Slide 1 © Carliss Y. Baldwin 2006

Innovation in Systems Industries—Discussion

Carliss Y. Baldwin

HBS Strategy ConferenceOctober 14, 2006Boston, MA

Slide 2 © Carliss Y. Baldwin 2006

First, I claim (and you will have to bear with me) …

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We need new ways to envision the structure of systems industries

Andy Grove’s vision of a systems industry changing structure

1995-“Modular Cluster”

1980-“Vertical Silos”

Slide 4 © Carliss Y. Baldwin 2006

The Computer Industry in1985

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It changed—

1985 1995

Verticals are giving up ground…

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And then some more!

1985 2004

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Same time period… the auto industry stayed very vertical

Why the difference? We don’t know!

1984 2003

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The two papers highlight a puzzle we have yet to solve

“Quo Vadis?”

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“Image” vs. “Logic” Peter Galison: Two empirical approaches

“Logic”– Phenomenon is broken down and counted– Small units of analysis correlated– Power in disaggregation

“Image”– A “shining example”—a single image, carefully recorded, reveals how things work

– Focus on mechanisms and causality– Power in synthesis

Slide 10 © Carliss Y. Baldwin 2006

Boudreau = “Logic” or “Counting”

Handheld PDAs are a Platform industry– How? Why? — outside scope of analysis

Data = 103 products on three platforms Question:

– Does openness of the platform contribute to innovation on the platform?

Strategy is to decompose, then reaggregate– 63—> 12 dimensions of innovation– 5—> 2 measures of openness– 8 control variables, trends, fixed effects

Slide 11 © Carliss Y. Baldwin 2006

Boudreau—Results Openness is positively correlated with innovation in the outsourced modules (not the platforms)– Could have gone the other way—missed opportunity in framing the question

Two dimensions of openness—“Span of control” and “Access”– Access matters, Span does not

Access has diminishing, perhaps decreasing impact (negative quadratic term)– But Access is a composite of four underlying measures

– Causal drivers and managerial implications not clear

Slide 12 © Carliss Y. Baldwin 2006

Fixson and Park—Bike Drive Trains

Bike Drive Trains were a vertically fragmented industry

In the beginning (1980), there were 6 components with mix-and-match modularity

Then Shimano introduced “index shifting”– An “integral” product architecture– All pieces had to fit together, no more mix and match

Slide 13 © Carliss Y. Baldwin 2006

In the beginning (1980)

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Introduction of Index Shifting (1985)

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In 1990, only Vertical Silos left

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In Mountain Bikes… Only Shimano

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The PUZZLE — Quo Vadis?

Established firms in systems industries innovate by changing their product architecture and vertical scope in concert

But “good moves” and “trends” go in both directions:– More integral/integrated —> Shimano drive trains

– More modular + open/distributed —> Palm, Microsoft PDAs

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Thus industries evolve into new—and different— structures

Autos Computers

Something we can’t predict and don’t really understand!