Is modularity robust to misfits? A formal test

Abstract

Abstract In this paper, we ask—is the power of modularity robust to a potential misfit between organizations and their underlying technical systems? We design a computational model to systematically explore the role of misfits, building on prior models using the numerical NK paradigm. We find that the impact of misfits is either neutral or even performance-enhancing when the organizations carry out a decentralized search while coordinating and evaluating the alternatives at the organizational level. This is good news for the theoretical efficacy of modularity—the benefits of modular search do not have to be contingent upon a precise understanding of the underlying technical dependencies. The reason is that in decentralized and hierarchical systems, there exists a tension between (i) the exploration and generation of alternatives and (ii) the exercise of restraint and control. The latter is important to implement only those alternatives that have an overall positive impact on the organization, by limiting the downside of radical experiments.