MIT_Sloan_Management_Review_-_Spring_2020

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SLOANREVIEW.MIT.EDU SPRING 2020 MIT SLOAN MANAGEMENT REVIEW 73


everything about their phones, and the software on
them, to meet their individual needs.
For any new technology industry, modulariza-
tion is the end state; it benefits consumers and
grows the pie. Since one company no longer needs
to take responsibility for the entire system, every
company is free to focus on whichever elements
they deem to be strategically advantageous.
Christensen, Raynor, and Verlinden counseled
companies to anticipate how their markets would
become modular and to compete in the places most
difficult to master. In the smartphone arena, chip-
set makers and mobile app companies gobble up all
the profit in the system as they tackle the most dif-
ferentiated parts of it. Playing off a famous hockey
tip from Wayne Gretzky in their HBR article title,
the authors coached strategists to head to “where
the money will be,” not where it is today.
But modularization is a double-edged sword:
The disaggregation of development responsibility
also means the diffusion of responsibility for ethi-
cal outcomes.
And today’s reality is that modularization is
accelerating across industries. The internet stan-
dardized communication, architecture, and
information exchange in every function, allowing
new businesses to turn a profit by perfecting ever-
more-narrow slices of a value chain.
Consider Lyft. When the company went public
in March 2019, its filings recognized the risk that it
relied on critical third parties for payments, fi-
nancing, web infrastructure, background checks,
and other significant technology components. It
is a massively successful b usiness, but many of its
core processes are delivered through the combined
services o f other vendors. We’d expect similar risks
to be identified in the filings of almost every out-
going IPO.


The rise of companies focused on simple com-
ponents of complex systems has created a virtual à
la carte menu from which would-be disrupters can
tailor new, complex products according to cus-
tomer demands. The result: a virtuous cycle that
has caused a whirlwind reconstruction of value
chains in every industry.
In our increasingly modular world, companies
can quickly tailor products to user demands; inno-
vation and opportunity flourish, but so do the
potential risks — not just to a company’s bottom
line and reputation but also to society at large.
Innovation might be able to move with lightning
speed, but our user protections do not.

What Users Don’t Demand:
Regulation
The danger of trusting the pull of user demand to
shape an industry is that users’ short-term desires
don’t always account for long-term societal needs.
Think of the personal choice of smoking versus its
secondhand effects on other people, or the short-
term savings of not carrying personal health
insurance versus the long-term impact on public
health, or the convenience of driving your own car
to work versus the societal benefit of public trans-
portation. In many situations, a user makes a choice
and society bears the burden of it.
Now let’s expand this dilemma to a uniquely
modern one. Imagine you’re a parent who wants to
educate your child about technology, given the
increasing need for young people to understand
engineering concepts and have some familiarity
with design. You purchase a cheap 3D printer and
use it to impart lessons around technology, soft-
ware, and manufacturing processes. You’ve brought
into your home an amazing tool but also a poten-
tially dangerous one.

The danger of trusting the pull of user demand to shape an
industry is that users’ short-term desires don’t always account
for long-term societal needs.
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