Figure 9.5 Shift to Centrex (lines installed).
uncertainty. While complex, the evidence suggests that market uncertainty is correlated to the adoption of a centralized or distributed management structure, and in the last shift to centralized management, market uncer- tainty is the likely catalyst of this change. The many shifts of management structure over the history of voice services and the level of market uncer- tainty during the shifts are consistent with the theories in this book.
One important observation is that when market uncertainty is high, cen- tralized management structure is not the architecture adopted by most users. Figure 9.6 illustrates this by demonstrating the correlation between date, market uncertainty, direction of change of market uncertainty, and popular management structure. Several important points in the history of voice services related to management structure are depicted, including the invention of the PBX, the invention of Centrex, Carterfone— the court case allowing non-AT&T solutions — the computer-controlled PBX, and finally the commoditization of PBX-type services. The arrows indicate the effect of the event on the market uncertainty and on the choice of management structure that is growing fastest. As shown, market uncertainty matters — centralized management grows faster than distributed management struc- ture only when market uncertainty is decreasing.
Figure 9.6 Analysis of market uncertainty and management structure.
DM Invert PBX
PBX Technology
matures Carterfone
Invent Centrex
1900 1925 1950
Date
1975 2000
Don't care about market uncertainty
SPC PBX
CM DM DM CM
MU MU
Basic Voice Services 159
The invention of the PBX made distributed management of voice ser- vices possible, yet that was not why it was invented. It was the calling pat- tern and the economics of the era that led to its development. Users at this time had only one choice of vendor for either PBX hardware or voice ser- vices. The incentive to innovate was absent because the law prohibited solutions other than the current AT&T offering.
Centrex was invented for the same reason the PBX was — the monopo- listic telephone company decided it made economic sense. Again, users had little choice — they could buy voice services from AT&T via Centrex, or they could buy PBXs from AT&T. Product differentiation did not exist.
Again, the incentive to innovate did not exist because users were locked into AT&T by regulation.
Before the Carterfonedecision, market uncertainty was not a factor in the value of either the centralized or the distributed management structure.
Users had only a single vendor — AT&T — because the law disallowed competition. Users had little choice in services and equipment — in the context of Porter’s five-forces model, users had no power. As pointed out in Part One, the value of market uncertainty is realized only when users have choices, and this value is greatest when the choices come from many different service providers and when market uncertainty is high. This implies that before Carterfone, market uncertainty was not a factor in man- agement shifts.
Finally, in the late 1960s, regulators provided the incentive for inno- vation. The Carterfone case opened up the voice service and hardware market — AT&T could no longer dictate users’ choices of hardware or ser- vices. This development allowed market uncertainty to become an important factor in the choice of management structure. Now that users had choices, market uncertainty increased the value of this choice. Having many different PBX vendors created competition, giving an incentive for innovation.
Although Carterfoneenabled competition, it was not easy for PBX ven- dors to experiment with new features because of the mechanical design of a PBX, but when PBXs adopted computer control as the dominant archi- tecture, vendors suddenly had the capacity for easy and inexpensive implementation of new PBX features. This development created an envi- ronment in which it was easy to invent and test out new PBX features because the computer-controlled PBX requires only a software upgrade to add features. This event tremendously increased the market uncertainty as most new technologies do — it changed the landscape of possible applica- tions. Neither PBX vendors nor users understood what worked best; there was lots of experimentation. As discussed previously, pundits believed that the distributed architecture for voice services via a PBX provided the 160 Chapter 9
best answer for most organizations. The flexibility of this new computer- ized PBX won the hearts of users and industry experts because of both the new powerful features and the control users now had with the distributed nature of PBX management.
The focus of this case is on this last shift in voice services, illustrated in Figure 9.4. It is the shift in the mid 1980s to Centrex that occurred after the technology of the SPC PBX matured that caused PBXs to become commodi- ties. The availability of evidence from this shift is the strongest, and the reg- ulatory environment allows the competition needed to make market uncertainty a factor in the management choice of voice services. The evi- dence shows that market uncertainty is the likely cause of this shift. To demonstrate this, the next section argues that market uncertainty decreased at the correct time and that other causes were not likely to have been the cat- alyst for the shift to the more centralized structure of Centrex. This implies that market uncertainty was the critical factor that caused management structure in voice services to shift to a more centralized model.