Carliss Y. Baldwin
27 Results
- 22 May 2013
- Working Papers
Hidden Structure: Using Network Methods to Map System Architecture
All complex systems can be described in terms of their architecture, that is, as a nested hierarchy of subsystems. Despite a wealth of research highlighting the importance of understanding system architecture, however, there is little empirical evidence on the actual architectural patterns observed across large numbers of real world systems. In this paper, the authors developed robust and reliable methods to detect the core components in a complex system, to establish whether these systems possess a core-periphery structure, and to measure important elements of these structures. Overall, the findings represent a first step in establishing some stylized facts about the structure of real-world systems. Read More
- 18 Sep 2012
- Working Papers
Risky Business: The Impact of Property Rights on Investment and Revenue in the Film Industry
Films are a risky business because much more is known about the quality and revenue potential of a film post-production than pre-production. Using rich data on the US film industry, this paper explores variation in property right allocations, investment choices, and film revenues to find empirical support for three predictions based on property rights theory. (1) Studios underinvest in the marketing of independent films relative to studio-financed films. (2) Because of underinvestment, independent films have lower revenues than comparable studio-financed films. (3) If production cost and marketing investment are complementary, underinvestment in marketing harms large-budget films more than small-budget films, making it more likely that large-budget films will be studio-financed. Kuppuswamy and Baldwin's paper may be the first to provide evidence that vertical integration affects the revenue of specific products through its impact on marketing investments in those products. Read More
- 07 Sep 2012
- Working Papers
IP Modularity: Profiting from Innovation by Aligning Product Architecture with Intellectual Property
Firms increasingly practice open innovation, license technology out and in, outsource development and production, and enable users and downstream firms to innovate on their products. However, while such distributed value creation can boost the overall value created, it may create serious challenges for capturing value. This paper argues that in order to optimize value capture from a new product or process, an innovator must manage the artifact's intellectual property (IP) and its modular structure in conjunction. In other words, each module's IP status needs to be defined carefully and its boundaries must be placed accordingly. Fundamentally, IP modularity eliminates incompatibilities between IP rights in a given module, while permitting incompatibilities within the overall system. This in turn allows a firm to "have its cake and eat it too": It can reap the benefits of an open architecture while at the same time reducing the costs of opportunism on the part of suppliers, complementors, and employees. Read More
- 18 May 2012
- Working Papers
Organization Design for Distributed Innovation
MIT professor Eric von Hippel first coined the term "distributed innovation" to describe a system in which innovation emanates not only from the manufacturer of a product but from many sources including users and rivals. Over the years, systems of distributed innovation—so-called business ecosystems—have become increasingly prevalent in many industries. These entities generally encompass numerous corporations, individuals, and communities that might be individually autonomous but related through their connection with an underlying, evolving technical system. In this paper, prepared for the 1st Organizational Design Conference, held at Harvard Business School in August 2012, HBS professor Carliss Baldwin examines four central themes: 1) Distributed innovation as the unintended consequence of modularity; 2) The advantage of business ecosystems for creative problem-solving; 3) Organizational design of business ecosystems; and 4) Competition and technological innovation in business ecosystems. Overall, Baldwin argues that the potential benefits of distributed innovation must be recognized, and the field of organization design must broaden its traditional focus on the individual firm to encompass this compelling new approach for creating value. Read More
- 13 Jan 2012
- Working Papers
The Impact of Modularity on Intellectual Property and Value Appropriation
Distributed innovation in open systems is an important trend in the modern global economy. In general, distributed innovation in open systems is made possible by the modularity of the underlying product or process. Carliss Y. Baldwin and Joachim Henkel provide a systematic analysis of value appropriation in closed and open modular systems, with implications for managers. Modular systems are made up of components that are highly interdependent within sub-blocks, called modules, and largely independent across those sub-blocks. Despite the technical benefits of modularity, history shows that it is not always straightforward for firms to capture value in a modular system. The paper argues that strategies for capturing value in an open, modular system must be formulated at the module level. But modularity is not a single strategy: it is rather a large set of strategic options and related tactics that can be deployed in different ways depending on the interplay of countervailing forces. Read More
- 03 Mar 2011
- Working Papers
How Firm Strategies Influence the Architecture of Transaction Networks
In business, an "ecosystem" refers to a group of firms that work together through a series of shared transactions to provide a complex product or service. Using data from the disparate Japanese electronics and automotive sectors, this paper tackles the following questions: Do hierarchies of interfirm transaction networks vary across different ecosystems? What practices explain the difference in hierarchy across these two ecosystems? How do firms' strategies influence hierarchy? And what environmental factors explain the differences in the largest firm's strategies in each ecosystem? Research was conducted by Carliss Y. Baldwin of Harvard Business School and Jianxi Luo, Daniel E. Whitney, and Christopher L. Magee of the Massachusetts Institute of Technology. Read More
- 12 Jan 2011
- Working Papers
Modularity for Value Appropriation--How to Draw the Boundaries of Intellectual Property
Many firms have adopted models of "open innovation," in which they seek ideas from external sources such as university labs, independent entrepreneurs, customers, and other companies. While such a business model has the potential to create value, the inherent intellectual property issues can be sticky. This paper discusses how companies can address these issues by adopting a system of modularity, wherein innovation in one part of a project will not require changes in all the other parts. Research was conducted by Joachim Henkel of Technische Universität München and Harvard Business School professor Carliss Y. Baldwin. Read More
- 31 Mar 2010
- Working Papers
When Open Architecture Beats Closed: The Entrepreneurial Use of Architectural Knowledge
Entrepreneurial firms rich in knowledge but poor in other resources can use superior architectural knowledge of a technical system to gain strategic advantage over larger and better endowed rivals. This paper presents a model and provides examples showing that architectural knowledge can be applied strategically to change a firm's scope and boundaries, make innovations more or less autonomous, and change the span of problems it must solve. Read More
- 18 Feb 2010
- Working Papers
The Mirroring Hypothesis: Theory, Evidence and Exceptions
In its simplest form, the mirroring hypothesis suggests that the organizational patterns of a development project, such as communication links, geographic collocation, and team and firm membership, correspond to the technical patterns of dependency in the system under development. According to the hypothesis, independent, dispersed contributors develop largely modular designs, while richly interacting, collocated contributors develop highly integral designs. Yet many development projects do not conform to the mirroring hypothesis. HBS doctoral graduate Lyra Colfer and professor Carliss Y. Baldwin synthesize observations from a large number of cases that violate the hypothesis to explain when and how development organizations can "break the mirror." Read More
- 11 Feb 2010
- Working Papers
The Architecture of Complex Systems: Do Core-periphery Structures Dominate?
All complex systems can be divided into a nested hierarchy of subsystems. However, not all these subsystems are of equal importance: Some subsystems are core to system performance, whereas others are only peripheral. In this study, HBS professor Carliss Y. Baldwin and coauthors developed methods to detect the core components in a complex software system, establish whether these systems possess a core-periphery structure, and measure important elements of these structures. The general patterns highlight the difficulties a system architect faces in designing and managing such systems. Results represent a first step in establishing stylized facts about the structure of real-world systems. Read More
- 01 Dec 2009
- Working Papers
Modeling a Paradigm Shift: From Producer Innovation to User and Open Collaborative Innovation
We are in the midst of a major paradigm shift: technological trends are causing a change in the way innovation gets done in advanced market economies. In addition to the model of producer-based design—the idea that most important designs for innovations would originate from producers and be supplied to consumers via goods and services that were for sale—two increasingly important models are innovations by single user firms or individuals, and open collaborative innovation projects. Each of these three models represents a different way to organize human effort and investments aimed at generating valuable new innovations. HBS professor Carliss Y. Baldwin and MIT Sloan School of Management professor Eric von Hippel analyze the three models in terms of their technological properties, specifically their design costs and architectures, and their communication requirements. The researchers argue that as design and communication costs decline, single user and open collaborative innovation models will be viable for a steadily wider range of design. These two models will present an increasing challenge to the traditional paradigm of producer-based design—but, when open, they are good for social welfare and should be encouraged by policymakers. Read More
- 27 Aug 2009
- Working Papers
Measuring and Understanding Hierarchy as an Architectural Element in Industry Sectors
In an industry setting, classic supply chains display strict hierarchy, whereas clusters of firms have linkages going in many different directions. Previous theory has often assumed the existence of the hierarchical relationships among firms, and empirical industry studies tend to focus on a single-layer industry, or a two-layer structure comprising buyers and suppliers. And yet, some industries have a multilayer structure with a multistep supply chain. Others comprise a cluster of complementary firms producing different parts of a large system. HBS professor Carliss Y. Baldwin and colleagues use network analysis to study multilayer industries both empirically (in the case of Japan) and theoretically and to explore how industries are organized at the sector level in an attempt to reveal the underlying rules that determine how industry architectures form and change. Read More
- 26 Nov 2008
- Working Papers
The Sciences of Design: Observations on an Emerging Field
This paper examines the sciences of design as an emerging field of study that cuts across disciplinary boundaries. The paper summarizes and synthesizes the positions, reflections, opportunities, and challenges expressed at the first doctoral consortium to explore the topic, held in 2008. It thus provides a useful agenda for clarifying and articulating important strands of this nascent field. Read More
- 10 Oct 2008
- Working Papers
The Architecture of Platforms: A Unified View
Product and system designers have long exploited opportunities to create families of complex artifacts by developing and recombining modular components. An especially common design pattern is associated with the concept of a platform, which Baldwin and Woodard define as a set of stable components that supports variety and evolvability in a system by constraining linkages among the other components. In this paper, the authors shed light on the relationships between platforms and the systems in which they are embedded to better understand and explain firms and industries where platforms play an important role. Read More
- 27 Mar 2008
- Working Papers
Exploring the Duality between Product and Organizational Architectures: A Test of the Mirroring Hypothesis
Products are often said to "mirror" the architectures of the organization from which they come. Is there really a link between a product's architecture and the characteristics of the organization behind it? The coauthors of this working paper chose to analyze software products because of a unique opportunity to examine two different organizational modes for development, comparing open-source with proprietary "closed-source" software. The results have important implications for development organizations given the recent trend toward "open" approaches to innovation and the increased use of partnering in research and development projects. Read More
- 24 Jan 2008
- Working Papers
The Impact of Component Modularity on Design Evolution: Evidence from the Software Industry
What factors should influence the design of a complex system? And what is the impact of choices on both product and organizational performance? These issues are of particular importance in the field of software given how software is developed: Rarely do software projects start from scratch. The authors analyzed the evolution of a commercial software product from first release to its current design, looking specifically at 6 major versions released at varying periods over a 15-year period. These results have important implications for managers, highlighting the impact of design decisions made today on both the evolution and the maintainability of a design in subsequent years. Read More
- 17 Jan 2008
- Working Papers
Competition in Modular Clusters
The last 20 years have witnessed the rise of disaggregated "clusters," "networks," or "ecosystems" of firms in a number of industries, including computers, telecommunications, and pharmaceuticals. In these clusters, different firms design and produce the various components of a complex artifact (such as the processor, peripherals, and software of a computer system), and different firms specialize in the various stages of a complex production process. This paper considers the pricing behavior and profitability of these so-called modular clusters. Baldwin and Woodard isolate the offsetting price effects in a model, and show how they might operate in large as well as in small clusters. Read More
- 18 Sep 2007
- Working Papers
Modularity, Transactions, and the Boundaries of Firms: A Synthesis
For the last 30 years economists have used the concepts of "transaction," "transaction cost," and "contract" to illuminate a wide range of phenomena, including vertical integration; the design of employment, debt, and equity contracts; and the structure of industries. These concepts are now deeply embedded in the fields of economics, sociology, business, and law. Theories explain how to choose between different forms of transactional governance. But why does a transaction occur where it does? Without this answer, the forces driving the location of transactions in a system of production remain largely unexplored. This paper explains the location of transactions (and contracts) in a system of production. It also presents a theory of technological change that predicts changes in the location of transactions and therefore in the structure of industries. Read More
- 12 Apr 2007
- Working Papers
From Manufacturing to Design: An Essay on the Work of Kim B. Clark
The interdisciplinary research of economist Kim Clark, former dean of Harvard Business School and now President of Brigham Young University-Idaho, occupies a unique place in management scholarship for three reasons. First, he tended to focus on little known and under-appreciated management groups such as manufacturing managers, product development managers, and product and process architects. Thus, he directly positioned himself outside the "traditional" management disciplines of strategy, finance, marketing, and organizational behavior. Second, he swam against the academic tide by recognizing the power of comparative and longitudinal field studies. Third, he sought frameworks beyond his own field in design theory, the engineering sciences, and finance. This paper reviews his research contributions over almost thirty years. Read More
- 28 Sep 2006
- Working Papers
Architectural Innovation and Dynamic Competition: The Smaller “Footprint” Strategy
To study dynamic competition, Baldwin and Clark build upon a design principle in computer architecture known as Amdahl's Law. The authors show that firms can study the underlying cause-and-effect relationships in a complex architecture in order to identify "bottlenecks." Firms may then redesign the interfaces of key components to make them more modular. They can then outsource more activities without sacrificing performance or cost. As a result, firms can offer competitive products or services, while investing less, and so enjoy an "invested capital advantage" over competitors. Baldwin and Clark explain how the strategy works and then model its impact on competition through successive stages of industry evolution. Read More
- 24 Jul 2006
- Research & Ideas
How Kayak Users Built a New Industry
Customers have produced some of the most important innovations in industries ranging from oil refining to scientific instruments. But how do user innovations take place? How do they get to market? Professor Carliss Baldwin discusses research into the rodeo kayak industry to understand the world of user innovation. Read More
- 05 Jul 2006
- Working Papers
Exploring the Structure of Complex Software Designs: An Empirical Study of Open Source and Proprietary Code
How does a product's design mirror the organization that develops it, and how does such a dynamic occur? To track the evolution of one design over time, this exploratory study compared software designs developed via different modes of organization-open source versus proprietary development. As it turned out, the architecture of the product developed by a highly distributed team of developers (Linux) was more modular than another product of similar size developed by a co-located team of developers (Mozilla). The study helped reveal potential performance tradeoffs from architectures with different characteristics. Read More