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creating value with modular thinking

Creating Value

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by Kenneth Rudich 

What do a personal computer, a supermarket, and clothing apparel all have in common?   

Answer: the concept of modular design.  

In simple terms, modular design subdivides a larger system into smaller independent parts or modules.  The modules then become discrete parts that get plugged in and out of a larger system or platform.  

What’s important about this approach is that you can integrate the modules according to your particular design preferences or needs.  For example, you can swap out an old computer hard drive with a new one without having to buy a new computer.  Supermarkets can take one product off the shelf and replace it with another more profitable one without having to change the whole store.  And you can mix and match clothing apparel and accessories to change the look of an outfit.   

This kind of thinking – modular thinking — is the basis for mass customization.  

modular thinking versus industrial age thinking  

Modular thinking differs from the thinking that dominated the industrial age, with its mass production of standardized goods based on a single product design.  Back then, efficiency stemmed from reducing the variety of parts that needed to be produced and assembled.  

The downside of this mindset is that it translated into few product choices and a “what you see is what you get” proposition for customers.  Hence, Henry Ford’s rumored quip about the Model T, when he reportedly said, “You can have it in any color as long as it’s black.”  It is noteworthy to mention that this mindset endured right up until to the early 1980’s. 

the ascent of modular thinking 

Near the end of the industrial age, people began to look hard at doing the exact reverse by asking if a product might be broken down into component parts that could be mixed and matched together, and yet still rein in the costs of producing it?  

The reason for entertaining this question rested with the recognition that, if it could be done, it would create new value by offering the benefit of making the product customizable.  Individual customers could fashion it into whatever they desired rather than have to take – or leave – what the manufacturer decided to offer.   

If that happened, then the locus of control would shift over to the customer, and the providers of products and services would have to become “customer-centric” instead of “product-centric.”  That one change in mindset alone would invariably work to benefit the customer.   

the answer  

The answer to this question, it turned out, lay not in creating a product per se, but in creating a system or architectural design that allowed the mixing and matching of components into the specific configurations preferred by the individual customers.  This realization marked the rise of modular design.     

Modular design permits customization combined with cost containment — because you can change or modify a module without having to modify the larger system or platform.  For example, you can install and uninstall all sorts of software on one operating system such as a Mac or Windows platform.  By the time everyone has finished doing this, it’s conceivable no two desktops will look exactly alike.   

Professor of Strategy and Technology Management Ron Sanchez says, “Businesses need to create product and process architectures that are capable of providing the flexibility to customize products for individuals and to upgrade them when better components come along.”  I would add that the same holds true for services as well.  

specialization and systemization 

Modular thinking strategically combines specialization with systemization.  At the module level, for instance, there will often likely be a reliance on specialization.  For example, the Intel processor is a specialized part that can be plugged in to many different brands of computers.  Similarly, a small business may need expert guidance from an accountant or lawyer on a contingency basis rather than as part of the regular staff.  

At the system level, strategy will dictate how the specialized modules are interfaced or plugged together to create the larger whole.  Thereafter, the system will change only to the extent that changes in the individual modules or pieces alter it.  This kind of flexibility, when aligned with low costs, broadens the horizon for creating value.   

the value chain for marketing   

The value chain for marketing encourages modular thinking for managing value creation across time.  Some components of it might be tweaked to increase the benefits offered while others might be used to lower costs.  For example, some marketing activities might be outsourced rather than handled in-house, if it is more strategically sound to do so.  

The various combinations of value creating opportunities that are available as one moves across the chain, via the mixing and matching of the pieces, can produce different scenarios of value creation.  I’ll explore the different scenarios for value creation in the next post. 

related posts: 

creating value…or climbing up a water fall 

a value chain approach – part 2

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