Architectural Innovation

I recently read Henderson and Clark's paper on Architectural Innovation. They provide a useful way to think about innovations in product architecture.

The distinction between the product as a whole - the system - and the product in its parts - the components - has a long history in the design literature. For example, a room fan's major components include the blade, the motor that drives it, the blade guard, the control system, and the mechanical housing. The overall architecture of the product lays out how the components will work together. Taken together, a fan's architecture and its components create a system for moving air in a room.

A component is defined ... as a physically distinct portion of the product that embodies a core design concept ... and performs a well-defined function. In the fan, a particular motor is a component of the design that delivers power to turn the fan. There are several design concepts one could use to deliver power. The choice of one of them (the decision to use an electric motor, for example) establishes a core concept of the design. The actual component - the electric motor - is then a physical implementation of this design concept.

The distinction between the product as a system and the product as a set of components underscores the idea that successful product development requires two types of knowledge. First, it requires component knowledge, or knowledge about each of the core design concepts and the way in which they are implemented in a particular component. Second, it requires architectural knowledge or knowledge about the ways in which the components are integrated and linked together into a coherent whole. The distinction between architectural and component knowledge, or between the components themselves and the links between them, is a source of insight into the ways in which innovations differ from each other.

Within this framework, there are two axes along which innovation could occur: at the level of components and at the level of architecture (linkages between components). This allows us to distinguish four broad categories of product innovation:
* Incremental innovation: Improvements at the component level only, while leaving the architecture unchanged. "Incremental innovation refines and extends an established design. Improvement occurs in individual components, but the underlying core design concepts, and the links between them, remain the same."
* Radical innovation: "Radical innovation establishes a new dominant design and, hence, a new set of core design concepts embodied in components that are linked together in a new architecture."
* Modular innovation: "innovation that changes only the core design concepts of a technology and innovation that changes only the relationships between them ... such as the replacement of analog with digital telephones. To the degree that one can simply replace an analog dialing device with a digital one, it is an innovation that changes a core design concept without changing the product's architecture."
* Architectural innovation: "innovation that changes a product's architecture but leaves the components, and the core design concepts that they embody, unchanged."

They consider the consequences of such innovations on firms based on an understanding of organizational capabilities and competencies that come to be embedded in the firms. Since incremental innovation introduces relatively minor changes to the existing product and fits within the existing architectural model, it presents relatively minor challenges to established firms, requiring evolution of existing competencies, rather than the acquisition of new ones. As a result, it can often reinforce the dominance of established firms. Radical innovations, by contrast, "often creates great difficulties for established firms ... and can be the basis for the successful entry of new firms or even the redefinition of an industry." The implications of architectural innovation are subtler:

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[Architectural innovations are] innovations that change the architecture of a product without changing its components. Architectural innovations destroy the usefulness of the architectural knowledge of established firms, and since architectural knowledge tends to become embedded in the structure and information-processing procedures of established organizations, this destruction is difficult for firms to recognize and hard to correct. Architectural innovation therefore presents established organizations with subtle challenges that may have significant competitive implications.

Much of what the firm knows is useful and needs to be applied in the new product, but some of what it knows is not only not useful but may actually handicap the firm. Recognizing what is useful and what is not, and acquiring and applying new knowledge when necessary, may be quite difficult for an established firm because of the way knowledge - particularly architectural knowledge - is organized and managed.

One of the core ideas in the analysis is that once a dominant design has emerged, organizational knowledge and information processing structures come to mirror the architecture of the product. This creates an organizational resistance/inertia to change which tends to hinder the successful adoption of future architectural innovations.