IP modularity

Distributed value creation can boost the overall value created, but may create serious challenges for capturing value. In order to draw in external contributors, an innovator often waives legal exclusion rights or reveals formerly exclusive knowledge. But as a result, contributors may appropriate a large share of the jointly created value. In turn, integrating external contributions entails the risk of becoming dependent on outside owners of IP. To address this tension we propose the concept of "IP modularity." We argue that, by managing a system's modular structure in conjunction with its IP, firms can reconcile distributed innovation with value capture.