14th Trento Summer School: Modularity and Design for Innovation

Lecture Outline

Monday July 1 through Friday July 12, 2013

30 segments of 90 minutes each




Readings and Slides


9:00 Monday 1

Introduction Division of Labor

Overview and introduction to the Summer School.


Division of labor as an early account of modular design.

Axel Leijonhufvud, "Capitalism and the Factory System," in R. N. Langlois, ed., Economic as a Process: Essays in the New Institutional Economics. New York: Cambridge University Press, 1986.
Axel Leijonhufvud, "The Economy's misterious Web of Contracts," International Economy26(2): 48-53 (2012).



11:00 Monday 1

Modularity I

Overview of basic concepts.


(Near) decomposability vs. integrality; Tempus and Hora.

Herbert A. Simon, "The Architecture of Complexity," Proceedings of the American Philosophical Society 106(6): 467-482 (1962).


14:00 Monday 1

Modularity II

Encapsulation and information hiding; design rules and standards; simple design matrices; basic tradeoffs.

Richard N. Langlois, "Modularity in Technology and Organization," Journal of Economic Behavior and Organization 49: 19-37 (2002).


9:00 Tuesday 2

Introduction to standards and path dependency

Network effects and path dependency; degrees of path dependency; institutions for choosing standards under uncertainty.

Paul A. David, "Clio and the Economics of QWERTY," American Economic Review 75(2): 332-337 (1985).


S. J. Liebowitz and Stephen E. Margolis, "Path-dependence, Lock-in, and History," Journal of Law, Economics, and Organization 11: 205-226 (1995).

11:00 Tuesday 2

Case studies:  PC, others

IBM: from architectural innovation to closed modular system to open modular system.  Other cases.

Richard N. Langlois and Paul L. Robertson, "Networks and Innovation in a Modular System: Lessons from the Microcomputer and Stereo Component Industries," Research Policy 21(4): 297-313 (1992).

14:00 Tuesday 2

n-k models

Complexity; interdepencies; variation and selection.

Daniel Levinthal, “Adaptation on Rugged Landscapes,” Management Science 43(7): 934-950 (1997).

9:00 Wednesday 3

Design matrices

 Identifying and classifying design dependencies; constructing and analyzing design structure matrices; using design structure data for empirical research.

Tyson R. Browning, “Applying the Design Structure Matrix to System Decomposition and Integration Problems: A Review and New Directions,” IEEE Transactions on Engineering Management 48(3): 292-306 (2001).


M. E. Sosa, S. D. Eppinger, C. M. Rowles, “Identifying Modular and Integrative Systems and Their Impact on Design Team Interactions,” Journal of Mechanical Design 125(2): 240-253 (2003).

11:00 Wednesday 3

Option value

Designs as options; value inherent in modular designs; costs of modularity; how designs evolve; implications for firm and industry structure.

Carliss Y Baldwin and Kim B. Clark,. "Managing in an Age of Modularity," Harvard Business Review 75(5): 84–93 (September-October 1997).


Carliss Y. Baldwin and Kim B. Clark, "Modularity in the Design of Complex Engineering Systems," in Ali Minai, Dan Braha, and Yaneer Bar Yam, eds., Complex Engineered Systems: Science Meets Technology.  New England Complex Systems Institute Series on Complexity. NY: Springer, 2006.

14:00 Wednesday 3

Models of modularity
and evolvability


Near-decomposability; modularity; evolvability

Brusoni, S, L. Marengo, A. Prencipe and M. Valente (2007), "The value and cost of modularity: A cognitive perspective", European Management Review , vol. 4, pp. 121-132.


G Wagner and L. Altenberg, “Complex Adaptations and the Evolution of Evolvability,” Evolution 50(3): 967-976 (1996).

9:00 Thursday 4

Thin crossing points

Mundane transaction costs


Network view of the economic system; transfers vs. transactions; costs of setting up transactions in relation to the network; implications for firm boundaries

Carliss Y Baldwin, "Where Do Transactions Come From? Modularity, Transactions, and the Boundaries of Firms," Industrial and Corporate Change 17(1): 155–195 (February 2008).

11:00 Thursday 4

The mirroring hypothesis


Origins of the mirroring hypothesis; how mirroring can be derived from costs of communication and transactions; how to test for mirroring; empirical evidence; transparency as a substitute for organizational mirroring.

Lyra J. Colfer and Carliss Y. Baldwin,. "The Mirroring Hypothesis: Theory, Evidence and Exceptions." Harvard Business School Working Paper, No. 10–058, January 2010. (Revised June 2010.)

14:00 Thursday 4

Panel on modularity and organization



Woodard 5
9:00 Friday

Models of technology evolution

Approaches to modeling technology evolution; generalizations of the NK model; modeling the emergence of modular architectures. 

W. B. Arthur and W. Polak, “The Evolution of Technology within a Simple Computer Model,” Complexity 11(5), 23-31 (2006).


C. Jason Woodard and Eric K. Clemons, “Modeling Technology Evolution Using Generalized Genotype-Phenotype Maps,” GECCO Companion '12, 323-330 (2012).

11:00 Friday  5

Case study: RCA and consumer electronics

Autonomous vs. systemic innovation; organizational capabilities vs. option value; introduction to issues of intellectual property rights.

Richard N. Langlois, “Organizing the Electronic Century,” in Giovanni Dosi and Louis Galambos, eds., The Third Industrial Revolution in Global Business. New York: Cambridge University Press, March 2013.

14:00 Friday 5

Students group work



9:00 Monday 8

Open and user innovation


Open source and other forms of collaborative user innovation; when and why entrepreneurs may be unnecessary; role of modularity; human motives of reciprocity; technological trends and factors; how far can this model go?

Carliss Y. Baldwin and Kim B. Clark. "The Architecture of Participation: Does Code Architecture Mitigate Free Riding in the Open Source Development Model?" Management Science 52(7) (July 2006).


Carliss Y. Baldwin and Eric von Hippel, "Modeling a Paradigm Shift: From Producer Innovation to User and Open Collaborative Innovation,"Organization Science 22(6): 1399–1417 (November–December 2011).

11:00 Monday 8

Intellectual property rights

At the other end of the spectrum, using modularity to protect intellectual property; taking advantage of open and user innovation; Modularize—Assign—Protect; transition to platforms and ecosystems

Joachim Henkel, Carliss Y. Baldwin, and Willy C. Shih, "IP Modularity: Profiting from Innovation by Aligning Product Architecture with Intellectual Property." Harvard Business School Working Paper, No. 13–012, August 2012. (Revised November 2012.)


Carliss Y. Baldwin and Joachim Henkel, "The Impact of Modularity on Intellectual Property and Value Appropriation." Harvard Business School Working Paper, No. 12–040, December 2011. (Revised November 2012.)

14:00 Monday 8

Panel on open innovation and IP



9:00 Tuesday 9

Multi-sided markets
and platforms

The differing but overlapping concepts of “platform” in economics, design, and strategy.

Marc Rysman, “The Economics of Two-Sided Markets,” Journal of Economic Perspectives 23(3): 125-143 (2009)


Carliss Y. Baldwin & C. Jason Woodard, “The Architecture of Platforms: A Unified View,” in Annabelle Gawer, ed., Platforms, Markets and Innovation. Cheltenham: Edward Elgar, 2009, pp. 19-44.

11:00 Tuesday 9

Platforms and strategies

Strategy in a world of platforms.

Annabelle Gawer and Rebecca Henderson. 2007. "Platform Owner Entry and Innovation in Complementary Markets: Evidence from Intel," Journal of Economics & Management Strategy 16(1): 1-34.


Annabelle Gawer and Michael Cusumano, “How Companies Become Platform Leaders,” Sloan Management Review 49(2): 28-35 (Winter 2008).

14:00 Tuesday 9

Panel on platforms and  strategies




9:00 Wednesday 10


Generalizing Adam Smith; cognitive comparative advantage; the rise and decline of “deskilling.”

Richard N. Langlois, "Cognitive Comparative Advantage and the Organization of Work: Lessons from Herbert Simon's Vision of the Future," Journal of Economic Psychology 24: 187-207 (2003).

11:00 Wednesday 10

De-modularization and systems integration


Firms as integrators; modularity and modularization; system integration; firms’ boundaries

Henry Chesbrough and K. Kusunoki, “The Modularity Trap: Innovation, Technology Phases Shifts and the Resulting Limits of Virtual Organizations,” in I. Nonaka and D. Teece, eds., Managing Industrial Knowledge. London: Sage, pp. 202-30 (2001).


Stefano Brusoni. Andrea Prencipe, and Keith Pavitt, “Knowledge Specialization, Organizational Coupling, and the Boundaries of the Firm: Why Do Firms Know More than They Make?Administrative Science Quarterly 46 (4): 597-621 (2001).

14:00 Wednesday 10

Integrators and problem solving

Individuals as integrators; problem-solving; exploration-exploitation; attention control. 

Daniella Laureiro-Martinez, Stefano Brusoni, and Maurizio Zollo, “The Neuro-Scientific Foundations of the Exploration-Exploitation Dilemma,” Journal of Neurosciences, Psychology and Economics. 3(2): 95-115 (2010).


9:00 Thursday 11

Vanishing Hand

Modularity, supply chains, and the boundaries of firms in business history.

Richard N. Langlois, "The Vanishing Hand: the Changing Dynamics of Industrial Capitalism," Industrial and Corporate Change 12(2): 351-385 (2003).


Richard N. Langlois, "Chandler in a Larger Frame: Markets, Transaction Costs, and Organizational Form in History," Enterprise and Society 5(3): 355-375 (September 2004). 

11:00 Thursday 11

Industry studies


Giovanni Dosi, Alfonso Gambardella; Marco Grazzi, and Luigi Orsenigo,

"Technological Revolutions and the Evolution of Industrial Structures: Assessing the Impact of New Technologies upon the Size and Boundaries of Firms," Capitalism and Society: Vol. 3: Iss.1, Article 6 (2008).


Susan Helper and Mari Sako, “Management Innovation in Supply Chain: Appreciating Chandler in the Twenty-First Century,” Industrial and Corporate Change 19(2): 399–429 (2010).

14:00 Thursday 11

Student presentations

  1. Search Dynamics and nk Models
  2. Smart Factory
  3. Re-modularization


9:00 Friday 12

Student presentations

  1. Modularity in ICT Growth Model
  2. Valuation of Modularity
  3. Landscape Shaping


11:30 Friday 12

Wrapping up



14:00 Friday 12

Students' departure



Recommended supplementary readings.


Alexander, Christopher. 1964. Notes on the Synthesis of Form. Cambridge: Harvard University Press.


Baldwin, Carliss Y., and Kim B. Clark. 2000. Design Rules: the Power of Modularity. Volume 1. Cambridge: MIT Press.

Baldwin, Richard. 2011. “Trade and Industrialisation after Globalisation’s2nd Unbundling: How Building and Joining a Supply Chain Are Different and WhyIt Matters,” National Bureau of Economic Research Working Paper Series No. 17716.


Ethiraj, S. and D. Levinthal. 2004. “Modularity and Innovation in Complex Systems,” Management Science 50: 159-173


Frenken, Koen. 2006. “A Fitness Landscape Approach toTechnological Complexity, Modularity, and Vertical Disintegration,” Structural Change and Economic Dynamics 17(3): 288-305.


Gawer, Annabelle ed., Platforms, Markets and Innovation. Cheltenham: Edward Elgar, 2009.


Grossman, Gene M., and Esteban Rossi-Hansberg. 2006. “The Rise of Offshoring: It’sNot Wine for Cloth Anymore,” The New Economic Geography: Effects and Policy Implications: 59-102.


Langlois, Richard N. “Cognition and Capabilities: Opportunities Seizedand Missed in the History of the Computer Industry,” in Raghu Garud, Praveen Nayyar, and Zur Shapira, eds., Technological Innovation: Oversights and Foresights. New York: Cambridge University Press, 1997, pp. 71-94.


Langlois, Richard N. “Comment on'Technological Revolutions and the Evolution of Industrial Structures' (byGiovanni Dosi, Alfonso Gambardella, Marco Grazzi, andLuigi Orsenigo),” Capitalism and Society 3(2): Article 7 (2008). See also here and here on Helper and Sako.

Langlois, Richard N. “The Secret Life of MundaneTransaction Costs,” Organization Studies 27(9): 1389-1410 (2006).


Langlois, Richard N. and Giampaolo Garzarelli, “Of Hackers and Hairdressers: Modularity and the Organizational Economicsof Open-Source Collaboration,” Industry & Innovation 15(2): 125-143 (April 2008).


Lanz, R., S. Miroudot and H. K. Nordås (2011), “Tradein Tasks,” OECD Trade Policy Papers, No. 117, OECD Publishing.


Lazonick, William (2008) “Comment on ‘Technological Revolutions and theEvolution of Industrial Structures’ (by Giovanni Dosi, Alfonso Gambardella,Marco Grazzi, and Luigi Orsenigo),” Capitalism and Society: Vol. 3: Iss. 1, Article 3.


H. Lipson, J. B. Pollack, N. P. Suh..On the Origin of Modular Variation,” Evolution 56(8): 1549-1556 (2002).


Louçã, Francisco and Sandro Mendonça. 2002. “Steady Change: The 200 LargestUs Manufacturing Firms Throughout the 20th Century,” Industrial and Corporate Change 11(4): 817-845 (August 1, 2002).


MacCormack, Alan, Carliss Y. Baldwin, and John Rusnak.Exploring the Duality Between Product and Organizational Architectures:A Test of the 'Mirroring' Hypothesis, “Research Policy 41(8): 1309–1324 (October, 2012).


Marengo, L. and G. Dosi. 2005. “Division of Labor,Organizational Coordination and Market Mechanisms in Collective Problem-Solving,” Journal of Economic Behavior and Organization 58(2): 303-326.