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Entrepreneurship and the Firm

Austrian Perspectives on Economic Organization

Edited by Nicolai J. Foss and Peter G. Klein

While characteristically ‘Austrian’ themes such as entrepreneurship, economic calculation, tacit knowledge and the temporal structure of capital are clearly relevant to the business firm, Austrian economists have said relatively little about management, organization, and strategy. This innovative book features 12 chapters that all seek to advance the understanding of these issues by drawing on Austrian ideas.
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Chapter 2: Modularity in Technology and Organization

Richard N. Langlois


Richard N. Langlois Modularity is a very general set of principles for managing complexity. By breaking up a complex system into discrete pieces - which can then communicate with one another only through standardised interfaces within a standardised architecture - one can eliminate what would otherwise be an unmanageable spaghetti tangle of systemic interconnections. Such ideas are not new in the literature of technological design (Simon, 1962, Alexander, 1964), even if, as some claim (Baldwin and Clark, 1997), modularity is becoming more important today because of the increased complexity of modern technology. What is new is the application of the idea of modularity not only to technological design but also to organizational design. Sanchez and Mahoney (1996) go so far as to assert that modularity in the design of products leads to - or at least ought to lead to - modularity in the design of the organizations that produce such products. From another angle, however, the principles of modularity have an even longer pedigree in the social sciences. We can think of Adam Smith’s ‘obvious and simple system of natural liberty’ as among the earliest proposals for how a complex modern society might be made more productive through a modular design of social and economic institutions. In separating mine from thine, rights of private property modularize social interaction, which is then mediated through the interface of voluntary exchange, all under the governance of the systems architecture of common law. I will try to suggest that, despite its heavy emphasis...

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