IP Modularity: Profiting from Innovation by Aligning Product Architecture with Intellectual Property

Joachim  Henkel; Carliss Y. Baldwin; Willy C.  Shih

Article | California Management Review | Summer 2013

IP Modularity: Profiting from Innovation by Aligning Product Architecture with Intellectual Property

by Joachim Henkel, Carliss Y. Baldwin and Willy C. Shih

Abstract

Firms seeking to take advantage of distributed innovation and outsourcing can bridge the tension between value creation and value capture by modifying the modular structure of their technical systems. Specifically, this article introduces the concept of "IP modularity," which seeks to protect and capture value from intellectual property. The article defines what it means for a system to be "IP-modular," illustrates the application of this concept in a number of practical situations, and presents a comprehensive framework that can be used to design and evaluate value capture strategies for modular systems.

Keywords: modularity; value appropriation; distributed innovation; open innovation; intellectual property; Innovation Strategy; Intellectual Property; Value;

Format: Print

Find at Harvard

Citation:

Henkel, Joachim, Carliss Y. Baldwin, and Willy C. Shih. "IP Modularity: Profiting from Innovation by Aligning Product Architecture with Intellectual Property." California Management Review 55, no. 4 (Summer 2013): 65–82.

This case looks at United Airlines when it is facing a decision on whether to shift its aircraft routing to more "out-and-back" routing in order to try to improve its on-time performance. As one of the world's largest airlines, United had a very large fleet and hub-and-spoke network that provided passengers with a wide range of destination choices, but as with any complex system unless everything ran perfectly all the time, it inevitably faced cascading delays and missed passenger connection problems. While out-and-back routing tended to isolate operational issues, more traditional linear routings tended to offer high equipment utilization. The case offers students an opportunity to examine the effects of variability on different routing strategies.

This case examines design choices in the construction of flow lines. Flow lines are a popular way of arranging production because they are simple and inherently efficient. Equipment or workstations are arranged according to the sequence of steps in which a product is made. Each step consists of a set of tasks that individually are minimum rational work elements. These are combined to form the work assignment associated with the step. The work follows the same sequence of operations as it moves down the line, and the sequence is fixed from batch to batch. The case setting is a production site in Hungary that is starting up the production of a personal beverage maker. Should the team implement a conveyor-paced line in preference to a manual pull system? An analysis of process steps and times gives students an opportunity to debate this question.

Knowledge embedded within state-of-the-art production and design tools is a powerful force that is leveling the global technology playing field. It democratizes innovation and makes future competition more challenging. This paper describes the knowledge flows through production and design tools, and it suggests that the increasing level of abstraction is enabling new players to innovate without understanding how the technology building blocks they are using actually work inside. This suggests that there are new rules of competition, where firms should move beyond commoditized parts and focus their differentiation strategies.

Faculty & Research

IP Modularity: Profiting from Innovation by Aligning Product Architecture with Intellectual Property

Abstract

Citation:

About the Authors

More from these Authors