Management of innovation | Papers
Management of innovation

How much you know versus how well I know you: Selecting a supplier for a technically innovative component

How do firms select a supplier for an innovative component? Three literatures speak to this question. Transaction cost economics focuses on the value of internalization, the literature on inter-firm relationships on the value of past relationships, and the firm capabilities literature on the value of superior capabilities. Choosing a supplier means choosing a bundle of these characteristics - internal vs. external, amount of prior transactions, and capabilities - but no study has integrated all three characteristics, making it impossible to understand the trade-offs involved either theoretically or managerially. I propose and test a model integrating all three factors, allowing us to understand the trade-offs involved. I find that when uncertainty is low, the decision is made primarily on the basis of differences in technical capabilities. As uncertainty increases, prior relationships and a supplier being internal take on greater positive significance relative to the importance of technical capabilities. At extreme levels of uncertainty, the value of internal supply relationships becomes very high and past relationships lose their significance. While adherents of each literature have criticized the others for what they omit, this model moves beyond this mutual recrimination by incorporating the key concerns of each literature, setting the stage for future research that draws upon the strength of each. The model provides guidance for any situation where a firm must choose a partner under uncertainty. Lastly, it addresses the strategic question of how companies should organize in the long run to access the capabilities needed for competitive success. View and download

Do modular products lead to modular organizations?

The tacit assumption that increased product modularity is associated with advantageous increases in organizational modularity underlies much of the literature on modularity. Previous empirical investigations of this assumption, few in number, have faced numerous confounding factors and generated conflicting results. I build a causal model for the relationship between product and organizational modularity, which I test using a distinctive empirical setting that controls for confounding factors present in previous studies. I find support for only part of the assumed relationship, showing that modularity is a more multifaceted concept than previously recognized. In particular, increased product modularity enhances reconfigurability of organizations more quickly than it allows firms to move activities out of hierarchy. The paper contributes to the emerging stream of research that focuses on the previously under-appreciated costs of designing and maintaining a modular organization.

Hoetker, G., "Do modular products lead to modular organizations?", Strategic Management Journal, Vol. 27, No. 6, June, 2006, pp. 501-518. View and download