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Limits to Modularity: Reflections on Recent Developments in Chip Design

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  • Dieter Ernst
Abstract
Research on “modularity” has made an important contribution to the study of technical change and economic institutions. It demonstrates that progress in the division of labor in design (technical modularity) has created new opportunities for the organization of firms beyond vertical integration, by fostering vertical specialization in both manufacturing and innovation. However, a small, but growing revisionist literature contends that the enthusiasm for modularity has gone too far. Instead of exploring challenges and difficulties that management is facing in implementing modularity, there is a tendency in the “modularity” literature to generalize empirical observations that are context-specific and to confound them with prescription as well as prediction. This paper sides with the revisionist literature in cautioning against claims of pervasive modularity. The objective is not to propose an alternative theory. More modestly, I am aiming to move the debate away from polemics to a scholarly discourse that asks what forces might constrain the convergence of technical, organizational and market modularity. A related objective is to explore what management can do to overcome these limits. I examine new evidence from a cutting-edge industry, semiconductors, that is often cited by modularity proponents as an indicator of broader industry trends. The paper shows that, even in this industry, there are powerful counter-forces causing organizational structures to become more integrated, not more arm's length. Evidence from chip design is used to analyze how competitive dynamics and cognitive complexity create modularity limits, and to examine management responses. I demonstrate that inter-firm collaboration requires more (not less) coordination through corporate management, if codification does not reduce complexity—which it fails to do when technologies keep changing fast and unpredictably.

Suggested Citation

  • Dieter Ernst, 2005. "Limits to Modularity: Reflections on Recent Developments in Chip Design," Industry and Innovation, Taylor & Francis Journals, vol. 12(3), pages 303-335.
    • Handle: RePEc:taf:indinn:v:12:y:2005:i:3:p:303-335
    DOI: 10.1080/13662710500195918
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    References listed on IDEAS

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    Cited by:

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    2. Jarle Hildrum & Dieter Ernst & Jan Fagerberg, 2011. "The Complex Interaction between Global Production Networks, Digital Information Systems and International Knowledge Transfers," Chapters, in: Cristiano Antonelli (ed.), Handbook on the Economic Complexity of Technological Change, chapter 16, Edward Elgar Publishing.
    3. T. Ciarli & R. Leoncini & S. Montresor & M. Valente, 2007. "Organisation of industry and innovation dynamics," Working Papers 609, Dipartimento Scienze Economiche, Universita' di Bologna.
    4. Susan Helper & Mari Sako, 2010. "Management innovation in supply chain: appreciating Chandler in the twenty-first century," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 19(2), pages 399-429, April.
    5. Ceci, Federica & Prencipe, Andrea, 2013. "Does Distance Hinder Coordination? Identifying and Bridging Boundaries of Offshored Work," Journal of International Management, Elsevier, vol. 19(4), pages 324-332.
    6. Vincent Frigant & Damien Talbot, 2005. "Technological Determinism and Modularity: Lessons from a Comparison between Aircraft and Auto Industries in Europe," Industry and Innovation, Taylor & Francis Journals, vol. 12(3), pages 337-355.
    7. Kuan, Jennifer & West, Joel, 2023. "Interfaces, modularity and ecosystem emergence: How DARPA modularized the semiconductor ecosystem," Research Policy, Elsevier, vol. 52(8).
    8. Adams, Pamela & Fontana, Roberto & Malerba, Franco, 2013. "The magnitude of innovation by demand in a sectoral system: The role of industrial users in semiconductors," Research Policy, Elsevier, vol. 42(1), pages 1-14.
    9. Jaegul Lee & Nicholas Berente, 2012. "Digital Innovation and the Division of Innovative Labor: Digital Controls in the Automotive Industry," Organization Science, INFORMS, vol. 23(5), pages 1428-1447, October.
    10. Fang, Edward Aihua & Wu, Qizhi & Miao, Chaowei & Xia, Jiansheng & Chen, Dezhi, 2013. "The impact of new product & operations technological practices on organization structure," International Journal of Production Economics, Elsevier, vol. 145(2), pages 733-742.
    11. Edward Aihua Fang & Na Yang, 2021. "More work cooperation or relationship harmony in mass customization? The impacts of personalized design, modular design, and automated processes," Information Technology and Management, Springer, vol. 22(3), pages 179-192, September.
    12. Richard Gentry & Heather Elms, 2009. "Firm Partial Modularity and Performance in the Electronic Manufacturing Services Industry," Industry and Innovation, Taylor & Francis Journals, vol. 16(6), pages 575-592.
    13. Albert Jolink & Eva Niesten, 2012. "Hybrid Governance," Chapters, in: Michael Dietrich & Jackie Krafft (ed.), Handbook on the Economics and Theory of the Firm, chapter 12, Edward Elgar Publishing.
    14. Nicholas Burton & Peter Galvin, 2022. "The effect of technology and regulation on the co-evolution of product and industry architecture," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 31(4), pages 1056-1085.
    15. Pieter Ballon & Nils Walravens & Antonietta Spedalieri & Claudio Venezia, 2010. "The Reconfiguration of Mobile Service Provision: Towards Platform Business Models," Chapters, in: Morten Falch & Jan Markendahl (ed.), Promoting New Telecom Infrastructures, chapter 12, Edward Elgar Publishing.
    16. Jolink, Albert & Niesten, Eva, 2012. "Recent qualitative advances on hybrid organizations: Taking stock, looking ahead," Scandinavian Journal of Management, Elsevier, vol. 28(2), pages 149-161.
    17. Alexander Peine, 2008. "Challenging incommensurability – What we can learn from Ludwik Fleck for the analysis of complex technical systems," Innovation Studies Utrecht (ISU) working paper series 08-21, Utrecht University, Department of Innovation Studies, revised Oct 2008.
    18. Choung, Jae-Yong & Hwang, Hye-Ran, 2019. "Institutional capabilities and technology upgrading: The case of the nuclear industry in Korea," Technological Forecasting and Social Change, Elsevier, vol. 145(C), pages 284-294.

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