The Porter Diamond: A Study of the Silicon Valley

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For this SGQ study, I elect to study the Porter Diamond as it relates to the information technology industry in the Silicon Valley. South Korea's information and technology industry has already been explored by using Porter's Diamond. The Silicon Valley cluster benefits from interdependent business relationships and export-oriented product movements that generate substantial revenue. Employment concentration centers on jobs related to circuit manufacturing, computer design, and software programming. Cluster dependency in the Silicon Valley builds upon an intricate network of entrepreneurs, established technology firms, research institutions, government establishments, and universities; the net result creates a breeding ground for innovation and creativity. Economic prosperity was significantly hampered in the tech bubble crash of 2000, where unemployment jumped from 2.4% to 7% between 2000–2001 and average annual wages (adjusted for inflation) dropped from $120,064 to $101,057 between 2000–2004. However, economic affluence rebounded from 2004–2008 due to retention of core talent in the region, generous consumer spending, rebounding venture capitalist investments, the birth of hub sectors in biotechnology, nanotechnology, and a push towards more environmentally friendly technology. With these workforce attributes concentrated within the San Francisco Bay area, the Silicon Valley cluster benefits from a resilient core of creative minds.

Founded in the aftermath of the dot-com crash of the early 2000s, Workday, Inc. serves as an industry leader that provides cloud-computing solutions to help businesses manage their finances and human capital with a drastic reduction in expenses as compared to competition. With over 2,600 employees and revenue approaching $500 million for 2014, founders Dave Duffield and Aneel Bhusri have firmly positioned the company to provide a traditional service in efficient packaging to take advantage of current information technology capabilities. As such, Workday provides the ideal portrayal of a sustainable Silicon Valley enterprise.

There exist four components of overall competitive advantage that contribute to the consistent success of Silicon Valley technology firms. These determinants supply a national advantage for the United States based on public access to resources and high-value competency development, the background information to research the value of investing in certain opportunities and passing on others, clearly defined goals as set by individuals within the organization, and a drive to succeed and speculate on the creation of improved products (Porter, 2010, p. 2). These factors contribute to a national competitive advantage for the United States.

Factor conditions in the Silicon Valley led to its current state of dominance as a global leader in information technology. Porter (2010) highlights situations where highly trained workers contribute to the development of the cluster; in addition, limitations of resources obligate firms to find innovative solutions that would not have been stimulated under ideal circumstances (p. 2). In this case, Workday was founded in 2005 just at the beginning of the recovery process in the Silicon Valley. The search to upgrade on existing software products combined with the developing technology of cloud computing to create a business communications goal that esteemed real-time results, intuitive user access, and adaptability across all user platforms (Duffield & Bhusri, 2014). These adversity factors drove the creative solutions that account for Workday's ongoing success.

Demand conditions also influenced the growth of the Silicon Valley. In this case, standards of expectation remain at their zenith among local users of a product—with this expectation of excellence, companies remain in close proximity to the most demanding consumers, which leads to high product quality that outpaces competitors in other nations (Porter, 2010, p. 2). American technology developers and consumers enjoy a reputation for understanding technology better than most developed countries and boast the competitive fees to substantiate their products. In the case of Workday, they develop metadata technology that allows developers to rapidly alter applications without restructuring entire programs (Duffield & Bhusri, 2014). This creates cost reductions allowing for broader business management access.

Related and supported industries increase competitive innovation in the Silicon Valley. Because firms understand that many alternatives exist at the local level, they are driven to find both efficient and effective solutions; when this competition also enjoys a global market presence, this effect is heightened (Porter, 2010, p. 2). Workday undercuts corporations that focus on on-site data management solutions such as Automatic Data Processing, Inc., the Oracle Corporation, and SAP AG to supply a more nimble interface with few, if any, compromises in quality. As industries supply products on varying platforms, consumer competition is optimized.

Firm strategy and structure contribute to the national advantage epitomized in the Silicon Valley. Local conditions based on cultural values influence the nature of success (Porter, 2010, p. 2–3). In the case of Workday, great advantage comes from a national mentality focused on living to work; the result creates 60+ hour work weeks where tech workers develop team-oriented atmospheres that ultimately make their way into the products they create. This overarching focus on collaboration gives a national advantage for American technology firms such as Microsoft.

In conclusion, the "Porter Diamond" of national competitive advantage seeks to explain the underlying factors that give an industry its position of dominance over global competitors. By combining the merits of extraordinary consumer demand, adverse market conditions that force a creative push towards innovation, supplying a product to a customer base with other locally-based proven alternatives, and fostering a collaborative work-first culture, Silicon Valley firms maximize the talents of their workers. These four factors all apply to the initial and continued success of Workday in the midst of an industry that shows signs of continued growth.

References

Duffield, D., & Bhusri, A. (2014, January 1). Enterprise business management solutions : human capital management | HCM | payroll & financial management software as a service - human resource | HR | solution. Workday. Retrieved from http://www.workday.com/

Porter, M. E. (2010, January 1). Porter's Diamond of National Advantage. Quick MBA. Retrieved from http://www.quickmba.com/strategy/global/diamond/