selfish designs what computer designs need from the economy and how they get it l.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
Selfish Designs: What Computer Designs Need from the Economy and How They Get It PowerPoint Presentation
Download Presentation
Selfish Designs: What Computer Designs Need from the Economy and How They Get It

Loading in 2 Seconds...

play fullscreen
1 / 63

Selfish Designs: What Computer Designs Need from the Economy and How They Get It - PowerPoint PPT Presentation


  • 243 Views
  • Uploaded on

Selfish Designs: What Computer Designs Need from the Economy and How They Get It Carliss Y. Baldwin Harvard Business School University of British Columbia October 14, 2004 Four Points Designs “need” to become real They become real by creating the perception of “value”

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Selfish Designs: What Computer Designs Need from the Economy and How They Get It' - RoyLauris


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
selfish designs what computer designs need from the economy and how they get it

Selfish Designs: What Computer Designs Need from the Economy and How They Get It

Carliss Y. Baldwin

Harvard Business School

University of British Columbia

October 14, 2004

Slide 1 © Carliss Y. Baldwin and Kim B. Clark, 2004

four points
Four Points
  • Designs “need” to become real
    • They become real by creating the perception of “value”
  • Designs act as a financial force
    • In the process of becoming real, they can change the structure of an industry
  • A Modular Design Architecture creates Options with Option Value
    • What is an “ORMDA”?
    • What does an ORMDA need from the economy?
  • The economy bites back
    • ORMDAs are dangerous places to make a living

Slide 2 © Carliss Y. Baldwin and Kim B. Clark, 2004

what are designs
What are designs?
  • Instructions that turn knowledge into things
  • Span all artifacts and human activities
    • Tangible, intangible
    • Transacting, contracting, dispute resolution
    • Government
  • The wealth of an economy inheres in its designs

Slide 3 © Carliss Y. Baldwin and Kim B. Clark, 2004

the indictment
The Indictment
  • “Selfish” designs want to become real
  • Their tool is human motivation
    • A user perceives use-value => willingness to make or willingness-to-pay
    • Designers and producers add up the users’ willingness-to-pay, subtract costs
    • The result is an asset => financial value
  • Humans move mountains for financial value
    • Value operates “as a force” in the economy
    • Designs have captured the value force, and thus today we work to serve their needs

Slide 4 © Carliss Y. Baldwin and Kim B. Clark, 2004

human design symbiosis
Human-Design Symbiosis
  • Designs, when reified (made real), help humans to:
    • Survive
    • Interact
    • Create
  • Humans reify and also improve designs
    • Complete them, make them, transport them
    • Pay for design evolution — this is a recent development

“Surprise and delight”

Mutualism or Parasitism?

Slide 5 © Carliss Y. Baldwin and Kim B. Clark, 2004

design evolution creates value forces that can change the structure of an industry

Design Evolution creates “value forces” that can change the structure of an industry

Look at the computer industry from 1980-2002

Slide 6 © Carliss Y. Baldwin and Kim B. Clark, 2004

industry transformation
Industry Transformation
  • Andy Grove described a vertical-to-horizontal transition in the computer industry:

“Vertical Silos”

“Modular Cluster”

Slide 7 © Carliss Y. Baldwin and Kim B. Clark, 2004

andy s movie the computer industry in 1980
Andy’s MovieThe Computer Industry in 1980

Top 10 Public Companies in US Computer Industry

Area reflects Market Value in Constant US $

Slide 8 © Carliss Y. Baldwin and Kim B. Clark, 2004

andy s movie the computer industry in 1995
Andy’s MovieThe Computer Industry in 1995

Top 10 Public Companies in US Computer Industry

Area reflects Market Value in Constant US $

Slide 9 © Carliss Y. Baldwin and Kim B. Clark, 2004

andy s movie the sequel the computer industry in 2002
Andy’s Movie—the SequelThe Computer Industry in 2002

Top 10 Public Companies in US Computer Industry

Area reflects Market Value in Constant US $

Slide 10 © Carliss Y. Baldwin and Kim B. Clark, 2004

turbulence in the industry
Departures from Top 10:

Xerox (~ bankrupt)

DEC (bought)

Sperry (bought)

Unisys (marginal)

AMP (bought)

Computervision (LBO)

Arrivals to Top 10:

Microsoft

Cisco

Oracle

Dell

ADP

First Data

Turbulence in the Industry

Sic Transit Gloria Mundi

… Sic Transit

Slide 11 © Carliss Y. Baldwin and Kim B. Clark, 2004

what changed

What changed?

Slide 12 © Carliss Y. Baldwin and Kim B. Clark, 2004

design architecture
Design Architecture
  • Small designs “just get done” by one person or a small team
  • Large designs require architecture
    • “The design of the design process”
    • Forward-looking, future oriented
    • Analogous to physical architectures
      • Create and constrain” movement and search
  • Major social technology, but not much studied

Slide 13 © Carliss Y. Baldwin and Kim B. Clark, 2004

short history
Short History
  • System/360: first modular computer design architecture (1962-1967)
    • Proof of concept in hardware and application software
    • Proof of option value in market response and product line evolution
    • First ORMDA = “Option-rich Modular Design Architecture”
    • System software NOT modularizable
      • Fred Brooks, “The Mythical Man Month”

Slide 14 © Carliss Y. Baldwin and Kim B. Clark, 2004

short history continued
Short History (continued)
  • Bell and Newell, Computer Structures (1971)
    • General principles of modular design for hardware
    • Basis of PDP-11 design—another ORMDA
  • Thompson and Ritchie, Unix and C (1971-1973)
    • Modular design of operating system software (contra Brooks Law)
    • Over time, general principles for evolvable software design (Unix philosophy)
  • Mead and Conway, Intro to VLSI Systems (1980)
    • Principles of modular design for large-scale chips

Slide 15 © Carliss Y. Baldwin and Kim B. Clark, 2004

short history continued16
Short History (continued)
  • IBM PC (1983)
    • DEC PDP-11 minimalist strategy (exclude and invite)
    • + Intel 8088 chip
    • + DOS system software
    • + IBM manufacturing
    • + Lotus 1-2-3
    • A mass-market ORMDA

Slide 16 © Carliss Y. Baldwin and Kim B. Clark, 2004

ormdas and value migration in the computer industry 1950 1996
ORMDAs and Value Migration in the Computer Industry, 1950-1996

Significant Option-Rich Modular Design Architectures

IBM System/360

DEC PDP 11; VAX

IBM PC

Sun 2; 3; Java VM

RISC

Internet Protocols (end-to-end principle)

Unix and C; Linux

HTML; XML(?)

Slide 17 © Carliss Y. Baldwin and Kim B. Clark, 2004

this was the puzzle kim clark and i began to tackle in 1987

This was the puzzle Kim Clark and I began to tackle in 1987

Where was the value shown in the slide coming from?

Designs, yes, but what part and why?

Slide 18 © Carliss Y. Baldwin and Kim B. Clark, 2004

a modular architecture frees up design option value
A Modular Architecture “frees up” Design Option Value

Split options, decentralize decisions,fragment control Evolution

Slide 19 © Carliss Y. Baldwin and Kim B. Clark, 2004

as scientists we can visualize and measure modularity in design after the fact

As scientists, we can visualize and measure modularity in design— after the fact

DSMs, Design Hierarchies

Methods are tedious, non-automated

Slide 20 © Carliss Y. Baldwin and Kim B. Clark, 2004

slide21

For fun: Comparison of different software systems with DSM tools

Mozilla just after becoming open source

Linux of similar size

Coord. Cost = 30,537,703

Change Cost = 17.35%

Coord. Cost = 15,814,993

Change Cost = 6.65%

slide22

Different organizations needed for different architectures

Mozilla just after becoming open source

Linux of similar size

One Firm, Tight-knit Team, RAD methods

Distributed Open Source Development

Coord. Cost = 30,537,703

Change Cost = 17.35%

Coord. Cost = 15,814,993

Change Cost = 6.65%

slide23

Mozilla After Redesign

Mozilla Before Redesign

!!

but modularity is only half the story options matter too
But modularity is only half the story—options matter, too
  • “Creates” vs. “Frees up”
  • The sad story of auto front-end modules
  • Design options have “technical potential”, denoted s
  • Technical potential, s, varies by system and by module

Modularity in the absence of high option value is an expensive waste of time

Slide 24 © Carliss Y. Baldwin and Kim B. Clark, 2004

measuring option value
Measuring Option Value
  • Successive, improving versions are evidence of option values being realized over time—after the fact
  • Designers see option values before the fact
  • What do they see?

s = Low Medium Zero High

Slide 25 © Carliss Y. Baldwin and Kim B. Clark, 2004

sources of option value in computer designs
Sources of option value in computer designs
  • Moore’s Law—
    • Value of seamless, asynchronous upgrading
    • Applies to chips
  • Amdahl’s Law “Make the frequent case fast”—
    • Value of ex post optimization
    • Applies to all complex artificial systems (“Build one and throw it away.”)
  • Wilkes-Alexander-Clark observation “Valid perceptions of desires emerge through use”—
    • Value of ex post discovery, direct experience, play
    • Applies to all new artifacts

Slide 26 © Carliss Y. Baldwin and Kim B. Clark, 2004

in conclusion an analogy

In conclusion, an analogy…

An ORMDA is like …

Slide 27 © Carliss Y. Baldwin and Kim B. Clark, 2004

where we are in the argument
Where we are in the argument:
  • Designs “need” to become real
    • They become real by creating the perception of “value”
  • Designs act as a financial force
    • In the process of becoming real, they can change the structure of an industry
  • A Modular Design Architecture creates Options with Option Value
    • What is an “ORMDA”?
    • What do “selfish” ORMDAs need from the economy?
  • The economy bites back
    • ORMDAs are dangerous places to make a living

Slide 29 © Carliss Y. Baldwin and Kim B. Clark, 2004

selfish ormdas need
Selfish ORMDAs “need”
  • Lots of design searches
  • Institutions of Innovation to
    • Complete the designs
    • Produce the artifacts
    • Transport/Distribute the goods
  • Mechanisms for financing, selection, compensation, reward (an advanced economy…)

Slide 30 © Carliss Y. Baldwin and Kim B. Clark, 2004

selfish ormdas need lots of design searches and promise lots of
Selfish ORMDAs “need” lots of design searches—and promise lots of $$$

Value Landscape of a minor ORMDA—

Sun Microsystems Workstation circa 1992

Slide 31 © Carliss Y. Baldwin and Kim B. Clark, 2004

technical potential and cost of design search vary by module
Technical Potential and Cost of Design Search Vary by Module

Slide 32 © Carliss Y. Baldwin and Kim B. Clark, 2004

thus each module has its own value profile
Thus each module has its own “value profile”

Slide 33 © Carliss Y. Baldwin and Kim B. Clark, 2004

slide34

Institutions get built to exploit opportunities like these, which are“created” by the design architecture

This is where the economy bites back!

Slide 34 © Carliss Y. Baldwin and Kim B. Clark, 2004

what are institutions
What are institutions?
  • Firms and markets
  • Transactions and contract types
  • Rules and rights (eg, property rights)
  • Stable patterns of behavior involving several actors operating within a consistent framework of ex anteincentives and ex postrewards
    • Equilibria of linked games with self-confirming beliefs (Aoki and game theorists)

Slide 35 © Carliss Y. Baldwin and Kim B. Clark, 2004

ormdas need institutions
ORMDAs “need” institutions
  • But not just any type will do
  • In DR2, we argue that the “most suitable” institutional forms for an ORMDA are:
    • A modular cluster of complementary firms and markets with “own your solution” property rights
    • A community of cooperating user-developers with GPL-type property rights
  • These forms are “good for the designs”

Slide 36 © Carliss Y. Baldwin and Kim B. Clark, 2004

three ways to frame the institutional analysis
Three ways to frame the institutional analysis
  • Descriptive: What has actually happened in the ORMDAs we know about?
  • Deductive: What do our models predict?
  • Strategic/Normative: Faced with an ORMDA (and access to financial capital), what should “you” do?

Slide 37 © Carliss Y. Baldwin and Kim B. Clark, 2004

faced with this ormda what would you do
Faced with this ORMDA, what would you do?

One module or many?

In each module you chose, how many design searches?

Which modules are most attractive?

Slide 38 © Carliss Y. Baldwin and Kim B. Clark, 2004

lots of stories
Lots of stories
  • They all make sense
  • When you see them play out, the moves are logical and in some cases “inevitable”
  • But our strategic advice for managers and financiers today comes down to:
    • “plunge in,”
    • “get lucky,”
    • “watch out for Microsoft,” and
    • “get bought by HP”

Slide 39 © Carliss Y. Baldwin and Kim B. Clark, 2004

one story before we close ormdas and new industries
One story before we close—ORMDAs and New Industries

Significant Option-Rich Modular Design Architectures

IBM System/360

DEC PDP 11; VAX

IBM PC

Sun 2; 3; Java VM

RISC

Internet Protocols (end-to-end principle)

Unix and C; Linux

HTML; XML(?)

Slide 40 © Carliss Y. Baldwin and Kim B. Clark, 2004

the bright side of the ormdas
The Bright Side of the ORMDAs

Slide 41 © Carliss Y. Baldwin and Kim B. Clark, 2004

but there was the dark side
But there was The Dark Side…

$ 2.5 trillion appeared then disappeared in the space of four years!

Slide 42 © Carliss Y. Baldwin and Kim B. Clark, 2004

bubble followed by a crash
Bubble followed by a Crash

A failure,

not of the Internet’s design architecture,

but of the institutions built on that architecture

Slide 43 © Carliss Y. Baldwin and Kim B. Clark, 2004

a victory for selfish designs
A victory for selfish designs?

Good for the designs, not for the humans

Slide 44 © Carliss Y. Baldwin and Kim B. Clark, 2004

other cautionary tales
Other Cautionary Tales
  • IBM System/360 and “plug-compatible” peripherals
  • IBM PC vs. clones
  • Sun Microsystems vs. Apollo Computer
  • Dell Computer vs. Compaq Computer

Each illustrates Perils of ORMDAs

Slide 45 © Carliss Y. Baldwin and Kim B. Clark, 2004

unless we turn the ormda stories into science

Unless we turn the ORMDA stories into science…

Slide 46 © Carliss Y. Baldwin and Kim B. Clark, 2004

selfish designs will be in charge

Selfish designs will be in charge!

Value-seeking design evolution—

As we’ve seen it —

the good, the bad, and the ugly…

Slide 47 © Carliss Y. Baldwin and Kim B. Clark, 2004

remember
Remember
  • Designs “need” to become real
    • They do so by creating perceptions of “value”
  • Value is a powerful economic force
    • Which can change the structure of an industry
  • The most powerful designs are ORMDAs
  • ORMDAs are dangerous (but interesting) places to live
  • Designs, institutions and strategies are still evolving

Slide 48 © Carliss Y. Baldwin and Kim B. Clark, 2004

thank you

Thank you!

Slide 49 © Carliss Y. Baldwin and Kim B. Clark, 2004

ibm system 360
IBM System/360
  • The first modular computer design
  • IBM did not understand the option value it had created
  • Did not increase its inhouse product R&D
  • Result: Many engineers left
    • to join “plug-compatible peripheral” companies
  • San Jose labs —> Silicon Valley

“Compelling, surprising, dangerous”

Slide 50 © Carliss Y. Baldwin and Kim B. Clark, 2004

1965 ibm wanted to be the sole source of all of system 360 s modules
1965—IBM wanted to be the sole source of all of System/360’s Modules

Slide 51 © Carliss Y. Baldwin and Kim B. Clark, 2004

1975 what actually happened entry on modules
1975—What actually happened: Entry on modules

Slide 52 © Carliss Y. Baldwin and Kim B. Clark, 2004

by 1980 100s of firms made s 360 plug compatible components
By 1980, 100s of firms made S/360 “plug-compatible” components

Slide 53 © Carliss Y. Baldwin and Kim B. Clark, 2004

ibm pc early 1980s
IBM PC, early 1980s
  • IBM was chasing Apple
  • Created an ORMDA— for “fast evolution”
  • Outsourced:
    • microprocessor to Intel
    • operating system to Microsoft
  • Kept for itself:
    • BIOS
    • Final-stage assembly

Slide 54 © Carliss Y. Baldwin and Kim B. Clark, 2004

1980 ibm provided few pc modules
1980—IBM provided few PC Modules

Slide 55 © Carliss Y. Baldwin and Kim B. Clark, 2004

but then
But then …
  • Compaq reverse engineered the BIOS
  • Chips and Technologies made “chipsets”
  • Taiwanese clones had cheaper/better manufacturing
  • Intel refused to second-source 80386
  • Microsoft sabotaged OS/2

Slide 56 © Carliss Y. Baldwin and Kim B. Clark, 2004

1990 ibm pc is the standard but ibm makes no money
1990—IBM PC is the standard, but IBM makes no money

Slide 57 © Carliss Y. Baldwin and Kim B. Clark, 2004

back up to 1980 apollo computer did not make the same mistake as ibm pc managers
Back up to 1980—Apollo Computer did not make the same mistake as IBM PC managers

Keeps Design Control

Slide 58 © Carliss Y. Baldwin and Kim B. Clark, 2004

then sun came along
Then Sun came along…

And did even less!

How?

Slide 59 © Carliss Y. Baldwin and Kim B. Clark, 2004

then sun came along60
Then Sun came along…

And did even less!

Design Architecture for performance

Public Standards for outsourcing

Slide 60 © Carliss Y. Baldwin and Kim B. Clark, 2004

result roic advantage to sun
Result: ROIC advantage to Sun

Sun used its ROIC advantage to drive Apollo out of the market

Slide 61 © Carliss Y. Baldwin and Kim B. Clark, 2004

compaq vs dell
Compaq vs. Dell
  • Dell did to Compaq what Sun did to Apollo …
  • Dell created an equally good machine, and
  • Used modularity-in-production to reduce its production, logistics and distribution costs and increase ROIC
    • Negative Net Working Capital
    • Direct sales, no dealers

Slide 62 © Carliss Y. Baldwin and Kim B. Clark, 2004

dell vs compaq 1997
Dell vs. Compaq 1997

Dell started cutting prices; Compaq struggled, but in the end had to exit.

Like Apollo, they were acquired by HP!

Slide 63 © Carliss Y. Baldwin and Kim B. Clark, 2004