- 11 Feb 2019
- Working Paper Summaries
The IBM PC
The IBM PC was the first computer platform to be open by choice and not because of financial constraints. Initially, this openness kept IBM competitive. But IBM’s control over two strategic bottlenecks— standards embedded in the Basic Input Output System, and system integration and manufacturing of the computer itself—turned out to be weak.
- 08 Feb 2019
- Working Paper Summaries
Platform Systems vs. Step Processes—The Value of Options and the Power of Modularity
Technology shapes organizations through incentives and rewards. This paper compares the value structure of platform systems and step processes, finding that step processes reward technical integration, unified governance, risk aversion, and the use of direct authority. Platform systems by contrast reward modularity, distributed governance, risk taking, and autonomous decision-making.
- 30 Oct 2018
- Working Paper Summaries
Design Rules, Volume 2: How Technology Shapes Organizations: Chapter 6 The Value Structure of Technologies, Part 1: Mapping Functional Relationships
Technology shapes organizations by influencing the search for value—something that someone perceives as a good—in an economy made up of free agents. To understand the organizations that will develop and implement particular technologies we must first understand the technologies’ value structure, including three main issues that make it difficult to value technologies.
- 30 Oct 2018
- Working Paper Summaries
Design Rules, Volume 2: How Technology Shapes Organizations: Chapter 5 Complementarity
Even as economics has theories about what assets and activities should be grouped together under common ownership and unified governance, in practice it sometimes makes sense to distribute complementary assets, skills, and activities across separate organizations. This paper investigates when and how this happens.
- 30 Oct 2018
- Working Paper Summaries
Design Rules, Volume 2: How Technology Shapes Organizations: Chapter 14 Introducing Open Platforms and Business Ecosystems
Platform systems have existed in various forms for centuries. Beginning in the 1980s and 1990s, newly competitive technology of open platform systems based on digital technology and modular architectures changed the structure of entire industries. This paper lays the groundwork for a comprehensive theoretical investigation of open platform systems.
- 30 Oct 2018
- Working Paper Summaries
The Value Structure of Technologies, Part 2: Technical and Strategic Bottlenecks as Guides for Action
This paper presents analytic tools to formulate strategy in large, evolving technical systems. It explains how value-enhancing technical change comes from the effective management of technical and strategic bottlenecks in conjunction with module boundaries and property rights. The analytic tools are used to explain the evolution of three historic technologies: early aircraft, machine tools, and container shipping.
- 05 Jul 2017
- Working Paper Summaries
Designing an Agile Software Portfolio Architecture: The Impact of Coupling on Performance
This study deepens our understanding of how firms can better design software portfolio architectures to improve their agility. The authors examined data from over 1,000 different software applications and 3,000 dependencies between them. They found that indirect measures of coupling and dependency have more power in predicting IT agility than direct measures.
- 07 Apr 2017
- Working Paper Summaries
Explaining the Vertical-to-Horizontal Transition in the Computer Industry
This paper shows how the vertical-to-horizontal transition in the computer industry was an organizational response to a change in economic rewards brought by the competing technologies of rationalized step processes and open platform systems. The spread of modular architectures—and the rapid pace of change in semiconductor technology—shifted the balance of rewards away from predictability toward flexibility.
- 09 Mar 2017
- Working Paper Summaries
Exploring the Relationship Between Architecture Coupling and Software Vulnerabilities: A Google Chrome Case
Managing software vulnerabilities is a top issue in today’s society. By studying the Google Chrome codebase, the authors explore software metrics including architecture coupling measures in relation to software vulnerabilities. This paper adds new findings to research on software metrics and vulnerabilities, bringing the field closer to generalizable and conclusive results.
- 13 Feb 2015
- Working Paper Summaries
A Methodology for Operationalizing Enterprise Architecture and Evaluating Enterprise IT Flexibility
When dealing with complex information system architectures, changes often propagate in unexpected ways, increasing the costs of adapting the system to future needs. In this paper the authors use data from a real firm and develop a robust network-based methodology by which to visualize and measure any firm's enterprise architecture. They also explore the dynamics of how different types of coupling influence the flexibility of enterprise architectures. They conclude with insights for practicing managers who must, for example, allocate resources and identify opportunities for system redesign. Closed for comment; 0 Comments.
- 12 Dec 2014
- Working Paper Summaries
Bottlenecks, Modules and Dynamic Architectural Capabilities
Large technical systems made up of many interoperable components are becoming more common every day. Many of these systems, like tablet computers, smartphones, and the Internet, are based on digital information technologies. Others, like the electrical grid, the financial payments system, and all modern factories, rely on digital technologies. How do firms create and capture value in large technical systems? To answer this question, the author argues, it is first necessary to develop ways of describing such systems. One useful lens is architecture. Architectural capabilities are an important subset of dynamic capabilities that provide managers with the ability to see a complex technical system in an abstract way and change the system's structure by rearranging its components. Purposeful architectural change can then be used to create and capture value at different points in the technical system. Furthermore, value-enhancing architectural change arises through the effective management of bottlenecks and modules in conjunction with the firm's organizational boundaries and property rights. Key concepts include: Bottlenecks are points of value creation and capture in any complex man-made system. The architecture of a system defines its components, describes interfaces between components, and specifies ways of testing performance. The tools a firm can use to manage bottlenecks are 1) an understanding of the modular structure of the technical system and how it can be changed; and 2) an understanding of the contract structure of the firm, especially its organizational boundaries and property rights. Closed for comment; 0 Comments.
- 09 Apr 2014
- Working Paper Summaries
Visualizing and Measuring Software Portfolio Architectures: A Flexibility Analysis
Contemporary business environments are constantly evolving, requiring continual changes to the software applications that support a business. Moreover, during recent decades, the sheer number of applications has grown significantly, and they have become increasingly interdependent. Many companies find that managing applications and implementing changes to their application portfolio architecture is increasingly difficult and expensive. Firms need a way to visualize and analyze the modularity of their software portfolio architectures and the degree of coupling between components. In this paper, the authors test a method for visualizing and measuring software portfolio architectures using data of a biopharmaceutical firm's enterprise architecture. The authors also use the measures to predict the costs of architectural change. Findings show, first, that the biopharmaceutical firm's enterprise architecture can be classified as core-periphery. This means that 1) there is one cyclic group (the "Core") of components that is substantially larger than the second largest cyclic group, and 2) this group comprises a substantial portion of the entire architecture. In addition, the classification of applications in the architecture (as being in the Core or the Periphery) is significantly correlated with architectural flexibility. In this case the architecture has a propagation cost of 23 percent, meaning almost one-quarter of the system may be affected when a change is made to a randomly selected component. Overall, results suggest that the hidden structure method can reveal new facts about an enterprise architecture. This method can aid the analysis of change costs at the software application portfolio level. Key concepts include: This method for architectural visualization could provide valuable input when planning architectural change projects (in terms of, for example, risk analysis and resource planning). The method reveals a "hidden" core-periphery structure, uncovering new facts about the architecture that could not be gained from other visualization procedures or standard metrics. Compared to other measures of complexity, coupling, and modularity, this method considers not only the direct dependencies between components but also the indirect dependencies. These indirect dependencies provide important input for management decisions. Closed for comment; 0 Comments.
- 30 Jan 2014
- Working Paper Summaries
Modularity and Intellectual Property Protection
Modularity is a means of partitioning technical knowledge about a product or process. The authors investigate the impact of modularity on intellectual property protection by formally modeling the threat of expropriation by agents. The principal has three options to address this threat: doing nothing, licensing the focal IP ex ante, and paying agents to prevent their defection. The principal can influence the value of these options by modularizing the technical system and by hiring clans of agents, thus exploiting relationships among them. The paper also gives examples of how managers arrive at a strategy in practice. Overall, the study contributes to the theory of profiting from innovation in three ways: First, it shows how the innovator's best choice of action against expropriation by agents-doing nothing, licensing, or paying agents-derives from the characteristics of the system, i.e., the share of trustworthy agents, the number of agents, the intensity of competition, the size of clans, the number of modules, and the degree of complementarity. Second, the innovator can use clans and modularity to increase profits, and the paper shows how clans and the modular architecture of the system interact to either reinforce or mitigate each other. Third, social relationships and norms of fairness affect the normative implications of an analysis based on rational choice theory. Implications for managers are also discussed. Key concepts include: Modularity is a means of partitioning technical knowledge about a product or process. Modularity can be used reduce the cost and/or risk of agents' expropriating valuable IP. The authors' model can be used to understand the effects of, for example, screening and signaling in the hiring process, legal protection of intellectual property, and social norms of fairness. Managers' fundamental choices are (1) to protect the knowledge or not; and (2) to trust the agents or not. Relational contracts, that is, paying selected agents not to defect, makes it possible to protect knowledge and maintain a monopoly when agents are relatively untrustworthy. Trusting one's agents-what the authors have called "doing nothing"-is the most valuable course of action if it works, but is a risky strategy because trust can always be betrayed. Better screening and signaling technologies make it easier for the principal to trust his agents, but some residual risk always remains. Closed for comment; 0 Comments.
- 17 Oct 2013
- Working Paper Summaries
Sharing Design Rights: A Commons Approach for Developing Infrastructure
Traditionally, a commons is a natural resource that gives rise to the problem of collective action: Individuals who act alone without consideration for others will arrive at outcomes that are bad for all. Pioneering research by Elinor Ostrom, a scholar of economic governance, has revealed that the claimants to a common pool resource are sometimes able to organize themselves to manage the commons on a day-today basis and to adapt to changing circumstances. In this paper, the authors study the dynamics of a commons organization: In 2006-2007, the Manchester City Council created a commons organization to design a number of new school buildings. The Council had broad decision rights over school design and construction, but rather than delegating those rights to its own staff or to a joint venture, as were the typical practices, the Council gave each school co-equal rights to approve the design so that no building project could go forward unless signed off by both the school and the Council staff. As such, the Council converted the decision-making process from a controlled, centralized style to a commons-based approach. Using the principles of Ostrom's commons theory the authors show that, overall, the commons form of organizing brought with it concomitant risk. This risk, however, was significantly lessened through the creation of a robust commons organization. Key concepts include: This study uses design theory to explain why the design process for school buildings can be viewed as a common pool resource, and explain what constitutes "tragedy of the commons" in this context. Sensible actions in terms of defining boundaries, making benefits proportionate to costs, and deferring to local rule-making can increase the robustness of the commons and increase its chances of success. A design commons organization should be considered as a potentially advantageous alternative to other ways of organizing design production processes. However, a design commons organization might not necessarily be the best approach to resolve design production problems in all environments. Closed for comment; 0 Comments.
- 16 Jul 2013
- Working Paper Summaries
Visualizing and Measuring Enterprise Architecture: An Exploratory BioPharma Case
Achieving effective and efficient management of the software application landscape requires an ability to visualize and measure the current status of the enterprise architecture. To a large extent, this huge challenge can be addressed by introducing tools such as enterprise architecture modeling as a means of abstraction. In recent years, Enterprise Architecture (EA) has become an established discipline for business and software application management. Ideally, EA aids the stakeholders of the enterprise to effectively plan, design, document, and communicate IT and business related issues. Unfortunately, though, EA frameworks rarely explicitly state the kinds of analyses that can be performed given a certain model, nor do they provide details on how the analysis should be performed. In this paper, the authors present and test a method based on Design Structure Matrices (DSMs) and classic coupling measures that could be effective in uncovering the hidden structure of an enterprise architecture. The authors perform such a test using data consisting of a total of 407 architecture components and 1,157 dependencies from a biopharmaceutical company (referred to as BioPharma). Findings suggest that this method can reveal new facts about architecture structure on an enterprise level, equal to past results in the initial cases of single software systems such as Linux, Mozilla, Apache, and GnuCash. Key concepts include: For BioPharma, the architectural visualization and computed coupling metrics can provide valuable input when planning architectural change projects (in terms of, for example, risk analysis and resource planning). Analysis shows that business components are Control elements, infrastructure components are Shared elements, and software applications are in the Core, thus providing verification that the architecture is sound. The hidden external structure of the architecture components at BioPharma can be classified as core-periphery with a propagation cost of 23%, architecture flow through of 67%, and core size of 32%. Closed for comment; 0 Comments.
- 22 May 2013
- Working Paper Summaries
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. Key concepts include: The majority of systems analyzed in this non-random sample—67 percent to 76 percent—possess a core-periphery structure. Another 20 percent are considered borderline core-periphery. However, a significant number of systems lack such a structure. This implies a considerable amount of managerial discretion exists when choosing the "best" architecture for a system. There are major differences in the number of core components across a range of systems of similar size and function, indicating that differences in design are not driven solely by system requirements. Instead, these differences appear to be driven, in part, by the characteristics of the organization in which development occurs. Open, distributed organizations tend to develop modular designs with smaller "Cores"; whereas closed, collocated organizations tend to develop tightly-coupled designs with larger Cores. The authors find that core components are often distributed throughout a system, rather than being concentrated in one place. Hence it is important not to assume that all key relationships in a system are located in a few subsystems. These issues are pertinent in software, given that legacy code is rarely re-written, but instead forms a platform upon which new systems are built. The authors find no discernible pattern of direct dependencies between components that can reliably predict the number and location of core components. The results highlight the critical importance of indirect dependencies, which generate multiple paths along which changes and problems can propagate. These findings highlight the difficulties facing a system architect. Closed for comment; 0 Comments.
- 18 Sep 2012
- Working Paper Summaries
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. Key concepts include: Studio-financed films receive superior marketing investments compared to independent films. The US film industry has two distinct property rights regimes: studio-financed films are produced and distributed by studios which take in the lion's share of revenue. In contrast, independent films are distributed by studios under revenue sharing agreements, which give studios 30-40% of the revenue stream. Under either regime, the allocation of scarce marketing resources is determined by and paid for by the studio. Studio-financed films offer higher marginal returns to marketing investments than independent films. Independent film distribution to theaters may be an institutional mechanism that allows studios to adapt to post-production information about the value of their own films vs. outside opportunities. This in turn justifies ex ante investment in the production of independent films (especially those with small budgets) despite their dampened revenue expectations. Closed for comment; 0 Comments.
- 07 Sep 2012
- Working Paper Summaries
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. Key concepts include: By managing a system's modular structure in conjunction with its IP, firms can overcome intrinsic conflicts between distributed value creation on the one hand, and value appropriation on the other hand. The details of IP modularization must be determined by engineers and legal experts working together. But beyond the technical and legal concerns, IP modularity affects a firm's strategies for value appropriation in increasingly complex and fragmented technological spaces. With own IP, IP modularity helps to reconcile distributed value creation with value capture, and to avoid IP "leakage" to suppliers and employees. With external IP, an IP-modular architecture reduces holdup risk and other transaction costs of licensing, and may allow a firm to establish control over external, originally open IP. Under conditions of uncertainty, "anticipatory" IP modularity creates option value: it allows a firm to better exploit upcoming opportunities for distributed value creation and to counter threats from inadvertent IP infringement. Beyond products and processes, the concept of IP modularity also extends to organizations. An example is "Chinese Walls," the virtual barriers between different organizational units that prevent information exchange between these units. These units constitute "IP modules" within the organization, and the Chinese Walls between them are module boundaries. Closed for comment; 0 Comments.
- 23 May 2012
- Research & Ideas
Five Ways to Make Your Company More Innovative
How do you create a company that unleashes and capitalizes on innovation? HBS faculty experts in culture, customers, creativity, marketing, and the DNA of innovators offer up ideas. From HBS Alumni Bulletin. Closed for comment; 0 Comments.
Design Rules, Volume 2: How Technology Shapes Organizations series
Building on Design Rules: The Power of Modularity, coauthored by HBS professor Carliss Y. Baldwin and Kim B. Clark (MIT Press, 2000).