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Holistic Customer Requirements and the Design-Select Decision

  • Karl T. Ulrich

    (The Wharton School, University of Pennsylvania, 1300 Steinberg Hall---Dietrich Hall, Philadelphia, Pennsylvania 19104)

  • David J. Ellison

    (The Wharton School, University of Pennsylvania, 1300 Steinberg Hall---Dietrich Hall, Philadelphia, Pennsylvania 19104)

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    When confronted with the task of developing a new product, a firm chooses either to design new components, unique to the product application, or to select components from those offered in the catalogs of suppliers or from those already in use in its other products. We call this the design-selectdecision. The benefits of selecting an existing component include minimizing investment, exploiting economies of scale, and preserving organizational focus. On the other hand, designing product-specific components allows a firm to (a) maximize product performance with respect to holistic customer requirements---those requirements that arise in a complex way from most of the components of a product; (b) minimize the size and mass of a product; and (c) minimize the true variable costs of production. When these benefits exceed those from selecting existing components, firms will tend to design product-specific components. Our approach is to develop this theory by linking concepts from marketing, technological innovation, and engineering design. This theory yields four testable hypotheses. A cross-sectional analysis of 225 products finds substantial support for the theory.

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    File URL: http://dx.doi.org/10.1287/mnsc.45.5.641
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    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 45 (1999)
    Issue (Month): 5 (May)
    Pages: 641-658

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    Handle: RePEc:inm:ormnsc:v:45:y:1999:i:5:p:641-658
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    1. Christensen, Clayton M., 1993. "The Rigid Disk Drive Industry: A History of Commercial and Technological Turbulence," Business History Review, Cambridge University Press, vol. 67(04), pages 531-588, December.
    2. Langlois, Richard N. & Robertson, Paul L., 1992. "Networks and innovation in a modular system: Lessons from the microcomputer and stereo component industries," Research Policy, Elsevier, vol. 21(4), pages 297-313, August.
    3. Marshall Fisher & Kamalini Ramdas & Karl Ulrich, 1999. "Component Sharing in the Management of Product Variety: A Study of Automotive Braking Systems," Management Science, INFORMS, vol. 45(3), pages 297-315, March.
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    6. Armour, Henry Ogden & Teece, David J, 1980. "Vertical Integration and Technological Innovation," The Review of Economics and Statistics, MIT Press, vol. 62(3), pages 470-74, August.
    7. Karl Ulrich & David Sartorius & Scott Pearson & Mark Jakiela, 1993. "Including the Value of Time in Design-for-Manufacturing Decision Making," Management Science, INFORMS, vol. 39(4), pages 429-447, April.
    8. Kim B. Clark, 1989. "Project Scope and Project Performance: The Effect of Parts Strategy and Supplier Involvement on Product Development," Management Science, INFORMS, vol. 35(10), pages 1247-1263, October.
    9. Langlois, Richard N. & Robertson, Paul L., 1989. "Explaining Vertical Integration: Lessons from the American Automobile Industry," The Journal of Economic History, Cambridge University Press, vol. 49(02), pages 361-375, June.
    10. MacDonald, James M, 1985. "Market Exchange or Vertical Integration: An Empirical Analysis," The Review of Economics and Statistics, MIT Press, vol. 67(2), pages 327-31, May.
    11. Fine, Charles H. & Whitney, Daniel E., 1996. "Is the make-buy decision process a core competence?," Working papers #140-96. Working paper (S, Massachusetts Institute of Technology (MIT), Sloan School of Management.
    12. von Hippel, Eric, 1990. "Task partitioning: An innovation process variable," Research Policy, Elsevier, vol. 19(5), pages 407-418, October.
    13. Masten, Scott E, 1984. "The Organization of Production: Evidence from the Aerospace Industry," Journal of Law and Economics, University of Chicago Press, vol. 27(2), pages 403-17, October.
    14. Clark, Kim B., 1985. "The interaction of design hierarchies and market concepts in technological evolution," Research Policy, Elsevier, vol. 14(5), pages 235-251, October.
    15. Christensen, Clayton M. & Rosenbloom, Richard S., 1995. "Explaining the attacker's advantage: Technological paradigms, organizational dynamics, and the value network," Research Policy, Elsevier, vol. 24(2), pages 233-257, March.
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