Empirical Work on Modularity

13 September 2006 at 9:49 am Nicolai Foss Leave a comment

| Nicolai Foss |

Modularity has now been on the agenda of strategic management, organizational theory, and technology studies scholars for more than a decade. One of the first (perhaps the first) discussions of modularity in strategic management is the 1996 Strategic Management Journal paper by Ron Sanchez and former O&M guest blogger Joe Mahoney (“Modularity, Flexibility, and Knowledge Management in Product Organization Design”). This paper was largely theoretical.

However, four years earlier another former O&M guest blogger, Dick Langlois, published a paper in Research Policy (“Networks and Innovation in a Modular System,” with Paul Robertson) that remains among the most downloaded RP papers ever. The empirical basis for this paper was case studies of the micro computer and stereo component industries.

Since these two pioneer contributions, much work has been done on modularity, and much of it with an empirical orientation. However, the kind of empirical approach that is dominant in management — quantitative, cross-sectional work — has been very slow in being applied to issues of modularity.However, some of the latest issues of the Strategic Management Journal have featured empirical (lead) articles on modularity. Thus, in issue #6, Glen Hoetker has an excellent paper, “Do Modular Products Lead to Modular Organizations?” (which is what Sanchez & Mahoney postulated). Here is the abstract:

The tacit assumption that increased product modularity is associated with advantageous increases in organizational modularity underlies much of the literature on modularity. Previous empirical investigations of this assumption, few in number, have faced numerous confounding factors and generated conflicting results. I build a causal model for the relationship between product and organizational modularity, which I test using a distinctive empirical setting that controls for confounding factors present in previous studies. I find support for only part of the assumed relationship, showing that modularity is a more multifaceted concept than previously recognized. In particular, increased product modularity enhances reconfigurability of organizations more quickly than it allows firms to move activities out of hierarchy. The paper contributes to the emerging stream of research that focuses on the previously underappreciated costs of designing and maintaining a modular organization.

And in the most recent issue, #9, Salima Karim has a paper on “Modularity in Organizational Structure: The Reconfiguration of Internally Developed and Acquired Business Units.” The Abstract:

This paper explores changes in organizational structure and distinguishes between units’ origins. Unit reconfiguration is the addition of units to, deletion of units from, and recombination of units within the firm. This study compares the reconfiguration of internally developed vs. acquired units, explores what forms of unit recombination are common, and observes whether firms pursue recombination before divestiture. Theoretical support is drawn from the dynamic capabilities perspective, research on modular organizational systems, and strategy-structure literature. The findings are that acquired and internally developed units serve different roles in the process of change, and that firms perceive reconfiguration to be beneficial.

Both papers are excellent — but are they truly about organizational modularity? Thus, Karim really addresses the Galunic/Eisenhardt “recombinant view of organizations” which, a bit too loosely perhaps, places the reuse of resources and the altering of divisional responsibilites under the “modularity” heading. Hoetker’s paper is about the boundaries of the firm and concerns the sourcing of modular vis-a-vis systemic products. Still, both are very highly recommended.