The new organizing logic of digital innovation (Yooetal, 2010)
The article proposes that digital technology instigates a new type of product architecture: The
layered modular architecture. This is a hybrid of the modular architecture of a physical products and
the layered architecture of digital technology.
Digital innovation: carrying out of new combinations of digital and physical components to produce
novel products. Focus is on product innovation. Can rely on digitization. This makes physical products
programmable, addressable, sensible, communicable, memorable, traceable, associable. It has three
characteristics:
1. Re-programmability: Architecture offers flexibility in the way data is manipulated. This allows
the wide variety of functions.
2. Homogenization of data: All analog data is mapped into a set of binary numbers. This
separates the content from the medium. This makes it easier to combine digital data.
3. Self-referential nature of digital technology: Digital innovation requires the use of digital
technology. This further accelerates the availability of digital devices.
The layered architecture of digital technology: Exists out of four
layers (devices, networks, services and contents). The layers manifest
two critical separations:
- Between the device and service because of reprogram ability.
- Between network and contents because of homogenization
of data.
Each layer represents a different functionality and design hierarchy
and the individual design decision for components in each layer can
be made with minimum consideration of other layers. Designers can
pursue combinatorial innovation by gluing components from
different layers using a set of protocols and standards to create
alternative digital products.
Two architectures have dominated physical product design:
- Integral: Integral architecture is characterized by a complex and overlapping mapping
between functional elements and physical components, where the interfaces between
components are not standardized and tightly coupled. Changes in one component cause
changes in other components.
- Modular: Characterized by its standardized interfaces between components. Modularity is a
general characteristic of a complex system and refers to the degree to which a product can
be decomposed into components that can be recombined.
A new trend is the layered modular architecture. This is a hybrid between both, where the degree by
which the layered architecture adds the generativity to the modular architecture forms a continuum.
The product is inductively enacted by orchestrating an ensemble of components from a set of
heterogenous layers, each of which belongs to a different design hierarchy (Example Google Maps).
Generativity in a layered modular architecture is accomplished through loose couplings across layers
whereby innovations can spring up independently at any layer, leading to cascading effects on other
layers.
, The organizing logic of layered modular architecture
With a layered modular architecture, a digitized product can be simultaneously a product and a
platform. It can serve as a platform courting for its own installed base at one layer and serve as a
component at another layer. The firm can compete on one layer, and coexist on another layer
(Amazon, Apple). A firm seeks to attract heterogeneous actors to design and produce novel
components on layers outside of its digital product platform. The greater the heterogeneity, the
more generative the platform becomes.
The organizing logic can be characterized as doubly distributed. It is distributed because the primary
source of value creation is the generativity that comes from the unbounded mix-and-match
capability of heterogeneous resources across layers. It is doubly distributed because the control over
the product components is distributed across multiple firms, and the product knowledge is
distributed across heterogeneous disciplines and communities.
Information systems research agenda and key research questions: How we can understand the
consequences of digital innovation and the emergence of the layered modular architecture on
strategy and corporate IT infrastructure. Firms face new competitive dynamics. Scholars must
imagine new digital strategy frameworks and corporate IT infrastructures.
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