Individual Paper Review

Loh Yao Sheng

Review: “Architectural Innovation: the Reconfiguration of Existing Product Technologies and the Failure of Established Firms” The paper starts by suggesting a framework for classifying innovation. Successful product innovation can take four forms, one of which is architectural innovation, in which the core components are reinforced but new linkages are established in the system. The paper argues that established firms are hampered by the way knowledge is organized and managed. There are two concepts involved in this. The first is that of a dominant design. Once a dominant design is established, the experimentation period ends and future progress works within the framework of a stable architecture. The second concept is that of information filters and communication channels. A dominant design moulds the organization’s filters so they embody its knowledge of key relationships between the components of the technology, enabling engineers to work efficiently but causing them to be reliant on recurrent problem-solving strategies. Since the core designs are unchanged, an established organization may rely on old frameworks and fail to recognize the nature of the innovation. Even then, the organization faces the challenge of building and applying new architectural knowledge effectively. A larger firm might find itself not as nimble as its smaller competitors and not as willing to incur the costs in building new channels and strategies to utilize the innovation. The significance of this distinction explains why new entrants to the industry

MGMT 002 – G4

Loh Yao Sheng

are able to exploit and maximize architectural innovation better than their bigger brethren. In this paper, I would also like to discuss a strategy that can be employed by firms capable of architectural innovation. The Smaller “Footprint” strategy involves making use of bottlenecks in architecture to shrink the “footprint” of the company’s inhouse activities, resulting in a greater invested capital advantage which is used to dominate the competition. In the early 1980s, the market for engineering workstations began to grow. Apollo was the first to enter the market and it was quickly followed by competitors like Sun Microsystems. The established standards of the time were that integration between the core elements of hardware and software was required to achieve optimal processing speeds in a computer. In 1984, Apollo had 60% market share and was growing rapidly. Sun took an unconventional approach to the business, challenging the established standards by studying weakness in computer architecture. Sun aimed for low cost by using standard interfaces and off-the-shell parts but also targeted superior speed and performance. Sun’s breakthrough came when they patented a special Memory Management Unit (MMU) and a high-speed internal memory bus. These two patented parts enabled Sun to achieve a more effective design on the existing single board design using standard parts.

MGMT 002 – G4

Loh Yao Sheng

Sun leveraged upon its architectural knowledge to revamp its manufacturing process. The single board design simplified materials flow, reduced inventory and decreased the need for hard assets. Sun also outsourced many steps in their production process and only kept critical design elements for inhouse production. With a smaller “footprint”, Sun had a strong Return on Invested Capital (ROIC) and assets turnover advantage over Apollo. Apollo was eventually acquired by HP but Sun failed to dominate the market. Sun’s competitors used their financial muscles to retain market share and the quantitative approach to computer architecture it pioneered had become commonplace.

MGMT 002 – G4