Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Working Knowledge
Business Research for Business Leaders
  • Browse All Articles
  • Popular Articles
  • Cold Call Podcasts
  • About Us
  • Leadership
  • Marketing
  • Finance
  • Management
  • Entrepreneurship
  • All Topics...
  • Topics
    • COVID-19
    • Entrepreneurship
    • Finance
    • Gender
    • Globalization
    • Leadership
    • Management
    • Negotiation
    • Social Enterprise
    • Strategy
  • Sections
    • Book
    • Cold Call Podcast
    • HBS Case
    • In Practice
    • Lessons from the Classroom
    • Op-Ed
    • Research & Ideas
    • Research Event
    • Sharpening Your Skills
    • What Do You Think?
    • Working Paper Summaries
  • Browse All
    • COVID-19 Business Impact Center
      COVID-19 Business Impact Center
      Explaining the Vertical-to-Horizontal Transition in the Computer Industry
      07 Apr 2017Working Paper Summaries

      Explaining the Vertical-to-Horizontal Transition in the Computer Industry

      by Carliss Baldwin
      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.
      LinkedIn
      Email

      Author Abstract

      This paper seeks to explain the technological forces that led to the rise of vertically integrated corporations in the late 19th century and the opposing forces that led to a vertical-to-horizontal transition in the computer industry 100 years later. I first model the technology of step processes with bottlenecks and show how this technology rewards vertical integration, a hierarchical organization, and the use of direct authority. These properties in turn became the organizational hallmarks of so-called "modern" corporations. I then model platform systems, showing that, in contrast to step processes, this technology rewards the multiplication of options, increasing risk, and modularity. Moreover, given a modular architecture, a platform system can be open, with different components supplied by separate firms with no loss of interoperability or efficiency. Openness multiplies options and expands diversity, thus increasing the platform system’s value. The last two decades of the 20th century saw the rise of three distinct types of open platforms in the computer industry: (1) "forward open" platforms with downstream complementors, (2) "backward open" modular supply networks, and (3) "open exchange" platforms designed to facilitate transactions and other forms of social interaction. Whereas in 1980, vertically integrated firms dominated the industry, by 2000, the "verticals" had essentially disappeared. The largest firms in the industry in 2000 were sponsors and participants in open platform systems. I argue that the vertical-to-horizontal transition in the computer industry was an organizational response to a fundamental change in economic rewards to the technologies of rationalized step processes vs. open platform systems.

      Paper Information

      • Full Working Paper Text
      • Working Paper Publication Date: March 2017
      • HBS Working Paper Number: HBS Working Paper #17-084
      • Faculty Unit(s): Finance
        Trending
          • 19 Jan 2021
          • In Practice

          Leadership Advice for Biden: Restore a Sense of Calm

          • 29 Oct 2020
          • Research & Ideas

          The COVID Gender Gap: Why Fewer Women Are Dying

          • 13 Jul 2020
          • Research & Ideas

          Merck CEO Ken Frazier Discusses a COVID Cure, Racism, and Why Leaders Need to Walk the Talk

          • 25 Feb 2019
          • Research & Ideas

          How Gender Stereotypes Kill a Woman’s Self-Confidence

          • 11 Jan 2021
          • Research & Ideas

          Is A/B Testing Effective? Evidence from 35,000 Startups

      Carliss Y. Baldwin
      Carliss Y. Baldwin
      William L. White Professor of Business Administration, Emerita
      Contact
      Send an email
      → More Articles
      Find Related Articles
      • Organizational Design
      • Business History
      • Horizontal Integration
      • Vertical Integration
      • Technology Platform
      • Computer

      Sign up for our weekly newsletter

      Interested in improving your business? Learn about fresh research and ideas from Harvard Business School faculty.
      ǁ
      Campus Map
      Harvard Business School Working Knowledge
      Baker Library | Bloomberg Center
      Soldiers Field
      Boston, MA 02163
      Email: Editor-in-Chief
      →Map & Directions
      →More Contact Information
      • Make a Gift
      • Site Map
      • Jobs
      • Harvard University
      • Trademarks
      • Policies
      • Digital Accessibility
      Copyright © President & Fellows of Harvard College