The paper addresses the question whether a modular organizational structure breeds mechanisms that promote proactive strategic flexibility. We examine this question from the perspective of the cognitive school of strategic management and with the aid of system dynamics modeling and simulation to explore long-term dynamic effects. Both our analysis and our experiments with the model suggest that modular organizations do not necessarily encourage the construction of managersí mental models with a capability to generate more strategic options and, thus, do not promote strategic flexibility at a higher degree compared to more traditional organizational structures.