Why the Dream of the Lego-Car Never Came True

In the last two decades, the auto industry pursued the "dream" to modularize vehicle design and production, that is to decompose cars in semi-autonomous macro modules (such as cockpit, doors, powertrain, rolling chassis, HVAC and OSS systems, etc.) and then allocate design tasks to specialized large suppliers thus tapping into their technological capabilities and obtaining access to external sources of knowledge. Vehicle development outsourcing from carmakers to suppliers has increased steadily and modularization was expected to ease the integration of external sources of innovation and to improve the performance of new product development activities.

In the paper Modularity, Interfaces Definition and the Integration of External Sources of Innovation in the Automobile Industry, forthcoming in Research Policy (doi: 10.1016/j.respol.2012.09.002) Arnaldo Camuffo (Department of Management and Technology), Anna Cabigiosu and Francesco Zirpoli (Università Ca' Foscari, Venice) investigate why, contrary to expectations, such a dream did not come true and cars remain integral products. The authors address this topic analyzing the genesis, as well as the micro and macro dynamics, of the vehicle cross-module interfaces definition process. Standard and stable interfaces represent one of the constitutive elements of modularity and a potential means for easing design outsourcing in vehicle design. The authors study how assemblers and suppliers define the component-vehicles interfaces in component co-development projects of one of the car's most modular components: the air conditioning system (A/C system). They show that interfaces are neither standard nor stable and that the interfaces definition process is not technologically determined (i.e. is not determined by the level of modularity). Instead, it is driven by carmaker and supplier's capabilities, their level of vertical integration, their strategic focus and knowledge endowment.

The study adopts a quasi-experimental design approach to meaningfully compare two similar component co-development projects, both aimed at developing a car's air-conditioning system, carried out by a Japanese first-tier supplier (Denso Thermal System (DNTS) with two European automakers (named Alpha and Beta to keep confidentiality). The two A/C system's co-development projects were almost identical along relevant technological and economic dimensions thus creating the conditions for a study of cross-OEM (Original Equipment Manufacturer) variations about how interfaces are defined and their role in the new product development activities.

Major findings show that despite the high modularity and similarities in terms of characteristics and performance of the two projects, they were developed by DNTS on the basis of interfaces that were defined by Alpha and Beta in two substantially different ways. The interfaces level of stability was not linked to intrinsic characteristics of the system under development, but derived from deliberate choices of the OEMs (i.e. there is no technological determinism and modularity, per se, does not play a central role). Such choices, in turn, were grounded on the amount of component specific knowledge owned by the OEM and its current involvement in component design (i.e. vertical scope).

The authors show that the ability to design modular A/C systems is contingent on in-depth knowledge of both its architecture and its inner components and thus, at least in the auto industry, component modularity is achieved only if carmakers strategically invest in both architectural and component-specific knowledge to be able to control the product performance. Indeed, while modularity and design outsourcing co-vary and complement each other in modularity literature, this study suggests that they may work as substitutes and are rather difficult to combine. Overall, OEMs and supplier's capabilities, degree of vertical integration, knowledge endowment and strategic focus drive the partitioning of the design and engineering tasks, the interfaces definition process, and the choice of the inter-firm coordination mechanisms.