Summary of articles and chapters about digital innovations, including the layered modular architecture, innovation ecosystems, effects of digitalisation, the digital divide, digital platforms and hybrid virtual communities.
Summary articles and chapters
Literature lecture 1: The New Organizing Logic of DI: An Agenda for Information System
- Yoo et al. (2010)
Digital tech encourages a new type of product architecture: layered modular architecture (LMA)
= hybrid of modular architecture of physical product and layered architecture of digital tech →
embedded into physical products → enhances product functionality with software capabilities.
→ a product is formed by an ensemble of components from a series of heterogeneous layers,
each belonging to a different design hierarchy → designers of components don’t know exactly
how they’ll be used.
→ FEX. Google Maps → consists of a bundle of contents (maps) and services (search, browse,
traffic, navigation), with layers with different sets of interfaces (application programming).
DI = new combinations of digital and physical components to produce novel products → focus
on product innovation (IT = process innovation) → increasing computer power and decreasing
costs by digitizing all sorts of products → causes new forms of inequality.
→ DI is not just virtual, also physical: digital techs rely on a physical basis (energy/artifacts),
location (wifi/data centres) and with physical effects (waste/rare materials/electricity use).
→ conditions DI: (a) new combo relies on digitization = transformation of mechanical (analog)
into digital products (programmable/traceable), (b) firm has to revisit its organizing logic and use
corporate IT → digitize info means to turn into digital format (bits of 0 and 1).
→ characteristics DI:
1. Reprogrammability: enables the separation of functional logic of a device from the
physical embodiment that executes it → allows a digital device to perform wide array of
functions (FEX. calculating distances, word processing, video editing and Web browsing).
2. Homogenization of data: separates the content from the medium (data are independent of
physical carriers) → digital data originates from heterogeneous sources → you can
provide a lot of content, but it is up to the provider what is provided to the consumer.
3. Self-referential nature of digital tech: network externalities; each adopter of a DI
increases the value of use for other adopters, directly (social media) and indirectly (via
development of complementary innovations) → fosters further DI through virtuous cycle
(positive feedback).
2 separations layered architecture DI: (1) between device and service (due to
reprogrammability), (2) between network and contents (due to homogenization of data).
→ 4 layers:
1. Content: includes data (FEX. texts, sounds, images and videos, that are stored
and shared) → provides metadata and directory info about the content's origin,
ownership, copyright, encoding methods and so on.
2. Service: application functionality (FEX. apps) that directly serves users as they
create, manipulate, store and consume contents.
3. Network: (a) logical transmission, protocols to keep the network running (FEX. IP of your
laptop/algorithms) - (b) physical transport, cables, radio spectrum, transmitters.
4. Device: (a) physical machinery, computer hardware (FEX. laptop/servers) - (b) logical
capability, operating system, provides control and maintenance of the physical machine
and connects the physical machine to other layers (FEX. Windows/iOS).
Integral architecture = complex, overlapping functional elements and physical components,
where interfaces between components are not standardized and are tightly coupled → changes
,in one part of a product typically affect the rest of the product, often unpredictably → key sources
of value creation: economies of scale and scope.
Modular architecture Layered modular architecture
Components are product-specific (all parts Components are product agnostic (digital
end up to one product that is pre-specified). tech uses different modules (FEX. Uber)).
Fixed product boundary and meaning. Fluid product boundary and meanings.
Loose coupling between components through Loose coupling between components through
standardized interfaces. standardized interfaces.
Components are in a single design hierarchy. Heterogeneous layers following multiple
design hierarchies.
Components designed by firms that share Layers are coupled through standards and
product-specific knowledge. protocols shared by heterogeneous firms.
Low reprogrammability, homogenization of High reprogrammability, homogenization of
data and self-reference. data and self-reference.
Modularity = degree to which a product can be decomposed in components that can be
recombined → thereby, complexity is reduced and flexibility is increased → FEX. aircrafts are
modular, because parts can be replaced/adjusted without the entire aircraft being changed.
Digitized product can be a product and a platform → digital product platform = range of layers
(content and service layers) that can function as a new product and enable others to innovate by
using firm-controlled platform resources → firms can coexist or compete within certain layers.
Power: in traditional industries, firms higher in the product hierarchy are larger and have more
power (Airbus/Volkswagen/Siemens) → in digital industries, power resides in platform firms,
located in the device layer (Windows/iOS/Android) or service layer (Facebook/Amazon/Alibaba).
Generativity of a layered modular architecture: firm's ability to design a product platform that
attracts a large number of heterogeneous, unexpected components from different design
hierarchies → the greater the heterogeneity, the more generative the platform is.
Organizing logic for a layered modular architecture: doubly distributed → (1)
distributed, because the primary source of value creation is generativity from
heterogeneous resources across layers → (2) doubly, because (a) control over
product components is distributed across multiple firms, and (b) product
knowledge is distributed across heterogeneous disciplines and communities.
Research challenges new strategic frameworks: explore...
- Strategic roles of embedded digital tech to create a competitive advantage
through DI → because digitization of products blurs product and industry boundaries.
- Technical and strategic dimensions that influence the position of a digitized product and
the strategic consequences → because LMA is a strategic choice for firms seeking DI.
- How firms can strategically control their digital product platforms and how such controls
evolve over time → because control of key components can cause competitive advantage
→ firms need to constantly ask (a) what needs to remain open and what needs to be
closed in a digital product platform, (b) how to identify and control the core components,
and (c) how to build effective incentives for firms to join the product platforms.
- Factors that influence a firm's strategic choices → a layered modular product can be a
platform and a component, but not all firms can afford to pursue both at the same time.
, Literature lecture 1: Match Your Innovation Strategy to Your Innovation Ecosystem -
Adner (2006)
Innovation ecosystems = collaborative arrangements through which firms combine their
individual offerings into a coherent, customer-facing solution → advantages: every organization
can focus on its core competence → allow firms to create value no single firm could have created
alone → disadvantages: quality is not controlled by a single firm → it creates dependencies that
can derail a firm’s best efforts → 3 types of risks:
1. Initiative risks: uncertainties of managing a project (innovation) → challenges of
delivering a project on time and to specification → assessing initiative risks by;
a. evaluating the feasibility of the product,
b. the likely benefit to customers,
c. the relevant competition,
d. the appropriateness of the supply chain,
e. the quality of the project team.
2. Interdependence risks (ecosystem):
uncertainties of coordinating with complementary
innovators → innovation’s success depends on own
completion and successful development and deployment of all other components →
assessing interdependence risks by; multiplying probabilities to estimate delays caused by
complementary innovators → FEX. 4 components and 90% chance of success: chance of
ecosystem success = 0.9 x 0.9 x 0.9 x 0.9 = 0.66 (66%) → if one partner is a weak link (0.2),
chance of ecosystem success = 0.2 x 0.9 x 0.9 x 0.9 = 0.15 (15%) → design coordination.
3. Integration risks (ecosystem): uncertainties by the adoption process across the value
chain → firms and industries have different cycles of product renewal, so adoption times
are not always synchronized → assessing integration risks by: synchronizing adoption
cycles and estimating delays caused by intermediaries → adoption coordination.
→ intermediaries are between innovation and final customer → the further up the value chain
an innovation, the more intermediaries it has to adopt before it can reach volume sales → more
intermediaries means more uncertainty.
Mapping the ecosystem: (a) identify all intermediaries. (b) identify all complements (other
innovations needed for your innovation). estimate delays caused by; (c) interdependence. (d) the
adoption process. (e) the intermediaries’
interdependence with their own complementors and
integration hurdles. (f) arrive at a time-to-market for
your innovation. (g) re-assess your initial performance
expectations and innovation strategy and adjust if
necessary.
Innovation strategy = choosing how to trade off the
size of the market opportunity and the magnitude of
the ecosystem risks.
→ where to compete → a complete assessment of the project and the system may show that an
opportunity with low internal risks and high external risks is inferior to one with the opposite.
→ when to compete → being ready with your component ahead of your direct rivals may not
give an advantage if your complementors are not ready when you are → so, compete when you
have correct expectations of innovation interdependence and value chain integration.
→ how to compete → choice between taking an active/passive role in guiding ecosystem
development → taking leadership (active) often requires massive resource investments over long
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