When open architecture beats closed
Subtitle: the entrepreneurial use of architectural knowledge
By: Carliss Y. Baldwin
Contributors: Harvard Business School
Edition: 2nd Rev.
Series: Working paper / Harvard Business School -- 10-063; Working paper (Harvard Business School) -- 10-063.
Publisher: Harvard Business School
Published: 2010
Place of publication: [Boston]
Language: eng
Number of pages: 44
Description: 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, and 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.
Notes: "February 2010, revised July 2010, October 2010."--Publisher's website.

Published in February 2010 as: "The strategic use of architectural knowledge by entrepreneurial firms" and in July 2010 as: "Schumpteter's slingshot--the strategic use of architectural knowledge by entrepreneurial firms."

Includes bibliographical references.