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Architectural Innovation: The Reconfiguration of Existing Product Technologies and the Failure of Established Firms
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.
... Our data analysis strategy was inductive and involved abstracting from occurrences to events (Abbott, 1990), temporal bracketing (Langley, 1999), and inductive coding (Strauss & Corbin, 1998). Because our interest was to understand the techniques through which PrintCo transformed the architecture of their 3D printers, we decided to draw on the literature on digital product innovation and technology and innovation management as lenses (Henderson & Clark, 1990;Yoo et al., 2010). ...
... Finally, our study also contributes to the literature on technology and innovation management (Baldwin, 2023;Galunic & Eisenhardt, 2001;Henderson & Clark, 1990). The techniques PrintCo used to embed digital technology within its product architecture complement knowledge about "design rationalization processes" that drive the modularization of product architectures (Baldwin & Clark, 2000). ...
... A product architecture refers to the set of components and their interactions that constitute a product(Henderson & Clark, 1990). ...
This study investigates how organizations layer their product architectures by embedding digital components into physical products. Drawing on a longitudinal case study of PrintCo-a desktop 3D printer firm-we show that layering a product architecture relies on creating adapter layers that facilitate connections among physical and digital components. To generate these adapter layers, PrintCo first parametrized physical components through firmware, making them controllable and addressable. PrintCo then arranged higher-order digital functionality via adapter layers that couple parametrized physical components with additional digital functionality. Based on these findings, we propose a theoretical model that explains how organizations layer product architectures, what the role of adapter layers is, and how the transformation of an organization's product architecture progresses.
... Growth-oriented firms may enhance profit to achieve profitable growth by charging a premium price or reducing costs. We argue that strong technological capabilities are keys to creating competitive advantages and increasing profit (Bettis & Prahalad, 1995;Chatterjee & Sahasranamam, 2018;Henderson & Clark, 1990;Tushman & Anderson, 1986). ...
Firms adopt different strategies to achieve sustained profitable growth. We argue that the success of sustained profitable growth relies on the alignment between a firm's prior and subsequent strategy. This study views a firm's prior strategy, i.e., growth-oriented vs profit-oriented, as a primary driver of future sustained profitable growth. We adopt the resource-based view to understand the types of resources required for these two strategies. We argue that to achieve sustained profitable growth, growth-oriented firms need to enhance their firm-specific advantages by developing valuable, rare, inimitable, and non-substitutable resources such as technology and brand. In comparison, profit-oriented firms must identify versatile resources to capture growth opportunities and manage growth by successfully replicating their profitable operations. Low turnover in senior management could help profit-oriented firms achieve this goal. We find support for the arguments in a sample of 3,802 listed firms worldwide from 1992 to 2019.
... From an industrial organization perspective, incumbents are firms that have been established in the market for a significant period, typically holding substantial market share and creating barriers to entry (McAfee et al. 2004;Porter 1980). From a technological standpoint, these firms often rely on their existing capabilities to sustain competitive advantages but may struggle to adapt to certain types of innovation (Christensen 1997;Henderson and Clark 1990). When faced with market threats-such as new products, emerging technologies, or new entrants-incumbents generally adopt strategies to defend and maintain their market positions (Christensen 1997;Teece et al. 1997). ...
Biological products present a sustainable alternative to synthetic agricultural inputs, yet the industrial dynamics triggered by these solutions remain unexplored. This study examines the strategic responses of dominant agricultural input firms to the rise of biological solutions. Through qualitative textual analysis of press releases, company reports, and other public sources, we identify five key strategies followed by incumbents: portfolio expansion, marketing and distribution, technological complementarities, product development, and window of technology. These exploration strategies are pivotal in shaping the technological and market trajectories of sustainable innovations, particularly in a sector characterized by market concentration. While synergies exist between chemical and biological products, incumbents face challenges adapting to the distinct rationale of these products. This study offers practical insights for firms operating in this emerging market while underscoring how incumbents play a dual role in navigating adaptation challenges while influencing the scalability and commercialization of these emerging sustainable technologies.
... Rooted in Simon's (1996) design theory, modular architecture is an effective technique to minimize complexity and increase design flexibility by decomposing a product into loosely coupled components that are connected via prespecified interfaces (Baldwin & Clark 2000). In summary, recent research on modularity and architecture has examined these notions at several levels, with a particular emphasis on the relationship between products and organizations (Henderson & Clark, 1990;Sanchez & Mahoney, 1996;Brusoni & Prencipe, 2006). This paper proposes a framework for modular architecture innovation at the technical and organizational levels, since an ideal modular architecture carries out one-to-on mapping between functional elements and physical modules (Ulrich 1995). ...
By altering resource allocation and value-creation logic, digitalization has wrecked practical experiences gained over lengthy stretches of incremental innovation. To bridge the gap between established business procedures and the integration of new technology, we merge the concepts of digitalization strategy, innovation ecosystem, and modular architecture to help enterprises navigate highly unstable environments of the digital era. We also discuss how digitalization can change and enhance the hub firm’s innovation performance through the innovation ecosystem’s structure. Therefore, we designed a feedback model based on modular architecture perspectives to investigate value creation mechanisms through the dynamic synergy between stakeholders in the innovation ecosystem and digital resources during the ongoing digitalization processes. We further discover that digitalization spurs the hub firm’s innovation performance via two subsystems: the digital incremental innovation subsystem and the digital enabling innovation subsystem. These subsystems characterize numerous activities that occur during digitalization processes. Additionally, we identify that the hub firm’s digitalization has influenced the ways in which users, businesses, and the government have provided feedback and propose that building an innovation ecosystem to empower participants is a prolific lens to study digitalization, thus theorizing its implications for the organizational configurations of hub firms, which ultimately results in better performance.
This chapter explores the concept of hyper-personalization and innovation capabilities in the B2B hospitality industry. To achieve sustainable competitive advantages and enhance customer experiences, the hospitality industry organisation need to develop dynamic capabilities of innovations and hyper-personalisation of products, services and processes in the hospitality sector. The chapter conceptually discusses the application of artificial intelligence, big data, and analytics to collaborate with partners of the hospitality industry and provide innovative and deeply personalised experiences to customers. The literature review indicates various models, processes, opportunities and challenges in developing innovation and hyper-personalisation of services in the B-to-B hospitality sector. The chapter proposes useful models, tools and suitable recommendations related to developing and implementing innovative and hyper-personalise capabilities. The findings are useful for strategic management and policymakers associated with the hospitality sector.
This chapter provides an overview of the history and impact of artificial intelligence on businesses, with a specific focus on the pharmaceutical industry and research. It discusses the basic principles of pharmacoeconomics, explores ways AI can enhance business processes, and examines various applications of AI in pharmaceutical research, such as drug development, digital therapy, personalized treatment, clinical trials, epidemic forecasting, and supply chain management. The chapter also addresses challenges and considerations related to ethics, safety, data privacy, and liability in AI implementation. Finally, the discussion provides insights into AI's economic opportunities and implications in pharmaceutical research.
This article exexamines the role of knowledge in the innovation process, highlighting knowledge creation as a key factor in successful innovation. Current economic realities underscore the importance of knowledge as a fundamental resource for creating unique competitive advantage. The relationship between innovation and the knowledge creation process, which is often overlooked or underestimated, is explored.
The article presents different approaches to defining and classifying innovation and knowledge creation models. The authors propose a classification approach for knowledge-based innovations based on parameters such as the type of knowledge according to novelty level (completely new knowledge vs. use of existing knowledge), knowledge creation (market knowledge vs. empirical knowledge), and knowledge characteristics (explicit vs. implicit). Empirical research on knowledge-based innovation has allowed us to complement the classification approach with information on the source of knowledge acquisition for innovation creation - a critical feature for company managers.
The conclusion underlines the importance of knowledge creation and integration for the successful implementation of innovation.
Due to the different pattern of evolution of complex product systems in comparison with conventional innovation models, this paper examines the evolution of innovation in complex product systems in Iran's aviation industry using the concept of life cycle model in systems engineering. In this paper, a model for identifying and analyzing innovation stages in CoPS is developed with a focus on revealing the interaction of reverse and forward engineering. For this purpose, first, by reviewing the literature and life cycle models in CoPS, a conceptual framework was developed. Then, by chronological multiple case study of three CoPS in the aviation industry, a life cycle-based innovation process model in CoPS was developed. This model includes following stages: reverse engineering and design recovery (including data evaluation and analysis, technical data package generation, design verification, technical data package completion and design implementation), concept, development, production, operation, support and retirement. Our findings show several salient features of innovation process in CoPS in Iran's aviation industry as follows. This model is a complex system of processes which are concurrent, iterative, recursive and interdependent. During the product innovation process, reverse and forward engineering interact with each other. Also, this model provides a systematic and pragmatic framework for better management of the innovation process in complex product systems that are designed and produced based on ideas and technical data obtained from reverse engineering in intraction with forward engineering (direct design).
This paper presents the results of two studies designed to investigate the characteristics of the concepts of threat and opportunity used by organizational decision makers to describe and understand issues. The first study identified the issue characteristics that managers associate with the concepts of threat and opportunity, and the second used an experimental design to demonstrate that the characteristics of issues lead to their being perceived as threats or opportunities. The results suggest the presence of a threat bias, which results in managers being more sensitive to issue characteristics associated with threats than to those associated with opportunities. The implications of the results for understanding how threats and opportunities are identified are discussed, and future research directions are indicated.
A comparative model of organizations as interpretation systems is proposed. The model describes four interpretation modes: enacting, discovering, undirected viewing, and conditioned viewing. Each mode is determined by (1) management's beliefs about the environment and (2) organizational intrusiveness. Interpretation modes are hypothesized to be associated with organizational differences in environmental scanning, equivocality reduction, strategy, and decision making.
This paper focuses on patterns of technological change and on the impact of technological breakthroughs on environmental conditions. Using data from the minicomputer, cement, and airline industries from their births through 1980, we demonstrate that technology evolves through periods of incremental change punctuated by technological break-throughs that either enhance or destroy the competence of firms in an industry. These breakthroughs, or technological discontinuities, significantly increase both environmental uncertainty and munificence. The study shows that while competence-destroying discontinuities are initiated by new firms and are associated with increased environmental turbulence, competence-enhancing discontinuities are initiated by existing firms and are associated with decreased environmental turbulence. These effects decrease over successive discontinuities. Those firms that initiate major technological changes grow more rapidly than other firms.
This paper proposes and empirically tests whether different models are needed to predict the adoption of technical process innovations that contain a high degree of new knowledge (radical innovations) and a low degree of new knowledge (incremental innovations). Results from a sample of 40 footwear manufacturers suggest that extensive knowledge depth (measured by the number of technical specialists) is important for the adoption of both innovation types. Larger firms are likely to have both more technical specialists and to adopt radical innovations. The study did not find associations between the adoption of either innovation type and decentralized decision making, managerial attitudes toward change, and exposure to external information. By implication, managers trying to encourage technical process innovation adoption need not be as concerned about modifying centralization of decision making, managerial attitudes and exposure to external information as would managers trying to encourage other types of innovation adoption, e.g., innovations in social services where these factors have been found to be important. Instead, investment in human capital in the form of technical specialists appears to be a major facilitator of technical process innovation adoption.
Industrial classifications were used as a basis for operational definitions of both industrial and organizational task environments. A codification of six environmental dimensions was reduced to three: munificence (capacity), complexity (homogeneity-heterogeneity, concentration-dispersion), and dynamism (stability-instability, turbulence). Interitem and factor analytic techniques were used to explore the viability of these environmental dimensions. Implications of the research for building both descriptive and normative theory about organization-environment relationships are advanced.
The purpose of this study was to test a model of the organizational innovation process that suggests that the strategy-structure causal sequence is differentiated by radical versus incremental innovation. That is, unique strategy and structure will be required for radical innovation, especially process adoption, while more traditional strategy and structure arrangements tend to support new product introduction and incremental process adoption. This differentiated theory is strongly supported by data from the food processing industry. Specifically, radical process and packaging adoption are significantly promoted by an aggressive technology policy and the concentration of technical specialists. Incremental process adoption and new product introduction tends to be promoted in large, complex, decentralized organizations that have market dominated growth strategies.
Findings also suggest that more traditional structural arrangements might be used for radical change initiation if the general tendencies that occur in these dimensions as a result of increasing size can be delayed, briefly modified, or if the organization can be partitioned structurally for radical vs. incremental innovation. In particular, centralization of decision making appears to be necessary for radical process adoption along with the movement away from complexity toward more organizational generalists. This suggests that a greater support of top managers in the innovation process is necessary to initiate and sustain radical departures from the past for that organization.
This paper develops a conceptual framework for analyzing the sequence of technological changes that underlie the development of industries. The framework examines the interaction between design decisions and the coices of customers. Using examples from autos and semiconductors the paper argues that the logic of problem solving in design and the formation of concepts that underlie choice in the marketplace impose a hierarchical structure on the evolution of technology. The nature of the evolutionary process has implications for the dynamics of competition and the management of innovation.
