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Product Modularity, Process Modularity, and New Product Introduction

Performance: Does Complexity Matter?

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DOI: 10.1111/poms.12495

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Vol. 0, No. 0, xxxx–xxxx 2015, pp. 1–20 DOI 10.1111/poms.12495
ISSN 1059-1478|EISSN 1937-5956|15|00|0001 © 2015 Production and Operations Management Society

Product Modularity, Process Modularity, and New

Product Introduction Performance: Does Complexity
Matter?
Shawnee K. Vickery
The Eli Broad College of Business, Michigan State University, East Lansing, Michigan 48824, USA, vickery@msu.edu

Xenophon Koufteros
Mays Business School, Texas A & M University, College Station, Texas 77843, USA, xkoufteros@mays.tamu.edu

Cornelia Dröge, Roger Calantone

The Eli Broad College of Business, Michigan State University, East Lansing, Michigan 48824, USA,
droge@msu.edu, rogercal@broad.msu.edu

odularity has the potential to impact various facets of new product introduction performance including product
M development lead time, frequency of new product introduction, on time introduction and product innovation. The
impact of modularity on new product introduction performance, however, may vary for different levels of product and
process complexity. This study empirically investigates relationships between perceptual measures of product modularity,
process modularity, and new product introduction performance and explores whether an objective product/process com-
plexity measure moderates these relationships. Using survey-based methodology we probe both manufacturers of techni-
cally simple products and technically complex products. Hierarchical regression models are used to test hypotheses
concerning the main effects of product and process modularity and the effects of their interactions with complexity on
new product introduction performance. The results show that the main effect of product modularity was positive and its
interaction with complexity was disordinal and negative, suggesting that the positive effect of product modularity on new
product introduction performance is dampened when complexity is high. For process modularity, only the interaction
effect (positive) was statistically significant and it was also disordinal in nature. Thus, the effect of process modularity on
new product introduction performance is heightened when complexity is high. The implications of these findings are dis-
cussed and more specific theoretical and managerial implications are delineated by examining the impacts of these main
and interaction effects on individual measures of new product introduction performance (frequency of new product intro-
duction, product development lead times, product innovation, and on-time product launch).
Key words: product modularity; process modularity; complexity; new product introduction; empirical
History: Received: August 2013; Accepted: July 2015 by Stelios Kavadias, after 3 revisions.

modular systems can handle environmental perturba-

1. Introduction
Product and/or process modularity are possible
approaches for addressing the challenges associated
with rapidly changing technologies, clockspeed pro-
duct development cycles, and sophisticated customer
demands. Modularity refers to the structure of a pro-
duct or process that is comprised of smaller subsys-
tems that can be designed independently yet function
together holistically (Baldwin and Clark 1997, Ro
et al. 2007, Schilling 2000, Ulrich 1995, Ulrich and
Eppinger 2004). Pil and Cohen (2006) suggest that
modular systems interdependently perform distinc-
tive functions while modular elements can evolve
autonomously without effectively amending the over-
all structure of the system. Therefore, they argue that
tions more effectively than tightly coupled elements.
Modular structures are also potentially useful when
systems become so large and interdependence
between elements of the system so vast that inte-
grated design efforts become difficult. Ethiraj and
Levinthal (2004) specifically note that “modular
designs are a useful means of managing complexity”
(p. 159). While much of the literature on modularity
has focused on product design, similar arguments can
be made concerning the potential beneficial effects of
process modularity.
Core aspects of new product introduction perfor-
mance include development lead time, on-time intro-
duction, product innovation, and frequency of new
product introduction. The emphasis on the timing

Please Cite this article in press as: Vickery, S. K., et al. Product Modularity, Process Modularity, and New Product Introduction Perfor-
mance: Does Complexity Matter? Production and Operations Management (2015), doi 10.1111/poms.12495
 Vickery, Koufteros, Droge, and Calantone: Product and Process Modularity & Performance
2 Production and Operations Management 0(0), pp. 1–20, © 2015 Production and Operations Management Society
aspects is especially salient because accelerated and
on-time introduction are fast becoming a new front in
global competition (Williamson and Yin 2014). Modu-
lar structures have been touted to enhance new pro-
duct introduction performance overall and facilitate
rapid introduction in particular (Ethiraj and Levinthal
2004). According to Pil and Cohen (2006), modular
product architectures have the potential to improve
new product introduction performance since they
reduce the size of the design problem, diminish inter-
dependence among the product’s elements, and
lessen the sensitivity of functional requirements and
performance to variations in design parameters
(El-Haik and Yang 1999). Ethiraj and Levinthal (2004)
posit that modular product designs can improve new
product introduction because of autonomous (within
component) and modular (mix and match of mod-
ules) innovation. On the process side of things, modu-
larity embodies the notion of a dynamic network of
relatively autonomous production modules that can
easily be reconfigured to support and accelerate the
launch of a new product. The ability to rapidly recon-
figure a production network should engender more
frequent introductions of new products into the mar-
ketplace. Although the benefits of modularity have
been widely broadcasted, relatively few studies have
empirically examined its performance effects and
none have explicitly considered its effect on new pro-
duct introduction performance. Thus, the efficacy of
modularity as an explanatory variable of performance
is still questioned. Over a wide range of performance
measures, Jacobs et al. (2011) found no statistically
significant effects for process modularity while the
results for product modularity were mixed (e.g.,
Ahmad et al. 2010, Antonio et al. 2007, Jacobs et al.
2011, Lin 2003, Worren et al. 2002).
Modular designs are becoming omnipresent (see
for instance the discussion and examination of several
industries in Worren et al. 2002, Ro et al. 2007, Jacobs
et al. 2007, Lau et al. 2011, and Cabigiosu and
Camuffo 2012) and are credited with an increase in
product variety and innovation through the swapping
of variant modules, the shortening of product devel-
opment times due to the decoupling of development
tasks, and thus an increase in the frequency of pro-
duct introduction, and efficient and timely product
launch due to an ability to tolerate a higher risk of
design changes (avoiding the need for entire product
changes), and due to the rather accommodating pro-
cess architecture that can be readily adapted to a new
product. These effects however may be tempered by
the complexity (Simon 1962) of both the product and
the respective processes tasked to manufacture it.
Consider for instance a company that produces
toaster ovens and another company that produces
cars. Relative to cars, toaster ovens are fairly simple
Please Cite this article in press as: Vickery, S. K., et al. Product Modularity, Process Modularity, and New Product Introduction Perfor-
mance: Does Complexity Matter? Production and Operations Management (2015), doi 10.1111/poms.12495
as they are described by a limited set of components,
they have few and not very intricate interfaces
between components, and they boast few secondary
functions that combine (or interact) to produce the
product’s primary function. Likewise, the production
process for toasters is far less complicated than that of
an automobile manufacturer. If both companies
espouse similar aspects of modularity (such as
designing the products where components can easily
be swapped, specifying standardized interfaces,
designing products that can be decomposed into dif-
ferent modules, and designing processes that can be
rapidly disassembled and reconfigured), should we
expect the same relative effects on new product intro-
duction performance? Also, it is not clear whether
companies should invest in both types of modularity
(product and process) given a specific level of com-
plexity. Applying the same level of modularity for
products or processes characterized by different
levels of complexity may not be warranted. It is an
empirical question whether there are boundary condi-
tions for the effectiveness of each type of modularity.
This study addresses a core research question: Does
complexity moderate the relationship between modu-
larity and new product introduction performance?
Alternatively, are the effects of modularity on new
product introduction performance equally salient
across levels of complexity? Complexity is often mea-
sured as the number of components comprising the
whole. Blau and Schoenherr (1971) suggest that com-
plexity is “the number of structural components that
are formally distinguished” (p. 302). Similarly, La
Porte (1975) states that a complex system has many
parts, while a simple system only has few parts. This
study defines complexity to encompass both com-
plexity in product as well as in process; it acknowl-
edges that the effects of modularity on new product
introduction performance are subject to the level of
complexity of the product and the requisite processes
that are needed to put the product together. We fash-
ion complexity through an NK-metaphor (Kauffman
1993, Loch et al. 2003) which is a general and con-
tent-free model for complexity (Frenken 2000). N rep-
resents the number of component parts which can be
put together via K distinct manufacturing processes.
The higher the number of component parts and pro-
cesses, the higher the number of interrelationships/
connections that must be recognized and resolved in
product and process design. Furthermore, more inter-
dependence is engendered between product and pro-
cess design decisions as the number of parts and
processes increases, further exacerbating complexity.
Thus we posit that, relatively, product modularity
and process modularity will be more efficacious
in environments characterized by high levels of
complexity (Ethiraj et al. 2008). Because complex
Vickery, Koufteros, Droge, and Calantone: Product and Process Modularity & Performance
Production and Operations Management 0(0), pp. 1–20, © 2015 Production and Operations Management Society 3

environments are characterized by a high number of
component parts in the bill of materials and a high
number of distinct manufacturing processes, they
engender more interdependencies and thus present
more opportunities for improvement as opposed to
an environment with few parts in the product and
process tally. As Ethiraj and Levinthal (2004) note,
designing large-scale interacting systems has been
found to be NP complete; modularization offers the
potential to decompose or partition the problem, mak-
ing it easier to obtain a “good” solution. The opera-
tional load or effort to manage the introduction of a
simple system (Choi and Krause 2006) would be triv-
ial even without product or process modularization.
On the other hand, modularity offers great potential
to reduce the operational load when the system is
complex and thus more demanding.
In summary, the research empirically examines
relationships among product modularity, process
modularity, and new product introduction perfor-
mance and whether a combined product and process
complexity measure moderates these relationships.
The population of manufacturers targeted for study
using survey methodology includes both companies
that produce technically simple products and techni-
cally complex products. All study measures are per-
ceptual in nature except for complexity which is an
objective measure. Research hypotheses are tested
using hierarchical regression models that consider the
main effects of product and process modularity and
the effects of their interactions with complexity on
new product introduction performance.
This study is organized as follows. After defining
key research constructs, the theoretical model and
hypotheses are introduced. The methodology is then
delineated, followed by the results. Next, the findings
are provided and their managerial implications are
explored. Finally, directions for future research are
identified.
2. Definitions
The research model is shown in Figure 1. It depicts
two explanatory variables (i.e., product modularity
and process modularity) and their main effects on
new product introduction performance, while speci-
fying product/process complexity as the moderator
(via interaction effects). Model variables are defined
below.
2.1. Product and Process Modularity (Explanatory
Variables)
Modularity (whether product or process) refers to a
hierarchical system structure comprised of smaller
subsystems that can be designed independently and
yet function as a holistic system (Baldwin and Clark
1997, Ulrich 1995, Ulrich and Eppinger 2004). Lan-
glois (2002) suggests that modules are discrete chunks
that communicate with each other via standardized
interfaces or connections. Product modularity corre-

Figure 1 Conceptual Research Model

Product
Modularity

H1

H3

New Product
Complexity Introduction
Performance

H3

H2
Process
Controlled for Firm Size, Industry, Innovation Magnitude
Modularity
(incremental<>radical), & Quality (Reliability).

Please Cite this article in press as: Vickery, S. K., et al. Product Modularity, Process Modularity, and New Product Introduction Perfor-
mance: Does Complexity Matter? Production and Operations Management (2015), doi 10.1111/poms.12495
 Vickery, Koufteros, Droge, and Calantone: Product and Process Modularity & Performance
4 Production and Operations Management 0(0), pp. 1–20, © 2015 Production and Operations Management Society
sponds to “modularity-in-design” and process modu-
larity corresponds to “modularity-in-production,” a
distinction articulated by Kamrad et al. (2013). Extant
studies frequently fail to differentiate product modu-
larity from related and/or complementary concepts
such as parts commonality, process modularity,
dynamic teaming (Jacobs et al. 2007, Tu et al. 2004).
The literature identifies three core modularity
aspects, each of which is discussed below: functional
binding, interface standardization, and decompos-
ability (Parker 2010). We conceptualize and subse-
quently measure product and process modularity
encompassing these three core aspects. Functional
binding (also called functional mapping or module
partitioning) is the compartmentalization of the
designed functions of a system (Baldwin and Clark
1997, Fixson 2005, Henderson and Clark 1990, Sal-
vador 2007, Ulrich 1995, Ulrich and Eppinger 2004).
The central tenet is the one-to-one mapping of func-
tions to components (or sub-processes for process
modularity) which allows functions to be added (or
subtracted) from a product (or process) by adding (or
deleting) components (or sub-processes). Functional
binding serves to reduce the interdependence of com-
ponents, enabling their autonomous design.
Interface standardization refers to the common,
agreed upon mechanisms for interaction among com-
plementary product or process components of a sys-
tem. These interfaces endure over time, have widely
known specifications across stakeholders (often
referred to as the “visible” rules of design, Baldwin
and Clark (1997)), and provide for the open inter-
change of complementary system components. It is
recognized as a key aspect of modularity (Baldwin
and Clark 1997, Rosenberg 1982, Sanchez and Maho-
ney 1996, Ulrich 1995, Ulrich and Eppinger 2004). San-
chez and Mahoney (1996) emphasize that
standardized interfaces actually embed coordination
into the product development processes.
Decomposability captures how easily a system can be
separated into its various components, making com-
ponent swapping practical (Ahmad et al. 2010, Anto-
nio et al. 2007, Lin 2003, Tu et al. 2004, Worren et al.
2002). Since decomposability makes component
swapping practical (Brabazon et al. 2010, Schilling
2000), it is this facet of modularity that is most often
associated with its flexibility advantage. Decompos-
ability allows a system to be readily reconfigured
using the same, similar, or supplementary compo-
nents without deleterious effects on performance.
While the literature on process modularity is less
developed than the product modularity literature
(Jacobs et al. 2011), these three core modularity
aspects apply conceptually to both kinds of modular-
ity. Schilling and Steensma (2001) indicate that pro-
cesses are modular when process components can be
Please Cite this article in press as: Vickery, S. K., et al. Product Modularity, Process Modularity, and New Product Introduction Perfor-
mance: Does Complexity Matter? Production and Operations Management (2015), doi 10.1111/poms.12495
reconfigured with little loss of function. Fine et al.
(2005) note that process modules comprise standard-
ized groups having few strong ties, enabling rapid
decoupling and resequencing of processes and tool-
ing because each process module is relatively autono-
mous. If each production operation is relatively
independent of the prior and/or subsequent opera-
tion, the process can be viewed as modular (Feitzin-
ger and Lee 1997, Voordijk et al. 2006). Thus, the
process module can be activated or de-activated
quickly as demand or product specifications change
as new products come on line.
2.2. New Product Introduction Performance
(Dependent Variable)
Many aspects of innovation performance are
described in extant literature. These range from the
ability of a company to incrementally innovate (minor
design changes) to its ability to radically innovate
(new-to-the-world products) (Calantone et al. 2010,
Chao and Kavadias 2008). Measures related to inno-
vation performance include innovation capacity
(Aydin et al. 2007, Browne et al. 1998), product
design capability (Aydin et al. 2007, Li 2000), new
product development cycle time (Lynn et al. 1999),
rapid new product introduction, product innovation
(Eisenhardt and Tabrizi 1995, Lukas and Ferrell 2000)
and improvement of existing products (Droge et al.
2000, 2004, Griffin 2002). In this study, we focus on a
few crucial and interrelated measures of new product
introduction performance which include develop-
ment lead time (Bayus 1997, Cohen et al. 1996, Droge
et al. 2004, Tatikonda and Montoya-Weiss 2001),
timeliness (i.e., on-time launch) (Cooper and Klein-
schmidt 1994, Eisenhardt and Tabrizi 1995), product
innovation (ability to introduce new products) (Eisen-
hardt and Tabrizi 1995, Koufteros et al. 2007, Roberts
1999), and frequency of new product introduction
(Smith et al. 2005). We use an aggregate/summated
measure of new product introduction performance
because the main interest was on the impact of modu-
larity on new product introduction performance over-
all. Such performance is key to reaping first-mover
advantages, higher profitability due to premium pric-
ing (Koufteros et al. 2002), and organic growth (e.g.,
Droge et al. 2000).
2.3. Complexity: The Proposed Moderator
Complexity describes the presence of many different
parts, elements or patterns, connected in ways that
make an object or process difficult to fully under-
stand. The number of components of a system (pro-
duct or process) is a primary contributor to
complexity (Kauffman 1995, Simon 1962) and com-
plex products have the intrinsic advantage of being
more difficult to imitate. However, as complexity and
Vickery, Koufteros, Droge, and Calantone: Product and Process Modularity & Performance
Production and Operations Management 0(0), pp. 1–20, © 2015 Production and Operations Management Society
the inherent amount of information increases, it can
approach or surpass the decision maker’s processing
limits. This consequence of the increasing complexity
of products and processes is often explained using the
concept of bounded rationality (Simon 1957); that is,
there are limits to the capabilities of decision makers
to process information, their ability to accurately per-
ceive a system is hindered as the number of compo-
nents increases, and their behavioral response to
receiving additional information is markedly less
rational (Parker 2010).
Complexity is often described as the number of ele-
ments in a given system (Flynn and Flynn 1999, Sawh-
ney and Piper 2002) where it is assumed that a higher
count of elements is associated with higher levels of
complexity; a higher count of elements also implies a
higher number of possible interdependencies, an arte-
fact of complexity. We operationalize complexity by
quantifying (1) the number of items in the bill of
materials (BOM) for a typical finished product, and
(2) the number of distinct manufacturing processes
required to produce the product. Fashioning com-
plexity using an NK-type metaphor (Kauffman 1993),
we posit that N represents the number of component
parts which can be put together via K distinct manu-
facturing processes. A variety of different products
can be produced by a variety of different combina-
tions of distinct manufacturing processes, creating a
sizable number of options and interdependencies
amongst product and process components. We posit
that a high number of items in the BOM coupled with
a high number of distinct manufacturing processes
signify higher levels of complexity and create a
“rugged landscape” (Mihm et al. 2003). Mihm et al.’s
(2003) results suggest that “the overall system
becomes complex and nonlinear as it grows in size,
even if all components and their interactions are very
simple” (p. 747).
3. Hypotheses Development
3.1. The Main Effects of Product Modularity and
Process Modularity
Most firms seek ways to enhance new product intro-
duction performance, a fact widely recognized in the
innovation literature (Calantone et al. 2010). This
research focuses on modularity, both product and
process, and specifies them as variables that can
explain variation in new product introduction perfor-
mance (Sanchez and Mahoney 1996, Staudenmayer
et al. 2005, Stremersch et al. 2003, Ulrich and Eppin-
ger 2004).
Scholars suggest that product modularity will posi-
tively impact new product introduction performance,
primarily because of modularity’s effects on product
change, product variety, and product development
Please Cite this article in press as: Vickery, S. K., et al. Product Modularity, Process Modularity, and New Product Introduction Perfor-
mance: Does Complexity Matter? Production and Operations Management (2015), doi 10.1111/poms.12495
5
management (Ulrich and Eppinger 2004). Ethiraj et al.
(2008) highlight the two mechanisms by which pro-
duct modularity accelerates innovation: autonomous
(within component) innovation and modular (mix
and match of modules) innovation (see also Baldwin
and Clark 1997, 2000, Ulrich 1995, Ulrich and Eppin-
ger 2004). A modular product system furnishes possi-
bilities for autonomous and concurrent innovation
driven by the division of labor and/or tasks and rapid
trial-and-error learning (Langlois and Robertson 1992,
Ulrich 1995, Ulrich and Eppinger 2004). Product mod-
ularity also grants companies the ability to open their
technology to an external network of firms, stimulat-
ing the acquisition and integration of new knowledge
and engendering faster technological progress (Lan-
glois and Robertson 1992, Ro et al. 2007, Ulk€€ u and
Schmidt 2011). Thus, diverse suppliers can work on
their modules in parallel, which are then integrated
into the firm’s platform. Embedding coordination into
the standardized interfaces can reduce the need for
(human) managerial coordination across internal or
external units, thereby reducing the intensity of the
product development task (Pil and Cohen 2006). This
can reduce time-to-market, secure on-time launch,
and allow simultaneous pursuit of a larger number
and/or a greater variety of new projects (Sanchez and
Mahoney 1996).
In addition, product modularity generates options
for product variations from feasible combinations of
modular components; this is what Kogut and Zander
(1992) called “combinative capabilities” in new pro-
duct creation (Sanchez and Mahoney 1996). Thus, a
number of new product variations can be developed
simultaneously, possibly with little interaction among
design teams who may engage in parallel experimen-
tation and development (Baldwin and Clark 1997,
2000, Loch et al. 2001). This increases the number of
new products; and although the variations may not
be radically different, they may appeal to different
target markets. Concurrently, it can help the organiza-
tion meet target launch dates since a variety of osten-
sibly different products can be handled efficiently
and effectively. Thus:
H1. Product modularity positively affects new product
introduction performance.
Similar arguments can be advanced regarding the
effect of process modularity on new product intro-
duction performance. Process modularity embodies
the notion of a dynamic network of relatively autono-
mous operating units (or production modules), some
of which may belong to the firm’s network partners.
Such a network can easily be reconfigured to support
and accelerate the launch of a new product. Once the
“visible” design rules (i.e., the interfaces defining
 Vickery, Koufteros, Droge, and Calantone: Product and Process Modularity & Performance
6 Production and Operations Management 0(0), pp. 1–20, © 2015 Production and Operations Management Society
how the separate production entities will synchronize
or harmonize their activities) are settled, these pro-
duction modules are completely in control of their
manufacturing tasks and the design of their pro-
cesses, potentially allowing parallel experimentation
that might otherwise not occur. A firm can easily
assemble, mobilize, and integrate the requisite pro-
cess modules (Sirmon et al., 2007) to produce a new
product due to the functional binding, interface stan-
dardization, and decomposability characteristics
which are native to modular processes. Organizations
may deploy a variety of approaches to gain process
modularity; the key is reconfigurability. For instance,
the use of flexible and general purpose equipment,
mobile robotic equipment, and/or cellular configura-
tions can engender higher levels of process modular-
ity because they can promote high levels of functional
binding (lower levels of interdependence), interface
standardization (open and tolerant interchange), and
decomposability (swapping of processes is relatively
painless). A greater variety of products can be intro-
duced as the process can accommodate them while
the launch time can be settled more accurately. The
autonomous process modules would facilitate con-
current design of processes (Pil and Cohen 2006), fur-
ther reducing time-to-market. Thus:
H2. Process modularity positively affects new product
introduction performance.
It should be noted that few empirical studies have
examined the consequences of modularity on new
product development performance (as opposed to
firm performance) and even fewer have examined
concurrently the explanatory efficacy of both product
and process modularity. Furthermore, results have
been inconclusive: no effects were found for process
modularity in some studies (Jacobs et al. 2011) while
results for product modularity were mixed (Ahmad
et al. 2010, Antonio et al. 2007, Jacobs et al. 2011, Lin
2003, Worren et al. 2002).
3.2. The Moderating Role of Complexity
Does complexity moderate the effects of modularity
expressed as H1 and H2 and represented in Figure 1?
In other words, are the hypothesized relationships
equally salient across complexity levels? The com-
plexity of a Nike shoe or of an Open Runway handbag
is less than the complexity of an eight-axis Kuka robot
used in the automotive industry. The large number of
components embedded in a robot dictates that they
be connected. As the number of components
increases, more modules may be used and thus more
interfaces become necessary; furthermore, more con-
nections between components within each module
are needed. Also, while shoes, handbags, and robots
Please Cite this article in press as: Vickery, S. K., et al. Product Modularity, Process Modularity, and New Product Introduction Perfor-
mance: Does Complexity Matter? Production and Operations Management (2015), doi 10.1111/poms.12495
can all be modularized, process demands may vary
significantly.
For instance, manufacturing a specific Open Runway
handbag may first require the selection of a base
model followed by a choice of material and individual
components such as trims, zippers, and straps. The
process does not necessarily change or deviate across
“new” products and thus highly modularizing the
process may not enhance new product introduction
performance substantively. On the other hand, pro-
ducing a Kuka robot may call for modular processes
because they can significantly reduce the ramp-up
time to introduce and manufacture “new” robots.
Kuka uses six basic types of robots which can be min-
gled with a large number of mechanical and electrical
feeding and loading options to generate custom tai-
lored systems that meet specific customer needs. Pro-
ducing a standard loading/unloading robot as
compared to a shelf-mounted robot or a press-to-
press robot or a gantry robot with different features
and accessories demands a level of process flexibility
that enables the current product assortment to be pro-
cessed efficiently and new products to be added with
minor process recombinations. In this way, product
development lead times are reduced and the capabil-
ity to innovate more frequently is enhanced. While all
the loading/unloading robots may belong to the same
product family, different combinations of sub-pro-
cesses may be needed to introduce and assemble each
variant. A company with process modularization can
add or remove sub-processes without the need to
change other sub-processes.
Consider also the total effect of product modularity
on new product introduction performance. If product
modularity implies:
(1) the rationalization of components (i.e., fewer
components, and fewer or clearer interdepen-
dencies among components), thus clarifying con-
figuration possibilities and speeding new
product design, development, and launch;
(2) a clearer link between product configuration and
€ u and
functionality due to decomposability (Ulk€
Schmidt 2011), thus increasing the timely poten-
tial for autonomous, concurrent and supply
chain sourced innovations; and
(3) an increase in adaptability, thus enabling rapid
response in new product development; and
operations. . .
then a firm that succeeds at the relatively more diffi-
cult task of modularizing a complex product (vis-a-vis
a simple product) should derive stronger effects on
speed/timeliness/innovation/frequency and overall
new product introduction performance. For example,
the marginal impact of the rationalization of compo-
nents for a simple product (e.g., shoes, handbag) that
Vickery, Koufteros, Droge, and Calantone: Product and Process Modularity & Performance
Production and Operations Management 0(0), pp. 1–20, © 2015 Production and Operations Management Society
already has few components and few connections
should be lower than the marginal impact of the
rationalization for a complex product (e.g., robot)
with numerous components, processes, and connec-
tions. Similarly, the new product introduction capa-
bilities of the firm and the supply chain should
receive a greater boost when the difficult task of mod-
ularizing a complex product is accomplished because
the configuration-functionality link was less clear for
complex products to begin with, and thus the marginal
potential for innovative insights due to decomposabil-
ity is greater for complex products. In other words,
the marginal return on new product introduction per-
formance of successfully modularizing a complex
product should be greater than that of modularizing a
simple product.
Similar logic can be used to argue that the task of
modularizing a complex process should lead to stron-
ger positive effects on new product introduction per-
formance than modularizing a more simple process
since it would clarify previously, possible murky
reconfiguration possibilities, identify opportunities
for concurrent processing, and increase the overall
adaptability of the system to product changes. These
effects should enable a company to more rapidly and
more frequently introduce new products while meet-
ing introduction due dates. Thus:
H3. Complexity moderates model relationships (i.e., H1,
H2) such that the effects are more salient for complex
products than for simple products.
4. Research Methodology
4.1. Research Design and Sample Characteristics
The unit of analysis is a manufacturing unit repre-
sented by a firm or a Strategic Business Unit
(SBU).1 The population of firms targeted includes
both companies that produce technically simple
products and technically complex products, that is,
products composed of a large number of compo-
nents that interact in non-simple ways (Simon
1962) and have a large proportion of moving parts
(Novak and Eppinger 2001). Responses were
sought using a three-pronged category strategy.
First, we targeted six focal firms in industries
known for their complex products such as aircraft,
automobiles, large household appliances and heavy
commercial equipment (Mihm et al. 2003). Three of
those companies agreed to participate in the study
and provided contact information for select Tier 1
suppliers. We assumed that companies participat-
ing in these industries would be more prone to
produce complex products. Nevertheless, it is pos-
sible that some firms within the specific industries
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7
may produce simple parts/products. Second, we
targeted firms with an executive affiliation with the
university supporting the study, and are known to
produce complex products. Again, it is possible
that some of these firms may produce simple
parts/products as well. For each prospective firm,
a subjective judgment was made regarding contact
inclusion based on characteristics of their firm’s
primary products as identified by information
available via the firms’ websites. Third, we sam-
pled firms in NAICS industry classifications – 334
(Computer and Electronic Product Manufacturing)
and 336 (Transportation Equipment Manufactur-
ing). We have no reason to believe that these firms
produce primarily simple or complex parts/prod-
ucts. For the latter, electronic mailing lists from the
Society of Manufacturing Engineers and the Institute
of Industrial Engineers were used.
The survey (which included other aspects not
examined here and was split between distinct man-
agerial and technical parts) was administered to
participants online. Questions were randomized
within categories to reduce common method bias
and yea-saying behaviors. For the first two cate-
gories of contacts described above, e-mail invita-
tions to participate were sent directly to most of
the prospective participants. But for a small portion
of them, invitation letters were sent by U.S. mail,
and for a smaller portion, invitations were sent via
e-mail to Tier 1 suppliers directly from the focal
firm. These Tier 1 supplier contacts received invita-
tion letters which contained logos and authorized
signatures of the focal firm. For the third category,
contact information for invitees was not disclosed
directly to the research team. Instead, all communi-
cation to invitees was conducted via email through
a third party service provider hired by the respec-
tive professional society supplying the list of poten-
tial respondents.
All participants were directed to the same Web-
based survey. Two reminder emails were sent, spaced
3–5 business days apart. The 13.5% response rate is
comparable to similar studies (e.g., Das and Narasim-
han 2000, Narasimhan et al. 2001). Non-response bias
was evaluated using a method similar to Armstrong
and Overton (1977). There were no apparent differ-
ences between early and late respondents in terms of
demographics or mean scores based on t-tests. Out of
169 responses, 112 are used for data analyses pur-
poses as 57 responses had substantive missing values
on some constructs of our interest. Sample descriptors
appear in Table 1 (e.g., sales, employees).
4.2. Survey Instrument and Measurement
A panel of four manufacturing professionals and three
academics pretested an initial research questionnaire
 Vickery, Koufteros, Droge, and Calantone: Product and Process Modularity & Performance
8 Production and Operations Management 0(0), pp. 1–20, © 2015 Production and Operations Management Society
Table 1 Description of the Sample (n = 112)
Industry Frequency
1. Continuous Processes & Plastics 11
Manufacturing
2. Primary & Fabricated Metal Manufacturing 28
3. Machinery, Computer, & Electrical 35
Component Manufacturing
4. Transportation Equipment & 26
Aerospace Manufacturing
5. Miscellaneous Manufacturing 12
Respondent title Frequency
President/CEO 3 2.7
Vice president/COO 9 8.0
Director 11
Manager 38
Engineer 26
Other 25
Firm descriptors Mean
Sales $8.80 billion
Employees 7747
Market share (%) 31.38
to ensure face validity. Their feedback resulted in
several refinements to the survey instrument.
Table 2 lists the constructs and their respective indi-
cators, the types of scales; item-to-factor loadings
based on confirmatory factor analysis (CFA), the
means and the composite reliabilities, and measure-
ment model fit indices. Responses were primarily
obtained from engineers, managers, directors, and
other executives affiliated with engineering or man-
ufacturing; these individuals should have intimate
knowledge pertaining to the variables of interest.
The indicators for product or process modularity
shown in Table 2 were selected to ensure that the core
aspects of modularity (functional binding, interface
standardization, and decomposability) were properly
represented and thus cover the constructs’ respective
content domains. The new product introduction per-
formance indicators are measured relative to industry
(i.e., worst to best) and tap into vital aspects of new
product introduction performance such as product
development lead time, on-time product launch, pro-
duct innovation, and frequency of new product intro-
duction.
Complexity, the moderator, was measured using
two measures which were subsequently combined in
a multiplicative fashion (i.e., NK). The first measure N
represents the number of items in the bill of materials
(BOM) for a typical finished product (median = 44.5)
at each participating firm/SBU. The second measure
K captures the number of distinct internal manufac-
turing processes used in the production of a typical
major product (median = 6.5); this measure reflects
complexity and intricacy where products that
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demand a high number of distinct manufacturing
Percentage
processes can be labeled as more complex. Complex-
ity was also measured perceptually in our study using
9.8
items from the literature that captured both product
25.0 and process complexity (see Table 2): our purpose
31.3 was to correlate the NK measure of complexity with
this perceptual measure to underscore its credibility.
23.2 Innovation magnitude, a construct used as a control
10.7
variable, captures the degree of innovation, and was
measured using perceptual indicators (see Table 2).
Percentage Another control variable, product quality (reliability)
was measured by a single item on a 7-point scale
where 1 = worst industry and 7 = best in industry.
9.8
33.9 4.3. Research Methodology
23.2
22.3
We first evaluate the measurement models and
common method bias. Using LISREL 8.51, each
Median measurement model (i.e., exogenous variables and
$80 million endogenous variable, and control variables) was
350 assessed via CFA (Anderson and Gerbing 1988), by
25.00 specifying Maximum Likelihood (ML) estimation
with a covariance matrix as input. The fit of the mea-
surement models was evaluated using a variety of fit
indices including v2/df, CFI, IFI, NNFI, SRMR,
RMSEA and the p-value for Test of Close Fit
(RMSEA < 0.05). Convergent validity was examined
by probing the statistical and substantive significance
of individual item CFA loadings. Discriminant valid-
ity was appraised by comparing the average vari-
ance extracted (AVE) to the squared correlation
between constructs (Fornell and Larcker 1981). Com-
posite reliability and AVE were used to assess
construct reliability.
To test the hypotheses, we used hierarchical
regression models via SPSS 22.0. In Model 1, we
entered several control variables which may par-
tially explain variability in new product introduction
performance. Control variables include (1) firm size,
because larger firms possess more resources which
can be committed towards product and process
development activities; (2) industry affiliation,
because some industries have a reputation for high
new product introduction performance including
frequent, on-time, and rapid innovations vis-a-vis
other industries; (3) quality (measured via product
reliability) as high quality products demand more
attention, resources, and effort, and (4) innovation
magnitude, tapping whether the overall product
innovation strategy is incremental vs. radical. The
latter is important because differences in new pro-
duct introduction performance could be attributed
to the magnitude of innovation instead of the focal
modularity variables. Model 2 adds the variables of
interest (product modularity, process modularity,
and complexity) as main effects while Model 3
further includes the hypothesized interactions (i.e.,
Vickery, Koufteros, Droge, and Calantone: Product and Process Modularity & Performance
Production and Operations Management 0(0), pp. 1–20, © 2015 Production and Operations Management Society 9

Table 2 CFA Measurement Model with Description of Constructs and Item Analysis

Standard loading
Construct (t-value; All sig. at <0.01)
Perceived Product Modularity:
Descriptives: Mean/item = 3.90; SD/item = 1.98, CR = 0.90 (composite reliability from CFA)
Literature sources: Duray et al. (2000); Worren et al. (2002); Lin (2003); Tu et al. (2004); Parker (2010)
Scale: 1 = “Strongly disagree” to 7 = “Strongly agree”
PdM1 For our products, we can make changes in components without changing other components 0.64
PdM2 For our products, functions can be directly added or deleted by adding or removing components 0.75 (6.97)
PdM3 Our products have interchangeable features and options 0.69 (6.48)
PdM4 Our products are designed to enable the swapping of components 0.75 (6.93)
PdM5 Our product components have standardized interfaces 0.50 (4.81)
PdM6 The interfaces of our product components are designed to accept a variety of other components 0.86 (7.68)
PdM7 Our product components are able to accept a wide range of complements (such as modules or peripherals) 0.81 (7.37)
PdM8 Our products can be decomposed into separate modules 0.62 (5.81)
PdM9 Our products are designed to be easily reconfigured 0.76 (7.06)
Perceived Process Modularity:
Descriptives: Mean/item = 4.52; SD/item = 1.76, CR = 0.86 (composite reliability from CFA)
Literature sources: Duray et al. (2000); Lin (2003); Tu et al. (2004); Parker (2010).
Scale: 1 = “Strongly disagree” to 7 = “Strongly agree”
PcM1 Our production processes are composed of process modules (or self-contained processing units) 0.70
PcM2 Our production processes are broken down into sub-processes that can operate independently 0.63 (7.88)
PcM3 Sub-processes can be added to or removed from our production processes without changing other 0.88 (8.64)
sub-processes
PcM4 Our production processes are designed so that sub-processes can be added or removed 0.95 (8.92)
without significant disruptions/changes to other sub-processes
PcM5 Our production processes are designed to be rapidly disassembled and reconfigured 0.50 (5.09)
PcM6 Only minor equipment modifications are required to produce different products 0.52 (5.24)
Perceived New Product Introduction Performance:
Descriptives: Mean/item = 5.00; SD/item = 1.29, CR = 0.85 (composite reliability from CFA)
Literature sources: Aydin et al. (2007); Droge et al. (2000, 2004).
Scale: 1 = “Worst in industry” to 7 = “Best in industry”
NPI1 Product development lead times 0.81
NPI2 On-time product launch 0.74 (7.82)
NPI3 Product innovation 0.71 (7.53)
NPI4 Frequency of new product introductions 0.81 (8.56)
CFA Fit Statistics: v2 = 181.02, df = 144; v2/df = 1.26; CFI = 0.95; NNFI = 0.94; IFI = 0.95; SRMR = 0.07;
RMSEA = 0.05, p-value for Test of Close Fit (RMSEA < 0.05) = 0.54, n = 112
Perceived Innovation Magnitude:
Descriptives: Mean/item = 3.89; SD/Item = 1.38, CR = 0.88 (composite reliability from CFA)
Literature sources: Ettlie et al. (1984); Dewar and Dutton (1986); Sorescu et al. (2003);
Scale: 1 = “Strongly disagree” to 7 = “Strongly agree”
InM1 Our innovations involve fundamentally new concepts or principles for our SBU 0.68
InM2 Our innovations frequently require our SBU to develop many new skills 0.81 (7.42)
InM3 Our innovations require our SBU to learn from completely new knowledge bases 0.78 (7.23)
InM4 Our innovations require skills that our SBU did not previously possess 0.65 (6.13)
InM5 Our innovations require our SBU to carry out a great deal of retraining 0.82 (7.54)
InM6 Our innovations require our SBU to adopt different methods or procedures 0.67 (6.35)
CFA Fit Statistics: v2 = 15.06, df = 9; v2/df = 1.67; CFI = 0.98; NNFI = 0.96; IFI = 0.98; SRMR = 0.03;
RMSEA = 0.08, p-value for Test of Close Fit (RMSEA < 0.05) = 0.22, n = 112
Perceptual Measure of Complexity:
Descriptives: Mean/item = 4.35; SD/item = 1.71, CR = 0.91 (composite reliability from CFA)
Literature sources: Simon (1962); Langlois (2002); Salvador (2007).
Scale: 1 = “Strongly disagree” to 7 = “Strongly agree”
Compl1 Our products are highly complex .89
Compl2 The secondary functions that combine (or interact) to produce our products’ primary functions are 0.51 (5.21)
quite different from one another
Compl3 Our products are very sophisticated in terms of structure 0.90 (14.04)
Compl4 Our products are very sophisticated in terms of function 0.90 (13.91)
Compl5 I would characterize the structure of our typical finished products as: {1 = very simple (i.e., 0.76 (10.21)
few connections among components); 7=very intricate (i.e., many connections among components)}

(continued)

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Table 2 Continued

Standard loading
Construct (t-value; All sig. at <0.01)
Compl6 In a given product, the number of secondary functions that combine (or interact) to produce the 0.59 (7.02)
product’s primary function is: (1 = very low (like in a toaster); 7 = very high like in an airplane)
Compl7 Our production system is very complex 0.79 (10.92)
Compl8 Our production system is very sophisticated in terms of structure/layout 0.73 (9.46)
Compl9 Our production system is very sophisticated in terms of operation 0.71 (9.04)
CFA Fit Statistics: v2 = 65.40, df = 24, v2/df = 2.72; CFI = 0.94; IFI = 0.95; SRMR = 0.05; RMSEA = 0.12,
p-value for Test of Close Fit (RMSEA < 0.05) = 0.00, n = 112

product modularity 9 complexity and process modu-
larity 9 complexity). Interaction plots were employed
to probe the interaction effects in more depth.
The explanatory variables were centered by sub-
tracting the mean from each variable entry in order
to mitigate multicollinearity that may emerge from
applying interaction terms (Frazier et al. 2004,
Hayes 2013). Multicollinerarity was then evaluated
to assure that the findings can be meaningfully
interpreted. The highest VIF value was 1.715, the
lowest tolerance was 0.583, and the highest condi-
tion number was 16.480, suggesting that multi-
collinearity does not present a significant challenge.
We also examined the residuals from our estimated
model in order to identify potential outliers. The
lowest and highest standardized residuals were
2.393 and 2.656, respectively, while the lowest
and highest studentized deleted residuals were
2.659 and 2.850, respectively. There were no error
terms suggesting the presence of outliers. To evalu-
ate whether the data set includes influential obser-
vations, we examined Cook’s distance which
produced a mean of 0.011 and a maximum value
of 0.137, both significantly less than 1.00. The
Mahanalobis distance with an average of 11.893
was not statistically significant (p > 0.45). This sug-
gests that there were no influential observations.
Multivariate normality was examined via a P-P
plot. The plot was essentially linear on the 45° line,
suggesting multivariate normality. Scatterplots of
predicted values and residuals suggested
homoscedasticity.
4.4. Common Method Bias and Triangulation
For questionnaire-based surveys completed by a sin-
gle informant, a frequent concern is common methods
bias (CMB). As far as CMB is concerned, our research
design included a variety of statistical and separation
approaches to minimize risk (Craighead et al. 2011).
First, we used a CFA approach to Harman’s one-fac-
tor test (McFarlin and Sweeney 1992), whose rationale
is that if CMB exists, a single latent factor will account
for all manifest variables (Podsakoff and Organ 1986).
Harman’s test failed to support a single factor
(v2 = 615.43, df = 147, v2/df = 4.19, CFI = 0.63,
IFI = 0.63, NNFI = 0.56, SRMR = 0.15, RMSEA = 0.17,
p-value for Test of Close Fit [RMSEA < 0.05] = 0.00).
A marker variable technique, which is strongly
advocated as an effective approach to assess CMB
(Malhotra et al. 2006), was also used. According to
Craighead et al. (2011), this technique calls for the
inclusion of additional variables which are theoreti-
cally unrelated to at least one variable of interest (Har-
rison et al. 1996). Four marker variables were
included and scored on 7-point scales, where
1 = strongly disagree and 7 = strongly agree. Their
correlations with new product introduction perfor-
mance were rather low: (1) Firms in our industry
advertise heavily compared to other industries
(r = 0.073), (2) In our industry, firms are at the mercy
of powerful suppliers (r = 0.017), (3) Large firms have
definite cost advantages in our industry (r = 0.020),
and (4) We have a serious excess capacity problem in
our industry (r = 0.015). The low correlations indi-
cate that CMB does not present a serious threat.
In terms of separation remedies (Craighead et al.
2011), we relied on methodological and time separa-
tion. To minimize CMB, items measuring the depen-
dent construct were interspersed with items
measuring other variables not associated with this
specific study, so presumptive conclusions would not
consistently influence ratings. The independent vari-
ables, the moderator variable, and the dependent
variable were measured using different scales/
anchors (see Table 2). Furthermore, new product
introduction performance was measured at two dif-
ferent times, administered 3–5 days apart, using two
different distinct parts of the survey (managerial and
technical, respectively); test-retest reliability was 0.90
based on 83 responses. Also, the mean scores across
the two administrations do not differ (p > 0.79). This
affords time separation and attests to the integrity of
responses. In addition, we obtained responses per-
taining to the firm’s new product introduction perfor-
mance from two different respondents at 22 firms
There is no evidence to suggest that the mean scores
differ (p > 0.36). Furthermore, the correlation between
the two responses was over 0.76 (p < 0.001).

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For further testing of CMB, we estimated correla-
tions amongst the focal variables across industries. If
CMB is alleged and “yeah” saying behavior is preva-
lent, then the correlations would be similar across
industries. We produce here a sample of those corre-
lations as evidence demonstrating significant differ-
ences across industries. For instance, the correlations
(r) between innovation magnitude and new product
introduction performance are 0.662, 0.549, 0.289,
0.267, and 0.710 across the five industry groups. Simi-
larly, the correlations (r) between product modularity
and new product introduction performance are 0.589,
0.323, 0.238, 0.258, and 0.611, respectively. Given these
values, we control for industry effects in our analyses.
In order to render more credibility to the measure
of complexity and triangulate its score, we correlated
the complexity score with the subjective measure of
complexity in Table 2. The correlation between the
measure of complexity used here and the subjective
measure was highly significant (r = 0.52, p < 0.000).
5. Results
5.1. Measurement Analysis Results
First we evaluated the measurement models starting
with the model for product and process modularity
and new product introduction performance. The fit
indices based on CFA results are v2 = 181.02, df = 144,
v2/df = 1.26, CFI = 0.95, NNFI = 0.94, IFI = 0.95,
SRMR = 0.07, RMSEA = 0.05 and p-value for Test of
Close Fit (RMSEA < 0.05) = 0.54. All indices suggest
an acceptable measurement model (Table 2). A sepa-
rate measurement model was also specified for inno-
vation magnitude, a variable that serves as a control
variable, and for the perceptual measure of complex-
ity; both models fit well (see Table 2 for results).
In all measurement models, all items were loaded
significantly on their latent factors (p < 0.001) and
were substantive in magnitude (only three items had
coefficients below 0.60 for the constructs used in our
hierarchical regression models) thus supporting con-
vergent validity. Potential cross-loadings were exam-
ined via an assessment of completely standardized
expected change in loadings (kx). None had a change
in kx greater than 0.30, suggesting that items load sub-
stantively only on their intended latent variables, thus
supporting item-level discriminant validity (Koufteros
1999). The composite reliabilities were acceptable at
0.85 or better levels. AVEs ranged from 0.51 to 0.59
(≥ 0.50; Table 3), providing further evidence of con-
struct reliability. The squared correlations were com-
pared with individual AVEs (Table 3): the highest
was 0.31 (0.55 9 0.55), below the smallest AVE. Thus,
discriminant validity was held at the construct level.
5.2. Model Results and Hypothesis Testing
Table 4 shows the findings from the hierarchical
regression models. Model 1 (p < 0.000, R2 adjusted =
0.384) suggests that some of the control variables are
significantly related to new product introduction per-
formance. These include product quality (reliability)
and innovation magnitude (these remain significant
in Models 2 and 3).
Model 2 adds the main effects of product modular-
ity, process modularity, and complexity. Model 2 pro-
duces an R2 adjusted = 0.396. Model 3 includes the
main effects as well as the two interaction terms (i.e.,
product modularity 9 complexity and process mod-
ularity 9 complexity). R2 adjusted is 0.414. The
F change is moderately significant (p < 0.10) indicat-
ing that Model 3 explains more of the variance in new
product introduction performance than Model 2 does.
Thus Model 3 is discussed below. The observed statis-
tical power for Model 3 was 1.00 based on probability
level of 0.05 (or 0.10), 12 predictors, observed
R2 = 0.478, and n = 112.

Table 3 Construct Correlation Matrix and Discriminant Validity

Variables 1 2 3 4 5 6 7
1. Product modularity‡ 0.51†
2. Process modularity‡ 0.383** 0.51†
3. Complexity¶ 0.062 0.042* NA
4. New product introduction performance‡ 0.296** 0.218* 0.094* 0.59†
5. Firm size 0.054 0.147 0.119 0.051 NA
6. Innovation magnitude‡ 0.344** 0.198* 0.100 0.400** 0.066 0.55
7. Product quality (reliability)§ 0.117 0.255** 0.091 0.553** 0.072 0.016 NA

Notes: **; *. Correlation is significant at the 0.01 or 0.05 level (2-tailed).

†
Average variance extracted.
‡
See Table 2 for measurement.
§
Measure of the reliability of the product (i.e., Probability of performance without failure over a specified time period), measured on a 7-point scale where
1 = “Worst in industry” to 7 = “Best in industry”.
¶
The measure of complexity is a multiplicative term (No. of items in BOM for a typical finished product 9 No. of distinct internal manufacturing
processes). For data analytic purposes, the items in the BOM are grouped as follows 1: less than 10, 2: 10–99, 3: 100–499, 4: 500–999, 5: 1000–4999,
6: 5000–9999, and 7: Greater than 10,000. Similarly, the distinct internal manufacturing processes are grouped as follows: 1: 1, 2: 2 or 3, 3: 4 or 5, 4: 6
or 7, 5: 8 or 9, 6: 10 or 11, and 7: 12 or more.

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Table 4 Hierarchical Regression Analyses

Model 1 Model 2 Model 3

Independent variables Coefficients SE Coefficients SE Coefficients SE

Constant 9.8730*** 2.1440 10.0456*** 2.1292 9.8222*** 2.1024
Control variables
Industry 1 1.0397 1.1910 1.1047 1.1991 1.3258 1.1927
Industry 3 0.8127 0.8477 0.9605 0.8633 1.0099 0.8648
Industry 4 0.7459 0.9195 0.6185 0.9462 0.5817 0.9332
Industry 5 0.4031 1.2008 0.5475 1.2001 0.9113 1.1932
Firm size 0.0164 0.1709 0.0304 0.1742 0.0138 0.1728
Innovation magnitude 0.2085*** 0.0500 0.1734*** 0.0535 0.2010*** 0.0541
Product quality (reliability) 1.8532*** 0.2932 1.7776*** 0.3021 1.8325*** 0.2989
Main effects
Product modularity 0.7376** 0.3576 0.8816*** 0.3669
Process modularity 0.0132 0.3615 0.0992 0.3596
Complexity 0.0202 0.0304 0.0052 0.0306
Interaction effects
Product modularity 9 complexity 0.0004** 0.0002
Process modularity 9 complexity 0.0069** 0.0039
Model fit
R//R2 0.650//0.423 0.671//0.451 0.691//0.478
Adjusted R2 0.384 0.396 0.414
F (Significance) 10.896 (0.000) 8.281 (0.000) 7.545 (0.000)
F change (Prob > F change) Model 2- Model 1 Model 3- Model 2
1.680 (0.176) 2.573(0.081)

Notes: *p < 0.10, **p < 0.05, ***p < 0.01, Bold values represent statistically significant regression coefficients.

In terms of control variables, product quality (relia-
bility) and innovation magnitude were significant in
Model 3. Higher levels of innovation magnitude (i.e.,
more radical as opposed to incremental) were related
Figure 2 Product Modularity and New Product Introduction Perfor-
mance: Their Relationship at Low vs. High Complexity
13
New Product Introduction Performance

to better new product introduction performance. Sim- 12

ilarly, higher levels of product quality (reliability)
were associated with higher levels of new product 11
introduction performance. Firm size (as in Jacobs Low Complexity

et al. 2011) and industry do not impact new product 10 High Complexity

introduction performance in our study.

The results show support for hypothesis H1 which 9

proposed that product modularity positively impacts

8
new product introduction performance (0.8816; Low Product Modularity High Product Modularity
p < 0.01). The analysis does not support H2 (0.0992;
p > 0.10); the results suggest that process modularity
is not related to new product introduction perfor-
mance. However, both interaction effects were signifi- Figure 3 Process Modularity and New Product Introduction Perfor-
cant but the coefficient for process modularity 9 mance: Their Relationship at Low vs. High Complexity
complexity was positive (0.0069, p < 0.05) while the 13
one for product modularity 9 complexity was nega-
New Product Introduction Performance

tive ( 0.0004; p < 0.05). Thus, the effects of product 12

modularity and process modularity on new product
introduction performance must be viewed in light of 11
the level of complexity. Plots of these interactions are Low Complexity

provided in Figures 2 and 3. 10 High Complexity

Figure 2 displays a disordinal interaction between
product modularity and complexity. The figure illus- 9
trates that when complexity is high the effect of pro-
duct modularization on new product introduction 8
Low Process Modularity High Process Modularity
performance is dampened. On the other hand,

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mance: Does Complexity Matter? Production and Operations Management (2015), doi 10.1111/poms.12495
Vickery, Koufteros, Droge, and Calantone: Product and Process Modularity & Performance
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Figure 3 demonstrates that the effect of process mod-
ularization on new product development perfor-
mance is heightened when complexity is high.
Overall, the relationships between modularity con-
structs and new product introduction performance
are contingent on the level of complexity.
6. Discussion and Directions for Future
Research
This research examined relationships among product
modularity, process modularity, and new product
introduction performance in light of low vs. high
complexity levels. Both product and process modular-
ity have been previously linked to firm performance
and other constructs (e.g., Salvador 2007, Salvador
et al. 2002); however, empirical work that simultane-
ously examines their individual roles concurrently is
scant. Caution is advised in interpreting these find-
ings in a causal sense since the data are cross-sec-
tional. We begin by summarizing and discussing the
findings followed by managerial implications and
measurement issues.
6.1. Discussion of Findings and Managerial
Implications
Based on the data analysis, we determined that only
product modularity has a statistically significant
main effect on new product introduction perfor-
mance; there were no main effects of process modu-
larity or complexity. However, both product and
process modularity interacted with complexity to
affect new product introduction performance: this
interaction was negative for product modularity and
positive for process modularity. This means that
when complexity is high the marginal return of pro-
duct modularity is diminishing. In contrast, the mar-
ginal return of process modularity is intensified
when complexity is high. Caution is advised in inter-
preting the interaction effects since the respective
effect sizes are a full order of magnitude or more
smaller than the associated main effects for the two
modularity constructs.
The negative interaction between product modu-
larity and complexity can perhaps be explained by
the concept of “over modularity” (Ethiraj and
Levinthal 2004). In essence, when the situation is
rather complex the number of cross-module interde-
pendencies grows, hampering and disrupting auton-
omous innovation at the module level (Ethiraj and
Levinthal 2004). Any gains from parallelism (Mar-
engo et al. 2000) may be offset by the time consumed
to test and integrate the complex system. Ethiraj and
Levinthal (2004) write specifically: “Excessive modu-
larization may blind the designer to potentially
important interactions between decision choices and
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mance: Does Complexity Matter? Production and Operations Management (2015), doi 10.1111/poms.12495
13
result in dysfunctional perturbations in module- and
system-level performance that constrain evolutions
to inferior designs. The speed and efficiency gains
from modularization will be offset by the increased
time spent in the testing and integration phase,
where the consequences of ignored dependencies
will come to fore” (p. 172). Thus, there might be a
“sweet spot” for product modularization in a high
complexity environment. Too much of it is counter-
productive, while too little is insufficient to partially
address the pressing issue of “design oscillations”
(Mihm et al. 2003). In essence, a system becomes
rather complex and nonlinear as it grows with size
which makes the identification of an optimal configu-
ration very unlikely. Instead, design solutions “oscil-
late” through various alternative solutions until
convergence to a solution. The larger the problem
size, the more likely that the design diverges to an
unreasonable solution and this probability grows
exponentially. As Mihm et al. (2003) note, even when
there is convergence, the time to conversion grows
exponentially as well. While the problem cannot be
entirely eliminated, firms can apply product modu-
larization to mitigate the phenomenon. The key,
however, is to not “overdo it”.
Allworth (2013) notes that modularization may
work effectively if a focal company and its supplier
base are absolutely positive they know how different
modules would work optimally together; relatively
an easier task when a product and its respective man-
ufacturing processes are not all that complex. If that is
accomplished, then all constituents can effectively
focus on their piece of the puzzle. But frequently com-
panies and their suppliers try to modularize products
without a clear resolution of functional binding and
interface standardization concerns, two critical
aspects of modularization. As Kusiak (2002) notes,
such concerns may surface later on in the develop-
ment process. When unanticipated problems regard-
ing interdependencies do emerge, internal and
external actors need to adjust their work, possibly
creating new challenges for other modules and
respective supply chain partners. Small changes by
one constituent may have ripple effects across many
members of the internal and external supply chains,
culminating in further delays and compromising new
product introduction performance. This suggests that
the adoption of an intensive product modularity
approach for a complex product, with the accompa-
nying organizational and supply chain upheaval and
the concomitant challenge of effectively integrating
new organizational units and suppliers, could nega-
tively affect new product introduction performance.
Collectively, modularization may be fruitful in a com-
plex environment but too much of it might produce
adverse effects. Thus, we caution against excessive
 Vickery, Koufteros, Droge, and Calantone: Product and Process Modularity & Performance
14 Production and Operations Management 0(0), pp. 1–20, © 2015 Production and Operations Management Society
levels of product modularization when complexity
is high.
In contrast, “overmodularity” is not a concern for
process modularity in a complex environment.
Indeed, when complexity is high, process modularity
had a heightened impact on new product introduc-
tion performance. This may be due to the fact that,
relatively, there are fewer interactions or interdepen-
dencies arising from the number of manufacturing
processes vis-a-vis the number of component parts.
Based on our sample, the median number of compo-
nent parts in the BOM is 44.5 (with a mean of 260)
while the median number of distinct manufacturing
processes is 6.5 (with a mean of 7.6). The number of
manufacturing processes appears to be relatively low
to trigger the amount of cross-module process inter-
dependencies that would lead to the phenomenon of
over modularity in the realm of processes. In addi-
tion, we measured process modularity by asking com-
panies to reflect on their own production processes,
which implies that such processes come under the
direct control of the focal company. Since the focal
companies have direct control of their own processes,
they can manage them more effectively because func-
tional binding, interface standardization, and decom-
posability decisions related to processes do not have
to be negotiated or renegotiated with external parties
if challenges do emerge. If and when challenges do
emerge, they are typically contained within the
boundaries of the organization and thus decisions can
be made faster, leading to higher levels of new
product introduction performance.
The advantage of process modularity for new pro-
duct introduction performance is lacking in an envi-
ronment characterized by low complexity (see
Figure 3). Modularizing the production process
when the environment is already simple may not be
warranted. Partitioning or decomposing the produc-
tion system and trying to address interfaces, or the
visible design rules (Baldwin and Clark 1997), for a
simple environment may amount to overkill. Lan-
glois (2002) states that a “well-decomposed modular
system must pay a kind of fixed cost that an inter-
twined system need not pay. . .” (p. 23). Determining
the appropriate number of modules, the mapping of
design elements to the modules, the interactions
amongst design elements within each module, and
the interfaces between modules is time consuming
(Baldwin and Clark 1997) and may not be all that
productive when the process is rather simple. Bald-
win and Clark (1997) and Langlois (2002) note that
modular systems are more difficult to design than
comparable interconnected systems partly because
modular designers have to first gain an in-depth
understanding of the inner workings of the overall
system to form proper interfaces among modules.
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mance: Does Complexity Matter? Production and Operations Management (2015), doi 10.1111/poms.12495
Overall, even though process modularity is clearly
conducive in complex as opposed to simple environ-
ments, more research is due to examine whether
there are boundary conditions especially at the
upper levels of complexity.
The measure of new product introduction perfor-
mance that we use here encompasses four pertinent
aspects: product development time, on-time product
launch, product innovation, and frequency of new
product introduction. While the correlations amongst
these aspects are substantial (i.e., minimum r ~ 0.59),
it is possible that modularity and complexity may
have differential effects on these aspects with poten-
tial theoretical and managerial implications. To exam-
ine these differential effects, we tested separate
models for each of the four measures of new product
introduction performance. Appendix A shows results
for the final model (i.e., Model 3) for each aspect of
new product introduction performance. Plots of
respective statistically significant interactions appear
in Appendices B–E.
Appendix A suggests that a little over 29% of the
variance in frequency of product introduction can be
explained by the explanatory variables. Product mod-
ularity has a positive main effect (p < 0.05) on the
frequency of product introduction and process modu-
larity alone interacts with complexity (p < 0.10). The
interaction (see Appendix B) between process modu-
larity and complexity suggests a heightened effect
when complexity is high; these results are consistent
with the findings based on the aggregate measure of
new product introduction performance (see Table 4).
However, since the interaction between product mod-
ularity and complexity is non-significant, while the
main effect is positive, the results suggest that pro-
duct modularity has a positive impact on frequency
of product introduction irrespective of complexity.
For on-time product launch, Appendix A shows
that the explanatory variables explain roughly 24.5%
of the variance. Only product modularity plays a role
as its main effect (p < 0.05) and its interaction with
complexity (p < 0.10) are the only significant variables
of interest. Appendix C reveals the interaction is dis-
ordinal in nature, so only the interaction can be effec-
tively interpreted. The interaction suggests that
product modularity’s effect on on-time launch is
diminished when complexity is high. These results
are in line with the findings for the aggregate measure
of new product introduction performance.
For product development lead time (Appendix A),
the model explained 27.7% of the variance with only
two variables of interest found to be related to pro-
duct development lead time – product modularity
and complexity. Product modularity is statistically
significant and positive (p < 0.10), and given that its
interaction with complexity is nonsignificant, higher
Vickery, Koufteros, Droge, and Calantone: Product and Process Modularity & Performance
Production and Operations Management 0(0), pp. 1–20, © 2015 Production and Operations Management Society
levels of product modularity are associated with
better product development lead time performance
irrespective of complexity level. However, complexity
is negatively associated with product development
lead time, suggesting that higher levels of complexity
are associated with adverse effects on the ability of
the organization to compete based on product devel-
opment lead time.
Finally, Appendix A illustrates that the model for
product innovation has the greatest explanatory
power of the four with 37.7% of the variance
explained. Both the main effects for product modular-
ity (p < 0.10) and process modularity (p < 0.10) are
statistically significant as well as their interactions
with complexity (p < 0.01 and p < 0.01, respectively).
Consistent with prior results involving statistically
significant interaction terms, the interaction between
product modularity and complexity is negative and
the interaction between process modularity and com-
plexity is positive. Appendices D and E show these
interaction plots.
In comparing the results of Model 3 for our aggre-
gate measure of new product introduction perfor-
mance in Table 4 with the results for the four
indicators comprising this measure, several insights
arise. First, while product modularity is shown to
affect some aspects of new product introduction per-
formance (frequency of new product introduction
and product development lead time) irrespective of
the level of complexity, its effects on other perfor-
mance aspects (on-time product launch and product
innovation) are dampened when complexity is high
(the latter being consistent with the earlier analysis
of the aggregate measure of new product introduc-
tion performance). We conjecture that product mod-
ularity shortens product development time and
concurrently improves the frequency of new product
introduction, even when complexity is high, but it
may breed unexpected problems involving interde-
pendencies and integration of modules when com-
plexity is high, possibly creating new challenges for
other modules and respective supply chain partners,
that hamper product innovation and eventually lead
to delays in product launch. With respect to process
modularity, the results show that it has no effect on
on-time product launch and product development
lead time irrespective of the level of complexity. But
process modularity has a positive effect on fre-
quency of new product introduction and product
innovation when complexity is high (the latter being
consistent with the earlier analysis of the aggregate
measure of new product introduction). Thus, from a
managerial standpoint, if a competitive environment
demands frequency of new product introduction,
product modularity is an attractive option when
complexity is high, especially if the firm also
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mance: Does Complexity Matter? Production and Operations Management (2015), doi 10.1111/poms.12495
15
embraces process modularity. Note that process
modularity will not only facilitate frequency of new
product introduction when complexity is high, but
its positive impact on product innovation in the
same environment should counteract the diminished
effect of product modularity on product innovation.
Finally, from a theoretical perspective, our findings
suggest that researchers should be careful advancing
and testing hypotheses relating modularity to per-
formance in general as the effects may be subject to
complexity levels and the results may vary by the
type of indicators deployed to measure the specific
performance construct.
The managerial implications of the overall findings
are straight forward: when product/process complex-
ity is low, investments in product modularity will
engender new product introduction performance, but
investments in process modularity are not called for.
For high levels of complexity, product modularity is
desirable (as long as it is not “overdone”) to mitigate
design oscillations and facilitate convergence to a
design solution (Mihm et al. 2003); however, an
investment in product modularization should be
accompanied by a concomitant investment in process
modularity which proved to be rather conducive
when complexity is high. If a company produces both
complex and simple products with respective types of
processes, then a spackling strategy should perhaps
be assessed (Cattani et al. 2010). The nuanced find-
ings for the individual measures of new product
introduction performance also serve as a cautionary
tale for managers that want to use modularity to tar-
get specific aspects of new product introduction per-
formance (frequency of new product introduction for
instance). The results demonstrate that care needs to
be taken in devising a modularity strategy, given the
differential impacts of the two types of modularity
across the various performance indicators for differ-
ent complexity levels.
Consistent with current practice, we controlled for
effects that potentially can influence new product
introduction performance, including firm size, indus-
try group, innovation magnitude, and product qual-
ity. The effects of firm size and industry were found
to be negligible in the presence of other variables in
the model. However, innovation magnitude and
quality were found to be positively associated with
new product introduction performance across all
model analyses. At first glance, the finding for inno-
vation magnitude seems provocative. In this regard,
it must be noted that a similar finding in an earlier
seminal study showing a positive relationship
between product innovativeness and new product
commercial performance was considered surprising in
its time (see Kleinschmidt and Cooper 1991, p. 251;
also Evanschitzky et al. 2012). But this result was
 Vickery, Koufteros, Droge, and Calantone: Product and Process Modularity & Performance
16 Production and Operations Management 0(0), pp. 1–20, © 2015 Production and Operations Management Society
later interpreted as an exemplar of the overall posi-
tive relationship between risk and return. Likewise,
the current finding is not as surprising as it first
appears. Consider that companies may allocate
increased effort and resources to more innovative
products because they can command premium
prices, particularly if they have early indications that
the products will be well received. Furthermore, it
should be noted that truly radical (i.e., new-to-the-
world) industrial products are rather rare (Hultink
et al. 2000), so that even if a new product is highly
innovative, it may not substantially disrupt existing
development and launch processes. Thus, it is not
unexpected that innovation magnitude is positively
related to new product introduction performance.
The positive association between product quality
and new product introduction performance is not
unexpected either. Koufteros et al. (2002) demon-
strated that the ability to introduce new products
and features was highly correlated with the ability to
compete based on quality.
6.2. New Areas for Empirical Research
The results should be cautiously interpreted. Accord-
ing to our findings, for example, product modularity
leads to higher new product introduction perfor-
mance when complexity is low; but any advantage
may erode quickly (Ethiraj and Levinthal 2004)
because it may be relatively easy to imitate simple
products. However, Ethiraj and Levinthal also sug-
gested that inimitability is preserved in many cases
by a competitor’s failure to copy inter-modular link-
ages in addition to the product modules themselves.
Our study does not address whether the impact of
product modularity on new product introduction
performance for simple products outweighs any
downside from potential imitation. More empirical
research is needed to explore whether a product
modularity – imitation trade-off exists, and if so, the
exact nature of the trade-off taking into account com-
plexity. In addition, even if vistas into product tech-
nology can be obtained through strategies such as
reverse engineering, this is not necessarily the case
for process technologies. Thus, even if product mod-
ularity is replicable by a firm’s competitor, advan-
tage may still be preserved by the competitor’s
inability to perceive and/or copy the firm’s associ-
ated modular process (if it has developed one) (see
Teece et al. 1997). More research is needed regarding
these issues.
While we examined the impact of product and pro-
cess modularity on new product introduction perfor-
mance, there are specific aspects of modularity that
are currently understudied. For instance, Kamrad
et al. (2013) examined the value of modularly upgrade-
able products via an economic model. In the face of
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mance: Does Complexity Matter? Production and Operations Management (2015), doi 10.1111/poms.12495
rapid product improvements, the user may either buy
an all-new product, or upgrade a particular module(s)
of an existing product to bring the product up to
par or near par with a new product. A modularly
upgradeable design “may isolate improving compo-
nents from more stable ones and thereby enable an
upgrade via replacement of only the improving
module(s)” (Kamrad et al. 2013, p. 289). A modu-
larly upgradeable product may be pleasing to users
because the respective product retains some value
(Kamrad et al. 2013, Ulk€€ u et al. 2012) and can be
brought up-to-date without significant cost. But, it is
unclear how this will affect for instance the fre-
quency of product introduction. Under ceteris paribus
conditions, modularly upgradeable products should
have longer lives and thus firms may not need to
introduce products as often in the market; rather,
such firms may focus instead on introducing new
modules. However, which firm (the focal company
or its suppliers) will benefit may depend on the
€ u and Sch-
specific supply chain configuration (Ulk€
midt 2011). If these modules are outsourced, the
focal firm may be at a disadvantage as this limits
profit opportunities and may even lead to disinter-
mediation.
In addition, it is not known how outsourcing and
modularity work in concert to enhance new product
introduction performance (Ro et al. 2007). Theoreti-
cally, in the short term, new product introduction
performance should improve as the focal firm, such
as Boeing, can capitalize on the expertise of its sup-
ply base to contribute towards new product intro-
duction performance through the outsourcing of
both design and assembly of modules. In other
words, a focal company can engage in resource
orchestration (Sirmon et al. 2007) across its supply
chain where each major supplier undertakes the
responsibility to design (or partially design), source,
integrate, and deliver a complete module (Ro et al.
2007). For instance, Spirit AeroSystems is the inte-
grator for the entire flight deck of the Boeing 787
Dreamliner. In the long term, however, due to the
outsourcing of complete modules to suppliers, there
will be a diminishing desire to retain product
designers and process designers on staff, which
may then deplete the firm’s future capacity to inno-
vate. Without its own cadre of talented product and
process engineers, innovation efforts may be stifled
and the firm may not be able to assure the integrity
of each module and importantly, safeguard the con-
nectivity across modules designed and sourced from
various suppliers (Ulk€€ u and Schmidt 2011). This
may have an adverse effect on the ability of a focal
firm to improve its new product introduction per-
formance. Future research can examine the relation-
ship between product modularity, process
Vickery, Koufteros, Droge, and Calantone: Product and Process Modularity & Performance
Production and Operations Management 0(0), pp. 1–20, © 2015 Production and Operations Management Society 17

modularity, and new product introduction perfor-
mance in light of specific supply chain configura-
tions. In other words, the effects of modularity on
new product introduction performance may be sub-
ject to a specific type of supply chain configuration
(vertical integration vis-a-vis decentralized supply
€ u and Schmidt (2011) examine the role of
chain). Ulk€
supply chain configuration in the realm of modular
vs. integral designs through an analytical approach
while Ro et al. (2007) study modularity and supply
chain configurations in the context of the US.auto-
motive industry via case studies, but large-scale
empirical evidence is lacking.
6.3 Measurement and New Prospects
After conceptually defining the core aspects of modu-
larity as functional binding, interface standardization,
and decomposability, we measured product and pro-
cess modularity as separate constructs. By tapping
these three key aspects for both modularity con-
structs, we seized the contrast between product vs.
process modularity (i.e., modularity in product
design architecture vs. modularity in production pro-
cess architecture) while retaining the core meanings
underlying modularity. An area for future study is
the use of these three aspects to define other types of
modularity such as “modularity-in-use” (Kamrad
et al. 2013) or supply chain modularity.
In defining modularity, we avoided measurement
cross-contamination with related constructs. Past
studies have often failed to disentangle product
modularity (for example) from related and/or com-
plementary concepts such as commonality, process
modularity, dynamic teaming, etc. For example, Tu
et al.’s (2004) single modularity construct encom-
passing both product and process modularity (as
well as dynamic teaming) does not allow for the dis-
entanglement of product vs. process modularity
effects. Nevertheless, Tu et al.’s inclusion of dynamic
teaming raises the possibility that organizational
design may impact modularity and its subsequent
effects. Future modularity research could also focus
on supply chain design. For example, Ulk€ € u and Sch-
midt (2011) analytically modeled external product
development to show that modular architectures are
more likely when the parties have adversarial (vs.
collaborative) relationships. Future research could
empirically explore these kinds of issues, using the
measures of product and process modularity devel-
oped herein.

Appendix A. Hierarchical Regression Analyses for Each Indicator of Product

Introduction Performance†
Frequency of product On-time Product Development
introduction Product Launch lead time Product innovation

Independent variables Coefficients SE Coefficients SE Coefficients SE Coefficients SE

Constant 1.996*** 0.707 2.351*** 0.743 2.853*** 0.641 2.622*** .679
Control variables
Industry 1 0.322 0.401 0.110 0.421 0.239 0.364 .655* .385
Industry 3 0.256 0.299 0.533** 0.306 0.004 0.264 .216 .279
Industry 4 0.294 0.314 0.012 0.330 0.027 0.285 .302 .301
Industry 5 0.020 0.401 0.225 0.422 0.186 0.364 .480 .385
Firm size 0.041 0.058 0.002 0.061 0.033 0.053 .086* .056
Innovation magnitude 0.034** 0.018 0.029* 0.019 0.053*** 0.016 .085*** .017
Product quality (reliability) 0.564*** 0.101 0.509*** 0.106 0.392*** 0.091 .368*** .096
Main effects
Product modularity 0.303** 0.123 0.232** 0.130 0.159* 0.112 .187* .118
Process modularity 0.081 0.121 0.077 0.127 0.094 0.110 .163* .116
Complexity 0.011 0.010 0.009 0.011 0.012* 0.009 .005 .010
Interaction effects
Product Modularity 9 complexity 0.000 0.000 0.000* 0.000 0.000 0.000 .000*** .000
Process Modularity 9 complexity 0.002* 0.001 0.000 0.001 0.001 0.000 .004*** .001
Model fit
R//R2 0.607//0.369 0.571//0.327 0.596//0.355 0.667//0.445
Adjusted R2 0.292 0.245 0.277 0.377
F (Significance) 4.823 (0.000) 4.001 (0.000) 4.543 (0.000) 6.607 (0.000)
F change (Prob > F change) Model 3 Model 2 Model 3- Model 2 Model 3- Model 2 Model 3- Model 2
0.891 (0.413) 1.254 (0.290) 0.891 (0.412) 6.142 (0.003)

*p < 0.10, **p < 0.05, ***p < 0.01, Bold values represent statistically significant regression coefficients.
†
Only Model 3 for each regression model is shown.

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Appendix B. Process Modularity and Frequency of Product Introduction: Note

Their Relationship at Low Vs. High Complexity
1
See Parker (2010), whose dissertation was part of an over-
5
arching research project on modularity and complexity for
additional details regarding data collection.
Frequency of Product

4
Introduction

3
Low Complexity

2 High Complexity
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