Governance implications of modularity in sourcing relationships

Nukhet Harmancioglu, Stefan Wuyts, Peren Ozturan

Journal of the Academy of Marketing Science · 2021 · Volume 49 · Issue 3

Abstract

Modularization, an important trend in innovation markets, allows for recombination of product components into multiple end-product configurations. Although modularization has consequences for how firms manage their relationships with upstream component suppliers, the governance implications of modularity for innovation sourcing relationships have not been adequately examined in the prior literature. We intend to bridge this gap. We argue that (i) buyer firms employ governance mechanisms (monitoring and socialization) to cope with the strategic hazards of innovation sourcing relationships (knowledge specificity, knowledge asymmetry, and knowledge spillover) and (ii) the consequences of deploying these mechanisms in response to the strategic hazards on relationship performance are contingent upon the degree of modularity of the system in which they are deployed. We provide empirical support for the developed moderated mediation model through an analysis of 194 innovation projects. The developed theory and findings contribute to the governance and modularity literatures. In addition, our findings may help change managers’ behaviors: we observe that managers donotconsider modularity when selecting governance mechanisms, while our model findings suggest they should.

Keywords

Modularity, Organizational control, Innovation sourcing, Moderated mediation

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