Karl T. Ulrich

The role of product architecture in the manufacturing firm

Product architecture is the scheme by which the function of a product is allocated to physical components. This paper further defines product architecture, provides a typology of product architectures, and articulates the potential linkages between the architecture of the product and five areas of managerial importance: (1) product change; (2) product variety; (3) component standardization; (4) product performance; and (5) product development management. The paper is conceptual and foundational, synthesizing fragments from several different disciplines, including software engineering, design theory, operations management and product development management. The paper is intended to raise awareness of the far-reaching implications of the architecture of the product, to create a vocabulary for discussing and addressing the decisions and issues that are linked to product architecture, and to identify and discuss specific trade-offs associated with the choice of a product architecture.

Fundamentals of Product Modularity

Modularity arises from the division of a product into independent components. This independence allows a firm to standardize components and to create product variety. Product modularity is frequently stated as a goal of good design practice, yet has not been as carefully studied as some other current design practices such as design-for-assembly. As firms strive to rationalize their product lines and to provide ever increasing variety at lower cost, modularity is becoming a focus of attention. The goal of this paper is to define modularity, to explore some of the benefits and costs of modularity, and to propose a set of research questions. The paper is the result of preliminary research and is more a starting point than a set of refined conclusions.

Product Variety, Supply Chain Structure, and Firm Performance: Analysis of the U.S. Bicycle Industry

Using data from the U.S. bicycle industry, we examine the relation among product variety, supply chain structure, and firm performance. Variety imposes two types of costs on a supply chain:production costs andmarket mediation costs. Production costs include, among other costs, the incremental fixed investments associated with providing additional product variants. Market mediation costs arise because of uncertainty in product demand created by variety. In the presence of demand uncertainty, precisely matching supply with demand is difficult. Market mediation costs include the variety-related inventory holding costs, product mark-down costs occurring when supply exceeds demand, and the costs of lost sales occurring when demand exceeds supply. We analyze product variety at the product attribute level, noting that the relative impact of variety on production and market mediation costs depends to a large extent on the attribute underlying the variety. That is, some types of variety incur high production costs and some types of variety incur high market mediation costs. We characterize supply chain structure by the degree to which production facilities are scale-efficient and by the distance of the production facility from the target market. We hypothesize that firms with scale-efficient production (i.e., high-volume firms) will offer types of variety associated with high production costs, and firms with local production will offer types of variety associated with high market mediation costs. This hypothesis implies that there is a coherent way to match product variety with supply chain structure. Empirical results suggest that firms which match supply chain structure to the type of product variety they offer outperform firms which fail to match such choices.

Valuing R&D Projects in a Portfolio: Evidence from the Pharmaceutical Industry

Understanding the value of a product development project is central to a firms choice of project portfolio. The value of a project to a firm depends not only on its properties but also on the other projects being developed by the firm. This is due to interactions with the other projects that address the same consumer need and require the same development resources. In this study, we empirically investigate the structure and significance of these portfolio-level project interactions. Using a self-developed pharmaceutical industry data set, we conduct an event study around the failure of phase III clinical trials and their effect on the market valuation of the firm. The study exploits the natural experiment of a product development failure to give us a measure of the value of a drug development project to a firm. We then explain the variance in the value of projects based on interactions with other projects in the firms portfolio. We find that the presence of other projects targeting the same market and a build-up of projects that require the same development resources reduce the value of a development project. In addition to providing evidence on the significance and structure of these portfolio-level project interactions, the empirical model estimated in this paper also provides a data-driven approach to valuing projects that may be relevant to licensing transactions.

50th Anniversary Article: Technological Innovation, Product Development, and Entrepreneurship in Management Science

This article is a review of work published in Management Science on the topics of technological innovation, product development, and entrepreneurship since the inception of the journal in 1954. We intend the article to serve two goals. First, we hope that it will be useful to doctoral students and researchers interested in understanding what questions have been addressed in Management Science in the area of innovation. Second, we hope that the article will be useful to sociologists of science who are interested in understanding how knowledge develops in a field. We organize the literature into 12 themes. We then describe some aggregate properties of the articles. In an online supplement, we present brief summaries of the 250 articles we have identified as falling in the domain of our department.

Principles for User Design of Customized Products

User design is a particular form of product customization that allows the customer to specify the properties of a product. User design has emerged as a mechanism to build brand loyalty, to fit products to the heterogeneous needs of a market, and to differentiate the offerings of a manufacturer. However, many consumers face daunting challenges in designing a product that fits their personal needs. This makes it essential for producers of customized goods and services to create user interfaces that are effective in supporting consumers in the user design process. This article defines the fundamental information-processing problem associated with user design of customized products and articulates five principles of user design. It then outlines actions that can be taken to improve user design systems.

Opportunity Spaces in Innovation: Empirical Analysis of Large Samples of Ideas

A common approach to innovation, parallel search, is to identify a large number of opportunities and then to select a subset for further development, with just a few coming to fruition. One potential weakness with parallel search is that it permits repetition. The same, or a similar, idea might be generated multiple times, because parallel exploration processes typically operate without information about the ideas that have already been identified. In this paper we analyze repetition in five data sets comprising 1,368 opportunities and use that analysis to address three questions: (1) When a large number of efforts to generate ideas are conducted in parallel, how likely are the resulting ideas to be redundant? (2) How large are the opportunity spaces? (3) Are the unique ideas more valuable than those similar to many others? The answer to the first question is that although there is clearly some redundancy in the ideas generated by aggregating parallel efforts, this redundancy is quite small in absolute terms in our data, even for a narrowly defined domain. For the second question, we propose a method to extrapolate how many unique ideas would result from an unbounded effort by an unlimited number of comparable idea generators. Applying that method, and for the settings we study, the estimated total number of unique ideas is about one thousand for the most narrowly defined domain and greater than two thousand for the more broadly defined domains. On the third question, we find a positive relationship between the number of similar ideas and idea value: the ideas that are least similar to others are not generally the most valuable ones. This paper was accepted by Lee Fleming, entrepreneurship and innovation.

Evaluating prototyping technologies for product design

Firms that design mechanical and electromechanical products confront a variety of difficult issues in their prototyping activities. For a given part, how can a choice among fabrication technologies be made? Where should investments in new prototyping technology be focused? How can new and existing prototyping technologies be evaluated? Our primary goal has been to develop a systematic method of evaluating prototyping processes in order to determine the best process for a given situation. A secondary goal has been to map the “space” of prototyping processes in order to determine future process development needs. Using data from a field study at the Kodak Apparatus Division, we have developed a systematic method for evaluating and selecting prototyping processes. Our data are drawn from (1) a user survey of prototyping perceptions and needs, (2) a survey to determine the importance of various prototype part performance attributes, and (3) estimates of the fabrication time, cost, and part performance for 104 parts and four prototyping processes.

The Importance of the Raw Idea in Innovation: Testing the Sow's Ear Hypothesis

This paper explores how important the quality of the raw idea is in determining success in innovation. On the one hand, one could argue that without a good idea, the chance of success is very small: “you can’t make a silk purse out of a sow’s ear.�? On the other hand, one could argue that with the right resources and approach, an innovator can create value out of just about anything: the Midas hypothesis. We provide a conceptual framework for thinking about this question generally and then test it empirically in one significant domain — household consumer products. We develop a novel data set from Quirky, a community-driven product development company. Our data include descriptions of the raw ideas originally proposed, the ultimate product designs that resulted from those ideas, and sales data. We augment the data from Quirky with multiple measures of idea quality that we obtained. We find that ideas do matter. We find that the quality of the raw idea as estimated by commercially feasible techniques is a significant predictor of market outcomes. In spite of the issues from selection and the variance introduced by measurement error, we do see a statistically significant relationship. We also conclude that for the domain we study, surveys of consumers are a better way to determine what a “good�? idea is than ratings by even highly experienced experts. This is the first study we know of to demonstrate a significant link between idea quality and outcome using actual raw ideas and market outcomes.

Managing Product Variety

Cannondale, a producer of premium mountain bikes, offers 22 models ranging in price from