Balancing modularity and solution space freedom: effects on organisational learning and sustainable innovation

Many technology-intensive (TI) firms find it challenging to leverage customisation and achieve sustainable innovation. Although some firms use modularity to tackle this challenge, mixed effects on sustainable innovation have been reported. This study uses organisational learning and ambidexterity theory to provide insights into how TI firms can achieve 'win-win' situations where sustainable innovation is increased through customisation. First, we argue that customisation should be viewed two-dimensionally and identify both modularity and solution space freedom as important dimensions. We argue that modularity reflects knowledge specialisation and solution space freedom reflects knowledge variety. Both of these dimensions affect organisational learning and, in turn, sustainable innovation. Second, we argue that the relationship between customisation and organisational learning is affected by supplier characteristics, specifically supplier sophistication. Survey data from 166 managers were used to empirically test the conceptual model and hypotheses. Polynomial response surface analysis confirms that customising by balancing high degrees of both modularity and solution space freedom results in superior organisational learning. High levels of supplier sophistication do not strengthen these effects. Rather, our results show that combining high degrees of modularity with constrained solution spaces increases learning for TI firms working with less sophisticated suppliers. In addition, organisational learning fully mediates the effect of customisation on sustainable product and process innovation.