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Aldin Velic
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Aldin is a supply chain strategist and adjunct professor. He has earned a Bachelors in International Business and a Masters - in Executive Management. In addition to these, Aldin holds certifications in Supply Chain Strategy and Lean Six Sigma. Currently, he is working on a dissertation to... More
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  • The Impact Clockspeed Benchmarking Plays On Investing For The Long-Term 0 comments
    Jul 7, 2014 3:55 PM

    With global stock indexes recently reaching record highs, investment decisions pertaining to continued performance and high portfolio returns comes at truly vetting out long term competitive advantages organizations possess in their respective industries. Shortly after the collapse of Lehman Brothers, stocks fumbled to all time lows. Well some did, companies like Apple Inc. (OTC:APPL), only saw declines of about 30%; the loss of about 30% sounds significant, but when comparing to long time heavy weights like Microsoft (NASDAQ:MSFT) (52% decline), or Ford Motor Company (NYSE:F) (60% decline), the 30% decline becomes miniscule when speaking relatively to the overall market performance and many other organizations during that time. What specifically set Apple apart during this time period, and especially the time following; stemmed from internal capabilities. More relatively their ability to innovate at corresponding speeds relative to their competition. The term clockspeed benchmarking comes to mind. A term coined by Massachusetts Institute of Technology (MIT) professor, Dr. Charles Fine. Dr., Fines definition of clockspeed benchmarking states that: "[t]he clockspeed framework suggests a dynamic theory of the firm where the "inner core" competency of an organization is the ability to continually design and assemble of chains of competencies to deliver value to the marketplace". In 2009, utilizing this theory and looking back two years to 2007; I would highly recommend investing in a company like Apple Inc. Looking at the inner core of competencies at that time and within Apple, the iTunes platform, design of the phone, capabilities and consistent introduction of new models every 11-12 months, a overall design process breakthrough; which made highly functioning devices very intuitive and easy to use - with slim to no competition in the market, all bear resemblance to a company with limitless opportunity. The years following 2009 took Apple Inc.'s stock price up 291% through 2011. Today, the company seems to have lost a significant amount of that "inner core" competency, with the more recent product releases, especially as it pertains to its iPhone flagship product having had little innovation - technically or optically. It's competition has brought new phones to a market which for quite a long time was being dominated by Apple Inc. Samsung, a Korean contender being a key competitor. Table 1 illustrates the evolution of the clockspeed within Apple and Samsung, providing a comparison to not only provide insight into the "time" between releases, but rather it's relevance on technological factors and improvements.

    Samsung

        

    Apple

        

    Date

    Model

    CPU

    Battery

    Storage

    Date

    Model

    CPU

    Battery

    Storage

         

    Jun-07

    iPhone

    620MHz

    1400mAh

    8GB

         

    Jul-08

    iPhone 3G

    620MHz

    1150mAh

    8GB

    Apr-09

    Galaxy i7500

    528MHz

    1500mAh

    8GB

    Jun-09

    iPhone 3Gs

    600MHz

    1220mAh

    16GB

    Jun-10

    Galaxy S

    1GHz

    1500mAh

    16GB

    Jun-10

    iPhone 4

    600MHz

    1420mAh

    32GB

    Apr-11

    Galaxy S2

    Dual-1.2GHz

    1650mAh

    32GB

    Oct-11

    iPhone 4s

    800MHz

    1430mAh

    64GB

    May-12

    Galaxy S3

    Quad-1.4GHz

    2100mAh

    64GB

    Sep-12

    iPhone 5

    Dual-1.3GHz

    1440mAh

    64GB

    Apr-13

    Galaxy S4

    Quad-1.6GHz

    2600mAh

    64GB

    Sep-13

    iPhone 5s

    Dual-1.3GHz

    1560mAh

    64GB

    Apr-14

    Galaxy S5

    Quad-2.5GHz

    2800mAh

    64GB

         

    Table 1

    What becomes evident within this competitive analysis is the change in product offering and its capabilities. It is then also no surprise to see that Apple Inc.'s stock price from 2011-2013 grew by 68%, while Samsung (OTCMKTS: OTC:SSNLF) grew by 97%. Depending on the release of their new iPhone later this year, Apple within the clockspeed framework, has lost it's attractive investment appeal - and as such if Samsung continues to develop their "inner core" capabilities as they have proven over the past two years, it is poised for some significant growth in the years to come.

    Looking at financial ratios relative to industry competitors, running technical analyses to determine mean regressing indicators and thus opportunities, and reading columns from industry experts may prove somewhat relevant, however what truly will drive the companies of tomorrow stems from understanding competitive advantages within clockspeed benchmarking. The theory is applicable in any business, and as with such helps predict whether or not organizations will exceed expected earnings due to the fundamental nature of delivering more benefits and value for the same or less cost.

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.

    Themes: long-ideas
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