X) Not Understanding Product Architecture And Interfaces Including Interdependence And Modularity

- "...A product's architecture determines its constituent components and subsystems and defines how they must interact - fit and work together - in order to achieve the targeted functionality. The place where any two components fit together is called an interface. Interfaces exist within a product, as well as between stages in the value added chain. For example, there is an interface between design and manufacturing, and another between manufacturing and distribution. And architecture that is interdependent at an interface in one part cannot be created independently of the other part......when there is an interface across which there are unpredictable interdependencies, then the same organisation must simultaneously develop both of the components if it hopes to develop either component. Interdependent architectures optimize performance, in terms of functionality and reliability. By definition, these architectures are proprietary because each company will develop is own interdependence designed to optimize performance in a different way..."

Clayton Christensen et al, 2003

Independent architecture is the same as optimized and proprietary architecture.

"...In contrast, a modular interface is a clean one, in which there are no unpredictable interdependencies across components or stages of the value chain. Modular components fit and work together in well understood and highly defined ways. A modular architecture specifies the fit and function of all elements so completely that it does not matter who makes the components or subsystems, as long as they meet the specification site. Modular components can be developed in independent workgroups or by different companies working at arm's-length. Modular architecture optimizes flexibility, but because they require tight specification, they give engineers fewer degrees of freedom in design. As a result, modular flexibility comes at the sacrifice of performance. Pure modularity and interdependence are at the ends of the spectrum: most products fall somewhere between these extremes......companies are more likely to succeed when they match product architecture to the competitive circumstances..."

Clayton Christensen et al, 2003

It is of interest to note that introducing radical new technology is not as easy as imposing new technology on the old, as usually the new has unexpected ramifications, such as the transition from analogue to digital for all optic-telecommunications networks. Furthermore, integration is the best way to handle all of the interdependencies that need to be managed. For these reasons IBM initially dominated the computer industry by virtue of its integration; similarly for Ford and General Motors in the automobile industry. These firms enjoyed near monopoly power; their market dominance was the result of the not-good-enough circumstance, which mandated interdependent product or value chain architectures and vertical integration. This dominance was only temporary as they had to compete to make the best possible products and, as a result, made products that were more than the market required in functionality and reliability, ie they overshot.

Customers are happy to accept improved products but unwilling to pay a premium price unless there is improvement in speed, convenience, functionality and customisation. When this occurs there is an evolution in product architecture from interdependent, proprietary architecture that was OK in the not-good-enough era to broad modular designs in an era of performance surplus. Modularity becomes important because it enables independent, non-integrated organisations to sell, buy and assemble parts and subsystems. The modular system allows outsourcing and allows firms to mix-and-match components from the best suppliers in order to respond to the specific needs of individual customers. This sequence repeats itself with the introduction of new technology. For example, in personal computers, Apple computer was most integrated company with proprietary architecture and initially had the dominant position in the market. Ultimately, when functionality of desktop computers became good enough, IBM's modular architecture became dominant. Thus

"...Apple's proprietary architecture, which in the not-good-enough circumstance was a competitive strength, became a competitive liability in the more-than-good-enough circumstance. Apple as a consequence was relegated to niche-player status as a gross explosion in personal computers was captured by the non integrated providers of modular machines..."

Clayton Christensen et al, 2003

Similar sequences will occur with the next generation of disruptive computer products, like notebook computers and hand-held wireless devices, ie organisations which are most successful initially will have optimized, interdependent architectures. By contrast, those organisations whose strategy is prematurely modular will struggle in the early years when performance is the basis of competition. However, before long, architecture and energy structures will evolve toward openness and disintegration.

The drivers of this sequence are

i) the pace of technological improvements exceeds the ability of customers to utilize it, ie overshooting of customer needs

ii) as a result, the basis for competition changes with improvements in functionality and reliability becoming more customised; yet, simultaneously, customers become less willing to pay premium prices for these improvements.

iii) competitive pressures force organisations to compete on responsiveness and speed. To handle this, their products/services evolve from being proprietary and interdependent to becoming modular

iv) modularity encourages the disintegration of the industry as non-integrated organisations out-compete the integrated traditional players. Initially integration was a competitive necessity; it later becomes a competitive disadvantage.

NB

"...the circumstances of performance gaps and performance surpluses drive the viability of these strategies of architecture and integration..."

Clayton Christensen et al, 2003

Furthermore,

customers' needs change but generally at a slower pace than the technological improvements

basis for success, ie attracting unsatisfied customers, varies at different tiers of the market, ie at the low tiers, it is speed, flexibility and low-cost.

 

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