How the rate of change and control of a modular product architecture impact firm‐level outcomes

• Author: Norbert Bach,John Rice,Peter Galvin,Nicholas Burton
• Date: 01 January 2020
• Published date: 01 January 2020
• DOI: http://doi.org/10.1002/jsc.2311

RESEARCH ARTICLE

How the rate of change and control of a modular product

architecture impact firm-level outcomes

Peter Galvin

1

| Nicholas Burton

2

| Norbert Bach

3

| John Rice

4

1

School of Business and Law, Edith Cowan

University, Joondalup, Western Australia,

Australia

2

School of Business and Law, Northumbria

University, Newcastle upon Tyne, United

Kingdom

3

TU Ilmenau, School of Economic Sciences and

Media, Ilmenau, Germany

4

College of Business, Zayed University, Dubai,

United Arab Emirates

Correspondence

Peter Galvin, School of Business and Law,

Edith Cowan University, 270 Joondalup Drive,

Joondalup, Western Australia 6027, Australia.

Email: p.galvin@ecu.edu.au

Abstract

Who controls a product architecture and the rate at which this architecture changes,

impacts the type of outcomes a firm can expect to derive from utilizing a modular

product architecture? Advantages such as increased levels of innovation, quick deter-

mination of consumer preferences and lower production costs have been linked to

modular product architectures. However, such architectures have also been linked to

detrimental outcomes such as high levels of competition and commoditization along

with higher development costs. It is via the introduction of two key moderating vari-

ables that we improve our understanding of the impact that a modular product archi-

tecture has upon different firm-level outcomes.

1|INTRODUCTION

The standardization of components within products to allow for the

efficient division of labor as a basis for economic efficiencies goes

back to the work of Adam Smith. By the 19th Century, standardiza-

tion of components had moved from underpinning elements of the

Victorian factory system to driving true large scale production as a

precursor to the Scientific Management approach of Taylor and the

mass production principles of Fordism. Standardization literally chan-

ged the way manufacturing firms went about conducting business and

had significant flow-on effects across society (Shapiro & Varian,

1998). For example, prior to the introduction of Winchester rifles, all

firearms were crafted individually. The bolt on a rifle was built for a

specific rifle and could not be interchanged with any other rifle, even

those of the same brand. Standardizing parts and allowing for parts to

be interchanged was a key part of the success of the Union Forces in

the US Civil War. By the early 20th Century industries such as the

automobile industry were establishing industry-wide standards in

basic components allowing for some level of interchangeability

(Epstein, 1928). As competitive pressures increased various industries

were driven, or chose to move toward modular product architectures

for a variety of reasons (Schilling & Vasco, 2000). In the computer

industry, the modular IBM PC was a result of IBM trying to quickly

catch up to Apple and using a series of components from other com-

panies (Baldwin & Clark, 2000). In the aircraft construction industry

Boeing introduced a modular structure as way to reduce costs in the

development of the 777, and in the automobile industry utilizing the

same engine or platform was one way to spread the huge develop-

ment costs across a greater number of cars (Cabigioso, Zirpoli, &

Camuffo, 2013; MacDuffie, 2013). Sony moved to modular product

architectures to gain a better understanding of consumers' needs and

the mobile telecommunications industry has introduced elements of

modularity to the mobile phone industry to ensure compatibility for

users and to encourage the development of complementary products

and services (Galvin & Rice, 2008).

While the initial shift toward standardization eventually led to a

growing interest in modu lar product architect ures, the basic princi-

ples of modularity are n ot limited to physical p roducts. Modularity

builds upon the principl e of decomposition of ar tifacts into compo-

nents and defining the manner in which these components interface.

Sanchez and Mahoney (1996) recognized that modular products

tended to be produced by firms with a modular organization

architecture—in what has subsequently been termed the mirroring

hypothesis (Colfer, 2007). Today, the mirroring hypothesis suggests

a mirroring across diff ering levels of architec tures such that we may

consider how modular products may be developed by modular orga-

nizations and the corresp onding division of labor an d the division of

knowledge (Colfer & Baldwin, 2016).

JEL classification codes: L22, L23, L24.

DOI: 10.1002/jsc.2311

Strategic Change. 2020;29:67–76. wileyonlinelibrary.com/journal/jsc © 2020 John Wiley & Sons, Ltd. 67