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

The successful adoption of interorganizational systems (IOSs), such as blockchains or electronic data interchanges, in interfirm networks requires timely and accurate sharing of information about these roll-outs. In reality, however, the early stages of IOS adoption are characterized by information asymmetries that can arise due to a separation between firms that select and develop the IOS, and firms that implement it. This often results in staggered and asymmetric flows of information that can engender strategic information withholding behaviors. Drawing upon resource and network-based views, we study how the technological modularity of networked firms can affect these behaviors. Interestingly, 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. We find that network density and embeddedness can mitigate the opportunistic risks of technological modularity, whereas network topology can have diverging effects. 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. 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.