Product architectures are becoming increasingly modular, along with the industries

that produce them.   Instead of a single integrated firm designing and producing an

entire product,  clusters of firms design and produce individual components that are

later integrated.  While modularity has often been hailed as a catalyst for innovation, I

show that modularity can hinder some kinds of innovation.  Within a modular system, innovations that  are limited to individual modules without altering interfaces and

processes (modular innovations) thrive, while innovations that cross module

boundaries and alter interfaces and processes (integral innovations) are stifled.   In a

study of implementations of twenty three different technologies in one hundred and

twelve US buildings, I demonstrate that  the odds for integral innovations to be

implemented are 84% lower than for modular innovations, even after accounting for technology costs and other factors.  The primary underlying mechanism is that integral innovations involve a loss of the embedded coordination that standardization provides.  Thus, I investigate supply chain integration as a moderator and a substitute for the lost coordination.   I compare high integration (both vertical and  horizontal), medium integration (either vertical or horizontal), and low integration (neither vertical nor horizontal).   I demonstrate that  as  integration  increases, so does the likelihood of implementing integral innovations.   In fact, the odds of implementation of integral innovations increase by 542%  in supply chains characterized by high levels of integration.  Thus, I shed light on the relationship between an innovation's alignment with existing industry structure and standards and the complex moderating effect of supply chain integration in modular industries.  In addition, I develop a comprehensive analytical framework to explain innovation diffusion in the construction industry - integrating the supply chain learning  and coordination  issues discussed above with high levels of demand fluctuation, competitive bidding by trade, and broken agency.