Many systems migrate towards increasing or decreasing modularity, yet no explicit causal models exist to explain this process. This paper builds upon a general theory of modular systems, to explain the migration of systems towards or away from increasingly modular forms. It then applies this model to a specific context: the adoption of modular organizational forms. In many industries, integrated hierarchical organizations are being replaced by non-hierarchical entities that are permeable and interconnected. This paper applies the logic of general systems modularity to explain why in some industries we may expect greater use of modular organizational forms such as contract manufacturing, contingent workers, and alliances than in other industries. The paper then presents data from 330 manufacturing industries that was used to test this model.