The Reconguration of Existing Product

Technologies and the Failure of Established

Firms
Rebecca M. Henderson and Kim B. Clark
March 14, 2008

The traditional categorization of innovation as either incremental or radical is incomplete.

Incremental innovation

relatively minor changes to the existing product

Radical innovation

creates great diculties for established rms and can be the basis
for the successful entry of new rms or even the redenition of an
industry

Xerox Example

it took the company almost 8 years of missteps and false starts to
introduce a competitive product into the market.

RCA Example

Sony's radios were produced with technology licensed from RCA, yet
RCA had great dicuty matching Sony's product in the marketplace

Conceptual Framework

Architectural innovation

destroys the usefulness of a rm's architectural knowledge but preserves the usefulness of its knowledge about the product's components

Successful Product development requires two types of knowledge




Component Knowledge
Architectural Knowledge

Types of Technological Change

Figure 1

focuses on the impact of an innovation on the usefulness of the existing architectural and component knowledge of the rm

two extra types of innovation emerge:

Modular Innovation

Architectural Innovation

changes only the core design concepts of a technology

changes a product's architecture but leaves the components,

and the core design concepts that they embody, unchanged.

presents a subtle challenge - some of what a rm knows is

not only not useful, but may actually handicap the rm.

very signicant competitive implications

The matrix is designed to suggest that a given innovation may be

less radical or more architectural, not suggests that the world can be
neatly divided into 4 quadrants.

The Evolution of Component and Architectural Knowledge

2 concepts:

dominant design

Technical evolution: periods of great experimentation folowed by

the acceptance of a dominant design

set of core design concepts that correspond to the major functions

performed by the product and that are embodied in components
and by a product architecture that denes the ways in which
these components are integrated.

Once a dominant design is established, the initial set of components is rened and elaborated, and progress takes the shape
of improvements in the components within the framework of a
stable architecture

organizations build knowledge and capability around the recurrent

tasks that they perform

shaped by the nature of the tasks and the competitive environment that it faces

with the emergence of a dominant design

acceptance of a single architecture

architectural knowledge tends to become embedded in the
practices and procedures of an organization

new component knowledge becomes more valuable

Channels, Filters and Strategies

Communication Channels





formal and informal

develop around critical to task interactions
come to embody architectural knowledge

information lters

allow to identify immediately what is most crucial in organizations'

information stream

Organization's problem-solving strategies

summarize what it has learned about fruitful ways to solve problems

in its immediate environment

also reect architectural knowledge

All together




emerge in an organization to help it cope with complexity

don't require detailed analysis and conscious, deliberate execution become implicit in the organization

Problems Created by Architectural Innovation

Established organizations require signicant time (and resources) to identify a particular innovation as architectural

the warnings are ltered

The need to build and to apply new architectural knowledge eectively

(1) Switch to a new mode of learning

from renement to active search

Building the new architectural knowledge






takes time and resources

necessary to exploit an architectural innovation
information-processing structure
dicult to identify which lters, channels and problem-solving strategies need to be modied

 [N]ew entrants to the industry may exploit its potential much more effectively, since they are not handicapped by a legacy of embedded and
partialy irrelevant architectural knowledge




(Relate this with Penrose view of experience as a valuable asset)

(Is experience good or bad)

Innovation in Photolithographic Alignment Equipment

Def.:

sophisticated pieces of capital equipment used in the manufacture of

integrated circuits

Why this Market?







Performance has improved dramatically

core tecnhologies - marginal changes
great turbulence on the industry
architectural innovations mainly
2 main reasons

dierent from the ones where the framework was rst formulated

smaller rms
faster rate of technological innovation

several examples of the impact on the competitive position of

established rms

4 waves

Data




2 year
objective

exploration of the validity of the concept of architectural innovation

Panel-Data

R&D costs and sales revenues by product for every product development project (1962-1986)

primary and secondary sources

Interviews
internal rm records

Validate the data

history

The Technology

4 waves
1. move from contact to proximity alignment
2. from proximity to scanning projection alignment
3. from scanners to rst generation steppers
4. rst to second generation steppers

In nearly every case, the established rm invested heavily in the next
generation of equipment, only to meet with very little success

The Kasper Saga

in a proximity aligner, a quite dierent set of relationships between

components is critical to successful performance

Puzzling

given its established position in the market and its depth of experience in photolithography

Kasper's failure:

rm's interpretation of early complaints about the accuracy of

its gap-setting mechanism

processing error

Kasper's response to Canon

considered a copy
the tecnhical features that were more advanced were considered not important - information lters

Perkin-Elmer - stepper technology




engineers accurately forecast the progress of individual components

but failed to see interactions between them

GCA




problems in implementation
historical experience handicapped the attempts to develop a competitive machine

In all 3 cases




other factors are important

a failure to respond eectively to architectural innovation was of critical importance

Discussion and Conclusions

Firm's knowledge and information-processing structure come to mirror the

internal structure of the product they are designing

Architectural knowledge embedded in routines and channels becomes inert

and hard to change

Given the evolutionary character of development and the prevalence of

dominant designs

tendency for active learning among engineers to focus on improvements in performance within a stable product architecture.

Architectural innovation




eect of technology on competitive strategy

potential competitive advantage

less-entreched competitors actively search for them