Product and Process Modularity’s Effects on Manufacturing Agility and Firm Growth Performance Mark Jacobs, Cornelia Droge, Shawnee K. Vickery, and Roger Calantone Modularity in product design has been hailed as a way to speed new product development (NPD), to reduce NPD cost, and to enhance customization possibilities for consumers. Modularity in process design may speed new product manufacturing setup times, reduce costs, and enhance the profitability of the lower volumes that customization often entails. However, empirical evidence is scarce that either product or process modularity—individually, jointly, or sequentially—actually produce these or other proposed benefits (e.g., performance growth). This study builds on general modular systems theory (GMST) by examining the theoretical relationship between product and process modularity and the effects of each on firm growth performance. Using structural equation modeling, partial versus complete mediation by manufacturing agility is also scrutinized. In one pair of models, product modularity and process modularity are separate direct antecedents to manufacturing agility, which is modeled to affect firm growth performance; in a second pair of models, product and process modularity are related antecedents to manufacturing agility, with product modularity preceding process modularity. Results from the best-fitting model show that product modularity directly and positively affects process modularity, manufacturing agility, and firm growth performance. Process modularity was unrelated to manufacturing agility, and neither process modularity nor manufacturing agility predicted growth performance. Consistent with GMST, the study provides empirical evidence of the power of one element of a modular system to orchestrate a fit between a firm’s product and manufacturing strategies and to directly drive system performance. Thus, modularity in product design is revealed as the key to understanding GMST effects concerning how changes in one system generate changes in other systems. Introduction T his research seeks to build on general modular systems theory (GMST) (Schilling, 2000) by ex- amining empirically the effects of both product and process modularity on intermediate and final per- formance outcomes. Specifically, relationships among product modularity, process modularity, manufactur- ing agility, and firm growth are examined. Extant literature suggests performance improve- ments result as firms increase modularity, possibly by mitigating the impact of variety on the production process (Beekun and Glick, 2001; Salvador, Forza, and Rungtusanatham, 2002). However, the extant theory does not address whether modularity in prod- ucts versus processes has the greater impact on firm performance or whether modularity in products and processes are related to one another. Some researchers present a compelling case for the importance of mod- ular product architectures (Baldwin and Clark, 1999; Galvin and Morkel, 2001; Kusiak and Huang, 1996; Teece, 1986). For example, Teece describes how the modularization of computer architecture enabled explosive growth in the number and size of firms in the industry. However, Schonberger (1982), Womack (1990), and others (Cleveland, Schroeder, and Ander- son, 1989; Schmenner and Vastag, 2006; Spear and Bowen, 1999; Vickery, Droge, and Markland, 1993) have presented equally compelling support for the importance of manufacturing process design. In particular, lean and modular process designs seem to engender agility (see, e.g., Narasimhan, Swink, and Kim, 2006). To date there has not been extensive empirical research published exploring the relation- ship between product and process modularity (Pahl, Beitz, and Wallace, 1984; Ulrich, 1995). Typical papers describe modularity or explore intermediate performance outcomes (Feitzinger and Lee, 1997; Lee and Tang, 1997; Ulrich; Ulrich and Tung, 1991). Manufacturing strategy plays a key role in enhanc- ing firm performance (Hayes and Wheelwright, 1984; Skinner, 1974; Swamidass and Newell, 1987; Vickery et al., 1993) and mediates the relationship between competitive strategy and performance (Ward and Duray, 2000). This suggests that manufacturing Address correspondence to: Mark Jacobs, Department of Opera- tions Management, University of Dayton, 300 College Park, Dayton, OH 45469. Tel.: (937) 229-2204. E-mail: majacobs@udayton.edu. J PROD INNOV MANAG 2011;28:123–137 r 2010 Product Development & Management Association