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Modularity and Innovation in Complex Systems

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  • Sendil K. Ethiraj
  • Daniel Levinthal

Abstract

The problem of designing, coordinating, and managing complex systems has been central to the management and organizations literature. Recent writings have tended to offer modularity as, at least, a partial solution to this design problem. However, little attention has been paid to the problem of identifying what constitutes an appropriate modularization of a complex system. We develop a formal simulation model that allows us to carefully examine the dynamics of innovation and performance in complex systems. The model points to the trade-off between the destabilizing effects of overly refined modularization and the modest levels of search and a premature fixation on inferior designs that can result from excessive levels of integration. The analysis highlights an asymmetry in this trade-off, with excessively refined modules leading to cycling behavior and a lack of performance improvement. We discuss the implications of these arguments for product and organization design.

Suggested Citation

  • Sendil K. Ethiraj & Daniel Levinthal, 2003. "Modularity and Innovation in Complex Systems," LEM Papers Series 2003/15, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    • Handle: RePEc:ssa:lemwps:2003/15
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    References listed on IDEAS

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    Cited by:

    1. Leonardo Bargigli, 2005. "An evolutionary model for the dynamics of vertical integration and network-based production," Industrial Organization 0509002, University Library of Munich, Germany.
    2. Leonardo Bargigli, 2005. "The limits of modularity in innovation and production," KITeS Working Papers 176, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Sep 2005.
    3. Joshua Logan Grumbach & Lawrence Dale Thomas, 2020. "Integration principles for complex systems," Systems Engineering, John Wiley & Sons, vol. 23(6), pages 684-706, November.

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