CHA's Renewal Patterns: Before and After Dominant Design  

Cook-Hauptman Associates, Inc.



By: James E. Cook ( 1989 )

( Abstract Introduction Perspective Dominant
Revitalization Application Acknow-
Bibliography ¯ )


The central point of this paper is in its title, that is, that there are two distinct renewal patterns (or paradigms): one is appropriate before the advent of the dominant design (of a line of products), whereas the other is appropriate afterwards. These pre- versus post- dominant design paradigms are the Entrepreneurial and the Institutional Paradigms, respectively. These Paradigms prescribe different managerial focuses, styles, and investment practices, as well as different economic renewal policies. Failure to acknowledge this distinction leads to incoherent debate and counterproductive policies. Whereas, acknowledging this distinction advances the debate to engage additional pertinent issues such as near term versus long term goals and mature versus emerging industry stimulation (which are outside the scope of this paper). This paper not only characterizes the two paradigms (which Abernathy and Utterback did in 1978), but also suggests conditions that predict or forecast the imminent occurrence of a dominant design and the form of the concomitant shift in successful management paradigm.



Executives and policy makers are vitally concerned about industrial renewal, and with good reason. Professor Baumol (1986) writes, "Although no one thing by itself can explain the unprecedented economic growth of the nineteenth and twentieth centuries, primary credit is to be assigned to innovation, including new products, new productive techniques, new business procedures, and use of new types of raw materials."

To further the understanding of innovation, this paper asserts that the advent of the dominant design divides a product cycle into two distinct arenas that must be fostered consistent with two distinct managerial paradigms. Lack of recognition of this basic reality leads to inconclusive debate as in the case of Gilder (1988) and Ferguson's (1988) public clashing of each other's ideas in last year's Harvard Business Review. Application of this basic reality could improve resource allocation, tax policy targeting, and an understanding of industrial renewal.

In those articles, the authors held a public debate on which of two factions, entrepreneurial versus institutional, would be better to promote for the United States economic future, Gilder favored entrepreneurial policies and Ferguson favored institutional policies. To sort out this debate, this paper begins with an attempt at a balanced perspective regarding entrepreneurialism and institutionalism, to use Gilder's and Ferguson's terms. Next it is important not to take the dominant design phenomena for granted, but rather attempt to be somewhat rigorous about its existence and how it can be anticipated and identified. The dominant design changes the rules of the marketplace in some obvious ways that have a whole series of implications which result in two distinct paradigms. These paradigms characterize organizations that would be successful at making the appropriate decisions and actions before and after the advent of the dominant design.

Essentially, having hypothesized this framework and paradigms, Gilder's and Ferguson's papers are revisited. The wealth of observations and opinions they provide are sorted out to demonstrate that diametrically opposed views on the same issue are actually consistent views on diametrically opposed issues --- namely the two paradigms. Finally, application is make to the policy issues Gilder and Perspective Ferguson raised. These remarks are concluded by a summary.



Industrial renewal is closely linked to innovation. Innovation occurs (employing the terminology of Gilder and Ferguson) in entrepreneurial as well as institutional firms. It is easy to assert that industrial innovation occurs far more often and with far greater (immediate and measurable economic) impact in institutional firms, in the aggregate, than in entrepreneurial firms. Especially when one is reminded that innovation does not just manifest in product innovation, but in process innovation, practice innovation (i.e., the method of conducting business), and materials and infrastructional innovations. However, on a per capita basis, innovation is widely believed to be in entrepreneurial firms, especially in the product area. After all, that is what entrepreneurial firms are set up to do, at least in the fields of high technology. More importantly though, entrepreneurial innovation has historically been the essential antecedent of industrial opportunity.

Let's just presume that, in round numbers, large institutional United States' industrial companies sell $2 trillion annually world-wide. Contrast this with, say, the $20 billion that entrepreneurial United States' firms can be said to sell annually mostly within the United States. This 100:1 ratio is what makes the institutional advocates adamant, especially when confronted by the all too common journalistic excesses of certain entrepreneurial enthusiasts.

One last item has a strong bearing on policy. Readers (such as Baumol) of Maddison's (1982) study on a century of capitalism try to rationalize why the relative ranking of industrialized (the 16 in Maddison's study, at least) nations remained unchanged throughout the period of his study, 1870 to 1979, regardless of policies, taxes, savings, or investment patterns. This effect is only explained by rapid diffusion of innovation and its application by countries with adequate industrial (and informational) infrastructures. And, I will add and emphasize, without any direct benefit to the originating innovators.


  Dominant Design

During the life cycle of most products there occurs a design that ushers in a new era almost overnight. In general, it is a design characterized by: 1) brilliant balancing and selection of existing technologies, 2) rapid conversion of skeptical bystanders into committed buyers, 3) a conspicuous drop in price/performance, and 4) a displacement of a previous market leader. In effect, it becomes the de facto standard. Examples of such dominant designs are tabulated below:


Dominant Design Company Displaced Leader
Model T Ford Motor Olds Motor
DC-3 Douglas Aircraft Fokker
System 360 IBM Univac
Pocket Calculator Texas Instruments Bomar
Lotus 1-2-3 Lotus Development Visi Corp.
Work Station 3 Sun Microsystems Apollo

Table 1

Practitioners should be on the lookout for the appearance of a dominant design when: 1) technological advances manifest in products is markedly slowing, 2) spectacular annual market growth has slowed down to, say, 50%", 3) growth of new entrants exceeds growth of market, 4) several large companies in the field are planning on launching products, and 5) the market is at least 5 years old and the general public is becoming aware through the mass media.

As you might infer, the management paradigms for succeeding in the pre- versus the post- dominant design arenas are also quite distinct. I would go so far as to say that no hurdle has a greater impact on the subsequent fortunes of entrepreneurial firms. Every firm on the right hand column of Table 1, above, became extinct because of, I believe, the inability of the entrepreneurial (i.e., pre-dominant design) companies to shift to the institutional (i.e., post-dominant design) paradigm.


  Contrasting Managerial Paradigms

The most compelling observation about the advent of the dominant design is that it heralds a new era in the marketplace. This transformation is characterized by:


Pre-Dominant Design Post-Dominant Design
Uncertain market size Predictable market size
Fluid product specifications Stable product specifications
Performance sensitivity Price sensitivity
Reviews and demonstrations are the basis of differentiation   Features and flexibility are the basis of differentiation
User-maintenance and modification Service and reputation  
Change is rapid and radical Change is slow and incremental
Cost of entry is low Cost of entry is high (due to service & reputation)
Innovation is in product Innovation is in process

Table 2

As evidence of the enormity and persuasiveness of the shift in managerial paradigms required in going from the pre-dominant to the post-dominant design arena, I submit the following tables. These tables contrast various pervasive aspects of the conduct of the business. These aspects are tabulated below under the headings: Focus, Style, and Investments (Tables 3, 4, and 5, reespectively).


ASPECT Entrepreneurial Institutional
DRIVER User Market
ORIENTATION Top line (i.e., sales) Bottom line (i.e., profits)
ADVANTAGE Leverage Scale
CONCERN Promotion (positive) Publicity (negative)
GOAL Maximize success Minimize failure
OBJECTIVE Performance Price
VULNERABILITY Distribution Sourcing
KEY DESIGNS Products Processes

Table 3

The Managerial Focus (Table 2, above) in the Entrepreneurial Paradigm (i.e., pre-dominant design) is on maximizing the delivery of users' performance criteria by leveraging a specific (usually technical) proprietary advantage. The advent of the dominant design obsoletes that strategy and manifests as a shift in Managerial Focus to profitably satisfying a market's demand for the reliable delivery of a high quality, competitively priced, conforming product (and/or service).

The Contrasting Managerial Styles (Table 4, below) of the two paradigms is the subject of much of John Sculley's (1987) book about Apple's transformation from being a small company to an enlightened large company. I borrowed the entries for Style, Strength, and Motivation directly from his book and share his sentiments in my characterizations in these tables. Parenthetically, as president of Apple, Sculley resisted the wholesale adoption of the Institutional Paradigm (which he characterized as "Second Wave" after a chapter in Alvin Toffler's (1980) book). The inevitability of the Institutional Paradigm, once the dominant design has manifest (as it did in 1982 with the advent of the IBM Personal Computer) may account for why his struggle at Apple is so (tragically?) heroic.


ASPECT Entrepreneurial Institutional
SENSITIVITY Talent Coordination
POSTURE Cooperative Competitive
STRUCTURE Networks Hierarchy
FASHION Individuality Conformity
STYLE Flexible Structured
STRENGTH Change Stability
MOTIVATION To Build To Compete
KEY SKILL Creativity Professionalism

Table 4



ASPECT Entrepreneurial Institutional
ORIENTATION Creation Competition
MEDIUM Concepts Measurables
ASSETS Intangibles Tangibles
FAILURE Often Seldom
AT RISK Moderate Substantial
PRICING By value By cost
RETURN Volatile Predictable

Table 5

The contrast in Investment Characteristics (Table 5, above) bears on policy and helps explain why investors and executives trained in the Institutional Paradigm (which is basically the one Business Schools teach) have trouble finding policies compatible with the Entrepreneurial Paradigm.


  Revitalization Revisited

In 1988, Messrs. Gilder and Ferguson published opposing views on the relative merits of entrepreneurialism versus institutionalism for securing a strong economic future for the United States' economy. Their debate was provocative, stimulating and informative and was picked up by the popular press (as part of the Supercollider story). The debate pitted "free marketeer," George Gilder, as the entrepreneurial advocate against "government interventionist," Charles Ferguson.

Gilder claims that the United States' secret weapon is our venture (capital financing) system which counteracts (Japan's) low capital costs and concentrates our efforts, energies and talents into highly focused and highly responsive entrepreneurial companies. He goes on to cite a host of recent semiconductor startups (Chips and Technologies, Weitek, Cypress, Xicor, Micron Technology, et al) which have reversed the United States' loss of market share. He believes a key United States asset is the startup culture of entrepreneurialism.

Ferguson invokes Reich's (i.e., Robert Reich of Harvard) specter of "chronic entrepreneurialism" as driving us to economic catastrophe. The sequence he cites goes like this: 1) "Vulture" capitalists lure teams from big companies, 2) copy their product in a new venture, thereby weakening the big companies doubly, 3) this new product outperforms all and the venture is flooded by orders, 4) this inspires many more ventures to be started, 5) the original venture, being first, gets millions in additional financing, 6) expenses soar, the venture teeters, and, 7) finally, concocts a small profit and goes public, 8) consumes $200 million, 9) the investment mood changes, shareholders' sue, options dematerialize and the new cadre of key people defect, 10) Japan enters the market and an Asian company acquires the venture at a bargain.

To make matters worse, our mature industries have:  1) been neglected by the United States government which has failed to enforce patents, gain access to markets, and force reciprocal access to education and technology overseas, 2) been systematically attacked by a strategy of importing United States technology, investing enormous resources to master it, and then outpacing and overtaking us in our own markets, 3) fallen prey to carefully orchestrated government protected oligopolies that are huge industrial complexes in strategically coordinated alliances.

Gilder says our semiconductor industry is doing fine. Where the value added really counts (i.e., the design on the semiconductor), entrepreneurs are setting the market on fire with high speed designs (Weitek) and specialized chip sets (Chips and Technologies). In market niches like static RAMs (Cypress) and non-volatile DRAMs (Xicor), entrepreneurs have made competitive process innovations.

Ferguson says our semiconductor market is at a crisis that requires concerted immediate government action. The root causes of this crisis is the chronic entrepreneurialism coupled with an integrated strategic attack orchestrated by Japan's MITI and executed by a half a dozen Japanese cartels.

Who's right?


  Application to Revitalization

The proposition put forth here is simple enough: If no dominant design has appeared then the entrepreneurial paradigm will achieve better results. If the dominant design has appeared, then the institutional paradigm is the reliable way to achieve success.

Although Messrs. Gilder and Ferguson treat the semiconductor market segment monolithically, in reality it is bifurcated. DRAMs dominant design occurred long ago, so the institutional paradigm applies. Whereas, high speed processors come in a variety of designs from Clark's graphics engine (of Silicon Graphics) to Sun's (i.e., Sun Microsystems's) SPARC chip to Weitek's math co-processor (board designed around their proprietary chips), and, therefore, the dominant design has not yet occurred. Consequently, high speed processors are still governed by the entrepreneurial paradigm. Finally, Chips and Technologies has one foot in each camp. Their chip is the dominant design of this generation of clones, but the next generation dominant design hasn't appeared. Therefore, Chips and Technologies' production, distribution and support must function under the institutional paradigm, while its advanced designers (who are working on the next generation) must function under the entrepreneurial paradigm.

Having sorted out the semiconductor participants relative to dominant design, who is right? If memories design and/or CMOS fabrication are strategic to the United States' economy and/or defense, then Sematech's (institutional) focus on refining either or both of these activities stands a good chance of being successful and should be done. On that basis, the proposition agrees with Ferguson, primarily because the dominant design occurred years ago when CMOS beat out NMOS and PMOS and even longer ago for the memory designs.

What about the host of issues raised by Gilder and Ferguson --- intellectual property rights, capital gains tax rates, anti-trust policy, Department of Defense role, consortia, and capital formation?

First of all, there is more technology than product and process designs. There is the vital issue of basic and applied research as well as national infrastructures. National infrastructures include the postal telecommunications, education, and defense systems. These are excellent areas for proactive government participation, but are outside the scope of this paper.

However, a corollary of the basic proposition is: For discontinuous (i.e., radical and/or significant) innovation use the Entrepreneurial Paradigm, for incremental innovation use the Institutional Paradigm. What follows is this practitioner's guidelines for deciding which policies help which stage of innovation.


Entrepreneurial Institutional
Stringent novelty requirement for patents Liberal novelty policy
Lower capital gains tax Lower dividends tax
Support of technical standards Relax anti-trust enforcement
Ease securities' regulations Encourage consortia formation
Royalties to star designers Strict employment agreements

Table 6




I want to thank Drs. (of Management of Technology from MIT's Sloan School of Management) John Friar, Oscar Hauptman, and Nitin Nohria for stimulating conversations from which this paper precipitated. Additionally, I wish to thank Assistant Professor Oscar Hauptman (of the Production and Operations Management Section at the Harvard Business School) for inviting me to make this presentation at this conference. The thoughts presented here continue in debate and represent only my (tentative) conclusions.




Abernathy, W. M., Utterback, J. M., 1978. Patterns of Industrial Innovation. Technology Review. pp. 77-83.

Baumol, W. J., 1986. Entrepreneurship and a Century of Growth. Journal of Business Venturing. 1 (2): 141-145.

Ferguson, C. H., 1988. From the People who brought you Voodoo Economics. Harvard Business Review. 66 (3): 55-62.

Gilder, G., 1988. The Revitalization of Everything: The Law of the Microcosm. Harvard Business Review. 66 (2): 49-61.

Maddison, A., 1982. Phases of Capitalist Development. New York: Oxford University Press.

Sculley, J., 1987. Odyssey: Pepsi to Apple...A Journey of Adventure, Ideas, and the Future. New York: Harper & Row. (3): 95-98.

Toffler, A., 1980. The Third Wave. New York: William Morrow and Co., Inc.


PRESENTED AT: The 49th Annual Conference of the Academy of Management on August 15, 1989 in Washington, D.C.

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Copyright © 1989 by James E. Cook