The_Innovators_Dilemma__Clayton

toward sustaining innovations and away from disruptive ones. This pattern of resource allocation
accounts for established firms’ consistent leadership in the former and their dismal performance in the
latter.
Value Networks Mirror Product Architecture
Companies are embedded in value networks because their products generally are embedded, or nested
hierarchically, as components within other products and eventually within end systems of use. 8
Consider a 1980s-vintage management information system (MIS) for a large organization, as illustrated
in Figure 2.1. The architecture of the MIS ties together various components—a mainframe computer;
peripherals such as line printers and tape and disk drives; software; a large, air-conditioned room with
cables running under a raised floor; and so on. At the next level, the mainframe computer is itself an
architected system, comprising such components as a central processing unit, multi-chip packages and
circuit boards, RAM circuits, terminals, controllers, and disk drives. Telescoping down still further, the
disk drive is a system whose components include a motor, actuator, spindle, disks, heads, and
controller. In turn, the disk itself can be analyzed as a system composed of an aluminum platter,
magnetic material, adhesives, abrasives, lubricants, and coatings.
Although the goods and services constituting such a system of use may all be produced within a single,
extensively integrated corporation such as AT&T or IBM, most are tradable, especially in more mature
markets. This means that, while Figure 2.1 is drawn to describe the nested physical architecture of a
product system, it also implies the existence of a nested network of producers and markets through
which the components at each level are made and sold to integrators at the next higher level in the
system. Firms that design and assemble disk drives, for example, such as Quantum and Maxtor,
procure read-write heads from firms specializing in the manufacture of those heads, and they buy disks
from other firms and spin motors, actuator motors, and integrated circuitry from still others. At the next
higher level, firms that design and assemble computers may buy their integrated circuits, terminals,
disk drives, IC packaging, and power supplies from various firms that manufacture those particular
products. This nested commercial system is a value network.
Figure 2.1 A Nested, or Telescoping, System of Product Architecture
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