Modular product architecture - Fostering or hindering innovation?

Contents

List of figures

List of tables

List of abbreviations

1. Introduction
1.1 Aims of the paper
1.2 Structural Overview

2. New Product Development
2.1 Technological Innovation
2.1.1 Definitions
2.1.2 Historical Aspects and the Generic Concept of New Product Development Processes
2.1.3 Determinants of Technological Innovation
2.1.4 Types of Innovation
2.2 Product Architecture
2.2.1 The Theoretical Basics of Product Architecture
2.2.2 Modularity in Products
2.2.3 The Platform Concept

3. the effects of modular Products on Technological Innovation
3.1 New Product Development Processes under Modular Product Architecture
3.2 The Outsourcing-Effect of Innovation under Modular Product Architecture
3.3 The steady Evolution of Modular Products and Industry Factors
3.4 Modular and Architectural Product and Process Innovation

4. The X-Box Case

5. Conclusion

References

List of Figures

Figure 1 Potential Effects of Technological Innovation on Systems’ Capabilities

List of Tables

Table 1 Product Architectural Specifications of X-Box

List of Abbreviations

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1. Introduction

Industrialization processes in the last decades have resulted in the emergence of immense new industries, which for a great part can be ascribed to comprehensive activities of technological innovation. Driven by dynamic market contexts such as globalization or technological advances leading to growing complexities and evolving consumer demands firms are however increasingly affronted with the challenge to offer a greater variety of products of improved performance in less time and under lower costs (Momme et al. 2000, p.128; Ulrich/Eppinger 1995, p.5). Technological innovation as the means and ends of new product development therefore plays a significant role. Modular product architecture - products that are made up of a set of independent components, connected only via defined interfaces (Ulrich/Eppinger 1995, p.132) - is predominantly found in technologically intensive industries such as telecommunications, electronics or the automobile sector (Sanchez/Mahoney 1996, p.67; Staudenmayer et al 2005, p.308). Under the light of the challenges affronting firms, this paper examines the effects modular product architecture has on technological innovation.

1.1 Aims of the paper

This work attempts to assess effects of modular product architecture on technological innovation. As highlighted in literature, modular product architecture affects several key elements of new product development and is strongly linked to the notion of platform production (Ulrich/Eppinger 1995, p.138). This paper assumes an industry characterized by open standardised interface specifications with a central firm controlling the architectural configuration of products. The modularity concept will be aligned to technological innovation taking into consideration a framework of generic processes for new product development suggested by Ulrich and Eppinger (1995, p.16), the concept of profit determinants of innovation proposed by Teece (1986, p. 286), Utterback’s model (1994, p.79) of industrial evolution as well as possible source of innovation (Afuah 1994, p.69). In doing this, further relevant aspects of technological innovation and the particularities of modular product architecture – as identified in literature – will carefully be taken into account. By means of a case study, the work eventually aims to illustrate theoretical facets and central findings generated.

1.2 Structural Overview

The following abstract gives a short overview on the structural build-up of the paper.

The paper considers the mutual effects of modular product architecture on technological innovation as the means and ends of new product development. Chapter 2.1 accordingly deals with technological innovation and after a brief abstract on relevant notions and a necessary delineation discusses all influential aspects that later serve to meet the above mentioned objectives of this work.

Additionally, these findings constitute a useful basis, upon which subsequently the concept of product architecture (chapter 2.2) is introduced. Starting off with the definitions of key terms and a short general overview on product architecture, the concept of modularity is introduced and its potential vantages and downsides are evaluated. Next, platform production as a means of producing modular products is discussed. Chapter 3 synthesizes both topics in order to derive potential effects of modular product architecture on technological innovation. In chapter 4, a case study serves to illustrate the fundamental theoretical constituents of the preceding chapters. Moreover, the case effectively exemplifies the effects of how product modularity affects technological innovation. Finally, chapter 5 reflects on the key findings in a self-critique style and identifies limiting factors. Suggestions for further research build the concluding abstract.

2. New Product Development (NPD)

2.1 Technological Innovation

2.1.1 Definitions

This chapter aims to create a common understanding of the notions and concepts of technological innovation that are of relevance for this work. Also, a delineation sets foci and allows an increased contextual fit with special regard to the succeeding content.

Among the wide variety of available definitions of the term “innovation” this work adopts the broad but developmentally oriented concept of Schumpeter, stated as the “carrying out of new combinations” (1934, p. 66). This provides a sufficiently wide approach as it is independent of a specific perspective - that is, the beneficiary party of innovation. Also, without a particular fixation on who is performing the innovation, usability of the definition in the context of this paper is further improved. Therefore, as an example, also customers or suppliers could serve as innovators, concurrently could be benefiting from it. Innovation according to Schumpeter requires the existence of two factors: newness (as of invention) and combination (as of innovation). As options whereby “bundling” makes up an innovation, Schumpeter offers new products, new methods, new markets, new sources of supply and new organizations.^[1]

Complementary to this, the notion of technology is introduced. Technological knowledge as the “knowledge of components, linkages between components, methods, processes, and techniques that go into a product or service” (Afuah 1998, p.13) incorporates two perspectives. First, the technical aspect^[2], which is covered by technology as products and second, the technological facet expressed by its role in creating them. An ambiguous role becomes transparent as technology can be a product and simultaneously serves as a source for succeeding products by enabling them.^[3]

New product development according to Wheelwright and Clark (1992) comprises the improvement of product or product families or the introduction of entirely new ones.

Technological innovation as a result of the above in this work is understood as both the means and the ends of new product development (NPD).

Distinguishing innovation according its degree is another aspect that is of relevance for this work. With a product simply being an offering responding to needs and demands, literature classifies in radical innovation, such as an entirely new product and incremental innovation, such as a product improvement. Radical and incremental innovations at this point should be differentiated from another classification of Christensen (1997, p. xv) distinguishing sustaining and disruptive technologies or innovations. Products resulting from sustaining innovations conserve existing knowledge and processes, whereas disruptive ones leaves knowledge and processes obsolete. Disruptive technologies at first are characterized by products of lower performance but later compensate in advantages in price or function.

Complementary to this and explaining potential dramatic effects of incremental innovation to industries, Henderson and Clark suggest the framework of architectural innovation (1990, p.9). Architectural innovation is an innovation that links existing components together in a new way. An example is a cell phone with a built-in digital camera. Modular innovation to the contrary signifies change at the component level, with the linkages between them remaining the same. The replacement of a metal hydride battery in a mobile phone with a lithium ion battery of improved performance could be stated as an illustration.

2.1.2 Historical Aspects and the Generic Concept of NPD Processes

This chapter briefly mentions some historical aspects of firms’ innovation activities and takes a closer look at various available innovation processes of more current times.

In a hyperbolical historical context, technological innovation has always been strongly connected to research and development (R&D) activities of firms (Brockhoff 1999, p.1). Characterized by non-systematic approaches with independently operating internal divisions of a firm, efforts were gradually passed along through gateways with minor feedback loops. Hence, innovation processes according to literature in earlier times were often performed in a relatively isolated and non-systematic way as interaction beyond the firm’s boundaries was not likely due to lacking connections to external groups. Then, departments such as manufacturing, marketing and distribution were engaged. These approaches naturally evolved over time with simultaneously increasing effectiveness and efficiency. Organizational adaptations lead to different ways of integrating innovation processes into and beyond the organization involving numerous entities, at the same time partitioning NPD processes to allow autonomous innovation activity (Hauschildt 1997, p.106; von Hippel 1990, p.409). An interesting aspect that arises at this point is to analyze the potential influences that modular product architecture may have on the allocation of contribution to technological innovation originating from diverse entities at present times. It will be discussed in chapter 3.2.

Next and following Ulrich and Eppinger (1995, p.16), an overview on the key processes of NPD, that is, technological innovation from a more current point of view is given. The concept represents a somewhat idealistic self-contained approach. According to it, NPD comprises five generic steps: the development of a concept, product design on a general, product design on a detailed level, quality assurance and the initiation of productio n. Concept creation according to Ulrich requires a market analysis, a comprehensive product description and strategic business planning, all of which base upon the generation of an initial idea, that is, the innovation on which the product is built. These ideas or potential innovations derive from different sources and will be discussed in chapter 2.1.4. With regard to modular product architecture, we further assume that concept creation may require the development of a manufacturing platform that enables the production of products that consist of components of similar technologies (Ulrich/Eppinger 1995, p.20). Product design on a general level deals with the specification of the architectural configuration of the product, as well as production-oriented procedures . Product design on a detailed level is simply the definition of objective factors such as measurements or materials, as well as the identification of standardized inputs that can be sourced externally.^[4] Product issues that affect concept and design phases will be more specifically discussed in chapter 2.2. It already becomes apparent that the processes of innovation are closely linked to product issues. With modular product architecture applied, innovation processes may potentially be fundamentally altered. Quality assurance may involve the creation of a prototype that can be used for testing. Finally, initiation of production as the fifth step of technological innovation is the use of the later utilized production system, which includes human resources and serves for final adjustments and training.

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^[1] In justification against potential objectives and consistent with Henderson and Clark (1990, p.12), I argue that even a new combination of existing solutions sufficiently fulfils the requisition of “newness”. Hence, innovation can also base upon previous ideas. A good example is the product “post-it” of 3M.

^[2] This may compensate for the absence of the technical factor within my definition of the notion of innovation per se.

^[3] A Component in this work is defined as a “physically distinct portion of the product that embodies a core design concept” (Clark 1985, p.10). In addition, the definition of technological knowledge exemplifies the link of technological innovation to product architecture; this will be discussed in chapter 2.2.

^[4] In the PC industry for example, the assemblage of standardized component is common as Langlois and Robertson (1991, p.308) show.