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Modularity and Economic Organization: Concepts, Theory, Observations, and Predictions

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  • Sanchez, Ron

    (Copenhagen Business School)

  • Mahoney, Joseph T.

    (University of IL)

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    Abstract

    This paper addresses modularity as a basis for organizing economic activity. We first define the key concepts of architecture and of modularity as a special form of architecture. We then suggest how modular systems of all types may exhibit several properties of fundamental importance to the organization of economic activities, including greater adaptability and evolvability than systems that lack modular properties. We draw extensively on our original 1996 paper on modularity and subsequent research to suggest broad theoretical implications of modularity for (i) firms' product strategies and the nature of product market competition, (ii) the organization designs firms may adopt and the industry structures that can result when significant numbers of firms adopt modular product architectures, and (iii) learning processes and knowledge structures at the firm and industry levels in modular product markets. We also discuss an evolutionary perspective on modularity as an emergent phenomenon in firms and industries. We explain how modularity as a relatively new field of strategy and economic research may provide a new theoretical perspective on economic organizing that has significant potential for achieving important integrations of microeconomic and macroeconomic theory. We suggest some areas for further research that may be especially fruitful in this regard.

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    File URL: http://www.business.illinois.edu/Working_Papers/papers/12-0101.pdf
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    Bibliographic Info

    Paper provided by University of Illinois at Urbana-Champaign, College of Business in its series Working Papers with number 12-0101.

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    Date of creation: May 2012
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    Handle: RePEc:ecl:illbus:12-0101

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    1. Langlois, Richard N. & Robertson, Paul L., 1992. "Networks and innovation in a modular system: Lessons from the microcomputer and stereo component industries," Research Policy, Elsevier, vol. 21(4), pages 297-313, August.
    2. Shibata, Tomoatsu & Yano, Masaharu & Kodama, Fumio, 2005. "Empirical analysis of evolution of product architecture: Fanuc numerical controllers from 1962 to 1997," Research Policy, Elsevier, vol. 34(1), pages 13-31, February.
    3. Hoetker, Glenn, 2002. "Do Modular Products Lead to Modular Organizations?," Working Papers 02-0130, University of Illinois at Urbana-Champaign, College of Business.
    4. Helper, Susan & MacDuffie, John Paul & Sabel, Charles, 2000. "Pragmatic Collaborations: Advancing Knowledge While Controlling Opportunism," Industrial and Corporate Change, Oxford University Press, vol. 9(3), pages 443-87, September.
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    7. Miller, Roger, et al, 1995. "Innovation in Complex Systems Industries: The Case of Flight Simulation," Industrial and Corporate Change, Oxford University Press, vol. 4(2), pages 363-400.
    8. Manuel E. Sosa & Steven D. Eppinger & Craig M. Rowles, 2004. "The Misalignment of Product Architecture and Organizational Structure in Complex Product Development," Management Science, INFORMS, vol. 50(12), pages 1674-1689, December.
    9. Andrew King, 1999. "Retrieving and Transferring Embodied Data: Implications for the Management of Interdependence Within Organizations," Management Science, INFORMS, vol. 45(7), pages 918-935, July.
    10. Fixson, Sebastian K. & Park, Jin-Kyu, 2008. "The power of integrality: Linkages between product architecture, innovation, and industry structure," Research Policy, Elsevier, vol. 37(8), pages 1296-1316, September.
    11. Kim B. Clark, 1989. "Project Scope and Project Performance: The Effect of Parts Strategy and Supplier Involvement on Product Development," Management Science, INFORMS, vol. 35(10), pages 1247-1263, October.
    12. Barlow, James, 2000. "Innovation and learning in complex offshore construction projects," Research Policy, Elsevier, vol. 29(7-8), pages 973-989, August.
    13. Timothy J. Sturgeon, 2002. "Modular production networks: a new American model of industrial organization," Industrial and Corporate Change, Oxford University Press, vol. 11(3), pages 451-496, June.
    14. Consoli, Davide, 2005. "The dynamics of technological change in UK retail banking services: An evolutionary perspective," Research Policy, Elsevier, vol. 34(4), pages 461-480, May.
    15. Sanchez, Ron, 2004. "Understanding competence-based management: Identifying and managing five modes of competence," Journal of Business Research, Elsevier, vol. 57(5), pages 518-532, May.
    16. Brusoni, Stefano & Prencipe, Andrea, 2001. "Unpacking the Black Box of Modularity: Technologies, Products and Organizations," Industrial and Corporate Change, Oxford University Press, vol. 10(1), pages 179-205, March.
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