A Preview of Design Rules, Volume 2: How Technology Shapes Organizations

TUM Main Campus
Room Z534/536
Arcisstr. 21
80333 München

Hybrid Seminar (Zoom link via separate invitation)
20 Jun 2024
11:00 am (Central European Time)

Author: Carliss Baldwin  (Harvard Business School)


Abstract: How Technology Shapes Organizations presents a general theory explaining how technology shapes organizations in a market economy. I begin by arguing that, despite excellent work by a number of scholars, we still lack a concept of “technology” that can support rigorous inquiry and theory-building.

The first step in developing a new theory is to change the “building blocks”—the fundamental units of analysis in the economic system. The fundamental units of technological analysis are not prices, transactions, or contracts and information flows — the foundations of transaction cost economics, principal-agent theory, and property rights theory. Instead, the fundamental units specified by technologies are tasks to be performed and transfers of material, energy and information between tasks. Together, the tasks and transfers change the material world in a that is beneficial to some subset of people in the system. Transactions and contracts must be located within a technologically determined task network and agents must have the ability and incentives to perform the specified tasks and transfers. Finally, principals must design organizations and social institutions can get the work done.

Two basic types of technologies in turn reward different types of organizations. Flow production technologies, which are found in steel mills and auto manufacturing plants, specify a series of steps, each of which is essential to the final product. Because each is essential, the steps are strong complements. For the sake of efficiency, such steps are best managed within vertically integrated organizations subject to unified governance, direct authority, and managerial hierarchies.

In contrast, platform technologies are characteristic of computer hardware, software, and many other networks, are modular systems designed to provide options. The options are not individually essential; thus they are weak complements of the platform and each other. To encourage flexibility and innovation, weak complements are best managed within loosely-coupled ecosystems of autonomous firms. Platform ecosystems can pursue a wide range of options and take risk without jeopardizing the system as a whole.


Host: Amy Zhao-Ding