Revisiting the modularity-performance nexus : Business model innovation as a missing mechanism

Prior research on the modularity–performance nexus is heavily biased towards product innovation, leaving the impact of modularity on other types of innovation such as business model innovation unknown. This study seeks to address this gap. To do so, we develop and test a parsimonious model which examines whether a firm’s pursuit of business model innovation serves as a salient conduit through which modular product and process translate to firm performance. In addition, we examine environmental dynamism as a contingency that to further illuminate these associations. Using data from 87 manufacturing SMEs in Australia we find partial support for our model. Specifically, we find that pursuit of BMI is a missing mechanism only in the process modularity-performance nexus not the product modularity. In addition, contrary to predictions, we observe that environmental dynamism negatively moderates this relationship. These findings have important implication for theory and practice of innovation management. We discuss these implications and suggest several directions for future research.