A new paradigm is required to explain patterns of competitive success and failure in information technology. Success flows to the company that establishes proprietary architectural control over a broad, fast-moving, competitive space. Architectural strategies have gained importance in information technology because of the astonishing rate of improvement in microprocessors and other semiconductor components. Since no single vendor can keep pace with the outpouring of cheap, powerful, mass-produced components, customers insist on stitching together their own local systems solutions. Architectures impose order on the system and make the interconnections possible. The architectural controller is the company that controls the standard by which the entire information package is assembled.

U.S. and European information technology companies face a choice: cooperate or become design and marketing arms of their Japanese competitors. As digital technology ushers in an era of inexpensive personal systems built from standard, mass-produced components, industries are converging to form a huge information technology sector. Companies able to manufacture components are gaining ground. This trend plays to the strengths of the Japanese; embedded in industrial combines known as keiretsu, they invest in technology and manufacturing, command the supply chain, and coordinate strategy to block foreign competition and penetrate world markets. McKinsey Award Winner.

George Gilder, in the March-April 1988 HBR, attacked MIT's Charles Ferguson for believing that many, small, entrepreneurial companies will do more for U.S. competitiveness than a few, large, integrated ones. Gilder claimed that advanced computer technology (engendering the "law of the microcosm") lowers barriers to market entry and promises to make talk of a national industrial policy obsolete. Here Charles Ferguson joins the debate and refutes Gilder's claims with an analysis of the U.S. semiconductor industry. Ferguson shows that U.S. companies lose out, not to nimble, small companies but to huge, protected Japanese complexes that are embedded in stable, concentrated, coordinated alliances.