The role of modularity in knowledge protection and diffusion: The case of Nokia and Ericsson

Abstract

When network externalities are important for a product, there is often a move to introduce standards on the basis of product modularity such that product interfaces remain constant over time and across brands. This allows other firms to develop complementary products and services. However, introducing standardization can lead to a weakening of the technology developer?s competitive position. Standardization makes much of the underlying product knowledge accessible, reducing barriers to entry such that other manufacturers are able to quickly develop comparable products. Thus in cases where network externalities are important and standardization needs to occur, there are also needs to protect knowledge that may form the basis for the developer?s competitive position within the industry. To review the differing approaches to managing technical knowledge we deconstruct product architectures into clusters of technical knowledge that we refer to as information structures. We use the notion of knowledge structures to study how different components of a product architecture can be made open in the form of standards, whereas other elements can be heavily protected. To study these issues, we chose the mobile phone industry. Nokia and Ericsson were instrumental in developing the GSM standard and pushing for its institutionalising across Europe. However, both of these firms still remain dominant in the manufacture of mobile phones. Thus we sought to observe how they managed various clusters of technical knowledge such that the standard was open, a range of firms has produced complementary products, and yet Nokia and Ericsson?s competitive position within the industry has not been diminished.