In the article covering the Henderson – Clark Model we have seen that the technological knowledge behind innovation can be divided in two dimensions: knowledge of the components and knowledge of the linkage between them, called architectural knowledge. The result is a two-by-two matrix with four possible types of innovation: incremental, modular, radical and architectural innovation.
Professor Kim Clark recently published a working paper where he argues that companies should invest in architectural knowledge to create sustainable competitive advantage. In his own words: “by studying the underlying cause-and-effect relationship in a complex architecture, a firm can identify “bottlenecks” and redesign the interfaces of key components to make them more modular (…) and it can outsource more activities without sacrificing either performance or cost”.
According to the paper this was the strategy used by Sun Microsystems against Apollo Computer in the 1980s and by Dell against Compaq and other PC manufacturers in the 1990s. I think a similar approach is also being by used by Chinese manufacturers in many sectors including motorcycles and telecommunications equipment.
The motorcycle producers, for instance, developed products with clear standards and specifications so that any supplier would be able to provide individual parts without the problem of incompatibility. The result is a combination of modular innovations from the side of the suppliers and architectural innovations from the side of the manufacturer.
In my opinion this pattern will be observed in many other industries. It fosters innovation and collaboration creating win-win situations. To read the full paper click here.