The Impact of Product Modularity on New Product Performance: Mediation by Product Innovativeness

In light of problem solving, system complexity, and dominant design theories, some researchers suggest that modular product design promotes product innovation through experimenting with many alternative approaches simultaneously. This leads to rapid trial‐and‐error learning and accelerates new product introduction. However, others argue that modular product design inhibits innovation because common modules can be overly reused, the degree of freedom for innovation is limited due to module compatibility, and knowledge sharing among module teams is weakened. There is no conclusive argument regarding the relationships between product modularity and new product performance, or between product innovativeness and new product performance. This article fills this gap by investigating the relationships of these three important constructs through an empirical study. Data were collected from 115 companies in the electronics industry. The findings show that there is an inverted U‐shaped relationship between product modularity and product innovativeness. The results also reveal a lack of direct relationship between product modularity and new product performance, but discover an indirect relationship between the two mediated by product innovativeness. Manufacturers should closely monitor the negative impacts of modularity, as extreme modularity can reduce product innovativeness. If there are any signs of diminishing product innovativeness, problems with poor communication across module teams, or excessive design alternatives, the manufacturers should stop further modularizing their products. Alternatively, manufacturers can take steps to reduce the negative effects of modularity. For instance, manufacturers can develop ways to strengthen communication among module teams. They can also use a set of design rules to reduce the number of design alternatives systematically or a design method to balance product commonality and differentiation during the development processes.