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Slide 1 © Carliss Y. Baldwin and Kim B. Clark, 2004 Design Architecture — Is What Links Knowledge to the Economy Carliss Y. Baldwin Advancing Knowledge in the Knowledge-based Economy January 11, 2005
Slide 2 © Carliss Y. Baldwin and Kim B. Clark, 2004 "Modular Cluster""Vertical Silos" A Strategic Perspective In 1995, Andy Grove described a vertical-to- horizontal transition in the computer industry: IBMDECSperry Univac Wang Sales & distribution Software Operating system Chips Hardware retail storessuper stores dealersdirect wordexcel lotusetc. DOSOS/2 MACUNIX IBMCompaq DellHP IntelMotorola Risc
Slide 3 © Carliss Y. Baldwin and Kim B. Clark, 2004 The Computer Industry: 1980 Top 10 Public Companies in US Computer Industry (Area reflects market value in constant US $)
Slide 4 © Carliss Y. Baldwin and Kim B. Clark, 2004 The Computer Industry: 1995 Top 10 Public Companies in US Computer Industry (Area reflects market value in constant US $)
Slide 5 © Carliss Y. Baldwin and Kim B. Clark, 2004 The Computer Industry: Today Top 10 Public Companies in US Computer Industry (Area reflects market value in constant US $)
Slide 6 © Carliss Y. Baldwin and Kim B. Clark, 2004 Turbulence in the Industry Departures from Top 10: Xerox (~ bankrupt) DEC (bought) Sperry (bought) Unisys (marginal) AMP (bought) Computervision (LBO) Arrivals to Top 10: Microsoft Cisco Oracle Dell ADP First Data
Slide 7 © Carliss Y. Baldwin and Kim B. Clark, 2004 What Changed? Look to the underlying designs "Option-rich" modular design architectures (ORMDAs) preceded and enabled these transformations
Slide 8 © Carliss Y. Baldwin and Kim B. Clark, 2004 Modularity Division of knowledge and effort Module = a set of tasks separable from others –Unit of design architecture Global Design Rules Module AModule BModule CModule D
Slide 9 © Carliss Y. Baldwin and Kim B. Clark, 2004 Design Structure Matrix Map of a Laptop Computer
Slide 10 © Carliss Y. Baldwin and Kim B. Clark, 2004 Modularization of a Laptop Computer Design
Slide 11 © Carliss Y. Baldwin and Kim B. Clark, 2004 The Power of Modularity Makes complexity manageable Enables parallel work “Welcomes experimentation” Creates options
Slide 12 © Carliss Y. Baldwin and Kim B. Clark, 2004 A Modular Architecture “Frees Up” Design Option Value Split options, decentralize decisions, fragment control evolution Option System before ModularizationSystem after Modularization System Option Design Rules
Slide 13 © Carliss Y. Baldwin and Kim B. Clark, 2004 Global Design Rules v.1 Version 1.0 Version 1.2 Version 1.5 Version 1.8 = Low Medium Zero High Option-Rich Modular Architecture Design options have "technical potential," denoted Technical potential, , varies by module Versions are evidence of option values being realized over time
Slide 14 © Carliss Y. Baldwin and Kim B. Clark, 2004 Options and Modules Together Create Lots of Value
In conclusion, an analogy… An ORMDA is like …
Slide 16 © Carliss Y. Baldwin and Kim B. Clark, 2004
Slide 17 © Carliss Y. Baldwin and Kim B. Clark, 2004 Public Policy—Involve the Users Eric Raymond: –If you treat your beta testers [users] as your most valuable resource, they will be… In an ORMDA, new sources of value are most easily perceived by users Motivated users can do new things at a radically low cost: Apple II, Napster, Linux The rights of use are as important… perhaps more important than low price Interface ownership is a problem
Slide 18 © Carliss Y. Baldwin and Kim B. Clark, 2004 Public Policy—Intellectual Capital Map the ORMDAs Track the evolution of designs Track the movement of value Understand institutions—what the ORMDAs need from the economy Requires integration of engineering, economics and management knowledge—a true science of design
Slide 19 © Carliss Y. Baldwin and Kim B. Clark, 2004 Public Policy—Safety Net Turbulence and wealth disparities are endemic to ORMDAs –Designs come and go –Products come and go –Firms come and go Regions must balance overall value against social costs of turbulence and inequities In competition with other regions …
Slide 20 © Carliss Y. Baldwin and Kim B. Clark, 2004 Public Policy—Regulation ORMDAs create conflict, need economical rulemaking –Competitive practices –Intellectual property –Mergers & Acquisitions –Corporate governance –Bankruptcy Quick, informed, consistent, accessible
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