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.

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This paper describes how firms' propensity to carry out component (or architectural) innovation is influenced by the degree of task uncertainty during inter-firm product development. Using successfully applied patents in automobile emission control technologies from 1970 to 1998; this research shows that assemblers' and suppliers' propensity to expand their knowledge base in component and architectural knowledge increased under higher task uncertainty respectively. This finding provides large scale empirical justification for theoretical claim that firms' should know more than what they make (Brusoni, Prencipe et al, 2001) and an overlap in knowledge domain exists between an assembler and a supplier for projects involving new technologies (Takeishi 2002). Importantly, this study also shows how architectural innovation prevails in the early phase of technological changes, while component innovation dominates the later stages.Furthermore, unlike what could be anticipated, total assemblers' effort to build up inhouse component innovation increases continuously over time, suggesting that product life cycle effects may dominate over that of task uncertainties. This paper strongly suggests that effective knowledge management for both architectural and component knowledge is a key factor influencing firms' competitiveness in the inter-firm product developments.

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