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THE ELECTRONIC REORGANIZATION OF INDUSTRY Richard P. Rumelt University of California, Los Angeles
THE ELECTRONIC REORGANIZATION OF INDUSTRY
Richard P. Rumelt
University of California, Los Angeles

Paper presented at the "Global Strategic Management in the 1980s" conference
of the Strategic Management Society London, England

October, 1981










______________________________________________________________
I am indebted to Joel D. Goldhar for exciting my interest in this
subject and providing essential information. Any errors are mine
alone.
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THE ELECTRONIC REORGANIZATION OF INDUSTRY
Richard P. Rumelt

In case you haven't noticed, we are in the midst of a revolution. The
way in which goods are being designed and made is changing. Put simply,
computers have moved beyond replacing clerks a n d a c c o u n t a n t s a n d a r e
b u s i l y r e p l a c i n g e n g i n e e r s a n d w o r k e r s . T h i s t r e n d i s j u s t
beginnin g---the use of computer aided de sign (CAD) stations and their
integration with computer aided manufacturing (CAM) is just now
starting to accelerate and take off. Like all the real revolutions in
business, this one has not been brought to us by managers, or strategic
planners, or by MBAs, or even by Global Strategic Management Departments.
It comes to us from technologists.
The technically oriented people who are developing these syst e m s
h a v e t h e i r o w n l a n g u a g e a n d w a y s o f t a l k i n g . M o s t o f t h e material
you can read on the subject of robotics or CAD/CAM technology deals with
problems of software design, of obtaining numerical r e p r e s e n t a t i o n s o f
s o l i d o b j e c t s , o f g r a p h i c d i s p l a y , o f s y s t e m implementation, or
perhaps with the savings that can be reaped by installing these systems.
But the implications of this new technology go far beyond cost savings and
the improvement of productivity.
This technology promises to substantially alter the balance
among b a s i c e c o n o m i c f o r c e s : t h e c o s t o f v a r i e t y , t h e c o s t o f
f l e x i bility, the speed of product modification and redesign, the sunk costs
required to enter a market, and the degree to which skills are embodied in
systems rather than people.
Technologists create these forces, but continue to view their
purposes and potential impacts narrowly. It is responsibility of the
general manager to look beyond the cost, efficiency, speed, and even
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workforce management issues and try to perceive the fundamentally new
choices that are being created. Technical changes of this type and
magnitude do more than promise savings; they will alter the structures of
industries. The day may not be far off when economies o f s c o p e s h a r p l y
r e d u c e t h e n u m b e r a n d a t t r a c t i v e n e s s o f n i c h e positions in
manufacturing industries. The time may come fairly soon when multinational
corporations transfer technology via computer tape reels and ship high-
variety products in the form of elect r o n i c d a t a o n t h e s p e c i f i c a t i o n s
f o r t h e i r m a n u f a c t u r e . I t i s already possible to envision the
possibility of a new form of distinctive corporate competence---the
skill immanent in a company's s o f t w a r e a n d s y s t e m s a r c h i t e c t u r e - -
that will create whole new forms of competition.
Faced with these changes, many firms have to either make risky choices
or fade away. The strategic problems posed by these changes differ from those
with which most top managements are familiar. But o f c o u r s e i t i s t h i s k i n d
o f p r o d u c t i v e t u r b u l e n c e t h a t s h a k e s things up enough to allow a real
reordering. For many firms, the risks of decline and the chances to move past
competitors and take a commanding position are greater now than they have
been for half a century.
THE TECHNOLOGY
The new technology
1
is emerging from the synthesis of a number of
hitherto independent areas: computer graphics, numerical machine tools,
job shop scheduling techniques, and industrial robotics. All are in a
stage of explosi ve chang e and g rowth be cause of micro processors.
Previously, each technology was tied to costly large computers. This not
only limited immediate applications, it had the more important effect of
making experiment, play, and the inventive juxtaposition of new elements

1
See Bylinsky [1981] for an up-to-date review.

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prohibitively expensive.
To the lay person, the most dramatic aspect of the new technology is
computer aided design (CAD). At the simplest level, these techniques
do for engineering drawing what word-processing e q u i p m e n t d o e s f o r
t y p i n g --errors are corrected with ease, new drawings can be made by
modifying standard drawings or old ones, and libraries of standard shapes and
specifications speed the Job. This technology is operating now and by
quickening the making of drawings, engineers become two or three times more
productive.
However, the full potential of CAD is not realized unless the system
does more than assist in drawing. Newer implementations (1) access
company-wide libraries of designs so that repetition and d u p l i c a t i o n a r e
m i n i m i z e d , ( 2 ) p r o v i d e s o f t w a r e t h a t h e l p s t h e d e s i g n e r evaluat e
the design, perhaps by showing response to temperature, vibration, or
stress, (3) locate manufacturing problems by finding aspects of the design that
strain or exceed tool limitations, and (4) generate the computer-coded instructions
which, when fed to the proper tools, will produce the part.
Two rough families of CAD installations can be identified, and their
differences foreshadow the two basic directions in which this technology will
evolve. One type is a general purpose video drafting machine with software to
convert part geometry into commands to numerically controlled tools. Design
evaluation capabilities of these systems is limited, although each user may add
software for that purpose. Systems like this are offered by several firms. The
other type is a company-crafted system that has extremely sophisticated software
to support the evaluation of designs of special products (not just parts)
like automobiles, chemical molecules, integrated circuits, and aircraft. In
these cases, the computer deals with "models" of the item and cannot produce
instructions for its manufacture.
On the computer aided manufacturing (CAM) side, the new trend is smart
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machines and distributed control---rather than having one big computer run a whole
facility, each separate machine is now controlled by its own local
microprocessor. There may also be a central "brain" that tells the local
machines what to do. The biggest problems in automating most manufacturing is not
the actual cutting, painting, etching, rolling, or casting process---these
have been mechanized for a long time. The weak link is moving materials
around, sorting, handling items, setting up machines, and positioning blanks.
Industrial robots are beginning to perform these tasks, but the technology
is just emerging. The critical issue is the development of reliable
"visual" or "tactile" sensors that will allow the robot to deal with a
jumbled environment.
Substantial potential synergy is available from combining these two
technologies to form CAD/CAM. The same system that aids the designer
also creates the control program that enables a machine tool, automated or
semi-automated facility to produce the part. One West-Coast electronics firm
is developing a system that will support circuit design on a CRT and
automatically make an actual prototype of the electronic circuit. The
time saving alone from this combination can justify the investment. Lead-
times on the making of special purpose parts can be cut from twelve weeks to a
few days.
One clear type of enterprise will emerge from CAD/CAM -- the g e n e r a l
p u r p o s e m e t a l c u t t i n g a n d w o r k i n g s h o p . W i t h n u m e r i c a l tools,
materials handling robots and associated equipment, and computer aided
parts design capabilities, such a facility would be able to quickly and reliably
respond to a wide variety of needs. The key point about such a shop is that
batch processing is no longer critically important. "Random" scheduling is
possible, with a constant rapid flow of totally different tasks on
different machines.
FIRST-ORDER IMPACTS ON COST AND PERFORMANCE
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CAD systems reduce the number of engineers and drafting personnel
required to perform a function and quicken throughput. Engineering is
not, in general, a variable cost of production. It is a set-up cost that
attends design, design change, and the creation of product
modifications. Consequently, one major impact of CAD technology is to
substantially reduce the fixed, or set-up, costs associated with product
design and product modification.
CAM systems have somewhat the same property. Although they can drop
variable unit costs by replacing labor, their major impact will be on set-up
costs and throughput. This is because very high volume