Business ingenuity

44 Pages·1998·4.5 MB·English

by  Massachusetts Office of Business Development

THE MAGAZINE OF APPLIED INNOVATION FROM MASSACHUSETTS
"T>
foD )A)JQ1 1998^ \/
Volume
1
UMASS/AMHERST
312066 0362 9092 2
Mother Ships and
Manufacturing
MIT: Research
Stock on the Rise
14
p.
Don't Bet
Against Chelsea
26
p.
E
V E R T U R E
Don't Look for Answers;
Look Ingenuity
for
Tony Bogar
No, you haven't seen this magazine before. This is
the inaugural issue ofBusinessIngenuity, a quar-
terly publication designed to serve two purposes.
Our primary goal is to provide you with ideas and Don't look to us for all
information that you can incorporate into your business the answers. You know
strategies. There are many magazines out there, perhaps your business better
in your briefcase right now, filled with how-to articles and
useful tips. That's good, but that's not our approach. than anyone else.
You've got all the tips you need (many a decent duffer has Instead, use Business
lost his game by trying every tip in every golfmagazine),
Ingenuity to find the
and you certainly couldn't have reached your current posi-
tion without knowing your business. We understand that. right questions to ask, to
We strive to be beneficial on a different level. find the ideas that will
Ingenuity is what we are all about. We want to help you lead you to your own
generate ideas, fit pieces ofa puzzle together, develop
solutions. We also want to prompt you to ask questions. solutions.
Where is your business headed? Where are your cus-
tomers going? What is the next step? The step after that?
What patterns are developing in your company, in the should be a part ofyour decision-making process. We
economy, in society that you can use to your advantage? have a highly educated workforce, vibrant economy,
Don't look to us for all the answers. You knowyour diverse communities, and ever-improving business infra-
business better than anyone else. Instead, use Business structures, including innovative tax incentives and a gov-
—MOBD—
Ingenuity to find the right questions to ask, to find the ernment agency that can assistyou in your
ideas that will lead you t—o your own solutions. Read our expansion and relocation process. Massachusetts is home
business theory features in this issue, we discuss the to some ofthe most creative and motivated thinkers in
—
evolution ofmanufacturing partnership—s to discover the world. You know that. What you might not know is
EMC
emerging trends. Read our case studies has — that Massachusetts is a very good place to do business.
revived itselfby making the right strategic decisions to The two purposes ofthis magazine converge in one
learn from other people like you. Read BusinessIngenuity word: ingenuity. We want to share with you the ingenuity
with the understanding that we are not pitching that we find all around us in Massachusetts, from
panaceas, that you are responsible for developing the Harvard University and the Massachusetts Institute of
strategies that fit your specific circumstances. Use Technology in Cambridge to the high-tech engines along
Business Ingenuity as a catalyst. Route 128, from the biotechnology incubator in central
You will notice that there are no advertisements in this Massachusetts to the research labs at the University of
issue. Nor is there a subscription cost. You are sophisti- Massachusetts at Amherst. We hope you can use these
cated enough to know that this is not an altruistic gift to ideas to advance your own business and to inspire, within
the business community. yourselfand your colleagues, your own type ofingenuity.
Thus, our second purpose. BusinessIngenuity is spon- We hope BusinessIngenuity becomes a valuable tool
sored by the Massachusetts Office ofBusiness for you and your company. Your feedback can help us fill
Development (MOBD). The features are bookended by that role. Please send your comments to: Business
MA
departments that are intended to keep you abreast of Ingenuity, 125 Walnut St., Watertown, 02172.
developments here in the Bay State. It is also, quite hon-
estly, a subtle pitch for your business. As you think about
the future ofyour company, relocation questions
undoubtedly will come to mind. We think Massachusetts
BUSINESS INCI.NUITY/FiKST QUARTER 98
4
BUSINESS
1
INGENUITY
First Quarter 1998 Volume 1
FEATURES
Success Squared
The EMC2 formula includes bold moves in
uncertain times
By Brian O'Connell
Three years ago, EMC^ jumped into the open
storage market when its competitors were still
BUSINESS INGENUITY
thinking about mainframes, and subsequent
decisions have analysts comparing the company
Editor-in-Chief
TonyBogar to Microsoft and Intel Page 8
ExecutiveEditor
JamesWolken MIT Research Stock Rises
Wall Street pays attention when these
AssistantEditor
academics study finance
CatherineJ. Blatz
By S.C. Biemesderfer
ArtDirector With their Nobel Prize in economics, Merton
Bryan Carden MIT
and Scholes put in the public limelight,
Designers but the university's researchers have had Wall
JeffPappas Street's attention for years Page 1 PHOTOS:BARRYHETHERINGGON
Dan Kraby
ProductionManager "Mother Ships" and Manufacturing
Matt Carson
Horizontal model ofmanufacturing takes
Commonwealth wing in outsourcing era
of Massachusetts By Michael McDermott
J.
While outsourcing coursed through industry
Governor
Argeo PaulCellucci after industry, manufacturing held itself
—
apart and suffered. Now the "Mother Ship"
DirectorofEconomicDevelopment comes to the rescue Page 20
DavidA. Tibbetts
MassachusettsOffice
ofBusinessDevelopment Don't Bet Against Chelsea
OneAshburtonPlace With a little luck and the right incentives,
21stFloor
Boston,MA02108 a battered city is reclaiming its stake
Phone:[phone] in the economy
Out-of-state:(800)5-CAPITAL By Brian Sullivan
Fax:[phone] Officials in this Massachusetts city are reaching
E-mail:[email protected]
Web:www.state.ma.us/mobd out to businesses with offers that give Chelsea
PHOTOS:KATHYTARANTOLA
new appeal and a new stature in
Skinner-James the economy Page 26
Communications
DEPARTMENTS
CEO
Stephanie Skinner
President
JamesWolken In Sites, p. 2 Sectors, p. 32
125WalnutStreet
Watertown,MA02172 Capital Ventures, p. 6 Contacts, p. 39
Phone:[phone]
Fax: [phone] BusinessIngenuity,TheMagazineofAppliedInnovationfromMassachusetts(ISSN1097-9352)ispublishedquarterly(March,June,
Sept,Dec)lortheMassachusettsOfficeofBusinessDevelopment(MOBD)bySkinner-JamesCommunications, 125WalnutSt.,
Watertown,MA02172.Allrightsreserved.Nopartorwholeofthispublicationmaybereproducedinanyformorbyanymeans
withoutpriorpermissionofthepublisher,Skinner-JamesCommunications.Theopinionsexpressedarenottobeconsidered
«~T-"1^3^ BpursiinnteesdsoInngreencuyictlyedispaper AofpfpilciiaclateixopnretsosimoanisloaftMpeOrBioDdi.calRseqpuoessttasgeforratreesprisinptesnadnidngpeartmBiossstioonn,sMshAoualdndbeadddiirteicotneadltmoaiBluisnigneosfsfiIcnegse.nuPitOyS,T(6M1A7)S9T2E6R-7:07S7e.nd
addresschangestoBusinessIngenuity, 125WalnutSt.,Watertown,MA02172.
B
SITES
N
Mutual Benefit for Mutual
Fund Service Companies
Massachusetts has become a friendlier place for the
mutual fund industry in the past year with legis-
lation that provides strong tax incentives for those com-
panies based in Massachusetts, which claims 23 percent
ofall the mutual fund assets in the United States.
What this means for The new law is twofold, one part redefining where
mutual fund service mutual fund sales can be said to take place, and the next
elevating the importance ofthis factor in the apportion-
companies is that not ment ofa company's income.
only will the percentage The "destination test" section ofthe law allows a cor-
ofsales on which they poration (such as an investment adviser) providing ser-
vices to a mutual fund to treat its charges for those ser-
are taxed drop dramati-
vices as Massachusetts sales only to the extent that fund
cally, but sales will be the shareholders live in the Bay State. This reduces, for
many companies, the number ofMassachusetts-based
only factor upon which
sales and, therefore, the tax due to Massachusetts.
the state tax is based. The second part ofthe law states that mutual fund com-
"You could see approxi- panies may use a 100 percent single sales factor formula to
apportion their income, rather than the old formula, in
mate percentage reduc- — —
which three factors property, payroll, and sales were
tions going from the 90 used. Under this law, taxwill be based solely on sales. In
percent range down to order to use this apportionment formula, mutual fund
companies must meet certain job growth requirements.
the 20 percent range," What this means for mutual fund companies is that not
says Will Hazel, formerly onlywill the percentage ofsales on which they are taxed
drop dramatically, but sales will be the only factor upon
of the Massachusetts
which the state tax is based. Depending on the particular
Department ofRevenue. facts, "you could see approximate percentage reductions
going from the 90 percent range down to the 20 percent
range," says Will Hazel, formerly ofthe Massachusetts
Department ofRevenue and now a partner at the law
firm ofChu, Ring and Hazel, ofBoston.
Ifa mutual fund service company fails to meet the
—
criteria for job growth defined as a 5 percent increase
from its 1996 employment level and an increase ofthe
—
same amount each year after that for five years it will
not be allowed to use the single sales factor formula and
instead will be required to use the old three-prong
apportionment. The destination test, however, applies to
a company regardless ofjob growth.
Hazel describes the single sales factor as an "extra car-
rot" for a mutual fund company already benefiting from
the destination test. The setup benefits everyone, includ-
ing the state, which, with the higher job levels, will even-
tually collect more individual taxes, "which is more than
the corporate excise you're going to get out ofme [a
IMJSIM.Sh IV VIIIY/IIRM QUAIUI.ll 98
,1
I N I T E S
mutual fund company]," he notes.
"It's not fair to tax me as if 100 percent ofmy business
were based in Massachusetts," Hazel says. "Part ofmy
economic opportunity has nothing to do with Mass-
achusetts. By recognizing that, [the state] makes it more
appealing for me to come here or to stay here."
Making Movies
in Massachusetts
The
Massachusetts film industry has been heating
up recently, with the Bay State serving as a back-
drop for everything from big-studio releases (Dream-
works SKG'sAmistad) to critically acclaimed independent
—
films (Next Stop Wonderland, which made its debut at
the Sundance Film Festival). As the beautiful people flock
to Beantown, the dollars follow. The film industry had a
total economic impact of$396 million on the
Massachusetts economy in 1995 alone, according to a
Northeastern University study.
And it's not just local FX houses and camera opera- Benefits to the state
tors who benefit. aren't limited to econom-
"Lots ofbusinesses are affected by the film industry,"
asserts Ann Scanlon, media and marketing coordinator ic ones. For the filming
for the Massachusetts Film Office. "Hotels, airlines, ofThe Crucible, starring
restaurants, car rental agencies." She recalls that when Winona Ryder and Daniel
NeilJordan's upcoming Dreamworks SKG film In
Dreams was shooting in the Northampton area, the Inn Day-Lewis, the crew built
at Northampton was booked nearly solid for weeks. At an entire 1 7th-century
the same time, a local hardware store "couldn't keep duct
village on Hog Island in
tape in stock," she says. "Film production brings in so
much revenue and so many jobs." Ipswich. "In return," says
Benefits to the state aren't limited to economic ones, Ann Scanlon of the
either. For the filming ofdirector Nicholas Hytner's ver-
Massachusetts Film
sion of The Crucible, starring Winona Ryder and Daniel
Day-Lewis, the crew built an entire 17th-century village Office, "20th Century Fox
on Hog Island in Ipswich. "In return," says Scanlon, made improvements to
"20th Century Fox made improvements to the property,
put in a well, and updated the docks" in the area. the property, put in a
Among the movies filmed recently in Massachusetts: well, and updated the
The Academy Award-nominated Good Will Hunting, star-
docks" in the area.
ring Robin Williams and the Cambridge-native screen-
writing team ofMatt Damon and Ben Affleck, shot all
around Harvard University, the Massachusetts Institute
ofTechnology, Bunker Hill Community College, and
SITES
N
I
South Boston. Steven Spielberg's Amistad descended for a area are the new federal courthouse on Fan Pier and the
—
day on the State House thanks to the Massachusetts Seaport Hotel across from the World Trade Center.
Film Office's Fee-Free Locations program, which allows Next up will be a 16-story building, a joint venture
filmmakers to shoot at certain state-owned facilities free between Fidelity and the Drew Co. An extension ofthe
ofcharge. More recently, In Dreams, with Annette Massachusetts Bay Transportation Authority's Red Line
Bening and Aidan Quinn, was shot in the Northampton is also planned, making access to the site easier.
area, andA CivilAction, starringJohn Travolta and based
onJonathan Harr's nonfiction account ofa case in
Woburn, was shot in Boston and Quincy. That particular Hotels Spring Up
shoot was attended by none other than film buffand
in Worcester
Massachusetts Governor Paul Cellucci.
Some Massachusetts locales are especially popular
with movie makers, including the classic New England Two new hotels are planned for Worcester's
feel of Good WillHunting haunt Harvard Square; and the
coastal areas and islands, such as Nantucket, the setting downtown area, bolstering the city's economic
for Michael Pressman's To Gillian on Her 37th Birthday, development agenda.
starringMichelle Pfeiffer. (Pfeiffer's husband, Boston
University Law School graduate David E. Kelley, has set
many ofhis projects in Massachusetts, including his cur-
rent television seriesAlly McBeal and The Practice.) Marriott International, Inc. will build a new Courtyard
But mostly, says Scanlon, people are attracted to hotel on Grove Street, providing 150 moderately priced
Massachusetts because it is "very diverse. We don't have a rooms aimed at business travelers. Scheduled to open in
—
specific look that people go for we have a lot oflooks." the spring of 1999, the Courtyard will be the first hotel
built in the downtown area ofWorcester since 1982,
when the Worcester Crowne Plaza opened.
And the Peabody Hotel Group is evaluating a down-
Meet Me
town site for the possible construction ofanother new
in "Southie" hotel. On December 10, the Worcester Redevelopment
Authority gave the Peabody group exclusive hotel devel-
oper status for 60 days. The group will evaluate whether
Boston will get a new convention center thatwill the city can support another hotel in addition to the new
allow it to once again attract the largest gatherings Marriott site.
The planned hotels are partly in response to the
ofbusinesses and trade associations in the country. In
190,000-square-foot, $38 million convention center
November 1997 the Massachusetts Legislature approved adjacent to the Worcester Centrum. The new conven-
construction ofa $700 million center to be built near the tion center, which had its grand opening in September,
has a total of 100,310 square feet ofexhibition space
waterfront in the South Boston neighborhood. Work is
and includes two ballrooms, 11 meeting rooms, and a
expected to begin this year, and the center is scheduled to VIP lounge.
open in 2002.
State leaders have predicted that the 600,000-square-
foot facility could attract 500,000 conventioneers annually
and bring in as much as $1 billion a year in visitor spend-
ing. The convention center also will likely boost the
building ofthousands ofnew hotel rooms in the Boston
area, including a 1,000-room hotel on the site itself.
The convention center will be another piece in the
development ofthe waterfront. Already in place in the
BUSINESS INCI NUITY/UKST QUARTER. 98
SITES
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I
Framingham Bounces Back Taxman Logs Off
Though it suffered a blow back in 1989 when the Governor Paul Cellucci has signed a bill eliminating
local General Motors plant closed, Framingham the sales tax on on-line services. A special commit-
plans to rejuvenate its downtown area with the help ofa tee has until December 1, 1998, to file a recommenda-
"downtown manager" it will hire. tion to make the law permanent.
-;,-
Among the projects being discussed: incentives for Ifthis recommendation is not made, Internet services
business owners to renovate their building facades, a will again be taxable afterJuly 1, 1999. "Making
study ofthe needs ofdowntown businesses, a $180,000 Massachusetts an Internet tax-free zone puts us on equal
streetscape improvement project, a new location for the footing with other high-tech states such as California,
commuter rail terminal, and a $900,000 project to fix five Washington, and Florida," Cellucci said late last year.
intersections, including repaving and new traffic signaGls.M In addition to the moratorium on Internet taxes,
About 1,600 jobs were lost with the closing ofthe Massachusetts taxpayers are eligible for a refund on the
plant; however, between 1993 and 1995, over 5,000 new taxes they have paid on Internet services since 1990.
jobs were added in this ethnically diverse community.
Gateway to the United States
Overseas technology companies are getting a help-
ing hand in their expansion into the U.S. market,
thanks to a Boston organization called Market Gateway.
Run by the New England Israel Chamber of
Commerce, Market Gateway provides office space in
South Boston, as well as advice to newcomers on every-
thing from American business laws to where to find hous-
ing. Several Israeli companies are already settled in the
South Boston offices, and new arrivals from Ireland,
Scotland, and possibly Northern Ireland and Nova Scotia
are expected soon.
Boston is a convenient spot for European and Middle
Eastern companies to make their first forays into
America. In addition to the area's well-established high-
tech market, the location means a shorter flight back to
the home country, as well as more closely overlapping
time zones than in a state further to the west. While
some companies move on once they outgrow their
—
Market Gateway space, others including Irish soft-
ware firm Iona Technologies, PLC, which has a 70-per-
—
son office in Cambridge are choosing to settle down
in the Bay State.
VENTURES
A P T A L
I
Entrepreneurs, Investors
Make Good Neighbors
ChristopherKenneally
measured either by area or by population, massachusetts isn't
qualified for membership in the "land of the glants" club. the
Commonwealth is the sixth smallest state in the union, and it has just
over 6 million residents, fewer than cities like Tokyo or New York.
When it comes to venture capital, though, the Bay State stands tall in
the international business world.
e
According to a report released this fall by the Paris-based State, with Interlan and Wellfleet Communications
Organisation for Economic Co-operation and Develop- receiving infusions ofventure capital investment at their
—
ment (OECD), Massachusetts proportionally speak- founding, he notes. (The third, Bay Networks, did not.)
—
ing ranks first among the 50 states in venture capital, He may be a restless entrepreneur, but the critical
with $1.2 billion in assets raised. Second-place California, mass ofcapital and engineering talent in Massachusetts
with $3.7 billion in venture capital assets raised, has a has allowed Severino to put down roots. "I didn't have to
population nearly five times as great as Massachusetts's. move," he says. "I was able to do what I needed to do
OECD
Together, the calculated, Massachusetts and right here."
California accounted for more venture capital than the More than likely, investors would have found Severino
15-nation European Union and held 40 percent ofall no matter where he lived. In a globalized economy, ven-
American venture capital assets. ture capital has a reasonably small interest in where a
Yet another leading survey ofventure capital invest- business is located. When they are determining whether
ment, the Money Tree Report issued quarterly by to sink funds into a company, investors typically consider
Coopers & Lybrand LLP, ranked three Boston-based other points, such as the skills and experience ofthe
—
outfits BancBoston Capital; Atlas Venture; and Advent management team and the market viability ofinnovative
—
International Corp. in the top five ofthe nation's most products and services.
active VC firms for the second quarter of 1997. These "The money travels to where the ideas are," notes C.
"big three" reported 29 initial investment deals into Kevin Landry, managing director and CEO ofTA
U.S.-based and overseas companies in that period. Associates, a Boston-based VC-private equity firm that
Proximity to venture capital in Massachusetts, and the invests about $250 million annually. According to the
access to investment dollars which typically follows, "is Money Tree Report, for example, Massachusetts venture
the engine that drives entrepreneurs," says Paul Severino, capitalists placed 71.2 percent oftheir total investment
chairman ofNetCentric, a Cambridge-based supplier of dollars in the second quarter of 1997 outside the state.
Internet fax software and services for network service Nevertheless, venture capitalists agree that there is a
providers. "I think it makes a huge difference," adds the decided advantage for entrepreneurs who share an
founder and former chairman ofBay Networks. address with so many oftheir potential investors. "Our
Severino ought to know. Following his graduation objective is to build very big companies, and we like to
from Rensselaer Polytechnic Institute in 1969, he moved spend time with management teams to grow their com-
from Troy, N.Y., to Massachusetts to work at Digital panies," acknowledges Rick Burnes, founder and general
VC
Equipment Corp. In the three decades since, Severino partner ofCharles River Partners, a Waltham-based
has started three major high-tech companies in the Bay firm that has invested approximately $300 million in 250
6 Bl HNESS INGENUI I Y/l IKS I QUARTER 98
CAPITAL VENTURES
early-stage companies since its founding in 1970. take them public, he has observed, they can take advan-
"We like to be able to have breakfast with entrepre- tage ofthe substantial number oftechnological and
neurs," Burnes says. By his own estimate, two ofevery financial services available to them locally "They are able
three Charles River deals are with Massachusetts-based to leverage offthe human capital that's here," Landry
companies. explains.
According to Landry, entrepreneurs almost naturally Moreover, the large number ofVC firms located in
congregate in the hothouse educational environment of Massachusetts presents a smorgasbord ofopportunities
Massachusetts. When they start businesses and eventually for investors. Charles River Partners, for example, has an
TA
average deal size ofabout $3 million, while for
Associates, the figure is more than $15 million. To
OECD
Together, the calculated, address a "capital gap" confronting start-up companies
in the early stage ofmarket development, the Common-
Massachusetts and California
wealth in 1978 formed the Massachusetts Technology
accounted for more venture Development Corp. (MTDC), which usually participates
in deals for less than $1.5 million.
capital than the 15-nation "In Massachusetts, we have the full range oftypes of
MTDC
European Union and held investors," saysJohn Hodgman, president. "As a
company goes through the various stages ofgrowth, it
40 percent of all American has ready access to a panoply ofinvestors. This also
means that Massachusetts has become very diversified in
venture capital assets. the types ofbusinesses that are launched here."*
Michael C. Ruettgers,
President and CEO,
EMC Corporation
n climbing to the top of the ultra-
competitive, $10 billion computer
.
data storage industry, executives at
Hopkinton, Mass.-based EMC2 Corp. got
used to making big decisions. None
was bigger than the company's decision
three years ago to deep-six its commit-
ment to its mainframe computing storage
clients and concentrate instead on the
burgeoning networked computer field.
by Brian ,Con7iell
EMC
That decision enabled to dominate the network
data storage industry (networked, or "open," data sys-
tems enable multiple computer servers to connect corpo-
rate information systems networks), generating $2.7 bil-
lion in sales in 1996 with a stock price that surged higher
than any other company's on Wall Street from 1990 to
1995. How hot is EMC now? Merrill Lynch analyst
Steven Milunovich recently gushed to The Boston Globe
EMC
that was poised to enter the rarefied stratosphen
ofhigh-technology heavyweights like Microsoft and
Intel: "[It's] the next franchise company in technology."
IUN\I>SINCINUIIY/IIRM QUARTER 98