Schumpteter's slingshot
Subtitle: the strategic use of architectural knowledge by entrepreneurial firms
By: Carliss Y. Baldwin
Contributors: Harvard Business School
Edition: 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: 43
Description: This paper describes how entrepreneurial firms can use superior architectural knowledge of a technical system to gain strategic advantage. The strategy involves, first, identifying "bottlenecks" in the existing system, and then creating a new architecture that isolates the bottlenecks in modules. An entrepreneurial firm with limited financial resources can then focus on supplying superior bottleneck components, and while outsourcing 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 design. Over time, the focal 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"--Publisher's website.

Includes bibliographical references.