Do Modular Products Lead To Modular Organizations?

Glenn Hoetker
Department of Business Administration
 University of Illinois at Urbana-Champaign
 350 Wohlers Hall
1206 S. Sixth Street
 Champaign, IL 61820
Tel: 217-265-4081 
Fax: 217-244-7969


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 multi-faceted 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 under-appreciated costs of designing and maintaining a modular organization.


Keywords: Modularity; Buyer-supplier relationships; Knowledge based theory of the firm; Transaction cost economics; Management of innovation


Running head: Do Modular Products Lead to Modular Organizations?


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