The modular squad

Entrepreneur, March, 1998 by Mark Henricks

When the founders of Palm Computing set out to create what would become history's hottest computer gadget, they didn't go it alone. Instead, they wrote detailed specifications for a hand-held electronic organizer called the Pilot - then they invited other companies to create parts of the product that eventually sold more than 1 million units in its first 18 months.

One company that contributed to the project was The Windward Group, a 75-person software developer in Los Gatos, California, that created desktop applications with a link to the Pilot. "We decomposed the system into chunks which we developed on their behalf," president Doug Engfer explains.

The system benefits both Palm and those who build the pieces and, in many cases, sell them independently, says Donna Dubinsky, president of Palm Computing, now a subsidiary of networking giant 3Com Corp. "The metaphor that springs to mind is the Russian Matreshka dolls, where each layer takes from the layer above and gives to it as well," she says.

The strategy is called modularity, and it's the up-and-coming thing in business, according to Carliss Baldwin, a Harvard Business School professor and co-author of the forthcoming book Design Rules: The Power of Modularity (MIT Press). The message of modularity, says Baldwin, is that "you don't have to do everything to be important."

BREAKING IT DOWN

Modularity is defined as building a complex product, service or process from many smaller pieces that can be created independently and then combined to make a whole. It's what allows computer hard-drive makers to build drives they know will work in any PC. At the same time, it enables PC makers to build their boxes, confident that hard-drive companies will supply the needed accessories.

Low-tech industries can also be modular; bedsheet makers cut cloth they're confident will fit standard mattresses. Even services can be modular, such as when an investment advisor farms out the mutual fund management portion of his or her services to a fund company.

Modern modularity started with innovations in project management in the 1960s, enabling IBM to design many versions of its System 360 mainframe computer, all using the same basic software and add-ons, such as printers. Previously, all computers needed their own special programs and peripherals, says Baldwin. The modularity of IBM's design allowed it to virtually take over the mainframe computer industry and made the 360 one of the most successful products ever, she says.

Many products are manufactured in modular fashion, of course. Car makers give parts specifications to suppliers, who come back with modules that can be assembled into an automobile. Modern modularity goes beyond manufacturing, however, and encompasses design as well. That means that parts suppliers not only produce pieces according to the manufacturers' specifications, but they also design new parts that will fit into and add to the overall design.

STRENGTH IN NUMBERS

Modularity helps firms deal more easily with rapid change, reduce the cost of innovation and cut the time it takes to improve designs, says Baldwin. Its strength lies in numbers.

For instance, there are more than 3,500 registered developers of Palm Pilot products and services. "It ranges from things like a chart of chords for the guitar to the Singapore subway map to real estate and medical market add-ons," Dubinsky says.

Many of these products would never have been developed if left to Palm Pilot's in-house team. "We couldn't possibly recreate the investment people are making in our product," says Dubinsky. "We couldn't create an organization fast enough, and we couldn't be creative enough."

To create a modular product, you must first thoroughly define it by developing a detailed architecture or interface specification, says Baldwin. One example is the specification Microsoft lays down for creating Windows software. Boundaries must be specific so you know what you are doing and what your module maker's terrain is, adds Baldwin.

Modular companies themselves, however, must be agile and adaptable, says Baldwin. That's because modularity calls for all kinds of joint ventures: outsourcing, flexible hiring, and other complex relationships between the architecture owners and the module creators.

And business owners adopting a modular strategy have to be ready to relinquish control when it comes to exactly what their module-makers create, adds Dubinsky. "I try to take the philosophy of letting a thousand flowers blossom," she explains, "because we don't know what the next big thing is going to be."

Modularity works in two directions, of course. Small companies can prosper greatly by creating a complex new architecture as Palm did. "You can wind up like Microsoft, sitting on top," says Baldwin.

Companies without such a big vision can still profit by becoming module makers. That's what hard-drive makers have done since the 1960s, and what Windward and many other firms are doing with the Palm Pilot.

If you want to be a module maker, your strategy should be to look at a large system and try to find a piece you can do better, Baldwin says. You have to be fast (to beat the competition) and precise (to ensure a good fit with the system) if you want to succeed.