November 9, 2008

Abstract

Designs are the instructions based on knowledge that turn resources into things that people use and value. All goods and services have designs, and a new design lies behind every innovation. I argue that designs--sometimes called recipes (Nelson and Winter) or prescriptive knowledge (Mokyr)--are a special kind of knowledge deserving of focused attention by scholars of innovation.

In the first place, all innovation rests on new designs. An innovation is, by definition, a new design that has been realized, that is, turned into a new product or process.

In the second place, designs have observable structures (architecture). Their structure can be mapped in terms of hierarchies of modules with coordinating interfaces. Design structure influences (but is also influenced by) the organization of firms and the economy, including the location and design of transactions.

Thirdly, the unit of change or innovation is not an entire product, process or system, but a module within the product, process or system. Modules are "units of a larger system whose elements are powerfully connected among themselves and relatively weakly connected to elements in other units." Thus it is relatively easy to substitute one module design for another without changing other parts of the system. As a result, modules carry option value, which in turn provides incentives for to invest resources in innovative effort.

Investigating the modular structure of designs, the option value of modules, and how different institutions support or impede the evolution of complex designs is an exciting, open avenue of inquiry in the study of technological change and innovation.

Biography

Carliss Y. Baldwin is William L. White Professor of Business Administration at the Harvard Business School. With multiple collaborators, she studies the the structure of designs and their impact on the structure of industries over time. She is the co-author of Design Rules: The Power of Modularity, the first of a projected two volumes. Volume 2, in progress, will focus on Design Architecture and Strategy. Recent papers include "Where do transactions come from? Modularity, transactions and the boundaries of firms," (Industrial and Corporate Change, 2008), "Exploring the structure of complex software designs: An empirical study or open source and proprietary code," (with Alan MacCormack and John Rusnak, Management Science, 2006), and "How user innovations become commercial products: a theoretical investigation and a case study, (with Christoph Hienerth and Eric von Hippel, Research Policy, 2006). A specialist in corporate finance and real options theory, Baldwin received a bachelor's degree in economics from MIT in 1972, and MBA and DBA degrees from Harvard Business School. She has taught courses in finance at the MBA, doctoral and executive levels. She recently developed and taught Mergers & Acquisitions, a second-year MBA course that looks at how value is created (or destroyed) in mergers and acquisitions.