Modularity and Innovation in Complex Systems

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.

Allocation of inventive effort in complex product systems

This paper examines the allocation of inventive effort in complex product systems. I argue that complex product systems, e.g., personal computers (PCs), are distinguished by functional interaction among several components, each guided by a relatively autonomous bundle of technical and economic characteristics. I try to explore whether the dynamics of such interactions between components of complex product systems can help us understand changes in the relative allocation of inventive effort. I advance and empirically test three hypotheses: (1) emergence of component constraints (bottlenecks) in product systems will trigger research and development (R&D) investment to resolve the constraints; (2) slack component firms have a strong incentive to invest in resolving component constraints; and (3) the incentive of slack component firms to invest in resolving component constraints is increasing in their prior sunk R&D investments in slack components. In sum, I argue that interactions between components in a product system conditions the R&D incentives of firms and also that the incentives are increasing in their prior investments or capabilities. Using product reviews from technical journals, I trace the constraint components in the PC from 1981 to 1998 and attempt to predict shifts in the allocation of inventive effort in the subsequent period. The empirical results strongly support all three hypotheses. This study highlights the paradoxical effect of modularity in complex product systems. Modular design architectures, while contributing to accelerating the pace of technical change, also tend to limit the economic benefits of firms' component R&D efforts, especially when different components technologies are progressing at different rates. This often creates an impetus to enlarge the scope of firm R&D activities beyond the component product markets that firms operate in. Other implications for R&D decision making are discussed. Copyright © 2007 John Wiley & Sons, Ltd.Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/56000/1/622_ftp.pd

Performance effects of imitative entry

This article examines how waiting to imitate a product affects the performance of the imitator compared to the innovator. Specifically, we address two research questions. Under what conditions does imitation erode the advantage of the innovator? What strategies of imitators help overcome the innovator's advantage? Our main argument is that the increasing availability of information on the innovator's product increases the imitator's returns to waiting. With this increasing availability of information, imitators' products transition from those that are horizontally differentiated (products are similar in quality but differ in their attributes) to those that are vertically differentiated (products differ in quality). Thus, we hypothesize that shifts in the nature of competition over time from horizontal differentiation to vertical differentiation account for why the innovator's advantage is not preserved. Imitation timing simply reflects the uncertainty inherent in imitation efforts. One such uncertainty is the extent of product differentiation that the imitator can achieve. We develop several hypotheses that elaborate this basic intuition. We obtained detailed data on innovator-imitator competition in the branded drug industry to test the hypotheses. All our hypotheses are supported. The main contribution of the article is in showing that the nature of product differentiation in product categories is endogenous to the imitative entry decisions of firms. Copyright © 2008 John Wiley & Sons, Ltd.Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/60219/1/696_ftp.pd

Bounded Rationality and the Search for Organizational Architecture: An Evolutionary Perspective on the Design of Organizations and Their Evolvability

We employ a computational model of organizational adaptation to answer three research questions: (1) How does the architecture or structure of complexity affect the feasibility and usefulness of boundedly rational design efforts? (2) Do efforts to adapt organizational forms complicate or complement the effectiveness of first-order change efforts? and (3) To what extent does the rate of environmental change nullify the usefulness of design efforts? We employ a computational model of organizational adaptation to examine these questions. Our results, in identifying the boundary conditions around successful design efforts, suggest that the underlying architecture of complexity of organizations, particularly the presence of hierarchy, is a critical determinant of the feasibility and effectiveness of design efforts. We also find that design efforts are generally complementary to efforts at local performance improvement and identify specific contingencies that determine the extent of complementarity. We discuss the implications of our findings for organization theory and design and the literature on modularity in products and organizations

Hoping for A to Z While Rewarding Only A: Complex Organizations and Multiple Goals

This paper explores the trade-offs inherent in the pursuit and fulfillment of multiple performance goals in complex organizations. We examine two related research questions: (1) What are the organizational implications of pursuing multiple performance goals? (2) Are local and myopic (as opposed to global) goal prioritization strategies effective in dealing with multiple goals? We employ a series of computational experiments to examine these questions. Our results from these experiments both formalize the intuition behind existing wisdom and provide new insights. We show that imposing a multitude of weakly correlated performance measures on even simple organizations (i.e., an organization comprised of independent employees) leads to a performance freeze in that actors are not able to identify choices that enhance organizational performance across the full array of goals. This problem increases as the degree of interdependence of organizational action increases. We also find that goal myopia, spatial differentiation of performance goals, and temporal differentiation of performance goals help rescue organizations from this status quo trap. In addition to highlighting a new class of organizational problems, we argue that in a world of boundedly rational actors, incomplete guides to action in the sense of providing only a subset of underlying goals prove more effective at directing and coordinating behavior than more complete representations of underlying objectives. Management, in the form of the articulation of a subset of goals, provides a degree of clarity and focus in a complex world

Does complexity deter customer‐focus?

Economic models suggest that firms use a simple cost‐benefit calculation to evaluate customer requests for new product features, but an extensive organizational literature shows the decision to implement innovation is more nuanced. We address this theoretical tension by studying how firms respond to customer requests for incremental product innovations, and how these responses change when the requested innovation is complex. Using large sample empirical analyses combined with detailed qualitative data drawn from interviews, we find considerable variance in the relationship between customer demands, complexity, and investments in incremental innovations. The qualitative study revealed the importance of organization structures, competitive pressures, and incentives for resource allocation processes. Copyright © 2011 John Wiley & Sons, Ltd.Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/89508/1/947_ftp.pd