Value Creation and Value Capture at Manufacturing Firms : Importance of Non-functional Value

Most large Japanese manufacturers are good at creating value utilizing their engineering capabilities but poor at capturing value in terms of creating profit and added value. This paper discusses conditions to capture value, after explaining a distinction between value creation and value capture. In order to capture value, manufacturers have to (1) link manufacturing excellence with uniqueness and differentiation from competitors, and (2) create customer value, enticing customers to pay premiums for the differentiation, and to do these two things simultaneously. In the second half of this paper, we particularly focus on customer value and discuss the importance of the non-functional value. Non-functional value has become a critical factor for manufacturers to capture value by creating customer value.

The Influence of Customer Scope on Supplier's Performance in the Japanese Automobile Industry

Outlin

Deep-seated Value Creation in Japanese Manufacturing Firms: Accumulation of Organizational Capabilities and Management of Non-functional Premium Value (Japanese)

Despite having excellent capability for developing technologies and products, as well as for manufacturing, many Japanese manufacturers have been unable to link this capability with high business performance. New products, even those packed with new technologies developed in Japan, such as DVDs and flat-panel televisions, will soon be replicated due partly to increased product modularization. This paper discusses conditions that need to be satisfied in order to enable sustainable creation of added value without a product being replicated. In doing so, two related perspectives are taken into consideration. First, "long-term accumulation of organizational capabilities," rather than product differentiation and patents, is important in sustaining competitiveness. In this regard, the paper presents empirical data obtained from an analysis of 86 technologies that have long been contributing to the high performance of Japan's two major electrical manufacturers. Second, not only "functional value" based on numerically describable functions and specifications but also "non-functional premium value" is vital for sustaining high product value. Non-functional premium value refers to extra customer value; value recognized by customers as beyond the functions and specifications of a good and service. This includes, for instance, value derived by a consumer product fulfilling the personal tastes of a customer or value derived by production goods that provide solutions. Irrespective of Japanese companies' strengths in manufacturing capabilities, customer needs will soon plateau and this strength will become meaningless if functional value is all companies can offer. Japanese manufacturing is now being required to create deep-seated added value, that is, to create non-functional premium value through the accumulation of organizational capabilities. For the moment, however, Japan is facing particularly sizeable problems in creating such value.

Alternative Component Sourcing Strategies within the Manufacturer-Supplier Network: Benefits of Quasi-Market Strategy in the Japanese Automobile Industry

This study examines the component sourcing strategy of the Japanese automobile manufacturers, focusing on the sourcing concentration and the sharing common suppliers with competitors. We have analyzed sourcing strategy of six Japanese car assemblers (Toyota, Nissan, Honda, Mitsubishi, Mazda, and Suzuki) regarding 95 components. We have found that firms using a broad manufacturer-supplier network tend to be more profitable. In other words, firms with a low sourcing concentration and a high supplier sharing, which are the characteristics of quasi-market strategy, tend to perform better than the other firms. Among the six manufacturers, Toyota, Mitsubishi, and Suzuki were categolized as firms that followed quasi-market strategy. We believe that this finding is interesting because this relationship has been found in the context of the Japanese supplier-assembler relationship. The Japanese cooperative inter-firm relationship is supposed to be beneficial to suppliers, as well as to assemblers. It is commonly considered that a relatively exclusive keiretsu system facilitates these close inter-firm ties. However, the results in this study imply that a few leading Japanese automobile manufacturers may have management capabilities in benefiting from both a relatively broad supplier base and cooperative relationship with individual suppliers

Creating and Managing a High Performance Knowledge-Sharing Network: The Toyota Case

This study offers a detailed case study of how Toyota facilitates interorganizational knowledge transfers among within its production network. In particular, we identiify and examine six key institutionalized knowledge sharing routines developed by Toyota and its suppliers. By examining how Toyota facilitates knowledge-sharing with, and among, suppliers we are able to identify the key variables which influence interorganizational and network learning. Moreover, since Toyota is early in the process of creating a learning network with U.S. suppliers, we explore the creation and evolution of Toyota?s new learning "network" in the United States. We attempt to extrapolate from Toyota?s experience by developing a series of propositions regarding creating and designing a high performance knowledge-sharing network. We believe our analysis provides at least a partial explanation for why Toyota has been able to maintain its productivity and quality advantages long after the principles of the Toyota Production system have diffised throughout the industry (Knowledge Sharing, Interorganizational Learning, Competitive Advantage)

Capabilities of technology utilization and technology integration : Impact of 3D technologies on product development process and performance

Multi-functional technologies widely influence on organization and often require organizational technology integration capabilities to achieve the total effectiveness. Technology integration capability here implies not only utilizing technologies in the present setting of organizational environment but also reforming organizational process and structure towards total optimization. This paper aims to exam technology integration capabilities among Japanese and Chinese firms through questionnaire surveys regarding impact of 3D technologies on product development process and performance. The results indicated that Japanese companies improved their total performance with process reformation leveraged by 3D technologies; however, among Chinese companies, no significant relationships were observed among 3D technology usage, process reformation and the total performance improvement although they improve the partial performance such as manufacturability by utilizing the technologies. Chinese companies, which have a huge growing market and are on the process of rapidly improving their productivities without strong organizational inertia, could have enough advantage by utilizing technologies to improve the partial performance. On the other hand, Japanese companies, which compete in mature market and have already had highly efficient organizational process, could not find the merits of technology usage without technology integration capabilities. This would be regarded as disadvantage of process-advanced company that they cannot have enough incentive to introduce advanced technology and new entries have a chance to leap-frog the advanced companies in usage of technology in general.

The Influence of Customer Scope on Supplier Learning and Performance in the Japanese Automobile Industry

Most studies on Japanese supplier-automaker relationships have focused on the nature of the dyadic inter-firm relationship and the performance of the assembler. We examine the relationship between a Japanese supplier's "customer scope strategy" (i.e. number of customers) and the supplier's performance. By analyzing data on 125 suppliers, we found that a supplier with broad automotive customer scope tends to be more profitable and is better off with less exclusive ties. This relationship held even after controlling for supplier size, product type, and the underlying competitiveness/efficiency of each supplier. We argue that a broad customer scope strategy Ieads to superior performance primarily due to learning opportunities. This finding highlights a key liability of vertical integration since integration of inputs often limits the ability of in-house divisions to access new customers. However, there is a limit to the advantages of a broad customer base, since sales to 'unrelated customers' (e.g., non-automotive) did not have a significant impact on performance. In short, there appear to be diminishing returns to customer scope as suppliers add 'dissimilar' customers with requirements farther from their core knowledge domain. Thus, these findings offer empirical support for the knowledge based view of the firm which suggests that the efficient boundaries of firms are driven by knowledge domains/considerations. Our findings also suggest that studies that focus only on the advantages of long-term cooperative relationships may be misleading if interpreted to mean that an exclusive supplier-assembler relationship is the optimal solution for the supplier

Organizational Capabilities of Product Development: International Competitiveness of Japanese Automakers (Japanese)

This paper reports the results of an international comparison of productivity in automotive product development in Japan, the U.S. and Europe. This comparative survey was commenced by Harvard University in 1985. The first survey analyzed data from the 1980s, and detailed results showing the superiority of Japanese manufacturers were published by Fujimoto and Clark (1993). Subsequently data for the 1990s was collected twice, in 1995 and 2000. This paper analyzes the data from the entire 20 year period and reports on key points. The conclusions show that Japan's superior development productivity noted in the 1980s - measured by person-hours and development lead-time - continued until 2000. European and U.S. automakers had difficulty imitating Japanese firms' integrated organizational abilities. One fundamental problem is that the typical project member in Europe and the U.S. is highly specialized, with a narrow range of responsibilities. Since this problem arises from labor market systems, individual firms can do little to change it. This high degree of specialization means larger numbers of people involved in each project, making coordination complicated. Since project managers in Europe and the U.S. are also highly specialized, it is difficult for them to take responsibility for both product development and marketing (product concept) in the way that Japan's heavyweight project managers do.

International Assembly Plant Study: " Management of the Extended Enterprise" Research Team

During the past fiscal year, we have worked closely with a number of researchers from around the world to develop a questionnaire that will provide us with a fuller understanding of the value-chain issues that surround current automobile manufacturing. While centered on the assembly plant, we are also looking at the interface between the plants and their suppliers, as well as the plants and their distributors. We will summarize these efforts, as well as our timetable for data collection. In this writeup we are focusing only on the work undertaken in relation to assembly plants. We have also done extensive work in the Modularization/Outsourcing project that is helping to pave the way for some of the assembly plant work; please refer to the separate report on that project

In Which Industries Does Japan Excel? The Compatibility between Architecture and Organizational Capability (Japanese)

The first part of this paper discusses from a conceptual perspective the impact that the fit between product architecture and organizational capability has on competitive performance. Integral product architecture is compatible with capability to integrate after a project starts, while a modular approach is compatible with the ability to make selections before a project starts. Capability to integrate is what makes Japanese companies internationally competitive, whereas they are lacking in capability to make selections. If product architecture is integral, product functions are enhanced by coordination among component design parameters. Japanese firms' capability to integrate lies in their capacity to carry out such coordination effectively and efficiently. In contrast, modular product architecture does not require much design adjustment among components in order to achieve the product functions that customers want, and success comes from the ability to cautiously select pre-designed components procured on the global market. U.S. firms have strengths in such selection capability. In addition to product architecture, environmental uncertainty is an important factor when considering compatibility with organizational capability. Uncertainty means a situation where there is a wide range of business lines, products and technologies from which to choose, and where it is difficult to know which to select. A high degree of uncertainty over which components to select and how to assemble them is often a feature of modular production. In other words, selection capability is vital for modular production, since the level of uncertainty is high. The empirical research outlined in the second part of the paper shows that, faced with a high degree of business uncertainty, most Japanese firms produce disappointing results because they lack selection capability. The poor performance of household electrical appliance and IT manufacturers around 2000 is symbolic of this phenomenon.