Is the mirroring hypothesis dynamic? Extending the mirroring hypothesis via transaction cost economics and real options perspectives

There is a growing management literature examining the possible benefits of modularity and the presence of a ‘mirroring hypothesis’ between product architecture and organisational architecture. Despite some criticisms and limitations, such a relationship has been examined in the literature, with many empirical studies supporting the hypothesis both within and, to a lesser extent, across firms. However, surprisingly few empirical studies have explicitly examined the possibility of a triadic mirroring relationship encompassing the boundaries of the firm, or examined how the mirroring hypothesis may evolve over time in response to changes in the product or market environment. This raises the central questions of ‘Is the mirroring hypothesis dynamic and evolutionary in response to changes in the product or market environment?’; ‘Is the mirroring hypothesis supported encompassing firm boundaries?’ and, ‘Is the evolutionary path bi-directional in response to architectural innovation?’ In response, this developmental paper sets out two evolutionary possibilities concerning how firm and product architectures may align over time on the basis of transaction cost economics (TCE) and real options theory, and establishes some initial propositions.