Carliss Y. Baldwin and Kim B. Clark
In the nineteenth century, railroads fundamentally altered the competitive landscape of business. By providing fast and cheap transportation, they forced previously protected regional companies into battles with distant rivals. The railroad companies also devised management practices to deal with their own complexity and high fixed costs that deeply influenced the second wave of industrialization at the turn of the century.
Today the computer industry is in a similar leading position. Not only have computer companies transformed a wide range of markets by introducing cheap and fast information processing, but they have also led the way toward a new industry structure that makes the best use of these processing abilities. At the heart of their remarkable advance is modularity – building a complex product or process from smaller subsystems that can be designed independently yet function together as a whole. Through the widespread adoption of modular designs, the computer industry has dramatically increased its rate of innovation. Indeed, it is modularity, more than speedy processing and communication or any other technology, that is responsible for the heightened pace of change that managers in the computer industry now face. And strategies based on modularity are the best way to deal with that change.
Many industries have long had a degree of modularity in their production processes. But a growing number ...