The Proto Project

Similarly, there was the cost in terms of t theime needed to log, track, monitor, and report Win 95 deficiencies. Although Microsoft did provide a diagnostic tool with its beta version that automated the monitoring process, working with unfinished operating systems is never a task for the timid, the cheap, or the uninitiated.

A reasonable estimate of the costs of testing a single beta version for several months exceeded $3,000. But even that number is on the low side: Industry experts predicted that the first-year costs of upgrading to a finished version of Win 95 could easily have topped $4,000 per corporate PC -- and they were right.

Do the math: If beta-testers absorbed an average of $3,000 in costs per site, and if there were 300,000 copies of the software in use, then those beta-testers effectively subsidized the final stage of the Win 95 development to the tune of $900 million. Remember, this is a deliberately conservative estimate. Factor in the market benefits of new ideas that were suggested by the Win 95 corporate beta sites, and it could be said that Microsoft reaped $1 billion in value from its customers and developers -- before it sold a single copy of Windows 95.

In other words, Microsoft's beta process provided Microsoft with roughly $1 billion in subsidies from some of the world's smartest PC users and software developers. That subsidy enabled Microsoft to produce a far better product for far less money in far less time than it otherwise could have done.

Now transfer that scenario to the rest of the world of business. Consider how much more competitive companies like Alcoa, DuPont, or GE Plastics might be if they received the equivalent of a $1 billion subsidy from Toyota, General Motors, and Ford to develop lightweight materials for auto bodies. What if Lufthansa, British Airways, and Air France provided a $1 billion subsidy for Airbus to build its next-generation airliner?

But, of course, that subsidy isn't only about money; it's also about creating and managing relationships that let innovators tap into the talent and the time of their savviest customers in a cost-effective fashion. In this context, social capital is at least as valuable as the financial capital. The inescapable conclusion: Microsoft's skillful use of its prototyping process has given the company a set of extraordinary competitive advantages in the global marketplace -- some economic, some intellectual, some social.

Microsoft's perception? According to one senior executive, "It would be fair to say that Windows 95 was a good example of customers' contributing and benefiting from the prototype process. They gain because they assess the prototype or beta software and start assessing the impact on their organization and how to plan for it. Microsoft gains because of the feedback we get on bugs, features and functions, and the enthusiasm we garner if we did a good job."

The Moral: Prototypes can be a medium for both creating and managing a value-added community of customers that subsidizes project-development costs.

The Question: Does your organization use its prototyping process as both a tactical and a strategic resource, and are your best customers subsidizing your key innovation initiatives?

Boeing Prototypes Its People

Boeing's development of its breakthrough 777 jet marked a profound transformation of both the company's culture and its design technologies. New design-build teams replaced Boeing's traditional practice of dividing the work among disparate engineering departments. Plans, drafts, and drawings that were once sketched on Mylar sheets were now digitized and managed by a supersophisticated computer-aided design program called CATIA (computer-aided three-dimensional interactive application).

"Integration is what we were interested in," recalls Henry A. Shomber, a 39-year Boeing veteran and the 777's chief engineer for digital preassembly. "We had a saying: 'If it isn't in CATIA, it isn't in the airplane.' "

That mantra -- along with the goal of integrating various design functions -- represented a radically new discipline for the world's largest aircraft company. Boeing's plan for the 777, explains Shomber, was to prebuild the entire airplane -- including such subsystems as avionics and hydraulics -- in CATIA. The goal was to resolve all design conflicts before physical assembly took place. Boeing even devised an add-on system called EPIC (electronic preassembly integration on CATIA), so designers and engineers could test how well their components would fit together.

In preparation for that new approach to creating aircraft, the company distributed about 2,000 terminals to the 777 design team, all of which were connected to what was then the world's largest grouping of IBM mainframes. In addition, key suppliers from around the world had instant access to the data and were notified of changes and modifications almost immediately.