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Architectural Innovation: The Reconfiguration of Existing Product Technologies and the Failure of Established Firms

Authors:
  • Church of Jesus Christ of Latter-day Saints

Abstract

This paper demonstrates that the traditional categorization of innovation as either incremental or radical is incomplete and potentially misleading and does not account for the sometimes disastrous effects on industry incumbents of seemingly minor improvements in technological products. We examine such innovations more closely and, distinguishing between the components of a product and the ways they are integrated into the system that is the product "architecture," define them as innovations that change the architecture of a product without changing its components. We show that architectural innovations destroy the usefulness of the architectural knowledge of established firms, and that since architectural knowledge tends to become embedded in the structure and information-processing procedures of established organizations, this destruction is difficult for firms to recognize and hard to correct. Architectural innovation therefore presents established organizations with subtle challenges that may have significant competitive implications. We illustrate the concept's explanatory force through an empirical study of the semiconductor photolithographic alignment equipment industry, which has experienced a number of architectural innovations.
... Incremental innovation, by contrast, has received less attention, with few exceptions [47,48,[93][94][95]. Contrary to the idea of radical and disruptive innovations, incremental innovation is a common and dominant form of innovation based on minor system refinements and extensions of established processes and designs [96,97]. ...
... During periods of incremental innovation, firms use existing know-how as a platform for adopting small changes [99]; in contrast to adaptation processes observed in radical innovations, firms do not need to abandon existing know-how and acquire an entirely new set of capabilities [45,97,99,110]. In other words, incremental innovation primarily affects the efficiency of existing processes and not the array of new products and processes [111], as in radical and disruptive innovations. Thus, in the presence of incremental change, there is no dilemma in choosing the older or the new technology since advances always increase the innovation and efficiency of the existing technological order. ...
... However, even if the skills, knowledge, and routines embedded in the organization that contribute to accountability and reliability are not completely rendered obsolete in the presence of incremental innovation [41,86,97,119], the physical assets associated with irreversible investment decisions in the form of exogenous sunk costs [120] may become outdated and inefficient, or just undermine the value of existing product lines [121], inhibiting adaptation. Natural resource firms, especially, face the dilemma of adopting incremental innovation in new processing technologies embracing more efficient processes at a high cost or staying with the current technology, eliminating the need for asset reconfiguration and capability adaptation activity. ...
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This paper provides an in-depth study of how incremental innovation, a ubiquitous factor, affects the sustainability of performance of small- and large-sized firms differently. Specifically, this work examines the sustainability of firm growth in natural resource industries. In these industries, innovation is mainly based on processes in the form of incremental changes, and the adoption of innovations has significant sunk costs. We argue that, before incremental process innovation, firm performance is directly proportional to firm size. However, in the presence of incremental innovation events, firm performance is inversely proportional to firm size since smaller firms pose higher strategic flexibility and can adopt innovations faster. Our empirical findings highlight the relevance of incremental innovation as an inflection point of firm performance, creating a competitive opportunity window for small firms and a sustainability threat for large firms.
... Taken together, this suggests that the most important element of OEMs' architectural advantage has not been eroded by the technological shift from ICEVs to BEVs (Jacobides et al., 2016). In other words, BEVs do not represent an architectural innovation with potentially industryrevolutionizing effects (Henderson and Clark, 1990). Hence, OEMs will likely maintain their control of the architecture of the automotive industry. ...
... In the industries of such integrated technologies, system integration capabilities allow firms to determine the division of labor and capture the lion's share of the value as they are able to solve and control an important technical bottleneck of the technology (Baldwin, 2015(Baldwin, , 2018(Baldwin, , 2019. Even when innovations occur at the subsystem level, firms that possess system integration capabilities may be able to profit from this innovation as long as the fundamental architecture of the technology remains intact (Teece, 1986(Teece, , 2006Henderson and Clark, 1990). Ultimately, systems integrators' knowledge can enable them to deal with unexpected dependencies of new technologies effectively . ...
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