Designing Organizations Around Technology

MIT Sloan Management Review: When I saw you give a talk, you made the provocative statement that basically organizations are “designed around the technology of the day.” Can you tell me a little bit more, or if my memory needs refreshing, refresh that phrase?

Carliss Baldwin: That is my thesis. I have to skirt around the accusation of technological determinism. I don’t think technology is destiny, but I do think that companies that understand the requirements and opportunities that a technology brings will be rewarded in a free market. Today we are seeing the emergence of new types of organizations in response to new technologies.

That’s a pretty bold statement, that organizations are going to be designed or built around technologies. What evidence leads you to that thesis or that insight?

Theoretically, I can model the outlines of the technology and derive properties that are value-enhancing in the context of that model. There’s also empirical evidence — changes in industry structure in response to new technology, and the emergence of new organizational forms. There’s a lot of talk about platforms and ecosystems: This organizational form is not new to the universe, but it is newly important to our economy. I would argue that these new structures are a response to the physical properties of digital technology.

You’re saying the new platform organizations — and the new focus on ecosystems — are a result of the dominant technology of today. Is that correct?

Yes. The emergence of a group of technologies is based in information, both hardware and software technologies. In particular, the modularization of systems and the rise of platform organizations such as Intel, Microsoft, Google, Amazon.com, and others are important new developments that are very much tied to Moore’s law. One of your questions was, What happens when things are changing rapidly? One answer is modularity becomes more valuable and is rewarded. Platform companies with surrounding ecosystems are one symptom of this trend.

Can you tell us how modularity is an advantage in these fast-moving times?

Modularity is a design principle for complex systems, both natural systems and artificial systems. I’m primarily interested in artificial systems like product design, system design, and organizational design. Modularity is a way of organizing the components of a system so that individual components are grouped into modules.