Beyond Product Architecture: Division of Labor and Competence Accumulation in Complex Product Development

Abstract

Firms that develop complex products have a strong incentive to leverage the suppliers’ specialized knowledge. On the other hand, firms are often confronted with a trade-off between the benefits of leveraging external sources of innovation and the benefits of competence accumulation provided by in-house design and engineering. Our study shows that this important trade-off originates from treating product architecture, the allocation of design and engineering tasks, and organization architecture as tightly coupled. Grounded in a longitudinal case study of a major European auto manufacturer and 16 of its first-tier suppliers, the article presents a new way of allocating design and engineering tasks along the auto manufacturer’s value chain which does not mirror product architecture. This new division of labor enabled unexpected competence accumulation trajectories that strongly contributed to mitigate the trade-off. On the basis of this new empirical evidence, the article offers managerial and theoretical implications for organizing the innovation of complex products.

Keywords: innovation management, outsourcing, automotive industry, product architecture, modularity, Fiat, organization of new product development, template process

JEL Classification: O32, M10, L22, L23