Modularity and Dynamic Capabilities

In this chapter we explain how using modularity to create flexibilities in both product and organization designs (Sanchez, 1995a; Sanchez and Mahoney, 1996) can enhance dynamic capabilities development (Teece et al., 1997). We explain the concept of modularity in products and organizations, and we suggest ways in which modularity provides a framework for strategically managing learning processes that can be effective both in developing capabilities and applying capabilities to external market opportunities and requirements. In this manner, we suggest that modular product and organization designs provide a fundamental framework for improving the adaptive co-ordination of firms in dynamic environments.