Modularization in the Auto Industry: Interlinked Multiple Hierarchies of Product, Production, and Supplier Systems

This paper analyzes the modularization in the world auto industry. The modularization in the industry has involved architectural changes in product, production, and supplier systems with each region (Japan, Europe and the U.S.A.) emphasizing different purposes and aspects. As an attempt to understand such multi-faceted, complex processes coherently, this paper proposes a conceptual framework that sees development / production activities as interlinked, multiple hierarchies of products, processes, and inter-firm boundaries. With this framework, drawing on case studies and questionnaire survey data, the paper examines the on-going processes of modularization in the industry. It is argued that tensions exist among the three hierarchies, and such tensions may lead to further changes in product, production and supplier-system architectures in the auto industry, in a dynamic and path-dependent manner.Automotive industry, modularization, product architecture, production system, supplier system, hierarchies

Knowledge Partitioning in the Inter-firm Division of Labor: the case of Automotive Product Development

Drawing on an empirical study on automakers? management of supplier involvement in product development in Japan, this paper shows that when the design of a component is outsourced to a supplier, how much and what automakers know about the component matters for them to gain a better outcome. While the actual tasks of designing and manufacturing components could be outsourced, automakers should retain the relevant knowledge to obtain better component design quality. The paper argues that knowledge partitioning should be distinguished from task partitioning, and provides some implications for the knowledge-based theory of the firm. The results indicate that effective pattern of knowledge partitioning differs by the nature of component development project in terms of technological newness. For regular projects, it is more important for the automaker to have a higher level of architectural knowledge (how to coordinate various components for a vehicle) than of component-specific knowledge, which is supposed to be provided by the supplier. However, when the project involves new technology for the supplier, it is important for the automaker to have a higher level of component-specific knowledge to solve unexplored engineering problems together with the supplier. In innovative projects, effective knowledge partitioning seems to demand some overlap between an automaker and a supplier, rather than efficient and clear-cut boundaries, which are optimal for regular projects. Such ?fluid? nature of knowledge boundaries contingent on the project types poses a challenge for firms seeking both technological leadership as well as efficiency in established products. Developing and maintaining knowledge about an outsourced component is by no means easy. When the actual design tasks are outsourced, automakers miss substantial opportunities to gain relevant knowledge through learning by doing. Also, obtained knowledge may be diffused among competitors through shared suppliers. Another problem for automakers is that component-specific knowledge is important for only limited cases (innovative projects). Even worse, component-specific knowledge has a trade-off relationship with architectural knowledge. Such an inherent dilemma of managing knowledge, however, may provide some automakers with the opportunity to achieve sustainable competitive advantage. Additional analysis shows that one automaker managed both types of knowledge better than others in a manner that deals effectively with the dilemma. Its organizational mechanisms include career development policies, extensive documentation of technological information, internal training programs, and incentive schemes. The difficulty in implementing those mechanisms in a consistent and complementary manner seems to explain why there was a significant variance among automakers in knowledge level, even when the actual tasks were carried out by a shared supplier. (414 words)Massachusetts Institute of Technology?s International Motor Vehicle Program (IMVP),Grant-in-Aid for Scientific Research of Japan Society for the Promotion of Scienc

Knowledge Partitioning in the Inter-firm Dividsion of Labor: the case of Automotive product Development

This paper demonstrates the importance of knowledge for effective management of outsourcing. Drawing on an empirical study on automakers? management of supplier involvement in product development in Japan, this paper shows that the level of own knowledge is critical for automakers to gain better outcome from engineering outsourcing. While the actual tasks of designing and manufacturing components could be outsourced, automakers should retain the relevant knowledge to obtain better quality of component design. Knowledge partitioning should be distinguished from task partitioning. Furthermore, the results indicate that effective pattern of knowledge partitioning differs by the nature of component development project in terms of technological newness. For regular projects, it is more important for automakers to have a higher level of architectural knowledge (how to coordinate various components for a vehicle) than of component-specific knowledge, which is supposed to be provided by suppliers. However, when the project involves new technology for the supplier, it is important for the automaker to have a higher level of component-specific knowledge to solve unexplored engineering problems together with the supplier. In innovative projects effective knowledge partitioning seems to demand some overlaps between an automaker and a supplier, rather than efficient and clear-cut boundaries. This paper further reveals that some automakers manage knowledge better than others by combining various organizational mechanisms, including career development policies, extensive documentation of technological information, internal training programs, and incentive schemes. Difficulty of implementing those mechanisms in a consistent and complementary manner seems to explain why there is a significant variance among automakers in knowledge level.IMV

Mobile Innovation and the Music Business in Japan: The Case of Ringing Tone Melody ("Chaku-Mero") (Research Note)

This paper examines the development process and successful factors of the ringing tone melody downloading service, or "Chaku-Mero," in Japan. Chaku-Mero is a mobile Internet service in which a subscriber could download from a wide selection of music melodies his/her favorite with some fee to get it ring when the mobile phone receives a call message. This service is arguably the most successful m-commerce business in the world. According to three major mobile communication carriers, NTT DoCoMo, KDDI, and J-Phone, Chaku-Mero accounts for 40 to 60% of their paid service sales on the mobile Internet. Industry sources estimate that annual payment for Chaku-Mero reached approximately 80-90 billion yen in 2002 (currently US$1=120yen). Also, it has been argued that the Japanese Chaku-Mero service is the sole example of Internet cultural content business, be it fixed or mobile, in the world that has successfully overcome complicated conflicts and concerns of copyrights among different parties and created a significant market. The paper describes the process of how this business has evolved. It traces back the pre-mobile-Internet phase of related services such as the "Sky Melody" service by J-Phone and the wireless Karaoke business, which served as precursors of Chaku-Mero. Then the paper examines the business structure: the parties involved in the business, their relations, and how values are created and distributed among them. Also, the paper analyzes why some content providers have been more successful than others. A leading Chaku-Mero provider, for example, maintains more than 6.5 million subscribers and annual sales of 12 billion yen. Over all, the paper provides a preliminary study of mobile innovation in the music business, which is a part of a larger study of the history of interactions between technologies to create, record, distribute, and promote music and the music business. It would give some implications for the prospects of mobile Internet businesses for music and other cultural contents.

Modularization in the Auto Industry: Interlinked Multiple Hierarchies of Product, Production, and Supplier Systems

This paper analyzes the modularization in the world auto industry. The modularization in the industry has involved architectural changes in product, production, and supplier systems with each region (Japan, Europe and the U.S.A.) emphasizing different purposes and aspects. As an attempt to understand such multi-faceted, complex processes coherently, this paper proposes a conceptual framework that sees development / production activities as interlinked, multiple hierarchies of products, processes, and inter-firm boundaries. With this framework, drawing on case studies and questionnaire survey data, the paper examines the on-going processes of modularization in the industry. It is argued that tensions exist among the three hierarchies, and such tensions may lead to further changes in product, production and supplier-system architectures in the auto industry, in a dynamic and path-dependent manner

Reasons for Innovation: Legitimizing Resource Mobilization for Innovation in the Case of Okochi Memorial Prize Winners

This paper addresses reasons for innovation. Innovation requires resources to transform new ideas into products/services to be sold in the market and diffused in society. Yet in the earlier stage of innovation process uncertainty always prevails both technologically and economically. There is no objective consensus that the new idea will succeed in the end. It is thus necessary for those people who want to realize the innovation to show others both inside and outside the firm legitimate reasons for mobilizing their precious resources, including people, materials, facilities, and money, throughout the process toward commercialization. How do firms legitimize the resource mobilization for innovation? Drawing on 18 case studies on Okochi Memorial Prize winners, which our joint research project has carried out over last five years, and building upon the existing literature on internal corporate venturing, new ventures, and other related issues, this paper examines the innovation process of established Japanese firms from idea generation to commercialization with a primary focus on the process by which resource mobilization was legitimized.

Determinants of Firm Boundaries: Empirical Analysis of the Japanese Auto Industry from 1984 to 2002

We have assessed the determinants of the choice of integration, relational contracting (keiretsu sourcing) and market sourcing by seven Japanese automobile manufacturers (OEMs) with respect to 54 components in light of contract economics. Our major findings are the following. First, the specificity and interdependency of a component significantly promotes vertical integration over keiretsu and keiretsu over market, consistent with transaction cost economics. Second, interdependency is a more important consideration for the former choice than for the latter choice, and the reverse is the case for specificity. This suggests that the hold-up risk due to specific investment can be often effectively controlled by a relational contracting based on keiretsu sourcing, while accommodating non-contractible design changes may often require vertical integration. Third, while higher testability of a component makes the effects of specificity significantly smaller, it also promotes the choice of keiretsu sourcing over market sourcing. One interpretation of this last result is that while higher testability improves the contractibility of the component with high specificity, it simultaneously enhances the advantage of keiretsu sourcing since it provides more opportunities for the supplier to explore new information for a collaborative exploitation with an OEM.

Automobiles:Strategy-based Lean Production System

The present situations and future prospects of the Japanese automobile industry are discussed. Selected topics in this paper include the following: analyses of the basic product-industry characteristics of the automobile (e.g., product architecture); the mature of the dynamic competition in the world auto industry; competitive performance (e.g., productivity) of the Japanese auto makers; organizational capabilities of better Japanese firms in production, development and procurement; overall environments in the 1990s; the concept of ?balanced lean? system and its adaptation to environmental changes; new flexible production systems that cope with volume fluctuation; architectural strategies of the auto firms; modularization of parts; M&A and alliance; future of the automobile technologies and architectures; future of the capability-building competition

Business Ecosystem and Reverse Salient: The Development of the Mobile Music Business in Japan and Korea

This paper aims at exploring a mechanism of new business development. To understand how a business develops, we move our analytical focus from the level of a focal business to the level of the “business ecosystem,†a collection of related businesses and institutions. We pay special attention to a slowly advancing component as a “reverse salient.†We comparatively examine the developmental process of the mobile music business in Japan and Korea, and show how the interactions among related businesses and music copyright institutions as a reverse salient shaped the directions and speed of the development in each country