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Sanchez and Mahoney (1996). Modularity, flexibility, and knowledge management in product and organization design. SMJJeff SavageNearly Decomposable SystemsSimon, 1962Hierarchy: a decomposition of a complex system into a structured order of successive sets of subsystems (which have their own subsystems, etc.) Hierarchy may be a feature of both Product and Organizational DesignHierarchy does not mean that there must necessarily be an overt exercise of authority in the Simon (1962) sense of the term.Nearly DecomposableInteractions among subsystems are weak i.e., divisions function as quasi-independent or loosely coupled systems

Learning ProcessesInnovation may involve:

Creating new information about the functions components can perform (learning about components per se)

Creating new information about the ways these components interact (Product Architectures)Henderson & Clark 1990

Learning Processes

4 Modes of LearningModular Product & Org DesignsTightly Coupled ImplicationsIf the specs of input & output are tightly coupledThe processes for developing those products require intensive managerial coordinationThis results in a tightly coupled organizational structure coordinated by managerial authority hierarchy Loosely CoupledControlling the output of component development processes by standardizing interfaces can substitute for managerial authority and attentionStandardized component interfaces define functional, spatial and other relationships between components that cant change during the development process

5Modular Product & Org DesignsTightly Coupled ImplicationsIf the specs of input & output are tightly coupledThe processes for developing those products require intensive managerial coordinationThis results in a tightly coupled organizational structure coordinated by managerial authority hierarchy Loosely CoupledControlling the output of component development processes by standardizing interfaces can substitute for managerial authority and attentionNote that a coupling of components in a product design is different from those in an actual (physical) product. 6Modular Product & Org DesignsModular Product ArchitectureA loosely coupled product design creates a flexible product architectureUses Modular Components: whose interface characteristics are within the range of variations allowed by a modular product architecture Loose coupling of component designs within a modular product architecture allows mixing and matching of modular components This, in turn, can be a source of strategic flexibility as it enables firms to respond more rapidly to changing markets and technologies Finally, specifying required outputs permits those processes to also be separated so that they can be performed autonomously & concurrentlyLoose Coupling can lead to Modular OrganizationsFirms have reduced intensity/complexity of managements task in product development, resulting in greater flexibility 73 Approaches to Creating Knowledge 1. Traditional Sequential DevelopmentNote: The Evolving Product Architecture will need a tightly coupled organizational structure (1 firm or a tight group of firms)

3 Approaches to Creating Knowledge2. Overlapping Problem SolvingNote: the evolving information structure (aka Product Architecture) requires intense managerial coordination

3 Approaches to Creating Knowledge3. Modular Product Design

Modular Product Design (revisited)Creates a complete product architecture that defines required outputs of component development processes before beginning development of componentsResults in: Less breakdown losses and delays in information flowsLearning is insulated from unexpected changes in product architectureFirms can combine their capabilities more readily Improved architectural learning Henderson & Clark 1990: Compartmentalization of information around components creates filters that block information flows Remember: Product Architecture = Information Structure11Modular Product Design (revisited)Example: Earth-Moving Equipment Industry These are complex systems composed of many subsystems including hydraulics, drive train, chassis, vehicle electronics, engine, etc. The firm has to decide which components & subsystems they will focus their learning efforts on, and which will be managed using its architectural knowledge to define modular component specifications.

This kind of architectural learning is becoming a strategically important means for assessing and coordinating an extended network of component development capabilities in other organizations

ConclusionThe creation of modular product architectures not only creates flexible product designs, but also enables the design of loosely coupled, flexible, 'modular' organization structures. ImplicationsFirms will undertake internal development of fewer componentsWe may see increasingly dynamic product markets The ORGANIZATIONAL FORM can be a variable to be managed strategically.

What are some potential costs to modular designs? Potential Costs might include the very highly specific product architecture; this may reduce firms product flexibility and represents a large investment. 13