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The hypercube of innovation

The hypercube of innovation

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E L S E V IE R
Research Policy24 (1995)51-76
re s e a rc h
p o lic y
T h e h y p e r c u b e o f in n o v a tio n
*
A lla n
N .
A fuah
* 'a , N i k
B ahram
b
a M assachusetts
In s titu te
o f T e c h n o lo g y , S lo a n
S c h o o l o f M a n a g e m e n t,
5 0 M e m o r ia l D r ., C a m b r id g e , M A
02139, U SA
bDigital Equipm ent Corporation, 200 Forest Road, M arlboro, M A
01752, U SA
Final version received July 1993
A b stract
In n o v a tio n h a s fre q u e n tly b e e n c a te g o riz e d a s e ith e r ra d ic a l, in c re m e n ta l, a rc h ite c tu ra l, m o d u la r o r n ic h e , b a s e d
o n
th e
e ffe c ts w h ic h it h a s o n
th e
com petence, other products, and
in v e s tm e n t d e c is io n s o f th e
in n o v a tin g e n tity .
O ften, how ever, an innovation w hich is, say, architectural at the innovator/m anufacturer
le v e l, m a y t u r n
o u t to b e
ra d ic a l to
custom ers, increm ental to
s u p p lie rs
o f c o m p o n e n ts
a n d
e q u ip m e n t,
a n d
s o m e th in g
e ls e
t o
s u p p lie rs
o f
c ritic a l
c o m p le m e n ta ry
in n o v a tio n s . T h e s e
v a rio u s
f a c e s
of one
in n o v a tio n
a t
d iffe re n t
s ta g e s
o f th e
in n o v a tio n
v a lu e - a d d e d
c h a in
are w hat w e call the
h y p e rc u b e o f in n o v a tio n . F o r m a n y h ig h -te c h n o lo g y p ro d u c ts , a te c h n o lo g y
s tra te g y th a t n e g le c ts th e s e v a rio u s fa c e s o f a n
in n o v a tio n
a n d
d w e lls o n ly o n
th e
effects of the
in n o v a tio n
at the
in n o v a to r/m a n u fa c tu re r
le v e l
c a n
h a v e
d is a s tr o u s
e f f e c ts .
T h is
i s
e s p e c ia lly
s o
fo r
in n o v a tio n s
w hose
s u c c e s s
d e p e n d s
o n c o m p le m e n ta r y in n o v a tio n s , w h o s e u s e in v o lv e s le a rn in g
a n d w h e r e p o s itiv e n e tw o r k e x te rn a litie s
e x is t
a t
th e
custom er
le v e l.
W e
d e s c r ib e
th e
h y p e r c u b e
o f in n o v a tio n
m odel
a n d
u se
it to
e x a m in e
R IS C
(R educed
Instruction Set Com puters) and C ISC (Com plex Instruction Set Com puters) sem iconductor chips, and supercom put-
ers, and
suggest how
firm s c a n b e tte r m a n a g e
th e
re la tio n s h ip s
a lo n g th e
in n o v a tio n v a lu e -a d d e d
c h a in
u s in g
th e
m o d e l. T h e
m o d e l fo rc e s in n o v a tio n m a n a g e rs to
th in k
in term s of their custom ers, suppliers
a n d
c o m p le m e n ta ry
in n o v a to rs .
I. Introduction
Ever since
Schum peter,
s c h o l a r s
o f in n o v a tio n ,
i n
a n
e f f o r t
t o
b e tte r
u n d e r s t a n d
h o w
t o
m anage
th e
p ro c e s s o f in n o v a tio n , h a v e trie d
to c a te g o riz e
in n o v a tio n s
as a function
of w hat
th e
in n o v a tio n s
* C o rre s p o n d in g a u th o r.
* The authors w ish to thank Rebecca Henderson, Lotte Bai-
ly n , E ric
R e b e n tis h , a n d
tw o anonym ous referees
for their
valuable suggestions. Any errors
or om issions, how ever, re-
m a in th e re s p o n s ib ility o f th e a u th o rs .
d o
t o
th e
sk ills, k n o w le d g e , in v e s tm e n t
s t r a t e g i e s ,
a n d
e x is tin g
p ro d u c ts
o f
th e
in n o v a tin g
e n tity .
But these
c a te g o riz a tio n s
o f in n o v a tio n s
h a v e
h a d
o n e
m ain
draw back:
b y
c h o o s i n g
t o
c o n c e n tra te
o n
th e
e ffe c ts
o f
th e
in n o v a tio n
o n
th e
com pe-
te n c e
o f
th e
in n o v a tin g
e n tity ,
s c h o l a r s
h a v e
n e -
g le c te d
th e
effects of the
in n o v a tio n s
o n
th e
com -
p e te n c e
a n d
a s s e t s
o f
s u p p lie rs
o f
k e y
com po-
n e n ts
a n d
e q u ip m e n t,
custom ers,
a n d
s u p p lie rs
o f
c o m p le m e n ta ry
in n o v a tio n s .
B ut
th e
f a c t
is that,
m ore
o fte n
th a n
n o t,
a n
in n o v a tio n
th a t
is ,
s a y ,
in c re m e n ta l
at the
in n o v a to r/m a n u fa c tu re r
le v e l,
m ay
tu rn
o u t
t o
b e
r a d i c a l
t o
custom ers
a n d
0 0 4 8 -7 3 3 3 /9 5 /$ 0 9 .5 0
\u00a9
1 9 9 5 E ls e v ie r S c ie n c e B .V . A ll rig h ts re s e rv e d
SSD I 0 0 4 8 -7 3 3 3 (9 3 )0 0 7 4 9 -J
5 2
A .N . A fu a h , N . B a h r a in /R e s e a r c h P o lic y 2 4 (1 9 9 5 ) 5 1 -7 6
s o m e th in g
e ls e
t o
s u p p lie rs
o f
c ritic a l
c o m p le -
m e n ta ry
in n o v a tio n s ; a ll o f w h ic h
h a v e
im p lic a -
tio n s
fo r
th e
s u c c e s s
o f
th e
in n o v a tio n .
T h e s e

various faces of one innovation at different stages o f th e in n o v a tio n v a lu e -a d d e d c h a in a re w h a t w e c a ll th e h y p e rc u b e o f in n o v a tio n .

S c h u m p e te r h im s e lf d e s c rib e d in n o v a tio n a s " a
h is to ric
a n d
irre v e rs ib le
c h a n g e
i n
th e
w ay
o f
d o in g th in g s " a n d " c re a tiv e d e s tru c tio n " (S c h u m -
p e te r,
1 9 4 7 ). A b e rn a th y
a n d
U tte rb a c k
(1 9 7 8 )

found that as a technology evolves, product inno- v a tio n g iv e s w a y to p ro c e s s in n o v a tio n , m a k in g it d iffic u lt fo r th e in n o v a tin g e n tity to re v e rt to n e w p ro d u c t in n o v a tio n s ; th a t

is, the
c o m p e te n c e
o f

th e in n o v a tin g e n tity is e ffe c tiv e ly d e s tro y e d . U s- in g th e a u to m o b ile in d u s try , A b e r n a th y a n d C la rk (1 9 8 5 )

g r o u p e d
in n o v a tio n s
in to
fo u r
c a te g o rie s
d e p e n d in g o n th e im p a c t o f th e in n o v a tio n o n th e
in n o v a tin g
firm 's
c a p a b ilitie s
a n d
k n o w le d g e
o f
i t s
te c h n o lo g y o r
m a rk e t. T h e y
d id
n o t
a d d r e s s
th e
im p a c t
o f
e a c h
o f
th e
in n o v a tio n s
o n
th e
c a p a b ilitie s a n d
assets of the suppliers of com po-
n e n ts ,
custom ers,
a n d
s u p p lie rs
o f
c o m p le m e n -
tary products. U sing extensive data from
th e p h o -
to lith o g ra p h y
in d u s try ,
H enderson
a n d
C la rk

(1 9 9 0 ) c la s s ifie d in n o v a tio n s a c c o rd in g to w h e th e r th e in n o v a tio n o v e rtu rn e d th e e x istin g k n o w le d g e of core

c o n c e p ts
a n d
com ponents, and
th e

lin k - a g e s b e tw e e n th e m . T h e y c la s s ifie d a n in n o v a tio n as radical if the

c o r e
c o n c e p ts o f th e
in n o v a tio n
a s w e ll a s th e lin k a g e s b e tw e e n
th e m
o v e rtu rn e d
e x is tin g
o n e s ;
a rc h ite c tu ra l if th e
c o r e

c o n c e p ts w e re b e in g re in fo rc e d w h ile th e lin k a g e s b e tw e e n th e s e c o re c o n c e p ts a n d c o m p o n e n ts o f th e p ro d - uct w ere

c h a n g e d ; in c re m e n ta l if th e
c o r e
c o n -
c e p ts w e re re in fo rc e d w h ile th e lin k a g e s b e tw e e n
th e m
w ere
u n c h a n g e d ; m o d u la r if th e
c o r e
c o n -

c e p ts w e re o v e r tu r n e d w h ile th e lin k a g e s b e tw e e n th e c o n c e p ts w e re u n c h a n g e d ; ra d ic a l if th e c o re c o n c e p ts

a n d
lin k a g e s
b e tw e e n
th e m
a re
o v e r-
turned. A s was the
case with the A bernathy and
C la rk
a n a ly s is
o f
th e
a u to m o b ile
in d u s try ,
th e
im p a c t o f th e in n o v a tio n s o n th e c a p a b ilitie s a n d
a s s e ts
o f
s u p p lie rs ,
custom ers
a n d
s u p p lie rs
o f
c o m p le m e n ta ry p ro d u c ts w a s
not considered. In
th e ir s tu d y o f th e U S
c e m e n t, a n d m in ic o m p u te r
in d u s trie s , T u s h m a n
a n d
A nderson (1986) classi-
f i e d
in n o v a tio n s
a s
'c o m p e te n c e
d e s tro y in g ' o r
'c o m p e te n c e
e n h a n c in g ' d e p e n d in g
o n
w h a t th e
in n o v a tio n d id to th e k n o w le d g e b a s e o f th e in n o -
v a tin g e n tity .
R o b e rts
a n d
B erry
(1 9 8 5 )
p r e s c r ib e d
h o w
a n
in n o v a tin g
e n tity
c a n
e n te r
a
n e w
b u s in e s s
d e -

p e n d in g o n its fa m ilia rity w ith th e te c h n o lo g y a n d m arket, and the new ness of the m arket and tech- n o lo g y to

th e
in n o v a tin g
e n tity . T h e s e
b u s in e s s
e n try
o p tio n s
r a n g e
fro m
a c q u irin g
o th e r
firm s
w ith
th e
te c h n o lo g y a n d
m arket
c o m p e te n c e
o r
p e rfo rm in g th e R
&
D

in tern ally fo r th e fam iliar, to v e n tu re c a p ita l in v e s tm e n ts fo r th e u n fa m ilia r a n d

new .
T he
fam iliarity
o f
th e
te c h n o lo g y
t o
m em bers
o f
th e
in n o v a tio n
v a lu e - a d d e d
c h a in
w a s n o t in v e s tig a te d .
G iv e n
th e
n a tu re
o f
som e
o f
th e
in d u s trie s
s tu d ie d
b y
th e s e
a u th o r s ,
th e
c o n c lu s io n s
th e y
a rriv e d
a t
vis-?t-vis w hat
th e
in n o v a tin g
e n tity
s h o u ld
d o
s h o u ld n o t d iffe r m u c h
fro m
th e
c o n -
c lu sio n s th a t w o u ld b e a rriv e d a t fro m
a n a n a ly s is
th a t u se s th e
hypercube m odel. H ow ever, an
e x -
a m in a tio n o f th e
effects of an

in n o v a tio n c a n n o t b e lim ite d to th e im p a c t o n th e c a p a b ilitie s , c o m - p e te n c e

a n d
a s s e ts
o f
th e
in n o v a tin g
e n tity
fo r
in d u s trie s w h e re
at least one
o f th e
fo llo w in g is
tru e :
c o m p le m e n ta ry
in n o v a tio n s
a re
c ritic a l
t o
th e d iffu sio n a n d su ccess o f p ro d u c ts; le a rn in g b y
c u s to m e r s is c ritic a l, e x p e n s iv e a n d
o fte n
r e s u l t s
i n
lo c k -in ;
p o s itiv e
n e tw o rk
e x te rn a litie s
a t
c u s -
to m ers
a re
com m on
a n d
e q u ip m e n t a n d
c ritic a l
c o m p o n e n ts
(th a t
g o
in to
th e
in n o v a tio n ) fro m
s u p p lie rs
c a n
b e
in n o v a tio n s in
th e ir o w n
rig h t.
A n
a n a ly s is m u s t a ls o lo o k
at the
im p a c t o f th e
in n o v a tio n
o n
th e
c a p a b ilitie s
o f
s u p p lie rs
o f
com ponents, custom ers,
a n d
c o m p le m e n ta ry
in -
n o v a to rs .
S ta te d
d iffe re n tly , s tu d ie s
th a t
h a v e

c a te g o - riz e d in n o v a tio n h a v e th e in n o v a tin g e n tity a s k in g th e q u e s tio n : 'W h a t is th e im p a c t o f th is in n o v a - tio n

o n
m y
o rg a n iz a tio n a l
c a p a b ilitie s ,
com pe-
te n c e ,
e x is tin g
p r o d u c ts ,
k n o w le d g e
o f
com po-
n e n ts , k e y c o n c e p ts a n d
lin k a g e s b e tw e e n
th e m '.
I n
th e
h y p e rc u b e o f in n o v a tio n a p p ro a c h
we are
suggesting that
i n
a d d itio n
t o
p ro b in g
w h a t th e
in n o v a tio n w ill d o
t o
its c o m p e te n c e
a n d
a s s e ts ,
th e
in n o v a tin g e n tity m u s t-a ls o a s k th e
q u e s tio n :
'W h a t w ill m y in n o v a tio n d o
t o
th e
c o m p e te n c e
a n d
p ro d u c ts
o f
m y
s u p p lie rs ,
O EM
(o rig in a l
A .N . Afuah, N . Bahram / Research Policy 24 (1995) 51-76
5 3
e q u ip m e n t
m a n u fa c tu re r)
custom ers,
e n d - u s e r
custom ers, and
suppliers (som e of which
are com -
p e tito rs )
o f
k e y
c o m p le m e n ta ry
in n o v a tio n s
- -
th a t is, w h a t is th e
im p a c t o f th e in n o v a tio n a t th e
various stages
o f its v a l u e - a d d e d
c h a in ? '
T he
h y p e r c u b e
m odel
fo rc e s
in n o v a tio n
m an-
a g e rs to th in k in te rm s o f w h a t th e
im p a c t o f th e ir
in n o v a tio n
is g o in g to
b e
o n
custom ers, suppliers
o f
c ritic a l
com ponents,
e q u ip m e n t,
a n d
c o m p le -
m e n ta ry
in n o v a tio n s .
S in c e
custom ers
a n d
u s e r s
c a n
a l s o
b e
fu tu re
in n o v a to rs (v o n
H ip p e l,
1 9 8 8 ),
th e
hypercube m ay also help the
in n o v a tin g e n tity
tra c k
p o te n tia l
c o m p e tito rs
a n d
c o m p le m e n ta ry
in n o v a to rs .
I n
th is
p a p e r
w e
d e s c r ib e
a n d
i l l u s t r a t e
th e
in n o v a tio n
h y p e r c u b e
m odel
u s in g
a n e c d o ta l
e x -
a m p le s
fro m
different industries,
a n d
th e n
u se
i t
t o
e x a m in e
th e
R IS C
( r e d u c e d
in s tru c tio n
s e t
com puters),
C IS C
(c o m p le x
in s tru c tio n
s e t
com -
puters) sem iconductor m icrochips, and
supercom -
p u te rs
industries. From
th e
e x a m in a tio n , w e
s u g -
g e st s o m e m e a s u re s th a t th e in n o v a tin g firm
c o u ld
ta k e
to a v o id g e ttin g lo s t in th e c u b e . R IS C , C IS C
a n d
supercom puters
a re
p a rtic u la rly
in te re s tin g
e x a m p le s
fo r
v a rio u s
r e a s o n s .
T h e y
d e p e n d
o n
c o m p le m e n ta ry
in n o v a tio n s
fo r
m arket
s u c c e s s ,
e x h ib it
p o s itiv e
n e tw o rk
e x te rn a litie s
a t
c u s -
tom ers,
re q u ire
c o m p le x
e q u ip m e n t
a n d
com po-
n e n ts fro m
suppliers, and
their use
o fte n
in v o lv e s
a lo t o f le a rn in g .
2. The hypercube m odel
F o r th is m o d e l, w e w ill f o c u s o n
product inno-
v a tio n
as the
unit of analysis. The
p r o d u c t
-
th e
fin a l
o u tp u t
o f
th e
in n o v a tin g
e n tity
-
n e e d s
c ritic a l
c o m p o n e n ts
o r
h ig h -te c h
e q u ip m e n t
a s
in p u ts
a n d
c a n
b e
s o ld
directly to
a n
end-user or
s o ld
t o
a n
O EM
w ho
a d d s
v a lu e
t o
i t
a n d
th e n
resells it to
end-users. The
product also possesses
som e
subset of the
fo llo w in g : (1 ) it r e q u ir e s s o m e
c o n s id e ra b le
s k ill
o r
k n o w le d g e
t o
u se
o r
m a in -
ta in ,
w h ic h
c a n
b e
o b ta in e d
b y
le a rn in g ;
(2) the
v a lu e
o f
th e
p r o d u c t
t o
th e
ow ner
i n c r e a s e s
a s
m o re
p e o p le
ow n
i t ,
i.e .
i t
p o s s e s s e s
p o s itiv e
n e tw o rk
e x te rn a litie s
(D a v id ,
1 9 8 5 ;
K artz
a n d
S h a p iro ,
1 9 8 5 );
(3 )
c o m p le m e n ta ry
in n o v a tio n s
are critical to diffusion and
u se o f th e
in n o v a tio n .
A s
w e
s ta te d
e a rlie r,
a n
in n o v a tio n
th a t
i s
a rc h ite c tu ra l to th e
in n o v a tin g e n tity m a y b e ra d i-
c a l
t o
custom ers
a n d
s u p p lie r s ,
a n d
in c re m e n ta l
t o
c o m p le m e n ta ry
in n o v a to rs .
T he
h y p e r c u b e
o f
in n o v a tio n
m odel
e x a m in e s
t h e s e
d iffe re n t
f a c e s
w h ic h
a n
in n o v a tio n
assum es
a t
th e
d iffe re n t
s ta g e s
o f th e
in n o v a tio n
v a l u e - a d d e d
c h a in
-
th e
in n o v a tin g
e n tity ,
s u p p lie r s ,
custom ers
a n d
com -
p le m e n ta ry
in n o v a to rs
-
a n d
s u g g e s ts
h o w
th e
in n o v a tin g e n tity c a n b e s t d e a l w ith
th e m . It lo o k s
at the
im p a c t th a t
a n
in n o v a tio n
has, not only at
th e
in n o v a tin g
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