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>If you separate the thinking about things from the doing of things, then innovation will suffer. I found the author's framework incomplete and not useful. Fo

by jasode 5y ago

>If you separate the thinking about things from the doing of things, then innovation will suffer. I found the author's framework incomplete and not useful. For example, he didn't include any counterexamples. E.g. why is Intel with both in-house chip architecture design capability _and_ chip fabrication factories falling behind in innovation to competitors using the outsource model? - NVIDIA gpu + outsourcer TSMC is ahead of Intel at hardware for machine learning - Apple M1 chip + outsourcer TSMC beats x86 for laptop performance - AMD Neoverse chip + outsourcer TSMC bests Intel for many server workloads But that doesn't mean those companies outsource everything. E.g. Apple doesn't outsource the programming of iOS and macOS to outside consultants at Accenture or Thoughtworks. They do that in house. But Apple programmers don't write their own financial back office software. Instead, they use Germany's SAP ERP enterprise system. Likewise, none of SAP employees design and make smartphones for staff to use; they let Apple and Samsung manufacture the phones. Being strategic about outsourcing is a natural consequence of recognizing that other entities specializing in a competency can do it better/faster/cheaper. How did NASA "innovate" and send astronauts to the moon? They outsourced the work. E.g. The manufacture of space suits was contracted out to ladies bra manufacturer Playtex. The Apollo rockets were made by a combination of companies. NASA was the ultimate outsourcer.

carlmr 5y ago
He did get into that, that sometimes it's smart to outsource, the example was the fuse on the toaster. But you need to build something, you need to have some core competence where you can innovate because you build.
- jasode 5y ago
  >He did get into that, that sometimes it's smart to outsource, the example was the fuse on the toaster. The counterexamples I was looking for were companies that didn't fit his thesis instead of a small part like a fuse being outsourced. The author Bert Hubert keeps emphasizing "making" in addition to the thinking. So a design(thinking) company like NVIDIA doesn't seem to follow his ideal of how an "innovative" company is structured. And another counterexample like Apple in the 1970s used to in-house assemble computers and box them for shipping. That was all outsourced decades ago to China and yet Apple got more innovative with the 2007 iPhone.
  - redis_mlc 5y ago
    You're being an argumentative pedant. - Intel became incompetent at fabs, though they wish otherwise - most chip companies, possibly Nvidia, simply can't afford their own fabs, esp. "the next generation" that is always coming - Apple uses SAP because they're not in the MRP software business - Apple stopped assembling box computers because it was commoditized, and real estate/labor in Calif. became too expensive. I suggest you re-read your posts and step up your logical thinking. And using the word "ideal" is just moving the goalpost. What your ideology leads to is somebody else making your product, until they switch out your logo with their own. This is happening today in China with cars and other products. Oops - your Econ 101 textbook didn't cover that, did it?
  - fock 5y ago
    I think the main difference between any toaster manufacturer and Nvidia/Apple is: at some point toaster manufacturers don't even supply their R&D with the means necessary to actually make new stuff nowadays. E.g. if the head of R&D says: I want to try this new heating element I've thought of, management will say: "sure, where can we buy it?". At Apple and Nvidia I suppose there's the infra in place to make it happen, even if you can't buy it. How long that will still be the case, is an open question (just look at Aerospace for the downfall, with private equity eating all their manufacturing capabilities)
detaro 5y ago
The post doesn't say "all outsourcing is bad", and your 3 examples are all companies that (as far as I can tell) are very deliberate about what they outsource and deliberate about keeping control of the things they want to keep doing: NVIDIA is not going to go out to someone else and say "we want a GPU chip", but rather they are designing them end-to-end to make full use of what their production partners can do. iPhones are built in China, but Apple keeps tight control over how they are built. They control and manage the supply chain, they buy companies making tools used to make iPhones to keep control over this. They operate the cloud service stack around them. They made massive investments into doing more themselves: building a world-class CPU design group to get independence from what other SoC makers offer them. They are now leveraging that to outsource less of the Macbook design: move away from outsourcing CPU design and production to Intel, to design inhouse. They understand very well what the post warns about: If they stop being involved with these parts of the process, they will a)likely fall back and b) have a terrible time trying to recover the ability if they need to, so they only outsource selected parts of their work. The breaking points are further down the curve, and they stay the hell away from them. One could argue that Apple's attempts at making Macs in the US again are an example of how difficult it is to reclaim such ability, even if the company still has the know-how to oversee it. Especially since nearly everybody else in California also has stopped doing this kind of thing - Apple would need to train people a lot. Which Apple at least can afford, if they want to.
- jasode 5y ago
  >The post doesn't say "all outsourcing is bad", I didn't interpret his essay that way. His acknowledgements of some outsourcing being valid doesn't address my criticism. >and your 3 examples are all companies that (as far as I can tell) are very deliberate about what they outsource and deliberate about keeping control of the things they want to keep doing: NVIDIA is not going to go out to someone else and say "we want a GPU chip", but rather they are designing them end-to-end to make full use of what their production partners can do. And this is a great example that ties back to the author's point because he criticized Boeing. Boeing designs the planes and tells the outsourced partners what to make. Boeing then does final assembly in Boeing-owned factories in Washington and North Carolina. So to use your wording, Boeing does not go to somebody else and say "we want a 787 plane". Boeing does more building than NVIDIA. I think a fair reading of his essay is that he thinks that a company that is more vertically integrated via less (but not zero) outsourcing leads to more innovation. He was lamenting that outsourcing productivity software like MS Office 365 wasn't a good trend so presumably, companies that insourced that inhouse would be "more innovative".
Jaygles 5y ago
To be fair, we don't know if Intel's chip architecture design is falling behind. Their inability to move past the 14nm process is preventing them from using their newer designs.
rossdavidh 5y ago
I once worked for AMD, back when they had fabs, so I can speak to that a bit. There was once a time when IBM paid for new semiconductor manufacturing technology. Applied Materials and TEL and others would actually make the equipment, but IBM would pay for the development at each new node. Then, eventually, they decided they wouldn't pay, they would wait for someone else to do it, because cutting-edge semi's wasn't a core need for them any more. So, Intel became the new source of funding for research on new production nodes. There were various semi industry consortiums that coordinated all of this, but still someone had to step up with the billions that were required for each new node, and for a while it was Intel that did this. But then, eventually, the costs of R&D for each new node kept rising faster than the money you got for it, especially given that TSMC and Samsung and the rest also got to buy the new manufacturing equipment from Applied Materials and TEL and so forth, even though they hadn't sunk in the R&D cost to fund it. So, it ended up that the actual new R&D started to be done by the upstream companies that made the equipment which was bought for the fabs. This was already happening by the late 90's when I left the industry; actual semi manuf R&D was done at the equipment manufacturers, not at Intel; Intel was just the one with the financing. It worked until it didn't. TSMC execs have been quoted as saying they "outsourced their sales and marketing" to American companies.
- pas 5y ago
  TSMC's upstream is ASML. And interestingly ASML just recently managed to come up with a "good enough" pellicle (a transparent protector for the lithography mask) for EUV, and they are outsourcing the manufacturing of that to Mitsui as fast as they can. "The pellicle production tools have been installed in Mitsui, which this year will ramp up EUV pellicles based on ASML’s technology. Mitsui is no stranger to pellicles, and already produces optical pellicles. ASML will continue to do R&D for future pellicles." https://semiengineering.com/euv-pellicles-finally-ready/ https://semiengineering.com/euv-pellicles-finally-ready/ There is specialization (comparative advantage) outsourcing, with a living connection between the partners. ASML does the R&D an Mitsui scales it up, etc. And there's stubbornness driven outsourcing, where companies for some reason don't want to offer a competitive compensation, but are willing to spend a lot on service contracts. (Because they can claim that the risks are managed by the service provider.) And they end up with subpar solutions supplied by whatever vendors that had the patience to deliver to a completely incompetent client (and the necessary audacity to bill them as much as possible).

by jasode 5y ago

carlmr 5y ago

He did get into that, that sometimes it's smart to outsource, the example was the fuse on the toaster. But you need to build something, you need to have some core competence where you can innovate because you build.

jasode 5y ago
>He did get into that, that sometimes it's smart to outsource, the example was the fuse on the toaster. The counterexamples I was looking for were companies that didn't fit his thesis instead of a small part like a fuse being outsourced. The author Bert Hubert keeps emphasizing "making" in addition to the thinking. So a design(thinking) company like NVIDIA doesn't seem to follow his ideal of how an "innovative" company is structured. And another counterexample like Apple in the 1970s used to in-house assemble computers and box them for shipping. That was all outsourced decades ago to China and yet Apple got more innovative with the 2007 iPhone.
- redis_mlc 5y ago
  You're being an argumentative pedant. - Intel became incompetent at fabs, though they wish otherwise - most chip companies, possibly Nvidia, simply can't afford their own fabs, esp. "the next generation" that is always coming - Apple uses SAP because they're not in the MRP software business - Apple stopped assembling box computers because it was commoditized, and real estate/labor in Calif. became too expensive. I suggest you re-read your posts and step up your logical thinking. And using the word "ideal" is just moving the goalpost. What your ideology leads to is somebody else making your product, until they switch out your logo with their own. This is happening today in China with cars and other products. Oops - your Econ 101 textbook didn't cover that, did it?
- fock 5y ago
  I think the main difference between any toaster manufacturer and Nvidia/Apple is: at some point toaster manufacturers don't even supply their R&D with the means necessary to actually make new stuff nowadays. E.g. if the head of R&D says: I want to try this new heating element I've thought of, management will say: "sure, where can we buy it?". At Apple and Nvidia I suppose there's the infra in place to make it happen, even if you can't buy it. How long that will still be the case, is an open question (just look at Aerospace for the downfall, with private equity eating all their manufacturing capabilities)

detaro 5y ago

The post doesn't say "all outsourcing is bad", and your 3 examples are all companies that (as far as I can tell) are very deliberate about what they outsource and deliberate about keeping control of the things they want to keep doing: NVIDIA is not going to go out to someone else and say "we want a GPU chip", but rather they are designing them end-to-end to make full use of what their production partners can do. iPhones are built in China, but Apple keeps tight control over how they are built. They control and manage the supply chain, they buy companies making tools used to make iPhones to keep control over this. They operate the cloud service stack around them. They made massive investments into doing more themselves: building a world-class CPU design group to get independence from what other SoC makers offer them. They are now leveraging that to outsource less of the Macbook design: move away from outsourcing CPU design and production to Intel, to design inhouse. They understand very well what the post warns about: If they stop being involved with these parts of the process, they will a)likely fall back and b) have a terrible time trying to recover the ability if they need to, so they only outsource selected parts of their work. The breaking points are further down the curve, and they stay the hell away from them. One could argue that Apple's attempts at making Macs in the US again are an example of how difficult it is to reclaim such ability, even if the company still has the know-how to oversee it. Especially since nearly everybody else in California also has stopped doing this kind of thing - Apple would need to train people a lot. Which Apple at least can afford, if they want to.

jasode 5y ago
>The post doesn't say "all outsourcing is bad", I didn't interpret his essay that way. His acknowledgements of some outsourcing being valid doesn't address my criticism. >and your 3 examples are all companies that (as far as I can tell) are very deliberate about what they outsource and deliberate about keeping control of the things they want to keep doing: NVIDIA is not going to go out to someone else and say "we want a GPU chip", but rather they are designing them end-to-end to make full use of what their production partners can do. And this is a great example that ties back to the author's point because he criticized Boeing. Boeing designs the planes and tells the outsourced partners what to make. Boeing then does final assembly in Boeing-owned factories in Washington and North Carolina. So to use your wording, Boeing does not go to somebody else and say "we want a 787 plane". Boeing does more building than NVIDIA. I think a fair reading of his essay is that he thinks that a company that is more vertically integrated via less (but not zero) outsourcing leads to more innovation. He was lamenting that outsourcing productivity software like MS Office 365 wasn't a good trend so presumably, companies that insourced that inhouse would be "more innovative".

Jaygles 5y ago

To be fair, we don't know if Intel's chip architecture design is falling behind. Their inability to move past the 14nm process is preventing them from using their newer designs.

rossdavidh 5y ago

I once worked for AMD, back when they had fabs, so I can speak to that a bit. There was once a time when IBM paid for new semiconductor manufacturing technology. Applied Materials and TEL and others would actually make the equipment, but IBM would pay for the development at each new node. Then, eventually, they decided they wouldn't pay, they would wait for someone else to do it, because cutting-edge semi's wasn't a core need for them any more. So, Intel became the new source of funding for research on new production nodes. There were various semi industry consortiums that coordinated all of this, but still someone had to step up with the billions that were required for each new node, and for a while it was Intel that did this. But then, eventually, the costs of R&D for each new node kept rising faster than the money you got for it, especially given that TSMC and Samsung and the rest also got to buy the new manufacturing equipment from Applied Materials and TEL and so forth, even though they hadn't sunk in the R&D cost to fund it. So, it ended up that the actual new R&D started to be done by the upstream companies that made the equipment which was bought for the fabs. This was already happening by the late 90's when I left the industry; actual semi manuf R&D was done at the equipment manufacturers, not at Intel; Intel was just the one with the financing. It worked until it didn't. TSMC execs have been quoted as saying they "outsourced their sales and marketing" to American companies.

pas 5y ago
TSMC's upstream is ASML. And interestingly ASML just recently managed to come up with a "good enough" pellicle (a transparent protector for the lithography mask) for EUV, and they are outsourcing the manufacturing of that to Mitsui as fast as they can. "The pellicle production tools have been installed in Mitsui, which this year will ramp up EUV pellicles based on ASML’s technology. Mitsui is no stranger to pellicles, and already produces optical pellicles. ASML will continue to do R&D for future pellicles." https://semiengineering.com/euv-pellicles-finally-ready/ https://semiengineering.com/euv-pellicles-finally-ready/ There is specialization (comparative advantage) outsourcing, with a living connection between the partners. ASML does the R&D an Mitsui scales it up, etc. And there's stubbornness driven outsourcing, where companies for some reason don't want to offer a competitive compensation, but are willing to spend a lot on service contracts. (Because they can claim that the risks are managed by the service provider.) And they end up with subpar solutions supplied by whatever vendors that had the patience to deliver to a completely incompetent client (and the necessary audacity to bill them as much as possible).