Session 4: 11:00 a.m.–12:30 p.m. EDT

Papers and Slides

Make, Buy, or Redesign. The impact of digital technologies on the organization of production

Axel Zeijen with Luigi Marengo and Stefano Brusoni

Abstract: A crucial assumption in organization theory is that product architectures form a stable basis on which firms make strategic choices. Emerging digital technologies such as 3D printing are increasingly violating this assumption, by allowing firms to redesign architectures at will. In this paper, we explore this novel phenomenon, its effects, and its boundary conditions. To do so, we develop an NK model suitable for studying (i) variable interdependence structures between components, and (ii) dynamics of search and adaptation in ecosystems, rather than intra-organizational settings. Our model expands firms’ strategic options menu of search, integration (making), and disintegration (buying) with a fourth option: redesigning the product architecture. In our results, the possibility to redesign product architectures generally lowers aggregate performance of industries, but also increases search by providing firms new options for finding superior configurations and vertical positioning. On the firm level, we find that redesign provides firms a way around ecosystem bottlenecks, by altering the conditions on which make-or-buy decisions rest. This suggests that technologies like 3D printing, while seemingly being production tools, also have an important purpose as strategic tools.

Myopic search and temporally distant goals

Conference Slides

Daniel Albert with Anoop Menon

Abstract: An enduring question in the tradition of the behavioral theory is how firms can achieve distant, long-term solutions when their search is overwhelmingly myopic. In this paper we attend to this question by investigating the role of temporal myopia, i.e., the extent to which a firm temporally discounts a decision’s contribution to the firm’s long-term goal. Using simulation, we find that discounting the long-term value of a decision is a necessary condition to achieve long-term goals. While prior literature has highlighted how temporal discounting may undervalue the absolute long-term value of a decision, our model surfaces temporal differencing, i.e., the change in the discounted long-term value due to a new decision that shortens or lengthens the temporal distance to the long-term goal, as a largely overlooked mechanism. We find that the extent of temporal discounting affects two organizational decision types in the search toward long-term goals. First, discounting relates to finding and accepting ‘stepping-stone’ decisions, choices that lead to an immediate performance decline but shortens the temporal distance to the goal; and ‘strategic reject’ decisions, choices that forgo immediate performance opportunities in order to not lengthen the temporal goal distance.

Producer Exploration Generates Categories without Audiences

Conference Slides

Anthony Vashevko

Abstract: Category theory finds that markets partition producers into categories and that producers who do not fit one specific category—or who span multiple categories—perform worse than their single-category peers. The major thread of category theory argues that categorizations stem from the bounded rationality of market audiences, who are forced to impose categorizations and ignore miscategorized producers in order to efficiently interact with the market. I present an alternative model in which producers in a market segregate into categories and experience an apparent miscategorization penalty without reliance on an audience process: In an uncertain world, producers imitate successful predecessors. An ex- post rationalization process identifies clusers of imitators as categories. Categories reflect, but do not cause, producer success. This model of exploration of an uncertain world not only accounts for the basic findings of category theory but further describes how categories shift and emerge over time. These dynamics align with recent attempts to describe the evolution of categories through audience-driven processes. Throughout the model, the limited knowledge of producers, not that of the audience, drives the apparent penalty to miscategorization. I establish these results in a formal model and simulation.

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