Architectural Innovation and Entrepreneurship
Architectural innovation focuses on changes in product architecture and their advantages/disadvantages for incumbents and new entrants (Henderson and Clark, 1990), where many of those new entrants are going to be entrepreneurs and their startups.
The bottom line of the theory for entrepreneurs is that "architectural innovation" is a promising avenue for new entrants to go after because it is difficult for incumbent to pursue such innovations. Architectural innovation is usually competence-destroying for incumbents to follow. By contrast, other types of innovations benefit incumbents, such as incremental innovations (improving components), modular innovations (swapping components) and even radical innovations (developing new capabilities in areas without legacy products).
Theory basics
The theory starts with the idea that a product or service is made up of components that fit together according to a type of design called "product architecture", which is either modular, or integrated.
Ulrich (1995) gives some great examples. For instance, my desk has a bus architecture as evidenced by the steal rail under it holding everything together as a single point of contact. A slot architecture, by contrast, has a unique connector for each type of component so any dummy can know what do connect the legs and keyboard stand. In a sectional architecture, by contrast, components can be physically arranged in a number of different ways (like tetris). Finally, unlike the three modular architectures, an integral architectures is like desk printed in one piece, legs to top with a giant 3D printer, making it impossible to distinguish components from the whole.
Modular architectures make it possible to isolate the development of components by standardizing their interfaces. Isolation leads to specialization, lower costs and higher component performance. Modular architectures also make it possible to swap components later on or to add product variety.
Now the innovation part
Architectural innovations are those which involve combinations of the same components, only they are organized in a new way, according to a new product architecture. For instance, a change from a slot architecture to a bus architecture.
Specifically, there is a contrast with integrated or integral architectures, where the linkages between components are not one to one. For example, a ceiling fan maker might find it difficult to start making standing fans. Even though standing fans are similar to ceiling fans, standing fans represent a change in product architecture that necessitates what is potentially a whole new value chain and stakeholder relationships.
Incumbents get stuck with legacy product architectures
Incumbent organizations develop competences with the organizational structures that develop around product architecture. For example, a business developed around a modular product architecture is more likely to outsource most of the component work to external contractors.
The firm develops competences around managing relationships with component suppliers through the structured interfaces afforded by the product architecture. Firms then become weary about changing to a new product architecture because they don't want to destroy their existing competences, especially when there is no guarantee that they can build the new ones that they need.
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