ICOS Research Seminar

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ICOS Research Seminar

• Sendil Ethiraj
• Corporate Strategy International Business
• University of Michigan Business School

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Research Agenda
Strategy Research
Non-imitable assets
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What makes an asset non-imitable?
Causal ambiguity
Interdependencies among the elements of
organizations, technologies or products
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Overview
Organizations, technologies, products as complex
adaptive systems
Interdependence
Organizations
Technologies
Design (Formal modeling)
Capabilities (Empirical research in computer
hardware software industries)
Performance implications
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Organization design

• Modularity as a design principle
• Exploring the implications of over- and
  under-modularity
• Where do modules come from?

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Technologies

• Innovation in complex technological systems
• Rate direction of inventive activity in complex
  technological systems
• Constraint-induced innovation
• Returns to technological diversification
• Moderate levels of focus diversity in RD

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What is modularity?

• It is the decomposition of a complex system into
  self contained units and includes the following
  tasks
• Discover appropriate number of decompositions
• Discover appropriate mapping of design elements
  to modules
• Design appropriate interfaces
• Discover the appropriate interactions among
  elements within modules

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Modularity and innovation

• modularization permits individuals (or firms)
  to mix and match alternative designs of the
  modules of a system. The rights to mix and
  match are options with quantifiable value in the
  greater economic system. A modularization
  multiplies design options and at the same time
  disperses them so that they can be picked up by
  many people, without the permission of any
  central architect or planner. The pursuit of
  valuable options by many decentralized actors in
  turn accelerates the rate of change of the system
  as a whole (Baldwin Clark, 2000 223)

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Research questions

• What is the relationship between degree of
  modularity (integration) and rate and
  effectiveness of innovation?
• What is the impact of mix-and-match or
  recombination of modules on the rate and
  effectiveness of innovation?

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Research Design

• Formal modeling
• Evolution of a complex, nearly decomposable
  system (5 modules 30 policy choices)
• Processes
• Local search or adaptation (autonomous
  innovation)
• Recombination (modular innovation)
• Selection (system and module)

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Nearly decomposable system
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Key results 1

• Erring on the side of greater integration poses
  lower performance penalties than erring on the
  side of greater modularity
• Role of recombination
• Random mix-and-match of modules yields little
  tangible gains
• Mix-and-match of modules in the presence of
  module performance information provides
  significant benefits

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Key results 2

• Significant complementarities between local
  search, recombination, and module selection
• Recombination enhances rate of improvement
• Local search improves performance levels
• Captures some important aspects of technological
  evolution
• Recombination has high value in the early stages
  of technological evolution
• Local search has high value in the later stages

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Implications

• Cautions design managers against indiscriminate
  modularization efforts
• Increased flexibility comes at the cost of
  increased integration problems
• Highlights the necessity of effective performance
  measurement systems to exploit the benefits of
  recombination
• Suggests sequential use of recombination and
  local adaptation as strategies for innovation