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• Working Paper | HBS Working Paper Series | 2019

  Design Rules, Volume 2: How Technology Shapes Organizations: Chapter 16 Capturing Value by Controlling Bottlenecks in Open Platform Systems

  Carliss Y. Baldwin

  The purpose of this chapter is to investigate the means by which firms capture value in open platform systems. I begin by arguing that the surplus value created by complementarities within a technical system will be split among the owners of the unique and essential components—the strategic bottlenecks in the system. However, most platforms must also execute a series of steps that are subject to “flow production” bottlenecks. Finding and fixing these flow bottlenecks is another way to capture value. In addition, two types of platform improvements provide further opportunities for value capture. “Accelerators” speed up the processing of options, while “subsidiary” platforms increase the range of options available to users. Finally, members of a platform system or new entrants may seek to supplant the owner of a strategic bottleneck by “disintermediating” platform components. I describe four generic methods of disintermediation: substitution, reverse engineering, platform independent complements, and platform envelopment.

  Citation:

  Baldwin, Carliss Y. "Design Rules, Volume 2: How Technology Shapes Organizations: Chapter 16 Capturing Value by Controlling Bottlenecks in Open Platform Systems." Harvard Business School Working Paper, No. 20-054, November 2019.  View Details

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• Working Paper | HBS Working Paper Series | 2019

  Design Rules, Volume 2: How Technology Shapes Organizations: Chapter 17 The Wintel Standards-based Platform

  Carliss Y. Baldwin

  The purpose of this chapter is to use the theory of bottlenecks laid out in previous chapters to better understand the dynamics of an open standards-based platform. I describe how the Wintel platform evolved from 1990 through 2000 under joint sponsorship of Intel and Microsoft. I first describe a series of technical bottlenecks that arose in the early 1990s concerning the “bus architecture” of IBM-compatible PCs. Intel’s management of buses demonstrates how, under conditions of distributed supermodular complementarity, a platform sponsor can reconfigure the modular structure of a technical system, property rights within the system, and its own zone of authority to increase system-wide throughput, while protecting its own strategic bottleneck from disintermediation. I go on to describe how Microsoft used platform envelopment to establish a second strategic bottleneck in productivity software and later to respond to the threat of disintermediation from platform-independent internet browsers. I end the chapter by discussing the conditions under which shared platform sponsorship can be a long-term dynamic equilibrium.

  Citation:

  Baldwin, Carliss Y. "Design Rules, Volume 2: How Technology Shapes Organizations: Chapter 17 The Wintel Standards-based Platform." Harvard Business School Working Paper, No. 20-055, November 2019.  View Details

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• Working Paper | HBS Working Paper Series | 2019

  Design Rules, Volume 2: How Technology Shapes Organizations: Chapter 8 Rationalizing Flow Processes

  Carliss Y. Baldwin

  The purpose of this chapter is to examine the value structure of flow production processes and to explain why it is necessary to rationalize flow processes using the tools of systematic management. I first explain the problems facing managers of multi-step flow production processes at the end of the 19th Century. I introduce a model of the value structure of a production process made up of interdependent steps and define the production bottleneck of the process. I use the mathematical definition of a bottleneck to derive two general properties of stochastic multi-step flow processes with bottlenecks. These properties imply a need for ongoing managerial oversight and intervention using a set of tools that went by the label systematic management. Without active systematic management to address production bottlenecks, large-scale flow processes can easily collapse into chaos. I then argue that that the use of automated machinery, larger (or growing) markets, and systematic management are supermodular complements: each attribute makes the other two more valuable. The next chapter will explore how the technological requirements of multi-step flow production processes affect the optimal design of organizations implementing these technologies.

  Keywords: flow processes; bottleneck; systematic management; Production; Management; Problems and Challenges;

  Citation:

  Baldwin, Carliss Y. "Design Rules, Volume 2: How Technology Shapes Organizations: Chapter 8 Rationalizing Flow Processes." Harvard Business School Working Paper, No. 20-032, September 2019.  View Details

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