Product Architecture and the Firm Luke A.Wissmann∗, Ali A. Yassine Product Development Research Laboratory Department of General Engineering University of Illinois at Urbana-Champaign, IL Abstract Product architecture defines the functional elements within an artifact, maps these functional elements to physical elements, and defines the interfaces among the interacting physical elements. In spite of the diversity of literature on the topic, product architecting is still not well understood both because of its inherent complexity and far-reaching implications. In an attempt to fill this void, this paper offers a framework for classifying the vast amount of existing literature relevant to product architecture; summarizes the general implications and findings; and identifies areas for future research. We find that product architecture decisions impact the firm along two dimensions: system perspective and system level. The resulting framework links product architecture to the following key areas: product portfolio, knowledge portfolio, brand portfolio, organizational architecture, product specification architecture, production & distribution processes, product development & engineering design processes, and marketing processes. We argue that this framework captures all of the relevant product architectural decision dimensions.
Keywords: product architecture, product planning, product specifications, organizational architecture, product development, brand portfolio
∗
Corresponding author:
[email protected]
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1. Introduction Developing products for today’s marketplace is a complex endeavor for many reasons. First, products are often composed of many unique and shared elements (components, subsystems, etc.) that interact with each other in complex ways.
Understanding these
interactions is not always straightforward, and designing the physical interfaces can have lasting implications on the ability to innovate [9]. Second, product elements are often developed by autonomous design teams that may not be co-located and/or may reside within multiple firms [85, 133]. Third, customer preferences are always changing and difficult to ascertain, which makes it difficult to rigorously cascade requirements to the design teams [18, 75]. Fourth, the elements are often manufactured through a complex supply chain network, whose dynamics must be considered throughout the design phase [65]. Fifth, it is often difficult to educate the consumers regarding frequent iterative product releases and improvements stemming from innovation at the elemental level, which could lead to customer defection if the marketing message is misunderstood during the purchase process [15].
Lastly, complex product
development is difficult because employees move in, out, and within a firm, which influences a firm’s ability to effectively manage knowledge (developing, reusing, retaining, and sharing knowledge)[5, 71]. Many of the tactics that companies use to cope with the aforementioned complexities are founded in product architecture theory [8, 80, 116, 123]. Product architecture defines the functional elements within an artifact, maps these functional elements to physical elements, and defines the interfaces among the interacting physical elements [136].
Although product
architecture is a relatively new research area, product development teams in industry have been architecting their products for quite some time as a way to manage complexity. It is precisely
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because architecting new products has historically proven to fulfill customer needs in a way that is economically feasible for the firm that product architecture has become a popular topic of resent management research. In spite of the diversity of literature published on the topic, product architecting is still not well understood both because of its inherent complexity and because of the far-reaching implications in product management [132]. In an attempt to fill this void, this paper provides a framework for classifying the vast amount of existing literature relevant to product architecture and then uses the framework to understand how product architecture decisions impact the firm. We investigated literature from multiple disciplines including engineering design, process design, marketing, and organizational science so as to include all important perspective on the impact of product architecture.1 The rest of the paper is laid out as follows. Section 2 provides a conceptual foundation of product architecture that posits a common vocabulary upon which the remainder of the paper is based. Section 3 describes the product architecture impact framework and why we believe it is a major theoretical contribution. Section 4 discusses how product architecture affects three kinds of firm assets (knowledge, product, and brand portfolios). Section 5 describes how complexity is structured through organizational and product specification architectures. Section 6 illustrates how three categories of business processes are affected by product architecture (production & distribution, product development and design, and marketing processes). Lastly, Section 7 contains our concluding remarks and suggested directions for future research.
1
Many of the concepts can be carried over to understand implications of service architecture on firm performance.
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2. Product Architecture Fundamentals A complex system is made of a large number of interacting parts and it is the central task of scientists to show how these systems can be simplified and further understood [126]. Although product architecture concepts are not new, Ulrich [136] was the first to link product architecture to several key areas of product development as a way to reduce complexity. He defined product architecture, provided a typology of product architectures, and described how product architecture influences product change, product variety, component standardization, product performance, and product development management. In this seminal work he defined product architecture as, (1) the arrangement of functional elements or functional structure; (2) the mapping of functional elements to physical elements; and (3) the specification of the interfaces among interacting physical elements. He then described the difference between a modular architecture and an integral architecture. A modular architecture is has a one-to-one mapping of functional elements to physical elements, whereas an integral architecture has a complex mapping of functional elements to physical elements and/or coupled interfaces between components. Most complex products exhibit varying degrees of both architecture types. The remainder of this section will focus on architecture concepts that are more modular in nature. The tradeoffs associated with integral product architectures are discussed more thoroughly in Section 6.2. Understanding the complex network of interactions between product elements makes the development of complex products manageable. For this reason, architectural design (sometimes called system design) is a necessary precursor to detailed product design, which involves designing the physical elements. To fully specify the interactions between two product elements
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(components, subassemblies, etc.), product architects must specify and define each of the following types of interfaces [121]: • • • • • •
Attachment interfaces—how components attach to each other Spatial (volumetric) interfaces—the spatial volume allocated to a component Transfer interfaces—what comes in and what leaves the component Control and Communication interfaces—information exchanges that communicate component state and/or changes User interfaces—how the component receives “requests” from the user Environmental interfaces—how the component interacts with the ambient environment or other components in unintended ways The product of the interface definition process is termed the information structure [118].
A module is a grouping, either physical or conceptual, of architectural elements that often results from the interface definition process [94]. A module, therefore, can be a single component, a grouping of components such as a subassembly or a subsystem, or any combination of these [144]. Two modules are said to be loosely or tightly coupled based upon the extent of the interdependencies between their interfaces [98]. Standardized interface parameters and protocols are termed design rules [8, 121], and are key enablers of innovation [9].
Together, the
information structure and design rules make the modular product design process possible. The benefits of having a well understood information structure and design rules are obvious, yet, the interface mapping and standardization process is complicated and time consuming. In the conceptual design phase, not only is it difficult to ascertain all of the interfaces a priori, but it is also difficult to be sure all of the physical elements themselves have been adequately enumerated. It is because of these difficulties that the “rule designers” must have an advanced knowledge-set of the system they are attempting to decompose to be sure the system elements will function correctly when they are integrated. It is almost a sure thing that design rules will need to evolve throughout the detail design process as new information about actual module performance is gathered and compared to expected module performance [8].
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A family architecture implies that several different products will be offered at once with “a common arrangement of elements, common mapping between function and structure, and common interactions among components [78].” It is through sharing components that firms are able to economically offer a diverse set of products to meet varying types of customer needs [39, 81]. The set of common elements, interfaces, and/or processes is referred to as the product platform, and the unique end-products that use a platform are called the variants [64, 81, 92, 93]. Although the definition and use of the word platform has varied from researcher to researcher [92], the above definition seems to be the one most commonly used and therefore adopted for use in this paper. Platforms are a special type of module [83] and it is possible to have multiple platforms within any single product architecture. Modular and platform design happens in the early stages of product development when product designers strive to create flexibility for the future and/or reuse existing product elements and interfaces to create new product variants and thereby save development time and manufacturing costs while also making performance tradeoff decisions [47, 48, 53]. A larger perspective of platforms shows there are four types of assets shared when platforming techniques are used: components (the most common use of the word platform), processes (manufacturing and distribution for example), people and relationships, and knowledge [109]. A family architecture or platform strategy is economically attractive for several different reasons [53, 92]. The integration benefit refers to the economies of scale that are created because large volumes of shared components can be manufactured for use in the multiple product variants [64]. The speed benefit refers to the increased ability to react to environmental conditions such as competitor product introductions or changing customer tastes when using a platform strategy. Design benefit refers to the reduced time and effort, managerial complexity,
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and safety of using a proven (reliable) design base to create a new family variant. In addition to the aforementioned benefits, Krishnan and Gupta [64] note that the “platform’s greater degree of reuse often encourages firms to invest more time and effort in their design and development, which results in better architecture, tighter integration of components, and lower unit variable cost.” Meyer and Seliger [82] discuss how several of the abovementioned benefits surface when platforming concepts are used in software development. Developing an effective platform is a sub-problem of product architecture design that adds additional complexity. The first difficulty is determining how much flexibility must be “designed-into” the platform to meet the future uncertain needs of the product portfolio. The second major difficulty is determining the correct level of platform distinctiveness (platform diversity) needed to meet the future goals of the portfolio plan [109]. A third difficulty is determining component quality when it is to be used in both high- and low-end variants in a product family due to over-design costs in the low-end products and underperformance costs due to lower-quality components in high-end products [64]. Platforms also affect product positioning and introduction sequences, which may influence the firm’s ability to act strategically to maximize profitability [64]. A platform strategy may not be right for all types of products [64]. Platform design requires upfront time and capital, and therefore must be treated as an investment where the investment cost is weighed against sales and margin [32]. Participants in the van Vuuren and Halman [141] study stressed that platforming should not be “a goal in itself” and it should be clear how platforms can be reused in the future development of products. When considering a platform strategy, managers often look only at the fixed costs of developing platforms and forget to compare them to the gross profit of the product-family [77]. In spite of the additional costs
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incurred during product development, the platform approach may yield higher profits because of the integration benefits when compared to developing individual products, and sometimes the costs are “…negligibly small compared to the gross profit of the product-family [64].” There are several different dimensions to measure the successfulness of a platform design [81, 83]. The first is cycle time efficiency, which measures how fast a derivative product can be designed. The second is technological competitive responsiveness, often referred to as platform flexibility, which describes how well a firm is able to adapt its platforms as market conditions change. Another measure is profit potential, which measures the overall platform profit margin. Lastly, platform effectiveness measures the cost of developing variants as compared to the cost of developing the entire platform. Many authors point to platform flexibility as the key metric for forecasting the potential successfulness of a product family [46]. Any one measure may not adequately judge platform performance, but, if used together, the above measures may offer a valuable perspective that can be used to make more rigorous managerial decisions. This section began by discussing product architecture concepts and went on to describe why understanding the concepts around it are important to managing product development projects. Next, two important outputs of the product architecture design process, the information structure and design rules, were discussed. Lastly, the benefits and implications of platforming as a way to economically provide variety in the product portfolio were discussed. The next section introduces a framework for understanding how these architectural concepts influence key areas of the firm.
3. Product Architecture Theoretical Framework An extensive literature search reveals that product architecture is coupled to eight key areas of the firm: product portfolio, knowledge portfolio & learning processes, organizational
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architecture, production and distribution processes, product development and engineering design processes, marketing processes, specification architecture, and the brand portfolio. The eight key areas are arranged around product architecture in Figure 1 according to system perspective horizontally and according to system level vertically. The system perspective indicates which facet of the system (firm, product, or consumer) a piece of theory or research considers, and the system level indicates how “deep” within the perspective an idea or theory attempts to explore. As each key area is a research domain in its own right, this paper focuses only on the key areas as they relate to product architecture.
Figure 1: Interdependence of Product Architecture and Key Areas of the Firm2 Although many papers have discussed the relationships between subsets of the eight key areas with product architecture, we attempt to capture all of the implications in a single framework. For example, Baldwin and Clark [9] describe three “layers” of structure implicit in the design of an artifact as: (1) the structure of the artifact; (2) its design structure; and (3) its
2
The method used to develop the framework was largely an inductive process: (1) an exhaustive literature search focusing on product architecture was conducted, (2) article summaries were created and previous attempts to structure complexity through architectural concepts were noted, (3) the relevant papers were summarized, (4) papers were “grouped” in different ways that seemed at first glance to categorize them, (5) groups were shuffled spatially until a logical framework was found.
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task structure.
Eppinger and Salminen [35] introduced three ways to manage product
development complexity: process, product, and organization architectures.
Sanchez [121]
describes how businesses use product, process, and knowledge architectures to structure organizational learning.
Muffatto and Roveda [92] describe how product platforms affect
production and logistic processes; development processes; project organizational structure; and knowledge management. The framework in Figure 1 also has some of the same components as the two “product development decision clusters” offered by Krishnan and Ulrich [65]. Yet, we believe the framework proposed here is more comprehensive and captures more of the essential elements than frameworks of the past. Table 1 gives a more detailed description of Figure 1 by offering names for the various “links” with product architecture; lists some key questions; and sample literature that might fall upon the link. A list of key research questions is also offered for each section, which is by no means exhaustive. The reader can see at a glance by the amount of sample literature where research opportunities may lie and where a considerable amount of work has already taken place, which we discuss further in the conclusion.
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Link Name
Knowledge Infrastructure (Section 4.1)
Product Architecture Planning (Section 4.2)
Architectural Branding (Section 4.3)
Organizational Transaction Infrastructure (Section 5.1)
Specification Cascading (Section 5.2)
Production & Distribution Connection (Section 6.1)
Product Development Connection (Section 6.2)
The Marketing Connection (Section 6.3)
Key Area
Knowledge Portfolio & Learning Methods
Product Portfolio
Brand Portfolio
Organizational Architecture
Product Specification Architecture
Production & Distribution Processes
Product Development & Engineering Design Processes
Marketing Processes
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Sample Literature
Kotha (1995); Novak and Eppinger (2001); Lee and Tang (1997); Gilmore and Pine (1997); Child et al. (1991); Ulrich (1995); Gerwin and Kolodny (1992); Ramdas (2002); Pine (1992); Pine et al. (1993); Gerwin (1993); Slack (1983); Fisher et al. (1996); Fisher (1997) Ulrich and Eppinger (1995); Steward (1981); Browning (2001); Yassine et al. (1999); Salhieh and Kamrani (1999); Smith and Reinertson (1998); Ulrich and Pearson (1998); Cooper and Chew (1996); Miller (1988); Ullman (1992); Krishnan and Gupta (2001); Gonzalez-Zugasti et al. (2000); Ulrich and Ellison (1999); Baldwin and Clark (1997,2000) Sanchez (1995,1996,1999,2003); Baldwin and Clark (1997); Porter (1985); Hoeffler (2003); Sanchez and Sudharshan (1993); Conner (1988); Sanderson and Uzumeri (1997); Fisher et al. (1996); Gonzalez-Zugasti et al. (2001); Cooper and Kleinschmidt (1987); Morgan and Daniels (2001); Krishnan and Bhattacharya (2002)
Sanchez (1995); Brusoni and Prencipe (2001); Ramdas 2002; Baldwin and Clark (1997, 2002); Sah and Stiglitz (1986); Dyer and Chu (2003); Sanchez and Mahoney (1996,1997); Eppinger and Salminen (2001); Muffatto and Roveda (2000); Sosa et al. (2003); Morris and Ferguson (1993); Kazanjian et al. (2000) Green and Srinivasan (1978); Urban and Hauser (1980); Otto (1996); Cook (1997); Chen et al. (1994); Kota (2000); Sanchez (1999); Cook and Wu (2001)
Henderson and Clark (1990); Meyer et al. (1997); Galvin (1999); Sanchez (2000); Meyer and Utterback (1993); Meyers and Wilemon (1989); Bohn (1997); Zahra et al. (1999); Lei et al. (1996); Nijssen et al. (2001); Duysters et al. (1999); Howells (1999); Kimzey and Kurokawa (2002); Prahalad and Hamel (1991); Spender and Grant (1996); Nonaka (1994); Polanyi (1967); Henderson and Cockburn (1994); Abernathy and Utterback (1978); Louis and Sutton (1991); Muffatto and Roveda (2000); Quinn (1999); Aoshima (2002) Gonzalez-Zugasti et al. (2001); Ramdas (2002); Mangun and Thurston (2002); Desai et al. (2001); Krishnan and Gupta (2001); Muffatto and Roveda (2000); Martin and Ishii (2002); Hernandez et al. (2002); Baldwin and Clark (2000); Cooper et al. (1997a, 1997b); Lancaster (1990); Ulrich (1995); Kota et al. (2000); Li and Azarm (2002); Robertson and Ulrich (1998) Sudjianto and Otto (2001); Aaker and Joachimsthaler (2000); Lederer and Hill (2001); Herman (2000); Sanchez (1999); Randall et al. (1998);
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How does product architecture affect the way firms execute the marketing function? How can a flexible product architecture influence they way firms conduct marketing research?
How are firms able to develop variety in their portfolio economically? How can the value of a module or platform design be measured? What are the different ways to compare different platforms? How do firms plan their products with respect to product architecture? How can firms use flexible product architectures to evolve their portfolio? What is the relationship between elements in the product architecture and brand strategy? How can branded modules increase product value? How does branding affect platform decisions? What is the relationship between organizational design and product architecture? How should the organizational architecture be aligned with the product architecture? How does organizational design affect the costs of making transfers? How does a product’s architecture affect the ability to cascade specifications down through the product architecture? How should consumer needs be cascaded down through the product architecture hierarchy? How do elements lower in the architecture hierarchy affect systemlevel performance? How does product architecture affect the way firms produce and distribute their products? How can products be architected in a way that creates flexibility in the manufacturing and assembly processes? How does product architecture affect the way firms develop new products? How does product architecture affect a product development project’s success based on key metrics?
How is learning affected by a product’s architecture? How does product architecture influence knowledge retention? How should different types of knowledge be retained? What is the influence of platforming and modularity on the firm’s ability to manage and leverage its knowledge? How does outsourcing the development and/or production of modules affect the firm’s core competencies?
Key Question(s)
Table 1: Overview of Product Architecture and “Links”
4. Business Assets This section explores the influence of product architecture on three kinds of business assets: knowledge portfolio & learning methods, product portfolio, and brand portfolio. By knowledge portfolio & learning methods, we mean all knowledge that resides within the firm, whether stored physically or within individuals, and the learning tools of the firm that ultimately help the firm remain competitive. A firm’s product portfolio consists of all products available in the market place at any given time, and the brand portfolio is the grouping of all brands associated with a product by the consumer during the purchase decision. 4.1 Knowledge Infrastructure The firm’s portfolio of knowledge has many strategic implications. First, knowledge is often the source of innovation for products and processes, especially in those companies that are dependent upon in-house research and development (R&D) groups for innovation. Second, knowledge is the source for identifying, planning, and executing the strategies hoped to give the firm a fighting chance in the market place. Third, the ability to create, store and retrieve knowledge across several new product development projects has been identified as a key to project successfulness [84]. Lastly, the firm’s reputation for creating knowledge can be a key to attracting talented people if the firm is known to be a thought-leader in an industry. Knowledge is the ability to make good decisions based on an understanding of causal relationships. Learning happens as information—structured data—is used to advance the understanding of a system [12]. There are two basic kinds of learning that develop product and process knowledge: acquisitive and experimental [70, 148]. Acquisitive learning (exogenous learning according to Lambe and Spekman [66]) takes place when the firm “acquires and internalizes knowledge” from the outside, such as the case with technology partnerships [33, 95]
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or technology outsourcing [55, 60]. Experimental learning occurs within the firm and generates new and distinctive knowledge for the organization, which often leads to the development of core competencies [104]. This type of knowledge is often developed through a portfolio of R&D projects. Companies choose these projects based upon their ability to balance risk and reward— ability to fulfill corporate strategies. In order to remain competitive, firms must not only manage the development of strategic knowledge, but also develop ways to retain and cascade the knowledge throughout the firm.
Products and services come and go, but knowledge is what
firms use to identify, create, and exploit opportunities. Managing the knowledge portfolio is not easy however because knowledge takes many forms, is shared in different ways, and is retained with varying levels of success. Spender and Grant [130] characterized knowledge through the use of a 2 x 2 matrix as shown in Figure 2. Collective knowledge is the shared set of beliefs about the causal factors and relationships within a system and is thought to be the most strategically important kind of knowledge to the organization. Explicit knowledge refers to knowledge that can be easily articulated, captured, and transferred. Tacit knowledge is just the opposite and can only be acquired through experience [96, 102]. A further classification of knowledge is between component and architectural knowledge [50, 51]. Component knowledge could be any of the four types in Figure 2, but architectural knowledge is generally tacit and stored within a larger system or group [42, 79]. Location Individual Type
Group
Explicit Conscious Knowledge Objectified Knowledge Tacit
Automatic Knowledge
Collective Knowledge
Figure 2: Characterizations of Knowledge Page 13
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Architectural knowledge is created in two ways. The first method is through the development of the information structure, which defines the network of components and interfaces. Sanchez [121] notes that “trying to fully specify the component interfaces in a modular product architecture is very likely to reveal any knowledge deficiencies or ‘capability bottlenecks’ that limit an organization’s understanding of how the [elements] in its product architecture behave and interact.” The second method is through experimentation. Technologies are often not fully developed before they are released into the marketplace [2, 17, 113], which leads to a period of experimentation and the ultimate emergence of an accepted dominant design (dominant architecture) [50]. Architectural experimentation requires a different mode of learning that often requires a larger time and capital investment than evolution at the modular or component level [74]. The reason for this is often based on the fact that “old architectural knowledge” often inhibits learning and can often mislead organizations trying to learn “new architectural knowledge”. Because of this phenomenon, it is often easier for new entrants, with less bias towards and shorter history of “old architectural knowledge”, to learn about new architectural ideas [50]. Developing architectural knowledge is challenging, but equally challenging is the ability to retain knowledge. Knowledge is often lost when projects end and team members are split up; it can be lost when individuals leave the firm; it is often lost because it is not shared; and it is often lost as elements in the architecture begin to be outsourced. Many researchers have proposed solutions which address the knowledge retention concerns listed above [42, 57, 143]. One method to retain knowledge is within the individuals themselves (human-based knowledge) and share those individuals across multiple projects or product generations [146]. The humanbased mechanism has limitations, however, because when people leave the firm, knowledge
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often leaves with them. Another way to capture knowledge is through written or electronic form, but this method is limited because it is time consuming or even impossible as tacit knowledge is not easily captured by drawings or words. Often, product platforms are credited for capturing knowledge, which can be used over and over to create new products without the need for redesign or retesting of proven components and subsystems [92]. Indeed, Meyer and Utterback [80] discuss how product families and platforms are an embodiment of the firm’s core capabilities, and there is a strategic risk in outsourcing areas of the business considered to be core competencies [105]. Standardized designs and platforms are useful for retaining knowledge, but as the speed of product renewal increases, human-based mechanisms become more attractive because of the increasing costs of maintaining explicit knowledge [4]. The way firms manage their knowledge and the way they learn is, therefore, related to their products’ architectures. Architectural knowledge is tacit; is developed through experimentation; and is retained within the firm’s individuals. The next section describes how the type of architecture chosen influences the way firms plan their products. 4.2 Product Architecture Planning A self-evident success factor for remaining competitive is the firm’s ability to introduce a steady stream of new products and services that is at least in pace with the competition. A business’s product portfolio is the set of all products available in the market place at any given point in time. Product portfolios3 change as new products are launched or existing products are retired. There are three generally agreed upon goals of product portfolio management [26, 27]: maximize the value of the portfolio, achieve the right balance and mix of products, and link the portfolio to the business strategy.
3
For a thorough introduction to product portfolio management, the reader is referred to Cooper et al. (1998).
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The value of the portfolio is maximized when it provides adequate variety to compete in multiple market segments and meets the strategic needs of the firm. Portfolio variety is the diversity of product variants that a firm’s portfolio offers to the market place [136], and sometimes corresponds to the number of “brands” or “models” [67]. Perceived variety, from the standpoint of the customer, is often influenced by the tempo of product releases [107]. Variety is motivated by one or more of the following four factors [67, 107]: (1) how much variety the consumers expect; (2) the perception of unmet needs; (3) additional profit generation; and (4) the need to innovate as a way to stay competitive. From these motivations come the different “flavors” of variety: strategic and tactical. Strategic variety4 refers to the perceivable differences in products from the consumer’s perspective [77]. Strategic variety comes in two forms, variegation and differentiation [107]. Variegation refers to the variety displayed within a single firm’s portfolio, and differentiation refers to the variety displayed between a single firm’s products and all other competing products. The variegation displayed within the portfolio at a particular point in time has been called spatial variety and over time as generational variety [78]. On the other hand, tactical variety5 refers to differences between products that are not obvious to the consumer [77], but are necessary for at least one of the following reasons [61]: (1) varying component packaging constraints within a variant; (2) implementation of new technology; and (3) the “idiosyncrasies” of independent design teams. The flexibility of the product architecture is seen to be the key factor in determining the ability of a company to create variety in its portfolio to meet dissimilar customer needs [107].
4
External variety according to Anderson (1997)
5
Internal variety according to Anderson (1997)
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The increased flexibility in a modular architecture design is often cited as one of the main benefits of the strategy. Businesses use product architecture to efficiently and economically develop the product variants that are believed to help increase the value of their portfolio. A family of products6 generally solve the same type of problem for the consumer, yet each product exhibits different attribute performance levels [72]. Drawing from evolutionary theory, Baldwin and Clark [9] claim there are essentially six ways that product managers can evolve their products through a modular architecture: splitting a design into modules, substituting one module for another, augmenting by adding a new module to the system, excluding a module from the system, inverting to create new design rules, and porting a module to another system. A family of products is tied together by its “core” set of shared components, often referred to as the platform. In order to develop the product portfolio efficiently, businesses must develop good platforms by carefully aligning the product plan, differentiation plan, and commonality plan [109]. The product plan describes, at a conceptual level, what products will be delivered to market segments identified as important to developing the business.
The
differentiation plan describes how the new products will be different from either existing or soon to be released products. Conversely, the commonality plan defines which product elements (subassemblies, subsystems, components, etc.) will be common across portfolio members. These three plans are essential to ensure that markets exist for new products, the new products can be designed quickly, and there is sufficient component sharing to help create economies of scale. This section described the different kinds of portfolio variety and where they come from. It also described why product architecture flexibility is an important evolutionary metric and
6
products coming from a family architecture as discussed earlier in Section 3
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influences the firm’s ability to adapt their product portfolio to dynamic market environments. The next section describes the link between branding and product architecture. 4.3 Architectural Branding Branding provides continuity and reduces risk for consumers as they evaluate a set of branded products for purchase [56, 111]. Malaval [76] lists the two major functions of brands as positioning and capitalization. The positioning function is to distinguish a company’s products from those of the competitors. The second function, capitalization, is a way for a company to increase the value of the brand, which often enables the firm to charge a premium for their products. The brand therefore is a tool for communication that often adds value to the object being considered for purchase [36].
Brand equity is a strength-measure of the consumer
relationships with the firm’s products and services and is measured by dimensions such as awareness, image, and loyalty [76]. A brand portfolio traditionally refers to all the brands that are owned by a business, but there is increasing support to include all brands tied to a particular product in the consumer’s mind during the purchase decision, whether those brands are owned by the primary firm’s brand or not [68]. Dacin and Smith [29] describe two basic properties of a brand portfolio as “[t]he number of products affiliated with a brand and the variance in quality among those products.” Because creating consumer-brand relationships is often very costly, there is increasing pressure to leverage brand assets.
Due to these pressures, brand managers have created complex
strategies, involving multiple brands that strive to extend or endorse other brands. The discipline used to design the structure of brand roles and relationships within a brand portfolio has been labeled brand architecture [1, 68].
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One of the ways a product communicates its brand is through its components. It is often important that key components are shared among a product family, a branded platform so to speak, as a way to “instill a sense of the brand gestalt” [132]. Sharing components to communicate parent brand continuity, while attempting to maintain distinct sub-brand differentiation, is not easy. Commonality may reduce costs as discussed in Section 2, but it may also reduce profit potential as products become too similar. Sudjianto and Otto [132] framework (shown in Figure 3) to explain when a component should be common or brand-specific while developing the differentiation plan. For the products investigated, Sudjianto and Otto [132] found that it was much easier to maintain brand differentiation when distinctive products were investigated for commonization opportunities than when product variants were developed using a common platform. These observations link the importance of product architecture decisions to
High
Platform it
Analyze to decide
Low
To Offer Variety
Difficult/Costly
branding concepts.
Does not matter
Offer brand-specific
Low
High
Importance to Overall Profit Through Brand Differentiation
Figure 3: General guidelines for developing a commonality plan Some components can be grouped into a module, which creates a “brand signature” of its own. These modules are referred to as branded modules [132]. An example of a branded module may be a diesel engine that is used in both trucks and vans, but has a common brand name that creates value in the mind of the consumer. The Intel computer chip, with the very effective Intel
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Inside brand strategy, is another example of a branded module, which creates brand equity for an arguably archetypal commodity and also adds value to the system-level brand that houses it [124]. As modular architectures often enable fast-paced innovation, it seems reasonable that branded modules may be an effective way to communicate incremental improvements at the modular level. Although brand-building has been seen as cost-prohibitive in the past, there is growing support for the use of short-term brands, especially as consumers exhibit growing willingness to try new brands [52], which means branded modules may be one way to communicate fast paced innovation of a modular architecture. Brand management plays a major role in the ability to use a single modular architecture across a range of market segments [120]. This may include the creation of distinct brands whose performance may vary to meet the needs of low-, mid-, and high-market segments. If it is difficult to affect performance through “variety-enhancing components”, then opportunities to create variety through styling may be a way to create variety. Either way, brand managers must be aware that a “low-quality” brand’s equity is related to the lowest-quality product in the family, but a “high-quality” brand’s equity is related to the quality of the highest-quality product in the family [108]. In this section we showed how, at least in the case of products, brands are bound to the elements of the product architecture, and discussed how branded modules may be an effective way to communicate innovation at the modular level. The next sections describe how organizational and product specification architectures help to manage complexity within each of their respective domains.
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5. Firm Structure This section explores the way product architecture influences the organization architecture and product specification architectures. Organizational architecture describes (1) how decisions rights are assigned within the organization, (2) the performance evaluation systems of both individuals and business units, and (3) the methods of providing incentives or rewarding the individuals or units for performing their requisite tasks effectively [58, 86, 110]. The choice of organizational architecture has direct implications on how the organization manages complexity and on its ability to innovate its products [136]. The product specification architecture describes how product requirements (or bundles of attributes) relate to each other. A solid understanding of this structure ultimately helps to guide system designers through the multitude of trade-off decisions that arise during product development. 5.1 Organizational Transaction Infrastructure Organizational design tries to create a structure that can effectively and efficiently execute the requisite tasks needed to execute business operations profitably [40]. Organizations function by transferring information, energy, and materials throughout its network of agents call the organizational architecture [112]. Figure 4 gives a pictorial representation of a multi-firm organizational architecture showing the relationships between agents and two types of transfers: internal and external. Internal transfers are exchanges of information, energy, and/or material within the firm boundaries, whereas external transfers are exchanges between agents residing in different firms. The costs associated with a transfer can be categorized as being either convenience, political, or distance. Internal transfers are generally less expensive as the agents within a single firm can make a transfer more conveniently because special contracts are not needed, the agents usually possess similar objectives, and there is often closer spatial proximity
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requiring less “energy” to move physical items. External transfers are more expensive, not only because the agents often have conflicting objectives and the geospatial distances are larger, but transaction costs are incurred when two firms must establish the transfer interface. The interface creation process has three steps and results in a contractual agreement [10]. The first step is to agree upon what is to be transferred. The second step is to establish how the transfers will be counted. The third, and final step has two parts: (1) agreement on how transfers will be valued; and (2) an agreement on valuation based compensation levels. Each of these steps is costly as it is difficult to define even the most simple transfer, and methods for counting and compensation vary dramatically.
Figure 4: Multi-Firm Organizational Architecture Baldwin and Clark [8] point out that, “[j]ust like a modular product that lacks good interfaces between modules, an organization built around decentralized teams that fail to function according to a clear and effective framework will suffer from miscues and delays.” Indeed, the ease of interaction between agents could be viewed as a source of competitive advantage as transaction costs accumulate and innovation is impeded as information flow is obstructed [34]. Figure 5 shows how multi-firm complexity and type of product architecture Page 22
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influence the costs of making transfers. Modular product architectures often reduce costs as they require less frequent and more defined transfers between agents as discussed in Section 2, which explains why elements of a modular architecture can be outsourced more easily. However, as a perfectly modular architecture is an ideal, it stands to reason that as the architecture becomes more integral in nature, the transaction and transfer costs become more expensive. Single-Firm Architecture Modular Product Architecture
Integral Product Architecture
•
•
Internal transfer costs only
Expensive internal transfer costs
Multi-Firm Architecture •
Internal and external transfer costs
•
Simple contracts
•
Expensive internal and external transfer costs
•
Complex contracts
Figure 5: Cost Relationships between Organizational Architecture and Product Architecture Research in managing the essential elements of product architecture has revealed relationships with how organizations are structured [35, 92, 118, 119, 129].
Morris and
Ferguson [91] argue that matching the organizational architecture to the product architecture reduces decision-making complexity by minimizing “vertical and horizontal debates.” However, before a dominant design has emerged, Kazanjian et al. [59] noted that, very often, both the original product and organizational architecture designs are based on a “fuzzy vision of what the ultimate product will become.” Moreover, the authors note the following: [T]he final [architectural] design of such a creative product cannot be known completely at the onset because it is novel and unique; the design emerges from the process of trialand-error learning over the course of product development; and arises from the interdependencies across the functions and sub-systems. As a result, the corresponding organizational architecture is modified accordingly as the project and its underlying design unfolds.
After a dominant design has emerged, the organizational design that emerges often resembles that of the product architecture [14]. This section described how the product architecture influences the firm’s organizational architecture by defining the network of transfer needs between agents. The costs associated with
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transfers are reduced as products exhibit increasing levels of modularity because transfer needs are easier to map out and understand than those of more integral products. Having an organizational architecture that effectively manages the information flow while also possessing the flexibility to reconfigure and reorganize resources to ensure all facets of the product design are adequately considered (and not forgotten) is crucial to the success of any product development effort. 5.2 Specification Cascading After a new market opportunity is identified, whether based on the results of marketing research or intuition, the next step is to refine the concept by carefully defining the future product’s key specifications. It is a common view of marketing research that a product is a bundle of attributes [49], and the determination of these key product attributes and resulting targets has been shown to be a critical step for the success of new products [6, 24]. The steps of determining these performance metrics and determining performance metric targets remain two of the most difficult tasks in new product development [99]. Not only are the attribute targets important to ensure the product fulfills its purpose and generates value for the consumer, but they help make sure the product fulfills strategic business initiatives, competition is taken into account, and there is compliance with governmental regulations [140]. Determining the system level performance metrics begins with understanding the “voice of the customer” [140]. The “voice of the customer” refers to the list of customer needs, a hierarchical structure of those needs, a set of importance weights to prioritize those needs, and competitor benchmark data. This information is then translated into system level attribute metrics, which help engineers evaluate design alternatives. A complex product is generally decomposed into a hierarchical system with multiple levels of interaction between the
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subsystems of which it is composed [126].
Cascading requirements is the process of
strategically dictating requirements to elements lower in the product architecture hierarchy. As the system-level attributes, along with their target specifications, are mapped to elements lower in the architecture hierarchy, the system designers create the specification architecture. Figure 6 shows how customer preferences, strategic business initiatives, as well as government regulations define the product performance requirements, and how these requirements are cascaded down through the architecture hierarchy to create a specification architecture. In this framework, it is easy to see how one subsystem is another’s system and vise versa. Cascading requirements remains a significant challenge to systems engineers as it is difficult to ensure that system performance requirements will be met even if subsystem targets are met [21]. Indeed, especially in the case of a product that has an integral or partially-modular architecture, the system-level attributes are invariably tied to several elements lower in the architecture hierarchy [19]. It is through these subsystem performance targets that alternative designs are evaluated by the respective design teams, so it is important that the performance requirements have the correct level of abstraction as to provide common ground for comparing alternative designs [61]. Understanding how the subsystem requirements are cascaded down through the architecture hierarchy is important because eventually the byproducts of engineering design will be synthesized, whether the designs were developed “under the same roof” or by multiple firms, and the result can be greatly influenced by specification descriptions.
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Automotive Example Strategic Business Needs
Customer Needs
Government Regulations
Product Performance Requirments
Subsystem A Requirments
Subsystem B Requirments
Sub-subsystem B1 Requirements
•
o 0 to 60 (sec.) o 50 to 80 (sec.) Weight (lbs.)
Subsystem Specifications (Engine System) • Fuel Subsystem (gasoline or diesel) • Engine type and mounting locations (transverse, Subsystem C Requirments
Sub-subsystem B2 Requirements
Component B2-1 Requirements
Automobile System Level Targets • Fuel Economy (miles/gal.) • Acceleration
Component B2-2 Requirements
longitudinal, rear)
• Exhaust subsystem (emissions levels, noise) • Packaging Requirements Sub-subsystem Specifications (Engine) • Horsepower (hp.) • Torque (ft-lbs.) • Weight (lbs.) • Packaging Requirements Component Specifications (Piston) • Material • Weight (lbs.) • Packaging Requirements
Figure 6: Cascading Product Specifications and Requirements7 Generally speaking, there are four basic ways that architectural elements contribute to overall system-level performance [120]. Some elements must provide a threshold of functionality, but do not add value to the product when they surpass the threshold requirements. Conversely, as central components improve in performance, the perceived value of the end product may also improve based on the improvement of several key system-level attributes. Variety-enhancing elements can add value by providing styling variations that appeal to consumers by creating a distinction between different models even though they perform the same at a functional level. Lastly, plus-only elements can be added to products to provide features that add-value, yet the product’s perceived value will not change if the element is absent. It should be noted that, although components may improve system-level performance, as the system level attributes approach their ideal values there will be diminishing returns on end-product value [22].
7
Adapted from Cook (1997), p. 135.
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How well subsystems are able to deliver or improve system level attributes may be one way that design team performance can be measured (value capture). This section described the process of cascading system-level specifications down through the hierarchical product architecture. Generally speaking, this process is made easier as products exhibit higher degrees of modularity as requirements are more easily mapped to single elements. The next sections discuss how product architectures influence the way products are produced, how they are developed, and how they are marketed.
6 Processes This section explores the way product architecture influences the way a firm’s products are manufactured and distributed; the methods used to develop and design products; and how firms execute the marketing function. 6.1 Production and Distribution Connection Having a competitive product portfolio is important, but equally as important is the ability to move those products throughout the supply chain with satisfactory service levels and to produce the products for a reasonable manufacturing cost. Product variety can indeed add significant manufacturing costs to producing a product family [16]. The ability of a business to produce a diverse product portfolio efficiently is frequently attributed to manufacturing flexibility [136, 44], which is a function of first, the product architecture; and second, the technology within manufacturing plants, distribution centers, and throughout the supply chain structure [107].
Supply chain improvement efforts have focused primarily upon reducing
inventory (work-in-process and safety-stock) and reducing lead-time (time from manufacturing to market), as both increase the profitability of the firm, especially if customers are willing to pay for increased responsiveness.
Producing products efficiently can lead to an overall cost
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advantage over the competition, which allows firms to capture more revenue leading to longterm competitive advantage. There are other ways to increase firm profitability through production and distribution operations however. Product architecture influences how products are assembled; it influences how flexible those assembly processes are to product changes; and it influences how products are distributed.
Because product architecture often dictates how products are sequentially
assembled, it directly affects the firm’s ability to delay the product differentiation point within the supply chain.8
Delaying the point of variegation9 means common work-in-process
components are not committed until late in the production process when they are ultimately used to produce multiple unique finished products [69]. This means the “finishing” of a product may not only happen within a production facility, but also within distribution centers or even the point of sale, which helps to cope with market uncertainties and lower inventory for the same service level [107]. When the point of variegation has been delayed effectively, the firm can mass customize its products to meet customer preferences for a reasonable price [100, 101]. The overall flexibility of a manufacturing system can be measured by time and range [127]. On the time dimension, a production system is more flexible than another if it can change from one production process to another more quickly; if it can be modified to produce more product variety more quickly; and if it can scale to produce larger volumes more quickly. Production range can be broken down into seven dimensions: mix changeover, modification, volume, rerouting, material, and flexible responsiveness [43]. Product architecture influences many of these dimensions as flexible product architectures lead to flexible manufacturing, which
8
This concept was first introduced by Alderson (1950)
9
Differentiation within a single firm’s product portfolio (Ramdas 2002)
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ultimately makes concepts such as “mass customization” and “flexible processes” possible [37, 38, 101]. This section described how product architecture influences the way a firm produces and distributes their products. Namely, the product architecture is a key enabler of mass customization and delayed variegation, which are seen as two strategies that firms can use to meet a variety of consumer needs economically. The next section discusses how product architecture influences the way firms develop new products. 6.2 Product Development Connection Product development is the sequence of all the required activities that a company must perform in order to develop, produce, distribute, and sell a product [139]. There are four metrics commonly used to measure the performance of a product development project effort [128]: project time, project cost, product performance, and the cost to produce the product. There are six interactions created by these four metrics as shown in Figure 7.
For example, if
development time is decreased the product performance may decrease, unit cost may increase, and overall project cost may increase or decrease depending upon whether the reduced development time was the result of an additional financial investment. Several researchers have investigated the link between engineering design and manufacturing costs [25, 138]. Some results claim that 80% of the manufacturing costs are determined during the first 20% of the design project [87, 135].
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Development Time
Product Production Cost
Product Performance
Development Cost
Figure 7: Four Metrics of Product Development Projects10 Whether an architecture tends to be more modular or integral influences each of the four metrics listed above. In spite of the many benefits modular architectures offer (as discussed in Section 3), integral products can often be developed quicker than a modular design to achieve the same function. Krishnan and Gupta [64] noted that platforms are time consuming to develop, which can result in delayed product launches of the first few derivatives. There is therefore a trade-off decision regarding the long-term economic benefit of using a platform strategy versus the possible short- and long-term effects of introducing products late. In addition to being costly to design, modular designs often end up requiring more physical elements (more components, subassemblies, etc.) to obtain the same level of functionality as a more integral design, resulting in a larger final product in terms of weight and volume resulting in lower material costs [47]. The reason why integral designs perform better on these dimensions is because multiple functions are mapped to single design elements; so where a modular design would have required three different elemental entities, for example, a integral design may only need one entity and therefore less material is needed resulting in a lower weight and volume. For this reason, when weight and/or volume are critical product performance parameters (such as in an aircraft), an
10
Adapted from Smith and Reinertson (1998)
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integral design often becomes a necessity, which results in product-specific components [137]. This tradeoff ultimately results in slower product evolution due to the reduced design flexibility. Product architecture helps to reduce the complexity of engineering design processes through design decomposition and synthesis. Design decomposition is the breaking down of a complex system into smaller and often easier to understand system elements, which also can often be decomposed even further. Decomposing the design into smaller modules, with well defined interfaces and information needs, allows independent design teams to increase the pace of innovation often leading to reductions in total time needed to design the final product. Design synthesis is the process of bringing together the smaller elements and verifying that they interact in a desired manner—often involving a process of ‘debugging’. A modular architecture often enables teams to test their modules off-line making design synthesis less time consuming [8]. This section described how product architecture influences the four product development metrics by which project successfulness is judged. As products become more modular in nature, the development time increases for the first few artifacts, but decreases as interactions become better understood. Conversely, integral architectures are generally used when time to market for the first variant is extremely important, and as weight and volume constraints become less flexible. The next section shows how product architecture affects the way firms execute the marketing function. 6.3 Marketing Connection Marketing processes focus on discovering strategic opportunities and then developing ways to exploit those opportunities in the marketplace. This is done through conducting market research, developing product strategies, and promoting products. Marketing researchers create a list of customer preferences that help to define product specifications for product designers. The
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research is also used to segment the market in a way such that special product variants can be conceptualized to address the unique needs of the customers within each segment. After the products are designed and ultimately produced, marketing is then responsible for informing the consumers of product benefits and inducing them to purchase through product promotion and pricing. Product architecture influences traditional marketing functions in several ways, but it places additional demands upon marketing teams when they compete in industries were products tend to exhibit larger degrees of modularity because new market dynamics are created [8]. A modular architecture influences the way firms conduct marketing research and create marketing strategies; it can shift product differentiation control from the producer to consumer; and it may even influence the traditional “boundaries” of the marketing organization because of the need to define and manage the strategic roles of modular components [120]. Marketing researchers with potentially modular product concepts must help to optimize the flexibility of modular architectures so they are able to create a portfolio of products to delight the customers within each of the market segments identified [116]. Marketing researchers also must clearly understand how component-based product variety affects the value proposition for products within each market segment [103, 107, 120, 122] because increasing product variety does not guarantee profits in the long run, and may even decrease firm competitiveness [67, 106]. As system-level performance metrics are cascaded down through the product architecture, the architectural elements ultimately take on one or a combination of strategic roles as was described at the end of Section 5.2. The marketing team plays a key role in creating the elementbased strategy for system-level performance metric evolution by dictating the timing of elementbased performance improvements [117, 120].
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Product architecture not only affects the role of the marketing team, but it also can affect the way they do their research [120]. Marketing research tries to ascertain customer preferences with a small upfront investment before committing to the larger investment of designing the product itself. Due to the small sample sizes typically used, the accuracy and results of traditional marketing studies often fall into question. The results must also be questioned when customers are forced to reveal their preferences based on imaginary products or concepts rather than based on a physical experience [54]. A solution to these issues, which can be used with flexible product architectures and complements tradition marketing research methods, is to conduct real-time marketing research [115]. Real-time marketing research starts by producing low-cost variants in small lot sizes that leverage flexible product architectures to observe the consumer’s reaction directly by how they spend their money. The solution becomes to produce more of what the consumers show they want, rather than what they say they want. Marketing strategy is implemented through product and service planning. Planners must not only decide how much variety is needed to address the different market segments identified from the marketing research, but it also must consider the pace and order of new product introductions. New products often make old products obsolete and may even cannibalize sales of existing products [20]. Introduction strategies for low- and high-end products are yet another product planning consideration. For example, should a low-end product that fulfills needs similarly to that of a high-end product be introduced before, concurrently, or after its high-end counterpart [11, 89]? Some researchers note that the pace of product releases and the amount of variety among its products are two important dimensions that influence how firms plan products [123, 37]. If the firm is in an industry where the pace of product releases is slow and only small amounts of variety are needed to remain competitive, it is probably not advisable for the firm to
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pursue a platform strategy as demonstrated in Figure 8. When a quick pace for introducing new products is required and/or a large amount of variety is required to compete, platforming concepts begin to make sense.
The most important aspect of a platform philosophy is
flexibility—how able and often can the platform adapt before it becomes obsolete [48]. Marketing teams are also often faced with difficult decisions concerning implementing new technologies. Cooper and Kleinschmidt [23] “demonstrated that product superiority in terms of unique features, innovativeness, and performance is a key factor that differentiates new product winners and losers.” Implementing new innovations is not without risk however. It is often difficult to know if a new technology has been adequately tested and validated to ensure robust performance in the field. Releasing unreliable products may cause significant damage to consumer sentiment and brand equity. For this reason, managers often “play it safe” by favoring incumbent technology and processes that favor an incremental approach [90]. When choosing technology for platforms, an incumbent technology increases the probability of developing robust product variants, but this decision must be balanced against the revenue generating potential of a new technology [48, 63].
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Figure 8: Relationship of Pace and Variety in Relationship to Product Architecture11 This section describes how firms can leverage flexible product architectures to meet strategic business objectives. Namely, real-time marketing research provides an indication of product successfulness that may be more reliable than survey-based approaches. Although platforms were shown not to be advantageous for all types of markets, they do facilitate product adaptation and variety evolution.
7. Summary & Conclusion This paper presented a framework that shows how product architecture decisions affect the firm from a systems perspective. Although much research has been conducted in each of the key regions identified, some links between the key areas and product architecture have been discussed more in the literature than others. The links to the consumer perspective regions have been the least analyzed of the eight. There are several possible explanations for this: (1) it may be difficult to formulate research questions and/or demonstrate results when considering these types of architecture decisions; (2) the intersections may not be thought to be important by many; or (3) the intersections may not have been identified. This paper addresses problems two and three directly, but it still may be difficult to formulate research questions or obtain results in these areas because of the complexity—this should be analyzed further. Many of the observations made by Krishnan and Ulrich [65] regarding research opportunities within the product architecture realm remain and can be seen more clearly through our framework. In addition to help make the research landscape more clear, the framework has been useful in identifying new research opportunities. For example, there is a general lack of empirical studies about how architectural decisions are actually made or how information that 11
from Sanderson and Uzumeri (1997)
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influences the architecture actually flows (e.g., how product specifications are actually cascaded throughout the architecture hierarchy). Also, the following are also new research questions with respect to architectural benefit communications: how effective can branded modules be at communicating the benefits of new technology implemented into existing platforms; how effective are they at building brand equity [120]; and how can the benefits of an entirely new product architecture be communicated to the consumer? Furthermore, should there be something that resembles “module planning” in the R&D department that resembles product portfolio planning. Effective product architecture design maximizes the flexibility of product evolution while providing product performance that delights customers for a price that induces them to buy and provides adequate profits for the firm to reward shareholder investment. Architecture decisions are complex because of their broad implications on the future performance of the firm. For this reason, tools developed for product architects must both balance simplicity and rigor, and capture the relevant information so good decisions can be made [73]. Simplicity is necessary so the tool gets used and rigor is needed so the outputs are trusted. In the context of product architecture design, we offer a framework that can help designers capture all the relevant information for their models.
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