Title Product Architecture and Intra-Firm Coordination : Theory and Evidence

Product architecture plays a critical role in the product development process. How does the nature of product architecture affect the quality of the product? To address this question, we make a distinction between system-level and part-level quality, and then posit the existence of a key trade-off in which greater integrality of a product’s architecture enhances its system-level quality, but produces the undesirable side-effect of increasing the degree of interdependence in component design. We hypothesize that when engineers’ coordination capability is relatively high, the former (positive) effect outweighs the latter (negative) effect so that greater integrality increases the product’s overall quality; conversely, lower coordination capability results in reduced overall quality. We find empirical support for this hypothesis by analysing a set of unique data collected through a firm-level survey administered in Japan. We also present the implications of our findings for managers making decisions about product design. JEL Classification: M10, M50