Problem solving and the co-ordination of innovative activities

In the context of increasingly globalized markets, ever more complex supply chains and international manufacturing networks, corporate decision-making processes involve more and more actors, variables and criteria. This is a challenge for corporate head quarters. Many have argued that the role once attributed to the integrated innovative organisation and its R&D laboratories is increasingly associated with the functioning of networks of specialised innovators. The aim of this paper is to argue that the role of large firms may have changed, but it is far from disappeared. It looks at the interplay of increasing knowledge specialisation, the development of products of increasing complexity that perform a widening range of functionalities, and the emergence and diffusion of new design strategies for both products and organisations, namely modularity. The emergence of modularity as a product and organisational design strategy is clearly connected to recent trends in organisational design. Modularity would allow the decoupling of complex artifacts into simpler, self-contained modules. Each module would, at the extreme, become the sole business of a specialised trade. This paper builds upon the idea that there are cognitive limits to this process of modularisation: what kinds of problems firms solve, and how they solve them, set limits to the extent of division of labour among firms. We draw implications of such limits for both management and economic theory.