2.2 On modularity
2.2.4 Architectural innovation and Modularity trap
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2.2.4 Architectural innovation and Modularity Trap
From the incremental innovation standpoint, modular design has huge influence on the innovativeness of an organization. It allows the companies to focus on their own module and innovations inside this particular part. This is true as long, as the architecture of an artifact (and indirectly also the architecture of the manufacturing organization as seen before) remains intact and unchanged. In that way, the “volume of Information” (Ernst, 2004) is reduced and hence the amount of knowledge sharing, that is required for coordination is down as well. The burden of managerial coordination is lowered and these talents may be employed in other activities.
“When standardized interfaces in modular architectures are used to coordinate the product creation…processes, those processes can become self – managing. Both mid‐level and senior managers can redirect much of their time and attention from routine tasks of monitoring, problem solving and intervention in those processes to refocus on essential tasks of strategic…goal setting” (Sanchez and Collins, 2001)
The companies can thus perform that activities, which have the higher value added and that are critical tasks for their undergoing (“core competencies”). Usually, these activities also generate the highest margins. The others activities where they cannot obtain high margins and which are not critical to their business would be simply outsourced.
This is what Langlois (2003)means with his statement, that modularity causes the “visible hand of managerial coordination” to vanish.
In his opinion, “modularity reduces the need for management and integration to buffer uncertainty…and the buffering functions of the management are evolving to the mechanics of modularity and market”(Langlois, 2003).
Both these arguments imply, that when considering modular design, the need of involvement required through corporate management is decreasing.
The important, but unanswered question is – what happens once the architecture changes, or begins to change?
The literature mentioned above does not work with such a possibility and simply ignore this option, where they present modularity as the ultimate modern management tool. However, as the experience goes, that architectural innovations are likely to happen in any industry, either once the old architecture reaches its technological zenith, or when the changes in the market simply knocks out the old architecture as outdated or not to the current customer`s need.
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Architectural innovation is a solid challenge to all companies, even to those strongly integrated ones. This is due to the fact that it destroys the usefulness of the architectural knowledge for good, and since this sort of knowledge becomes embedded in the structure and information‐
processing of established organizations, this destruction is difficult to recognize and subsequently correct. Although the architectural innovation often does not bring any new technological advance, it involves new set of engineering and scientific principles and often opens completely new markets as well as potential applications.
As explained in the earlier chapters, the difference between product development of the whole system and of only its parts is great. Modular theory is more than suitable for the later, where no need of extensive coordination of development among modules in necessary. However, for the survival in the conditions of architectural innovation, an insight or better understanding of both is crucial for the company.
The architectural innovation is defined as “the reconfiguration of existing product technologies” – “…the reconfiguration of an established system to link together existing components in a new way” (Henderson and Clark, 1990) ‐ in other words the architectural innovation re‐shuffle the existing components, in a new and innovative way. This destroys the usefulness of the architectural knowledge, however – and this is very important ‐ it preserves the usefulness of the knowledge about the components. And that is why it is so important, that any company should try to reach out and have deeper understanding of both sets of the
knowledge, and not just blindly outsource to its suppliers without having better understanding of the components they employ.
Still, Henderson and Clark (1990) point out – that the sole components may not stay the same – untouched – by the innovation. Actually on a contrary, the architectural innovation is often triggered by a change in a single component – that will create new integrations and new
linkages with other components. However, the “core concept” behind the each component – or the knowledge about it‐ it wouldn`t change that much, but rather evolve or adjust to the new system.
The reason why the companies fail to react to architectural innovations is, according to the authors due to the fact, that they concentrate too much on the development of their “core
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component, but the whole model of its product needs to be redesigned. This process might be painfully time consuming, as the primary reaction to new threat would in most cases be to just do some changes in number of components, rather rethinking the whole concept.
The second issue is the organization`s adaption to the new architecture. The challenge is quietly significant – an organization, which is stable and based on common SOPs and procedures based on the visible architecture, must change all these and become a true learning organization for the time being.
They must try to search for new solutions in ever changing environment – that’s due to the fact, that the old dominant design is broken, however the new dominant design is not created yet and it is due to be set. This might be extremely difficult for old, huge and well established companies, who have rigid corporate structure. On the other hand, this might be much easier for new entrants or small companies – as it is much easier for them to change.
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2.2.5 Architectural Change
The architectural innovation is very close connected with the Innovation Trap model of Chesbrough and Kusonoki (2001). According to their work, two ideal situations change during the time. The first is the “integral phase”, which during the time will be substituted by the
“Modular Phase”. This, however is not the final end of times‐ through architectural innovation or technological changes, that go beyond single components, the circle might eventually close, and move back to integral phase, which might ultimately move again to modular phase and so on.
As we can see the general character of the technology is not static, and thus, once a
technological change appears there must be alignment organizational change in order for the organization to survive. I explained this earlier – the organization of single organization to production networks will follow (copy) the technology alignment (either integral or modular).
Each of these periods is very specific, and brings its very own challenges and therefore the type of the organization structure is crucial. As during the modular phase ‐ the modular organization structure, which favors virtual companies would be more appropriate. However, during the integral phase, such a organizational structure cannot accommodate the extensive need for development coordination – due to the fact, that market cannot accommodate for the technology development anymore and the companies must take care of the product development integrally.
“The overall model, therefore, is one in which phase shifts in the character of technology require an organization to reconfigure itself organizationally in order to effective develop technology.”
(Chesbrough and Kusunoki, 2001)
Once the new technology emerges, the technological development in the industry might often be described by the term “integral”. As mentioned earlier, in such a situation, the interactions between the parts are not well defined and interactions between the elements are very poorly understood, as well as how different technological elements interact is unclear. At integral phase, the firms must learn and accumulate integral knowledge not only about the each new component, but also of the whole system and how the components should work together. But
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understand how the technology works and thus can have greater chances to design new architecture. This is in contrary to the modular technology, where new components are simply plugged into the system (existing architecture) and communication based on the existing interfaces and standards. The modular technology counts on existing markets, which would facilitate the development and supply of suitable components. Such an market, however, is non‐existent in the integral phase, since the communication between the supplier and
customer is flawed – the customer has difficulties to specify the requirements of what kind of components they would need, as well as the supplier does not possess the understanding of the new architecture and might simply deliver parts, that would be useless in the new system.
Moreover, each might try to force the counterpart to resolve the problems, which might bring subsequent difficulties. Therefore, once the architecture changes from modular to integral, “to achieve close coordination and facilitate rapid mutual adjustment between pieces of
interdependent technology, administrative coordination outside the market is required to develop a technology effectively.” (Chessbrough and Kusunoki, 2001)
What need to be noticed is – these two periods – Integral and Modular should be understood as ideals, or extreme situations. In reality, however, we would see a scale of situations which would blend these two periods into a semi modular or semi integral models. The shift between the integral and modular period is not immediate one neither – it rather is gradual, slow
phasing from one model to the other one (e.g. from integral to modular – as the understanding of technical interdepencies is being better understood – the suppliers are therefore more ready to absorb the knowledge and deliver correct components to the customer).
Still, although the transition from integral to modular might be expressed as slow or gradual, the move from modular to integral is often very turbulent. This is the true danger of the
modularity trap – the need for integral knowledge and firm`s unability to obtain this knowledge due to its existing managerial and organizational practice – its existing problem solving routines are simply no longer effective.
But once the technology is well understood and dominant design set, the standards will permit competition on the component level as well. This opens a completely new market and, more importantly, foster component innovation to completely next level – as it allows rival suppliers brings its own interchangeable products which would fit into the end product. Since they can adapt the economies of scale (as the component might be sold to a number of customers) this will also lower the prices to system customers. Under these circumstances, virtual firms will be more successful than companies that continue to manage these coordination activities
integrally – as the advantage of the earlier information advantages within the firm are now insignificant in the light of standards. That is the reason, why the company must be prepared to adapt its organizational approach, in order to profit from their technology.
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Table 3: The modularity trap
Modular Integral
Decentralized organization Proper alignmentn Value realized only within technology layer
No inefficient interactions
Misalignment
Can`t manage interactions Insufficient instrastructure
Centralized organization Misalignment
Unnecessary internal coordination
Reduced scale economies
Proper alignment
Value realized in the system Effective coordination of undefined interactions
Source: Chessborough and Kusunoki, 2001
The table above shows the interaction between organization and technology – where the value can be captured or dissipated.
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2.3 Architecture as a variable
As noted above, in modularity the greatest asset is the specific ability of building complex products or processes from smaller subsystems, which might be designed independently, but once put together still function as whole – as one system. In order for the system to work together, there must be set some set of rules, or schema, that all the particular components would follow in order to be compatible with each other. This schema is usually called
architecture.
In his work, Ulrich (1995) did not only lay the groundwork for future research on modularity, but and also introduced terminology, which was later generally accepted in the field of architectural modularity research. His description of modularity and architecture in NPD is dynamic – he describes the process behind modularization – creation of modular systems.
During this process he comprehends the architecture conceptualization, planning and mapping of the idea up to an explicit scheme of the product. This process has according to him 3 stages:
1. The arrangement of functional elements
2. The mapping from functional elements to physical components
3. The specification of interfaces among interacting physical components
Arrangement of functional elements is a pre‐ design conceptualization of “what should the project be capable of doing” or “what is its purpose”. Ulrich is working with term function structure – whch might be used as a simplistic description or in some cases the system creators might even employ graphical expression of the products functional purpose.
He describes the whole concept of modularization at the example of a car trailer – its very basic functional element is “to expand cargo capacity”. This is the basic function all car trailers have in common. Still, there might be variations in design between different functional elements –more detailed specifications of the product and one cargo trailer might have more or less functional elements than other – this all depends on the design approach selected by the creators. This is why two products at the most general level do the same thing, however might have different function structures when described at a more detailed level.
The second part is the actual mapping from functional elements to physical components – physical components implement the functional elements. Now the creators must choose the actual right physical components for those functional elements they identified in order to the system work effectively.
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Source: Ulrich, 1995
Figure 4: Mapping Functional Elements
Lastly ‐ Interfaces are very important part of every architecture. They are the connecting link between two or more components, and they have the unifying function. They might be both physical (e.g. wiring, geometric connections etc.) or non – contact (such as infra red
connections). It is worth to note, that there might be different kinds of interfaces within one product. Also, as the industry develops, the companies might accept an industry wide interfaces for its components, so that they would be fully interchangeable and there would be no
limitations regarding the manufacturer etc.
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In the following part, I differentiate the New product development projects based on two variables. The first is the intended complexity of the product to be developed, and the second is the level of its relative newness‐ how innovative it is compared to the older generations.
2.3.1 Complexity
Differentiation and connectivity are two important drivers of that would determine the level of complexity – the more parts there are and the more interconnected they are, the higher the project complexity degree and vice versa.
The factors influencing architecture itself can be broken into two elements. The first is
differentiation – which defines the number of varied components in the project (such as tasks, specialists, sub‐systems, parts etc.). The second one is interdependence or connectivity – which defines the degree of linkages between the components. The constellation of these two contributes to the overall complexity of the architecture – deciding whether the product to be developed is of high complexity, complex or non‐complex one.
The term product complexity, as a variable within the New Product Development area was first introduced by Clark and Fujimoto (1991) in their revolutionary study on NPD in the car industry.
In their research, they rationalized product complexity as the number of body styles in the new car model. The reason they could do so was, that the body style for an car is driving factor of such an influence, that the number and variance of these styles would predetermine the physical style and design of all major components (engine, transmission, chassis) as well as all the possible linkages between these. This is what is described below as the “differentiation”
and “connectivity”.
2.3.1.1 Differentiation
Product complexity is an important factor that would greatly affect the manager`s decision.
Often, the managers describe their projects as complex or simple. And all the tasks involved in the management of a project – such us planning, coordination, controls, goal determination, organizational form, project resources evaluation and project costs would be ultimately affected by the level of complexity of the given project.
The term complexity was first introduced by Baccarini (1996), who defined project complexity as “consisting of many varied interrelated parts”. He explicitly lists out the total number of the varied components in the project (such as tasks, specialists, sub systems or parts) – he
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introduce the term differentiation – with the meaning the more components the product has, the more complex its overall architecture will be.
So in simple words, Baccarini (1996)defines the complexity as the product differentiation – namely it is the number of varied components in the project (tasks, specialists, sub‐systems, parts).
2.3.1.2 Connectivity
It is notable at this point to mention that the managers won`t usually interchange the term big with the term complex – there is a strong and widespread feeling that a “complex” project are more, than just the “big” ones (Williams, 1999). This is the reason we need to consider the connectivity (often called interdependence as well) at this point. Connectivity express the degree of inter‐linkages between the groups of components – in other words what is the way these components are pooled and how do they operate together. Williams postulates, that in order to better understand the level of complexity, it is not enough to barely accept the existence of the interconnections between the artifact`s elements, but we also must study and define the nature of these connections.
Such, he defines 3 major groups of connection categories:
Pooled – in this situation, every element contributes to the overall project (or product) and they are irrespective to the other elements` of the system – their output is to the whole Sequential – one element`s output is another element input
Reciprocal – each element output becomes other elements` input
The last group is the most tricky and difficult to manage. In situations like this – any change to the subsystem will generate changes throughout all the other sub‐system and changes to every single component might be inevitable. This of course increase the necessity of extra allocation of resources to the project and more complex and careful project management will have to be employed as well.
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2.3.2 Innovativeness
Innovativeness reflects the relative novelty of the product. During the New Product Development – the developing team is by the very definition of this term expected to
incorporate some changes compared to previous products in order to gain some advantageous momentum on the market. Innovativeness describes the degree of this novelty – and this
incorporate some changes compared to previous products in order to gain some advantageous momentum on the market. Innovativeness describes the degree of this novelty – and this