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Slide 1 © Carliss Y. Baldwin 2007 Design Theory and Methods Carliss Y. Baldwin Harvard Business School MiniConference with the Professors and Students.

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Presentation on theme: "Slide 1 © Carliss Y. Baldwin 2007 Design Theory and Methods Carliss Y. Baldwin Harvard Business School MiniConference with the Professors and Students."— Presentation transcript:

1 Slide 1 © Carliss Y. Baldwin 2007 Design Theory and Methods Carliss Y. Baldwin Harvard Business School MiniConference with the Professors and Students from L’Ecole des Mines October 16, 2007

2 Slide 2 © Carliss Y. Baldwin 2007 Overview of my presentation  Why we study designs: Their impact on industry structure –Computers vs. Autos  Design Structure + Option Value => Industry Structure and Evolution  Our concept of design theory –Our Lineage –Our Definitions  Current projects

3 Slide 3 © Carliss Y. Baldwin 2007 In the economy, value acts like a force operating on and through designs Value = money or the promise of money Consider the computer industry… Why we study designs…

4 Slide 4 © Carliss Y. Baldwin 2007 The changing structure of the computer industry  Andy Grove described a vertical-to-horizontal transition in the computer industry: 1995-“Modular Cluster” 1980-“Vertical Silos”

5 Slide 5 © Carliss Y. Baldwin 2007 Grove’s Layer Map with Data  Take a sector, and consider the basic SIC / NAISC codes –4 to 6 digit codes to compose the entire “ecosystem” as it evolves –Work with industry experts to construct the sectors’ list  Tabulate the results in terms of “verticals” and “horizontals” –Objective: see how profit shifts from vertical to horizontal layers –…and how much “churn” there is within layers  Map “Top N” Companies each year

6 Slide 6 © Carliss Y. Baldwin 2007 How the map works

7 Slide 7 © Carliss Y. Baldwin 2007 What a map looks like… Computers, 1979


























33 Slide 33 © Carliss Y. Baldwin 2007 The End of the Verticals Value forced the industry to a new shape/structure Does this always happen?

34 Slide 34 © Carliss Y. Baldwin 2007 Look at the auto industry

35 In the beginning (1984)





















56 Slide 56 © Carliss Y. Baldwin 2007 The industry turned over, but most value stayed in the OEM layer…

57 Slide 57 © Carliss Y. Baldwin 2007 Telecomm is yet another story…

58 Slide 58 © Carliss Y. Baldwin 2007 What Causes One Industry to Break Apart and Another to Integrate and Consolidate? Design Structure + Option Value

59 Slide 59 © Carliss Y. Baldwin 2007 Design Structure + Option Value

60 Slide 60 © Carliss Y. Baldwin 2007 In other words…  Design structure/Modularity (of products and processes) determines industry structure –Because module boundaries are “thin crossing points” in the task- and-design network –Transaction costs are low at module boundaries –Every thin crossing point/module boundary is a potential place to put a transaction, i.e., bring in a different firm  Option value of designs determines rate of change/industry evolution –Option value makes design experiments worthwhile –Experiments yield new designs (of products and processes)… –Better new designs replace or augment the older ones!

61 Slide 61 © Carliss Y. Baldwin 2007 Thus design theory holds the key to understanding the structure and dynamics of the economy But what is design theory?

62 Slide 62 © Carliss Y. Baldwin 2007 Influential Design Theorists  Bell and Newell, computer hardware: Computer Structures  Hennessy and Patterson, computer hardware-software interface: Computer Architecture  Mead and Conway, semiconductors: Intro to VLSI  Nevins and Whitney, manufacturing: Concurrent Engineering  Nam Suh, mechanical engineering: The Principles of Design  German design theorists (Hubka, Pahl and Beitz) in mechanical engineering: The Theory of Technical Systems; Engineering Design: A Systematic Approach  March, Thompson, Galbraith, organizations: Organizations; Organizations in Action; Organizational Design

63 Slide 63 © Carliss Y. Baldwin 2007 Our Direct Predecessors  Herbert Simon  Christopher Alexander  Fred Brooks  David Parnas  John Holland Our theory builds on theirs

64 Slide 64 © Carliss Y. Baldwin 2007 Herbert Simon  Sciences of the Artificial  Fundamental insight: Design is a decision- making process (under constraints of physics, logic and cognition)  Rational and reductionist

65 Slide 65 © Carliss Y. Baldwin 2007 Christopher Alexander  Notes on the Synthesis of Form; A Pattern Language; A City is not a Tree; The Nature of Order  Fundamental insights: user- centered adaptive design; non- hierarchical complexity; unfolding designs; patterns  Mystic and visionary (frustrating to scientists)

66 Slide 66 © Carliss Y. Baldwin 2007 Frederick Brooks  The Mythical Man Month; No Silver Bullet; Computer Architecture  Fundamental insights: the complexity catastrophe lurking in large designs; limits on the division of knowledge and labor; group inter-communication formula  Architect of System/360

67 Slide 67 © Carliss Y. Baldwin 2007 David Parnas  On the Criteria to be Used in Decomposing Systems into Modules; Software Fundamentals  Fundamental insights: Information-hiding modularity; Abstraction; Interface; Modules are task assignments  Software designer

68 Slide 68 © Carliss Y. Baldwin 2007 John Holland  Hidden Order; Adaptation in Natural and Artificial Systems; Emergence  Fundamental insights: Formal dynamics of complex adaptive systems; unified theory of natural and artificial evolution; operators  Our best link to complexity sciences (better than Kauffman)

69 Slide 69 © Carliss Y. Baldwin 2007 Baldwin and Clark  Design Rules: The Power of Modularity; Modularity, Transactions and the Boundaries of Firms  Most important ideas: –designs are lodged in the larger economy; –financial value is a force driving design evolution; –designs are options; –modules are units of optional substitution; –uncertainty is valuable; –new firms attach at module boundaries

70 Slide 70 © Carliss Y. Baldwin 2007 That is our view of Design Theory We are eager to learn yours… But, first, for the sake of understanding, our definitions

71 Slide 71 © Carliss Y. Baldwin 2007 Our Definitions  Design (noun) –Design (verb)—Process of Designing –Partial vs. Complete Designs  Design Hierarchy  Design Space  Value Landscape of a Design Space  Design Structure/Modularity (Alan) –Mirroring Hypothesis  Options and Option Value (Carliss)

72 Slide 72 © Carliss Y. Baldwin 2007 Designs are the instructions, based on knowledge, that turn resources into things people use and value. Designs (noun)

73 Slide 73 © Carliss Y. Baldwin 2007 Implications of the definition  Designs are not “the thing itself”, they are the instructions for making it –In software: source code = design –Compiled, running code = the thing itself  Designs are information  Designs are part of human knowledge –But not all knowledge is design –Designs make knowledge useful

74 Slide 74 © Carliss Y. Baldwin 2007  Is the process of filling in the set of instructions  Designing occurs in time  When design is complete, the design process is over, “production” can begin  Along the way, you have partial designs –A source of huge amounts of confusion! The Process of Designing Design Process Start Complete Time

75 Slide 75 © Carliss Y. Baldwin 2007 Completing a Design—for a Mug

76 Slide 76 © Carliss Y. Baldwin 2007 There are Many Different Names for Partial Designs Design Process Start Complete Time

77 Slide 77 © Carliss Y. Baldwin 2007 Decision-Information Hierarchies  Process of design is a decision-making process  Some design decisions create the need for subsequent decisions MUG Cap? XXXX Handle XXXX Logo XXXX Material

78 Slide 78 © Carliss Y. Baldwin 2007 Decision-Information Hierarchies  If no cap—Decisions contingent on “cap” disappear  List of instructions becomes shorter MUG No Cap XXXX Handle XXXX Logo XXXX Material

79 Slide 79 © Carliss Y. Baldwin 2007 Decision-making design hierarchy (Marple, ducts and valves, 1961)

80 Slide 80 © Carliss Y. Baldwin 2007 Design Space  A design space comprises the set of all possible variants of a set of designs  Design spaces are bounded by prior design decisions –Mug … w/ cap –Pentium chip … w/ out-of-order, superscalar microarchitecture  Can be mapped, unmapped, partially mapped

81 Slide 81 © Carliss Y. Baldwin 2007 All these—and many more— are in the design space of “bicycles”

82 The newer the artifact, the less we know, the more exploration of the design space is valuable…

83 Slide 83 © Carliss Y. Baldwin 2007 Value Landscape  Maps points in design space to value  In biology, value=fitness  Fitness landscape for designs of eyes Created by Mike Land. Height represents optical quality and the ground plane evolutionary distance. From Dawkins R: Climbing Mount Improbable. New York, Norton, 1996.

84 Slide 84 © Carliss Y. Baldwin 2007 Value Landscape and Search History of a computer program Scored results of submissions to the Mathworks “Sudoku” programming contest. Red path shows trajectory of best design over time. t/sudoku/evolutio n.html

85 Slide 85 © Carliss Y. Baldwin 2007 Design Structure/Architecture  The degree and pattern of interdependence among the elements of a design  Establishes dependencies between design spaces, hence their scope/complexity  Some key architectural types –Integral (all interdependent) –Layered (X depends on Y; Y does not depend on X) –Modular (independent blocks, all depending on design rules—combination of integral and layered)  Architectures are somewhat under the control of designers (subject to constraints of knowledge)

86 Mozilla Before Redesign (RAD)Mozilla After Redesign (Targeted) Two Architectures, same functions, different states of knowledge © Alan MacCormack, Johh Rusnak and Carliss Baldwin, 2006

87 Mirroring Hypothesis: Integral architectures require integral design teams Mozilla BEFORE refactoringLinux of similar size Coord. Cost = 30,537,703 Change Cost = 17.35% Coord. Cost = 15,814,993 Change Cost = 6.65% One Firm, Tight-knit Team, Rich communication Distributed Open Source Development © Alan MacCormack, Johh Rusnak and Carliss Baldwin, 2006

88 Slide 88 © Carliss Y. Baldwin 2007 Alan and John will tell you more about our findings… But we have one more set of critical concepts— Options Optional substitution Option potential

89 Slide 89 © Carliss Y. Baldwin 2007 Options, Optional Substitution  The right but not the obligation to take an action –Action = Use a new design –If new is better than old, use new; –Otherwise, keep the old (“optional substitution”)  Designs have the property of optional substitution  Unit of optional substitution is a module (that which can be changed without changing something else)  Thus option value resides in modules

90 Slide 90 © Carliss Y. Baldwin 2007  Low Medium Zero High Option Potential (  )  Determines value of optional substitution  Successive, improving versions are evidence of option potential (  ) being realized over time— after the fact

91 Slide 91 © Carliss Y. Baldwin 2007 Optional substitution at work— Evolution of a computer program

92 Slide 92 © Carliss Y. Baldwin 2007  /Option potential is like dark matter in the universe  We can measure its effects but we can’t measure “it”  “Architects” can perceive  /option potential –But architects often don’t talk to scientists!  Thus we lack ways to measure  /option value  scientifically –It is a “research frontier”

93 Slide 93 © Carliss Y. Baldwin 2007 Sources of  /option potential  Physics— –Moore’s Law—dynamics of miniaturization in electronic circuits (Mead and Conway) –Power and heat systems vs. logic systems (Dan Whitney)  Users— –Users experiment to discover their own needs/tastes –New features, techniques, and applications=> new willingness to pay –Exaptations (designed for one thing, does another)  Architecture — –Isolate sources of uncertainty, variability, and bottlenecks –Support new compositions & combinations (e.g. YouTube=movie+PC+Internet+Library)

94 Slide 94 © Carliss Y. Baldwin 2007 When options are present, variability in outcomes is valuable… When is this true? Which industries, which NPD processes? Why? How does one obtain variability in outcomes?

95 Slide 95 © Carliss Y. Baldwin 2007 Current Projects & Collaborations  Dividing up the economic system—modularity and transactions  Design structure in software (Alan and John)  Price competition in modular clusters (J. Woodard)  Design theory and user innovation (E. von Hippel)  Strategic variability (M. Szigety)  The value of modular production systems (V. Kuppaswamy)  Transparency vs. modularity (L. Colfer)  Modularity and intellectual property rights (J. Henkel)  Layer Maps and Industry Evolution (M. Jacobides)  ‘Selfish’ Designs—the institutional structure of innovation

96 Slide 96 © Carliss Y. Baldwin 2007 Thank you!

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