Article ID: | iaor20073229 |
Country: | United States |
Volume: | 50 |
Issue: | 2 |
Start Page Number: | 159 |
End Page Number: | 173 |
Publication Date: | Feb 2004 |
Journal: | Management Science |
Authors: | Levinthal Daniel, Ethiraj Sendil K. |
The problem of designing, coordinating, and managing complex systems has been central to the management and organization literature. Recent writings have tended to offer modularity as at least a partial solution to this design problem. However, little attention has been paid to the problem of identifying what constitutes an appropriate modularization of a complex system. We develop a formal simulation model that allows us to carefully examine the dynamics of innovation and performance in complex systems. The model points to the trade-off between the destabilizing effects of overly refined modularization and the modest levels of search and a premature fixation on inferior designs that can result from excessive levels of integration. The analysis highlights an asymmetry in this trade-off, with excessively refined modules leading to cycling behavior and a lack of performance improvement. We discuss the implications of these arguments for product and organization design.