Technological and Organizational Designs for Realizing Economies of Substitution

Raghu Garud, Leonard N. Stern School of Business, New York University, and Arun Kumaraswamy, Leonard N. Stern School of Business, New York University

11/17/2008
(Original Publish Date: 12/1/1997)

Today's industrial landscape is characterized by rapid change and systemic technologies. Rapid change results in ever shorter product life cycles that demand continual innovation from firms. The systemic nature of technologies makes it difficult, if not impossible, for any one firm to manufacture all components of a technological system. We propose that these challenges be met by designing technological systems that have the potential to yield economies of substitution. Additionally, we propose that these economies be realized by adopting the network mode of governance. We examine the network mode at three levels - intrafirm, interfirm, and institutional - to illuminate the inherent tension between cooperation and competition at each level, and to explore the implications of this tension for industrial dynamics.