Modularity and Organizations
Carliss Y. Baldwin
Harvard Business School, Finance Unit
November 20, 2012
Harvard Business School Finance Working Paper No. 13-046
Modularity describes the degree to which a complex system can be broken apart into subunits (modules) which can be recombined in various ways. Modularity is important for organizations and the economy because the boundaries of organizational units and corporations are likely to match the boundaries of underlying technological modules. (This correspondence is called “mirroring.”) In this essay, I explain the concept of modularity and describe how systems can be modularized. I then explain why mirroring is likely to be a commonly observed organizational pattern and review the empirical evidence. I conclude with open research questions.
Keywords: complex systems, information hiding, loosely-coupled systems, mirroring, mirroring hypothesis, modules, modularity, organizational design, near-decomposable systems, product architecture, option valueworking papers series
Date posted: November 21, 2012
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