Product and Organizational Modularity: A Contingent View of the Mirroring Hypothesis

AuthorMetehan Feridun Sorkun, Andrea Furlan
DOIhttp://doi.org/10.1111/emre.12101
Publication Date01 Jun 2017
Product and Organizational Modularity: A
Contingent View of the Mirroring Hypothesis
METEHAN FERİDUN SORKUN
1
and ANDREA FURLAN
2
1
Department of Business Administration, İzmir University of Economics, İzmir, Turkey
2
Department of Economics and Management, The University of Padova, Padova, Italy
This study aims to advance a contingent view of the mirroring hypothesis, focusing on the causaleffect of product
modularity on organizational modularity. It compares the group of papers (orthodox) that confirms the mirroring
hypothesis with the group of papers (critique) that assumes a critical position. The citation network analysis
performedon the critiquegroup searchesfor contingentfactors that explainunder which circumstancesthe mirroring
hypothesis does not hold. Results show that the mirroring hypothesis is contingent on a set of six distinct, although
interdependent, factors:(i) component technologicalchange and diversity; (ii)innovativeness of productarchitecture;
(iii) complexityof product architecture; (iv)capability dispersionalong the supply network; (v) rivalryamong leading
firms & among suppliers; and (vi) logistics costs. This study discusses each contingent factor in turn, highlighting
theories or approaches that ought to be used in conjunction (not in contrast) with the modularity theory to explain
the boundariesof firms and industries.A contingent view of themirroring hypothesisreconciles the twoopposite views
on the mirroring hypothesis,enhances its ramificationsinto the theory of the firm, and givesinsights to practitioners.
Keywords: productmodularity; organizational modularity;network analysis; literaturereview; mirroring hypothesis
Introduction
The relationship between product modularity (PM) and
organizational modularity (OM) lies at the heart of the
modularity theory of the firm that aims to explain the
positions of the boundaries of firms and, as a
consequence, the vertical contracting structure of
industries. The relevance of this relationship dates back
to Simons (1962) ground-breaking study on the
architecture of complexity based on hierarchy and
near-decomposability. Thanks to the authors intuitions,
it is possible to explicitly integrate technology (a variable
often considered exogenous in organizational economics)
into the analysisof the evolution of organizationaldesign.
The seminal paper by Sanchez and Mahoney (1996) has
crystalized the effect of PM on OM indicating that the
architecture of organizations mirrors the corresponding
product design. In other words, modular organizations
come from modular products, and integral organizations
come from integral products.
1
A direct and positiverelationship between PM and OM
has been framed as the mirroring hypothesis (Colfer and
Baldwin, 2010), which has aroused the interest of many
studies so far. The mirroring hypothesis implies a
bi-directional positive relationship between PM and OM.
One causal relationship that the mirroring hypothesis
embeds is from organizationsarchitectures to product
architectures (Henderson and Clark, 1990). This
hypothesizedcausation rests on the argumentthat problem
solvingand communication patternsof organizations (OM
level) draw the solution space for product design (PM
level) (MacCormack et al., 2012). Therefore, modular
organizational forms in which loosely coupled
organizational units specialize in distinct knowledge
domains are more likely to design modular products
because no mechanism is available to integrate the
dispersed knowledge domains to maximize component
synergies that is necessary for the developmentof integral
products.
This review focuses on the mirroring effect from
productsarchitectures to organizationsarchitectures. In
other words, it focuses on the effects that the architecture
of a product has on the organization of the development
and production activities of that product. Thus,in the rest
of the paper, the term mirroring hypothesisrefers to the
causal relationship from product modularity (PM) to
organizational modularity (OM).
Correspondence: Metehan Feridun Sorkun, İzmir University of
Economics, Faculty of Business, Department of Business
Administration, Sakarya Caddesi, No. 156, Balçova, İzmir (35330),
Turkey. Tel:+90 5069350029. E-mail metehan.sorkun@ieu.edu.tr
1
Although there is an emergent literature on service modularity (Voss and
Hsuan, 2009; Bask et al., 2010; Cabigiosu et al., 2015), the present study
focuses on productmodularity.
European Management Review, Vol. 14, 205224, (2017)
DOI: 10.1111/emre.12101
©2016 European Academy of Management
Several studies have empirically supported the
mirroring effect from PM to OM at different levels of
analyses and in several industries (Schilling and
Steensma, 2001; Sturgeon, 2002; Fixson and Park, 2008;
Cabigiosu and Camuffo, 2012). Modules are interpreted
as market-supporting institutions providing technical
design rules that standardize the interfaces between
different product components or stages of the production
process (Sabel and Zeitlin, 2004). The modularity in
product servesas the functional equivalentof coordination
mechanisms between firms in a supply chain or among
organizational units of the same firm.
As the number of empirical studies have increased and
the scope of enquiry has broadened, a considerable
number of studies revealed contradictory findings. It is
argued that the presumed positive effect of PM on OM
conjectured by the mirroring hypothesis is inhibited by
inextricable performance interactions among the
components of the products (Langlois, 2002; Brusoni
and Prencipe, 2006; Zirpoli and Becker, 2011; Whitford
and Zirpoli, 2014).Even in the case of modular products,
there can be residual interdependencies which force
organizations to adopt complex and expansive
coordination mechanisms in order to assure the
performance of the final product.
The first part of this study carries out a systematic
analysis to compare the group of papers (orthodox)that
confirms the mirroring hypothesis with the group of
papers (critique) that assumes a critical position. At the
best of authorsknowledge, this study is the first attempt
to compare these two groups. Although the majority of
the papers belong to the second group, the contradiction
between the two groupsis fairly persistent over time. This
paper searches for any specific pattern related to the
research designs of papers that can explain their different
positions.Results show that the differences in theresearch
designs (such as industries, adopted measures, and levels
of analyses for PM and OM) are not responsible for the
positions of papers in one of the two groups.
Having ruled out the possibility that different research
settings might be responsible for the contrasting views
on the mirroring hypothesis, the authors argue that the
discrepancy between product and organizational
architectures derives from contingent factors that
ultimately impinge on the ability of modular design rules
to bring about modular organizations.(DAdderio and
Pollock, 2014: 1814). However, there is a lack of studies
that systematically analyze and discuss these contingent
factors.
Therefore, the second part of this study performs a
citation networkanalysis on the critiquegroup searching
for contingent factors that explain under which
circumstances the mirroring does not hold. Results show
that the mirroring hypothesis is contingent on a set of six
distinct, although interdependent, factors: (i) component
technological change and diversity; (ii) innovativeness
of product architecture; (iii) complexity of product
architecture; (iv) capability dispersion along the supply
network; (v) rivalry among leading firms & among
suppliers; and (vi) logistics costs. This study discusses
each contingent factor in turn, highlighting theories or
approaches that ought to be used in conjunction (not in
contrast) with the modularity theory to explain the
boundaries of firms and industries. The authors maintain
that a contingent view of the mirroring hypothesis
reconciles the two opposite views on the mirroring
hypothesis, enhances its ramifications into the theory of
the firm, and gives insights to practitioners by helping
them to assess the contingencies under which the
mirroring hypothesis does not hold true.
PM, OM, and the mirroring hypothesis:
conceptual definitions
While a product is composedof different components and
sub-systems, an organization can be partitioned into
departments, separate firms and vertical industrial layers.
Therefore, it is possible to identify both products and
organizations as systems whose constituents have
interdependencies to implement their system functions.
For example, while technical, volumetric and aesthetic
interdependencies exist among components and
subsystems of products, there are informational,
governmental and resource interdependencies among
organizational units (Worren, 2012).
Product modularity (PM) refers to the degree of
technical interdependencies between the constituents of a
product (Schilling, 2000). This review identifies three
different levels of PM: the final product level that
indicates the modularity degree of a final product; the
sub-system level that indicates the modularity degree of
a single sub-system; and the component level that
indicates the modularity degree of a single component.
The term PMis used to cover all these three levels of
analyses. Regarding the modularity degree of a final
product, Ulrich (1995) proposes two criteria: (a) their
constituents are coordinated through standardized
interfaces and (b) each constituent performs only one
product function. The subsystems of a final product can
also be defined aseither modular or non-modular (Simon,
1962) because they can contain complex components
interactions such as in the aircraft engine control system
(Brusoni et al., 2001), the exhaust system (Persson and
Åhlström, 2013), and the air-conditioning system in
automobiles (Cabigiosu et al., 2013). Finally, there are
studies (Hsuan, 1999; Furlan et al., 2014) assessing
whether components are modular or not. The degree of
component modularity depends on how many functions
206 M.F. Sorkun and A. Furlan

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