Do firms innovate through integrated modular designs? Disentangling the effects of types of modularity on types of innovation

Modularity scholars argue that modular architectures lead to higher strategic flexibility through mass customisation and through both incremental and architectural innovation. There is little empirical evidence, however, on whether modular firms actually achieve the expected advantages. In this paper, we investigate whether firms can innovate successfully through modularity of products, organizational processes, organizational structures, and knowledge. Using structural equation modelling and data from 233 firms, we find that partial modular designs harm incremental and architectural innovation. Only firms that develop a higher order capability of integrated modularity succeed to innovate faster both at components and at architectural level.