The Relationship Between Architectural Modularity and Platform Scale Up Performance: The Moderating Effects of Strategic Flexibility and Technology Turbulence

Abstract

The emergence of digital platforms has had a deep impact on the way firms design and position their products. An open architecture is a key to successfully scale up platforms in terms of usage. Architectural modularity is an important feature that facilitates openness of platforms. Successful scaling of platforms needs a digital infrastructure layer that facilitates collaboration and creation and hence the role of modular systems in the development of platform ecosystems has increased substantially. In this paper, we study the relationship between modular architectures and platform scale up performance from a survey data of managers in the semiconductor industry with 232 data points. The findings from our study show that the scale-up performance of platforms has an inverted U-shaped relationship with modularity. We also find that the strategic flexibility of firms positively moderates this relationship. The degree of flexibility that system architecture should have is not only an important technical decision but is important from a business perspective as well. Ambiguity in terms of interfaces and the functionality of modules reduces the possibility of ex-ante specification of contracting terms and incentives and monitoring of incentives. The link between architectural modularity and the relationship to performance is important as this enables us to examine questions related to the success of task partitioning at an industry level.