networking firms have asked the U.S. government to examine Microsoft’s competitive strategies as a possible violation of the antitrust laws. However, evidence is hard to come by since almost all competing firms in the industry have some type of alli- ance, joint venture, or licensing agreement with Microsoft and real- ize that Microsoft is a “good” friend and a “bad” enemy. This has led some observers of the software industry, like Jerry Kaplan a former Lotus executive to argue, “What we need in the business is a witness protection program” (Schlender and Kirkpatrick, 1995:90). Having explained in some detail Microsoft’s macro strategies for developing a sustainable competitive advantage by exploiting (1) the benefits of continuous improvement programs and (2) a focus on setting industrial standards, we are now in a position to explore Microsoft’s operationalization of these strategies into tactics in the global marketplace. Operationalizing the Linkages between Macro and Micro Competitive Strategies How does Microsoft succeed in dominating the global software in- dustry? First and foremost, “Bill Gates may be the shrewdest entre- preneur and the most underrated manager in American industry today,” (Cusumano and Selby, 1995:23) Second, Microsoft’s leader- ship team like that of GE and Intel is filled with talented, highly motivated, and creative managers who provide the tactical linkages between leadership, corporate strategy, and the workers. Finally, all employees of Microsoft understand that although knowledge and technology are important, it is more important how that knowledge and technology can make money. “They are interested in bang for the buck and mass markets, and they believe that delivering value to the customer will make the most money” (Cusumano and Selby, 1995:104). Let us explore four of the linkages developed by Microsoft’s management team for operationalizing competitive strategy at the workforce-market interface. In so doing we will observe the creative and efficient manner in which Microsoft develops a sustainable com- petitive advantage. Product Development and Continuous Improvement Linkage to Microsoft’s Unique Brand of Teamwork. To manage creative people and technical skills in an efficient manner, to produce new and con- tinuously improved products in a manner that sets the industry standard, Microsoft employes a unique form of teamwork. This form of teamwork established functional specialities within small modu- lar teams with overlapping responsibilities. Product managers, soft- ware developers, and testers are the main functional specialists within a product unit. Within the product unit, program managers, developers and test work side by side in small “feature teams” These typically con- sist of one program manager, three to eight developers, and a parallel features testing band whose members are paired with developers. (Cusumano and Selby, 1995:74) In addition each product team also contains product managers, who are marketing specialists; customer support engineers, who provide techni- cal assistance to users and analyze customer feedback; and a user education staff, who prepares manuals and helps with documentation. Program managers can lead several features teams, and prod- uct managers can lead several program teams. Group and division managers supervise and review all program and product team progress. Bill Gates supervises and reviews all group and division leader efforts. Such parallel and synchronous teams with overlap- ping functional responsibilities and multiple layers of review have several unique competitive advantages. First, they are self-correcting based on overlapping functions, parallel synchronization, customer and stakeholder feedback, and multiple levels of review. Second, they can be expanded, contracted, eliminated, and redirected quickly due to their modular structure. Third, they are uniquely responsive to the marketplace demands of customers. When parallel programming and testing functions are guided by the competitive intelligence gained from the API interference standards meetings, Microsoft can then take an initial product offering and transform it through up- grade to a market standard which better meets customer and stake- holder parameters than its competitors. Setting of Industrial Standards Linkage to Microsoft’s Unique Acquisitions, Product Development, and Alliance Policies. Central to setting indus- trial interface and product standards is state-of-the-art technology and strong partners who will support the standards which Microsoft puts forward. For example, currently, there are five gateways onto the infor- mation highway: computer operating systems, digital video disk tech- nology, video games technology, digital music disk technology, and inter/ intranet browser/server technology (Taylor, 1996:D6). Microsoft is at- tempting to obtain the technology and form the alliances necessary to set standards for the applications program interface and develop stan- dard products in each of these gateways. Their strategy is to (1) set the interface standards, (2) develop interface tool kits for application development, and (3) develop dominant products which act as the standard for the interface. In the Computer Operating System Gateway, the competition is between Microsoft’s Windows 95 and Apple’s Macintosh OS and IBM’s OS/2. Apple’s Mac OS holds an edge in terms of functionality, but runs only on Apple machines. IBM’s OS/2 is technologically more robust, but has a limited range of applications programs. Windows 95 currently holds an 85% market share with Apple’s MAC OS and IBM’s OS/2, each holding 7% of the market share (Taylor, 1996:D5). Microsoft has set the API standards, developed an applications tool kit, and marketed the dominant product in the gateway Windows 95 and developed an upgrade in Windows NT. In operating systems, Microsoft currently controls the gateway. In the Digital Video Disk Gateway, the competition is between SONY along with Phillips Electronics and the Toshiba Corporation along with Matsushita. In September of 1995 manufacturers agreed on a single format for both high-capacity video disks. Windows 95 and NT contain an API standard for the interface between video disk technology and computers. In November 1992, Microsoft released Video for Windows, a tool kit for playback which could incorporate, edit, and create digital video access across all implementations of Windows. By February 1993, Microsoft announced the release of visual control Pack, an easy-to-use collection of nineteen customer controls for visual basic. This was followed in March 1993 by the release of a multimedia Windows publishing kit. In November 1994, Microsoft formed an alliance with ten partners to develop interac- tive TV software. These included Hewlett Packard, TCI, Intel, US West, Telstar, Deutsche Telecom, Alcatel Cable, Anderson Consult- ing, Lockheed, Nippon Telephone and Telegraph, and Olivetti. In June 1994, Microsoft acquired Soft Image, a leading developer of both performance 3-D computer animation and visualization soft- ware. In March 1995, Microsoft joined with ABC and Dreamworks to help develop content for video, film, and computer game disks. In March 1995, Microsoft joined with Toshiba and Matsushita to de- velop an API interface for its video disks. In May, Microsoft formed an alliance with Time Warner, Comcast cable, and French, German, Australia, and Singapore cable to design and API cable interface to use Windows 95 and NT for cable TV. In April 1995, Microsoft joined Sony to develop video on demand for home TV and computer deliv- ery. Microsoft appears to be in a position to exert considerable control over the video disk gateway both in its interface with Win- dows 95 and NT and in developing the content, form, delivery, and interactive applications for customers. In the Video Games Gateway, the competitors are SONY’s Playstation, Sega’s Saturn, and Nintendo system. Here again no single firm dominates. In July 1993, Microsoft released Arcada, a replica- tion of five of the most popular arcade games from Atari. In Febru- ary 1995, Microsoft entered the market with an applications tool kit for developing professionals game applications based on Windows technology. Microsoft has its own computer games unit which has marketed several very popular games including Flight Simulator, Golf, Dinosaurs, and others. Several video games developers and makers of PC equipment for games have joined in an alliance with Microsoft to develop applications and hardware for this market. In February 1993, Microsoft joined with Sega Video Games Corporation to pro- vide operating systems for games. In April 1995, Microsoft released its upgraded operating systems for fast-moving multimedia games. The Video Games Gateway is still involved in heated competition. Microsoft came late to the game but is ready to release its first upgrades of initial products and with Dreamworks and others in- volved in developing the next generation game content. Its API stan- dards and applications tool kits are putting Windows 95 and NT at the center of the computer games interface and expanding Microsoft’s influence in this gateway. In the Digital Music Gateway, SONY and Philips have developed competing technologies with competing formats. This diversity has customers confused. SONY sold 92,000 compressed minidisks last year; Philips, 409 million compact disks. In this area, Microsoft has written API standards for its Windows interface and developed ap- plication kits. In October 1992 Microsoft released Musical Instru- ments, the first multimedia title resulting from a joint venture with Dorling Kindusky of London. In addition, Microsoft in March 1995 joined with Dreamworks to develop music and multimedia content for CD roms, cable, and the internet. Microsoft, again, is well- positioned to influence the interface, content, and delivery systems in this gateway. However, at this point in time, no firm or group of firms control the gateway. In the Browser/Server Gateway to the inter/intranet, Netscape’s Navigator controls 85% of the browser market with Microsoft Ex- plorer just entering the market holding a 7% market share. Novell’s Netware has 53% of the server market share, with Windows NT hold- ing 9% (Clark, 1995:B8). The browser and server markets are still in their infancy. Firms are still developing the technology and adding features as they begin to understand their potential. The market is expected to triple in size each of the next three years as large cor- porations spend a projected $54 billion per year on multiuser soft- ware (Clark, 1995:B8). All firms are scrambling to form alliances, make acquisitions, and upgrade products. Microsoft’s browsers and servers have just entered the market and will be made part of Windows 95 and NT. In addition, Microsoft has made their browser and server systems avail- able free on the internet. This has put pressure on Netscape and Novell which obtain most of their revenues from their browser and server sales. We will explore the browser/server gateway in detail when we investigate Microsoft’s competitive positioning in the com- puter industry’s next breakpoint. Currently, this gateway is involved in heated competition and it will take five years for the market’s growth to level off and the technology to mature before a winner will be able to emerge. For Microsoft, its acquisition, product development, and alli- ance strategies have allowed the firm to become a dominant player in two of the gateways, operating and video disk systems; to be- come an expanding and influential player in two of the gateways, computer games and musical disk systems; and to become a new player in one of the gateways, browsers/server systems. However, Microsoft is the only firm with a strong presence across all gate- ways, placing them in a position to achieve an integration of these technologies which would yield a sustainable competitive advan- tage on the information highway. Volume Marketing and Distribution Linkage to Competitive Pricing, Exclusive Contracting, and Software Bundling. Volume sales are criti- cally important to the competitiveness of a software firm. Bill Gates tells why: “It’s all about scale economies and market share. When you’re shipping a million units of Windows software a month, you can afford to spend $300 million a year improving it and still sell it at a low price.” (Cusumano and Selby, 1995:158). Executive Vice Presi- dent of Microsoft, Steve Ballmer, elaborates: “Software businesses are all fixed cost businesses. And so volume is absolutely every- thing . . . because you have to amortize that fixed cost very broadly” (Cusumano and Selby, 1995:158). The result is that no PC software firm can match Microsoft’s financial resources. The company spent $830 million on R&D in 1995 and has salted away $4 to $5 billion for acquisitions and joint ventures. Windows and Windows 95 used aggressive pricing, licensing, and contract tactics to obtain volume sales. Windows 95 sold at retail outlets for about $95.00. For high-volume wholesalers, it sold at about $35.00. For hardware makers they could reduce the price to about $30.00, if they agreed to preinstall Windows 95 on 50% or more of their PC shipments and adopt the Windows 95 logo (Cusumano and Selby, 1995:161). Thanks to such preinstallation con- tracts, Windows 95 was preloaded on 70% of all PCs sold in 1995. In addition to volume purchase price reductions and preshipment installation contracts, Microsoft developed a competitive strategy called applications bundling. Microsoft Office Suite features an inte- gration of the most commonly used desktop applications word pro- cessing (Microsoft Word), business spreadsheets (Microsoft Excel), computer graphics (Microsoft Power Point), database management (Microsoft Access), and electronic mail (Microsoft Mail) into a single package selling for about $250. Retail price for each of the products in Office Suite sold independently was about $300 each. Once again further price reductions were possible with preshipment installation contracts. Many hardware providers signed such contracts. The net effect of such bundling and reshipment contracts is that each of these independent products leads its software category in sales. The effect on competitors was devastating. Word Perfect, Lo- tus 1-2-3 and others had led the word processing and spreadsheet market, but Microsoft’s Office Suite reduced their market shares to close to nothing, placing the firms in financial jeopardy. Microsoft has employed pricing, preshipment contracts, and bundling in the desktop publishing, multimedia, shop floor automation, and home, banking, and computer games applications markets. Microsoft’s use of pricing, preinstallation contracts, and software bundling has served to create mass markets for Microsoft in a manner that limits its competitors, capacity to compete, helping to create a sustainable competitive advantage for Microsoft products. Leveraging Standards to Limit Competitors’ Sales and Link Microsoft Prod- ucts to New Mass Markets. Three examples will serve to illustrate Microsoft’s use of this strategy. Cusumano and Selby (1995:160) wrote: Digital Research, CPI M-86 (developed in the early 1980s) might have become the dominant PC operating system; reportedly, it had better memory management features and other advantages over MS-DOS. Microsoft, however, was the leading language producer, and it did not rush to deliver versions of its languages compatible