Bottlenecks, Modules, and Dynamic Architectural Capabilities

Abstract

How do firms create and capture value in large technical systems? In this paper, Iargue that the points of both value creation and value capture are the system's bottlenecks.Bottlenecks arise first as important technical problems to be solved. Once the problem is solved, the solution in combination with organizational boundaries and property rights can be used to capture a stream of rents. The tools a firm can use to manage bottlenecks are, first, an understanding of the technical architecture of the system; and, second, an understanding of the industry architecture in which the technical system is embedded.Although these tools involve disparate bodies of knowledge, they must be used in tandem to achieve maximum effect. Dynamic architectural capabilities provide managers with the ability to see a complex technical system in an abstract way and change the system's structure to manage bottlenecks and modules in conjunction with the firm's organizational boundaries and property rights.

Ecosystems: broadening the locus of value creation

“…It is also important to consider how firms may allocate resources to resolve bottlenecks in their ecosystems through R&D investments, alliances, or even integration into the activities underlying the bottleneck component (Ethiraj 2007 Adner andKapoor 2016;Hannah 2016;Zobel et al 2017). Other strategic choices entail choosing markets or technologies where bottlenecks are either relatively easily resolvable or where firms' control over the bottleneck component may provide it with a source of rents (Baldwin 2018b). Finally, an important implication of the existence of bottlenecks in an ecosystem is that firms would need to develop architectural knowledge not only at the level of the product (Henderson and Clark 1990) but also at the level of the ecosystem.…”

Maneuvering in Poor Visibility: How Firms Play the Ecosystem Game when Uncertainty is High

“…For example, attempts to introduce new technologies at lower layers of the digital infrastructure (say, new chip standards to enable near-field communications for 'Internet of Things' applications) typically tend to enable such a large number of potential user-facing applications at upper layers that this can easily overwhelm prospective stakeholders. In turn, this may undermine the ecosystem champion's efforts to come up with a single vision that is compelling enough to crowd out alternative visions so as to align required stakeholders around it, while positioning itself to occupy the 'bottleneck' positions within the ecosystem to appropriate a disproportionate share of the collectively created value (Baldwin, 2015;Hannah & Eisenhardt, 2015;Jacobides & Tae, 2015).…”

“…Firms understand clearly which assets they can leverage in ecosystems and derive a concomitant design of technological and social interdependencies by selecting the right partners (Adner & Kapoor, 2010;Adner, 2012;Adner & Kapoor, 2016;Kapoor & Lee, 2013;Kapoor & Furr, 2015). Alternatively, they discover technologies and industry-level value systems or architectures as given sets of interdependencies in which they need to identify and occupy the strategic bottlenecks to attain control (Baldwin & Woodard, 2007;Baldwin, 2015;Hannah & Eisenhardt, 2015;Iansiti & Levien, 2004;Jacobides & Tae, 2015;Pagani, 2013) (arrow A). Having defined such control points for value capture, the firm can build an internal business case for resource investment and create a set of appropriate tactics (B).…”

Product variety, sourcing complexity, and the bottleneck of coordination

“…As a locus of interdependent relationships between plants and DCs, a hub can also become a bottleneck of coordination for its downstream DCs. In a complex system, a bottleneck can be conceptualized as a component that obstructs a flow, thereby limiting the overall performance of a system (Baldwin, ). We argue that coordination bottlenecks arise at loci of coordination due to, on the one hand, a congestion of extensive interdependencies and, on the other hand, limits in the coordination capacity of each organizational unit.…”