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New Directions in Research on Dominant Design, Technological Innovations, and Industrial Change

Johann Peter Murmann Kellogg Graduate School of Management

Northwestern University Evanston, IL 60208

Phone: 847-467-3502 Fax: 847-491-8896 E-mail: jpm@nwu.edu

Version 2.0

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I. Introduction

Organization theorists, strategy scholars, economists, and historians of technology

have all highlighted the powerful role of technology in shaping industrial dynamics and

firm performance. Mastering the "black box of technology" represents a crucial

organizational capability for succeeding in competitive markets. It is by now a well

established proposition that technological change is one of the prime triggers of

organizational change (Nelson and Winter, 1982; Pavitt, 1984; Tushman and Anderson,

1986; Metcalfe and Gibbons, 1989; Henderson and Clark, 1990; Freeman and Soete,

1997). Schumpeter (1950) long ago highlighted that technological change is a double-

edged sword. One the one hand, technological change creates vast opportunities for firms

to improve existing products or to design entirely new products. On the other hand,

technological change can destroy the usefulness of existing products and thereby threaten

the livelihood of individuals and firms tied to the old technology. Scholars following the

inspiration of Schumpeter have tried to understand in greater detail how this process of

"creative destruction" inherent in technical change shapes the fate of firms, populations

of firms, and entire nations (Rosenbloom and Christensen, 1994; Hannan and Freeman,

1989; Porter, 1990). Time and again studies tracing the evolution of technologies over

long periods of time have shown that technical change is a highly unpredictable process

(Rosenberg, 1982). Notwithstanding, scholars working in different academic disciplines

have documented characteristic patterns of innovations and formulated illuminating

models of technical evolution. All models essentially have in common that they attempt

to couple characteristic patterns of technical evolution with changing levels of

uncertainties, exploiting the fact that the degree of uncertainty inherent in the process is

not uniform over time.

In organization theory, the technology cycle model and its concept of a dominant

design has received a great deal of attention and has stimulated important empirical

research over the last decade. As the concept of a dominant design has taken the center

stage in much empirical work linking technological and organizational change (Anderson

and Tushman, 1990; Utterback and Suárez, 1993; Utterback, 1994; Suárez and Utterback,

1995), a number conceptual puzzles and difficult empirical issues have surfaced in the

literature. While in some writings the term "dominant design" is applied to a total

technological system (Abernathy, 1978; Van de Ven and Garud, 1993; Suárez and

Utterback, 1995; Iansiti and Khanna, 1995), in other writings the term is applied to

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components of systems (Rosenkopf and Tushman, 1994; Khazam and Mowery, 1994;

Miller et al., 1995). Some authors even apply the term "dominant design" in the same

paper to total systems and components of systems without explaining whether the

concept applies to a total system and its components in the same way (Anderson &

Tushman, 1990; Utterback and Suarez, 1993). A second difficulty in interpreting the

body of research findings on dominant designs arises as authors frequently appear to

investigate dominant designs at the level of a total system but then describe a dominant

design in terms of the characteristics located at a particular component (Anderson and

Tushman, 1990; Utterback and Suarez, 1993; Baum, Korn and Kotha, 1995). Trying to

compare research findings across studies is also made difficult because various writers

differ in regard to the level of detail at which they define dominant designs. Some studies

define dominant designs in terms of general technological principles (see for example,

Miller et al., 1995; Rosenkopf and Tushman, 1994). Other studies, in contrast, define

dominant designs in terms of specific product names (Abernathy and Utterback, 1978;

Teece, 1986; Anderson and Tushman, 1990; Utterback and Suarez, 1993).1 There also

seems to be disagreement about how often a dominant design can emerge during the

evolution of a product class. In their analysis of the evolution of six products classes,

Suarez and Utterback identify only one dominant design for the entire life-span of each

product class. Anderson and Tushman (1990), on the other hand, find a periodic

emergence of new dominant designs during the life-span of four other product classes.

Finally, writers on dominant design disagree about the range of products to which

the dominant design theory applies. Authors like Anderson and Tushman (1990) suggest

that the theory applies to all technologies that evolve without interference of patent rights.

Other writers take a much narrower view and see the theory only applicable to assembled

products (Abernathy and Utterback, 1978; Teece, 1986; Nelson, 1995; Suarez and

Utterback, 1995). Many other authors are simply silent on the boundary conditions of the

theory (Van de Ven and Garud, 1993; Sanderson and Uzumeri, 1995; Baum, Korn and

Kotha, 1995).

Academic researchers, R&D managers, and public policy makers who want to use

the dominant design theory currently face a great variety of definitions and analytical

approaches that make it difficult to build new research efforts on the existing literature. In

the absence of some uniform definitions of the major concepts in theory, empirical

1The Productivity Dilemma (1978) has only Abernathy on the cover page. However, the chapter that sets forth the theoretical model of dominant designs was coauthored by Abernathy and Utterback. Similarly, Utterback helped to clarify the model in the implications chapter. This is why we cite The Productivity Dilemma when we refer to the Abernathy-Utterback model.

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studies are unlikely to lead to some integrated body of findings. The purpose of this paper

is the help remedy this situation. Our strategy is twofold: We first critically review the

literature on standardization not only in organization theory but also in neighboring

disciplines to show the importance of dominant designs in writings on technical evolution

across many fields. From this broad review we synthesize a conceptual framework that

can help integrate the existing literature on dominant designs in organization theory. The

goal of this essay is to make some progress in removing potential confusion and to solve

some of the analytical puzzles that make it difficult for academic researchers to design

more cumulative studies. By studying the literature around the dominant design concept,

we also want to provide R&D managers and public policy makers with an example of

how to evaluate the adequacy of their tool box of concepts for analyzing technological

dynamics.

The essay proposes that technological evolution proceeds in the form of a nested

hierarchy of technology cycles. We argue that a hierarchical model of technical evolution

gains tremendous analytical power when linkages between subsystems are viewed as

subsystems in their own right. The model clarifies why innovations leading to order-of-

magnitude changes in performance can originate at any level of the physical hierarchy,

and helps remove the confusions in the existing literature.

II. An Illustration of the Phenomenon of Technical Change

To appreciate the phenomenon of dominant designs, consider the evolutionary history of

passenger airplanes.

The dream of flying is as old as humanity itself but the first successful flying machine was constructed only in 1903 by the Wright brothers. Human flight was finally made possible by two developments: Abandoning the idea of imitating birds in a flying machine, designers switched to a principle of operation where a stationary wing would provide upward thrust and a propeller would provide forward thrust (Vincenti, 1990). When engineers were also able to make the internal combustion engine, originally developed for automobiles, light enough for an airplane, the Wright brothers were at last in the position to keep their flying machine in the air for more then 10 seconds and travel 120 feet. Two years later the Wright brothers designed an improved airplane that carried one 1 person (the pilot) for 24 miles at a speed of 35 miles per hour. Over the last ninety years airplanes advanced dramatically along the three crucial performance dimensions: speed, operating cost per passenger, and flying safety. Today’s largest commercial airplane, the Boeing 747 SP 400, can cruise at over 600 miles per hour, carry 455 passengers over more than 7000 miles, and has a failure rate that

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is lower than any other transportation technology. Tracing new features from one design to the next reveals that aeronautical engineers continuously introduced design changes ranging from improved nuts and bolts to a very different shape and organization of the entire artifact. Sometimes these changes were radical (both in terms of the technological principles used and the additional performance levels achieved) but more often they were incremental in nature. For analytical purposes it is useful to view an airplane as the union of a number of essential functions: a propulsion, lifting, landing, and control subsystem, a passenger compartment, and finally a mechanism for linking all these different functional domains to produce a well-designed overall flying system. During the infancy stage of the airplane, designers experimented with configuring the major components of an airplane in different ways. The purpose of changing the arrangement of fuselage, wings, elevating and steering rudder, engine, propeller, and landing gear was to bring about stable, controllable and efficient flight. The first successful airplane of the Wright brothers had two wings and was powered by a twelve horsepower 4 cylinder internal combustion fuel engine driving two propellers. With the exception of the engine, the airplane was made out of wood and fabric. The evolution that transformed this early design into a contemporary jet airliner proceeded through cycles of variation, selection and retention at all levels of the physical artifact. Here is a selection of innovation episodes that reveal the emergence of dominant designs at the system, subsystem, and basic component levels:

Early variation of systems architecture:

At the highest level of the physical artifact, the architecture of the overall body, aeronautical engineers experimented with a great many design alternatives before a particular configuration emerged as the dominant design for a period of time. Trying to make airplanes more controllable (so that pilots could fly curves and travel over longer distances), the Wright brothers and other designers experimented with changing the size of the various main components and placing them in different relations to one another. During this process, designers not only built monoplanes with either low or high-mounted wings but also created double and triple wing airplanes. In some designs, the propeller was placed in front of the wings facing forward, in others it was placed behind the wings facing backwards. To achieve more stability and greater distance some designers built airplanes with two propellers powered by independent engines; others tried to perfect the airplane configuration with single engine motor power. After experimenting and learning about the advantages and disadvantages of various configurations, the engine-forward, tail-aft biplane by WW I had become the dominant design, which designers typically took as the starting point in their efforts to create better airplane designs (Vincenti, 1990). As engines became more powerful, designers switched from the biplane to the single wing configuration. Figure 1 shows how, after the emergence of the engine-forward, tail-aft monoplane as the dominant design for the overall configuration, engineers focused on experimenting with

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small variations of the dominant design to find the most aerodynamic airplane shape as well as on improving the individual functional domains.

Evolution of propulsion function:

The propulsion subsystem of the Wright brothers’ airplane consisted of an internal combustion engine and two wood propellers. To improve the bite of propellers, a large variety of shapes shown in figure 2 were tested. The historical record does not indicate whether a particular shape became the dominant design. However, metal replaced wood as the dominant material for the propeller blades by the 1930s. Trying to scale up propulsive power, engineers examined the effects of mounting up to eight engines on the airplane. Around 1926-7, the three engine approach as embodied in the Ford Tri-Motor became the dominant design for commercial airplanes until the appearance of the DC-3 ushered in a period of two motor designs. A crucial innovation in raising the performance of individual combustion engines occurred at a low level component. After testing a number of different materials, engineers converged on the sodium-cooled exhaust valves as the dominant design for this component of the motor cylinders in the early 1930s. A dramatic increase of engine performance was also achieved by adding lead to the engine fuel. The outcome of much experimentation with different lead levels was a 90 octane standard that remained in existence until 1945 when it was replaced by a 100 octane standard (Hanieski, 1973). When theoretical work in aeronautics in the 1920s predicted that it was possible to travel at least twice as fast as previously assumed, designers looked for a propulsion technology that would not have the speed limitations of propellers. The German design community experimented with a number of different propulsion concepts: rockets, controlled bomb explosion, pure jets and turbine jets (Jewkes, Sawers and Stillerman, 1961; Constant, 1980). From these variations, the turbine jet (turbojet) engine emerged as the most viable option. Initially, turbojets had many fewer parts than traditional piston engines, but over the course of fifty years jet designers have added so many parts that jet engines have again become very complex subsystems. Within turbojet technology a large number of alternative architectures were tried out until the ducted fan type axial flow turbojet became the dominant design, largely because of its fuel efficiency (Constant, 1980). For the turbojet to become a viable technology, material scientists had to mix hundreds of different alloys to find an alloy that could withstand the enormous heat of a jet engine. Engineers found the Nimonic 80 alloy to be the most effective heat resistant material for constructing a gas turbine and it became the dominant material. A similar process of search, development and experimentation with a large variety of alloys led to the selection of alloy G. 18B for the rotor and rim of the turbine (Hanieski, 1973). Without solving these "material" bottlenecks, the turbojet would not have replaced the piston-engine. To successfully incorporate jet-engines into airplane technology, it was necessary to make a number of complementary changes in other subsystems. For example, airframes had to be made much stronger in order withstand the higher levels of stress created by jet-engines. Furthermore, when jet engines finally became

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commercially viable in the mid 1950s after a twenty year development period, the runways of airports had to be extended because jets need to accelerate longer before taking off. The introduction of jet engines could not be accomplished in a modular way by simply mounting them in the space allocated for the traditional piston engines. Before jet-engines could become the dominant design for commercial airplanes, systemic innovation both in the airplane as a whole and its larger technological context (runways) had to be accomplished.

Evolution of lifting function:

The shape of the wings has important aerodynamics consequences for the performance of the airplane as a whole. Ideally wings create large lifting forces without causing much drag that slows down the airplane. Figures 3 and 4 give evidence of the many different wing shapes. It is estimated that in pursuing a formula for optimal wing shapes designers had tested over 2000 different airfoils by 1936 (Vincenti, 1990). These 2000 different designs embody modification of the shape of the cross section, the thickness, and the curvature of the top and bottom side of the wing. Because the wing shape best suited for a particular airplane depends on its size and a number of other parameters, wing shapes are typically custom made for every airplane model and thus no dominant shape design emerged. However, a number of standard design choices emerged with regard to other parameters of wing design. The internal architecture of wings also underwent a great deal of variation. In the early 1930s, however, most wing designers adopted Wagner’s invention of a latticework frame which was very efficient in shifting stress to the covering sheet. Partly because of this advantage feature, metal wings became the dominant design. (For alternative lattice designs, see Figure 5.) To increase the lifting, steering, and breaking functions of wings, today’s commercial jet airliners include variable sweep back wings with multiple slots, replacing the earlier fixed wing dominant design. Figure 6 shows a number of alternative slot designs that were tried before the multiple slot approach became the dominant design.

Evolution of fuselage:

Every component used to assemble the overall airplane is made from a particular material. Structural materials used for the construction of the fuselage have two chief performance requirements: to be as light as possible, yet very resistant to stresses. Partly due to cultural values associated at the time with metals, engineers started to use metal materials in more and more airplane parts instead of wood and fabric materials (Schatzberg, 1994). By 1919, the first all-metal airplane (the Junkers F 13) was designed. This marked the beginning of a trajectory that would eventually displace wood entirely from fuselage (and wing) construction. At the level of basic materials, then, metal replaced wood as the dominant material for structural parts. Recently engineers have challenged the dominance of pure metal alloys by starting to employ fiber reinforced composite materials for airplane structures (Schatzberg, 1994).

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Evolution of landing function:

The pioneer airplanes, for example the 1910 Nieport model, typically were equipped with a four-wheel fixed gear, resembling a little cart. Efforts to make landing gears more robust led to the tripoid design with two big wheels mounted below the fuselage and a very small wheel at the bottom of the tail, giving the entire fuselage a downward slope toward the rear. The tripoid configuration became the dominant design for commercial airplanes until the tri-cycle undercarriage was introduced in 1938 by Douglas’s model 4E (Miller and Sawers, 1968). By introducing a third leg of equal length, an airplane would be less inclined to flip onto its face (i.e. the front end of the fuselage) during landing. Landing gears that put the commercial airplane in a fully horizontal position became the dominant design until today.

In the 1930s engineers started to explore a number of different design ideas for making the landing gear more aerodynamic (See Figure 7). These attempts can be classified into two broad design approaches, the enclosing of wheels and the construction of retractable landing gears (Vincenti, 1994). Trying out a number of different methods of enclosure, designers put airplanes into service that either had their wheels enclosed (a design called wheel pants or spats) or had the entire landing gear enclosed (a design called trouser pants). Similarly, a number of different retraction mechanisms were devised. Retractable landing gears promised to deliver the greatest aerodynamic gains, but these devices were much more complicated than wheel and trouser pants, leading designers initially to focus on enclosing the landing gear. In the end, however, it was the laterally retracting landing gear that became the dominant design for all commercial airplanes going faster than 250 mph, winning the design competition not only against wheel and trouser pants but also against mechanisms where wheels would retract backwards or into the sides of the fuselages.

Evolution of linking function:

All components at some level have to be joined to compose an integrated artifact. As the case of rivets that join metal sheets to the lattice of the airplane demonstrate, dominant designs emerge at the most trivial linking mechanisms. To make additional aerodynamic gains after streamlining the fuselage and the wings, engineers started to explore different methods for making rivets even with the skin of the fuselage and the wings. This process is called flush riveting. In the early phase of flush riveting designers used a wide variety of had angles, ranging from 78 to 130 degrees. When in December 1941 the aeronautical board of the army and navy made the 100 degree angle head mandatory for all military aircraft, it quickly spread throughout the entire industry. Thus the 100 degree angle head became the dominant design, eliminating other options from the airplane construction practice (Vincenti, 1990).

Evolution of control subsystem:

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While early airplanes were only controlled by the steering skills of the pilot, today’s large commercial planes can in principle be flown by a collection of instruments without a human pilot. To provide maximum safety, human pilots are still sitting in the cockpit. Automatic flight was made possible because engineers over the last 90 years developed a large number of control instruments from the gyrostabilizer that relieved the pilot from constant steering action to automatic navigation instruments. The strings and pulleys that provided the mechanical connection between the pilot’s wheel and the rudders were gradually transformed into power operated controls, first introduced in the Douglas DC 4E airplane. In a fly-by-wire control system, now guiding such airplanes as the Airbus 320 and the Boeing 777, the pilot no longer has a direct tactile connection to the pressures that impinge upon the various rudders and flaps of the plane. These fly-by-wire systems are expected to become the dominant design in the future. Many standards in the design of the control instruments emerged, partly because the airline industry is so heavily regulated. While analog displays were the dominant design in the early days of instrumentation, digital displays have in recent years replaced analog displays as the dominant design, as the cockpit is becoming ever more computerized.

Innovation and industrial dynamics:

Besides the dramatic fluctuations in demand due to the two world wars and the Great Depression, it was the innovations in the design of commercial airplanes that had powerful effects on industry dynamics from the very beginning of the technology (Rae, 1968). During the airframe “revolution” between 1925 and 1935 the introduction of such important innovations as the all-metal, low-wing monoplane, the controllable-pitch propeller, the retractable landing gear, and wing flaps led to significant entry of new firms, exit of incumbents, mergers and dramatic reconfigurations of relative market shares. The former leaders in the airframe industry like the Curtiss-Wright corporation were overtaken by firms like Boeing, Douglas, Lockheed, and Martin which pioneered these important innovations. When in 1936 Douglas integrated this set of innovations into its DC-3, the firm achieved so economical an airplane that it very quickly became the largest manufacturer of commercial airplanes in the world until the jet era in the 1950s. As other firms tried to imitate Douglas‘s design formula, the all-metal, low-wing monoplane, the controllable-pitch propeller, the retractable landing gear, and wing became standard design features for the next 20 years, largely because the DC-3 dominated the commercial market. By 1941, almost 8 out of 10 airliners were DC-3s (Klein, 1977). When jet engines became commercially viable in the mid-1950s, Boeing was quicker, however, to respond to the technological discontinuity in the engine subsystem of airplane. Boeing tested a prototype, its 707, a full year before Douglas even began developing its DC-8 jet airliner. Boeing captured a leading position in the beginning of the jet era and has succeeded in remaining the largest

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producer of commercial airplanes to the present day, while Douglas was reduced to very small player in the market only to be taken over by Boeing recently, and Lockheed altogether abandoned the commercial jet market. Radical innovations in individual subsystems have also led to a large amount of entry and exit among the populations of firms associated with the production of individual components and subsystems (Rae, 1968). For instance, the leading manufacturers of water-cooled aircraft engines in the early 1920s— Curtiss Aeroplane and Motor Corporation, the Wright Aeronautical Corporation, and the Packard Motor Car company—were challenged by dynamic competitors like Lawrence and Pratt & Whitney who entered the industry to pioneer the development of air-cooled engines. While Wright was able make the transition to air-cooled engines and remain a major producer in the 1930s, the other leading firms were overtaken by Pratt & Whitney, and many exited the industry (Klein, 1977).

Although this case study of innovations only covers a small number of the innovations

that propelled airplane technology to current performance levels, it gives a good

overview of why scholars of innovation have found it useful to conceptualize

technological evolution as a process of variation, selection, and retention. This short case

history also suggests that dominant designs can occur at all levels of the physical artifact,

from the small component to the total system, or to put it in other words, at different

levels of resolution. We will now review more systematically the evidence on dominant

designs. After conducting a critical review of the literature on dominant designs in

organization theory proper, we will examine the evidence on dominant designs uncovered

by scholars outside the field of organization theory and canvass these literatures for ideas

that will help us to formulate a refined model of dominant designs.

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III. Literature Review

1. Survey of Writings on Dominant Designs in Organization Theory and Strategy. Since Abernathy and Utterback (1978) first developed the concept of a dominant

design from a study of the automobile industry, many writers in the field of organization

theory and strategy have found the concept to be extremely useful tool for studying the

evolution of technological products. At the heart of dominant design thinking lies the

empirical observation that technology evolves by trial and error and thus entails

enormous risks for the population of firms engaged in its development. When a new

product class appears, it is very unclear what kind of inherent potential a technology

possesses and what kind of needs users have. The only way to reduce the uncertainty

about technological potential and user needs is to create different designs and wait for

feedback from users. Over time, merely one or a few designs from the large number of

design trials eventually succeed. The firms that happen to be the producers of the winning

designs will flourish while the firms that invested in the failing designs will incur great

economic losses and more often than not go out of business. The dynamics that lead to

dominant designs are of central importance to firms that have a stake in the way

technology evolves because the emergence of a dominant designs produces winners and

losers.

As organization theorists and strategy scholars have developed a greater concern

about the role of technology in shaping the fate of firms, dominant design thinking has

become a major intellectual focus of both theoretical and empirical work. Following the

lead of Abernathy and Utterback, scholars have applied dominant design ideas to a wide

variety of products. Dominant designs have been found in such diverse industries as

cement production machinery, flat and container glass production systems,

minicomputers (Anderson and Tushman, 1990), video recorders (Rosenbloom and

Cusumano, 1987), typewriters , TV sets, TV tubes, transistors, electronic calculators

(Utterback and Suarez, 1993), radio transmitters (Rosenkopf and Tushman, 1994),

hearing aids (Van de Ven and Garud, 1993), computer work stations (Khazam and

Mowery, 1994), disc drives (Rosenbloom and Christensen, 1994), facsimile transmission

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devices (Baum, Korn and Kotha, 1995), mainframe computers (Iansiti & Khana, 1995),

personal stereos (Sanderson and Uzumeri, 1995), flight simulators (Miller, Hobday,

Leroux-Demers, Olleros, 1995) and microprocessors (Wade, 1995). (See Table 1 for an

overview of the different studies, their units of analysis and key findings, etc.) However,

researchers have also found that not all technological discontinuities lead to dominant

designs, suggesting that the emergence of a dominant design may not be a universal

phenomenon. Anderson and Tushman (1990) revealed that dominant designs do emerge

after most but not after every single discontinuity in a given product class. Utterback and

Suarez (1993) failed to uncover evidence that a dominant design appeared in the case of

integrated circuits and supercomputers. Although Henderson and Clark (1990) devote

considerable attention to dominant design concepts in the theoretical section of their

paper on the failure of established firms in the photolithographic aligner industry, they

never state whether or not they believe that a dominant design emerged in this particular

technology. This makes the photolithographic aligner industry a case that can neither be

interpreted as evidence for nor against dominant design theory. The weight of the existing

evidence presented by the aforementioned authors suggests that the process of

standardization leading to a dominant design takes place in a great variety of industries.

But if the present evidence is correct, there are clearly instances where dominant designs

do not emerge.

To refine dominant design theory, it would undoubtedly be a great step forward to

uncover the factors that explain under what conditions dominant designs emerge. Our

review of the existing empirical studies, however, suggests that it is currently impossible

to isolate from the available evidence with any degree of certainty a few factors that can

predict under what circumstances dominant designs emerge. A close reading of the

existing theoretical and empirical literature reveals that researchers have worked with a

great variety of definitions and empirical methodologies to determine dominant designs.

The absence of a shared set of definitions makes it very difficult to directly compare the

results reported in the various industry studies.

Before it is possible to isolate a small set of factors that predict the emergence of

dominant designs, it will be necessary to achieve some convergence in the way

researchers use dominant design concepts and collect evidence. As a first step towards

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facilitating such a convergence, we review how and why researchers differ in the way

they use dominant design concepts. Our goal is to bring into view the sources of

disagreement and thereby enable an informed debate on how these differences can be

overcome without forcing researchers into a straightjacket that makes it impossible to

emphasize certain aspects of dominant designs over others. We will organize our

discussion in terms of the most important dimensions along which researchers differ in

their work on dominant designs. They concern 1) the definition of a dominant design, 2)

the chosen unit and level of analysis, 3) the underlying causal mechanisms, and 4) the

boundary conditions of the theory. These dimensions are, of course, not entirely

independent from one another since the general conception of dominant designs will have

direct implications on how a particular researcher will think about how to take various

analytical steps required in theorizing and conducting empirical research on dominant

designs.

Before discussing the differences among authors, let us get clear about areas

where researchers generally are in broad agreement. All researchers on dominant designs

share the view that technology is an important factor in shaping the evolution of

industries and the performance of firms that are affected by a particular technology.

There is no controversy about the proposition that a powerful process of standardization

(i. e. a reduction in design variety) accompanies the development of a technology. Broad

agreement also exists about the notion that the emergence of dominant designs often

represents a defining event that marks the transition from one competitive regime to

another one. All scholars hold that the birth of a new product class is marked by a great

degree of uncertainty as to what a technology can do and what kind of performance

characteristics would be most beneficial to users. Furthermore, scholars who have studied

the actual course of product evolution all have come to appreciate the central fact that the

evolutionary path is replete with designs that have failed in the marketplace. Although

scholars start from this common ground, they arrive at very different understandings of

what dominant designs are and how one goes about researching when they occur.

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a. Disagreements about Definitions

Important differences already begin with the ways in which scholars have defined

the idea of a dominant design. Not all of them do provide an explicit definition of

dominant designs in their writings. However, as one analyzes how scholars have used the

concept of a dominant design, it becomes apparent that even when scholars do not

commit themselves to an explicit definition, they often attach a different meaning to the

concept. It would take us too far to review all the different meanings that have been

associated with this concept. We will limit our discussion to those authors who have

engaged in efforts to develop dominant design theory itself, leaving out those who have

merely applied existing dominant design ideas to a particular research concern without

trying to make a contribution to the development of dominant design theory itself.

Since Abernathy and Utterback pioneered the concept of a dominant design, we

begin with their definition to provide a convenient reference point for evaluating later

definitions. They identify several dimensions that characterize a dominant design.

Writing a book on the dynamic relationship between product and process innovation,

these authors see a dominant design as the turning point that leads the industry to move

from a “made-to-order” to a standardized-product manufacturing system. According to

Abernathy and Utterback, this transition from flexible to specialized production processes

is marked by a series of steps. The first one is the development of a model that has

sufficiently broad appeal in contrast to the design of earlier product variants that focused

on performance dimensions valued only by a small number of users. This design that can

satisfy the needs of a broad class of users is not a radical innovation but rather a creative

synthesis of innovations that were introduced independently in earlier products. The

second and decisive step is the achievement of a dominant product design, one that

attracts significant market share and forces imitative competition design reaction (p.147).

In the third step, competitors are forced to imitate this broadly appealing design, inducing

product standardization throughout the industry. The emergence of a dominant design

closes a period where firms compete by introducing radically different product designs

into the market. After the dominant design is in place, innovations focus on incrementally

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changing the product from year to year, they become more cumulative, and competition

centers more on price than on product differences.

It is rather unfortunate that Abernathy and Utterback use the term “dominant

design“ already for the second step where one design gains significant market share

without having necessarily reached anywhere close to 50% of the market. Abernathy

clearly stipulates that a dominant design is one that diffuses almost completely through

the industry (p.61-2). Diffusion throughout the industry is precisely what makes it the

dominant design. Employing the term for the period before and after introduces

considerable ambiguities. To summarize Abernathy’s and Utterback’s definition, a

dominant design meets the needs of most users, diffuses almost completely throughout

the industry, is a synthesis of previous independently introduced innovations, and ushers

in a period of incremental innovations exploiting latent performance potentials.

Abernathy and Utterback illustrate their concept of a dominant design by referring to the

Ford Model T and the DC-3 as powerful examples of dominant designs that shaped the

automobile and the airplane industries.

The manner in which Abernathy and Utterback describe the emergence of a

dominant design conveys the strong notion that the design that will eventually emerge as

the dominant one is pre-ordained to achieve this status. The only factor that can prevent

this process from taking place are overly segmented product markets. These scholars

appear to suggest that it is simply a matter of time until designers will have tried enough

variants of a product to achieve a synthesis that is slated to dominate all others. While

this design may not be the best along all performance dimensions, Abernathy and

Utterback seem to regard it as the best compromise that will then force all other industry

participants to imitate the design and make it the standard for the entire industry.

In his recent writings with Suarez (Utterback and Suarez, 1993), Utterback

continues to underscore the notion that a dominant design is successful because it brings

together the most useful features that were previously scattered across different designs.

Utterback and Suarez’s (1995) insistence that “some authors have used measures which

are tautological to determine a dominant design, such as market share (Anderson and

Tushman, 1990)” (p.426), indicates that these authors use the term “dominant design“ not

so much to refer to the design that has achieved at least 50% of the market, but rather to

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identify the design that offers a collection of design features that will make it the

irresistible choice in the market as soon as it appears. Utterback and Suarez’s proposal

that “[a] better measure might be notable increase in licensing activity during several

years by a given firm or by a group of firms with products based on the same core

technology” (p.426) gives even stronger evidence that for these scholars the defining for

dominant design occurs well before the design captures over 50% of the market share.

The interpretation that Utterback and Suarez use the term “dominant design” in the sense

of the best one in the market—the one that can dominate all others once it has been found

as opposed to the most frequent one—receives further support from the way in which

Utterback and Suarez react to scholars who have identified economies of scales as an

important force in bringing about dominant designs. Utterback and Suarez write that “we

think that economies of scale are of primary importance after a dominant design is in

place (p.418). In their account, economies of scale are not a mechanism that helps bring

about a dominant design, but rather the emergence of the best compromise makes it

possible in the first place to sell a standardized product to many different users.

While most of Utterback and Suarez’s statements seem to suggest that a dominant

design is dominant precisely because it is the best compromise, these authors are

sometimes pulled away from such a position. This vacillation in perspective makes it

rather difficult to give their account a straightforward reading. Utterback and Suarez’s

assertion that a dominant design “may not be ideal choice in a broader context of

optimality, but rather a design, such as the familiar QWERTY typewriter keyboard, that

becomes an effective standard” is difficult to reconcile with their notion of a dominant

design as the best technological compromise. When the authors continue that dominant

design “is not necessarily the one which embodies the most extreme technical

performance” (p.418), it becomes even more difficult to see how they can maintain a

position that identifies a dominant design as the best compromise. But if a dominant

design is not dominant because it captures over 50% of the market share (we read

Abernathy, unlike Utterback, as making this an defining requirement for a dominant

design) and if now Utterback and Suarez retreat from the idea that a dominant design is

the best technological compromise, we are left with the tantalizing question: What then is

a dominant design?

17

Before moving on to the definitions of other scholars, we want to record for our

later discussion of differences in unit of analysis that Utterback and Suarez elaborate their

position by explaining that for complex products with many parts a dominant design

“embodies a collection of related standards” (p.418). Utterback and Suarez try to clarify

here the relationship between the concept of a dominant design and the concept of

standards that was widely used in the economics literature in the 1980s. They affirm once

again that for products that are made from parts, a dominant design amounts to a standard

way of assembling the parts into a functional whole.

In their discussion of dominant designs, Henderson and Clark (1990) adopt a

more structural definition than the previous scholars. Henderson and Clark (1990) also

use the concept of a dominant design to refer to standardization at the level of the overall

product, but they are more explicit about the requirements that have to be fulfilled before

a dominant design can be said to have emerged.

A dominant design is characterized both by a set of core design concepts that correspond to the major functions performed by the product and that are embodied in components and by a product architecture that defines the ways in which these components are integrated. It is equivalent to the acceptance of a particular product architecture (p.14).

For Henderson and Clark (1990) a dominant design manifests itself when designers

converge on a common design approach for all major functions of the product and for the

linkages that integrate the components into a functional whole. This definition of a

dominant design is striking because of two features. Henderson and Clark require a

standard design approach for both components as well as linkages. Second, these authors

are silent on the question of the technological capabilities of the dominant design vis-à-

vis its competitors. The definition entirely lacks a sense that a dominant design is the

dominant design because it represents the best technological approach.

Tushman and Anderson (1986) start their work on dominant designs by adopting

the Abernathy and Utterback (1978) definition of a dominant design as a synthesis of

previously introduced design elements. In their later work, Anderson and Tushman

(1990) move away from the synthesis idea and adopt a more structural view, as do

Henderson and Clark (1990). By defining a dominant design as a single architecture that

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establishes dominance in a product class (1990, p.613), Tushman and Anderson,

however, take a much less restrictive view than Henderson and Clark (1990). Anderson

and Tushman use the term “architecture” in a very broad sense that leaves open how

many of the components and linkages have to become standardized across designs in

order to constitute a dominant design. By adopting such abstract definition of a dominant

design, the authors do not commit themselves to a very concrete set of requirements that

have to be fulfilled to find positive evidence that a dominant design has emerged in a

product category. On this definition any design feature that becomes the standardized

across different design approaches could in principle qualify as a dominant design. While

this broadening of the definition of a dominant design has the advantage that it can

accommodate researchers who study a particular component in a technological system, it

comes at the expense of introducing even further ambiguities into the concept of a

dominant design. In contrast to their imprecise qualitative account of dominant design,

Anderson and Tushman (1990) are very clear on the numerical threshold a design has to

overcome to qualify as a dominant design. For a dominant design to exist, they demand

that a single configuration or a narrow range of configurations must account for over 50

per cent of new product sales or new product installations. Not only this requirement

differentiates Anderson and Tushman (1990) from Utterback and Suarez (1993, 1995).

The former authors, in stark contrast to the latter ones, contend that a dominant design

can only be known in retrospect and not in real time.

Putting the definitions of a dominant design that have been offered by different

scholars side by side creates a canvas filled with ambiguities and questions. It is not

surprising that researchers trying to build on the existing literature find it difficult to

extract a consistent set of principles that can guide research on dominant designs. Some

ambiguities can be removed by taking a closer look at the evidence already available. But

others will require a great deal more empirical and theoretical research. For instance, the

notion that a design becomes a dominant design because it is the best technological

approach is not supported by the evidence that has been accumulated since The

Productivity Dilemma was published in 1978. Scholars in organization theory, strategy,

history of technology and particularly economics have shown both theoretically and

empirically that is quite simple for an technologically inferior product to become the

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dominant design (Anderson and Tushman, 1990; Cusumano, Mylonadis and

Rosenbloom, 1992; Farrell and Saloner, 1985). Utterback and Suarez (1993 and 1995)

began to recognize this evidence but they were not able incorporate it into their theory of

dominant designs.

Other ambiguities are much harder to remove. Abernathy and Utterback’s (1978)

insistence, for example, that dominant designs need to have sufficiently broad appeal is

empirically very difficult to operationalize. Levinthal (1998) has emphasized that

technologies frequently undergo changes in new user environments and later reinvade

their original user environment. This makes it difficult to pinpoint the precise moment

when a design has broad appeal. Furthermore, how should one go about identifying when

users have very different requirements that cannot be met by the same design? Which

users should be grouped together and which ones apart? Do small, medium, and large

cars all constitute different user segments and require the researcher to look for three

different dominant designs, or do they all fall into the same segment and thus require the

researcher to search for one dominant design? If the latter is the case, one could also

wonder whether small trucks should fall in the same segment, etc. These are questions

every researcher has to address but they are difficult to make tractable in a theoretical

way. In our view, the safest way to proceed currently is to consider a number of

alternative definitions of relevant user segments and determine how sensitive the

empirical results are to changes in classifications. Empirical researchers have handled this

ambiguity actually quite well by mostly picking user segments that have a great deal of

face validity because they follow widely shared definitions of markets. While researchers

have been able to circumvent this theoretical problem raised by Abernathy and

Utterback’s definition with considerable skill, they have experienced much greater

difficulties in forging an agreeing on how to analyze a given technological product class

and properly identify dominant designs.

b. Disagreements about Units and Levels of Analysis The Abernathy and Utterback model as articulated in chapter four of The

Productivity Dilemma (1978) leaves the strong impression that dominant designs are a

phenomenon that occurs at the level of the entire product. Because the authors emphasize

20

that a dominant design is a synthesis of previous independently introduced innovations,

they appear to exclude the possibility that the concept of a dominant design could also

apply to single components that constitute the Ford Model T automobile or the DC-3

airplane. Although the Abernathy-Utterback concept of a dominant design was

formulated with regard to the entire product, researchers have often not followed the

model with regard to the unit of analysis. Instead of assembling evidence that

standardization has occurred in all functional domains and their linkages (to follow the

more precise Henderson and Clark 1990 definition), other researchers have frequently

focused on standardization in one or a few components. For instance, Anderson and

Tushman (1990) examine standardization in kiln length and the heating subsystem rather

than standardization in all functional domains of a cement production system. In their

study of minicomputers, they similarly pick out two functional components—the central

processing and the memory unit—to characterize dominant designs. Rosenbloom and

Cusumano (1987) apply the concept of a dominant design to the scanning head of a video

recorder, one out of many components that make up this technological system. In their

recent papers, three of the eight products that Utterback and Suarez (1993, 1995) study

are components of larger systems. Likewise when Baum, Korn, and Kotha (1995)

examine the emergence of a dominant design in the facsimile industry, they focus on

standardization in the interface component instead of studying standardization in the

design of the overall facsimile technology.

Focusing on one or a few components of a larger system by itself would not be a

problem if all authors proceeded in the manner of Rosenbloom and Cusumano (1987).

Given the evidence they possess, they draw the valid inference that a dominant design

emerged with regard to how firms went about designing the scanning component of video

recorders, but they resist making claims about dominant design at the level of the entire

video recorder. Proceeding in the way of Rosenbloom and Cusumano would simply

expand the Abernathy-Utterback model to components of larger technological systems.

In the other parts of the book where he details the sequence of innovations in the

automobile industry, Abernathy (1978) himself did not strictly follow the spirit of the

model formulated in the chapters co-authored with Utterback. When he set himself to

organize and describe the sequence of innovations in automobiles, he applied the concept

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of a dominant design to such diverse components as the internal-combustion gasoline

engine, the Model T chassis, the V-8 engine design, the closed steel body, the electric

starter, hydraulic brakes, energy-absorbing steering assemblies, independent front

suspension, and 12-volt electrical systems. Abernathy’s list of components that he

regards as having become dominant designs at different points in time goes on.

Many authors, however, purport to study dominant designs at the level of the

entire product but then only marshal evidence that is restricted one component, one

linkage, or a small number of components and linkages. Claiming that a dominant design

has emerged at the level of the overall product based on evidence from a few components

is, of course, highly problematic. While it may be absolutely true that designers currently

converge on a dominant design for a particular component, they may at the same time

choose new and different approaches for all other components. In this case the process of

standardization would run parallel to an even more extensive process of variation in

design. It is not difficult to see that in such a case making an inference from increased

standardization in one component to technological dynamics at the system level of

analysis is simply invalid. Counted together, the evidence would be stronger against than

for the notion that dominant design has emerged at the overall product level, since most

components in this example would experience an era of technological ferment. There

seems to be no a priori reason why a researcher cannot conclude that a dominant design

has emerged in the one specific component which has become standardized across

different products. However, it is important not to infer from the component to the overall

product as is often done in the literature. Without specifying the unit of analysis,

researchers are always in the danger of reaching contradictory conclusions about whether

a dominant design has emerged with regard to particular product or not. This is hardly a

satisfactory state of affairs for achieving a cumulative science.

Although most definitions of dominant design, as we have seen earlier, are

formulated with an overall product in mind, many researchers have been attracted to

studying precisely the phenomenon of standardization at individual components or

linkages, without examining in any detail the development of the overall product. Moving

to a different unit of analysis without expanding the formal definition of dominant design

raises, of course, a number of important questions. Are dominant designs at the level of a

22

component or linkage the same phenomenon as dominant designs at the overall product

level? What is the relation of the dominant designs at a component and linkage level with

dominant designs at the overall product level. We will return to these questions later in

the essay.

The confusions surrounding the unit of analysis problem have a second important

dimension. Even when researchers focus on the same component, there remain wide

opportunities to reach opposite conclusions concerning the existence of a dominant

design, although researchers may be working with exactly the same evidence. Take the

case of the motor unit in automobiles. Abernathy (1978) describes in the early parts of

The Productivity Dilemma how the internal combustion engine beat the steam and

electric engine to become the dominant design for the motor unit in 1902. As Abernathy

follows the innovations that have characterized the development of automobile

technology, he also determines that the V-8 internal combustion engine became the

dominant design in the 1930s. Abernathy certainly employs different criteria when he

calls both the internal combustion engine and the V-8 engine a dominant design. While

the first judgment is based on a relatively general criterion that distinguishes between

fundamentally different technological principles for creating motive power—combustion,

steam, electricity— the second judgment is based on a much more specific criterion that

distinguishes between different designs within the combustion approach.

Unfortunately, researchers have seldom investigated different technologies with

their analytical lenses set at the same level of generality. Just like Abernathy, other

scholars have examined dominant designs at different levels of generality without making

this explicit and without providing the context that would show why the researchers have

chosen a particular level of generality from a set of many possible ones. Anderson and

Tushman (1990), for example, characterize the dominant design in very concrete terms

for container glass production systems but use a much more general description for

minicomputers. In the first product class, they present the United Machine as the

dominant design. This imposes very stringent requirements for identifying which other

products follow the dominant design and which ones do not. In the second product class,

Anderson and Tushman present the 16-bit machine, core memory machine as the

dominant design. By only using two rather abstract product features that can be

23

implemented in many different ways, Anderson and Tushman make it much less difficult

for a design to be counted as a example of the dominant design. Utterback and Suarez

(1993) are no different from Anderson and Tushman (1990) in this respect. In their study

of 8 different products, they also locate dominant designs at different levels without

giving any explanation of why they do so and without discussing how this practice affects

their results. Consider their examples of dominant designs (Again, see Table 2 for an

overview of the different studies, their units of analysis and key findings, etc.). For

transistors they identify the planar process as the dominant design; for electronic

calculators, the calculator on a chip; and for automobiles, the all-steel, closed body car—

all very general descriptions encompassing a large number designs that can differ

substantially in their details. For typewriters they present the Underwood Model 5 and

Hess subsequent innovations as the dominant design; for TV sets, the 21-inch screen

along with the RCA technical standards; and in the case of TV tubes, the all glass 21-inch

tube. In contrast to the earlier products, the requirements for a design to count as a

version of the dominant design are here much more specific, setting the empirical hurdle

considerably higher.

Given that scholars have operated at different units (component versus system)

and different levels (specific versus general features) of analysis is it hardly surprising

that the empirical literature is filled with inconsistent findings, independent of the

question whether dominant designs are a universal phenomenon or not. For results to

become at least roughly comparable across studies it would be necessary that scholars

make explicit at what unit and what level of analysis they are conducting their empirical

test.

At the present time, the literature does not say whether dominant designs are

equally important at the different possible units and levels of analysis. We also don’t

know whether dominant designs are shaped by the same dynamics at the different units

and levels of analysis. But even more importantly, we don’t know how processes of

standardization at the different units of analysis relate to one another. Do dominant

designs at one unit of analysis control whether dominant designs can emerge at another

unit of analysis? There are still other important dimensions along which scholars differ in

their treatment of dominant designs.

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c. Disagreement about the Frequency of Dominant Designs in a Product Class How often do dominant designs emerge? In the original formulation of dominant designs,

Abernathy and Utterback (1978) strongly emphasize that dominant designs emerge once

in the evolution of a particular product class. The pioneers of dominant design theory

view the transition from small scale, flexible production technology to large scale,

specialized production systems as an irreversible process. A dominant design emerges

before it is possible for producers to change to a large automated production facility

turning out a standardized product. If a dominant design is intimately connected with this

transition and the transition occurs only once, it is logical to conclude that a dominant

design emerges once in the lifespan of a product class. Suarez and Utterback clearly

follow this approach in their most recent empirical research on firm entry and exit rates

before and after the emergence of a dominant design. In all the seven product classes

Suarez and Utterback (1995) examine, dominant designs emerge once and then continue

to exist for as long as the product class continues to find customers in the market place.

Utterback and Suarez (1993) at one point come into contact with the possibility that new

dominant designs can come into existence when they write in the literature review of

their paper:

Eventually, we believe that the market reaches a point of stability in which there are only a few large firms having standardized or slightly differentiated products and relatively stable market shares, until a major technological discontinuity occurs and starts a new cycle again (our italics) (p.2-3).

But these authors never recognize in their direct theoretical statements a notion that an

existing dominant design may in time be replaced by new one nor do they give any

evidence of this possibility in their descriptions of how industries have evolved. Early

Abernathy as well as Utterback and colleagues are not alone in the “one dominant design

per industry” camp. Baum, Korn, and Kotha (1995) present the case of the facsimile

transmission industry also as one where a dominant design emerged once during the

observed lifetime of the technology. Similarly Teece (1986; 1992) writes that one design

or narrow class of designs emerged at some point in time in the automobile, aircraft,

computer, and VCR industries.

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In contrast to Utterback, Abernathy reverses his earlier theoretical position on the

frequency of dominant designs in his later joint work with Clark (1985). Examining in

greater detail the nature of the innovations that have shaped the automobile industry, he

and Clark come to the conclusion that even after a dominant design emerges, industries

can experience further rounds of technological de-maturity. The authors cite the “all-

purpose road cruiser“ as the design that became dominant in the early 1940s, replacing

the earlier dominant design.

Anderson and Tushman (1990) also reject Abernathy and Utterback‘s (1978)

stage theory and offer an alternative technology cycle model. According to this model,

the evolution of product classes is marked by recurring technological discontinuities that

are followed by a new dominant design. In their study of the evolution of the cement,

container glass, flat glass and minicomputer industries, Anderson and Tushman (1990)

find that each industry experienced several discontinuities which in most cases lead to a

new dominant design. In writing that “[r]adical innovations establish a new dominant

design” (p.11), Henderson and Clark (1990) also affirm that a new dominant design can

emerge in a product class when it experiences a radical innovation. Sanderson and

Uzumeri (1995) are another set of authors who find it more useful to describe the

evolution of product classes (in their case the Walkman personal stereos) in terms of a

cyclical model as opposed to a stage model.

This conceptual disagreement on whether or not new dominant designs can

replace the original dominant design has dramatic ramifications for conducting empirical

research. If researchers from the two camps would be asked to study the very same

industry over the very same period, it is possible that the researcher from the “one-

dominant-design” camp would find that a single dominant design has appeared while the

researchers from the “multiple-dominant design” camp determine that already the third

dominant design has emerged, replacing the earlier dominant designs. This scenario is of

course hardly conducive for building a coherent and cumulative body of findings. Is there

a way to resolve these theoretical differences? Which conceptual approach is supported

by stronger empirical findings? We believe that the cycle view is more accurate about the

actual nature of technical evolution. We will return to this point later in the essay.

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d. Underlying Causal Mechanisms Scholars on dominant designs have not all appealed to the same underlying causal

logic for explaining why a particular design approach rather than other ones emerges as

the dominant design. The question of how dominant designs actually come into existence

has received a number of different answers—some of which are more convincing than

others.

i. The Logic of the Best Technology

We have already discussed in detail the Abernathy and Utterback (1978) account

and its elaboration in Utterback and Suarez (1993 and 1995) of how dominant designs

come about. The idea that a dominant design becomes dominant because it represents the

best technological compromise and then forces all other producers to imitate the design is

simply not confirmed by the evidence that scholars have found across many different

products. While in some cases the best technological approach may actually become the

dominant design, there are numerous well-documented examples where technologically

inferior products capture the dominant market position. The cases of QWERTY versus

the DVORAK keyboard (David, 1985). VHS versus Beta and Video 2000 (Cusumano,

Mylonadis et al., 1992), and the DOS versus the Macintosh operating system— all

examples where a technologically inferior approach became the dominant design—

demonstrate that this can by no means be the universal explanation of how dominant

designs come into existence. Suarez and Utterback’s (1995) remark that “in the presence

of bandwagon effects, strategic maneuvering is a powerful force driving the emergence

of dominant designs” (p.418) indicates their awareness that other causal mechanisms

must be at work in determining dominant designs.

ii. Economies of Scale

One of the most straightforward explanations for the emergence of a dominant

design are economies of scale that can be realized with standardized products. While

Suarez and Utterback (1995) argue that economies of scale are more important after a

dominant design is in existence, other researchers have stressed that early advantages in

market share can provide firms with the higher margins that will allow them to outspend

their rivals in R&D and create more innovative products that will eventually drive the

27

less innovative ones out of the market (Klepper, 1996). If one works with a definition that

requires a dominant design to capture over 50 percent of the market, it seems that

Abernathy’s study of the automobile industry and Utterback and Suarez’s (1993 and

1995) recent industry studies very much point to economies of scale as one of driving

force in selecting a particular design as the dominant one. Hounshell’s (1984) historical

research on the emergence of the “American Systems of Manufacture” has provided a

flavor of how the forces of standardization and economies of scale are a highly

interactive process. While some degree of standardization is necessary in order to drive

down unit costs, the higher demand following a drop in unit cost will give producers an

even greater incentive to further standardize the product and realize yet higher reductions

in unit cost. On this economic logic, design that initially has a lead in market share will

emerge as the dominant design. Arthur (1994) and well as Klepper (1996) have shown

mathematically that under conditions increasing returns to scale one design can easily

come to dominate the market.

iii. Network Externalties

A logic rather similar to the notion of economies of scale is used by scholars who

view network externalities as a strong force behind the selection of a particular design

approach as the dominant one. In recent research on the emergence of dominant designs,

Wade (1995) and the team of Baum, Korn, and Kotha (1995) have borrowed arguments

from the economics literature on network externalities to explain the emergence of

dominant design in the microprocessor and facsimile industries. The idea of network

externalities describes a situation where the value of adopting a particular technology

depends on the number of users who have purchased a compatible technology. Telephone

systems, fax machines, ATM networks, and computer platforms are all examples where

users have an incentive to adopt the technology that is already adopted by many other

users because the larger network will make the particular technology more valuable to the

individual user.

As the work of Arthur (1989; 1988) has shown, small random differences in the

beginning of the adoption process can give one design an advantage that will make it the

dominant design. In this process, there is no mechanism that would prevent a technically

inferior design from becoming the dominant design because of early advantages in

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adoption rates. Wade (1995) has provided some empirical evidence that small differences

in early sales led other firms to adopt the design of the leading product, setting in motion

a bandwagon that would turn Intel-based processors into the dominant design for the

industry.

iv. Strategic Actions on the Part of Firms

Abernathy-Utterback (1978) downplay the strategic role that firms and their

managers possess in bringing about dominant designs. While on their account a dominant

design emerges when designers, after considerable trial and error, finally hit upon the

best synthesis of product features, some recent authors have emphasized the strategic

maneuvering on the part of firms to explain the emergence of a particular dominant

design. Cusumano, Mylonadis, and Rosenbloom (1992) cite JVC’s strategy to license

their VHS design to many other electronic companies as the main reason why the firm

was able to beat Sony’s Beta design, although Sony was first to market. In their

investigation of the strategies for dominant design in work station computers, Khazam

and Mowery (1994) have also pointed to SUN’s strategy of licensing its chip architecture

to many suppliers as the main reason for why SUN’s Spark chip became the dominant

design for the industry. Lee, O’Neal, Pruett, and Thomas (1995)have tried to develop a

comprehensive framework for the emergence of a dominant design. The framework

emphasizes that firms can take concrete steps to bring about a dominant design. Building

on Teece’s (1986) idea of complementary assets, the authors argue that management

must systematically analyze what kind of R&D, manufacturing, and marketing

capabilities a firm must possess to turn its design into the dominant one.

Finally, McGrath, MacMillan, and Tushman (1992) have argued forcefully that

managers must formulate ex-ante strategies for creating dominant designs if a firm wants

to profit from the dynamics of dominant designs. In their view, managers can develop a

host of strategies that will enhance the probability that the firm’s design will become the

dominant one. Their argument centers on two key ideas: (1) lumpiness of customers and

(2) heterogeneity among firms. By lumpiness they mean that customers form

subpopulations because they are not uniformly distributed across the n-dimensional

design space defined by the relevant technological performance attributes of a given

technology. Because customers lump in this technology performance space, firms can

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develop strategies to move their particular design into a direction that will give them the

largest number of new customers for unit of development cost invested into the particular

design. Here the dominant design—defined ex ante—is that point in the product

performance space that satisfies the largest number of users. Because firms are

theorized—following the resource-based view (Wernerfeld, 1984; Barney, 1986; Teece,

Pisano and Shuen, 1997)— to differ in their technological, manufacturing, marketing and

management capabilities, individual firms differ in their ability to achieve a design that

will improve the technology and appeal to the largest number of users. The crucial role of

management, according to McGrath, MacMillan and Tushman (1992), is to appraise the

present capabilities of the firm and move its product design to a position that (1) meets

the performance requirements of a larger number of users and (2) is difficult to replicate

by other firms in a short period of time.

While researchers who emphasize strategic maneuvering of firms as a driving

force behind dominant designs don’t negate powerful uncontrollable forces, they all see

an important role of management in formulating and executing strategies that will allow a

firm to establish its design as the dominant one for the industry.

v. Complex Interaction of Sociological, Political, and Organizational Dynamics

Tushman and Rosenkopf (1992) have argued that the complexity of a product

determines to a significant extent what forces will play the key role in bringing about

dominant designs. In their view, the selection of dominant designs for simple products is

influenced more by considerations of technical merit than by sociological, political and

organizational forces. However, as products become more complex, simple technical

logic cannot adjudicate between the many dimensions of merit that are built into complex

products. In this situation sociological, political and organizational dynamics become

more important in determining which design approach emerges as the dominant one.

Tushman and Rosenkopf (1992) cite machine tools, electricity networks, and radio

transmitters among other complex products as examples where a multifaceted interplay

of sociological, political and organization factors shaped the emergence of a particular

dominant design.

A number of recent examples show that the higher the degree of complexity in the

design of a product, the greater is the need for actors to agree on a dominant design to

30

avoid costly failures. The cases of high-definition television and the new CD format are

recent examples where firms wanted to avoid investing in very expensive alternative

designs and prevent a risky battle for a dominant design. Rather, firms negotiated the

dominant design ex-ante and then compete on marketing and manufacturing capabilities.

Other scholars have also highlighted this complex interplay of social actors in

explaining dominant designs. Lee, O’Neal, Pruett, and Thomas (1995), building on

Tushman and Rosenkopf (1992), observe that often not only firms and customers but also

such actors as local, state, and federal governments have substantial interest in and

preference for particular designs. The bigger their clout because of purchasing or

regulatory powers, the greater is the role of such actors in determining which design will

become the dominant one. The Federal Communication Commission, which grants TV

station licensing throughout the U.S., had enormous influence both in determining the

rules for selecting a high-definition TV standard and finally in selecting the standard

itself.

Finally, Miller et al. (1995) conclude from their detailed case study of the flight

simulator that in the case of low-volume and high unit-cost products, dominant designs

do not emerge through a market mechanism but are rather negotiated by a diverse set of

actors who have a stake in the technology. To summarize, when products are complex,

and/or when governments have regulatory authority, and/or when particular users have

enormous purchasing clout, and/or when unit costs are very high, dominant designs tend

to be negotiated ex-ante.

e. Boundary Conditions of the Theory

The current literature on dominant design is also marked by significant

disagreements about the range of phenomena dominant design theory is designed to

explain. Related to differences in the way dominant designs are defined and the unit of

analysis at which they are studied, authors display a great variety of conception of the

limits of dominant design theory. Anderson and Tushman (1990) take the broadest

perspective. For them dominant design theory applies to the evolution of all technologies

that are free from patent interference. As long as the normal competitive forces are

31

allowed to shape the development of technology, dominant designs can be expected to

emerge.

In their original formulation of dominant designs Abernathy and Utterback (1978)

took a narrower view. They limited the range of phenomena the theory was designed to

explain to industries which were characterized by a highly complex production process

where multiple inputs are combined to a highly valued product whose characteristics may

be varied. Abernathy and Utterback put particular emphasis on the requirement that it

must be possible to make a final product in a variety of ways, allowing firms to

differentiate the product along a number of dimensions.

In his recent writings with Suarez, Utterback has adopted a somewhat different

view from the one expressed in his early work with Abernathy (1978). Utterback and

Suarez confine dominant design theory to the manufacturing sector (1993), and in their

later paper (1995) take an even narrower view, restricting the theory to complex

assembled products. This is a substantial departure from Utterback‘s earlier work with

Abernathy (1978) where the authors speculate that concept of a dominant design might

be useful in the communication industry and in certain health care services (p.84).

For Teece (1986) dominant design theory is limited to mass markets where

consumer tastes are relatively homogeneous. While Nelson (1995) also stresses

uniformity of consumer demand as a condition for the emergence of dominant designs, he

does not express the idea that dominant design theory applies only to mass markets.

However, in his view the theory of empirical validity is limited to systemic technologies.

We believe that at the present time researchers do not have sufficient evidence to

conclude under what circumstances dominant designs appear. It is important, however, to

distinguish between two separate questions that are often conflated in this context: Under

what circumstances do dominant designs emerge and under what circumstances does the

emergence of a dominant design have a strong impact on the industry dynamics? The

second question goes to the heart of whether standardization will produce big winners

and losers, and thus matter in a profound sense for the industry participants. Dominant

designs will clearly have a greater impact on industrial dynamics when it is more costly

and difficult for a firm to switch to the dominant design after its own design was rejected

in the market. Similarly, behind Teece’s and Nelson’s emphasis on uniform consumer

32

demand appears to lie the intuition that the greater the uniformity of consumer demand,

the greater is the potential that a dominant design will have a significant negative impact

on the firms that invested in designs that did not become dominant.

2. Survey of Writings on the Phenomenon of Dominant Designs in other Fields To construct a model of dominant designs that brings more clarity to the existing

literature and that can guide future research efforts, we will now examine how scholars in

other academic disciplines have conceptualized technical change and phenomena of

variation and standardization in design. Scholars in other fields have developed ideas that

can help us formulate a model of dominant designs that is both conceptually sharper and

more descriptive of actual technological dynamics.

a. Economics

i. Review of Literature on Standards in Economics

Economists have also been confronted with the pervasive phenomenon of variety

giving way to standardization and its dramatic implications for the economy. Since the

early 1980s, the economics discipline has shown renewed interest in the process of

standard setting and its effects on industry structure and social welfare. In their review

article on the standards literature, David and Greenstein (1990) found that researchers

typically distinguish between three different kind of standards, namely, reference,

minimum quality, and interface or compatibility standards. The first two kinds provide

signals for consumers that a given product conforms in content and form to specific

characteristics. In this manner reference and minimum quality standards reduce

transaction costs for consumers because they need to engage in less product evaluation.

Interface and compatibility standards afford the consumer an assurance that intermediate

products or components can be successfully incorporated into a larger system.

In addition, writers in this tradition have distinguished between four different

mechanisms by which standards come into existence. The first process, called

“unsponsored” standard setting, describes a state of affairs where no party can be

identified as having had a clear proprietary interest in creating a particular standard, but

the standard nevertheless exits well-documented in the public domain. The second

mechanism is commonly referred to as “sponsored” standard setting. In this case, one or

33

more sponsoring entities which hold a direct or indirect proprietary interest create an

inducement for other firms to adopt a particular set of technical specifications. The third

mechanism for creating of a standard involves negotiation, agreement and publication

under the umbrella of voluntary standards-writing organizations. The wide variety of

standards that are written with the help of the American National Standards Institute

(AINSI) fall into this category. The fourth distinct mechanism comes under the title of

mandated standards, which are promulgated by governmental agencies endowed with

some regulatory authority. Because the first two standard-creating mechanisms involve

market-mediated processes, they are generally referred to as de facto standards. The

latter two typically originate from political “committee” deliberations or administrative

procedures. These procedures may be influenced by market forces but not in a direct way,

as are the first two mechanisms. For that reason the latter two are often loosely referred to

as de jure standards although only that last kind of standard is backed by the power of

the law.

To show how this typology of standards is related to the literature on dominant

designs, we have devised a table that maps examples of dominant designs into the

typology of standards presented by David and Greenstein (1990). As the dominant design

literature has not been concerned with reference or minimum quality standards, we have

developed examples of these categories to illustrate how they differ from compatibility

standards.2

2 We would like to thank Shane Greenstein for helping us develop examples for the different kinds of standards delineated in the David and Greenstein (1990) typology.

34

Reference Minimum

Quality Interface or Compatibility Standards

Unsponsored Standards

•Grades of sulfuric acid (Kreps, 1938)

•Wool •Wood •Metal minimum quality standards

•QWERTY keyboard layout (David, 1985) •Nuts and bolts standards •Shape of metal electrode on electric plugs

De Facto Standards (market mediated)

Sponsored Standards

•Triple AAA Guidebook to Hotels. •Michelin star ratings of European restaurants and hotels (Greenstein, 1996, personal communication)

•Underwriters Laboratories electrical appliance certification (Greenstein, 1996, personal communication)

•VHS versus Beta (Cusumano et al, 1992) •AC/DC power standard (Hughes, 1983)

Negotiated Standards through Voluntary Standards Organization

•Universal product code for groceries created by Grocers Association (Greenstein, 1996, personal communication)

•CPA certification standards •AMA board certification (Greenstein, 1996, personal communication)

•Facsimile standards (Baum et al., 1995) •The American Standard Code for Information Interchange (ASCII codes)

De Jure Standards

Mandated Standards

•Army boots specifications (Greenstein, 1996, personal communication)

•Meat grade standards •EPA pollution standards

•United States HDTV standard •Interconnection standards of customer premise phone equipment mandated by the FCC

Most of the writings in the economic literature on standards have been focused on

interface and compatibility standards, exploring very little the economics of reference and

35

minimum quality standards. One of the central topics in this economic literature on

standards has been network externalities and increasing returns for later adoption (Arthur,

1989; Arthur, 1988). As mentioned earlier, some writers on dominant designs used the

concept of network externalities to explain why a particular design becomes the dominant

one. As Wade (1995) noted, most of the research on the economics literature has been

focused on the mathematical modeling of network externalities and increasing returns.

Only a few studies have explored empirically why a particular technology becomes

dominant and drives all competitors from the market or relegates them to very small

niches. David’s (1985) case study of how QWERTY emerged as the standard for the

keyboard layout although it was technically inferior to the DVORAK keyboard design

illustrated how early advantages in adoption rates can make an inferior technology into

the industry standard. Saloner (1990) investigated the battle between different operating

systems for UNIX-based computers and documented in great detail how the rivalling

firms formed two large coalitions to make their preferred UNIX version the industry

standard. Recently Saloner and Shepard (1995), while not investigating directly which

ATM machine technology was adopted, have provided econometric evidence that the

existence of the network effect and economies of scale explain how quickly banks

adopted ATM machines. Indirectly this study provides some evidence that network

externalities and economies of scale are important drivers of why a particular design

becomes the dominant one.

Given that both are focused on the elimination of design variants, it is possible to

ask what the dominant design literature can learn from the economics literature on

standards? The economic literature suggests that it is analytically useful to distinguish

between different kinds of different standards. As compatibility standards involve a range

of issues (e.g. coordination across technologies) that are absent from reference and

minimum quality standards, economists have found it useful not to treat every standard

alike but to investigate their creation and their impacts separately. Until now researchers

on dominant designs have not attempted to differentiate systematically between different

kinds of dominant designs. Our review of the confusions in the existing dominant design

literature suggests that it may be extremely useful to distinguish between different kinds

of dominant designs just as researchers on standards have it found it expedient to

36

distinguish between different kind of standards. Treating dominant designs as a collection

of “related animals” rather than “one kind of animal” appears to be a promising strategy

for advancing the current state of knowledge. Tushman and Rosenkopf’s (1992) typology

that distinguishes between technological products based on their complexity promises to

be a good starting point for getting a better handle on the diversity of phenomena

previous researchers treated under the same heading. Historians of technology have

already traveled a long way down the path of developing a conceptual framework that

incorporates differences in complexity between technologies. We will examine these

efforts after reviewing other work in economics that bears on the phenomenon of

dominant designs.

37

ii. Writings on Technological Change in Evolutionary Economics

Scholars in economics interested in technological change have developed a set of

concepts that to some extent overlap ideas lying behind dominant design thinking. Nelson

and Winter (1982) employ the phrase “natural trajectories” to describe the phenomenon

that technologies typically evolve by exploiting latent economies of scale and the

potential for increased mechanization of operations that were previously done by hand.

Nelson and Winter maintain that designers of a technology have, at every given point in

time, beliefs about what is technically feasible or at least worth trying out. Thus the

development of a technology is very much constrained and directed by the cognitive

framework that designers bring to the development situation. This idea of natural

trajectories parallels to a great extent what researchers on dominant design have written

about the era of incremental elaboration of dominant designs. Natural trajectories and

periods of incremental innovations of dominant design occur because it is economically

efficient to elaborate a design approach into which substantial resources have been

invested and which is already well understood. Only when further performance

improvements can be achieved by radically new designs do engineers look for

fundamentally different design approaches.

Dosi (1984) elaborates the ideas of Nelson and Winter and describes in more

detail how natural trajectories are unseated by new ones. In his study of devices that

amplify, rectify and modulate electrical signals, Dosi examined the dynamics of how

thermoionic valve technology (vacuum tubes or electronic tubes) was replaced by a new

trajectory based on semiconductor technology. Borrowing Kuhn’s ideas about the

evolution of scientific disciplines, he developed the ideas of technological paradigms and

technological trajectories3. Dosi’s definition of technological paradigm is a

multidimensional construct as he uses the concept to refer to a generic technological task,

the material technology selected to achieve the task, the physical/chemical properties

exploited and the technological and economic dimensions and trade-off focused on

(1982, p.153).

Dosi identifies two origins for new technological paradigms. Either designers

cannot improve a technology on the existing paradigm and therefore engage in

extraordinary problem solving to find a radically new solution for the generic

3 From a study of the evolution of farm tractors, locomotives, aircrafts, tank ships, electric power generation systems, computers and passenger ships , Sahal (1981; 1985) develops very similar concepts which he calls “technological guideposts" and “innovation avenues." He also finds that certain design approaches serve as the starting point for incremental innovations over long periods until they are overthrown by other radical design approaches.

38

technological task (here he follows Nelson and Winter) or scientific breakthroughs may

open up new possibilities for achieving the technological task. In the second case,

innovative designers seize the opportunity and create a technological alternative to the

existing designs. Once designers adopt a new paradigm, they focus on incrementally

improving the technology along key dimensions identified by the paradigm. Dosi argues

that technological paradigms have a powerful exclusion effect: they focus the

technological imagination and the efforts of engineers as well as the organizations they

work for in rather precise directions while they make them “blind” with respect to other

technological possibilities. (1984, p.15). This exclusionary effect stabilizes the paradigm

even further and explains why technological evolution is so highly directional and only

under special circumstances shifts to a very different path.

Since there are always a number of different pathways that are technologically

possible on a given technological paradigm, what determines the selection of a particular

trajectory? Dosi maintains that economic forces together with institutional and social

factors operate as a selective device. For him the most important economic forces are the

pressures on firms to achieve adequate returns on their investments. Because of these

pressures, managers and designers pursue pathways that promise to bring about

marketable applications.

Nelson, Winter and Dosi, just like writers on dominant designs, conceptualize

technical evolution in terms of infrequent radical changes followed by long periods of

incremental changes. They identify economies of scale and the need of firms to develop

technology along the path that seems most profitable as important forces in shaping the

particular form a technology will take. There are, however, important differences in the

focus of these authors and the literature on dominant designs. Nelson, Winter and Dosi

place a much greater emphasize on the cognitive environment (codified and tacit

knowledge, heuristics, ideas, etc.) in which pieces of hardware are created rather than on

the actual shape and performance characteristics of the hardware itself. Thus Dosi’s idea

of a technological paradigm is very similar to the idea of a dominant design when

dominant designs are defined in terms of abstract technological principles (for example,

internal combustion versus the steam or electric engine). However, when dominant

designs are defined in terms of very specific characteristics of technological artifacts,

they are very different from what Dosi means by a technological paradigm, as

technological paradigms always refer to general technological principles, heuristics and

39

ideas that designers employ in creating a particular design rather than the design itself.

The difference between the two concepts has concrete empirical implications: A new

dominant design may be based on the same technological paradigm.

This comparison illustrates how important it is to distinguish between dominant

designs that are defined at different levels of generality if one wants to avoid confusions

about the timing when dominant designs appear and when they are toppled by

technological discontinuities. It is absolutely possible that abstractly-defined dominant

designs remain unchanged while concretely defined dominant design change.

b. History of Technology

Historians of technology have collected much evidence that variation and

selection processes have shaped the evolution of a wide variety of technologies. Gilfillan

(1935) pioneered the study of inventions with a systematic examination of the history of

ships. His study of the development of ships from the early canoe to the big motorships

of his day showed that screw propulsion emerged as the standard design for ships from a

number of possible propulsion technologies that apply power to water. It won against a

series of alternative designs: water jet (proposed in 1661), stern paddle-wheel (1737),

setting poles (1737), propeller (1753), artificial fins (around 1757), duck’s foot (1776),

and side-wheels (1776), chain of floats, (1782), oars (1783), reciprocating paddles

(1786), and central paddle wheel (1789) [1935, p.80]. Gilfillan also discovered that a

number of alternative sources of power (human, animal, wind, steam, internal

combustion) were put in use before the internal combustion engine emerged as the typical

choice for ships in the early decades of this century. When the traditional wood was

challenged by metals as the material for building ship hulls, it was the lighter steel rather

than the heavier iron that became the dominant building materials for this part of the ship

(1935, p.149).

In his recent work that develops a general theory of technological evolution based

on the concepts of diversity, continuity, novelty, and selection, Basalla (1988) found that

of the “nearly 350 [nuclear] reactors operating in the world, about 70 percent of them are

of the light-water type” (p.166). He also documented that in the early days of the railway,

engineers experimented with a number of propulsion systems. One approach was to build

atmospheric railways which were propelled by pressure created in a tube located in the

40

middle of the track. This design, however, lost against the now-established standard of

locomotive powered railways (p.177).

The case study of David Noble (1984) on the emergence of automatically

controlled machine tools provided detailed evidence that a particular design approach can

become the dominant one because actors form powerful coalitions to create a standard

and not because one design is technically superior to all the rest. According to Noble’s

account, the technological discontinuity that made it possible to design machine tools that

were not entirely guided by a skilled operator created a number of alternative possibilities

for automating machine tools. For Noble the decisive factor in the victory of numerical

control (NC) against record-playback (RC) was the powerful coalition of academics and

the Air Force (with its enormous budget and the resulting market power) that was able to

impose its technological preference for a standard on the market. The proposition that

technologies are not selected on purely technical grounds is also supported by Hughes’s

(1983) account of the victory of alternating current (AC) against direct current (DC)

electric power generating systems and by Aitken’s (1985) analysis of how vacuum tube

radio transmitters won the competition against other continuous wave technologies (arc

and the alternator) as well as against the earlier discontinuous spark-gap designs.

David Landes‘s (1983) work on the evolution of watches described how watch

technology advanced incrementally at the system level over many centuries until quartz

technology introduced a discontinuity at system level that relegated the old mechanical

and semi-electric watch technologies to niche markets. Quartz technology proposed

alternative technological approaches for every major functional subsystem of the watch,

eliminating the need for any moving part in the system. Landes found that such a system

level revolution created enormous organizational difficulties for existing firms. The

difficulties were quite different from those created by technological discontinuities that

had previously been limited to a individual subsystem. Although the R&D labs of leading

Swiss firms in the industry had pioneered the revolutionary quartz technology or at least

mastered its underlying principles, these Swiss firms were initially unable to incorporate

the new technology into their products and thus gave away the markets to firms located in

the Far East. For researchers of dominant design one of the most important insights to

take from Landes’s study of watch technology is the distinction between a system level

revolution and one that is confined to a particular subsystem. If the evolution of watches

is representative of other complex technologies, the potential effects of each kind of

revolution on various industrial outcomes appear to be very different.

We have already drawn on Vincenti‘s writings (1990; 1991; 1994) on the history

and methodology of aeronautical engineering in our case study at the beginning of the

41

paper. Vincenti needs to be discussed in our present review of work by historians of

technology because he introduced into this literature the concept of an operational

principle. It is so useful a concept for analyzing technologies that it merits inclusion in

the tool box of every student of technological change. Because the concept has received

no attention in the dominant design and related literatures on technology management, it

deserves special attention here. The concept was originally developed by Polanyi (1962)

in the context of developing a theory of how human beings know things. Polanyi found it

useful to define an operational principle with reference to patents.

A patent formulates the operational principle of a machine by specifying how its characteristic parts—its organs—fulfill their special function in combining to an overall operation which achieves the purpose of the machine. It describes how each organ acts on another organ within this context. (1962, p.328)

Polanyi’s formulation of an operational principle brings together the ideas of parts,

linkages and technological goals to describe the essence of how technological artifacts

work. For Polanyi, an operational principle captures the kind of knowledge a human

designer must have in order to build a technological device that works on physical nature

in a desired way. To put it differently, an operational principle defines how the parts

interact with one another in order to implement the goal of overall technology. Consider

the example of the principle underlying the first successful human flight. Instead of trying

to design a flying machine where flapping wings would provide both the counter force to

gravity and forward thrust, Cawley proposed in 1809 to separate lift from propulsion by

using a fixed wing and by propelling it forward with motor power. The central idea was

that moving a rigid surface through resisting air would provide the upward force

countering gravity. As Vincenti (1990) has noted, this was a radically different way to

conceptualize the design of an airplane because it freed designers from the impractical

idea of flapping wings. Subsequently, the fixed-wing and forward propulsion idea

became the operational principle underlying all airplane designs.

When human beings have grasped the operational principle of a technology they

know how an artifact can act on nature in a special beneficial way. Because an

operational principle essentially specifies the way components need to be arranged in

order to create a successful artifact, operational principles reveal the abstract logic of how

an artifact works. Since an operational principle represents principle definition of an

42

artifact, it provides the ideal starting point for understanding what the essential aspects of

a particular technology are and how the technology works.

Another especially useful feature of the operational principle concept is that it

allows us to compare different technologies by probing whether they work according to

the same the operational principle. For instance, planes and helicopters, both devices for

air travel, differ in terms of how they achieve the general task of transporting humans in

the air. While a plane accomplishes flight by separating the propelling function and the

lifting function into two separate components (the propeller or jet and the wings), the

helicopter realizes movement in the air by implementing the lifting and propelling

function in one and the same component, the large vertical rotor. Rockets, another class

of devices for traveling, make air travel possible by allowing an expanding air-fuel mix to

escape only through the rear of the device and thus propelling it forward. Rocket

propulsion requires neither wings nor propellers. The example of these three principles

underlying air travel demonstrates how operational principles allow the student of

technology to categorize a set of artifacts into general classes. This is useful for research

on dominant designs because it makes it possible to find fundamental variation in the

design of technologies that fulfill the same general purpose as shown by the example of

the different solutions for transporting humans through air. The idea of an operational

principle is very much related to Clark’s (1985) idea of a core design concept. We

believe, however, that the idea of an operational principle is more revealing and has

greater analytical power because it refers not only to concepts but also to actual

knowledge of how an artifact is made to work. The notion of an operational principle is

closer to functional artifacts as compared to the notion of a core design concept because

the latter includes all those ideas which never work out when they are tried out in a real

artifact.

To summarize, the concept of an operational principle has three very beneficial

properties for research on technological evolution: 1. By encapsulating the essence of

what makes a particular artifact work, it aids the student of technology to gain a deep yet

relatively easy to acquire understanding of what makes an artifact work. 2. By bringing

simultaneously into view components and linkages, it assures that the analyst will not

miss the important role linkages can play. 3. By specifying in general terms the nature of

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an artifact, it provides the researcher with a useful guideline for classifying variants of a

particular technology.

Scholars working in the history of technology have been faced with much of the

same problems that have plagued researchers on dominant designs, namely, of finding a

powerful conceptual framework for studying a diverse set of technologies. With the

contribution of a number of leading scholars like Constant (1980), Hughes (1983), Aitken

(1985) and Vincenti (1990, 1994), this field has developed a general consensus that

technologies are best conceived as systems that are composed of multiple levels of

subsystems. Although historians of technology may differ somewhat in terms of how

they use the concept of a system (some restrict their systems analysis to physical artifacts,

others include bodies of knowledge as well as ideas on which these artifact are based, and

there are also those who bring into the analysis the human actors who are involved in the

system), they have all come to view system concepts as an indispensable tool for

studying and understanding technologies that are composed of multiple components.

The system framework as developed by historians of technologies involves a

number of important ideas. Any technology that is made of more than one part can be

analyzed in terms of components and multiple levels of subsystems as the artifact gets

more complex. Hughes (1983) points out that “in any large system there are countless

opportunities for isolating subsystems and calling them system for the purpose of

comprehensibility and analysis“ (p.55). Based on his experience with many different

technologies, Hughes recommends that “analyzers of systems should make clear, or at

least be clear in their minds, that the system of interest may be a subsystem as well as one

encompassing its own subsystems“ (p.55). This nested hierarchy that incorporates basic

components through multiple levels into a complete system requires linkage mechanisms

that are often more important than components themselves, as Hughes (1983) illustrated

for the case of power networks. There are two fundamentally different links: Vertical

links connect components with different functions to create an integrated functional

whole while horizontal links connects components of the same kind or function to

provide the system with larger capacity or stability. Linkages give the collection of

components a clear structure or configuration.

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Figure 8: Illustration of a Four-level Nested Hierarchy

System Level

First-order Subsystems

Second-order Subsystems

Component Level

The hierarchical composition principle implies that smaller systems (subsystems)

yield control to the large systems or, to put it in other words, smaller systems exist to

fulfill a function in the larger system. When systems are centrally controlled, the

subsystem that is given the central control is of special importance.

Drawing on the work of Simon (1981) and particularly on Campbell (1974),

Constant (1980) argues that the ideas of a nested hierarchy of variation and selective

retention mechanism helps to come to terms with the nature of innovations that shape the

evolution of complex systems. In systems technologies, innovations can occur at many

points: at individual components, linkages, and at multiple levels of subsystems.

Innovations at each of the locations in the systems hierarchy are shaped by the

evolutionary logic of variation, selection and retention. Constant‘s (1980) study of a

radical innovation in a major functional subsystem of airplanes, the engines, showed how

the success of the radical innovation that introduced jet technology into the engine

subsystem depended on complementary changes in other subsystems. Constant used this

example to illustrate the general idea that many components co-evolve as designers try to

upgrade the performance of the overall system. The important conceptual feature of this

nested hierarchy of variation and selective retention mechanisms is that technological

selection criteria at lower levels have to be consistent with higher level selection criteria

to maintain a functional overall system.

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Vincenti‘s work (1994; 1991) on the history and the method of aeronautical

engineering has clarified how design activity itself has an hierarchical structure in the

sense that some design parameters have to be specified first and others later (linear time)

while some can be specified concurrently (parallel time). This hierarchical structure is

necessary to break a complex task into manageable tasks. (For import contributions to the

literature on the hierarchical nature of design activity see also Clark (1985), Alexander

(1964), Booker (1962), and Marple (1961).) Vincenti describes the stages of this

hierarchical activity as follows: First designers define the project in general terms. Then

they translate the project definition into a plan that specifies the overall dimensions and

configuration of the artifact. Next, the designers specify in general terms the operational

principles of the major subsystems. The smaller components that make up the major

subsystem can then be designed in parallel by different design teams. The team that is

charged with designing the landing gear of an airplane, for example, receives general

specification as to what dimensions the landing gear cannot exceed and what minimum

performance requirements the landing gear must possess. These broad performance

characteristics leave ample room for designers to create many different landing gears

from which they have to select one. In this sense an innovation episode in landing gears

is nested in the overall technical development of an airplane.

For the student of technology it is thus useful to envision a hierarchy of

operational principles parallel to the hierarchy of subsystems. The hierarchy of

operational principles has one crucial feature that needs to be made explicit: Higher level

operational principles set the technical agenda for lower level operational principles. In

the early history of the automobile, engineers had three general options at their disposal

for designing the motor subsystem of cars (Basalla, 1988). These were the steam engine,

the electric motor, and the internal combustion engine. While the general operational

principle of an automobile requires a motor that delivers traction power to the wheels, it

does not specify which one of the three alternatives should be used. However, the choice

of any one particular engine type has dramatic consequences for the technical agenda of

the engine’s components as the three operational principles underlying the engine types

imply very different components. To state it a bit more abstractly, for a general

technological task there are typically alternative operational principles available for

46

achieving the task. However, once a particular operational principle is chosen, it sets very

specific requirements for lower level operational principles. Thus higher level operational

principles provide the task environment which engineers of lower level components take

as a given when they search for alternative ways of making a given subsystem work.

However, it is important to recognize that operational principles at any level in the

hierarchy typically are general enough to allow variation in the way they are

implemented in a concrete design

Constant (1980) and Vincenti (1990) conclude from their studies that radical

innovations can occur at all levels in the systems hierarchy. Unfortunately, historians of

technology, just as writers in organization theory, have used the notion of a radical

innovations in at least two very distinct ways. The only common feature of these two uses

is that in both cases something big and exceptional happens. Radical innovations have

been defined either in terms of their antecedents (the scope of new knowledge required)

or in terms of their consequences (the increased performance they make possible).4

Table 3:

Performance Improvement

Low High Scope of

New

Small Incremental Innovation

Radical Innovation Sense 1

Knowledge Large

Radical Innovation Sense 2

”Super” Radical Innovation

Given these two different dimensions of radicalness, it is possible that an innovation is

incremental in the terms of the new knowledge required but radical in terms of the

additional performance achieved and vice versa. When one distinguishes between these

two dimensions of radicalness, it becomes obvious that innovations that require large

amounts of new knowledge and create large performance improvements have a particular

potential to transform industrial dynamics. Hughes (1983) is one of the few scholars who

4 See Ehrnberg (1995) for a very good discussion of the confusion between the two meanings of radical innovation in the innovation studies literature. See also Levinthal (1998) who develops important

47

makes clear in his study of the development of electrical power systems that he defines a

radical innovation as one which replaces every major component of the system with

designs that are based on new technological principles. Most scholars, however, do not,

and thus it is difficult to interpret in what sense they see an innovation as being radical.

How does this typology map into the concept of a systems hierarchy? In terms of

the new knowledge dimension innovation, moving up the systems hierarchy (i.e.

encompassing more and more components) by definition means that an innovation is

becoming more radical because more and more components are being designed based on

new principles. Yet this is not true for the performance dimensions of innovation. Here

innovations that occur at a lower levels (recall the impact of leaded fuel on the

performance of airplanes) can have more radical consequences than innovations that

involve the entire system.

This discussion makes clear that it is important for a model on dominant designs

to recognize that radical innovations (in terms of both dimensions) can occur at the

individual component, individual subsystem or at a higher level of aggregation.

Furthermore, a refined model of dominant design should be able to take into

consideration that technologies can be studied at higher and lower levels of abstraction.

In his study of radio technology, Aitken (1985) has pointed out that at a high level of

abstraction the arc, the alternator, and vacuum tube transmitters were functionally

equivalent because they all produced continuous waves. At a lower level of abstraction,

however, they were very different because they had “different technical genealogies, they

represented different configurations of information, and they were managed in different

ways and with different degrees of success“ (1985, p.549). Technological competition

between alternative designs can take place at in terms of very general or very specific

design parameters. Because individual organizations always produce specific and not

abstract designs, scholars who are interested in understanding the impact of technological

events on the fate of organizations should work with a framework of dominant designs

that can distinguish between dominant designs based on abstract and specific design

parameters.

theoretical implications of the two meaning of radical innovation for evolutionary theories of industrial change.

48

IV. Towards a Refined Model of Dominant Designs: A Hierarchy of Technology Cycles. After having analyzed the confusions in the dominant design literature and

canvassed other literatures of technological evolution for useful analytical ideas, we are

now in the position to formulate a refined model of dominant designs that brings more

clarity and analytical power to the study of technological change. The review of the

literature has shown that while the Anderson and Tushman (1990) technology model is

a very good framework for studying simple technologies, it is rather crude for more

complex technologies that are composed of many parts. Since the vast majority of

technologies studied in the dominant design literature are not simple technologies, a

refined model must be able to incorporate different degrees of complexity.

Figure 9: Anderson and Tushman’s (1990) Model of Dominant Designs

Era of Ferment Era of Incremental Change

TIME

Technological Discontinuity 1

Dominant Design 1

Technological Discontinuity 2

The Technology Cycle

49

a. General View of Technological Artifacts. Technological artifacts are systems composed of components, linkages, and

multiple levels of subsystems. The most simple technology is a special one-level

“system” consisting of only one component. Technological artifacts are structured in

terms of a hierarchy where component are nested in subsystems, smaller subsystems in

larger subsystems and finally the highest level subsystems in the overall system

(Christensen and Rosenbloom, 1995; Clark, 1985; Alexander, 1964). Together

components, subsystems, and linkages articulate the configuration or architecture of the

overall artifact (Henderson and Clark, 1990). Most components interact only indirectly

with one another, namely as members of subsystems (Simon, 1981). Components and

subsystems that have more linkages to other components and subsystems are more core

while those that have less linkages are more peripheral. When linkages themselves are

made of multiple components, they form their proper subsystem. Linkages may be more

important than components themselves (Hughes, 1983).

50

Figure 10: Patterns of Interaction in a Systems Hierarchy.

System Level

First-order Subsystems

Second-order Subsystems

Component Level

Interac tionBound aries

Technological artifacts are characterized by operational principles that reveal the

abstract logic of how components interact to fulfill the characteristic goal of the

technology (Polanyi, 1962; Vincenti, 1990). Parallel to the structural hierarchy of the

system, technological artifacts embody a nested hierarchy of operational principles.

Higher level operational principles set the technical agenda for lower level operational

principles.

b. Nature of Technical Change. Technological change occurs through repeated sequences of short periods of

radical change followed by long periods of incremental change (Constant, 1980; Nelson

and Winter, 1982; Dosi, 1982; Anderson and Tushman, 1990). Change can be radical in

terms of the new knowledge required or in terms of the increased performance achieved

51

or both. Technological systems provide many points at which technical innovations can

take place. Innovations can be localized to a particular component. They can take place at

several components at the same time. They may be confined to a particular subsystem or

involve a number of subsystem simultaneously. At all these points, technological change

can be radical or incremental (Constant, 1980, Vincenti, 1990).

Thus technological change can be conceptualized as a nested hierarchy of

technology cycles. Individual technology cycles are constituted by two recurrent stages,

an era of ferment and an era incremental variation. The era of ferment begins with a

technical discontinuity and ends with the selection of a dominant design. After the

emergence of a dominant design (on design approach captures over 50% of the market),

technical evolution is characterized by a period of incremental variation until another

technical discontinuity triggers a new era of ferment. This restarts the cycle. Component

technology cycles are nested in subsystem technology cycles and subsystem technology

cycles are nested in the system technology cycle.

52

Figure 11: A Refined Model of Dominant Design—Nested Hierarchy of Technology Cycles

System LevelTechnology Cycle

First-order Subsystem Technology

Cycles

Second-order Subsystem Technology

Cycles

Basic ComponentTechnology

Cycles

Era of Ferment

-Substitution-Competition

Technological Discontinuity

-Variation-

Dominant Design

-Selection-

Era of Incremental

Change-Retention--Elaboration-

Era of Ferment

-Substitution-Competition

Technological Discontinuity

-Variation-

Dominant Design

-Selection-

Era of Incremental

Change-Retention-

-Elaboration-

Era of Ferment

-Substitution-Competitio

Technological Discontinuity

-Variation-

Dominant Design

-Selection-

Era of Incremental

Change-Retention--Elaboration-

Era of Ferment

-Substitution-Competition

Technological Discontinuity

-Variation-

Dominant Design

-Selection-

Era of Incremental

Change-Retention-

-Elaboration-

Era of Ferment

-Substitution-Competition

Technological Discontinuity

-Variation-

Dominant Design

-Selection-

Era of Incremental

Change-Retention-

-Elaboration-

Era of Ferment

-Substitution-Competition

Technological Discontinuity

-Variation-

Dominant Design

-Selection-

Era of Incremental

Change-Retention-

-Elaboration-

Era of Ferment

-Substitution-Competition

Technological Discontinuity

-Variation-

Dominant Design

-Selection-

Era of Incremental

Change-Retention-

-Elaboration-

Era of Fermen

-Substitutio-Competitio

Technological Discontinuity

-Variation-

Dominant Design

-Selection-

Era of Incremental

Change-Retention-

-Elaboration-

Era of Fermen

-Substitutio-Competitio

Technological Discontinuity

-Variation-

Dominant Design

-Selection-

Era of Incremental

Change-Retention-

-Elaboration-

Era of Fermen

-Substitutio-Competitio

Technological Discontinuity

-Variation-

Dominant Design

-Selection-

Era of Incremental Change-Retention-

-Elaboration-

Era of Fermen

-Substitutio-Competitio

Technological Discontinuity

-Variation-

Dominant Design

-Selection-

Era of Incremental Change-Retention-

-Elaboration-

Era of Fermen

-Substitutio-Competitio

Technological Discontinuity

-Variation-

Dominant Design

-Selection-

Era of Incremental

Change-Retention-

-Elaboration-

Era of Fermen

-Substitutio-Competitio

Technological Discontinuity

-Variation-

Dominant Design

-Selection-

Era of Incremental

Change-Retention-

-Elaboration-

Era of Fermen

-Substitutio-Competitio

Technological Discontinuity

-Variation-

Dominant Design

-Selection-

Era of Incremental

Change-Retention-

-Elaboration-

Era of Fermen

-Substitutio-Competitio

Technological Discontinuity

-Variation-

Dominant Design

-Selection-

Era of Incremental

Change-Retention-

-Elaboration-

The more components and subsystems are experiencing radical innovations based

on new operational principles concurrently, the greater the scope of the competency

destroying innovation. The most radical change in a system occurs when all components,

linkages and subsystems are based on new technological principles. Such events are very

rare as technological evolution typically proceeds through a recombination of existing

components or subsystems with infrequent additions of entirely new components or

53

subsystems. Most of time the novelty of an innovation is not based on new components

but on the way existing components are integrated into a functional whole (Simon, 1981).

Technological improvements that are accomplished by making changes only to an

individual component or an individual link are modular innovations while innovations

that require changes in many components and linkages are systematic innovations (Teece,

1984; Langlois and Robertson, 1992; Garud and Kumaraswamy, 1993). An innovation in

a subsystem that leaves the links to the other high level subsystem intact (Henderson and

Clark, 1990) is modular at the level where the subsystem is integrated into the overall

system. At the same time this innovation may require the redesign of components and

linkages within the subsystem that is the locus of innovations. Thus an innovation that is

modular at a higher level of aggregation may be systemic at a lower level of aggregation.

Innovations that involve the linkages between the highest level subsystems (first-order

subsystems5 or what Clark calls the main functional domains) often require sweeping

complementary changes at lower levels in the systems hierarchy. For this reason

designers often try to improve the performance of a technical systems without changing

the linkages between the first-order subsystems (Iansiti and Khanna, 1995; Garud and

Kumaraswamy, 1995; Ulrich, 1995).

c. Varieties of Dominant Designs. i. Levels in the Hierarchy For every structural point in the system hierarchy dominant designs can emerge

after a period of variation. Dominant design then can occur at the level of a component6,

a linkage, a subsystem, or the system. System level dominant designs are very rare as

systems become more complex and offer many points for potential innovations.

Conceptually, a dominant design at the system level implies that. no component, no

linkages, and no subsystem is experiencing a period of ferment. However, while there

5 As systems are composed of subsystems with different degrees of complexity, it is analytically useful to rank-order subsystems from the highest to the lowest level of aggregation. Thus the main functional domains are the first-order subsystems, a first order subsystem is composed of second order subsystems and the nth-order subsystems are composed of the basic components. 6 Sometimes what is called a basic component in fact involves multiple design parameters. The hierarchy framework implies that in such a case a dominant design can emerge for these individual design parameters.

54

may not be a dominant designs at the system level, dominant design may concurrently

exist at the level of various components, linkages, and subsystems.

ii. Levels of Abstraction Technological artifacts can be analyzed at different levels of abstraction (Aitken,

1985). Dominant designs can occur at both low and high levels of abstraction. When the

details of a design are ignored, designs can be viewed as identical although they are

dissimilar in their specifics. This implies that dominant designs may emerge at an abstract

level, while no dominant design may emerge at the most concrete level of design. Since

the idea of operational principles conceptualizes the artifact in an abstract way,

convergence of designers on a particular operational principle is an expression of

dominant designs at an abstract level of analysis. It is logically impossible that dominant

designs at a lower level of abstraction emerge before a dominant designs at a higher level

of abstraction. They can occur at the same time or later. This temporal relationship

between dominant designs at different levels of analysis helps to organize the

investigation of dominant designs.

d. Mechanisms Creating Dominant Designs There is no one way in which dominant designs emerge. Superior performance

and early advantages in market share that give raise to cost advantages through

economies of scale and network externalities are important forces in determining which

design will become the dominant one (Arthur, 1989; Baum, Korn et al., 1995; Wade,

1995). As technological artifacts become more complex, political and sociological factors

will become more important in determining dominant designs (Tushman and Rosenkopf,

1992). Similarly, the higher the complexity, the higher the unit cost and the lower the

production volume of a technological artifact, the more important are non-market

mechanisms in determining which design dominates others (Miller, Hobday et al., 1995).

55

V. Linking Technological Dynamics to Organizational and Strategic Outcomes Because of confusion in the literature on dominant design about the unit and

levels of analysis, the quality of the evidence linking technological and organizational

outcomes has been weaker than necessary and desirable. We have noted in the

introduction that the diversity of uses of dominant design concepts has prevented the

accumulation of a solid empirical foundation from which researchers could have

launched more sophisticated investigations. In this paper we have tried to formulate a

refined model of dominant designs that provides the groundwork for advancing the state

of the art of dominant design research. As researchers in organization theory and strategy

are not interested in technological dynamics for their own sake, the paper has done the

necessary preparatory work for being able to get to the most important research task on

dominant designs: linking technological dynamics to organizational actions and

outcomes. We are convinced that the concept of a nested hierarchy of technology cycles

allows researcher to create stronger links between the technological changes that are

taking place in a technological artifact and the competitive implication this change has

for the industry participants.

We will now develop propositions7 about technological dynamics and about

important organizational outcomes that we hope will stimulate exciting new research.

a. Where are the important dominant designs located in the nested hierarchy of technology cycles? Dominant designs at the different locations in the system hierarchy are not equally

important in their power to influence dominant designs in other locations of the system

hierarchy and the ability to affect industrial dynamics. Although not enough

technological systems have been studied in sufficient detail and over long periods of time

to provide us with a detailed empirical picture of how the different technology cycles in

the nested hierarchy influence the emergence of dominant designs at the various units and

levels of analysis of the artifact, the existing evidence allows us to formulate a few

general propositions which can be tested as more empirical evidence becomes available.

7 Given that any industrial phenomenon is susceptible to the influence of a wide range of variables, all our propositions are meant as “everything-else-being-equal” statements.

56

Hypothesis 1: Dominant designs at higher level operational principles have a greater impact on the evolution of the system and on industrial dynamics than dominant designs at lower level operational principles.

There are two important senses in which subsystems and components are either core or

peripheral in a system. In the first sense components or subsystems are core because they

are structurally linked to many other components. Conversely, a peripheral component or

subsystem is linked to few other components or subsystems. In computer systems, for

example, the operating system and the microprocessor are core subsystems while the disc

drives, screen and printers would be peripheral subsystems.

Hypothesis 2: Dominant designs in structurally core components or subsystems have a greater impact on the evolution of the artifact and on industrial dynamics than dominant designs in peripheral components or subsystems.

Components and subsystems can also be core in the second sense of constituting a

bottleneck (Rosenberg, 1969) or a reverse salient (Hughes, 1983) which is holding back

the evolution of the system to higher levels of performance. Once a particular bottleneck

is solved, another point in the system will be the weak spot and become the central focus

of design activity.

Hypothesis 3: Core components or subsystems in the sense of constituting a bottleneck will shift over time. Hypothesis 4: Designs that overcome bottlenecks are more likely to become associated with a dominant design arising somewhere in the system hierarchy than designs which do not.

When customers select between different designs of a technological artifact, their

decisions are only influenced by a small number of all design characteristics that make up

the artifact. To understand why some dominant designs are more important than others, it

is important to realize that customers consider in their buying decisions only design

parameters they directly interact with as opposed to those parameters which are located

57

inside the artifact. We call all those design parameters that a customer directly interacts

with—the shape, size, weight, the ease of handing the artifact, etc.—the product

interface. For analytical purposes it is useful to regard it as a proper subsystem that in

turn can be made up of lower level subsystems and components. Because the interface

constitutes the boundary between the customer and the internal organization of the

artifact, it plays a crucial role in the competition between alternative designs. 8 We read

Cusumano, Mylonadis and Rosenbloom‘s (1992) account of the victory of VHS over

Beta and Video 2000 video recorder designs as a testimony of how an interface parameter

(in this case the format of the tape that makes machines either compatible or

incompatible) can play a decisive role in determining the fate of the overall system

design. For all intents and purposes, the technology that was inside the different video

recorder systems did not matter for outcome of this competition. We suspect that the

internal technology was not all that different as Sony later was able to switch to the

production of designs that had the VHS interface after having lost a lot of money in

trying to make the Beta system the dominant format. Thus there may have been a number

of dominant designs at design parameters inside the artifact that they did not play a

significant role in shaping the success or failure of the different overall product designs in

the market.

Hypothesis 5: Interface dominant designs are more important than non-interface dominant designs in shaping the evolution of a product class and determining organizational outcomes.

The importance of the interface in the selection of designs is also brought into

focus by Sanderson and Uzumeri’s (1995) idea that the creation of product families can

bring great competitive advantages to firms. Sanderson and Uzumeri described how Sony

was able to create the large number of models in its Walkman product family by

designing mostly different casings while using largely identical components and

subsystems. The Sony Walkman case is an example of a product strategy in which firms

achieve economies of scale and scope by redesigning only the interface to satisfy more

8 The role of the interface in determining the selection of entire products and their underlying technology is so important a topic that it deserves more attention than we can give it in the context of the present paper. Here we can only sketch some of the ideas that need to be worked out in greater detail on another occasion.

58

closely the performance requirements of different user segments and by working with

standardized components and subsystems for the internal technology of the artifact.9

Hypothesis 6: Firms that are able to create different interfaces with the same internal design will be more successful than firms that create multiple interfaces based on different internal designs.

b. The Nested Hierarchy of Technology Cycles and Industrial Organization The production of technological systems can be organized in multiple ways.

Every basic component and subsystem could in principle be made by a different firm

with one firm assembling the final product from first-order subsystems purchased in the

market. Alternatively, a single firm can fully integrate the production of a system from

the basic component to the full system within its boundaries. The hierarchical

organization of physical artifacts implies that there can be a parallel nested hierarchy of

producers and markets. Christensen and Rosenbloom (1995) have used the notion of a

value-network to highlight the important fact that firms can be located at many points of

the design hierarchy and be more or less vertically and horizontally integrated. In order to

understand the impacts of radical innovations and dominant design at various locations in

the systems hierarchy, it is important to distinguish between firms whose boundaries

circumscribe different components and subsystems. It is useful to distinguish between

component manufacturers, subsystem assemblers and final system integrators in trying to

develop general propositions about how radical innovations which can be more or less

systemic impact the fate of firms.

Hypothesis 7 : Radical innovations in a particular subsystem will have greater negative effects on firms that assemble the particular subsystem and their network of suppliers than on firms that are higher level assemblers. Hypothesis 8 : Radical innovations in a particular subsystem will have greater negative effects on firms that assemble the particular subsystem and their network

9 Garud and Kumaraswamy (1995) provide a very careful exposition of the advantages of this strategy.

59

of suppliers than on firms that provide subsystems and components in other functional domains of the artifact. Hypothesis 9. Systemic innovations favor firms that produce a wide scope of the components and subsystems that are effected by the innovation. Hypothesis 10: Firms that produce core components and subsystems have greater influence on bringing about important dominant designs. Hypothesis 11: Firms that produce core components and subsystem within their boundaries will be more successful than firm which do not.

These hypotheses are offered here to give researchers some ideas the literature on

dominant designs can be carried forward in a productive manner.

VI. Implications for R&D Managers and Public Policy Makers

Scholars of technical change have clearly identified that there is an inherent

uncertainty in the innovation process (Rosenberg, 1996). The potential and the

implications of a new technology can simply never be fully predicted. However, as

McKelvy (1993) has pointed out, it is necessary to make a distinction between true

uncertainty and self-imposed uncertainty. If firms do not organize themselves to

understand the inherent potential of existing technologies and the present needs of users,

firms are living under a regime of self-imposed uncertainty. To create a dominant design

at any level in the design hierarchy and to appropriate rents, it is crucial that firms

establish R&D capabilities and marketing capabilities that can reduce the risk of

investing in a particular design.

To be effective, R&D managers must possess a sophisticated conceptual tool kit

for evaluating technological threats and opportunities. This paper tried to pull together

useful concepts from a variety of literatures and develop a model of technological change

that emphasizes the hierarchical nature of technological evolution. By analyzing

technologies as systems composed of nested subsystems, components, and linkages,

R&D managers have a conceptual tool for understanding what aspect of a technology is

60

likely to be of key strategic importance. The goal for a sophisticated technology analysis

is to understand what parts of the technology are more core, exerting greater control over

the development of the rest of the system. In using this conceptual tool for analyzing PC

computer systems, for example, it becomes evident that the operating system is

structurally central. In controlling the interaction of many of the first-order subsystems,

the developer of the operating system (Microsoft) has the upper hand in forcing the

developers of other subsystems to follow a particular technical agenda. Its control of the

operating system also allowed Microsoft to capture a dominant position in business

application software because the firm was able to provide in-house application software

developers with advanced and better information on how any application would have to

interact with the operating system in order to be functional. Lotus lost its formerly

leading position in spreadsheet applications for the PC to Microsoft because it was unable

to come out with a Windows version as quickly as Microsoft was able to do with its own

spreadsheet product. Similarly the developers of the Netscape internet browser

complained that Microsoft strategically put Netscape developers at a disadvantage by not

promptly disclosing the protocol that applications would need to follow to be fully

compatible with the operation system.

R&D managers not only have to analyze technological threats and opportunities

but they also need to communicate their strategic plans throughout the organization. The

concept of a hierarchy of technology cycles and such ideas as the operational principle of

technology offer a useful framework for explaining to the entire organization how the

firm intends to improve its technology. Once organization members conceptualize

technologies in terms of components, linkages, and hierarchies of subsystems, it is

possible to ask what components need to be made in-house and what components can be

bought from the market. When components do constitute key strategic asset for

protecting the value of the firm’s technological competence it is advantageous not to buy

the component in the market. Microsoft determined that the internet browser was a

critical new subsystems of a PC and decided that it needed to make a browser subsystem

in-house to protect the value of its existing technologies.

Dominant Design research has been chiefly concerned with the welfare of firms.

Undoubtedly it may be very profitable for a firm to establish a dominant design. But what

61

is good for an individual firm or an alliance of firms must not be good for society as a

whole. The dominant design literature to date has not engaged in serious reflection about

the implications for social welfare when firms establish dominant designs. There are two

sets of concerns that should be addressed. First, a firm may be able to establish a

dominant design that is substantially inferior to alternative technologies. When a

particular technology gets locked in prematurely such that alternative technologies are

given up before their full development potential are known, society may lose

technological options or not be able to switch to a more efficient technology without

enduring prohibitive costs. Second, although the prospect of establishing a proprietary

dominant design may provide firms with incentives to undertake risky research and

development work (and thus be beneficial from a social welfare point of view), social

welfare may be reduced once a firm controls a dominant design and the firm has no

incentives to develop a technology at the fasted pace possible. Society might be better off

if dominant designs are a public good rather than controlled by particular firms. The rapid

development of the internet, for example, can be traced in part to the fact that no single

firm to date has controlled the internet protocols that specify the language in which

information is sent across the worldwide web of computers. The hierarchical technology

cycle model makes is possible to begin a more nuanced debate about what aspects of a

technological system should be public.

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