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  • 2010
  • Working Paper
  • HBS Working Paper Series

When Open Architecture Beats Closed: The Entrepreneurial Use of Architectural Knowledge

By: Carliss Y. Baldwin
  • Format:Print
  • | Language:English
  • | Pages:45
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Abstract

This paper describes how entrepreneurial firms can use superior architectural knowledge to open up a technical system to gain strategic advantage. The strategy involves, first, identifying "bottlenecks" in the existing system, and then creating a new open architecture that isolates the bottlenecks in modules and allows others to connect to the system at key interfaces. An entrepreneurial firm with limited financial resources can then focus on supplying superior bottleneck modules, while outsourcing and allowing complementors to supply non-bottleneck components. I show that a firm pursuing this strategy will have a higher return on invested capital (ROIC) than competitors with a less modular, closed architecture. Over time, the more open firm can drive the ROIC of competitors below their cost of capital, causing them to shrink and possibly exit the market. The strategy was used by Sun Microsystems in the 1980s and Dell Computer in the 1990s.

Keywords

Entrepreneurship; Investment Return; Growth and Development Strategy; Product Design; Organizational Design; Competitive Advantage; Technology Industry

Citation

Baldwin, Carliss Y. "When Open Architecture Beats Closed: The Entrepreneurial Use of Architectural Knowledge." Harvard Business School Working Paper, No. 10-063, February 2010. (Revised July 2010, October 2010.)
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About The Author

Carliss Y. Baldwin

→More Publications

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    Computer-Implemented Methods and Systems for Measuring, Estimating, and Managing Economic Outcomes and Technical Debt in Software Systems and Projects: US Patent 11,126,427 B2

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    • 2020
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    Design Rules, Volume 2: How Technology Shapes Organizations: Chapter 7 The Value Structure of Technologies, Part 2: Strategy without Numbers

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    Design Rules, Volume 2: How Technology Shapes Organizations: Chapter 6 The Value Structure of Technologies, Part 1: Mapping Functional Relationships

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More from the Author
  • Computer-Implemented Methods and Systems for Measuring, Estimating, and Managing Economic Outcomes and Technical Debt in Software Systems and Projects: US Patent 11,126,427 B2 By: Daniel J. Sturtevant, Carliss Baldwin, Alan MacCormack, Sunny Ahn and Sean Gilliland
  • Design Rules, Volume 2: How Technology Shapes Organizations: Chapter 7 The Value Structure of Technologies, Part 2: Strategy without Numbers By: Carliss Y. Baldwin
  • Design Rules, Volume 2: How Technology Shapes Organizations: Chapter 6 The Value Structure of Technologies, Part 1: Mapping Functional Relationships By: Carliss Y. Baldwin
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