A nostalgic tale of a mom-and-pop shop in, say, Vermont, where everyone knows everyone else and a man’s word is his bond? Not quite. Kingston Technology of Fountain Valley in southern California, is one the world’s leading upgraders of personal computers. Sales rocketed last year from around $140 million to $250 million; this year they’re set to double again. Inc. magazine ranks the company No. I on its list of the fastest-growing private companies in America. For economically troubled California, Kingston stands out not only as a premier business success but as a model for the corporation of the future.
Kingston is riding a trend. For decades, U.S. companies have been slimming down and shedding peripheral businesses. Kingston has taken that to an extreme. Early on it identified a market niche–memory and processing products that soup up plodding PCs–just when lots of new software demanding vastly more power flooded the market. But the real secret of the company’s success is its unique brand of corporate organization. Economists describe it as a “virtual corporation,” a tightly knit “family” of independent companies that, for many purposes, functions as one. Instead of growing as its business grew, adding new capacity or branching into new businesses, Kingston stayed small. It created a rocksolid network of partners and fanned work out to them. This isn’t mere subcontracting. Kingston and its partners lead complementary, corporate lives, sharing capital, know-how and markets. Because each specializes in what it does, Kingston has been able to cut loose from the costs of larger-scale enterprise–and cash in on efficiencies that often elude its rivals.
Here’s how the system typically works. One recent Tuesday, a Los Angeles branch of ComputerLand received a call from Bank of America. It wanted 100 IBM PCs pronto. The problem: they needed lots of extra memory and other upgrades, the better to run Windows, Microsoft’s ubiquitous operating system, and link into the bank’s computer network. ComputerLand called Kingston, which snapped into action. Within hours it had designed a sophisticated upgrade system–its particular specialty–and relayed the “specs” to a key partner, Express Manufacturing. Express, which specializes in assembling electronic parts, cleared its manufacturing lines, filled Kingston’s order and sent the finished systems back that very afternoon. By evening, Kingston had tested all the components and returned them, via FedEx, to ComputerLand. By the weekend, Bank of America’s computers were up and running. “You’ve heard of just-in-time inventory?” asks VP David Sun, referring to Japan’s vaunted principle of cost-effective management. “This is just-in-time manufacturing.”
Normally that turnaround might have taken 10 days. Express could accommodate its partner because the two are virtual extensions of each other. Five years ago Express had one assembly line. Now it has 18, all built to meet Kingston’s growing demand. At $250,000 a pop, they were not investments undertaken lightly. “Express made the commitment because it could count on our business,” says Sun. Though Express works with other companies, Kingston comes first. Adds Sun: “You always have to think of your partners. They are there when we need them, and we are there when they need us.”
Trust cements the network. “It is the essence of our relationships,” says Tu. When Kingston’s advertising needs outstripped the capabilities of its design and printing partner, Sun went to the company and said: “If you grow with us, you will have our loyalty.” For Kingston, that meant no shopping around for a better price; on the other hand, it preserved a valued partnership and freed Kingston from having to set up its own department. The arrangement gave the printer confidence to invest in new equipment and even move its operations closer to Kingston, The deals were a handshake, Kingston style. Kingston ships thousands of products a day, across the globe, on little more than a telephone call. Foreign reps exercise exclusive distributorships without written contracts. The company often prepays invoices and messengers checks to its suppliers’ door. “Family” rules inside the company, too. Hierarchy is out. Kingston’s 220 employees-including its founders, Tu and Sun-work in no-frills modular cubicles divided by chest-high partitions. (This is management by “shout and grab,” says one Kingston marketer.) The company’s books are open to everyone.
But as Kingston continues to grow, can it preserve its unique culture? Even company insiders accept that managing a larger enterprise will be far different from running a successful start-up. But sheer size may be no liability. After all, pundits have been warning for years that the nation’s largest retailer, Wal-Mart, couldn’t keep growing. Yet it has, because a company culture developed years ago is sound. Like Wal-Mart, Kingston has pioneered a unique corporate operating system; the question now is how much change it can compute.
