Modular Strategies: B2b Technology and Architectural Knowledge

Abstract

Business-to-business information technology systems (B2B technologies) are becoming increasingly important in firm supply chains. Utilizing the concept of modularity, this paper clarifies the strategic implications of B2B technology and develops a theoretical structure to explain these outcomes. Five firms are studied in detail: Eastman Chemical, Cemex, Li & Fung, Agribuys and Dell. Our findings point to the existence of two generic B2B strategies: 'modularization', which allows a firm to rent out its internal capabilities to others in its industry, and 'architectural entrepreneurship', which alters the supply chain by allowing a central coordinating firm to facilitate arrangements that trust issues and information asymmetries had previously made impossible. Which modular strategy is appropriate is influenced by the role the focal firm plays in the supply chain; we characterize this as their 'supply chain indispensability'. Theory and evidence suggest that only firms with deep architectural knowledge can take full advantage of these modular strategies.

Keywords: Modularity, Supply Chains, Transaction Costs, E-Commerce

JEL Classification: D24, L22, L23, M11