Modularity Theory

Modularity Theory (also known as the Theory of Interdependence and Modularity) is a framework for explaining how different parts of a product’s architecture relate to one another and consequently affect metrics of production and adoption.

A product is modular when there are no unpredictable elements in the design of its parts. Modularity standardizes the way by which components fit together — physically, mechanically, chemically and so on. The parts fit and work together in well-understood, crisply codified ways.

A product is interdependent when the way one part is made and delivered depends on the way other parts are made and delivered. Interdependency between parts requires the same organization to develop both components if it hopes to develop either component.


Standardized components
Optimized for price, speed
Often outsourced
Rapid adoption
Expands industries


Unique components
Optimized for function, reliability
Slow adoption
Creates industries

Once a product or service reliably delivers for customers, individual parts and their interactions become standardized. This creates a state of modularity where many suppliers can compete to deliver one or more modules more cheaply and quickly. Interdependence and modularity are not binary notions; they are part of a continuum. It’s worth reiterating that the implementation of either modularity or interdependence does not determine whether a product is adopted, but predicts how quickly adoption will occur.

Once a product or service reliably delivers for customers, individual parts and their interactions become standardized.

Modularity in Action

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Consider an electric light. A light bulb and a lamp have an interface between the light bulb stem and the lamp socket. This is a modular interface. Engineers have freedom to improve the design inside the light bulb, as long as they build the stem so that it can fit the established socket specifications. Notice how new LED bulbs fit into old lamps. The same company does not need to make the light bulb, the lamp, the wall sockets, and the electricity distribution systems. Because standardized interfaces exist, different companies can provide products for each piece of the system.

Why it Matters

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With an understanding of the inherent characteristics of interdependent and modular systems, innovators are better equipped to design business models that suit their unique circumstances. For instance, a K-12 administrator serving underprivileged students may opt for an interdependent school system with wraparound services like healthcare, nutrition, and family support--in addition to academics--recognizing that owning each component is crucial to student success. Conversely, healthcare systems struggling to keep services affordable and efficient may find that unbundling offerings into modular components (like local retail clinics and specialty surgical centers) would better suit patient needs and reduce the high overhead costs often associated with general hospitals.


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Disruptive Innovation

Disruptive Innovation describes a process by which a product or service initially takes root in simple applications at the bottom of a market.