Discussion Paper No. 45

Exploring the Black Box of Modularity:
Process to formulate design rules in the
Renault-Nissan CMF
Tomoatsu Shibata

July 2015

Data Science and Service Research
Discussion Paper

Center for Data Science and Service Research
Graduate School of Economic and Management
Tohoku University27-1 Kawauchi, Aobaku
Sendai 980-8576, JAPANExploring the Black Box of Modularity:
Process to formulate design rules in the Renault-Nissan CMF

Summary:This paper clarifies the process to formulate design rules, an issue remaining in the modularity
research area, through a case analysis of the common module family (CMF) development process in
the Renault-Nissan Alliance. This paper contributes three new findings. First, design rules must be
clearly formulated before work starts on product design, and this sequence must be strictly observed.
Secondly, the quality of the design rules is influenced by both technical issues and strategic issues,
such as different market requirements. In this sense, DSM(design structure matrix) proposed throughexisting literature is not enough for formulating design rule.

Finally, formulating design rules istherefore requires the active involvement of not only engineers but also senior managers withstrategic view. In these ways, product development process of modular architecture differs from theconventional product development process.
Keywords: Modularity, Product development process, Design rules, Product architecture2

1. Introduction
During the last decade, modularity has attracted the attention of numerous management scholars,
and both theoretical and empirical studies have progressed. However, the existing literature on
product modularity has so far not fully investigated two fundamental issues on product modularity:
development process of modular product and process of making design rule.
These questions are black boxes in the current modularity research, that is, unresolved questions so
far in existing literature, although this is an important question in modularity research. Within thisbackground, this research tries to derive hypothetical framework of development process of design
rule and modular product through in-depth case analysis.
On the other hand, recently, many automobile manufacturers, including Volkswagen (VW) of
Germany and the Renault-Nissan Alliance, have adopted the principle of modularity to meet local
market needs through various combinations of modules. The strategy behind this major trend is anattempt to achieve both customer orientation and cost competitiveness in the fast-growing emerging
markets. This paper selected case of Renault-Nissan Alliance and analyzed how the Renault-Nissan
Alliance has developed modular architecture called CMF(common module family) and design rules,
because it achieved modularity between two companies with different technical policy and different
company culture.
Purpose of this research constructs a hypothetical framework of the development process formodularity through the detailed analysis of a pioneering example, Renault-Nissan CMF. In this sense,
this is exploratory research that aims to generate a hypothesis.

2 Previous Research and position of this paper
Ulrich(1995) defines product architecture as the scheme by which the function of a product isallocated to physical components . He proposes the definition of modular and integral architectures
as ideal types.
The vast existing research on product architecture developed since 1990s can be categorized
roughly into two groups. One group analyzes the benefits of modular architecture compared tointegral architecture, and the other investigates the dynamism of product architecture from an
evolutionary perspective (Baldwin and Clark, 1997, 2000; Langlois and Robertson, 1992; Robertsonand Ulrich, 1998; Ulrich, 1995; Sanchez and Mahoney, 1996; Shibata, Yano and Kodama, 2005;
Shibata, 2009; Sanchez, 2008; Sanchez, 2013).
The previous research in the first category adopts a common analytical framework to discuss the3benefits based on a comparison of integral architecture with modular architecture with varying
themes, such as the changes in the relationships between product architecture and organization. This
represents a static analytical framework, in which previous research has clarified the various benefitsof modularity, such as reductions in cost and the speed of development (Robertson and Ulrich, 1998;
Ulrich, 1995; Sanchez and Mahoney, 1996; Shibata, 2008).
Much of the research in this category stresses the potential benefit of modular architecture(Sanchez and Mahoney, 1996; Baldwin and Clark, 1997). In particular, Sanchez and Mahoney claimthat modularity is not only a characteristic of product design, but is also a characteristic of theorganizations designing and producing them (Sanchez and Mahoney, 1996). They argued that a
modular product would make possible the adoption of a modular organization. Interesting andnoteworthy research on relationship between product and organization include research on
multi-technology products and architecture innovation.
Brusoni, Prencipe and Pavitt(2001) analyzed the development of multi-technology products suchas aircraft engine control systems. Their results are at odds with foregoing research focused on
modularity. They show that that multi-technology firms need to have more knowledge than isrequired for manufacturing, to cope with the imbalance resulting from uneven rates of developmentof the respective technologies of different components and unpredictable product levelinterdependencies. Uneven rates of technological change in multi-technology products create aperformance imbalance amongst components that may require an intermediate stage of integration;
namely, loosely coupled organizations coordinated by systems integrators (Brusoni and Prencipe,2001). These arguments suggest that there is no one-to-one mapping between product architecture
and organizational architecture, and that product modularity may call for highly interactive
organizational arrangements.
Also, Henderson and Clark(1990) introduced the notion of modular and architectural innovation.
An architectural innovation is defined as a change in the relationships between a product’s
components, and organizations are built around stable product architectures. Henderson and
Clark(1990) argue that the product architecture defines information processing capabilities,
communication channels, and information filters within the organizations. These contributions havehighlighted the managerial implications of modularity in products and organizations.
On the other hand, previous studies in the second category were interested in understanding the
logic and evolution of the design of product architecture. Baldwin and Clark (2000) analyzed thecomputer industry in detail and explained the evolutionary process in the computer industry
4according to the complex adaptive system framework paradigm. Researchers in this category statethat various evolutionary tracks are created in an object with modular design without the object
giving control to the evolutionary track as a result of 6 operators’ (Spliting and others) individual
effects on each module. They insist that this force explains the rapid and various evolutionary tracks
within the computer industry after the modularized IBM System/360 emerged.
Other interesting and noteworthy research based on evolutionary perspective is the discussion of a“dynamic shift in architecture” by Chesbrough and Kusunoki (2001), and also “module dynamics” by
Shibata (2009).These studies reveal that product architecture moves gradually form integral tomodular architecture, and then going back from modular to integral after breakthrough of technicalsystem.
As I have explained above, the previous research on architecture is roughly divided into two
categories: static comparisons between modular and integral architecture and an analysis of the
dynamics of a modularized product. These previous research shares a common analytical framework,where research begins on the assumption that the design rule has been successfully formulated.
However, modularity does not mean merely dividing a product into highly independent parts. The
quality of design rule that defines how a product is divided and the interface to use for the divided
parts is critically important to actually derive benefits from modularity (Baldwin and Clark, 2000;
Shibata, 2009). If the quality is low in the quality of design rule, then it is not possible to reduce costs
or derive other benefits from modularity.
The quality of design rule is significantly influenced by the development process and organizationthat formulates the design rule. Therefore, it is significant and valuable to investigate development
process used to formulate the design rules for modularity, a hitherto unquestioned prerequisite, that is,black box of modularity.

3 Method
3.1 Case study and data
Due to the exploratory nature of this study, we adopted a qualitative, in-depth case study
methodology. This study enabled us to collect comprehensive data and generate theoretical findingsthat we could not derive satisfactorily from existing theory. By developing theoretical insight andfindings using case studies, the researcher is able to initiate the study as close as possible to the idealof no theory under consideration and no hypothesis to test.
Various scholars (Glaser and Strauss, 1967; Eisenhardt, 1989; Yin, 1994; Siggelkow, 2007) have5

discussed the validity of case studies. Case studies make it possible to explain the relevance andcause-and-effect relationships of a variety of observations through detailed insights withconsideration given to qualitative information. Case studies not only compensate for the weakness ofgeneralities but are also indispensable in new, creative theorization.
The core of the qualitative evidence is comprised of personal interviews with company
executives and engineers at Nissan Motor Corporation. A total of five in-depth, semi-structured
interviews, each lasting about two hours, were conducted during 2012 and 2013. Interview data wascomplemented by follow-up communications via telephone and email. Case of Nissan CMF wasconstructed using interview data, published product literature, and Nissan’s technical documents. To
validate our analysis, a draft of this case was circulated to individuals interviewed, who madecorrections where appropriate.

3.2 Framework of analysis
Consequently, based on a case analysis of CMF, a new design method at Renault-Nissan, We will
hypothetically deprive the development process used to create modular architecture. modularity here
refers to a closed module wherein the design rule is private within a company, as opposed to an open
module like personal computers. However, it is same in the sense that both cases require clear design
rules.
The framework to analyze the development process of the design rule for the Renault-Nissan CMF
has two viewpoints. One is the development process viewpoint, that is, to know which stage is themost rational to formulate the design rule during the product development process. The other is theorganizational viewpoint: rationally, who in the organization should be engaged in the creation ofdesign rule, and how should it be determined.
This paper focuses on the Renault-Nissan CMF because it achieved modularity between two
companies with different histories and traditions, Renault and Nissan. It is difficult to promote
modularity even within the same company, so modularity between different companies will be far
more difficult and complex. Therefore, the complexities of this case of CMF should shed light on theissues related to the creation of the design rule.

4 Case1: Design Rule Formulation Process for the Renault-Nissan CMF
On February 27, 2012, President and Chairman of Nissan Carlos Ghosn introduced the 4+1 CMF
to the media as a fundamental change to the vehicle design concept.
6“4+1” means four modules (Engine compartment, Front underbody, Cockpit, and Rear underbody)and one module (Electrical / Electronics architecture), which are called big modules. The interface
rule between these big modules is formulated from two standpoints: a physical standpoint (including
position, dimension and form, collision safety, and the input / output of sound, vibration, and heat,among others), and an electrical standpoint. Each of these big modules has a number of design
variations for a mid-class vehicle, specifically two types of engine compartments, three types of front
underbodies, three types of cockpits, and three types of rear underbodies.

The electrical / electronic architecture have one type of hardware and software used for all variable
parts. Theoretically, there are 54 different vehicles possible through the combinations of these big
modules (2 × 3 × 3 × 3 = 54).
The CMF’s purpose is to enable vehicles with different designs and functionality while promoting
standardization, and to create optimum balance between product variation and volume efficiency. If
component-sharing creates significant cost savings, the funds can be invested in environmental andsafety measures, which will become important in the future and increase their product’s
competitiveness. Moreover, development efficiency can improve tremendously by applying newtechnology, which has so far been used only in luxury cars to many types of vehicles.
Previously, automobile manufacturers standardized the components used on the same platform(chassis); however, this approach has limitations. In developing the CMF, the companies aimed to7

standardize components on different platforms (cross-platform), effectively eliminating the platform
concept. When implementing the CMF, components were classified not by platform but by theelement where the component should have variation. For example, engineers could first consider
whether to make weight variable, or whether other elements should vary. In the former case, theywould then consider the basic design where component variation by weight is possible. As a result of
the CMF, the compatibility between Nissan and Renault drastically increased from 6% to 53% basedon the components’ prices, reducing component costs by 30%, all the more remarkable consideringthat this did not impair product variation compared to conventional methods.
The project of developing CMF officially began in September of 2009, with the first year devoted
to formulating the design rule, and shifting to concrete product design at the end of 2010 once design
rule was established. The first CMF-based mass production started in the autumn of 2013 with thelaunch of the new X-TRAIL. A total of 1.6 million vehicles composed of two types of Nissanvehicles, including the X-TRAIL and 10 Renault models, were introduced to the market sequentially.
All of these new models were designed based on different combinations of the five big modules of
the CMF. In the future, Nissan will apply the CMF to all vehicles except those that require a specificmanufacturing process. Below Section describes the CMF developing process and organizationalarrangement.

4.1 Establishing an interface between big modules
As the CMF aims to make it possible to develop cars using a combination of 4+1 big modules, oneof important design rules concerns the compatibility of the physical and electrical interfaces between
these big modules, which were developed sequentially between September of 2009 and the end of
2010. The physical interface includes the width of the dash lower, the width of floor, installation
point for the air conditioning unit, penetration position of the dash lower, the installation point for thefront seat rail, among others. Similarly, the electrical / electronic interface includes assigning
functions to the controllers, assigning controllers to a network, which signals trigger functionality,and how electricity is supplied to the body control module (BCM) or other components. These two
types of interfaces were determined between the big modules sequentially.
Each big module has its own manager responsible for layout, performance adjustments, and thecompatibility of components in each module.
In addition to the manager for an individual big module, CMF also requires a person to take on therole of coordinating the possible combination of these modules. Combinations of multiple big
8modules should follow interface rule and ensure the integrity as a car for the customer.
For this purpose, one of the most important thing is the accumulated knowledge and experience on“simulation technology”, with the most difficult being the collision experiment. However, since
experimental data has accumulated over many years within Nissan, there is little difference between
collision experiments by actual vehicle and the results of computer simulation, so it is possible to finetune the design once the big modules are combined. This high correlation between reality and thevirtually simulated data enabled collision simulation, which was previously difficult to perform.
Without this simulation technology, it would not be possible to create the CMF. The quality of design
rules is largely influenced by design capacity, and the simulation technology contributed significantly
to improvements in the design capacity.
The procedure to formulate the interface rules between the big modules is as follows. First, set atarget performance value for a vehicle. Then, change the boundary and synthesis conditions of theinterfaces between the big modules, and use simulations to determine the conditions required toreduce the interference range between modules as much as possible to achieve the vehicle’s target
performance. Next, make adjustments based on the feedback and repeat the simulation. This
feedback cycle will be repeated toward target performance. According to Nissan, if each big
module’s manager properly achieve his task with design rule, integrating these module will lead tocompleting about 80% of the vehicle. In this way, interface rule between big modules has thus beenformulated in CMF.

9

The vehicle is not complete until the upper parts, such as a roof, are added to the combined 4 big
modules. Though the Chief Vehicle Engineer (CVE) is responsible for the completed vehicles’
technical aspects, this person is responsible for engineering parts, and not for planning andmarketing2. This responsibility falls to the Chief Product Specialist (CPS), who researches customer
needs in the Indian market, for example, and plans the vehicle that meets them. In that sense, theCVE is technology-oriented and the CPS is market-oriented.
Both of these positions are in turn administered by the Program Director (PD), who sets clear andconcrete goals for the market, type of vehicle, and number of vehicles, in addition to financial
performance metrics such as the amount to invest and the profit target. These three General
Manager-level employees oversee new vehicle development using the CMF within thisorganizational framework.

4.2 Solving the strategic issues of Design rule
Simultaneously, solutions to the strategic issues of design rule within big module were promoted
while the interfaces between big modules were developed. The most difficult issue of design rule isdetermining where and how common parts and variable parts are separated in a big module, aproblem that must be resolved by formulating the design rules for each big module. This is more thana technical problem, as it requires strategic aspects that consider various conditions. There are two
types of strategic issues.
The first problem arises from the difference in market requirements, for example, requirements
may differ in Asia and North America, and so there is a risk that sharing components sacrifices somemarket requirements. However, without component-sharing, it is not possible to develop efficientmanufacturing volumes, so the most appropriate level of component-sharing must be found andpromoted. Similarly, to avoid damaging the brand image of each vehicle model, the issue of how
extensively to share components also arises. Even for component-sharing within one company, all ofthese requirements must be considered.
The second issue arises from the differences about technical policies within the two companies.
Nissan calls its basic policy on the technology drawn from its accumulated historic experiences theTechnical Policy. As both companies have different history, it become more difficult to judge whichparts should be common and which should be variable. In the case of CMF between Nissan andRenault, the difference in technical policies becomes critical for promoting component-sharing.
For example, the design method aimed to help avoid accidents and to ensure strength and the10absorption of collision energy depends largely on company’s technical policy. As another example,
each company has different policies for the placement of the AC compressor control. At Nissan, it
was controlled by an electronic control unit; at Renault, control rested with another unit. Thisdifference depends largely on policy rather than technology. Companies with different histories willdevelop different policies, which are reflected in differences in design activity and products itself.
Each company also has a substantially different way of thinking about the layout, such as thearrangement of the engine room, seats, persons, and others. This is determined at the first stage of thevehicle production plan by considering various requirements, such as center of gravity, dynamic
performance, under-floor arrangement, styling, and performance. This layout is often determined not
only from a purely technical viewpoint but also based on a company’s accumulated knowledge.
Therefore, to promote component-sharing between Nissan and Renault, the differences in technicalpolicies and layout should be overcome in addition to resolving problems related to market
requirements. Nissan termed an issue obstructing component-sharing a Road Block (RB). These are
not technical but rather strategic issues related to the prerequisite of design activity.
Take, for example, the shared components of a seat. If you ask the seat design department why
components cannot be shared, they will insist that it is not related to seat design but the difference insafety requirement standards. In this case, the differing safety requirements are an RB. However, as
the design unit does not have the authority to unify the safety requirements, a seat cannot bestandardized. Therefore, to solve the RB, the reasons behind the different safety requirements must
be discussed from a higher standpoint to clarify whether this difference stems from market
requirements or a company’s technical policy, and to solve the problem. All RBs obstructing
component-sharing should be solved before beginning concrete design activity.
Therefore, to formulate the design rule for component-sharing, the design department alone isinsufficient, and requires an organizational system to solve the problems related to market
requirements and technical policy. As organizational system to resolve these RBs, the close
cooperation and adjustment between the Joint Steering Committee (JSC) and the design department
is described below in Section 4.3. The JSC is tasked with resolving RBs at the General Managementlevel at both Nissan and Renault, and will appoint the appropriate team members to deal with theissue. Various types of technology, knowledge, and know-how were required to solve the more than
800 RBs. Therefore, the companies established a flexible organization where appropriate members
can come together according to the contents of an RB.

11

Figure 3 shows essence of organizational structure supporting the resolution of RBs, whichbecame a strong driving force promoting RB resolution and forming design rules by introducing
different viewpoint from design department. Next, we will explain the process and organization topromote the RB resolution in detail below.

4.3 Process and Organization to Solve Road Blocks
CMF project decided basic policy that actual design activity do not begin until all RBs arecompletely solved. RB resolution was set as a top priority. Fig. 4 shows that the 859 RBs at the endof 2009 decreased rapidly within one year. This section describes the process and organization
established to resolve RBs.
Generally, in the design of a vehicle, the matrix organization of vehicle axis and component axis isa basic form. As engineers working on the vehicle axis think that creating the vehicle’s integrity andoriginality are important, they are not enthusiastic about component-sharing, since sharing
components could compromise these characteristics. By contrast, engineers working on thecomponent axis have strong incentives for component-sharing. Therefore, component-sharing in the
CMF started with collecting as many issues obstructing component-sharing as possible from thecomponent design department, the upstream strategic functional team (USFT), which has strong
incentives to promote component-sharing.
USFT is a component design department that develops products and where work is assigned by
12each component system, such as seats and steering. There were 76 USFTs assigned to eachcomponent system, and the total number of car components is approximately 30,000, which are
divided into 76 component systems. One USFT has approximately 20 members, so about 1,500
persons, all members of the USFTs, are involved in component design.

To promote component-sharing, the obstructive factor should be clarified at first. In the CMF, theyfirst asked all members of the USFTs about impediments to standardizing the components and why
sharing is difficult, among other questions. This process resulted in 859 issues regarding
component-sharing as of November of 2009, which were registered in a database of RBs to resolve.
Similar problems were classified. The 859 RBs were broadly divided into 4 groups of problems, forexample, related to mechanical architecture or market requirements, and assigned to 4 JSCs.
Each of the JSCs were assigned one of four groups: issues related to components, issues related tomechanical architecture, issues related to electrical / electronics architecture, and issues related tomarket and product requirements. The JSC members included 6 General Managers (Atsugi – 3,
Renault – 3) administered by the Alliance Directors, and they were tasked with solving the RBsreported by the USFT, a design unit, including problems resulting from technical policies and thelayout. Since it is not possible to resolve RBs with only USFT employees who are responsible for
actual design activity, the JSC tried to apply different tactics from higher perspective to resolve RBs.
In order to do that, JSC requested related department to collect new data by experiments and conduct
13

new market research.
Solving RBs is a process of frequent and close adjustments between the JSC and USFT. The
component layout provides an example. The BCM(body control module), which controls such things
as power windows, was conventionally installed in different places according to the vehicle model.
Therefore, the layouts and types of wire harness were diverse, increasing the number of components.
This problem could be solved by aligning the way of thinking about layout, which would standardize
both the layout and the wire harness. However, the USFT that actually designs the wire harness
cannot solve BCM and layout problems. Thus, if the JSC leads the work to standardize the BCM
layout, it becomes possible to standardize the wire harness.
Moreover, to further promote standardization of BCM, not only layout but also function of the
BCM should be shared between Nissan and Renault. Actually, functions of BCM were different. At
Nissan, one controller managed both the BCM and the keyless entry system, and at Renault, each ofthese systems used separate controllers. Therefore, at Nissan, one department developed thecontroller, and at Renault, each department developed individual controllers. The BCM sharing
between Nissan and Renault was not just a technical issue but a strategic issue, which leads to aneffect on the company’s organization. Therefore, the solution to RBs required both the engineers andsenior managers.
Fig. 3 shows the official reporting channel. The JSC provided RB resolution progress reports to the
CCT (Cross company team) monthly in coordination with the USFT, while simultaneously consulting
about the issues it is facing and difficult matters and seeking direction in some cases. The CCT was amanagement team composed of executives including Vice Presidents, which promoted RB solutions.
Fig. 4 shows that the initial 859 RBs were rapidly solved within a year. In this way, all of RBs werefirst solved to enable component-sharing, and then component design activity was started.3

4.4 Close Relationship with suppliers
The relationship with suppliers also changed significantly. Because sourcing occurs in a large
block according to the vehicle type group for the CMF instead of by individual vehicle type in theconventional way, standardizing components means that each component’s production scale
increases dramatically. The order scale was approximately 100,000 on average and approximately
1,700,000 for CMF. For example, there were originally 7 types of steering components with anaverage order quantity of 150,000 for each. For the mid-class CMF, there is only one type, but theorder quantity increased ten-fold, to 1,550,000.
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The CMF brings more scale merit as a result of the increased volume of same component; however,
failure produces an enormous amount of damage. If the production scale for each component
increases tenfold, the damage due to failure also increases tenfold. Thus, it is rational to foster close
cooperation with suppliers on a deeper level and over a wider range.
Therefore, both at strategic and operational levels, closer relationships were built at earlier stagesof development. The cooperative relationship at the strategic level means to disclose and sharestrategic information, such as investment plans, at an early stage. Conventionally, this type of
information, including where the vehicles will be produced and the estimated production number,
was not disclosed, or only a limited amount of such information was disclosed since new vehicle
plans are top secret information. However, to promote CMF development, this strategic information
was disclosed at an early stage, which enabled suppliers to make their own strategic decisions about
the factory investment.
Similarly, at the operational level, a closer cooperative relationship was built. For example, thesupplier receives the design specification of new vehicle to discuss which design enables
component-sharing, and the extent of component-sharing it provides. Moreover, the supplier is
expected to propose which design will increase the sharing rate of a component. Such input into thedesigns for the big modules can increase the rate of component-sharing. In short, increased
component-sharing rates require information sharing and cooperation on a deeper level at early
design stages. It was therefore rational to create closer cooperative relationships with suppliers at
both the strategic and operational levels during the CMF development.

5 Discussion and findings: Product Development Process to realize modular
architecture
There are obvious limits to what can be inferred this single case analysis. But the wealth of detailavailable in this case should provide findings relevant to the product development process to realize
modular architecture. Based on in-depth case analysis, we wish to discuss two research questions
mentioned earlier.
The first issue is to discover how the effective product development process should be managed
toward modular architecture. Next issue is to understand particularly the process of formulating
design rule to achieve modularity in terms of organizational arrangement.
Based on in-depth case of CMF describe in section 4, section 5 will argue a rational development
process for modularity and derive new findings about these issues.
155.1 Establishing Design Rule before starting component development
The CMF case reveals that they took following steps, by first formulating design rules by the endof 2010 before beginning concrete product development. In fact, CMF first established design rules,considering separation of common parts from variable parts, and response to different market
requirements. In the process of formulating design rules, an organizational adjustment andcoordination between related departments was required. RBs were solved in sequence and theboundaries between common and variable parts were set during the repeated close and informal
coordination between the JSC and the USFT. At the end of 2010, when the design rules were
formulated through repeated adjustments, they started component design activity. Considering theessence of modularity, one could consider the Nissan CMF development process as rationale.
The quality of design rule has an important effect on the success and failure of modularity, sincesubsequent concrete design activities proceed under constrained conditions to comply with the design
rules. Thus, it is rational to first determine these and then finalize them. To make modularity success,concrete product development should begin only after design rules are set. If the formulated design
rules are changed during the component development process, the development project will neverend and management resources will be consumed. This will be a failure pattern which is commonly
observed in unsuccessful modularity projects (Sanchez, 2013).
This means that modular product development requires a change from the conventional
development process. In the conventional process, a problem with an interface rule during actual
product design was resolved by tracing back through the previous process. The conventional processadopts the concept that less restrictive rules are formulated and design activities begins at early
development stages, and any problems related to interface rules are solved through collective
adjustment thereafter. However, this development process does not work well for modular productdevelopment. Required change of product development process is shown in figure5.

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For the success of product modularity, the engineers must observe a new rule that subsequentchange to design rules are not permitted, once it was established. Some engineers may strongly resist
it because they are accustomed to the conventional way of product development process.
This does not mean that collective adjustments and close coordination are unnecessary. As describedin case of CMF, the design rules were formulated through close collective adjustments by the USFT
and JSC. In that sense, collective adjustments shifted to earlier phases in the total development
process, as opposed to the conventional development process. In other words, developing the design
rules for modularity requires close coordination between different departments at very earlier phases
within total development process.

5.2 Developing Strategic Design Rules
One of the most important things to realize modular architecture is the development process ofdesign rule, because design rule will particularly influence the success of product modularity. The
CMF case clarifies the characteristics behind design rule development and who leads this effort asorganizational mechanism.
Conventionally, it was thought that an engineer should formulate the design rule from a technicalviewpoint as this was considered a technical issue. So, existing research has proposed development
tools such as DSM(Design Structure Matrix) based on a technological viewpoint (Baldwin and Clark,
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2000). DSM is a design method to determine the boundary between subsystems, such as components
and tasks by focusing on the strength of interdependent relationships. DSM tries to minimize
complexity existing in technical interdependence between subsystems, while it does not consider
complexity existing in different market needs.
However, CMF case shows that establishing design rules from a technical viewpoint is not enoughto achieve qualified product modularity. The task required involvement beyond a design department
such as the USFT, to resolve issues related to market requirements and technical policies. Excessive
component-sharing sacrifices responses to different market requirements, while insufficientcomponent-sharing does not produce volume efficiency. Therefore, good design rule will have tobalance different market requirement and volume efficiency.
Actually, in order to formulate design rule, CMF project had to solve two kinds of problems, thoserelated to strategic perspective for vehicle design, such as adaptation to different market requirements
and technical policies, and those related to organizational technical capacities such as simulation
technology. Even if problems related to the strategy to promote design rule can be solved, excellent
component-sharing still requires the technical capacity to perform concrete product development. On
the other hand, even with a high level of technical capacity, excellent component-sharing comes only
through strategic consideration. Figure 6 shows that there are two influencing factors to design rule.

In terms of organizational viewpoint, conventionally, engineers tended to think ofcomponent-sharing only within their own components and department. For example, a chassis
18

engineers thought only of chassis component-sharing. Since component-sharing requires technicalknowledge on the component, it would initially appear rational to promote component-sharing
according to individual design units. However, accumulated experience and knowledge of Nissanclarifies that component-sharing rate are limited if considerations are closed within single design
units. Engineers could not standardize a component due to factors beyond their control.
Therefore, Nissan established new organizational system to develop design rule effectively. Indeed,
the CMF’s design rules substantially increased component sharing rates. Within the CMF project, theJSC (Joint Steering Committee) with power to resolve such issues was established and staffed with
General Managers from both Nissan and Renault by the Alliance Directors, because USFT does nothave authority of managing strategic issues alone. The Alliance Directors are the highest
decision-making bodies across the both companies, and their appointees led RB resolution holding
great power, which improved the preconditions for component-sharing. This development system
was a completely new approach to Nissan, first adopted for the CMF project.
It became clear that formulating design rule requires not only technical perspective but also
strategic perspective, and therefore organizational mechanism to enable these requirements. Thesefindings are rational considering the nature of modularity, and can be expressed in general terms asfollows. Formulating design rules may be considered a function between resolving strategic issues
such as market requirements as well as technical policies, and technical issue. The quality of design
rules is influenced by two factors: resolving strategic issues and technical capacity.
Therefore, when formulating design rules, the involvement of engineers alone is not enough. It isrational to include the active involvement of executive-level senior managers at early development
stages. This differs from conventional argument, where design rules were considered a technicalissue and an engineer's specific task.
As an important task, senior members must lead the design rule formulation to resolve strategic
issues. Moreover, their active involvement for a longer period beginning at earlier stages is arequirement and a significant change from the conventional development process, where theirinvolvement was limited to the early planning stages.

6 Conclusion and future researchThis paper aimed to clarify an issue that was thought to be a black box in the modularity research,
the process to formulate the design rules for modularity and development process of modular product.
From in-depth case analysis of CMF, three new findings related to product development process for19modularity could be derived.
First, the development process must start by first formulating the design rules, freezing them, andonly then beginning concrete product design activity. Secondly, the quality of design rules depends
on both technical capacity of the company and a consideration of strategic issues such as how to
respond to differences of market requirements. This implies that analytical tool such as DSM is not
sufficient for good design rule. Finally, formulating design rules requires the active involvement ofsenior managers in addition to engineers. In the development of CMF, Nissan established JSC that isdifferent organization with a strategic viewpoint from USFT, and solved RBs in advance.
This paper claims that these findings are not limited to the CMF, but are generally applicable in thedevelopment of modular architecture. Also, these findings indicate that the process to develop
modular architecture differs significantly from the conventional product development process, which
has contribution to the developing useful theory of product development process.
So far, much research to pursue excellent product development processes has been conducted.
From the research of Japanese companies, it was revealed that characteristic of effective productdevelopment process is, in short, the concept of overlapping (Takeuchi and Nonaka, 1986; Clark andFujimoto, 1991). The concept means that product development process essentially includes
overlapping in that the same tasks are completed by multiple entities while sharing information
among the related departments.
In this overlapping process, the design rules are not strictly determined at the early stage ofdevelopment, and the final specifications are determined through close coordination with various
departments once development begins. This process has been called the rugby style of development
in contrast to the relay style development, or concurrent engineering. Following this development
process, the rules are not determined strictly at the beginning, and matters are decided later throughaccumulated organizational coordination. Japanese excellent companies have used this method tomaximize both high reliability and quick delivery. Based on this finding, other overseas companies
have tried to learn this practice and installed it into the companies over the decade.
On the other hand, other research pointed out that overlapping does not always work, and its
effectiveness differs depending on the industry. For example, the previous research on the productdevelopment process in the computer industry insists that overlapping has no relationship with
development performance. Iansiti and others who studied the mainframe computer industry argue
that not overlapping but Technology Integration affects performance (Iansiti and West, 1997; Iansiti,1998). Moreover, Eisenhardt and others who compare the computer and automobile industries
20explained that this difference results from the different rates of change in the stable automobile
industry and the fast-changing computer industry (Eisenhardt and Tabrizi, 1995), and insist
overlapping is not effective in the fast-changing computer industry. They pointed out that speed ofmarket changes are one factor influencing the effectiveness of overlapping development.
Based on this previous research into the product development process, the findings in this paper
indicate that the effectiveness of overlapping may decrease in the development process of modular
architecture. Formulating design rules has the most impact on the success or failure of modularity.
These design rules should be strictly determined at a stage prior to the start of concrete productdesign, and are frozen until the development process is completed. This differs from the conventional
development process where design specifications are determined while overlapping.
In other words, aside from the rate of market change, the product architecture is also a factor
affecting the effectiveness of overlapping. Even within the automobile industry, changes of the
product architecture influence the effectiveness of overlapping. Overlapping development process
will be more effective to integral product architecture than to modular product architecture.
This paper has tried to clarify the black box of modularity, and simultaneously indicated thepossibility of a new product development process towards modularity. This research agenda is an
unexplored area bordering research on product modularity and that on product development
processes. This paper is based on single case study, the Nissan CMF, and further research is expectedin the future.

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1

This case was created based on the interviews with Hideyuki Sakamoto of Nissan Motor Co., Ltd.
(November 26, 2012 and March 7, 2013, Corporate Vice President at that time) and Hiroyoshi Yamamoto(March 7, 2013, April 3, and August 22, General Manager in charge of the Alliance CEO office at that time),
and the contents of e-mail exchanges with Mr. Yamamoto, in addition to publicly available information fromnewspapers, magazines, and other sources. Mr. Yamamoto checked the contents of a draft version of the case.
2 General Project Managers at Toyota are responsible for both marketing and engineering, in contrast to the
CVE in this system.
3
According to Nissan’s estimates, if the component sharing rate increases beyond 75%, product diversity issacrificed, as the vehicles are too close in design. However, to gain sufficient volume efficiency due to common
use, a component sharing rate of 50% is necessary. Therefore, it is important to make judgments in design thatbalance the rate of shared components, differentiation, and investment within a component-sharing rate
between 50% ~ 75%.

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