Managing In The Modular Age: Architectures, Networks, and Organizations

Chapter 2. TECHNOLOGICAL AND ORGANIZATIONAL DESIGNS FOR REALIZING ECONOMIES OF SUBSTITUTION

Raghu Garud and Arun Kumaraswamy

The Schumpeterian era during which "gales of creative destruction" brought about revolutionary changes over long periods of time (Schumpeter, 1942) is past. In recent times, we have entered a neo-Schumpeterian era where technological change appears to be ceaseless. To survive in this new era, firms have to innovate continually (Klein, 1977). Continual innovation, however, imposes limits on a firm's ability to realize scale economies. Moreover, rapid change dampens the diffusion of new technologies as customers postpone purchases due to fear of obsolescence (Rosenberg, 1982). Slower diffusion of technological changes creates problems for firms attempting to recoup investments made in technologies that change continually.

There is another facet to this new era that renders contemporary environments different from those prevalent during Schumpeter's time. Specifically, many of these technologies are "systemic" in nature (Winter, 1987); i.e., they are embodied in multicomponent products that connect to each other. The development and production of such technological systems require significant investments on several complementary technologies (Hakansson, 1989; Powell and Brantley, 1992; Quinn, 1992; Teece, 1987). It is difficult for any one firm to invest in all complementary technologies because, after a point, bottlenecks arise in the form of overxtended scientists, ...