Modular v Architectural Innovation

Modular Innovation is where you maintain the architecture and modify the modules and vice versa. For instance adding more interfaces to a PC. Architectural innovation is where the architecture changes but the modules stay the same. Take for instance the move from delivering applications from client programs resident on a PC to one delivered via a browser. One can view Modular Innovation as incremental change and Architectural Innovation as revolutionary

Some issues to consider:

• 1. By creating incompatibilities you develop lock in features and generate high switching costs like IP Telephony. This can generates profits but inhibit innovation. e.g. Open Source v Windows
• 2. By developing modules you do not have to change the underlying architecture. It just slots in and connects
• 3. Modular systems shorten PLC see Life Cycle Model because the modules can be replaced much more easily
• 4. It stimulates specialization.
• 5. Increases scale and differentiation
• 6. Builds alliances. Sometimes competitors have to cooperate to ensure inter-operability between software and hardware systems. e.g. Microsoft and Apple cooperate to ensure that their software can run their OS's. ( See Autarky Value.
• 7. Competitors form Standards organizations to ensure consistency in the development of systems.
• 8. Market Power. Sometimes powerful groups and organizations can prevent the best technology from being utilized. It could be argues that Beta was better than VHS or the DVORAK keyboard more efficient than QWERTY or US domination of the Internet and ICANN standards. It can lead to market concentration and oligopolist tendencies. (e.g. WINTEL) leading to supra-national litigation. (EU v Microsoft)
• 9 Reduces risk and increases investment. Companies have a greater level of certainty that their investments will not become obsolete if they invest long term for future return of profits. Similarly, consumers are willing to buy expensive platforms (DVD Players/Xboxes) knowing that the modules (Movies and Games) will be compatible with the platform for many years to come. This is true throughout the supply chain
• 10 Adoption of new architecture can be slow. From a strategic perspective companies should be aware of the Tipping Point. Bring out products too quickly or too slowly can have adverse repercussions. But Architectural Innovation need not necessarily be slow because the modules already exist. What is needed is new joints between these modules . The spread of the internet is testament to that.
• 11 Modular and architectural innovation are the extreme cases. Many real world situations reflect intermediate forms. A modular innovation can become architectural if it transforms the whole system. It may become the anchor point for other innovations. The CD-ROM, for instance.

See also Network Externalities