Digital Innovation and the Division of Innovative Labor: Digital Controls in the Automotive Industry

TLDR

Digital control systems, now ubiquitous in complex automotive products, integrate components and introduce indeterminacy in interfirm division of innovative labor, challenging the conventional view that modular product structures drive suppliers toward more component design and invention. The study investigates how digital control systems influence the division of innovative labor across the automotive supply chain and explains this shift by characterizing product structures into inclusionary and digital control hierarchies. The authors characterize complex product structures as inclusionary or digital control hierarchies and apply this distinction to analyze the evolution of automotive emission control systems from 1970 to 1998. They find that digital controls reverse the expected pattern, leading suppliers to engage in less component innovation than large manufacturers, and this analysis reconciles two competing views of interfirm division of innovative labor.

Abstract

In this study of the U.S. automobile industry, we highlight the way the division of innovative labor across firms in the supply chain can be influenced by a particular form of digital innovation known as “digital control systems.” Digital control systems are becoming ubiquitous in complex products, and these digital innovations integrate other components across a product structure and introduce a level of indeterminacy and unpredictability in the organization of the interfirm division of innovative labor. Much of organizational scholarship holds that accompanying a shift toward increasingly modular product structures, component suppliers are engaging in relatively more design and invention around the components that they supply. We find that the evolution of digital controls may reverse this pattern, because in the wake of a major shift in the digital controls technology, suppliers actually engage in relatively less component innovation in comparison with their large manufacturing customers. To explain this shift, we characterize complex product structures in terms of two distinct product hierarchies: the inclusionary and the digital control hierarchy. In using this distinction to analyze the evolution of automotive emission control systems from 1970 to 1998, we reconcile two competing views about the interfirm division of innovative labor.