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Yoo_etal_2010The New Organizing Logic of Digital Innovation: An Agenda
for Information Systems
Digitization makes physical products programmable, addressable, sensible, com municable, memorable, traceable, and
associable.
DI requires a firm to revisit its organizing logic and its use f corporate IT infrastructures. (E-book vs normal book).
Three characteristics of DI: reprogrammability (analog tech not possible), homogenization and self-referential nature of
digital tech.
The layers manifest two critical separations: (1) that between device and service because of reprogrammability and
(2) that between network and contents because of the homogenization of data.
Physical machinery: pc
Logical machinery: operating system
Physical transport: cables, radio spectrum
Logical transmussion: network standards
Service layer = application functionality (serves users
such as google)
Content later = data, texts, sounds, images.
Physical product design: Integral and modular
architecture.
Integral: complex and overlapping mapping between
functional elements and physical components. ->
changes in one part affect rest of product. -> high
performance and quality. Dominant approach to
competitive strategy are product positioning (market
scope), and strategic strenght as key parameters for
determining appropriate strategy.
Modular: standardized. Reduced complexibility and increase flexibility. Complex system, refers to
degree in which a product can be decomposed into components that can be recombined. Leads to
vertical disintegration (separate companies). Key source of value creation: agility of rapid combining
components of modular product without sacrificing cost or quality. Flexible because substitutions of
components is accomplished within single design hierarchy. (differences in degree). (camera more
flexible because standarizes mounting interface enables more lenses to be added.
Relationship between product and its components are nested and fixed.
Components in layered modular architecture are product agnostic.
,Layered modular architecture offers generativity. (google maps). Due to loose coupling across layers.
Whereas components in a modular product fall under a single design hierarchy.
layered modular architecture can be used to be simulatiously a product and platform if digitized. ->
ipad is new product out of the box, and firms can invent novel components such as accesoires. ->
basic functionalty expanded.
Subsystems of automobile digitized -> other firms can develop and integrate new devices.
Innovation within layered modular architecture is distributed between same firms and different
firms. (doubly distributed) -> because of primary source of value creation. Both control over product
components is distributed and product knowledge is distributed across heterogeneous desciplines.
1. Digitizing products blurs product and industry boundaries. Revisit traditional theoretical
devices such as generic strategies, product life cycle and dominant design product. Need of
articulation of new competetive strategies and evision new roles of IT in shaping those
strategies.
2. Because layered modular architecture represents a range of possibilities for embedding
digital components into physical product, it also represents a strategic choice for firms
seeking DI.
3. With layered modular architecture, firms create digital product platforms to control key
components or particular combinations of components within certain layers. Strategic
control of key components can render competetive advantage.
(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 that are of strategic importance, and (c) how to build effective incentives for different firms to
join the product platforms.
4. Strategically not all firms can afford to pursue both platform and component simultaneously at the same time.
5. A firms ability to attract heterogeneous and unexpected firms to build various components has become strategically
important. Key strategic resources that the firm can control in this domain are the design of technical boundary
resources such as API and SDK and social boundary resources such as incentives, IPR and control.
, In 70s, firms relied on support of transaction systems, management information systems, decision
support systems and executive information systems to increase efficiency. As modular architecture
started to develop corporate IT infrastructures expanded to support net enabled enterprise
processes.
First, in doubly distributed innovation networks, the locus of innovation moves outside of the
boundary of a single design hierarchy. Vertically integrated firms used IT to maximize the strategic,
tactical, and operational deployment of internal resources to support innovation. Networked firms,
on the other hand, used IT to maximize the value within the network by coordinating and
synchronizing data and processes among firms within the boundary of a single network. In both
cases, however, design activities of all components fall under the auspices of a single design
hierarchy. With layered modular architecture, however, innovation activities cut across multiple
design hierarchies. -> traditional centralized tools to support knowledge management and virtual
teams need to be augmented with new tools that can handle heterogeneity and discontinuity in
knowledge.
Main aim IT infrastructure is to support generativity by managing, coordinating and connecting
heterogeneous knowledge resources.
As the role of IT infrastructure changes, so do development approaches. Vertically integrated firms
used lifecycle models and structured design methodologies to build software.
Increasingly, the value of IT lies in its integration with and expansion toward third party component.
Furthermore, the development contexts of layered modular products are likely to be ripe with less
forgiving and more heterogeneous, hardware, making it critical to design and diffuse high-quality
platform resources.
Finally, because of the dynamics of layered modular architecture and doubly distributed networks, the
familiar context of system development with clearly defined roles is disappearing. In contrast,
the new context of system development is created by heterogeneous firms pursuing conflicting
goals, participating in multiple design hierarchies, and intertwining a range of innovation
trajectories
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