Organizing Complex Product Development: Outsourcing, Performance Integration and the Role of Product Architecture

Abstract

Several streams of recent literature emphasize the advantages of involving external sources of innovation in the process of developing complex products (Powell et al., 1996; Helper et al., 2000; Sturgeon, 2002; Chesbrough, 2003). The question we tackle in the present article is 'What are the key micro organizational decisions for seizing the benefits of a networked innovation strategy?' Building on empirical evidence gathered over a ten-year period at a major European automotive manufacturer, the article presents empirical insights on the organizational challenges that firms face when they decide to rely on external sources of innovation in developing complex products. The empirical evidence highlights two aspects that are important: The role of component specific knowledge in addressing the integration of overall product performance, and the role of learning by doing opportunities in accumulating component specific knowledge. The article shows how managers can greatly benefit from focusing their attention on the organizational aspects of leveraging external sources of innovation and adjusting their innovation strategy, including 'make or buy' choices, accordingly. Strategic and micro organizational decisions, hence, should be considered as tightly coupled and mutually influencing in the context of complex product development. This quite intuitive outcome has been partially neglected in current innovation literature and management practice due to an overemphasis given to product architecture and the possibilities in terms of organization that it enables.

Keywords: Innovation management, New product development organisation, Outsourcing, Modularity, Performance Integration, Product architecture, Open Innovation, Automotive industry

JEL Classification: D20, L21, L22, M10, L62