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 rad-

ical 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 pre-

serves the usefulness of its knowledge about the product's compo-
nents

• Successful Product development requires two types of knowledge

 Component Knowledge

 Architectural Knowledge

1
Types of Technological Change
• Figure 1

 focuses on the impact of an innovation on the usefulness of the ex-

isting architectural and component knowledge of the rm

 two extra types of innovation emerge:

∗ Modular Innovation

· changes only the core design concepts of a technology

∗ Architectural Innovation

· 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 com-

ponents 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 environ-

ment 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

2
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 iden-
tify 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 strate-

gies need to be modied

3
 •  [N]ew entrants to the industry may exploit its potential much more ef-
fectively, 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 inno-

vation

 Panel-Data

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

∗ primary and secondary sources

∗ Interviews

∗ internal rm records

 Validate the data

∗ history

4
• 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 ex-
perience 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 consid-

ered 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 compet-

itive machine

• In all 3 cases

 other factors are important

 a failure to respond eectively to architectural innovation was of crit-

ical importance

5
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 improve-

ments 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