In this paper, we assess the economic viability of innovation by producers relative to two increasingly important alternative models: innovations by single-user individuals or firms and open ...collaborative innovation. We analyze the design costs and architectures and communication costs associated with each model. We conclude that both innovation by individual users and open collaborative innovation increasingly compete with and may displace producer innovation in many parts of the economy. We explain why this represents a paradigm shift with respect to innovation research, policy making, and practice. We discuss important implications and offer suggestions for further research.
Abstract
The mirroring hypothesis predicts that organizational ties within a project, firm, or group of firms (e.g., communication, collocation, employment) will correspond to the technical ...dependencies in the work being performed. This article presents a unified picture of mirroring in terms of theory, evidence, and exceptions. First, we formally define mirroring and argue that it is an approach to technical problem-solving that conserves scarce cognitive resources. We then review 142 empirical studies, divided by organizational form into (i) industry studies, (ii) firm studies, and (iii) studies of open collaborative projects. The industry and firm studies indicate that mirroring is a prevalent pattern but not universal. However, in technologically dynamic industries, partial mirroring, where knowledge boundaries are drawn more broadly than operational boundaries, is likely to be a superior strategy. Firms can also strategically ‘break the mirror’ by implementing modular partitions within their boundaries, or by building relational contracts across their boundaries. Finally, studies of open collaborative projects, most of which focused on software, were not supportive of the hypothesis. We argue that digital technologies make possible new modes of coordination that enable groups to deviate from classical mirroring as seen in firms.
Design rules: past and future Baldwin, Carliss Y
Industrial and corporate change,
02/2023, Volume:
32, Issue:
1
Journal Article
Peer reviewed
Open access
Abstract
It is a great honor to have a special issue of Industrial and Corporate Change dedicated to The Power of Modularity Today: 20 Years of “Design Rules.” In this retrospective article, I will ...give some background on how Design Rules, Volume 1: The Power of Modularity came to be written and list what I believe were its major contributions. I go on to describe the book’s shortcomings and gaps, which prevented the widespread adoption of the tools and methods the book proposed. I then explain how the perception of the gaps influenced my thinking in Design Rules, Volume 2: How Technology Shapes Organizations.
Modularity is a means of partitioning technical knowledge about a product or process. When state-sanctioned intellectual property (IP) rights are ineffective or costly to enforce, modularity can be ...used to hide information and thus protect IP. We investigate the impact of modularity on IP protection by formally modeling the threat of expropriation by agents. The principal has three options to address this threat: trust, licensing, and paying agents to stay loyal. We show how the principal can influence the value of these options by modularizing the system and by hiring clans of agents, thus exploiting relationships among them. Extensions address screening and signaling in hiring, the effects of an imperfect legal system, and social norms of fairness. We illustrate our arguments with examples from practice.
► We explore the relationship between product designs and organizational designs. ► We compare open source software with software developed by commercial firms. ► We measure modularity by capturing ...the level of coupling between components. ► We find that loosely coupled organizations tend to develop more modular products. ► The differences in modularity are substantial—up to a factor of six in our sample.
A variety of academic studies argue that a relationship exists between the structure of an organization and the design of the products that this organization produces. Specifically, products tend to “mirror” the architectures of the organizations in which they are developed. This dynamic occurs because the organization's governance structures, problem solving routines and communication patterns constrain the space in which it searches for new solutions. Such a relationship is important, given that product architecture has been shown to be an important predictor of product performance, product variety, process flexibility and even the path of industry evolution.
We explore this relationship in the software industry. Our research takes advantage of a natural experiment, in that we observe products that fulfill the same function being developed by very different organizational forms. At one extreme are commercial software firms, in which the organizational participants are tightly-coupled, with respect to their goals, structure and behavior. At the other, are open source software communities, in which the participants are much more loosely-coupled by comparison. The mirroring hypothesis predicts that these different organizational forms will produce products with distinctly different architectures. Specifically, loosely-coupled organizations will develop more modular designs than tightly-coupled organizations. We test this hypothesis, using a sample of matched-pair products.
We find strong evidence to support the mirroring hypothesis. In all of the pairs we examine, the product developed by the loosely-coupled organization is significantly more modular than the product from the tightly-coupled organization. We measure modularity by capturing the level of coupling between a product's components. The magnitude of the differences is substantial—up to a factor of six, in terms of the potential for a design change in one component to propagate to others. Our results have significant managerial implications, in highlighting the impact of organizational design decisions on the technical structure of the artifacts that these organizations subsequently develop.
•We describe a methodology for characterizing the architecture of complex systems.•Our methodology is based upon directed network graphs.•We define three types of architecture: Core–Periphery, ...Multi-Core, and Hierarchical.•We apply our methodology to a sample of 1286 software releases.•We find that most systems in our sample possess a Core–Periphery structure.
In this paper, we describe an operational methodology for characterizing the architecture of complex technical systems and demonstrate its application to a large sample of software releases. Our methodology is based upon directed network graphs, which allows us to identify all of the direct and indirect linkages between the components in a system. We use this approach to define three fundamental architectural patterns, which we label core–periphery, multi-core, and hierarchical. Applying our methodology to a sample of 1286 software releases from 17 applications, we find that the majority of releases possess a “core–periphery” structure. This architecture is characterized by a single dominant cyclic group of components (the “Core”) that is large relative to the system as a whole as well as to other cyclic groups in the system. We show that the size of the Core varies widely, even for systems that perform the same function. These differences appear to be associated with different models of development – open, distributed organizations develop systems with smaller Cores, while closed, co-located organizations develop systems with larger Cores. Our findings establish some “stylized facts” about the fine-grained structure of large, real-world technical systems, serving as a point of departure for future empirical work.
This paper reports data from a study that seeks to characterize the differences in design structure between complex software products. We use design structure matrices (DSMs) to map dependencies ...between the elements of a design and define metrics that allow us to compare the structures of different designs. We use these metrics to compare the architectures of two software productsthe Linux operating system and the Mozilla Web browserthat were developed via contrasting modes of organization: specifically, open source versus proprietary development. We then track the evolution of Mozilla, paying attention to a purposeful "redesign" effort undertaken with the intention of making the product more "modular." We find significant differences in structure between Linux and the first version of Mozilla, suggesting that Linux had a more modular architecture. Yet we also find that the redesign of Mozilla resulted in an architecture that was significantly more modular than that of its predecessor and, indeed, than that of Linux. Our results, while exploratory, are consistent with a view that different modes of organization are associated with designs that possess different structures. However, they also suggest that purposeful managerial actions can have a significant impact in adapting a designs structure. This latter result is important given recent moves to release proprietary software into the public domain. These moves are likely to fail unless the product possesses an "architecture for participation."
In this paper we model the pathways commonly traversed as user innovations are transformed into commercial products. First, one or more users recognize a new set of design possibilities and begin to ...innovate. They then join into communities, motivated by the increased efficiency of collective innovation. User-manufacturers then emerge, using high-variable/low-capital cost production methods. Finally, as user innovation slows, the market stabilizes enough for high-capital, low-variable cost manufacturing to enter. We test the model against the history of the rodeo kayak industry and find it supported. We discuss implications for “dominant design” theory and for innovation practice.
The Forces of Ecosystem Evolution Holgersson, Marcus; Baldwin, Carliss Y.; Chesbrough, Henry ...
California management review,
05/2022, Volume:
64, Issue:
3
Journal Article
Peer reviewed
Open access
Summary
Ecosystems are the result of a delicate balance between centripetal forces that push economic activities toward integration, and centrifugal forces that pull economic activities out onto the ...market. Ecosystems evolve when these forces change. For example, technological complementarities—the main source of centripetal force—are dynamic and may be commoditized, generalized, or standardized over time. Management and coordination also change: for example, open innovation practices enable firms to move innovation activities from the in-house R&D lab out into the ecosystem. This article discusses how such dynamics in technologies and management lead to ecosystem evolution.
This article constructs a theory of the location of transactions and the boundaries of firms in a productive system. It proposes that systems of production can be viewed as networks, in which ...tasks-cum-agents are the nodes and transfers—of material, energy and information—between tasks and agents are the links. Transactions are defined as mutually agreed-upon transfers with compensation and are located within the task network. Placing a transaction in a particular location in turn requires work to define, count (or measure), and pay for the transacted objects. The costs of this work (labeled mundane transaction costs) are generally low at the thin crossing points of the task network, which correspond to module boundaries. Therefore, transactions are more likely to be located at module boundaries than in their interiors. Several implications arise from this theory. Among these: Modularizations create new module boundaries, hence new transaction locations. Areas in the task network where transfers are dense and complex should be located in transaction-free zones, so that the cost of transacting does not overburden the system. The thin crossing points between transaction-free zones constitute breakpoints, where firms and industries may split apart.
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