Creating dynamic capabilities

This research examines how companies adapt to more unpredictable environments by developing dynamic capabilities that help sustain innovation and change. The key explanatory construct is modular architecture - the intentional decomposition of systems (products or processes) into relatively independent sub-units with standard interfaces. The dissertation is structured as three semi-independent papers plus an introduction and a literature review. The literature review describes current theories of modular systems and discusses the similarities and differences to related concepts such as nearly decomposable systems, loose coupling, and vertical decomposition. The literature review identifies three gaps in the current literature. First, there has been a limited degree of theorising on the concept outside the field of technology management. Second, the current literature is based largely on anecdotal case studies and there is little quantitative evidence of the strategic value of modularity. Finally, there is a lack of understanding concerning the implementation of modular architectures. The first paper generalises from product to organisation design and derives five principles for modular organisational architectures. A hypothetical example is developed to illustrate how a large home appliances company might apply these principles to create a process platform consisting of reconfigurable building blocks. The chapter also proposes some extensions of current theory to more realistically adopt modularity concepts in organisation design. The second paper is based on a study that explores the current product and process architectures at three leading manufacturers of vacuum cleaners. It identifies some of the key barriers to increased flexibility among companies in mature industries. It also considers the relative value of modularity for established companies pursuing incremental innovation versus entrepreneurial companies introducing more radical innovations. The third paper presents the results from a survey questionnaire study of companies in the home appliances industry in the UK. and US. The relationship between market context, product and process architecture, strategic flexibility and firm performance is examined by means of structural equations modelling. The results show a positive relationship between modular product architectures and performance, with product model variety as a mediating variable. The thesis makes the following contributions to the existing literature: It complements extant theorising by generalising modular principles to organisation design. It contributes to methodology by developing a questionnaire for assessing modularity in product and process design. Finally, it provides one of the first empirical studies of the effects of modularity on strategic flexibility and firm performance.