Architectural Innovation and Entrepreneurship
Architectural Innovation: Why Startups Beat Incumbents
Why do established industry giants often fail to adapt to new technologies, leaving the door open for startups? The answer often lies in Architectural Innovation.
Based on the seminal work of Henderson and Clark (1990), this theory suggests that while incumbents excel at improving existing products, they struggle significantly when the underlying structure—or "architecture"—of a product changes. This weakness creates a massive opportunity for entrepreneurs.
The Four Types of Innovation
To understand why architectural innovation is unique, we must look at how it differs from other types of changes:
- Incremental Innovation: Improving individual components (e.g., a faster processor). Incumbents dominate here.
- Modular Innovation: Swapping a component with a new concept while keeping the system the same (e.g., replacing an analog phone dial with a digital keypad).
- Radical Innovation: Developing entirely new components and a new architecture.
- Architectural Innovation: The most deceptive type. It uses existing components but links them together in a new way.
Understanding Product Architecture
At its core, every product has an architecture—the way its components fit together. Ulrich (1995) provides excellent examples of how architecture varies using a simple desk:
- Bus Architecture: There is a common backbone (like a steel rail) that holds everything together.
- Slot Architecture: Each component has a specific interface, so the connections are intuitive (e.g., a leg won't fit into a keyboard tray slot).
- Sectional Architecture: Components can be arranged in various ways like Tetris blocks.
- Integral Architecture: The opposite of modular. Imagine a desk 3D printed in one piece. You cannot distinguish the legs from the top; they are fused.
Why Incumbents Get "Stuck"
Incumbent organizations are usually designed around their product's architecture. If a company produces a modular product, their teams, supply chains, and communication channels are structured to manage those specific modules.
This is the trap. When an architectural innovation appears, it destroys the value of that organizational knowledge.
Consider a ceiling fan manufacturer vs. a standing fan manufacturer. Both products use similar components (motors, blades, guards). However, the linkages between these components are different. A ceiling fan maker cannot simply pivot to making portable fans because their entire value chain and engineering process are built around the "ceiling" architecture.
The Entrepreneurial Advantage
For entrepreneurs, this is the "bottom line": Architectural innovation is a competence-destroying change for incumbents.
Because established firms are wary of destroying their existing competencies (and financial streams), they often hesitate to adopt new architectures. This hesitation provides a window of opportunity for startups, who have no legacy architecture to defend, to enter the market and capture value.
Video: Henderson & Clark Explained
References
Henderson, R. M., & Clark, K. B. (1990). Architectural innovation: The reconfiguration of existing product technologies and the failure of established firms. Administrative Science Quarterly, 35(1), 9-30.
Ulrich, K. (1995). The role of product architecture in the manufacturing firm. Research Policy, 24(3), 419-440.
