The Dark Side of Technological Modularity: Opportunistic Information Hiding During Interorganizational System Adoption

To drive competitive advantage in today’s fast-paced and disruptive business environment, firms are increasingly investing in the modularization of their technology infrastructure. In a rapidly changing and interconnected business environment where flexibility is key, modularity is often hailed as a foundational pillar of information technology systems of the future. For networked firms, modularity has been traditionally viewed as unambiguously beneficial because it allows for closer alignment with partner firms and also mitigates risk by lowering partner switching costs. However, we find that in interfirm networks undergoing technology transitions in the form of adoption of new interorganizational systems such as blockchains, modularity can also engender additional risks. Specifically, the early stages of IOS adoption are characterized by information asymmetries, and we find that high levels of technological modularity can render firms more susceptible to opportunistic information withholding by network partners. Our findings run counter to the traditional view of modularity as a capability that can improve the efficiency of IOS adoption, or as a governance mechanism that reduces risks associated with IOS adoption. As optimism and investments toward modularity grow, by identifying associated risks, our work cautions managers to adopt a more qualified view of this capability during technological transitions.