Modularity, Flexibility,
and Knowledge Management
in Product and
Organization Design
By Ron Sanchez and Joseph Mahoney
SMJ (winter 1996)
special issue: Knowledge and the Firm

Investigates interrelationships among:
◦ Product design
◦ Organization design
◦ Processes for learning and managing
knowledge
◦ Competitive strategy

Uses the principles of nearly
decomposable systems (Simon 1962)
◦ In particular, using standardized component
interfaces
Overview

Organizations design products
◦ But I can also be argued that products design
organizations
 Specific product designs implicitly select
coordination tasks
 Coordination tasks largely determine the feasible
organization designs for developing and producing
those products

First in modularity literature to suggest
the linkage between product design and
organization design
◦ “mirroring hypothesis”
Overview

Complex System
◦ Consists of parts that interact and are
interdependent to some degree
◦ Hierarchy is an organizing principle
 Structural conception of hierarchy, as opposed to
authority hierarchy
 Recursive structure: interrelated subsystems that
in turn have their own subsystems

Nearly Decomposable Systems
◦ Interactions among subsystems are weak (but
not trivial); interactions within subsystems are
strong
Nearly Decomposable Systems

Impacts of environmental disturbances
localized within specific subsystems
◦ Increases survivability and adaptability
◦ Thus Simon argues through evolutionary
process most complex systems are nearly
decomposable
Nearly Decomposable Systems

Degree of coupling:
◦ The extent to which a change in the design of
one component requires compensating design
change in the design of other components

Modularity:
◦ A special form of design which intentionally
creates a high degree of independence or
‘loose coupling’ between component designs
◦ By standardizing component interface
specifications
Modularity in Product & Org Design

Tightly coupled product system
◦ Change within one component likely requires
compensating changes in other components
◦ Development process consequently requires
intensive managerial coordination
◦ Thus, requires tightly coupled organization
structure
 Coordinated by managerial authority hierarchy

Loosely coupled product system
◦ Similar logic: requires loosely coupled organization
structure
Linkage between Product and Org
Designs

Innovation During Product Development
Involves:
◦ 1.) creating new information about the
functions components can perform – learning
about components per se
◦ 2.) creating new information about the ways
components interact and can be configured –
learning about product architecture

Four odes of learning – radical,
architectural, modular, incremental
Models for Managing Knowledge
and Learning in Product Creation

3 Models of Development Processes
◦ Sequential
 Follows a sequential staging
 Information structure of component interface
specification is the output of the process
◦ An evolving information structure
◦ Overlapping
 Some overlapping
 Interface still an evolving information structure
◦ Modular
 Complete specification of interface before
development
Models for Managing Knowledge
and Learning in Product Creation

Sequential / Overlapping
◦ Evolving information structure
 Requires recursive information flow
 Organizationally, requires managerial adjudication
of many technical and financial issues
◦ Requires authority hierarchy

Modular
◦ Stable information structure
 Concurrent development possible without overt
managerial intervention
 Coordination embedded in the interface
specification
Models for Managing Knowledge
and Learning in Product Creation

Modular Development enables
◦ Improved component-level learning
 By insulating disruptions by unexpected changes
elsewhere
◦ Improved architectural-level learning
 By preventing compartmentalization of
organization
◦ Strategic flexibility
 Standardized interface allows a range of
variations at component level (so long as they
conform to the specifications)
◦ Essentially, range of variations creates option value
Conclusion

Linking product design, organization
design, and competitive strategy
◦ Illustrate the linking mechanisms between
product design, design process, and
organization design

Explicitly investigates knowledge
specialization beyond content into process
Contributions