Developing Infrastructure for Developing Infrastructure for Evolvability: Integrating Modularity Evolvability: Integrating Modularity

and Safeguards In Designand Safeguards In Design

Nuno Gil Nuno Gil Manchester Business School (on sabbatical)Manchester Business School (on sabbatical)

Global Research Awardee (Royal Academy of Engineering)Global Research Awardee (Royal Academy of Engineering)

CRGP, Stanford University (visiting scholar)CRGP, Stanford University (visiting scholar)

© Nuno Gil MBS 2006© Nuno Gil, Manchester Business School NUS, 2009

19th century, River Thames was practically an open sewer19th century, River Thames was practically an open sewer

After After The Great StinkThe Great Stink (cholera epidemic) of 1858, (cholera epidemic) of 1858, Parliament decided to create modern sewerage systemParliament decided to create modern sewerage system

Joseph Bazalgette, civil engineer, designed system that Joseph Bazalgette, civil engineer, designed system that diverted waste to Thames Estuary, totalling almost 160 km diverted waste to Thames Estuary, totalling almost 160 km underground sewers fed by 720 km of main sewers underground sewers fed by 720 km of main sewers

20th century, major improvements made to system20th century, major improvements made to system

Victorian sewerage system, LondonVictorian sewerage system, London

Bridge over River Tagus, LisbonBridge over River Tagus, LisbonBuilt between 1962 and 1964Built between 1962 and 1964

Suspension bridge, double deck, 2277mSuspension bridge, double deck, 2277m

In 1999, $1.4m project to install secondary suspension In 1999, $1.4m project to install secondary suspension cables, widen roadway; install dual track railroadcables, widen roadway; install dual track railroad

Infrastructure meets BusinessInfrastructure meets Business

Infrastructure Gap is MassiveInfrastructure Gap is Massive– population growth, migration towards cities, deteriorated population growth, migration towards cities, deteriorated

infrastructure, globalization of supply chainsinfrastructure, globalization of supply chains

Governments worldwide recourse to private-sector Governments worldwide recourse to private-sector capital due to constrained budgets and ideology capital due to constrained budgets and ideology – sale of state-owned infrastructure companiessale of state-owned infrastructure companies– private finance initiatives private finance initiatives – infrastructure increasingly attractive to pension funds, infrastructure increasingly attractive to pension funds,

private investors, family housesprivate investors, family houses

Infrastructure Design for EvolvabilityInfrastructure Design for Evolvability

Acknowledge tension between profit-seeker and Acknowledge tension between profit-seeker and public interestpublic interest– Affordability/caps on user fees limit capital investmentAffordability/caps on user fees limit capital investment– Long delivery times + operational longevity => Long delivery times + operational longevity =>

uncertainty uncertainty – Bias towards capital cost instead of life-cycle costsBias towards capital cost instead of life-cycle costs

Evolvable design: design infrastructure to last, i.e., Evolvable design: design infrastructure to last, i.e., capable to accommodate economically change capable to accommodate economically change over time while limiting capital investment upfrontover time while limiting capital investment upfront

……from so simple a beginning endless forms from so simple a beginning endless forms most beautiful and most wonderful have most beautiful and most wonderful have been, and are being, evolved.been, and are being, evolved.

EvolvabilityEvolvability

Darwin’s theories in evolution and variability

Evolvability: an organism’s capacity to generate variation Evolvability: an organism’s capacity to generate variation (Kirschner and Gerhart 98)(Kirschner and Gerhart 98)

– Weak linkage,Weak linkage, minimal dependencies among processes minimal dependencies among processes – Exploratory mechanisms,Exploratory mechanisms, processes that can tolerate change processes that can tolerate change– Surviving lineages Surviving lineages diversified by maintaining core of conserved diversified by maintaining core of conserved

sequences and functions (vital processes) and modifying otherssequences and functions (vital processes) and modifying others

Product/System Design ModularityProduct/System Design Modularity

Modularity: generate design architectures that can flex to Modularity: generate design architectures that can flex to change change (Ulrich 95, Baldwin and Clark 00)(Ulrich 95, Baldwin and Clark 00)

architecture, decouples functional modules architecture, decouples functional modules standard rules, govern interfacesstandard rules, govern interfacestests, verify modules will work togethertests, verify modules will work together

but modularity does not come for freebut modularity does not come for free ( (Ethiraj and Levinthal 04Ethiraj and Levinthal 04))

and can come with penalty in performance and can come with penalty in performance (Fixson and Park 08)(Fixson and Park 08)

Options ThinkingOptions Thinkingmodularity builds options in design modularity builds options in design (Baldwin and Clark 97)(Baldwin and Clark 97)

option, the right but not the obligation to choose course of option, the right but not the obligation to choose course of action action (Merton 73)(Merton 73)

– design with built-in options is more tolerant of uncertaintydesign with built-in options is more tolerant of uncertainty

– high potential value is conditional on success/ limited loss high potential value is conditional on success/ limited loss conditional on failureconditional on failure

– option purpose: stage delivery; switch use; grow capacityoption purpose: stage delivery; switch use; grow capacity

– options ‘options ‘on’on’ projects AND options ‘ projects AND options ‘in’in’ projects projects (Wang and de Neufville 2005)(Wang and de Neufville 2005)

Research Site: £4.2bn T5 Development Research Site: £4.2bn T5 Development Heathrow airport, project promoter BAA plc.Heathrow airport, project promoter BAA plc.

CA

R P

AR

K

PHASE 1 PHASE 2

Baggage System

Train System

- Aircraft Stands

TE

RM

INA

L 4

EX

IST

ING

TE

RM

INA

L

TE

RM

INA

L 3

TE

RM

INA

L 2

TE

RM

INA

L 1

?

Conceptualization

Mid 90s

Start construction

Dec 01

Open phase 1

Mar 08

Open phase 2

2012

AnalysisAnalysisTwo major determinants of decision to build optionsTwo major determinants of decision to build options

– Perceived likelihood that option may be exercised Perceived likelihood that option may be exercised

high likelihood increases attractiveness of upfront investment high likelihood increases attractiveness of upfront investment long-range timeframes to exercise option put offlong-range timeframes to exercise option put off

– Degree to which design is/can be modularisedDegree to which design is/can be modularised

how much does it cost to build option?how much does it cost to build option?how much does it cost to exercise option?how much does it cost to exercise option?how much would it cost otherwise ?how much would it cost otherwise ?standard designs increase chances ‘to get it right’standard designs increase chances ‘to get it right’

Functional Modules Available ex-anteFunctional Modules Available ex-ante

Functional modules with standardised designs tend to be Functional modules with standardised designs tend to be available when group of qualified suppliers is limited available when group of qualified suppliers is limited (modular clusters) (modular clusters) (Baldwin and Clark 97)(Baldwin and Clark 97)

Modularize architecturesModularize architecturesPhysically decouple functional elements:Physically decouple functional elements:– Physically decouple concourse space across 3 buildings: allows to Physically decouple concourse space across 3 buildings: allows to

stage delivery (stage option)stage delivery (stage option)

– Physically decouple roof and façade from interior floor plate Physically decouple roof and façade from interior floor plate superstructure: allows to delay interior design (delay option)superstructure: allows to delay interior design (delay option)

Build safeguards in designsBuild safeguards in designsSafeguard: provisions needed to embed option in integral Safeguard: provisions needed to embed option in integral design (or enhance option built in modular design)design (or enhance option built in modular design)

– Passive safeguarding: mostly design provisions (secure space)Passive safeguarding: mostly design provisions (secure space)– Active safeguarding: build in physical provisions (additional tunnel)Active safeguarding: build in physical provisions (additional tunnel)

Mapping of Built-in OptionsMapping of Built-in Options

L

ikel

ihoo

d of

Opt

ion

Exe

rcis

ing

Low

H

igh

Attractiveness of Safeguarding Attractiveness of Safeguarding

Is likelihood low on whether option will be ever exercised (e.g., stage-option vs. growth-option)?

Yes No

Yes No

High Active SafeguardsInvest on delivery of physical structures to embed options and limit exercising costs E.g., Train tunnel extension to T3

Yes

Are product designs with modular architectures available ex-ante?

NoYes

Not worthy to safeguardExpect marginal increase in exercising costs

Passive safeguardingCheck implication to option value stemming from likely escalation of exercising costsE.g., Secure space alignment to extend train tunnel beyond T3

Are product designs with modular architectures available ex-ante?

Low Active SafeguardsInvest on delivery of physical interfaces to enhance embedded optionsE.g., Lift and ramp pits

Can modular product architectures be reached project ex-post?

NoYes

Mutually exclusive InvestmentsInvest on modularization and passive safeguards to limit exercising costsE.g., Airfield space for taxiways

Can modular product architectures be reached project ex-post?

No

Moderate Active SafeguardsInvest on delivery of physical interfaces to limit integration costsE.g., Car park and terminal Mezzanines; MARS stands

Design Decision Tree Design Decision Tree (Gil 07)(Gil 07)

What’s next?What’s next?

Process of design for evolvabilityProcess of design for evolvability

Infrastructure design for ‘future-proofing’Infrastructure design for ‘future-proofing’

Building option fees in public procurement Building option fees in public procurement contractscontracts