Modularity in the design of complex engineering systems

This paper summarizes and extends the arguments set forth in our book, Design Rules, Volume 1, The Power of Modularity. We first present evidence to show that modularity is a financial force, which can change the structure of an industry. The economic power of modularity lies in two fundamental properties: first, modularity creates options; and second, modular designs can evolve at low cost and without central control. We explore the value and costs that are associated with constructing and exploiting a modular design, and then examine the risks that modularity poses for individual firms.