Four essays on innovation and performance in complex systems

Recent years have witnessed burgeoning social science research interest in the design and management of complex systems. Much of the organizations literature has tended to ignore interdependence between elements of a system, assuming instead that people, products, and organizations are reducible or decomposable into their lower order elements. This dissertation is an attempt to introduce the complex systems analytical apparatus into mainstream organizational research. In four interrelated essays, the dissertation explores how interdependence—a key feature of complex systems—affects organizational strategy and performance. The first essay investigates the relationship between degree of modularity and effectiveness of innovation in complex systems using a formal computational model. The analyses point to the trade-off between the virtues of parallelism that modularity offers and the destabilizing effects of overly refined modularization. The second essay, extending the first, examines how module architectures evolve and how this interacts with the innovation process. The results indicate that boundedly rational designers, with fairly simple rules guiding their behavior, are able to converge and stabilize on the true structure as long as systems are hierarchical. An interesting and important finding is that discovering the true architecture is not a necessary pre-condition for realizing the benefits of modularity. The third essay examines how interdependence between component technologies in complex technological systems affects the allocation of inventive effort. The empirical analysis finds a 6–9 percent shift in the allocation of inventive effort toward component(s) that pose constraint(s) to system performance. This shift results in a relatively large increase in resource allocation for more peripheral components, while representing a relatively modest change for components that already have a high base rate of R&D activity. Finally, the last essay examines the performance implications of R&D activity in complex technological systems. The study estimates firm productivity growth as a function of the depth and breadth of R&D activity. After controlling for input-side differences, the study finds that firms adopting a balanced strategy of moderate levels of depth and breadth in their R&D activity tend to outperform firms at either extremes, i.e., excessive depth or breadth.