Research Commentary: The New Organizing Logic of Digital Innovation: An Agenda for

Information Systems Research

Author(s): Youngjin Yoo, Ola Henfridsson and Kalle Lyytinen
Source: Information Systems Research , December 2010, Vol. 21, No. 4 (December 2010),
pp. 724-735
Published by: INFORMS

Stable URL: https://www.jstor.org/stable/23015640

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Information Systems Research infjUjH
Vol. 21, No. 4, December 2010, pp. 724-735
doi 10.1287/isre.ll00.0322
issn 1047-70471 eissn 1526-55361101210410724 ©2010 INFORMS

Research Commentary

The New Organizing Logic of Digital Innovatio

An Agenda for Information Systems Researc

Youngjin
Youngj Yoo
in Yoo
Center for Design and Innovation, Temple University, Philadelphia, Pennsylvania 19122,
jocy23yoo@gmail.com

Ola Henfridsson
Viktoria Institute Horselgangen 4, 41756 Goteborg, Sweden, and Department of Informatics, University of Oslo,
N-0316 Oslo, Norway, ola.henfridsson@viktoria.se

Kalle Lyytinen
Department of Information Systems, Case Western Reserve University, Cleveland, Ohio 44106,
kjll3@case.edu

In modular
this essay, we argue The
architecture. thatlayered
pervasive digitization
modular givesextends
architecture birth to
thea modular
new type of product
architecture ofarchitecture: the layered
physical products
by incorporating four loosely coupled layers of devices, networks, services, and contents created by digital
technology. We posit that this new architecture instigates profound changes in the ways that firms organize
for innovation in the future. We develop (1) a conceptual framework to describe the emerging organizing logic
of digital innovation and (2) an information systems research agenda for digital strategy and the creation and
management of corporate information technology infrastructures.

Key words: digitization; digital innovation; product architecture; layered modular architecture; organizing
logic; doubly distributed networks
History: Vallabh Sambamurthy, Senior Editor. This paper was received on June 30, 2010, and was with the
authors 22 days for 1 revision. Published online in Articles in Advance November 18, 2010.

1. Introduction new threats and opportunities. In the e-book cas

firmspow
The miniaturization of hardware, increasingly from the computer industry, consumer electr
ics,mem
erful microprocessors, inexpensive and reliable Internet search, online retailing, book retailing
ory, broadband communication, and efficient telecommunications,
power and publishing form dynam
management have made it possible to digitize and overlapping
key alliances that are being mingled
together into a complex ecosystem. In this ecos
functions and capabilities of industrial-age products
including cars, phones, televisions, cameras, tem, firms are busily developing new strategies tha
and even
books (Yoo 2010). With embedded digital capability,
cater for the emerging market dynamics by compe
ing head-to-head on some fronts (e.g., both Apple an
such products offer novel functions and remarkably
Amazon sell hardware) and collaborating on othe
improved price/performance ratios that transform
their design, production, distribution, and(e.g.,
use. The
Amazon offers reader applications for Appl
iPad). The digitization of the book is fundam
phenomenal success of Apple's iPhone and Amazon's
Kindle exemplifies how the digitizationtally of well
reshaping the structure that has underpinn
established products such as books sparks profound
book publishing for 200 years by bringing together
changes in the industrial structure and competitive
firms from previously unrelated industries, ultimate
landscape, blurring industry boundaries and changing
creating the very idea of a book.
724

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Yoo et al.: Research Commentary: The New Organizing Logic of Digital Innovation: An Agenda for Information Systems Research
Information Systems Research 21(4), pp. 724-735, ©2010 INFORMS 725

Over the last decade, information systems (IS)

logic of digital innovation based on layered m
architecture,
scholars have successfully examined the impacts of and (2) formulate an IS research
to study the
digital technology on firms' strategies, structures, new logic and its effects on dig
and
processes (Sambamurthy et al. 2003, Sambamurthy
egy and corporate IT infrastructures.
and Zmud 2000). Similar advances have been made
to understand the role of information technology (IT)
2. Digital Innovation
in creating business value and building sustain
able competitive advantage (Kohli and2.1. Defining
Grover 2008, Digital Innovation
Nevo and Wade 2010). However, digital Following Schumpeter (1934), we define digit
technology's
transformative impact on industrial-age products hascarrying out of new combina
vation as the
remained surprisingly unnoticed in digital and physical components to produc
the IS litera
products.
ture. In fact, the IS literature rarely considers Our use of the term digital innovat
how
product architectures—the arrangement of functional on product innovation, disting
implies a focus
it from extant IT innovation research that has been
elements, the mapping from functional elements to
primarily
physical components, and the specification ofoccupied
inter with process innovation (Swanson
faces among components (Ulrich 1995, p. 1994). A necessary but insufficient condition for dig
420)—affect
ital innovation is that the new combination relies
a firm's strategic choices and related IT deployments.
Neither has the literature considered theonemergence
digitization,ofi.e., the encoding of analog informa
tion into
new organizing logics—i.e., the "managerial digital format. Digitization makes physical
rationale
products programmable, addressable, sensible, com
for designing and evolving specific organizational
municable,
arrangements in response to an enterprise's memorable, traceable, and associable (Yoo
environ
2010). Digital and
mental and strategic imperatives" (Sambamurthy innovation furthermore requires a firm
Zmud 2000, p. 107)—spurred by changes to revisit
in its
prodorganizing logic and its use of corporate
IT infrastructures.
uct architecture because of digital technology. This is
unfortunate because changes in product Consider the e-book example: Digitization has cre
architecture
ated of
and organizing logic reshape the landscape a necessary
IS stratcondition for digital innovation
egy and use in firms. among a range of firms capable of engaging in dig
ital publishing. The previously nondigital product—
In this essay, we propose that digital technology
the book—now
instigates a new type of product architecture: the layembeds digital capabilities such as
communication,
ered modular architecture. We conceive layered modularmemory, programmability, traceabil
ityarchitecture
architecture as a hybrid of the modular (e.g., Amazon can track how long readers look
of a physical product and the layered at architecture
pages and readers can find out who else under
lined particular
of digital technology. The modular architecture pro sentences), and so on. Despite the
short history
vides a scheme by which a physical product is decomof the e-book, there are already signs
posed into loosely coupled components, of
is changes in the organizing logic of publishing
attributed
whereby
functionality, and is then interconnected publishers'
through pre tight control over the content cre
specified interfaces (Baldwin and Clarkation,
2000, production,
Ulrich and distribution is deteriorating.
In the early
1995). The layered architecture of digital stages of the e-book evolution, Kindle
technol
replaced
ogy (Adomavicius et al. 2008, Gao and an old physical
Iyer 2006) is artifact with a new one
with similar
embedded into physical products, enhancing (although digitally enabled) form factors.
product
Kindle's main Simi
functionality with software-based capabilities. attractions were the radically reduced
marginal
lar to modularity's impact on industrial production and distribution costs and its
organization
ability we
(Baldwin and Clark 2000, Langlois 2003), to hold thousands of books in a single unit.
argue
that the emergence of layered modularWith the introduction of iPad some 18 months later,
architecture
however,
generates profound changes in a firm's e-books challenge the vertically integrated
organizing
logic and innovation. To this end, wemodel of publishing.
(1) develop a The e-book is now fully dis
integrated
conceptual framework to characterize the into distinct layers of devices, networks,
organizing

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 Yoo et al.: Research Commentary: The New Organizing Logic of Digital Innovation: An Agenda for Information Systems Research
726 Information Systems Research 21(4), pp. 724-735, ©2010 INFORMS

data originate by
services, and contents—a fate already experienced from heterogeneous sources and can
the digital camera and mobile phone,beand likely towith other digital data to deliver
combined easily
be repeated with television with products such as
diverse services, which dissolves product and indus
try disintegra
Google TV and Apple's iTV. Following the boundaries. Thus, the homogenization of data
tion of the vertical model, new conceptions of a
along with thebook
emergence of new media separates the
content from
are likely to sprout as other digital components suchthe medium.

as interactive multimedia, GPS, socialFinally,

media appli
self-reference means that digital innovation
requires theinto
cations, and accelerometers are being integrated use of digital technology (e.g., com
e-books. puters). Therefore, the diffusion of digital innova
tion creates positive network externalities that further
2.2. Key Characteristics of Digital Innovation accelerate the creation and availability of digital
In order to understand the nature of digital innova
devices, networks, services, and contents (Benkler
tion, one must consider how digital technology differs
2006, Hanseth and Lyytinen 2010). This, in turn, fos
from earlier technologies. Here, we note three unique
ters further digital innovation through a virtuous
characteristics: (1) the reprogrammability, (2) the
cycle of lowered entry barriers, decreased learning
homogenization of data, and (3) the self-referential
costs, and accelerated diffusion rates. The drastic
nature of digital technology. improvements in the price/performance of comput
First, based on the von Neumann architecture, a ers and the emergence of the Internet have made the
digital device consists of a processing unit that exe
digital tools necessary for innovation more affordable
cutes digitally encoded instructions and a storage to a broad spectrum of previously excluded economic
unit that holds both instructions and the data beingand innovative activity. Digital technology, therefore,
manipulated in the same format and in the same loca has democratized innovation and almost anyone can
tions (Langlois 2007). As long as users agree on thenow participate.
meaning of the digital data and have the wits to come
up with new instructions to manipulate the data,
2.3. The Layered Architecture of
the architecture offers flexibility in the way data is Digital Technology
manipulated. Thus, unlike analog technology, a digi The characteristics of digital technology pave the way
tal device is reprogrammable, enabling separation of the for layered architecture (Adomavicius et al. 2008, Gao
semiotic functional logic of the device from the phys and Iyer 2006) and this is perhaps best exempli
ical embodiment that executes it. The reprogrammafied by the Internet. The layers manifest two criti
bility allows a digital device to perform a wide array cal separations: (1) that between device and service
of functions (such as calculating distances, word probecause of reprogrammability and (2) that between
cessing, video editing, and Web browsing). network and contents because of the homogenization
Second, an analog signal maps changes in a contin of data.

uously varying quantity on changes in another conAs illustrated in Figure 1, layered architecture con
tinuously changing quantity. As such, analog data sists of four layers: devices, networks, services, and
implies a tight coupling between data (e.g., texts contents (Benkler 2006, Farrell and Weiser 2003). The
and pictures) and special purpose devices for stor
device layer can be further divided into a physi
ing, transmitting, processing, and displaying the data
cal machinery layer (e.g., computer hardware) and a
(e.g., book and camera). In contrast, a digital repre
logical capability layer (e.g., operating system). The
logical capability layer provides control and main
sentation maps any analog signal into a set of binary
numbers, i.e., bits (a contraction of binary digits). tenance of the physical machine and connects the
This leads to a homogenization of all data accessible physical machine to other layers. The network layer
by digital devices. Any digital contents (audio, video,
is similarly divided into a physical transport layer
text, and image) can be stored, transmitted, processed,
(including cables, radio spectrum, transmitters, and
and displayed using the same digital devices andso on) and a logical transmission layer (including
networks. Furthermore, unlike analog data, digital
network standards such as TCP/IP or peer-to-peer

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Yoo et al.: Research Commentary: The New Organizing Logic of Digital Innovation: An Agenda for Information Systems Research
Information Systems Research 21(4), pp. 724-735, ©2010 INFORMS 727

physical products
Figure 1 The Layered Architecture of Digital Technology challenges some of the fundamental
assumptions about product architecture and organiz
ing logics. Next, we will discuss how it introduces a
CONTENTS LAYER
new type of product architecture.

3. Layered Modular Architecture

SERVICE LAYER 3.1. Modular Architecture

Two architectures have dominated physical produc

design: integral and modular. An integral architecture
NETWORK LAYER is characterized by a complex and overlapping map
ping between functional elements and physical com
Logical transmission
ponents, where the interfaces between component
Physical transport are not standardized and are tightly coupled (Ulrich
1995). As a result, changes in one part of a produc
typically affect the rest of the product, often unpr
DEVICE LAYER dictably. The tight coupling among components in an
integral architecture renders high performance and
Logical capability
quality, which is important for certain products such
^ Physical machinery j as sports cars and high-end electronics.
Conversely, a modular architecture is characterized
by its standardized interfaces between component
Modularity is a general characteristic of a comple
protocols). The service layer deals with application
system and refers to the degree to which a prod
functionality that directly serves users as they crebe decomposed into components that can b
uct can
ate, manipulate, store, and consume contents. Finally,
recombined (Schilling 2000). Rooted in Simon's (1996)
the contents layer includes data such as texts, design
sounds,theory, modular architecture offers an effec
images, and videos that are stored and shared. tive The
way to reduce complexity and to increase flexibil
contents layer also provides metadata and directory
ity in design by decomposing a product into loosely
information about the content's origin, ownership,
coupled components interconnected through prespec
copyright, encoding methods, content tags, geo-time
ified interfaces (Baldwin and Clark 2000). Althoug
stamps, and so on. just "nearly decomposable" in practice (Simon 2002
The four layers represent different design an
hierar
ideal modular architecture implements one-to-one
chies (Clark 1985), and the individual design deci between functional elements and physica
mapping
sions for components in each layer can bemodules
made (Ulrich 1995).
with minimum consideration of other layers. There
Shifts in product architecture cause shifts in th
organizing logic of a firm. With an integral pro
fore, designers can pursue combinatorial innovation
by gluing components from different layers uct architecture,
using a the dominant organizing logic i
set of protocols and standards to create alternative
the vertically integrated hierarchy, wherein a single
digital products (Gao and Iyer 2006). Combined withcarries out the majority of innovation required
firm
the rapid diffusion of personal computers to
and the
compete. Here, components are often cospecia
ized has
Internet, the layered nature of digital technology with each other (Langlois 2003, Teece 1993).
brought unprecedented levels of generativity The key sources of value creation are economies
(Tuomi
2002, Zittrain 2006). of scale and scope, which emanate from over
whelming endowments to physical resources (Bar
Though layered architecture has been discussed
in IS literature (Adomavicius et al. 2008, Gao
neyand
1996). With an integral architecture, dominan
approaches
Iyer 2006), little attention has been paid to its impli to competitive strategy are product posi
tioning
cations for product innovation. The digitization of (Porter 1980), which distinguishes market

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 Yoo et al.: Research Commentary: The New Organizing Logic of Digital Innovation: An Agenda for Information Systems Research
728 Information Systems Research 21(4), pp. 724-735, ©2010 INFORMS

designed
scope and strategic strength as key and produced
parameters for by specialized firms that all
determining the appropriate strategy.share
Inproduct-specific
contrast, a knowledge. The primary goal
modular architecture leads to vertical
of disintegration
modularity is to reduce complexity and to increase
flexibility (Schilling
of a firm's design and production functions, as seen 2000, Simon 1996). The flexibil
ity is accomplished
in the change of the industrial organization of the through substitutions of compo
computer (Baldwin and Clark 2000,nents Langlois
within a2007),
single design hierarchy. For example,
software (Chandler and Cortada 2000),a singleand
lenstelecom
reflex (SLR) camera can be fitted with
multiple lenses radi
munication industries (Tuomi 2002). Leveraging using a standardized mounting inter
face, which increases
cally reduced communication and coordination costs the camera's flexibility. Thus, the
enabled by IT (Malone 2004), firms such as
flexibility of Cisco,
a modular architecture comes from the
Dell, and Nokia have heavily investeddifferences
in corporate
in degree. IT
infrastructures in order to realize net-enabled value At the other end, we have the full-blown lay
networks (Sambamurthy and Zmud 2000, ered modular architecture that does not have a fixed
Wheeler
2003). This enabled them to distribute design andboundary
pro at the product level. The design of a compo
nent thus requires little product-specific knowledge.
duction activities among a network of firms (Nohria
That is, components in a layered modular architec
and Eccles 1992). The key source of value creation
ture are product agnostic. Google Maps, for example,
is the agility that flows from the ability to rapidly
recombine components of a modular product consists archi of a bundle of contents (i.e., maps) and ser
tecture positioned within a single design hierarchy vice (e.g., search, browse, traffic, and navigation) lay
without sacrificing cost or quality (Sambamurthy ers with different sets of interfaces (i.e., application
et al. 2003). programming interfaces). Though Google Maps can
be used as a standalone product, it can simultane
3.2. Layered Modular Architecture ously be used in a variety of different ways, bundled
As firms increasingly embed digital components with a host of heterogeneous devices such as desktop
into physical products, the layered modular architec computers, mobile phones, televisions, cars, naviga
ture emerges. The layered modular architecture is a tion systems, or digital cameras. In this regard, a com
hybrid between a modular architecture and a lay ponent design in a layered modular architecture is
ered architecture, where the degree by which the not derived from a single design hierarchy of a given
layered architecture adds the generativity to the mod product. Instead, a product is inductively enacted by
ular architecture forms a continuum. At one end, we orchestrating an ensemble of components from a set
have the traditional modular architecture based on a
of heterogeneous layers, each of which belongs to a
fixed product boundary. The modular design of such
different design hierarchy (Clark 1985). Therefore, the
a product is initiated by decomposing the product
designers of components in a layered modular archi
into components following a functional designtecture
hier cannot fully know how the components will
archy (Clark 1985, Baldwin and Clark 2000). There
be used. That is, Google's designers cannot fully antic
fore, the relationships between the product and its all the possible ways that Google Maps as a
ipate
components are nested and fixed. Given the nested
component will be used. As such, a layered mod
nature of relationships and the fixed product bound
ular architecture offers generativity, i.e., "a technol
ary, aggregating all components will make upogy's the overall capacity to produce unprompted change
driven by large, varied, and uncoordinated audi
whole product. In addition, in a modular architecture,
ences" (Zittrain 2006, p. 1980). Generativity in a lay
the design of a component is driven by the functional
requirements created within the context of a givenered modular architecture is accomplished through
loose couplings across layers whereby innovations
product. That is, components in a modular architec
canare
ture are product specific} Furthermore, components spring up independently at any layer, leading to
cascading effects on other layers (Adomavicius et al.
2008,
1 Of course, certain low-level components can be commodities used Boland et al. 2007). Whereas components in a
in multiple products. modular product fall under a single design hierarchy,

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Yoo et al.: Research Commentary: The New Organizing Logic of Digital Innovation: An Agenda for Information Systems Research
Information Systems Research 21(4), pp. 724-735, ©2010 INFORMS 729

Figure 2 The Layered Modular Architecture Continuum

f \ f LAYE
MODULAR ARCHITECTURE ARCHITECTURE

• Fixed product boundary and • Fluid product boundary and

meaning meanings
Reprogrammability
• Loose coupling between
• Loose coupling between Homogenization of data High
components through
components through Self-reference
standardized interfaces
standardized interfaces
• Heterogeneous layers
• Components nested in a
following multiple design
single design hierarchy hierarchies
• Product-specific components • Product-agnostic
• Components designed and components
produced by firms sharing • Layer are coupled through
product-specific knowledge standards and protocols
shared by heterogeneous
V ) v'lnms ^

components in a layered modular

other architecture
firms to invent novel components suchpar
as
ticipate in multiple heterogeneous
new applications anddesign hierarchies.
peripheral hardware accessories
Unlike the flexibility ofwith
a modular productcan
which its basic functionality that pro
be expanded.
duces differences in degree,
Therefore,thefirmsgenerativity
operating in a competitiveof a lay
landscape
ered modular product produces differences
shaped by layered in kind.
modular architectures For
invest in dig
example, in utilizing available hardware resources,
ital product platforms that cater for multisided marketsa
digital camera with a layered modular
and help build architecture
vibrant ecosystems (Eisenman et al.
can be used not only as 2006).
a camera but
A digital product also typically
platform as a video
encom
player, photo editor, Internet
passes aclient, andofin
particular range many
layers other
(e.g., content and
ways. Therefore, a layered modular
service product
layers) that can function as a remains
new product,
fluid and is open to new but
meanings. Unlike
simultaneously enable others the purely
to innovate upon
layered architecture (Gao
(Gawerand Iyer 2008)
and Cusumano 2006), however,
using firm-controlled
the generativity of a digitized product with a lay
platform resources (e.g., SDKs and APIs2). For example,
ered modular architecture is constrained by charac
as most subsystems of an automobile are becoming
teristics of the physical digitized
components and connected of the
through product
vehicle-based soft
(e.g., form factors and availability
ware architectures, an of certain
automobile has become aphysical
com
components). puting platform on which other firms outside the
The modular architecture and the layered modular
automotive industry can develop and integrate new
architecture form the two end points of a continuum
devices, networks, services, and content (Henfridsson
as firms embed digital components (see Figure 2)
and Lindgren 2010).
into their products. Traditional industrial-age, single
A digitized product with a layered modular archi
purpose products manifest one end of the spectrum
tecture can serve as a platform courting for its own
while conventional digital products with general com
installed base at one layer and serve as a compo
puter hardware form another end. Many digitized
nent at another layer. Because of the dynamic nature
products will fall somewhere in the middle.
of the layered modular architecture, the same firms
3.3. The Organizing Logic can compete
of onLayered
one layer and peacefully coexist on
Modular Architecture other layers. For example, Apple's iPad and Ama
With a layered modular architecture, a digitizedzon's
prodKindle directly compete at the device layer.
uct can be simultaneously a product and a platform.
For instance, an iPad can be used as a complete prod
2 SDK stands for software development kit; API stands for applica
uct out of the box. Yet, as a platform, it enables
tion programming interfaces.

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 Yoo et al.: Research Commentary: The New Organizing Logic of Digital Innovation: An Agenda for Information Systems Research
730 Information Systems Research 21(4), pp. 724-735, ©2010 INFORMS

The two firms also compete at the content components is distributed

layer with across multiple firms, and
iBook and Kindle stores. At the same time, Amazon (b) the product knowledge is distributed across hetero
offers an application for iPad and is thus a compo geneous disciplines and communities. In this environ
nent provider at the service layer of the iPad. Simi ment, an essential capability is the ability to design
larly, Apple's iPhone (device layer), along with other a digital product platform to inspire and mobilize
mobile devices, has been an important component for a vibrant and doubly distributed network to maxi
Google's mobile search platform (service layer). At mize the generative potential of the layered modu
the same time, Google Maps (service and content lay lar architecture. In managing such a network, a firm
ers) is an important component of the iPhone plat needs to have the capability to create new mean
form. As Apple introduced its own mobile search and ings of its products and services (Verganti 2009) by
advertisement systems, however, Apple and Google constantly redefining the product boundaries through
began to compete directly on the service layer. Simi active reshaping of the product ecology (Kusuoki and
larly, when Google introduced its own Android-based Aoshima 2010).
mobile phone, Apple and Google began to compete
at the device layer. 4. Information Systems Research
Within a layered modular architecture, a firm seeks Agenda and Key
to attract heterogeneous actors to design and pro
Research Questions
duce novel components on layers outside of its dig
What should the IS research agenda be as physical
ital product platform. The generativity of a layered
products become digitized? The key question here is
modular architecture thus comes from a firm's abil
how we can understand the consequences of digital
ity to design a product platform that can attract a
innovation and the emergence of the layered modular
large number of heterogeneous and unexpected com
architecture on strategy and corporate IT infrastruc
ponents that belong to different design hierarchies. tures. In what follows, we belabor the research chal
The greater the heterogeneity, the more generative the
lenges and present sample research questions for both
platform becomes. Although it is theoretically possible
themes.
to pursue such generativity within the closed bound
ary of a single firm or its existing supplier network,
4.1. New Strategic Frameworks
a firm's ability to do so on a practical basis is limited
With the digitization of products and the emer
by its economic, structural, cognitive, and institutional
gence of the layered modular architecture, firms face
constraints. Therefore, even though the layered mod new competitive dynamics. In this new environ
ular architecture may be ripe with generative poten ment, digital technology is an integral part of strat
tial, this potential is only fully realized when it
egyis formulations. Accordingly, IS scholars need to
paired with a new organizing logic that involves het
question and complement their received models of
erogeneous actors, many of whom pursue their own aligning IT to business strategy, identifying core IT
innovation strategies. As a result, innovation within
resources, and managing IT as a standardized com
a layered modular architecture is distributed not only
modity. Instead, IS scholars must imagine new digi
among firms of the same ilk but also across firms
tal strategy frameworks that identify new sources of
of different kinds. These firms' innovation activities
value creation such as generativity, heterogeneity, dig
reciprocally and recursively influence each other,ital
creproduct platforms, and meaning-making capabil
ating the image of "wakes of innovation" (Boland ity. We need new strategic frameworks that are aimed
et al. 2007). Accordingly, we characterize the orga
at deliberately harnessing the unique capabilities of
nizing logic for a layered modular architecturedigital
as technology that are embedded into products to
doubly distributed. It is distributed because thegain
pricompetitive advantage. We here note the follow
mary source of value creation is the generativity that
ing research challenges.
comes from the unbounded mix-and-match capabil First, the digitization of products blurs product and
ity of heterogeneous resources across layers. It is industry
dou boundaries. In fact, blurring boundaries is
what firms such as Google and Apple deliberately
bly distributed because (a) the control over product

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Yoo et al.: Research Commentary: The New Organizing Logic of Digital Innovation: An Agenda for Information Systems Research
Information Systems Research 21(4), pp. 724-735, ©2010 INFORMS 731

pursue. Therefore, assumptions firm about a stable

migrates into aindus
layered modular architecture
try and a fixed and bounded product will limit
from a physical product the
or a software product will
effective exploitation of digital technology. Weinnovation
influence its digital need strategy. At the same
new theoretical frameworks for competitive time, a firm must strategy
carefully design its digitized prod
and for the development of digitized ucts so that its present
products decision does not constrain
that
are based on dynamic and fluid views on products.with digital product plat
its future strategic options
This means we must revisit traditional theoretical forms. Therefore, an important research question is:
devices such as generic strategies, product life cycle,What are the factors that influence a firm's strategic choices
and dominant product design. We need to articulate on digital product platforms?
new competitive strategies and envision new roles Finally,of with doubly distributed innovation net
IT in shaping those strategies, thus asking: Whatworks, are a firm's ability to attract heterogeneous and
new generic strategies of digital innovation and whatunexpected
are firms to build various components has
become
core design principles of digital technology for the generic strategically important. Key strategic resour
ces that the firm can control in this domain are
strategies? Within these lines of inquiry, we need to
the design of technical boundary resources such as
explore the fundamental strategic roles of embedded
APIs and SDKs and social boundary resources such
digital technology to create competitive advantage
through digital innovation. as incentives, intellectual property rights, and con
Second, because the layered modular architecture(Ghazawneh and Henfridsson 2010). Therefore,
trol
represents a range of possibilities for embeddingdesign
dig decisions regarding these boundary resources
ital components into a physical product (as shownbear strategic importance. Therefore, a critical research
in Figure 2), it also represents a strategic choice question
for is: What are the strategic roles of technical bound
ary
firms seeking digital innovation. Important research resources such as APIs and SDKs and social boundary
resources
questions thus are: What are the technical and strategic such as incentives, intellectual property rights,
and control with a layered modular architecture?
dimensions that influence the relative position of a digitized
product on the continuum of layered modular architecture
4.2. Corporate IT Infrastructures
and what are the strategic consequences?
Since the late 70s, corporate IT infrastructures have
Third, as we noted earlier, with layered modularbeen critical to the viability and operations of modern
architecture, firms create digital product platforms to
organizations. Corporate IT infrastructures provide
control key components or particular combinations the foundation of the IT resources (both technical and
of components within certain layers. Such strategic
human) shared throughout a firm (Broadbent et al.
control of key components can render competitive 1999). As product architectures and organizing logics
advantage. Specifically, firms need to constantlyevolve,
ask the role of corporate IT infrastructures evolves
(a) what needs to remain open and what needs as to
well. Vertically integrated firms, competing with
be closed in a digital product platform, (b) how to
integral products, had primarily built corporate IT
identify and control the core components that are of
infrastructures that helped automate manufacturing
strategic importance, and (c) how to build effective
and back office processes to maximize the economies
incentives for different firms to join the productofplat
scale and scope. They rested on the support of
forms. Therefore, important research topics are: transaction
How systems, management information sys
can firms strategically control their digital product plat
tems, decision support systems, and executive infor
forms and how do such controls evolve over time? mation systems to increase efficiency and ensure the
Fourth, although a layered modular productintegrity
can and reliability of centralized control. As mod
function as a platform and a component simultaneular architectures began to emerge however, corporate
ously, strategically not all firms can afford toITpur
infrastructures expanded to support net-enabled
sue both of them at the same time. For example, a
enterprise processes (Sambamurthy and Zmud 2000,
small start-up firm may need to pursue a strategy
Wheeler 2003). The ability to manage the reach and
that focuses on components until it gains a stablescope
user of IT in supporting critical inter- and intraor
base across multiple platforms. Similarly whether a
ganizational processes became a key differentiator in

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 Yoo et al.: Research Commentary: The New Organizing Logic of Digital Innovation: An Agenda for Information Systems Research
732 Information Systems Research 21(4), pp. 724-735, ©2010 INFORMS

building competitive capability (Sambamurthy and

product generatively expands, the edge of the network
Zmud 2000). To create these capabilities, firms built
evolves constantly. This amplifies the challenge of het
collaborative systems, knowledge management sys traditional centralized tools to
erogeneity. Therefore,
tems, and e-business systems to coordinate the activi
support knowledge management and virtual teams
ties of a distributed network of specialized
need to firms.
be augmented with new tools that can han
As firms start competing with layered modular
dle heterogeneity and discontinuity in knowledge. An
products, the role of corporate IT infrastructures
important researchis challenge is thus what are the char
likely to transform again. In particular, firms
acteristics of IT draw
that support generative and heterogeneous
ing on doubly distributed innovation networks
knowledge as distributed innovation networks
work in doubly
the organizing logic need to consider how to dis
with multiple and often conflicting design hierarchies?
tribute organizational control in aSecond,
new layered
way and modular architectures demand IT
how to cope with the increased heterogeneity
infrastructures thatofcan leverage the ubiquitous avail
knowledge resources that stem from multiple
ability of a wideand
and varying range of digital capa
conflicting design hierarchies. With
bilities. Some modu
layered of these capabilities are created and
lar architectures, the types of knowledge
controlled resources
within the firm while others are garnered
needed for innovation cannot be fully
throughknown a pri(Lyytinen and Yoo 2002). The
the "cloud"
ori and interactions are indeterminate and emergent.
main aim of the IT infrastructure is to support gen
In addition, each firm in a doubly distributed net
erativity by managing, coordinating, and connecting
work follows its unique innovation trajectory while
to heterogeneous knowledge resources. In order to
possibly participating in multiple doubly distributed
enable the mix and match across loosely coupled lay
networks. The trajectories and accumulated knowl
ers, digital representations within and across these
edge become interwoven over time, generating a
layers need to be recombined to create families of new
staccatolike pattern during innovation as the firms
digital representations and services. Therefore, unlike
influence one another reciprocally and nonlinearly.
earlier corporate IT infrastructures, the new IT infras
For example, in the mobile media market, a myr
tructure for the layered modular architecture cannot
iad of previously unconnected firms (e.g., mobile
be easily bounded and separated from the industry
network operators, software companies, and content
and societywide infrastructures. IT infrastructures are
providers) must weave together their distinct mental
thus increasingly difficult to coordinate from a single
schemes, business models, and heterogeneous infras
governance point such as the corporate chief infor
tructures while establishing new products. These
mation officer because they span beyond the bound
changes create the following research challenges for
IS scholars. aries of a single corporation. Traditional rules and
First, in doubly distributed innovation networks,mechanisms of alignment, centralization, and cost
the locus of innovation moves outside of the bound control need to be augmented with new governance
principles such as architectural models and control,
ary of a single design hierarchy. Vertically integrated
software-enabled
firms used IT to maximize the strategic, tactical, and control mechanisms, new incentive
mechanisms,
operational deployment of internal resources to sup and so on. Furthermore, firms will be
port innovation. Networked firms, on the other challenged
hand, on how to effectively manage and coordi
used IT to maximize the value within the network nate distributed and dynamic processes of designing
and maintaining corporate IT infrastructures. There
by coordinating and synchronizing data and processes
among firms within the boundary of a singlefore, net a new research challenge emerging for IT gover
work. In both cases, however, design activities of nance
all is: What are the forms of governance to effectively
components fall under the auspices of a single design and organize the evolution of corporate IT infras
manage
hierarchy. With layered modular architecture,tructures
how that support doubly distributed networks?
Third, as the role of the IT infrastructures changes,
ever, innovation activities cut across multiple design
so do the development approaches. Vertically inte
hierarchies. Each design hierarchy is populated with
its own unique IT tools and capabilities (Boland etgrated
al. firms used lifecycle models and structured
design methodologies to build software. Within
2007). Furthermore, as the meaning of a digitized

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Yoo et al.: Research Commentary: The New Organizing Logic of Digital Innovation: An Agenda for Information Systems Research
Information Systems Research 21(4), pp. 724-735, ©2010 INFORMS 733

less forgiving
Figure 3 A Conceptual Framework of a New IS Research and
Agenda with more heterogeneous, hardware,
Digital Innovation
making it critical to design and diffuse high-quality
Digitization of products platform resources. An important research challenge
and
is what are the appropriate methodological and technologi
layered modular architectures
cal principles of the design of technical boundary resources
that help sustain continued developments of novel compo
nents in doubly distributed networks?
Doubly distributed Finally, because of the dynamics of layered modu
networks
lar architecture and doubly distributed networks, the
familiar context of system development with clearly
defined roles is disappearing. In contrast, the new
Corporate IT New strategic
context of system development is created by hetero
infrastructures frameworks
geneous firms pursuing conflicting goals, participat
ing in multiple design hierarchies, and intertwining
a range of innovation trajectories. Therefore, another
networked firms, system development approaches critical research question is what are the appropriate
focused on shared data objects, message exchange principles that govern the social context of developments
protocols, and related services and their governance. of boundary resources and digital components in doubly
Along with approaches emphasizing enterprise-level distributed innovation networks?
modularity such as enterprise resource planning sys Figure 3 shows an overall conceptual framework
tems, agile methods were developed to cope with the of digital innovation based on our discussion so far.
increased pace of change. With doubly distributed Digitization of physical products and the emergence
networks, development approaches need to focus of layered modular product architectures lead to dou
on how to incentivize and coordinate heterogeneous bly distributed networks as the organizing logic invit
communities through sharing of boundary resources ing the creation of new strategic frameworks and
and knowledge flows. The role of boundary resources new corporate IT infrastructures that all mutually
such as APIs and SDKs in orchestrating innovation influence each other. Table 1 summarizes research
that goes beyond a single firm or a network (Swanson challenges in these two broad themes.
1994) will increase. Increasingly, the value of IT lies in
its integration with and expansion toward third party 5. Conclusions
components. Furthermore, the development contexts The IS field has grown significantly since its b
of layered modular products are likely to be ripe with some 40 years ago. At the same time, our soc

Table 1 Research Themes and Research Questions with the Layered Modular Architecture

Research themes Example research questions

1. New strategic •
What are the generic strategies of digital innovation and core design principles of digital technology
frameworks strategies?
•
What are the technical and strategic dimensions that determine the relative position o
continuum of the layered modular architecture?
•
How can a firm strategically control its digital product platforms and how do such controls e
•
What are the factors that influence a firm's strategic choices on digitized product platforms?
•
What are the strategic roles of technical and social boundary resources with a layered modular archite
2. Corporate IT •
What are the technical characteristics of IT that support generative and heterogeneous know
infrastructures distributed networks?
•
What are the forms of governance of corporate IT infrastructures that support doubly distributed networ
•
What are the methodological and technical principles of the design of technical boundary res
sustainable doubly distributed networks?
•
What are the social principles for the developmental context of boundary resources and digital compo
doubly distributed networks?

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 Yoo et al.: Research Commentary: The New Organizing Logic of Digital Innovation: An Agenda for Information Systems Research
734 Information Systems Research 21(4), pp. 724-735, ©2010 INFORMS

has experienced remarkable change because

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