Has Washington Attacked on Best Practices?

FRAMINGHAM (05/08/2000) - Ten years ago, the nation was awash in doubt over its ability to compete in global markets. U.S. industrial competitiveness was the catchphrase of the day.

The few companies that were able to successfully compete in high-tech markets - Motorola Inc., Corning, GE, Hewlett-Packard Co. and Intel Corp. - were celebrated as role models and benchmarked repeatedly.

What we discovered at the time was that these firms behaved differently. They exhibited a pattern of strategic management that, at the time, seemed striking:

They focused on relatively proscribed domains and then did absolutely everything possible to dominate in those domains - with the best-performing products at low costs, high quality and short product development cycle times.

Their attorneys frowned on the use of the word dominate, but that's what they set out to do.

Perhaps the greatest irony in the government's prosecution of Microsoft Corp. is that the company was the most successful at practicing this form of strategic management during the 1990s. It built a strong early position in desktop operating systems, thanks largely to the emergence of the IBM-based PC as the industry standard, and then leveraged that dominance into equally strong positions in desktop applications of PC operating systems and, eventually, Internet-oriented applications.

On the surface, the Justice Department is attacking Microsoft's practice of bundling Internet Explorer with Windows, but in reality, it's attacking the very strategic management practices exhibited by the most successful American high-tech firms of the past two decades and, very likely, of the coming decade.

Trying to prevent Microsoft from bundling Explorer with Windows is like trying to prevent Oracle from developing Web-enabled database software or extending its dominance in database software to enterprise resource planning applications.

The government has tried to justify its case against Microsoft by arguing that its business practices have harmed innovation. Considering that the PC-based world has been explosively innovative, the government, in effect, is claiming that if Microsoft hadn't been as dominant in PC operating systems, the incredible pace of innovation in the so-called New Economy would have been even more incredible. Remember: The government isn't actually claiming that the economy has been harmed; rather, it's making a much more hypothetical claim about lost opportunities for even greater benefits.

The key point is that all the available evidence about highly innovative high-tech firms indicates that they're innovative precisely because their strategic management practices are similar to Microsoft's. Moreover, it's entirely possible that the New Economy has been so explosively innovative not in spite of but because of Microsoft's dominance. The dominance created a de facto standard that becomes a platform for new waves of innovation. The Wintel standard became a known, fixed starting point for the thousands of firms pursuing new developments in the PC-based world.

In the end, perhaps the most telling evidence of the bankruptcy of the government's position is the simplest: Imagine that Netscape were a Japanese company. Microsoft's behavior, and its impact on innovation and the consumer, would have been no different. But rather than prosecuting Microsoft, the Clinton administration would probably have celebrated it as a paragon of industrial competitiveness. wJoseph G. Morone is president of Bentley College in Waltham, Massachusetts, and the author of Winning in High-Tech Markets. Contact him at jmorone@bentley.edu.

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