A Note on Systems Integration

25 November 2008 at 12:51 pm 2 comments

| Dick Langlois |

First let me apologize for being out of circulation for so long. I’ve been inundated with teaching and committee work this semester, but I hope to get back in the swing of things as the year winds down.

The New York Times had an interesting article the other day on a company called Super Micro Computer, a public family-run company in San Jose that puts together leading-edge servers and other hardware for clients that include eBay and Yahoo. The company sells high performance and speed, both the speed of the computer and the speed of the company in designing and delivering its products.

Whereas rivals long ago sent key design work to Asia to take advantage of cheaper, plentiful labor, Super Micro still relies on hundreds of expensive engineers working at its San Jose headquarters. These workers are charged with grabbing the latest and greatest components from suppliers and coming up with new designs months ahead of lumbering heavyweights like Hewlett-Packard and Dell.

Clayton Christensen and his coauthors have argued that a premium on high performance calls for vertical integration and systemic integration in order to fine tune and customize systems, whereas a premium on cost reduction leads to modularity, standardization, and vertical disintegration. The Super Micro case seems to question this conclusion. On the one hand, the company emphasizes design and produces customized units. On the other hand, however, the company is really just a systems integrator — not a vertically integrated company — whose advantage lies in discovering and making use of the innovation of others. In Carliss Baldwin’s phrase, the company “leverages modularity” along the performance margin in much the same way that Dell does (or at least once did) along the cost margin. My conjecture is that, the more inherently modular (whatever that means) the product is, the more systemic integration can be squeezed into a single independent stage of production (systems integration) and the less necessary is genuine vertical integration — even when performance is what matters.

Entry filed under: - Langlois -, Entrepreneurship, Innovation, Theory of the Firm.

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2 Comments Add your own

  • 1. srp  |  28 November 2008 at 5:25 am

    It seems that Super Micro is a classic Taiwanese-style family business. It has a primary manufacturing supplier (Ablecom) that is 80% family-owned, which is awfully close to vertical integration. Of course, it buys its key components from Intel and AMD, so the point of this post is not entirely vitiated, but the interpretation is not as straightforward as it first appears.

  • […] A Note on Systems Integration by Dick Langlois on Organizations and Markets […]

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