Modular Design and Complex Product Systems: Facts ... - CiteSeerX

CoPS Publication No. 47

Working Paper

Modular Design and Complex Product Systems: Facts, Promises, and Questions

Andrea Prencipe

May 1998


Table of Contents 1. INTRODUCTION

1

2. THE NEW EMERGING PRODUCT AND ORGANISATIONDESIGN PARADIGM

2

2.1. Product architecture: integral vs. Modular

2

2.2. Organisational implications

4

3. COMPLEX PRODUCT SYSTEMS: SOME HINTS

4

4. MODULAR DESIGN. SYSTEM DECOMPOSABILITY AND FIRM’S TECHNOLOGY BASE IN THE AERO-ENGINE INDUSTRY

5

4.1. The empirical study

6

4.2. The data set

6

4.3. Limitations

8

4.4. The empirical evidence

8

4.5. Modularity and aero engines: old wine in new bottles

15

5. CONCLUDING REMARKS AND FUTURE RESEARCH

18

6. REFERENCES

20

Complex Product Systems Innovation Centre

i


1. Introduction The aim of this paper is to cast empirical light on the issue of modular design and its implications for firms’ technology integration strategy. Modular design has been regarded as the new logic for product and organisation design as it helps firms cope with nowadays turbulent environment. The promise is that by conceiving products in terms of modules, firms can take responsibility for the design and development of separate modules. Thus they can develop new products at a faster pace, as the integration of the final product is a matter of ‘mix and match’. This is made possible by advanced technological knowledge about component interactions that can now be used to fully specify and standardise component interfaces and to decouple the design of the product architecture from the design of each module. Modular design, therefore, by simplifying design and development processes, allows a greater division of labour across firms. Firms can in turn focus their capabilities on few modules or on the architecture and gain strategic and organisational flexibility (Sanchez and Mahoney, 1996). However, though of paramount importance for firm’s competitiveness, little has been said on the implications that the modular design approach would have for firms’ technology base and integration strategy. Firms’ technology base are here referred to as a stock quantity of technological knowledge, whereas firms’ integration strategy is understood as the process whereby firms change it over time. The literature on modular design suggests that the modular design approach is deemed to be applicable across different sectors. Little attention has been paid to the different product characteristics and the way they can shape its implementation. This chapter will focus on the relationships between product characteristics, product design and firm’s integration strategy. In particular, I will contend that in some industrial sectors, also labelled complex product systems (CoPS) industries, the adoption of modular design and the decoupling of architectural knowledge and module knowledge is not clear cut, given the intrinsic systemic interdependencies displayed by the product. The aero-engine industry will be put forward as an illustrative example. The paper is organised in five main sections. In the following one I will review current literature on modular design, focusing on the definition and distinction between modular and integral architecture and the decoupling of organisational processes. Section 3 will present briefly the main features of complex product systems in terms of their innovation process and managerial implications. In Section 4, I will present the results of a study on the aero-engine industry. Section 5 will draw some conclusions and pose some questions for future research.


1


2. The new emerging product and organisationdesign paradigm 2.1. Product architecture: integral vs. Modular According to Ulrich (1995) the architecture of a product is ‘the scheme by which the functions of a product are allocated to physical components’. The concept of product architecture encompasses: (a) the arrangement of functional elements, that is to say the structure of the individual operations that contribute to the overall performance of the product; (b) the mapping from the functional elements to physical parts, that is which component implements which function; and (c) the specification of the interfaces amongst the different components, in terms of contact (e.g. geometric) or non-contact (e.g. infrared) connections and interactions. Ulrich (1995) argues that a product architecture can be modular1or integral according to two properties: (a) the mapping from functional requirements to physical objects composing the product and (b) the degree of ‘decoupling’ of the interactions amongst components. In a modular architecture, components implement one or few functional elements (one-to-one mapping) and components’ interactions are well specified. In an integral architecture there is a complex mapping between functional elements and components (i.e. components implement many functional elements), and components’ interactions are illdefined and coupled. The characteristics of product architectures can have different implications for firm’s product strategy. In fact, a modular architecture seems more appropriate when firms want to, for example, emphasise product variety, change, and standardisation since a product with a modular architecture does allow firms to change the product by upgrading or adding modules without changing the remainder and keeping therefore that change ‘isolated’. An integral architecture may be, instead, more appropriate when product performance represents the main concern of firms’ product strategy. Therefore, firms have a certain degree of latitude in choosing product architecture and these decisions are subjected and linked to issues related to firms’ strategy and, in particular, to product performance, product change, product variety, component standardisation, manufacturability, and project management. In other words, products may lend themselves to either modular or integral architecture according to firms product specific strategy. The designers have therefore some degrees of freedom in choosing the more appropriate architecture to meet firms’ goals. The example of the BMW R1100RS motorcycle that Ulrich and Eppinger (1995) put forward is a case in point of how this decision has been taken in practice and which were the issues that influenced it. Motorbikes have always been designed according to an architecture in which the structural-support functional element was implemented by the frame and the power-conversion by the transmission. In the BMW R1100RS in order to eliminate redundancy (in this case, weight and mass) and to 1

The concept of modular design comes from the computer industry and dates back to the IBM’s System 360. This machine was conceived in terms of independent component subsystems (ie modules) whose architecture (also called platform) represented the ‘industry environment’ until 1980, as Clark and Baldwin (1995) have highlighted. Complex Product Systems Innovation Centre

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boost performance characteristics related to size, mass and shape, the transmission module implements both the structural-support and the power-conversion functional elements. Such design practice is called function sharing2. Therefore, whereas motorcycle design has always been modular, in the BMW R1100RS, in order to maximise specific product characteristics, an integral architecture has been preferred. The example of the motorcycle implies that some products can lend themselves to both kinds of architecture, either modular or integral according to the wish of the designer and to the parameters that she or he wants to maximise. An integral architecture may be more suited for maximising product performance, whereas a modular architecture would lend itself to changes, up-grades and variety in an easier way. Modularity can be therefore imposed by the designer to the product architecture in order to maximise/minimise particular product’s features. It is worth underlining, however, two points: 1. as Clark and Baldwin (1997) argue, modular systems are more difficult to design than integral one as designers need a deep understanding of the ‘inner workings’ of the product, in order to partition and decouple design tasks. From a technical viewpoint, a modular architecture implies a clear division, or more precisely decoupling, between ‘visible and hidden design parameters’3. Modular design does effect the design level in that it simplifies the design process and, as Sanchez and Mahoney (1996) argue, the product development process organisation. The product level is also impacted, with the caveats highlighted below. However, the simplification at the design and product level calls for a detailed understanding of the underlying product knowledge and, I argue, the ‘thickness’ of such underlying knowledge may differ across sector according to the product characteristics. This will be the subject of section 4. 2. modular design allows for ‘loose coupling’ components interactions at the design level which is different from ‘tight or loose’ in an actual product. Take, for instance, the personal computer. Its design may have loosely coupled components interactions in that different components (e.g.: microprocessor) may be substituted within a certain range dictated by the architecture into the 2

In the same vein, another design practice whose aims is to make more efficient use of materials and space is that of geometric nesting. According to this practice components are arranged in order to occupy the minimum volume possible. Of course, for both design practices, the ensuing consequence is the tight coupling of components and subystems at the physical as well as at the design level. It is worth noting that in the design of aero-engine both function sharing and geometric nesting are common (or probably manadatory) design practices as weight and volume represent major constraints in the design and development of the product. As regards, geometric nesting for instance, in order to save volume, mass and weight, or more precisely in this case extra components such as ‘heat exchangers’, the oil and the fuel systems are arranged in a way that they can exchange heat since lubricating oil has to be cool to perform its functions of lubrication and cooling, whereas fuel cannot be below the temperature at which dangerous obstructing ice crystals form and has to be warmed up (Gunston, 1995), 3 Visible design parameters are those that specify modules, their functionalities, and their interfaces, and have to be known by the designers of each module as they have to comply with them. Hidden design parameters, instead, refer to components only, and do not need to be known by others component designers, as they do not affect decisions beyond the module they are related to (Parnas, 1972; Clark & Baldwin, 1995). Complex Product Systems Innovation Centre

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computer design without requiring a redesign of the other components. However, the components in the physical computer must be tightly coupled in the sense that all components must function in unison in order for the computer to function as a system (Sanchez and Mahoney, 1996). 2.2. Organisational implications Other than implications for product’s design, according to Sanchez and Mahoney (1996), the concept of modularity can also be applied to firm’s organisational processes and, in particular, to product development processes. Traditional design approach called for intensive managerial co-ordination throughout the development process, since product designs were composed of tightly coupled components. BY contrast, modular product architectures by fully specifying components interfaces, that are not permitted to change during a period of time, allow the different stages of the development process to become ‘loosely coupled’ since all the developing components conform to standardised interface specifications. The co-ordination of the development process is therefore ameliorated and simplified. The continual exercise of managerial authority is reduced to a minimum thanks to an ex ante precise and specified partitioning of the components interfaces. As a consequence, the related design tasks are in turn carried out by concurrent and autonomous teams. In the words of Sanchez and Mahoney (1996) ‘The specifications for standardised component interfaces provide, in effect, an information structure (Radner, 1992) that co-ordinates the loosely-coupled activities of component developers’. Thus, at one extreme there are integral, tightly coupled products designed according to the traditional design philosophy, that require intensive managerial authority to co-ordinate tightly coupled development processes. At the other, products with a modular architecture whose loosely-coupled component designs is reflected in the organisation of the development process where the information structure metaphorically represents “the ‘glue’ of embedded co-ordination” of the different design tasks. Embedded co-ordination stands for any co-ordination achieved without the exercise of managerial authority (Sanchez and Mahoney, 1996).

3. Complex product systems: some hints Complex product systems (CoPS) have been defined as ‘high cost, engineeringintensive products, sub-systems, or constructs supplied by a unit of production’ (Hobday, 1998). CoPS identify a group of products that differ from simpler, massproduced products in terms of the dynamics of the innovation process, competitive strategies and industrial co-ordination4. Although encompassing a fairly relevant number of industries, ranging from telecommunication equipment and aeroengines to flight simulators and air traffic control systems, that differ from each other in several respects, CoPS show some common features. According to 4

A thourough idea of CoPS main characteristics and their differences between them and massproduced products can be found in Hobday (1998), while for a detailed and comprehensive study of a CoPS industry, notably the flight simulator industry, see Miller et al. (1995). Complex Product Systems Innovation Centre

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Hobday (1998) four characteristics set CoPS apart from mass-produced goods: (a) they are high cost systems composed of many interacting and often customised elements; (b) their design, development, and production usually involve several firms; (c) they exhibit emerging and unpredictable properties; (d) the degree of user involvement is usually very high. It goes without saying that a comparison and a contrast between CoPS and mass-produced goods is a matter of degree. For the scope of this work, it is worth noting that the high degree of customisation involved in CoPS industries makes design and development activities pivotal in the supply of these goods, whereas in mass-produced ones manufacturing plays a key role. Further, as regards managerial implications, CoPS product and production characteristics call for ‘particular’ capabilities to integrate distinct knowledge bases underlying the high number of components and subsystems (Prencipe, 1997). As highlighted in the following sections, in some CoPS industries modular product design has been adopted for a long time, but its adoption has not entailed a clear knowledge partitioning between system integrator and components supplier companies, nor has it resolved many of the intrinsic difficulties of producing components, products and systems.

4. Modular design. system decomposability and firm’s technology base in the aero-engine industry In the previous two sections I have described the concept of the ‘modular approach’ in product and organisation design and the main features of complex product systems industries. This section explores further the concept and the meaning(s) of modular design focusing in particular on how product characteristics, and ensuing system decomposability (or non-decomposability), might have different effects for firms integration strategy. In particular, I will argue that although modularity allows firms for disintegration at the product level, disintegration at the knowledge level poses very different management problems. In other words, I contend here that the concept of modular product design cannot be understood in the same way throughout all the industrial sectors and its managerial implications might differ according to the specific characteristics of the product in terms of the degree of systemic interdependencies across components and subsystems and the ensuing decomposability (or to put it tersely according to the product specificity). A similar point has been made by Fine and Whitney (1996) that distinguish starkly between products with a modular architecture whose components can be ‘mixed and matched’ due to ‘the standardisation of function to some degree and standardisation of interfaces to an extreme degree’ and products showing, instead, an integral architecture, where ‘components and subsystems [are] designed to fit with each other’. Example of products with a modular architecture are the personal computer, home stereo equipment, and adult’s bicycle. An example of a product with an integral architecture is the aeroplane, as it has to be developed as a system, and it would not be possible to take components off the shelf such as Complex Product Systems Innovation Centre

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wings from a supplier, engine from another and ‘end up with a viable (flyable) system’ (Fine and Whitney 1996). According to these scholars this is due to the degree of decomposability of the system into subsystems and then components as there are some products easily decomposable, and others that ‘cannot be cleanly and conveniently decomposed’. They then go on to argue that such degree of decomposability does influence the design process and impact outsourcing decisions as well, being the most easily decomposable (and therefore decomposed) components the best candidates for outsourcing. 4.1. The empirical study The preliminary results of a two-year study on the aero-engine industry are presented thereafter. Building on quantitative and qualitative data, namely US patent statistics and industry trends, companies on-site interviews and historical interpretation (Gardiner and Rothwell, 1990), I will comment upon the range of technological activities carried out in house by of two of the largest engine makers. 4.2. The data set The study deals with the analysis of the US patents granted to two engine makers between 1977 and 1996. This period has been divided up in four five-year periods. The data have been collected from the US Patent Office CD-ROM and then checked with the Legal Department of the companies at issue. This double check has been necessary since I was interested only in those patents related to the engine business, whereas some of the companies studied are involved also in other business. The US patent classification has been broken down and each patent has been reclassified according to its technological content. This has led to a sector specific taxonomy encompassing 24 technical fields, ranging from product to testing and manufacturing technologies.


6


Table 1. Technology map of the aero-engine industry based on US patent statistics TECHNICAL FIELDS 1.OTHER 2.RAMJETS AND ROCKETS 3.AERONAUTICS 4.CASINGS 5.TIP CLEARANCE CONTROLS SYSTEMS 6.ROTORS AND STATORS 7.AIRFOILS 8.COMBUSTORS 9.EXHAUST NOZZLES 10.FUEL SYSTEMS 11.GEARS AND MECHANISMS 12.LUBRICATION 13.COUPLINGS AND SEALS 14.CONTROL SYSTEMS 15.MISCELLANEOUS ELECTRONIC SYSTEMS 16.FLUID HANDLING SYSTEMS 17.MEASURING AND TESTING TECHNOLOGIES 18.MATERIALS AND MATERIALS MANUFACTURING 19.COATING AND CHEMICAL PROCESSES AND APPARATUS 20.METALLURGICAL PROCESSES 21.METALLURGICAL APPARATUS 22.ELECTRICAL MACHINERY 23.ELECTROCHEMICAL MACHINERY 24.OPTICS: SYSTEMS AND ELEMENTS


7


4.3. Limitations The use of patent data as a proxy measure of companies’ technological activity has its own limitations that have been discussed in the literature (Scherer, 1988; Wyatt et al., 1988). Suffice to say here that (a) patents have different importance as a means of protection of new products and processes across industries due to the nature of the technologies used (more or less patentable) and to the propensity to patent (Levin et al., 1995). The latter can vary also across companies; (b) patents do not allow measurement of competencies in software technologies, as copy rights are generally utilized as a means of protection; given the growing importance of these technologies in the industry examined, I believe this to be the most crippling limitation of the present analysis; (c) patent data measure only codified knowledge and therefore cannot offer any indication as to the importance of tacit knowledge in firm-specific competencies. A similar limitation is found in other potential indicators of a firm’s scientific and technological activities, such as publications in scientific journals. However, as Hicks (1995) has underlined, publications (and patents, I argue) point to the existence of “underlying tacit knowledge, skills, substances and so on possessed by the authors”. This has been confirmed by one of the Technical Directors interviewed during my fieldwork research who argued ‘Our core competencies lie in design codes and patents’. What is more, as regards this study, it worth mentioning that as companies have been asked to provide those patents related only to the aero-engine business, there might be a subjective bias of the understanding of the ‘relatedness’ to one business or another that in turn might have affected the patent data used. On the other hand, viewing patents as indicators of a firm’s technological activity does present a number of advantages such as accuracy, considerable detail and accessibility. 4.4. The empirical evidence 4.4.1. Product level decisions As mentioned above, the idea here is to explore how in the aero-engine industry the modular design approach has impacted impacting firms’ technology base and whether and how firms have consequently changed their integration strategy. Firms’ integration strategy is analysed here at two different levels, i.e.: knowledge and product. Following the discussion in section 3 and relying on the data collected, I am going to argue that in the aero-engine industry, as an illustrative example of a CoPS industry, the adoption of a modular design approach has not entailed yet a clear partitioning between system integrator and components supplier companies at the knowledge level, though the product level has been decoupled amongst them. The aero-engine industry is characterised by an ever-increasing number of international collaborative agreements for the design, development and manufacturing of new engines. This practice has been recently borrowed from the military side of the industry where collaborations amongst companies belonging to


8


different countries had been launched since the early 1970s5. The reasons why the development of new engines is now and will be even more in the future split amongst different companies lie in the increasing development cost and related risk of failure of the programme. Competition especially in the large turbofan market is indeed cut-throat and mainly price-based. Industry trade journals report that engines are now given for free by big-engine makers in order to secure a foothold in the spare market business, now considered the ‘gold mine’ of the industry. It is obvious that a failure in market terms of an engine programme can lead on the brink of receiverships even those engine makers belonging to big and solid financial group, unless heavily sponsored (ex-ante and ex-post the launch of the engine programme) by national governments. Table 2 reports on the ‘split’ of some civil engine collaborative programmes amongst system integrator companies and first-tier suppliers, now risk and revenue sharing partner (RRSPs). According to it, suppliers, usually first-tier ones, are now invited to join the engine programme early on and buy a stake in it (usually referred to one or more components) in order to share the risks and future revenues of the programme. Although RRSP is a pure contractual form (even a bank can buy a stake in the programme and then share risks and revenues), so far there have always been partnerships underpinned with a ‘technological exchange’. In other words, RRSPs buy a stake in the engine programme and then become responsible for the design and/or the development and/or the manufacturing of one or more components. Usually RRSP responsibility goes from the design to the manufacturing of engine parts, but there are some cases where they are in charge only of the manufacturing.

5

Usually in the military European companies join together to form ad hoc organisation to develop new enegine for new military aircraft, such as the European Fighter Aircraft powere by the EJ200, and on the side of the Atalantic, Americans do the same. Both initiatives are heavily subsized by public funding from national and federal governements (in Europe would be from the European Union). However, there are case where US and European companies work together as in the Joint Striker Aircraft.


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Table 2. Risk and revenue sharing partners in the aero-engine industry (source: amended from Jane’s Aero-engine, 1997) General GE P&W RR SNECMA MTU Fiat Volvo Aero IHI Electric (Piaggio) CF6-50 (Airbus) 59 27 10 4 CF6-50 100 (Boeing) CF6-80A 61 27 7 5 CF6-80C2 71 10 9 5 5 CF6-80E 61 20 9 5 5 GE90 59.09 25.25 7 8.66 CFM-56 50 50 Pratt & Whitney JT8D 100 JT8D-200 76 12.5 9 PW2000 70.8 21.2 4 4 PW4052-4168 79 3 2 PW4084 66 3 13 2 Rolls-Royce RB211-524G/H 91 5 Trent 84 3.5 (5) 2.5 SNECMA includes Hispano-Suiza and TechSpace Aero.


KHI

MHI

Samsung

Eldim

Norsk

Singapore Aerospace

BMW RR

2.5 1 1

10 10

1 1

1 1

3 3

3 3

4 5

10


The underlying reason of the ‘split’ has to be found in the already mentioned high cost and risk of development cost of new engines and in the willingness of the engine maker to share the risks (and possibly the future revenues) of the programme itself. Another reason why engine makers involve other companies, especially international ones, lies in the fact that in this industry the customer is the airline. Despite the wave of privatisation airlines are usually owned by national governments. This may lead to informal contracts that ‘imposes’ the engine makers to involve a national component suppliers in the engine development programme in order to sell engines to the national airline, and trade technology with future sales. A cursory look at Table 2 reveals that new big engine programmes are no longer responsibility of one system integrator, but of several companies. The overall percentage share kept by system integrator firms can be still considered high, though ranging from 100% down to 50%. Rolls-Royce, for instance, was responsible for 91% of the RB211-524G and RB211-524H engines, whereas is now responsible for 72,9% of the Trent. Likewise, Pratt & Whitney decreased its responsibility share from 100% of the JT8D, through 76% of the JT8D-200, 70.8 of the PW2000, to 66% of the PW4084. General Electric Aircraft Engines seems to have pursued a different collaborative strategy, keeping about 60% on average of responsibility of each engine programme over time, though this share was (and is) 100% for the CF6-50. The following caveats apply to these data. The percentage shares refer to the ‘first level of the split’. In other words, after this first partitioning each RRSP and the system integrator can, and usually do, pursue further divisions according to socalled ‘project decisions’. Data related to the sub-partitioning level are, however, firms’ proprietary information so that is not even possible to get access to them. Even at the first level split, data are not that robust to clearly state and define a proper trend, since the product life cycle of an aero-engine is about three decades so that new engines programmes are launched not very frequently. • Nonetheless, the ‘trend’ towards externalisation of engine parts within an engine programme at the first-tier level and further down has been confirmed by all the Technical Directors belonging to both engine makers and component suppliers companies interviewed during my fieldwork6. Manufacturing, in particular, is no longer considered critical and is easily outsourced. Engine design is, instead, deemed a critical activity especially for the core engine so that decisions to hive off design capability are more complex than the manufacturing ones. System integration, however, make a distinction between product level and knowledge level decisions. Although at the programme (product) level they may decide not to take on design responsibility related even to critical engine parts, as an overall company policy such capability is always kept in-house by means of advanced research projects (also in collaboration with Universities and Research Centres), engine demonstrator 6

Further, during the life cycle of an engine the percentage share of both design and manufacturing split amongst companies can change, and especially for old engines the system integration’s share tends to decrease over time to the extent that ‘...our manufacturing responsibility of an engine launched twenty years ago is now less than 10%...’ (Interview, 1996). Complex Product Systems Innovation Centre

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programmes, and continuous internal training for engineers and engine designers. Put it differently, disintegration at the product level of both design and manufacturing does take place in this industry, but integration at the knowledge-technological level is indeed mandatory for system integrators to ‘compose’ what they have ‘decomposed’. This is the reason why such decomposition strategy at the product level differs from project to project, and according to one industry expert interviewed ‘This [decomposition] strategy is pursued by system integrators in order to have every engine part under control in technological terms and therefore end up with an overall view of the entire engine’ (Lowson, 1997).

4.4.2. Knowledge level decisions The patent analysis supports this thesis. Tables 3 and 4 present the technological profiles of two system integrator companies (from now on Company A and B, as in table 2). Technological profile is understood here as the range of technological activities carried out in-house by a company (Patel and Pavitt, 1994). It will be used as a tool to understand how firms’ technology base have been changed over time also in the light of the adoption of the modular design approach. The analysis will mainly concentrate on the product-related technologies, though manufacturing and testing technologies will be touched upon in passing. According to Tables 3 and 4, both companies can be considered multi-technology as they are active in several technical fields. They are taking out patents in all the identified technical fields, though company A has discontinued patenting in two technical fields, i.e.: ‘Fuel systems’ and ‘Optics: element and systems’. As regards product-related technologies, it is worth noting the following: • the inner core of the engine, as composed of ‘Rotors and stators’, ‘Airfoils’, ‘Combustors’, and ‘Exhaust nozzles’, is the mainstay in both technological profiles. Company B patents’ number increase is also impressive, but this applies to all technical fields; • the ‘Casings’, ‘Tip clearance control systems’, ‘Gears and mechanisms’, ‘Couplings and seals’, and ‘Fluid handling systems’ that form what I define the engine outer core are also of interest to the two system integrators, notwithstanding the components referred to in these patents are usually outsourced; the same holds true for the systems, that is to say ‘Fuel systems’, ‘Control systems’, ‘Miscellaneous electronic systems’, and ‘Lubrication’, and the ‘Aeronautics’ technical fields. The latter contains patents related to the powerplant-engine interface, usually considered ‘typical’ of airframers.


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Table 3. Company A technological profile TECHNICAL FIELDS (24)

77-81

82-86

87-91

92-96

1.OTHER

4

2

3

1

2.RAMJETS AND ROCKETS

0

0

2

2

11

8

13

14

4.CASINGS

8

7

8

15

5.TIP CLEARANCE CONTROLS SYSTEMS

3

12

8

13

6.ROTORS AND STATORS

5

2

9

4

7.AIRFOILS

28

23

25

25

8.COMBUSTORS

18

29

13

22

9. EXHAUST NOZZLES

8

18

21

10

10.FUEL SYSTEMS

3

3

3

0

11.GEARS AND MECHANISMS

2

0

3

5

12.LUBRICATION

1

6

1

2

15

32

13

19

14.CONTROL SYSTEMS

7

12

15

22

15.MISCELLANEOUS ELECTRONIC SYSTEMS

2

3

5

3

16. FLUID HANDLING SYSTEMS

12

13

17

15

17.MEASURING AND TESTING TECHNOLOGIES

21

24

21

13

18.MATERIALS AND MATERIALS MANUFACTURING

11

12

6

7

9

4

3

8

20.METALLURGICAL PROCESSES

6

29

22

30

21.METALLURGICAL APPARATUS

1

1

6

6

22.ELECTRICAL MACHINERY

7

0

3

7

23.ELECTROCHEMICAL MACHINERY

8

5

4

2

24. OPTICS: SYSTEMS AND ELEMENTS

3

0

0

0

193

245

224

245

3.AERONAUTICS

13.COUPLINGS AND SEALS

19.COATING AND CHEMICAL PROCESSES AND APPARATUS

Total


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Table 4. Company B technological profile TECHNICAL FIELDS (24)

77-81

82-86

87-91

92-96

1.OTHER

0

0

1

1

2.RAMJETS AND ROCKETS

0

0

4

0

3.AERONAUTICS

7

5

15

33

4.CASINGS

11

3

7

34

5.TIP CLEARANCE CONTROLS SYSTEMS

11

4

11

27

8

8

6

30

7.AIRFOILS

28

15

21

106

8.COMBUSTORS

15

12

30

84

9. EXHAUST NOZZLES

22

3

9

26

10.FUEL SYSTEMS

1

3

4

21

11.GEARS AND MECHANISMS

2

2

16

11

12.LUBRICATION

7

0

0

5

13.COUPLINGS AND SEALS

19

11

31

115

14.CONTROL SYSTEMS

26

19

20

50

2

14

38

52

16.FLUID HANDLING SYSTEMS

28

12

18

69

17.MEASURING AND TESTING TECHNOLOGIES

15

25

82

119

18.MATERIALS AND MATERIALS MANUFACTURING

31

16

73

117

19.COATING AND CHEMICAL PROCESSES AND

14

4

10

19

20.METALLURGICAL PROCESSES

39

15

54

88

21.METALLURGICAL APPARATUS

3

2

10

20

22.ELECTRICAL MACHINERY

4

15

30

20

23.ELECTROCHEMICAL MACHINERY

6

2

2

9

24. OPTICS: SYSTEMS AND ELEMENTS

0

1

20

16

299

191

512

1072

6.ROTORS AND STATORS

15.MISCELLANEOUS ELECTRONIC SYSTEMS

APPARATUS

Total


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How is this associated with companies deliberate strategy to split modules and components amongst more and more suppliers? The answer lies in companies’ strategy to divide technology and product decisions, and therefore outsource the manufacturing (and sometimes design) of components in different engine programmes but retain in-house ‘some’ technological knowledge related to them. I wrote ‘some’ since the depth of this knowledge change according to the criticality of the components. Some of them are completely outsourced in terms of manufacturing and design, others are just manufactured outside, while the design is kept in-house. In any case system integrator companies maintain an internal technological capability to integrate the system afterwards. I contend therefore that in this industry modular design together with the spiralling development costs and risks have indeed affected the product level (both design and also manufacturing), but not the technological one. This is due to the intrinsic product characteristics and particularly to the systemic interdependencies shown by the engine system. Engine makers are in turn requested to span their technological activity well beyond the engine inner core. This is epitomised in this passage ‘Without our integration capability spanning several technical fields we won’t be able to decompose and then recompose the engine system’ (Interview, 1998). 4.5. Modularity and aero engines: old wine in new bottles The concept of modular design in the aero-engine business dates back to the early 1970s. It finds its origin in the effort of the engine makers to standardise component parts to ease the maintenance of engines in use. The idea was to reduce the use of customised component parts in order to exploit economies of scale across a substantial number of engines and over time, as well as to make life easier for maintenance engineers. A proper modular engine design, as it would be understood today, was first launched by Rolls-Royce in the 1970s (Gardiner and Rothwell, 1990). Rolls-Royce conceived its new product, the RB211, in terms of seven basic modules7 giving way to a ‘simplified design’ for such a complex product8. This modular approach allowed the UK-based firm to gain enormous strategic flexibility to meet different customer requirements in terms of thrust and performance. In particular, Rolls-Royce was able to scale-down and scale-up (or more precisely de-rate and up-rate) the original design to cater for a variety of market requirements and power outputs. As Gardiner and Rothwell (1990) put it ‘by removing the large, front, low pressure fan module and replacing it with a 7

The seven basic modules are fan (or low pressure compressor), high pressure compressor, combustion chamber, high pressure turbine, low pressure turbine, exhaust nozzle and control system. However, this simplified design does not include what Gunston (1995) defines the ‘dressing of the jet engine’, that is to say oil, fuel, control, starting, and deicing systems, couplings and seals, and gearboxes. 8 It is worth noting that Rothwell and Gardiner (1984, 1985 and 1990) use and refer to the concept of ‘robust design’ rather than to modular design to indicate ‘one that has sufficient inherent design flexibility or ‘technological slack’ to enable it to evolve into a significant ‘design family’ of variants’. Having said that I feel comfortable to substitute ‘modular’ for ‘robust’ as they both include concepts such as ‘designed-in’ flexibility, stretched versions, and eventually ‘product family’ or ‘product architecture’ as I have referred in this paper, and specifically for the jet engine case a robust design as concieved by Rothwell and Gardiner (1990) is indeed a ‘modular one’. Furthermore, it seems that the ‘modular design’ concept can be understood as the (terminological) evolution of the ‘robust design’ one. Complex Product Systems Innovation Centre

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scaled-down fan, it was possible to produce the highly successful de-rated (i.e. lower thrust) 535C engine’. The RB211 constituted and paved the way to a product family, whose designed-in flexibility (or robustness, à la Gardiner and Rothwell) allowed also for other major modifications to be ‘retrofitted’ in existing engines, such as the wide-chord fan blade. Moreover, the RB211 family as a new design concept encompassed and entailed several others, such as ‘design commonality’. This enabled the use of similar and possibly standardised components and subsystems throughout the product family itself. All in all, the introduction of this innovative design concept enabled Rolls-Royce to reap economies of scale in R&D, production and spares supply and combine them with economies of scope (by up-rating and de-rating previous models) to meet evolving customer requirements without bearing the costs of designing and developing new engines from scratch. This design philosophy has been also adopted for the recently launched Rolls-Royce new engine, namely the Trent, that is meant to cover a large thrust range by up-rating and de-rating a common core. This approach, also known as derivative approach, has been adopted by other companies involved in the aero-engine industry such as Pratt & Whitney, a United Technologies company, with its PW4000 family and its American rival General Electric Aircraft Engines, a division of General Electric, with the CFM family9 so that it represents a diffused and common design philosophy amongst different companies. The adoption of such design approach in this industry as it has been shown, however, seems that has not implied (so far) as Sanchez and Mahoney (1996) have predicted a neat decoupling between product architecture and modules in terms of design capabilities. By contrast, it has had peculiar implications for firms integration strategy at the knowledge level. This is largely due to the nature of the product in respects of: 1. role of the different component modules in the economics of the entire system and the ensuing impact on system performance; 2. close systemic interdependencies across components and subsystems at the knowledge, design and product level, giving rise to systemic uncertainty; 3. accumulated knowledge of the ‘inner workings’ of the product that may (or may not) allow for design tasks decomposition. The fact that the aero-engine is designed according to a modular concept is also well known throughout the industry. As the Head of Design Technology of one of the largest world engine maker companies says ‘The jet engine has always been modular’ (Interview, 1998). This has been echoed by a Technical Director (of a different system integrator company) ‘Now strangely enough automotive firms come to us to learn how to decompose such a complex product’ (Interview, 1998). However, the effectiveness of the ‘design split’ within the same company and even more across different companies seems to depend on the capability of the 9

The CFM engine family is to be precise designed, developed and manufactured by CFM International a 50-50 joint-venture between General Electric Aircraft Engines and the French system integrator SNECMA. Complex Product Systems Innovation Centre

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system integrator to understand how to decompose the system first and then on the basis of such decomposition to integrate10 it. As put by one of my interviewees, ‘... those joint-ventures set up to design, develop and manufacture aero-engines that do not have right from the beginning a proper and capable system integrator usually end up in long and complex redesign processes since when the time comes to put everything together the system may not work at all’ (Interview, 1997). In a similar vein, but referring to a different industry, namely the aircraft industry, Vincenti (1990) has explained that in the design of aeroplanes, whereas the performance of most structural components and subsystems is fairly well understood and described by equations, these do not yet approximate the overall performance of the aircraft to an acceptable degree of confidence. The integration of the different components in a flyable system gives origin to unforeseable phenomena at the level of the system that can be rarely understood at the component-subsystem level, giving so origin to what Bonaccorsi and Pammolli (1996) have defined systemic uncertainty. Following the discussion in section 2, the point here is that products have inherently different characteristics that in turn entail diverse implications for firms operating in different industries. As Gardiner and Rothwell (1990) suggest ‘the basis of design ‘robustness’ appears to vary across product types. In the case of aircraft (or hovercraft) it depends on the degree of interrelatedness between different critical operating parameters, i.e. the degree to which one performance parameter can be varied without detrimentally degrading other parameters (robust designs are essentially design compromises). In the case of automobiles, robustness probably depends more on the product/market strategy of the firm than it does on technical factors’ (italics added). In other words, some products may lend themselves to modular design approach in a, say, all-round way, whereas others, due to their inherent features, in a different one. And in any case, modularity can be imposed depending on the stage of accumulated knowledge related to the component interfaces11. Summing up, modular design does open up opportunities to firms developing product systems in terms of strategic flexibility à la Sanchez and Mahoney (1996). However, modularity at the knowledge level may have different meanings and implications according to the products’ intrinsic characteristics in terms of systemic interdependencies at the design level and at the product level interactions. As mentioned earlier, there are products that can be easily decomposed (e.g. the personal computer), others less decomposable (e.g. the aeroplane), others that may or may not at will be conceived in terms of modules (e.g. the motorcycle), and all in all the degree of decomposability can indeed change over time as the disk drive industry example shows. The decomposability, however, may not take place at the knowledge level. In other words, although conceiving products in terms of modules entail simplifying the design process and possibly the product 10

Integration is understood in this paper not in terms of mere assembly (for a discussion see Prencipe, 1998). 11 See Cristensen (1995) for a detailed historical account of the shift from an integral to a modular product in the disk drive industry. Complex Product Systems Innovation Centre

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development process organisation, product characteristics may call for integrated firms at least at the knowledge level. This means that the effects of modularity at the knowledge level for firms’ integration strategy may differ across products. Whereas easily decomposable systems call for disintegrated firms at different level, less decomposable systems require firms to be active in several technical fields in order to be capable of designing, developing, and integrating such systems. In other words, ceteris paribus, modular design does not always enable firms to pursue deliberate and complete disintegration strategy, or better to disintegrate at the product level as well as at the knowledge(-technology) level. The reason why this has not taken place in CoPS industries, such as the aeroengine, is due to the fact that the degree of interactions across components, subsystems, and the entire system, though allowing for a modularisation at the product (i.e. physical level), requires firms developing and integrating them to maintain what I have defined in a previous study systemic knowledge. This is understood as knowledge related the entire system but not neatly and merely focused on the product architecture (Prencipe, 1997). To put it in another way, the decoupling between product architecture and modules takes place at the physical level but not at the knowledge level.

5. Concluding remarks and future research In this paper I have put forward the cases of two companies involved in the aeroengine business to illustrate the implications of modular design for firms’ technology base. From the foregoing analysis it seems that modular design has allowed these companies to disintegrate the engine product more easily and decompose it amongst several firms. However, due to the close systemic interdependencies across components, subsystems and the system itself, they keep in-house a wide range of technological activities, suggesting that the decoupling between the architecture and the modules at the knowledge level is not that clearcut, or at least not yet. To put it in another way, the adoption of a modular design approach in this industry has eased system integrator companies’ design burden as they can split the different tasks amongst several firms, and reap economies of scale and scope within an engine family. By contrast, the ability to partition the engine system into modules has called for increased system knowledge, that is to say knowledge related to the understanding of modules and submodules interfaces. Such knowledge is not limited only to those engine parts that have large system effects but also to those that although playing ‘minor’ roles in the entire engine remain heavily affected by the systemic feedback loops of the product. As a consequence this system knowledge allows the system integrators to then reintegrate the systems, being this activity not only a matter of mere physical assembly. Future empirically-based research is needed however to better understand the impact of modular design at the project level to assess whether and how the design process itself has been simplified. Firm’s design processes, therefore, should be carefully mapped out through time in order to assess whether the ‘decoupling’ of Complex Product Systems Innovation Centre

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the product in terms of modules and architecture permits the ‘decoupling’ of its underlying knowledge. Cross-industry studies comparing, say, less complex with more complex products can shed further light on the applicability and ensuing effects of a modular design approach. Similarly, another very interesting and related issue, as suggested by Sanchez and Mahoney (1996), is to study the organisational implications of modular design to see whether ‘organisational decoupling’ within firms (and between firms) can be pursued by companies adopting modular design strategy to ‘decouple’ their design and development processes and deal at the same time with ‘organisational integration’ (Henderson and Clark, 1990).


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6. References Bonaccorsi, A. and Pammolli, F. (1996), ‘The economics of technical development and the nature of design knowledge’, International Journal of Technology Management. Christensen, C. (1995), ‘The drivers of vertical disintegration’, Harvard Business School Working Paper 96-008. Clark, K. and Baldwin, C. (1995), ‘Sun Wars: Competition within a modular cluster, 1985-1990’, Harvard Business School Working Paper 95-084. Clark, K. and Baldwin, C. (1997), ‘Managing in an age of modularity’, Harvard Business Review, Sep-Oct. 1997. Fine, C.H. and Whitney, D.E. (1996) ‘Is the make-buy decision process a core competence?’, MIT Centre for Technology, Policy, and Industrial Development, mimeo. Gardiner, P. and Rothwell, R. (1990), ‘Design management strategies’ in Dodgson, M., (eds.) Technology strategy and the firm: Management and public policy, Longman. Gunston, B. (1995), The development of jet and turbine aero engines, Patrick Stephens Limited. Hicks, D. (1995), ‘Published papers, tacit competencies and corporate management of the public/private character of knowledge’, Industrial and Corporate Change, n° 4. Henderson, R. and Clark, K. (1990), ‘Architectural innovation: The reconfiguration of existing product technologies and the failure of established firms’, Administrative Science Quarterly, 35, pp. 9-30. Hobday, M. (1998), ‘Product complexity, innovation, and industrial organisation’, Research Policy, . Levin, R.C., Klevorick, A.K., Nelson, R.R. and Winter, S.G. (1987), ‘Appropriating the returns from industrial research and development’, Brookings Paper on Economic Activity, no. 3, pp. 783-820. Lowson, M. (1997) Personal interview. Parnas, D.L., (1972), ‘A technique for software module specification with examples’ Communications of the ACM, 15 (5), pp. 330-336. Miller, R., Hobday, M., Leroux-Demers, H., Holleros, X. (1995), ‘Innovation in complex systems industries: The case of flight simulation’, Industrial and Corporate Change, 4(2), pp.363-400. Parnas, D.L., (1972), ‘On the criteria to be used in decomposing systems into modules’, Communications of the ACM, 15 (12), pp. 1053-1058. Patel, P. and Pavitt, K. (1994), ‘Technological competencies in the world’s largest firms: characteristics, constraint and scope for managerial choice’, STEEP Discussion Paper No. 13, SPRU, University of Sussex, Brighton, UK. Prencipe, A. (1997), ‘Technological competencies and product’s evolutionary dynamics: a case study from the aero-engine industry’, Research Policy, Prencipe, A. (1998), ‘The dynamics of technology integration in the aero-engine industry: knowledge boundaries vs. product boundaries’ (SPRU PhD thesis, in preparation). Radner, R. (1992) ‘Hierarchy: The economics of managing’, Journal of Economic Literature, 30, pp. 1382-1415. Complex Product Systems Innovation Centre

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Sanchez, R. and Mahoney, (1996), ‘Modularity, flexibility, and knowledge management in product and organisation design’, Strategic Management Journal, 17, Winter Special Issue, pp. 63-76. Scherer, F.M., (1988), ‘The propensity to patent’, International Journal of Industrial Organization, 1, pp. 107-128. Simon, H. (1996), The Science of Artificial, Cambridge, Massachusetts: The MIT Press. Ulrich, K.T. (1995), ‘The role of product architecture in the manufacturing firm’, Research Policy, 24, pp. 419-440. Ulrich, K.T. and Eppinger, S. (1995), Product Design and Development, New York: McGraw-Hill. Vincenti, W. G. (1990), What Engineers Know and How They Know it, The John Hopkins University Press. Wyatt, S., Bertin, G., and Pavitt, K., (1988) ‘Patents and Multinational Corporations: Results from Questionnaire’, World Patent Information, 7, 3, pp. 196-212.


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