1. The tenuous (?) relation between IT, modularity and industrial evolution Geneva, June 1-2, 2006 ‘Digital Transformation in the Information Society’ Parallel session: Industry-level impact of ICTs Stefano Brusoni CESPRI and CRORA (Bocconi University) and Silvio Tronchetti-Provera Foundation

2. Table of content Background and motivation The standard ‘modular’ story of industrial evolution  Product  Processes  Industry The less standard modular story of industrial evolution  Embedded coordination vs. agency  Architectural changes  Recombinant innovation Conclusions

3. Background  Empirical background  Increasing systemic-ness of the innovation process in multi-tech, multi-product organizations  Innovation and technology strategies  The ‘Pavitt-Teece-Grandstrand’ trajectory  Theoretical background  Organizations as problem-solving devices  Cognitive sciences  The ‘Simon-Levinthal-Marengo’ trajectory

4.  Modularity literature  Definition of modularity: one-to-one mapping between functions and components + standardised interfaces  Role of ‘design rules’ (Baldwin and Clark, 2000) Modularity creates options

5. Motivation  Long term viability of ‘modular organizations’ depend upon the ability of introducing new architectures and platforms  BUT: Lack of empirical analysis of processes of modularization, or re-modularization, or de-modularization.  Modularity literature normally accepts the idea that architectural and component-level knowledge are fully separable  Some firms specialize on developing architectures, others focus on components ? ? ?  The Turing machine-view of industrial evolution: platform- and industry-evolution are themselves ‘modular’ processes.

6. The ‘modular age’ – the product

7. The Old Vertical Computer Industry - Circa 1980 The New Horizontal Computer Industry - Circa 1995 Sperry Univac Wang Retail Stores SuperstoresDealers Mail Order WordWord PerfectLotus DOS and WindowsOS/2MacUNIX CompaqDellIBMEtc Packard Bell HP Intel ArchitectureMotorolaRISC Source: Adaptation from Only the Paranoid Survive by Andrew Grove, 1996. Sales and distribution Application software Operating systems Computer Chips Disk drives Contract manufactu rers Printers Sales and distribution Application software Operating systems Computer Chips IBMDEC I-net SAP Linux Seagate Quantum Western Digital Maxtor SelectronSCIFlextronics Jabi l Celestica HPEpson The ‘modular age’ – the industry

8. The ‘modular age’ – learning and knowledge Learning about components functions and designs ModerateSignificant Learning about component interactions and configurations Moderate Incremental learning at the component level Modular learning at the component level Significant Architectural learning Radical learning at the architectural and component levels Source: Sanchez and Mahoney, SMJ 1996

9. INTEGRAL MODULAR ARCHITECTURAL STRUCTURE ARCHITECTURAL PROPRIETARINESS Minicomputer industry Niche strategy, sophisticated users, in- house development. Challenge from producers of complementary assets Workstation and PC Industry Consumer electronics Short term success in terms of entry into new segments Loss of control in the long run (e.g. IBM OS/2) CLOSED OPEN Networking industries Incumbents maintain competitive position if innovative processes are fast and incremental in nature Open Source software (some) Strategic choice of key components and capabilities to keep the control of ‘supply chain’.

10. The Dynamics of Product and Industry Structure Integral product Vertical industry Pressure to disintegrate Organizational rigidities High dimensional complexity Niche competitors Source: Fine and Whitney (2003)

11. Hidden assumptions in ‘standard’ story (1) new architectures developed recombining existing modules (2) embedded coordination (i.e. design rules) Platform-level innovation is more than recombination of existing modules  E.g. chemical engineering, tire manufacturing, jet engines, LAN equipment, construction industry, financial services …  New modules. Where do they come from?  New skills and capabilities The limits to ‘embedded’ coordination  Developing and maintaining systemic knowledge despite (IT- enabled) strategic outsourcing  Role of systems integrators (broad capabilities, lean activities) which very actively coordinate transitions The Dynamics of Product and Industry Structure

12.  What makes possible the transition (e.g. from modular to integral)?  Systemic knowledge which provide focus and closure to a range of specialists.  It is the evolution of such knowledge which drives –at least during the transition phase- the evolution of firms’ boundaries and industrial structure.  Besides knowledge, fundamental role played by key individuals who have broad and deep expertise about the whole system.  How do you train these sort of people within –IT-enabled- distributed supply chain?  Analysis of career paths … The Dynamics of Product and Industry Structure

13. Conclusions Increasing disconnectedness between the dynamics of ‘products’ and the dynamics of ‘knowledge’ … … which makes design & manufacturing activities even more critical then before. Product-level expertise remains fundamental to develop system-level knowledge … … which is required to manage cycles of integration and disintegration at both the product and industry- level. Future analysis: from vertical integration to the integrated management of career paths.

14. Thanks!