A product architecture determines its constituent components and subsystems and defines how they must interact – fit and work together – in order to achieve targeted functionality. The place where any two components fit together is called an interface. Interfaces exist within a product, as well as between stages in the value chain.

An architecture is interdependent at an interface if one part cannot be created independently of the other part – if the way one is designed and made depends on the way the other is being designed and made. When there is an interface across which there are unpredictable interdependencies, then the same organization must simultaneously develop both of the components if it hopes to develop either component.

In contrast, a modular interface is a clean one in which there are no unpredictable interdependencies across components or stages of the value chain. Modular architectures optimize flexibility, but because they require tight specification, the give engineers fewer degrees of freedom in design.

When the functionality and reliability of a product are not good enough to meet customers’ needs, then the companies that will enjoy significant competitive advantage are those whose product architectures are proprietary and that are integrated across the performance limiting interfaces in the value chain.

When functionality and reliability become more than adequate, so that speed and responsiveness are the dimensions of competition that are not now good enough, then the opposite is true. A population of nonintegrated specialized companies whose rules of interaction are defined by modular architectures and industry standards holds the upper hand.

At the beginning of a wave of new-market disruption, the companies that initially will be the most successful will be integrated firms whose architectures are proprietary because the product isn’t yet good enough. After a few years of success in performance improvement, those disruptive pioneers themselves become susceptible to hybrid disruption by a faster and more flexible population of nonintegrated companies whose focus gives them lower overhead costs.

Source: Innovators Solution