Carliss Y BaldwinHarvard University | Harvard · Harvard Business School
Carliss Y Baldwin
DBA
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140
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Introduction
Skills and Expertise
Publications
Publications (140)
The purpose of this chapter is to analyze software development as a technology, that is, a process that utilizes phenomena in the material world to achieve a human purpose. What tasks are needed to make a software program? How does software development compare to the other technologies we have looked at, for example, auto production, semiconductor...
The purpose of this chapter is to investigate a hybrid organizational form-open source projects with substantial corporate support and staffing. I begin by asking why corporations would find it in their interest to use and modify open source code and why they might then contribute code back to the open source community (rather than free-riding). Fr...
The purpose of this chapter is to analyze open source software development projects as a form of organization responsive to the requirements and rewards of software as a technology. Open source development is a collaborative method of designing software (and other complex artifacts) characterized by (1) distributed governance; (2) geographic disper...
The purpose of this book is to present a theory of technical systems that can help us better understand the demands technology places on organizations. New technologies in general require new patterns of activity and reward some patterns over others. Quoting Brian Arthur:
"When a novel technology enters the economy, it calls forth novel arrangemen...
The purpose of this chapter is to describe the complementary elements of a logistical platform and show how they can work together to deliver a high ROIC. A secondary purpose of the chapter is to illustrate the power and limitations of a strategy of value capture based exclusively on ROIC.
I use the history of Dell Computer as a case in point. Del...
The purpose of this book is to present a theory of technical systems that can help us better understand the demands technology places on organizations. New technologies in general require new patterns of activity and reward some patterns over others. Quoting Brian Arthur:
When a novel technology enters the economy, it calls forth novel arrangement...
The purpose of this chapter is to understand how technology contributed to the emergence and evolution of modular production networks between 1980 and the present. In a modular production network, the activities needed to create a functioning system (for example, a personal computer) are distributed across many autonomous firms linked by modular in...
As digital technology evolved under the impetus of Moore's Law, a group of new "exchange" platforms emerged that focused on facilitating transactions and/or communications between different parties. Exchange platforms are characterized by having "sides". The simplest have two sides: buyers and sellers in the case of transaction platforms and sender...
The purpose of this chapter is to use value structure analysis to better understand how sponsors of digital exchange platforms capture value and maintain strategic bottlenecks. I begin by describing the three core technological processes that lie at the heart of all digital exchange platforms: (1) search and ad placement; (2) dynamic pricing; and (...
The purpose of this chapter is to explain how and why Google used an open source operating system, Android, to attract handset makers and application developers into a new ecosystem for mobile devices. The chapter begins by describing Google's initial investment in the open source operating system and Android's amazing penetration of the global mar...
The purpose of this chapter is to use the theory of bottlenecks laid out in the previous chapter to better understand the dynamics of an open standards-based platform. I describe how the Wintel platform evolved from 1990 through 2000 under joint sponsorship of Intel and Microsoft. I first describe a series of technical bottlenecks that arose in the...
The purpose of this chapter is to investigate the means by which firms capture value in open platform systems. It combines the theory of a platform as a provider of options with the theory of bottlenecks developed in Chapters 7, 8 and 9. I argue that, in an open platform system, firms capture value by: (1) controlling one or more strategic bottlene...
The IBM PC was the first digital computer platform that was open as a matter of strategy, not necessity. The purpose of this chapter is to understand the IBM PC as a technical system and set of organization choices in light of the theory of how technology shapes organizations. In Chapter 7, I argued that sponsors of large technical systems (includi...
The purpose of this chapter is to lay the groundwork for a comprehensive theoretical investigation of open digital platform systems. To do this, we must first recognize that, although there is a strong family resemblance among all platform systems, there are different types of platforms, each with its own set of technological requirements and chall...
Spurred by the success of the IBM PC, in the early 1980s, a new form of organization—the digital platform ecosystem—became common in all industries that used semiconductor chips. Platform ecosystems were vertically distintegrated organizations, characterized by distributed governance, modularity, and openness. In contrast, semiconductor firms, whic...
The purpose of this chapter is to contrast the value structure of platform systems (e.g. a computer or a marketplace) with step processes (e.g. an assembly line or a steel mill). A step process is a technology that changes the material world in a predictable way that humans find useful or valuable. In contrast, a platform system is a technology des...
Moore’s Law is the prediction that transistor densities of semiconductor chips will double, speeds double, and prices drop by half approximately every eighteen months to two years. The Law lies at the heart of the high rates of technical change observed in the computer, communication and software industries during the last fifty years. The purpose...
The purpose of this chapter is to examine the value structure of flow production processes and to explain why it is necessary to rationalize flow processes using the tools of systematic management. I first explain the problems facing managers of multi-step flow production processes at the end of the 19th Century. I map the value structure of a prod...
The purpose of this chapter is to explain what the technologies of flow production with bottlenecks require and reward in organizations. I argue that the organizations best suited to implementing these technologies are vertically integrated spanning all potential bottlenecks. They are subject to unified governance and exercise direct authority over...
The purpose of this chapter is to explore variation among organizations employing mass production technology. To allow for an apples-to-apples comparison, I examine organizations using essentially the same technologies, making similar products, and competing in the same markets. Specifically, I look at the organizational differences among the large...
From the 1930s through today, many economists have conceived of large technical systems for the production of goods and services as a series of transactions. This point of view has led eminent economists to assert that transactions are the fundamental unit of analysis in the economic system.
This conceptualization has been very powerful, but it i...
In Chapter 2 we saw that the most economical locations for transactions in a task network are the so-called thin crossing points-places where transfers are easy to define, count and pay for. However, in many places in the task network, transfers of material, energy, and information are so dense and complex that the costs of treating each one as a t...
The purpose of this chapter is to introduce two new building blocks to the theory of how technology shapes organizations. The first is a new layer of organization structure: a business “ecosystem.” The second is the economic concept of “complementarity.” Ecosystems are groups of autonomous firms and individuals whose actions and investments create...
A technology is a specific way to achieve a material goal. It describes a feasible path—a recipe—by which a group of people can arrive at a goal that none could achieve individually. Technical recipes thus require linkages between and among the various contributors to the technical process.
The purpose of this chapter is to look at the relationship...
Organizations are formed in a free economy because an individual or group perceives value in carrying out a technical recipe that is beyond the capacity of a single person. Technology specifies what must be done, what resources must be assembled, what actions taken in order to convert stocks of material, energy and information into products and ser...
Functional analysis as set forth in the last chapter decomposes a technical system into functional components that do things to advance the system’s purpose and the goals of its designers. Functional analysis in turn can be used to construct value structure maps of technical systems. Such maps reveal targets of potential action and investment in th...
This paper combines theories of organizational design with theories of production to provide a novel perspective, which helps explain the technological forces that led to the rise of vertically integrated “modern” corporations in the late nineteenth and early twentieth centuries. I describe the technology of a flow process with bottlenecks and show...
Recent contributions to information systems theory suggest that the primary role of a firm’s information technology (IT) architecture is to facilitate, and therefore ensure the continued alignment of a firm’s IT investments with a constantly changing business environment. Despite the advances we lack robust methods with which to operationalize ente...
The purpose of this chapter is to relate the theory of task networks and technology set forth in previous chapters to theories of firm boundaries from economics and management. Complementary goods have more value when used together than separately. Complementarity may be strong or weak. Strong complements are specific and unique goods that have no...
Employing software metrics, such as size and complexity, for predicting defects has been given a lot of attention over the years and proven very useful. However, the few studies looking at software architecture and vulnerabilities are limited in scope and findings. We explore the relationship between software vulnerabilities and component metrics (...
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 mi...
Return on invested capital (ROIC) is a financial measure of the profitability of a firm or business unit. If it is greater than the business’s cost of capital, then reinvestment of earnings increases shareholder value. The ROIC also determines a maximum self-sustaining growth rate for the business in the absence of outside funding. Finally, for bus...
There are many ways to exercise authority. Perrow (1986), in his review of March and Simon’s Organizations (1958), offers a threefold classification of the ways authority can be exercised in organizations: (1) direct, “fully obtrusive” controls such as giving orders and direct monitoring; (2) bureaucratic controls such as defined specializations, r...
We propose a network-based methodology for analyzing a firm’s enterprise architecture. Our methodology uses “Design Structure Matrices” (DSMs) to capture the coupling between components in the architecture, including both business and technology-related elements. It addresses the limitations of prior work, in that it i) is based upon the actual arc...
Bottlenecks are points of value creation and capture in any complex man-made system. The tools a firm can use to manage bottlenecks are, first, an understanding of the modular structure of the technical system; and, second, an understanding of the contract structure of the firm, especially its organizational boundaries and property rights. Although...
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...
In this paper, we test a Design Structure Matrix (DSM) based method for visualizing and measuring software portfolio architectures, and use our measures to predict the costs of architectural change. Our data is drawn from a biopharmaceutical company, comprising 407 architectural components with 1,157 dependencies between them. We show that the arch...
This study empirically investigates the relationship between design structure and organization structure in the context of new infrastructure development projects. Our research setting is a capital program to develop new school buildings in the city of Manchester, UK. Instead of creating a controlled, hierarchical organization, which would mirror t...
We test a method for visualizing and measuring enterprise application architectures. The method was designed and previously used to reveal the hidden internal architectural structure of software applications. The focus of this paper is to test if it can also uncover new facts about the applications and their relationships in an enterprise architect...
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...
We test a method that was designed and used previously to reveal the hidden internal architectural structure of software systems. The focus of this paper is to test if it can also uncover new facts about the components and their relationships in an enterprise architecture, i.e., if the method can reveal the hidden external structure between archite...
We argue that a design commons can be an advantageous organizational form under two salient
conditions: 1) high “subtractability” because different claimants have mutually exclusive beliefs or
preferences with respect to the design form, and 2) low “excludability” in the sense that the designed
artifact must be shared. Our paper is based on an empi...
Firms seeking to take advantage of distributed innovation and outsourcing can bridge the tension between value creation and value capture by modifying the modular structure of their technical systems. Specifically, this article introduces the concept of “IP modularity,” which seeks to protect and capture value from intellectual property. The articl...
Advances in biotechnology have fuelled the generation of unprecedented quantities of data across the life sciences. However, finding individuals who can address such “big data” problems effectively has become a significant research bottleneck. Historically, prize-based contests have had striking success in attracting unconventional individuals who...
In this paper we explain how firms seeking to take advantage of distributed innovation and outsourcing can bridge the tension between value creation and value capture by modifying the modular structure of their technical systems. Specifically, we introduce the concept of “IP modularity”, a special form of modularity that seeks to protect and captur...
Modularity is a means of partitioning technical knowledge about a product or process. When state-sanctioned intellectual property rights are ineffective or costly to enforce, modularity can be used to hide information and thus protect intellectual property (IP). We investigate the impact of modularity on IP protection by formally modeling three dif...
Modularity describes the degree to which a complex system can be broken apart into subunits (modules) which can be recombined in various ways. Modularity is important for organizations and the economy because the boundaries of organizational units and corporations are likely to match the boundaries of underlying technological modules. (This corresp...
Our paper tests a key prediction of property rights theory, specifically, that agents will respond to marginal incentives embedded in property rights when making non-contractible, revenue-enhancing investments. (Grossman and Hart, 1986; Hart and Moore, 1990). Using rich project-level data from the U.S. film industry, we investigate variation in pro...
The modern corporation has long been the central focus of the field of organization design. Such firms can be likened to nation-states: they have boundaries that circumscribe citizen-employees, and they engage in production and trade. But individual corporations are no longer adequate to serve as the primary unit of analysis. Over the years, system...
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 the future, I b...
The modern corporation has long been the central focus of the field of organization design. Such firms can be likened to nation-states: they have boundaries that circumscribe citizen-employees, and they engage in production and trade. But individual corporations are no longer adequate to serve as the primary unit of analysis. Over the years, system...
This note briefly describes the most important legal forms of U.S. bankruptcy (Chapter 7 and Chapter 11), and provides definitions of technical terms related to the bankruptcy process.Learning Objective: A handy reference for bankruptcy terminology.
Many products are manufactured in networks of firms linked by transactions, but comparatively little is known about how or why such transaction networks differ. This paper investigates the transaction networks of two large sectors in Japan at a single point in time. In characterizing these networks, our primary measure is “hierarchy,” defined as th...
Franz Humer, CEO of the Roche Group, must decide whether to mount a hostile tender offer for the publicly-owned shares of Roche's biotechnology subsidiary, Genentech. The case provides opportunities to analyze Roche's strategy with respect to Genentech, the pros and cons of merging the two companies with different cultures, the value of Genentech,...
The existing theory of modularity explains how modular designs create value. We extend this theory to address value appropriation. A product or process design that is modular with respect to intellectual property (IP) allows firms to better capture value in situations where knowledge and value creation are distributed across many actors. We propose...
This paper describes how entrepreneurial firms can use superior architectural knowledge to open up a technical system to gain strategic advantage. The strategy involves, first, identifying “bottlenecks” in the existing system, and then creating a new open architecture that isolates the bottlenecks in modules and allows others to connect to the syst...
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...
The Congressional Oversight Panel wants to value the warrants issued to the government in connection with the TARP investments of 2008, in order to increase the transparency of options repurchases. The case describes the methodology used to value the warrants. This case follows "The Congressional Oversight Panel's Valuation of the TARP Warrants (A)...
Any complex technological system can be decomposed into a number of subsystems and associated components, some of which are core to system function while others are only peripheral. The dynamics of how such “core-periphery” structures evolve and become embedded in a firm’s innovation routines has been shown to be a major factor in predicting surviv...
This paper describes how entrepreneurial firms can use superior architectural knowledge of a technical system to gain strategic advantage. The strategy involves, first, identifying "bottlenecks" in the existing system, and then creating a new architecture that isolates the bottlenecks in modules. An entrepreneurial firm with limited financial resou...
The mirroring hypothesis predicts that the organizational patterns of a development project (e.g. communication links, geographic collocation, team and firm co-membership) will correspond to the technical patterns of dependency in the system under development. Scholars in a range of disciplines have argued that mirroring is either necessary or a hi...
Bob Kelly, the new CEO of Mellon Financial, is considering the terms of a proposed "merger of equals" with The Bank of New York, just before the final Board meeting to approve the deal. The combination offers a great strategic fit, and the expected synergies are large. However, the proposed exchange ration values Mellon at a discount to its last cl...
As equity consideration has become more popular in acquisitions, so has the use of the "pricing-protection" mechanisms, such as floors, caps and collars. These contractual devices provide insurance to the shareholders of the target, and may protect the buyer as well. The purpose of this note is to define the main categories of price protection, and...
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 projects. We analyze the design costs and architectures and communication costs associated with each model. We conclude that innovatio...
The boundaries and contours of design sciences continue to undergo definition and refinement. In many ways, the sciences of design defy disciplinary characterization. They demand multiple epistemologies, theoretical orientations (e.g. construction, analysis or intervention) and value considerations. As our understanding of this emerging field of st...
The central role of "platform" products and services in mediating the activities of disaggregated "clusters" or "ecosystems" of firms has been widely recognized. But platforms and the systems in which they are embedded are very diverse. In particular, platforms may exist within firms as product lines, across firms as multi-product systems, and in t...
A variety of academic work argues a relationship exists between the structure of a development organization and the design of the products that this organization produces. Specifically, products are often said to "mirror" the architectures of the organizations from which they come. This dynamic occurs because an organization's problem solving routi...
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...
Designs are the instructions based on knowledge that turn resources into things that people use and value. All goods and services have designs, and a new design lies behind every innovation. Following Herbert Simon, I argue that designs can be studied scientifically and deserve focused attention from scholars in a number of disciplines.
Much academic work asserts a relationship between the design of a complex system and the manner in which this system evolves over time. In particular, designs which are modular in nature are argued to be more "evolvable," in that these designs facilitate making future adaptations, the nature of which do not have to be specified in advance. In essen...
In the last decade, the concept of modularity has caught the attention of engineers, management researchers and corporate
strategists in a number of industries. When a product or process is “modularized,” the elements of its design are split up
and assigned to modules according to a formal architecture or plan. From an engineering perspective, a mo...
The last twenty years have witnessed the rise of disaggregated “clusters,” “networks,” or “ecosystems” of firms. In these clusters the activities of R&D, product design, production, distribution, and system integration may be split up among hundreds or even thousands of firms. Different firms will design and produce the different components of a co...
In this paper, we describe Clark's research and discuss his contributions to management scholarship and economics. We look at three distinct bodies of work. In the first, Clark (in conjunction with Robert Hayes and Steven Wheelwright) argued that the abandonment by U.S. managers of manufacturing as a strategic function exposed U.S. companies to Jap...
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-v...
We are grateful to Michael Jacobides for encouraging us to write this paper and to Venkat Kuppuswamy for comments on the draft. We alone are responsible for errors, oversights and faulty reasoning.
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 archi...
This paper argues that the architecture of a codebase is a critical factor that lies at the heart of the open source development process. We define two observable properties of an architecture: (1) modularity and (2) option value. Developers can often make informed judgments about modularity and option value from early, partially implemented code r...
Our goal in this paper is to explain the location of transactions (and contracts) in a larger system of production. We first characterize the system as a network of tasks and transfers. While transfers between agents are necessary and ubiquitous, the mundane transaction costos of standardizing, counting, valuing and paying for what is transferred m...
OOP style requires programmers to organize their code according to objects (or nouns, using natural language as a metaphor), causing a program's actions (verbs) to become scattered during implementation. We define an Action-Oriented Identifier Graph ...
Designs are the instructions that turn knowledge into things that people value and are willing to pay for. In human cultures, almost all value inheres in designs. Designs in turn span the whole universe of human artifacts and activities. Tangible products and their production processes, intangible services and experiences, methods of transacting, c...
Projects
Project (1)
We live in a world of new technologies, yet we lack a general theory through which to understand the relationship between technology—our recipes for changing the material world—and organizations—the social structures we assemble to carry out the recipes and make technologies real.
The purpose of this book is to present a theory of technical systems that can help us better understand the demands technology places on organizations. New technologies in general require new patterns of activity and reward some patterns over others.
My goal in this book is to shed light on the ways new organizations arise to meet the requirements and respond to the rewards implicit in different technologies.