Bottlenecks, Modules and Dynamic Architectural Capabilities

52 Pages Posted: 21 Oct 2014 Last revised: 9 Jun 2015

See all articles by Carliss Y. Baldwin

Carliss Y. Baldwin

Harvard Business School, Finance Unit

Date Written: May 27, 2015

Abstract

How do firms create and capture value in large technical systems? In this paper, I argue 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.

Keywords: architecture, architectural knowledge, dynamic capabilities, bottleneck, modularity, organization design, organization boundaries, property rights

Suggested Citation

Baldwin, Carliss Y., Bottlenecks, Modules and Dynamic Architectural Capabilities (May 27, 2015). Harvard Business School Finance Working Paper No. 15-028. Available at SSRN: https://ssrn.com/abstract=2512209 or http://dx.doi.org/10.2139/ssrn.2512209

Carliss Y. Baldwin (Contact Author)

Harvard Business School, Finance Unit ( email )

Boston, MA 02163
United States

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