Authority in the Age of Modularity

This paper builds upon on-going research into the organisational implications of 'modularity'. Advocates of modularity argue that the Invisible Hand of markets is reaching activities previously controlled through the Visible Hand of hierarchies. This paper argues that there are cognitive limits to the extent of division of labour: what kinds of problems firms solve, and how they solve them, set limits to the extent of division of labour, irrespective of the extent of the market. This paper analyses the cognitive limits to the division of labour relying on an in-depth case study of engineering design activities. On this basis, this paper explains why co-ordinating increasingly specialised bodies of knowledge, and increasingly distributed learning processes, requires the presence of knowledge integrating firms even in the presence of modular products. Such firms, relying on their wide in-house scientific and technological capabilities, have the 'authority' to identify, propose, and implement solutions to complex problems. In so doing, they co-ordinate networks of suppliers of both components and specialised competencies.modularity, division of labour limits, knowledge integrating firms

Problem solving and the co-ordination of innovative activities

In the context of increasingly globalized markets, ever more complex supply chains and international manufacturing networks, corporate decision-making processes involve more and more actors, variables and criteria. This is a challenge for corporate head quarters. Many have argued that the role once attributed to the integrated innovative organisation and its R&D laboratories is increasingly associated with the functioning of networks of specialised innovators. The aim of this paper is to argue that the role of large firms may have changed, but it is far from disappeared. It looks at the interplay of increasing knowledge specialisation, the development of products of increasing complexity that perform a widening range of functionalities, and the emergence and diffusion of new design strategies for both products and organisations, namely modularity. The emergence of modularity as a product and organisational design strategy is clearly connected to recent trends in organisational design. Modularity would allow the decoupling of complex artifacts into simpler, self-contained modules. Each module would, at the extreme, become the sole business of a specialised trade. This paper builds upon the idea that there are cognitive limits to this process of modularisation: what kinds of problems firms solve, and how they solve them, set limits to the extent of division of labour among firms. We draw implications of such limits for both management and economic theory.large firms, knowledge specialisation, complex products, modularity,

Making Design Rules: A Multi-Domain Perspective

This study analyzes the processes whereby organizations develop radical innovations in response to environmental transformations. It explores the changes in organizational structures, practices and business strategies entailed by the implementation of such innovations. From the literature on modularity, we borrow the idea that the evolutionary dynamics of artifacts and organizations are linked by design rules, i.e. a set of principles that allocate functions to components, identify the operating principle of each component and determine the interfaces among modules. Through an in-depth case study of radical innovation in tire manufacturing, we study the joint dynamics of technical and organizational change during the transition from old to new design rules. We argue that technical change and organization adaptation are linked, but that such relationship is mediated and rendered open-ended by the evolution of the underlying bodies of knowledge.organizational change, innovation, technological change, modularity, tire manufacturing

The role of codified sources of knowledge in innovation: empirical evidence from Dutch manufacturing

This paper explores ongoing debates about the role that codified forms of knowledge play in fostering firms' and countries' innovative performance. It aims to provide an empirical exploration of the use of codified sources of information for innovation at the sectoral level. Despite considerable interest in David and Foray's (1995) work on the codification of knowledge and the changing nature of innovation due to the use of information and communication technologies, there are relatively few empirical studies that probe the role of codified sources of information in the innovation process. Our goal is to assess 'how' important codified sources of information are for innovation for different sectors and to the innovation system in general. We explore the relationship between the use of codified sources by individual firms and increases in the 'distributional power' of an innovation system, a key component in David and Foray's codification argument. We then link the use of codified sources to different innovative strategies and characteristics of innovation at the firm level. The data used for the analysis is based on The Netherlands Community Innovation Survey (II) for the manufacturing sector. The data set covers 1997 firms in 11 major industries.Innovation, knowledge, manufacturing industries, codification

The Knowledge Bases of the World's Largest Pharmaceuticals Groups: what do Patent Citations to Non-Patent Literature Reveal?

This paper examines the knowledge bases of the world's largest pharmaceuticals groups by sales. It puts forward the concepts of knowledge breadth and depth as the relevant dimensions along which knowledge bases can be mapped. Breadth is studied by analysing the evolution of specialisation by scientific field over time. It hints at the widening range of bodies of scientific and technological knowledge relevant to firms' innovative activities. Depth (or integration) is studied by analysing the evolution of specialisation across different typologies of research. It hints at the complex, non-linear interdependencies that link the scientific and technological domains. We develop the analyses on the strength of an original database of 33,127 EPO patents, and of 41,931 'non patent document' citations (of which 19,494 were identified as scientific articles included in the ISI databases). The groups studied seem to have incrementally increased the breadth of their knowledge bases, moving toward the fields proper of the new bio-pharmaceutical research trajectory. At the same time, some of the groups studied exhibit remarkable depth in knowledge specialisation in particular fields such as biotechnology, biochemical research and neurosciences. Finally, this paper also provides a first methodological test of possible problems deriving from the use of 'unidentified' patent citations (i.e. added by the examiners together with those proposed by the inventor). We compare a random sample of these citations with a sample of citations explicitly added by the original inventor, and compare the results in terms of scientific specialisations.Knowledge Breadth, Depth, Integration, Patent Citations, Scientific Publications, Pharmaceuticals

The Value and Costs of Modularity: A Cognitive Perspective

This paper discusses the issue of modularity from a problem-solving perspective. Modularity is in fact a decomposition heuristic, through which a complex problem is decomposed into independent or quasi-independent sub-problems. By means of a model of problem decomposition, this paper studies the trade-offs of modularity: on the one hand finer modules increase the speed of search, but on the other hand they usually determine lock-in into sub-optimal solutions. How effectively to balance this trade-off depends upon the problem environment and its complexity and volatility: we show that in stationary and complex environments there exists an evolutionary advantage to over-modularization, while in highly volatile – though “simple” – en- vironments, contrary to usual wisdom, modular search is inefficient. The empirical relevance of our findings is discussed, especially with reference to the literature on system integration.modularity, problem solving, complex systems

How dynamic capabilities change ordinary capabilities: Reconnecting attention control and problem‐solving

Research Summary Building on the attention-based view of the firm, we elaborate the concept of dynamic capabilities and identify two constitutive elements: attention control and problem-solving. We show empirically that the control element of dynamic capabilities regulates how organizations (dis-)engage attention on operational versus change-oriented tasks. On this basis, we develop a process model of how control and problem-solving interact to reconfigure resources and thus modify ordinary capabilities. We study the adoption of lean management in the R&D unit of a large U.S. corporation. Our longitudinal case study identifies obstacles that organizations have to overcome to establish effective dynamic capabilities that enable their adaptation to changing environmental circumstances. Managerial Summary “The vast majority of all change initiatives fail”: We hear this statement a lot in our interactions with practitioners. In this article, we suggest an explanation of why achieving persistent, behavioral change is hard: attention to change processes is difficult to maintain over an extended period of time. Initiatives start, then fade away. By studying the interplay of control mechanisms (that keep organizational attention on the long-term goals) and problem-solving tools (that identify what and how to change in the short term), we provide a framework that can generate actionable implications for executives. In particular, we focus on the decisive and yet underestimated role played by key performance indicators in sustaining attention on change initiatives

Microfoundations of Problem Solving: Attentional Engagement Predicts Problem-Solving Strategies

Organizations use a plethora of methods and tools to help their members solve problems effectively. Yet the specifics of how individuals solve problems remain largely unexplored. We propose and test a cognitive model of problem solving that integrates dual process theories into the attention-based view. The model suggests that diverse problem-solving strategies emerge in response to how individuals deliberate. Three studies provide observational and causal evidence in support of our model. The first study explores the strategies managers use to solve problems. We use think-aloud protocols combined with content, sequence, and cluster analyses to extract the key differences in how experienced managers solve problems. Two problem-solving strategies emerge from the data: one emphasizes mental activities related to framing, and the other emphasizes mental activities related to implementation. In the second study, we use a mixed factorial experimental design and mouse-tracking analysis to uncover the causal mechanism that explains the emergence of these two strategies. We then retest our hypotheses in a third, preregistered, study. We find that manipulating attention toward mental activities related to framing increases deliberation aimed at restructuring the problem elements. In contrast, directing attention toward mental activities related to implementation increases deliberation on the potential contingencies and consequences of the solution. Our findings provide empirical evidence about how problems are actually solved and support the idea that attentional processes are malleable enough to affect the choice of problem-solving strategies

Removing bottlenecks in business ecosystems: the strategic role of outbound open innovation

This paper investigates how firms can orchestrate outbound open innovation strategically to accelerate technological progress among the firms they collaborate with, thus removing technological bottlenecks in their business ecosystem. We examine how a major oil and gas producer fostered, through its internal corporate venture unit, the development of new technologies aimed at enhancing the effectiveness of the oilfield services offered by its key providers. The comparative analysis of five innovative projects suggests that two factors were critical for the successful deployment of the proposed technologies: their potential to broaden service providers’ portfolios and the possibility to retain control over the relevant intellectual property. The concurrent presence of these two factors incentivized service providers to deploy the new technologies, aligning their interests with those of the oil major company. By revealing unexplored aspects of the interplay of inter-firm collaborations and open innovation processes, this paper extends our understanding of how firms can align the incentives and activities of other actors in their business ecosystems by strategizing their open innovation initiatives