By stepping up their use of modular design systems, companies can increase their sales shares in emerging markets by up to 30%

• Today, 86% of companies use modular systems for their products
• Modular products currently account for 48% of companies' total sales
• Two thirds of companies plan to increase their share of modular products. The engineered products and high tech industries in particular are catching up
• Modular systems are flexible and inexpensive – enterprises in emerging countries can raise their sales share by up to about a third
• Key challenges: system complexity and different customer requirements

In global competition, the use of modular systems in product design is becoming more and more important. Already today, 86% of companies use modules, with which they generate nearly half of all their sales – and this figure is on the rise. Two out of three companies plan to increase their usage of modular systems over the next few years to grow quickly and at low cost. Especially in emerging countries, modularization makes it possible for companies to boost sales shares by up to a third. Yet the major challenges lie in the complexity of modular systems combined with the need to address a variety of customer requirements. These are the key findings of a new study by Roland Berger Strategy Consultants, entitled: "Modularization – How modular product design can drive growth and internationalization".

"Any company that wants to compete globally cannot ignore product modularization," says Jochen Gleisberg, study author and Partner at Roland Berger Strategy Consultants. "At any rate, introducing modular systems is a key strategic and cross-functional topic. This is not something just for engineers to discuss, but managers as well."

Companies recognize the trend toward modularization

Already today, 86% of companies use modular systems in their product design, accounting for 48% of their total sales. The trend is toward an even higher usage of modular systems in various industry sectors. Of the companies surveyed, two thirds report that they plan to increase their use of modules and common platforms in order to make production more flexible and drive down the cost.

The share of sales generated by products based on modules or platforms could rise to as high as 67% by 2015. Stefan Pötzl, co-author of the study, explains: "Most manufacturers have recognized what role modularization can play in their growth strategy – especially in the emerging markets. The use of modular systems is expected to increase by roughly 19% by 2015." Specifically, by 2015 plant construction companies will increase their share of modular products from 19 to 43%, and companies in engineered products from 47 to 70%. In addition, medical technology firms plan a strong expansion of 42 to 63% within the next three years.

Four cross-industry strategies

Companies apply various strategies when they modularize. 46% work with platform-based products: on the same platform, individual modules are set up for customer-specific requirements. By comparison, 26% of companies use a module-based structure. In this method, the same module is combined with different platforms to respond to market requirements. Another 14% use completely standardized products and the remaining 14% offer fully individualized products.

"We see a clear distinction in this area between large corporations and SMEs," explains Gleisberg. "All large enterprises currently pursue a modular strategy, even if only in part. The situation for midsize companies is somewhat different: 20% of them still don't use any modular systems, thereby missing out on vast potential." Yet even the strategy itself varies widely by company size: whereas groups consistently apply their modular systems at both the product and regional levels (75%), the SME strategy focuses primarily on products (75%). "Only a quarter of SMEs manage to apply modularization across all markets. Oftentimes, these markets lack adequate engineering skills. This means that synergies are not completely tapped, and products have to be individually developed for different markets, costing time and money."

Modularization: a strategic issue for companies

Many firms need to catch up, demonstrating that the use of modular systems is not yet firmly embedded in all areas of the company. While modularization plays a key role in production, product development and product management, there is still a gap in sales and marketing. Neither the organizational structures nor the processes in these areas are completely aligned to modularization, making it impossible to tap the full potential. At the interface with the customer, companies need to communicate the benefits of the concept and to set up orders in such a way as to avoid costly and risky customization.

It is just as important to closely involve the customer early on in developing modular systems so as to better address their demands. However, only half of the companies surveyed say that they do this. "About 60% do not address this topic in a structured way. This unfortunately has a negative impact on the success of the end product, since the modules can't be consistently tailored to customer demands," says Pötzl.

Modularization as a model for success in developing markets

In the developing markets, the use of modular systems is the key success lever in the product strategy for nearly 60% of the companies surveyed. Modular systems offer companies a way to respond quickly and cost-effectively to changes in the market, and adjust their product offering accordingly. By comparison, just one fourth of study participants rely on niche products and 8% on low-cost items to be successful in emerging markets.

"It's important to remember that a modular strategy goes hand in hand with a clear product strategy, and also needs to be supported by top management," Gleisberg points out. "This strategy bears fruit only if the company management consistently applies modularization in all areas." After all, modular systems also present companies with a serious challenge. The system complexity, the seamless integration of individual modules and platforms as well as varying customer and market requirements – all this means that companies need to carefully map out their modular strategy and implement it in a structured way.