Ever since the industrial revolution, customers have required increasingly customized products. The speed of innovation is increasing, driven by digitalization and the fight for sustainability. Commoditization and globalization are pushing down prices faster than ever before. How can companies navigate to make agility and customization a competitive advantage? How can they get economy of scale and reduce the cost of complexity without impeding innovation? How can they provide customers both the benefits of customization and industrialization?
Modularization is a tool to subdivide the product in a smart way - to get economy of scale, but also be able to create different configurations to increase value for customers. The Modularity of a product is a measurement of how configurable it is, meaning how many combinations you can build with a given number of building blocks.
Working with a Modular System is a mindset. It can be leveraged across all industries, pushing the boundaries of what can be achieved with product platforms and shared components. Masters of the art of modularization acknowledge that it is much more than just a modular product. It is encompassing the whole business: Products, Operating Models, and Infrastructure.
Modular Systems are not limited to product-focused industries such as Cars, Home Appliances, or Telecom. They are also imperative for transforming project-oriented businesses from Engineering-to-Order to Configure-to-Order. It is also a springboard for service-producing companies to control the offering and transfer knowledge and value from people to the company. Modularization is also a fundamental tool within software development to increase code reuse, enable parallel development, and reduce testing effort.
On this page, we will share our best thoughts on what a Modular System is, how to use modularization to enable your business strategy, how to create such a system for your products, how to improve it, how to measure modularity. and what core capabilities are needed for success.
What is Modularization?
Modularization is the activity of dividing a product or system into modules that are interchangeable. The target of modularization is to create a system that is flexible to create different requested configurations, while reducing the number of unique building blocks (module variants) needed to do so. By re-using module variants across multiple configurations, volumes are consolidated on module level, and economy of scale is reached without standardizing the product.
This way a company can increase the perceived customer value (configuring the right product), increase the speed of development (innovating in one module in a system rather than a whole product), while reducing the internal complexity (limiting the number of variants to design, manufacture, and maintain).
Modularization is combining the benefits of standardization (low cost of complexity) with customization (be able to create the right product for each customer)
Modularization captures the benefits of Standardization and Customization
While the most obvious examples of modularization might be physical products, the technique is just as useful within software and service products.
The main enabler of modularization is standardized interfaces. The interface is what enables one variant of a module to be interchanged with another to adapt or develop the performance level or function of the product.
What is a Modular System?
A Modular System is a system of modules, interfaces, and configuration rules that enables the configuration of products. Success is built upon Flexibility, Agility, and Efficiency. A great Modular System will enable efficiency, of course, but it will also be flexible for a large scope of products and agile for change so that the architecture can live for a long time. Read this blog to get further insight into what defines the best modular systems.
Efficiency for a Modular System means enabling economy of scale and stability. By re-using modules across different products, volumes are consolidated. By isolating modules from change, supply chains can take benefit from long-term plans and commitments. For example, a battery system may include a cooling fan that can be common across all product variants. By experience, this is the first trait of modularization that industry executives come to think of.
Flexibility for a Modular Systemmeans enabling mass customization towards specific customer needs. As an example, a battery system may be configured to provide different energy storage capacities. For SKU-driven businesses, Modular Systems enable faster SKU creation with less effort. For customized products, modularization helps highly efficient configuration tools to make better quotes faster. In many cases, the customer can configure the product herself in an online CPQ (Configure-Price-Quote) system.
Agility for a Modular System means allowing for swift and controlled change for new requirements and/or technologies. For example, the charge control electronics may be upgraded to allow for optimized charging considering speed and green energy availability. By preparing for a change in geometry and interface specifications, change can be isolated to specific modules, enabling the surroundings to remain untouched.
Companies that succeed in creating Modular Systems that tick all three boxes outperform the competition regarding customer value and cost. It affects the whole business: Sales, R&D, Production, Sourcing, After Market, and everywhere else where the product complexity matters.
What is Modularity?
Modularity is a measurement of how well a system performs given the targets of modularization. Those targets can generally be defined as efficiency, flexibility, and agility. Thus, there is no single truth in how to measure modularity, but some measurements will be more important than others given the targets of using modularization in the business.
To measure efficiency we can create a measurement of how many different building blocks are needed in the system. The fewer, the better. A typical such measurement is part number count, or PNC. By controlling the number of part numbers, managers can ensure that complexity is not added over time unintentionally.
To measure flexibility we can use a measurement of how many products we can configure, given a set of module variants. This measure is often called configurability and defines as the number of possible products divided by the number of components (part number count) needed.
To measure agility we can measure how many new components we must add to add a new product to the system. This is typically measured over a period to get an average reading, for example a year. The definition of the metric is simply the number of introduced components divided by the number of enabled product variants.
Chart illustrating how modularity is creating flexibility while reducing complexity
Leif Östling, former CEO of Scania, has said:
“Control and limitation of part numbers is one of the most important factors to optimize profitability over time.”
The History of Modularization and Modular Systems
While proof of Modularization can be traced as far back as the Terracotta Army (200 BCE), modern industrial use of modularization was pioneered by leaders in different industries such as Scania, Toyota, Nippondenso, Dell, and Sony. These companies managed to take clear market leadership using modularization, governing, and improving their Modular Systems over time.
In Germany, modular systems are often called Baukasten, a term literally translated to construction set. Volkswagen is, for example, calling their modular systems Baukasten, e.g., Volkswagen MQB, which stands for Modularer QuerBaukasten, roughly translated to Transversal Engine Modular System. Baukasten was frequently used as a term already in the 1930s for do-it-yourself kits, such as model railways, modular radios, and electronics toolkits for kids. These toys have much in common with industrial modular product platforms: They have the same target to create flexibility and the same means - standardizing interfaces.
Sony utilized modularization in a structured way for both the Handycam and Walkman product lines to continuously stay ahead of competition throughout the 1980s. As soon as competitors caught up, Sony could immediately launch the next version and again be the product leader.
Scania, on the other hand, understood that modularity was the way to enable mass customization. By creating a modular system for the truck on different levels, an almost infinite number of variants could be configured – but still assembled on the same assembly lines without costly changeovers. For decades Scania’s unique focus on modularity enabled them to outperform the competition regarding profitability by far, even though the volumes were lower than some competitors’ volumes. By embracing variance and customization and optimizing for it, Scania successfully reached an excellent economy of scale.
In today’s modern economy, successful companies are champions of modularity, both regarding hardware and software, products, and services. With the birth of Web 2.0, modularity reaches across company barriers; micro-services, web apps, and open APIs enable a whole new set of customization and agility possibilities. And as more and more functionality transitions from hardware to software, traditional hardware companies can also benefit from adopting new ways of thinking and working.
Software Modularization: Improve Quality, Time-To-Market and Enable Scaling
Many companies suffer from complex software development:
- It is hard to scale the development capacity.
- Software is driving quality problems even though the testing efforts are very high.
- It is hard to plan and budget software development since changes lead to unforeseen ripple effects.
Even companies that traditionally have been focused on mechanics are becoming software companies whether they like it or not. CTO’s of “hardware companies” realize that they have more software engineers than hardware engineers. Three typical root causes for software architecture problems are “Developed by me” software, highly coupled software structures, and multiple overlapping software platforms.
Making software modules independent, reusable, and interchangeable, software development can be much more efficient and truly agile. Independent modules make development teams autonomous for improved efficiency and time to market. Read more about Strategic Software Modularization and download our template for documentation of a strategic software module.
Terms to Know Regarding Modularization and Modular Systems
A Module is a functional building block with specified interfaces driven by company-specific strategies
A modular system is a collection of building blocks that can be configured in different ways, adapting for different customer needs. Modular Systems can be hierarchical because modular sub-systems can be shared across more than one modular product architecture. Modular Systems can have one or more architectures which are the structures that describe how products are built with the modules.
Modular Product Architecture
A Modular Product Architecture is a geometrical and logical structure for building a type of product based on a Modular System. An example company uses one Modular System for both Washers and Dryers. However, the Washers and Dryers have different Modular Product Architectures.
Modularization is the activity of subdividing a system of products into modules increasing its level of modularity. Modularization can act on any combination of hardware, electronics, software, and services.
A Module Variant is the realization of a Module, fulfilling its interfaces and strategic intention. For hardware and electronics, it is a physical part. For software, it is an encapsulated piece of code. Software modules typically have only one realization that is flexible for all use cases. For hardware and electronics, each module will have one or more variants.
A module interface defines how a module interacts with its surroundings. It can be other modules, but also the external world. An interface can be physical, attaching one module to another. It can specify how information, media, or power is transferred between two modules. It can also be geometrical, defining the space reserved for the module.
A configuration is a specific combination of module variants according to a modular product architecture that fulfills a set of configuration rules.
Configuration rules are governing how a product is allowed to be combined from module variants. The modular product architecture describes structure: How the product is built, the Configuration rules describe logics for what modular variants can be combined, and define how customer needs are translated to a suitable configuration. Configuration rules can also control business logic: Packaging and pricing of products and features.
A Product Configurator is a software solution that executes configuration rules. It can be customer-facing in the form of a sales configurator/CPQ solution. But a product configurator can also be used internally to create bills of material for production or engineering or automatically generate drawings for customizable products.
Cost of Complexity
Cost of complexity is often used to describe the expenses caused by introducing new products and managing the variety of products produced. Many different products would cause a high cost of complexity, fewer and more similar products a low cost of complexity. In essence, it is a way to understand the economy of scale and how products affect it. Modularization can be used to improve the economy of scale while keeping configurability in the product. Scale is reached on the module level rather than on the product level - do more with less.
A product platform is a collection of similar products that are grouped to enable cross-product sharing of certain components. Product platforms often can become rigid and inflexible to adapt to different customer requirements to enforce more re-use of components across products. Modularization can improve and a Modular Platform can be used as a synonym to a Modular System. Volkswagen is a great example of transitioning from products to platforms to modular systems.
Three Great Examples of Modularization and Modular Products
Example 1: Husqvarna Electric Trimmers
Husqvarna are real performers. Not only in the forest but also in the field of modularizaton. One example is the modular system for electric trimmers. Multiple brands and an evolving array of SKUs share the same architecture, supporting the transformation from corded trimmers to battery powered.
This illustration shows how a modular system can be flexible enough to differentiate brand characteristics without losing scale benefits in functional parts. Components such as motors, batteries, speed control, and cabling can have substantial scale advantages.
And when the commonality can even be made on the sub-assembly level, it opens up possibilities for sourcing larger, pre-tested assemblies.
Other great examples from Husqvarna can be seen in robotic mowers where multiple brands share architectures, while configuration rules and styling modules separate brands and price points.
Husqvarna is also pioneering in using IoT and cloud solutions to push the business model from selling hardware and consumables to selling gardening tools as a service with their Tools for You concept. IoT is also used for professional fleet management.
Example 2: Wärtsilä 4-Stroke Engines
Wärtsilä makes enormous engines, and they have a vast portfolio of them. They produce from what are relatively small engines (around 200 mm cylinder bore) used in for example auxiliary or diesel-electric power generators or on ships to huge powerhouses (500 mm+ cylinder bore) used in power plants and direct drive on ships.
Requirements are high regarding flexibility – machine room layouts, fuel types, power requirements, and operational patterns, just to name a few driving forces. At the same time, technology is pushed, both by competitors but even more so by ever-increasing sustainability requirements both from nations and from the United Nations. Wärtsilä’s modular 4-stroke engine system is prepared to take on the challenge. Some great examples of modularization: By making the engine block flexible in the positioning of the main power take out shaft and the turbo charger assembly, machine room flexibility is reached without duplicating complexity. By creating standardized interfaces between fuel injection systems and cylinder heads, fuel types can be configured without affecting the engine’s fundamental functional parts.
What’s more? Wärtsilä 31 is the most fuel-efficient 4-stroke engine available on the market. Great for the operator, great for the planet. Read our full case story of the The World's Most Efficient Engine.
Example 3: Spotify Web API
By publishing a public API that any developer can use, Spotify is pushing the barrier and limit of their product.
Even greater products are created by infusing Spotify modules, such as Albums, Libraries, and Playlists. This open-access means that Spotify can rapidly become an integrated part of Smartwatches, Smart speakers, Car entertainment systems, TVs – and so on. These developments would never have been possible at this rate without cooperation. The key here is standardized interfaces.
By publishing well-specified and stable interfaces, the development can be made concurrently on both sides of the interfaces, completely without communication. This concurrent development is the same effect that modularization brings within a company. However, the challenge of specifying the interfaces may be even more critical. If care is not taken, businesses may end up maintaining many different generations of their APIs.
What’s great about the Spotify example is that it removes the organizational borderline for genuinely global cooperation. Modularization does not have to be an internal strategy only.
Four Fundamentals for Modularization Success
A chain is no stronger than its weakest link. To reach sustainable success within Modular Systems, you must ensure strong competence in four areas.
Modular System Strategy
Understanding how your Modular platforms are supporting the business strategy is fundamental for success. Without alignment on present challenges, future visions, and what path you are on, you will only reach a fraction of your true potential. Alignment must start from the top and ripple down in the company.
Alignment must be secured top-down for how to:
- Connect Business Strategy to Product Architecture Strategy
- Organize and focus Innovation
- Understand the Business potential of modularization
Product architecture strategies may be very different across companies and business areas. One example is the construction industry’s trend to use modular building systems to move from project-based construction to configuration-based construction. The target is two-fold: Improve customer value and increase efficiency. Each business needs to correctly understand where they are and how far they want to reach to steer efficiently. A tool to analyze this is the Product Architecture Maturity Model. Please read the blog post about it, and do a quick online self-evaluation.
Another example is the fight for sustainability. How can Modular Design help companies embrace the circular economy? Modular Management partner Colin de Kwant is researching the topic in cooperation with the Royal Institute of Technology.
Modularization: Creating a Modular System
Creating a Modular System requires understanding what requirements the products must fill, how these requirements might change over time, and what performance levels must be reached to satisfy the customers. Market models should be created to ensure that the right focus and prioritization are set. Tools that can help in the process are, for example, needs-based segmentation. Scott Jiran has written a great blog post on Customer Canvas as a tool to analyze customer benefits of different segments.
The best Modular Systems have the right flexibility and agility – to create that requires deep knowledge about how the product and the technology within must be adapted and developed to produce the needed functionality and performance.
But understanding the technology is not enough - understanding how business strategies across all functions should be enabled by the products is also necessary. One example is production strategies of implementing lean. How should we implement lean and modularity to reach winning synergies?
Understanding the needs of the market, technology, and business is a great start for modularization with the right flexibility and agility. But to ensure that re-use and long-term governance can be achieved, the modules and interfaces must also be designed and documented to enable the architecture intention to be kept.
Improving a Modular System
All companies that have products in production have a product architecture, modular or not. This means that all companies can improve their existing architecture.
Incremental improvements, continuous improvement, continual improvement, Kaizen – we have many names for the things we love. Great results can typically be achieved by improving over time. This is also one of the key properties of a great modular system – it lasts for a long time, and therefore can be improved over a long time. Many topics are of interest in this area of improving the product architecture, some examples:
- How to analyze product portfolios for pruning. Prioritize R&D and align phase-in/phase-out plans across the company. One example: Cutting the tail of unprofitable products, taking cost of complexity into account.
- Identifying and prioritizing candidates for redesign, optimization, and value engineering. Set targets, act, follow-up.
- Identifying and prioritizing supply chain actions to reach Procurement Excellence. Consolidate volumes, align module and supply chain strategies. The Covid-19 pandemic has also increased the spotlight on robust supply chains even more. How can modularization enable geo-flexibility and dual sourcing?
Core Capabilities Needed to Succeed with Modularization
The fourth and last fundament is the core capabilities of the company. No matter how good your product is, you will fail if you don’t have the capabilities in place to utilize and maintain it:
- Processes, roles, decision models to achieve efficient modular system governance, design, sales, sourcing, and production.
- Improve efficiency in Sales to Delivery & Develop and Maintain processes with digital solutions for sales, product management, R&D, and supply. Companies today are already digital, but how must the systems be adapted to go from products to modular architectures? One example of utilizing modular platforms in the sales system is implementing guided selling tools or configurators.
- How to understand the cost of complexity and balance re-use to direct cost in architecture and design decision
Lars Gullander has written a great blog post titled How to Manage Change in your Modular Product Architecture? In it, you will also find examples of decision models for governance.
Six Tips and Reminders for Modularization and Modular Systems
Tip 1: Always Start with the Customer
The most crucial input when designing any product is to understand how to create value for the customer. When designing a Modular System, this is even more important since you are trying to make a flexible product to satisfy all your targeted customers; and you want the product to last over time. This means that you must understand the whole range of requirements and how they may change over time. There are great tools available, such as needs-based market models and innovation scoping.
Tip 2: A Cross-Functional Effort to Design
A modular system promises benefits across basically all company functions: Sales, Marketing, Product Management, R&D, Procurement, Logistics, Production, After Market, etc. But to ensure maximum benefits, it is fundamental to let the functional expertise influence the modular system design. This enables maximum benefits – and understanding of other functions’ needs and strategies – a prerequisite for long-lasting platforms. As soon as one function starts to change the system without involving the others, there is a high risk of deterioration.
Tip 3: Set a Great Example of Modularization
Rome wasn’t built in a day, they say. Companies with large and complex portfolios in production should not venture to change all over-night. Successful companies have proved that winning the complexity battle is a marathon rather than a sprint. Start small, spread the great example, and change over time. The most important thing is to go in the right direction. Great results will accelerate the speed as you go.
Tip 4: Know the Value of Modularization
Creating Modular Systems takes commitment. It may delay the first products’ launch since you need to take a more significant scope into account before executing the detailed design. This means that decisions must be made that may go against your traditional decision mechanism: Rather than focusing on direct costs only, you may want to balance the direct costs to the cost of complexity.
To make such decisions, prioritize the best resources to design your modular platform, and remain firmly committed over time, it is crucial to understand the value of modularization clearly. How will modularization affect your income statement and balance sheet? How will you gain more profits? By agreeing on a financial target, the management team can stay committed over time.
Tip 5: Get Ready to Govern the Modular System
The value of a shared modular system doesn’t show as money on the bank from day one. It is a vehicle for long-term success. This means that to be successful, we must guard the system over time. Make sure to already from the start adapt your governance models, decision forums, and product owners to act on modules and architecture rather than products. When should you accept change? When should you refuse? Who takes the decision? On what grounds?
Ensuring that you have a clear alignment on these tough questions from the beginning creates the best possible foundation for your investment to be profitable over time.
Tip 6: Ensure Early Management Commitment to Modularization
Experience shows that in change programs (and modularization is change), management’s ability to affect the outcome positively is greatest in the beginning. Yet, a common failure mode is that management doesn’t spend real time until it is too late to provide positive change. Management should not only be a doorkeeper at toll gates. Setting up for a Modular System is a significant change in mindset for the company. Management must be committed and involved from day one.
Talk to us about Modularity
Over the past decades, we have focused 100% on helping businesses worldwide improve with Modular Systems. We know that with modularization, ways of working, and the tools to support it, you can simultaneously reduce complexity and enhance value.