From the 1930s through today, many economists have conceived of large technical systems for the production of goods and services as a series of transactions. This point of view has led eminent economists to assert that transactions are the fundamental unit of analysis in the economic system.This...

In Chapter 2 we saw that the most economical locations for transactions in a task network are the so-called thin crossing points—places where transfers are easy to define, count and pay for. However, in many places in the task network, transfers of material, energy, and information are so...

A technology is a specific way to achieve a material goal. It describes a feasible path—a recipe—by which a group of people can arrive at a goal that none could achieve individually. Technical recipes thus require linkages between and among the various contributors to the technical...

The purpose of this chapter is to introduce two new building blocks to the theory of how technology shapes organizations. The first is a new layer of organization structure: a business “ecosystem.” The second is the economic concept of “complementarity.” Ecosystems are groups of...

Organizations are formed in a free economy because an individual or group perceives value in carrying out a technical recipe that is beyond the capacity of a single person. Technology specifies what must be done, what resources must be assembled, what actions taken in order to convert stocks of...

Functional analysis as set forth in the last chapter decomposes a technical system into functional components that do things to advance the system’s purpose and the goals of its designers. Functional analysis in turn can be used to construct value structure maps of technical systems. Such maps...

The purpose of this chapter is to explain how and why Google used an open source operating system, Android, to attract handset makers and application developers into a new ecosystem for mobile devices. The chapter begins by describing Google’s initial investment in the open source operating...

The purpose of this chapter is to use value structure analysis to better understand how sponsors of digital exchange platforms capture value and maintain strategic bottlenecks. I begin by describing the three core technological processes that lie at the heart of all digital exchange platforms:...

As digital technology evolved under the impetus of Moore’s Law, a group of new “exchange” platforms emerged that focused on facilitating transactions and/or communications between different parties. Exchange platforms are characterized by having “sides”. The simplest have two sides:...

The purpose of this book is to present a theory of technical systems that can help us better understand the demands technology places on organizations. New technologies in general require new patterns of activity and reward some patterns over others. Quoting Brian Arthur:"When a novel technology...