Design-Based Comparative Advantage

Design-Based Comparative Advantage ... --- The Monozukuri-Capability-Architecture Framework C Takahiro Fujimoto, ... Other Environmental …...

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Design-Based Comparative Advantage - Capability Building and Product Architectures –

June 2009 Takahiro Fujimoto Professor, Faculty of Economics, Tokyo University Executive Director, Manufacturing Management Research Center Senior Research Associate, Harvard Business School

Key Research Question What is the Most General Trend of the 21st Century? --- Globalization of Economy What is Globalization? --- Goods, Information and Money Moves Across Boarders --- But, A Country’s Comparative Advantage is Determined by Not- Easily-Movable (i.e., Sticky) Elements -- Capability --- International Division of Labor Based on Comparative Advantage (Ricardo’s 19th Century Prediction is Gradually Becoming True) --- Intra-Industrial Trade at a Very Microscopic Level

How Can We Explain These “21th Century Phenomena? --- The Monozukuri-Capability-Architecture Framework C Takahiro Fujimoto, University of Tokyo

Field-Based View of Industries and Firms An Industry as a Collection of Manufacturing Fields (Genba) that Share Similar Design Information and Spaces Economy In one area

Industry

Firm

Under one capital

Field (Genba)

Two Pillars of Genba-Based Industrial Analysis ① Organizational Capability in Manufacturing = The Way a Firm Creates Good Flows of Design Information to Customers better than Rivals. ② Architecture = The Way Design Elements (Functional, Structural and Process) Are Divided and Connected to the Whole C Takahiro Fujimoto, University of Tokyo

Evolutionary Framework in Social Science A Dynamic Framework that Explains Existence of Ex-Post Rational Systems or Artifacts Without Depending Entirely upon Ex-ante Rational Logic 3 Ways of Explaining Existing (Observed) Social Systems or Artifacts ① Structural Logic ・・・ Explaining What It Is ② Functional Logic ・・・ Explaining How It Moves for Users ③ Emergent Logic ・・・ Explaining How It Was Generated If We Need Both Functional Logic and Emergent Logic for Explaining a Given Structure (Structural Attributes of the System), Then We Need Evolutionary Framework for This Explanation. A Logic that Explains Variation, Selection and Retention of a Given Social System or Artifact. C Takahiro Fujimoto, University of Tokyo

Design-Based Comparative Advantage Decisions and Behaviors of Designers

CapabilityBuilding Environment CapabilityBuilding Competition

Customer or Market Requirements

Manufacturing (monozukuri) Capability

Fit?

(Selected by Products)

(local concentration) CapabilityBuilding Capability

Product-Process Architecture

Comparative Advantage of Design Sites

Other Environmental Factors, and Chances

C Takahiro Fujimoto, University of Tokyo

Constraints imposed by Society Constraints imposed by Technology

The Architecture - Capability Framework 1

Design-Information View of Manufacturing

2

Organizational Capability – Controlling Design Flows

3

Performance Measurement -- A Multi-Layer Approach

4

Product-Process Architecture

5 Capability-Architecture Fit --- Explaining Competitiveness

C Takahiro Fujimoto, University of Tokyo

Design-Information View: Interdisciplinary Background Technology and Operations Management (Innovation Management) Evolutionary Theory of Firms Resource-Capability View of the Firm in Strategic Management Product-Process Architecture in Engineering Combining Design Concept in Engineering and Trade-Industry Policy

Fit between Organizational Capability and Architecture →

Design-Based Comparative Advantage

C Takahiro Fujimoto, University of Tokyo

Framework: Design-Information View of Open Manufacturing Key Concept:

Design Information

=

Value

A firm’s products and processes are artifacts that has been designed. Manufacturing is essentially creation and transmission of design information to customers. A firm’s manufacturing (monozukuri) capability is its distinctive ability to handle flow of design information toward customers. Product-process architecture is designers’ basic way of thinking when creating design information for the product and processes. “Design” is the common denominator for these analyses. C Takahiro Fujimoto, University of Tokyo

Open Manufacturing (Monozukuri) Means Creating Design Information Flows to the Customers We focus on design (as opposed to material) side of manufacturing artifact = design information + medium c.f., Aristotle: object = form + material

design information

where form is more essential

medium

form material

Products (goods and services) are the artificial (= something designed)

manufacturing, if medium is tangible

design information tangible medium

service if medium is intangible

Primary source of customer value is design information C Takahiro Fujimoto, University of Tokyo

design information intangible medium

Open Manufacturing (Monozukuri) as a System of Design Information between Productive Resources Manufacturing activity is design information flows between productive resources productive resource design information

Design Information flow

medium

productive resource design information

product design Information flow

medium

design information

medium material (media) flow

customers

firms development

C Takahiro Fujimoto, University of Tokyo

production

sales

Design Information Body Exterior Design

0.8 mm thick steel sheet C Takahiro Fujimoto, University of Tokyo

Media (Material)

Design Information Body Exterior Design Embedded in Press Dies

Product Development

Production

0.8 mm thick steel sheet C Takahiro Fujimoto, University of Tokyo

Purchasing Meria (Material)

What is Going on at the Press Shop Body exterior design information, embedded in press dies (steel block), is transmitted to 0.8 mm thick sheet steel (media) Information transmission time = value-adding time Information non-transmission time = MUDA

press dies body design

transmission

cast iron

body design 鉄板

body panel C Takahiro Fujimoto, University of Tokyo

Sheet Steel (Media) Absorbs Design Information through the Press Operation

press die press die body design

body design

cast iron

cast iron

press die

press die body design cast iron

Design information, embedded in press dies, is transmitted to sheet steel C Takahiro Fujimoto, University of Tokyo

body design cast iron

The Architecture - Capability Framework 1

Design-Information View of Manufacturing

2

Organizational Capability – Controlling Design Flows

3

Performance Measurement -- A Multi-Layer Approach

4

Product-Process Architecture

5 Capability-Architecture Fit --- Explaining Competitiveness

C Takahiro Fujimoto, University of Tokyo

Design-Based Comparative Advantage Decisions and Behaviors of Designers

CapabilityBuilding Environment CapabilityBuilding Competition

Customer or Market Requirements

Manufacturing (monozukuri) Capability

Fit?

(Selected by Products)

(local concentration) CapabilityBuilding Capability

Product-Process Architecture

Comparative Advantage of Design Sites

Other Environmental Factors, and Chances

C Takahiro Fujimoto, University of Tokyo

Constraints imposed by Society Constraints imposed by Technology

Organizational Routines and Capability of Manufacturing Organizational routine of manufacturing ------

Repeated control of design information flow between productive resource

routine design info

design info

medium

medium

A system of organizational routines for fast, efficient and accurate flows of design information to customers

Organizational capability ------of manufacturing

routine

routine

routine

routine

routine

routine

design info

design design info info

design design info info

design design info info

design design info info

design design info info

design info

medium

medium medium

medium medium

medium medium

medium medium

medium medium

medium

C Takahiro Fujimoto, University of Tokyo

Elements of Toyota-Style Manufacturing Capability Design Information is Transmitted to Materials Creating Good Flows of Design (Value) to Customers Reducing MUDA (Non-Value-Adding Time) Maximizing Value Adding Time Ratio Total Process First, Individual Operations Next Lead Time Reduction First, Cost Cutting Next Pursue High Quality – Quantity Follows as a Result C Takahiro Fujimoto, University of Tokyo

Production Capability and Information Transmission productivity (#1station) productivity (#2station) (person-hour per unit) (person-hour per unit)

Value adding time (transmission) Value adding time (reception) Non-value-adding time Inventory, waiting, transporting, etc. Productive resource

cycle time

cycle time

Worker

Worker

Transmission side (working) Work-in-process

material

Reception side (process) design information flow

material flow

C Takahiro Fujimoto, University of Tokyo

#1 station

#2 station

Inven -tory

inventor y time cycle time

product

Tans port

Inven -tory

inventor y time

cycle time production lead time

Toyota’s Capability as a System of Manufacturing Routines

Figure 9

Organizational Capability Regarding Productuvity and Throughput Time (Toyota) product design for manufacturability Product Design (M+A+B)

B

revision of work designs by supervisors

flexible task assignment (shojinka)

pull system

Work Design Equipment Design

levelization of product mix (heijunka)

C Takahiro Fujimoto, University of Tokyo

in-house design of equipment

Parts Design (M)

M

incremental impovement of equipment low cost automation M

Worker and Equipment

supplier's Kaizen (impronements)

flexible equipment quick set-up change preventive maintenance

B

reduction of finished goods inventory

A

communication

visualizing non-value time (JIT, andon, line stop cord)

regular pace of information transmission (levelization, small lot)

process step 2

reduction of work-in-processi inventory or piece-by-piece transfer

process step 1

designing process flow pror to work & equipment design

M

JIT delivery

M

M+A

mixed-model (small lot) assembly

supplier Kanban

A

M+A+B

lshort-term levelization of production volume

A

workers participate in Kaizen (improvements)

Worker and Equipment

maximizing value-adding time

customer dealer

black box parts system

Work Design Equipment Design B

multi-skilled worker

parts design for manufacturability

supplier

reduction of raw material inventory

Toyota’s Capability as a System of Manufacturing Routines Figure 10

Organizational Capability Regarding Manufacturing Quality (Toyota) design for manufacturability Product Design (M+A+B)

M+A+B

M+A+B

Worker and Equipment

Worker and Equipment

quick feedback of defect information

B

M+A+B

dramatizing the defect information (andon, jidoka, etc.)

prevention from sending A error messages (poka-yoke, jidoka, etc.)

M+A M+A+B?

yes

M+A+B?

final inspection

process step 2

no

no

scrap or rework

scrap or rework

information flow material flow A,B,M

yes

yes

information content

reduction of inventory or piece-by-piece transfer

on the spot inspection

process step 1 no

scrap or rework

M

supplier's on the spot inspection

M

M+A?

yes

Key:

maintenance of process information stock (total productive maintenance, worker training, standard operating procedures)

Worker and Equipment Kaizen (continuous impronements)

customer

M+A

M?

elimination of inspection of receovomg parts no

supplier

supplier's Kaizen (impronements)

scrap or rework

inspection transformation productive resource

Toyota-style system as an integrative manufacturing capability C Takahiro Fujimoto, University of Tokyo

Product Development Capability Themes in Clark & Fujimoto (1991) Product Development Performance

(1) Early Supplier Involvement in PD (2) Applying JIT-TQM to PD (3) Overlapping Problem Solving (4) Compact and Coherent Team (5) Heavy-Weight PM as Champion The Key is “Early and Integrated Problem Solving “

New Information Technology is Necessary, but not Sufficient Organizational Capability is Key After All

C Takahiro Fujimoto, University of Tokyo

Information Patterns of Product Development at Effective Japanese Auto Makers supplier

car maker

concept

market

concept generation

continuous and direct input from market

early supplier involvement productplanning planning product

planning

engineering

release of preliminary information intensive supplier communication

process

overlapping solving problem

continuous elaboration of product concept

mutual adjustment

unstable unpredictable

product engineering quick problem solving

early information exchange and early conflict recognition continuous and direct contact of concept generation unit with all development stages

equivocal see-saw game in price and basic performance

process engineering production

production

Key:

alternatives

close supplier ties in operations

evaluation

final approval

information flow for actions

information flow prior to actions is omitted for simplicity Source: Adopted from Clark, Kim B., and Takahiro Fujimoto. Product Development Performance. Harvard Business School Press, 1991, p. 291.

total vehicle concept is key

Shortening PD Lead Time? Between Capability and Complexity Japanese Makers Shortening Lead Times Lead Times (Design Fix to Sales): Late 1970s -- 30 months Late 1980s -- 30 months Early 1990s -- 30 months Late 1990s -- 20 months +/2000-2010 - 20 months +/- ? Balance of Complexity and Capability Matters 3-D CAD-CAM-CAE is Necessary, but NOT Sufficient Condition Capability of Early Problem Solving by Early Simulation and Evaluation Much Fewer Problems Remaining at the First Prototype Stage But – Capability Effect is Offset by Complexity Effect ! C Takahiro Fujimoto, University of Tokyo

Shift of Cumulative Problem Solving Curve

reduction of problems between generations: maximize )

total number of actual problems of the previous mode l total number of actual problems

unfound problems: minimize

unsolved problems: minimize problem found

alternative proposed

solution verified

early problem solving dead line Time product development lead time C Takahiro Fujimoto, University of Tokyo

History Matters in Industry’s Capability-Building Decisions and Behaviors of Designers

CapabilityBuilding Environment CapabilityBuilding Competition

Manufacturing (monozukuri) Capability (local concentration)

CapabilityBuilding Capability

Other Environmental Factors, and Chances

C Takahiro Fujimoto, University of Tokyo

Evolutionary Hypothesis for Integrative Manufacturing Capability Common Experience during the High-Growth Era May Create A Common Set of Capabilities at Manufacturing Sites of the Same Country “Economy of Scarcity” ・・ Hungry Organizations Are Forced to Become Lean Common Experience of “Poverty” (Input-Hungry Situations) When the Organization Was Young, Small and Growing. →

Limiting Intra-Firm Division of Labor (= Multi-Skilled Workers) Promoting Inter-Firm Division of Labor (= Supplier Systems) 、 Promoting Coordination Inside and Between Firms (= Team Work)



Forced Increase of Productivity (High Altitude Trainings of Marathon Runners)



Subsequent Increase of Inputs Results in Rapid Expansion of Outputs, But Expansion of Supplies Also Intensifies Competition Among Firms. Capability-Building Continues in the Sectors of Tradable Goods.

・・ Partly Unintended Results of Industrial Histories in the Late 20th Century. C Takahiro Fujimoto, University of Tokyo

Three Levels of Toyota’s Capabilities 1. Routinized Manufacturing Capability Ability to Achieve Speed / Efficiency / Accuracy of Repetitive Information Transmission from Process to Product (e.g., Kanban, Multi-Task Work Assignment, Self-Inspection) 2. Routinized Learning Capability (Kaizen Capability) Ability to Achieve Speed / Efficiency / Accuracy of Repetitive Problem Solving Cycles (e.g., Kaizen, QC Story, Product Development Routines) 3. Evolutionary Capability (Capability-Building Capability) Ability to “Learn Anyway” in the Long Run --- or Ability to Establish Competitive Routines Despite Complicated Multi-Path System Emergence C Takahiro Fujimoto, University of Tokyo

The Architecture - Capability Framework 1

Design-Information View of Manufacturing

2

Organizational Capability – Controlling Design Flows

3

Performance Measurement -- A Multi-Layer Approach

4

Product-Process Architecture

5 Capability-Architecture Fit --- Explaining Competitiveness

C Takahiro Fujimoto, University of Tokyo

Design-Based Comparative Advantage Decisions and Behaviors of Designers

CapabilityBuilding Environment CapabilityBuilding Competition

Customer or Market Requirements

Manufacturing (monozukuri) Capability

Fit?

(Selected by Products)

(local concentration) CapabilityBuilding Capability

Product-Process Architecture

Comparative Advantage of Design Sites

Other Environmental Factors, and Chances

C Takahiro Fujimoto, University of Tokyo

Constraints imposed by Society Constraints imposed by Technology

1 Measuring and Analyzing Industrial Performance -- From Competitiveness to Profitability Figure 12 Capability, Competitiveness, and Profitability other factors of environments and strategy

Organizational Capability

Productive Performance

Market Performance

organizational routine

productivity lead time conformance quality etc.

price delivery perceived quality etc.

Arena of Capability-building Competition

C Takahiro Fujimoto, University of Tokyo

Profit Performance

Example: Productive Performance of Japanese Auto Firms -- Development Productivity (Adjusted Person-Hours per Project) -3500000 3000000 2500000 USA Europe Japan

2000000 1500000 1000000 500000 0 Period 1 1980-84

Period 2 1985-89

Period 3 1990-94

Period 4 1995-99

Adjustment scheme: (1) # of body types=2, (2) New design ratio=0.7, (3) Supplier’s contribution=0.3, (4) Product class=compact/sub-compact C Takahiro Fujimoto, University of Tokyo

*Following Graphs Cited from Nobeoka & Fujimoto(2004)

Example: Productive Performance of Japanese Auto Firms -- Assembly Productivity (Adjusted Person-Hours per Vehicle) -50 41.0 40

35.5

30 20

25.3

24.9 21.9 16.816.5 12.3

29.7 28.0

20.1

16.8

10 0 JP/JP 日/日 (Hours*Person)

US/NA 米/北米

1989

EU/EU 欧/欧

1994

Developi 新興国 ng Cont.

2000

Source: M. Howleg & F.K. Pil, The second century (IMVP Survey) C Takahiro Fujimoto, University of Tokyo

Example: Productive Performance of Japanese Auto Firms -- Assembly Throughput Time (from Welding to Assembly) --

Throughput Time (Start of Body Assy-Final Line off) 40.0

36.3

35.0 30.0

25.5

25.0 20.0

20.5

20.1 17.1

15.0 10.0 5.0 (hr.)

0.0

(Hours) JP/JP 日本

海外日本 北米 JP/NA NA/NA

欧州 EU/EU

韓国 KR/KR

Data: IMVP2000yr. Survey, made by Jeweon Oh, MMRC C Takahiro Fujimoto, University of Tokyo

Multi-Layer Evaluation of Performance Operational Capability (JIT, TQC,etc.)

Productive Performance (productivity, lead time,etc.)

Market Performance (price, brand identity, etc.)

Profit Performance (ROE, ROS, etc.)

Strategy, Environment (e.g., exchange rate)

Estimated Relative Performance in the Late 1990s Japanese

European

American

Who Gets these Four Performances in a Balanced Way? C Takahiro Fujimoto, University of Tokyo

The Architecture - Capability Framework 1

Design-Information View of Manufacturing

2

Organizational Capability – Controlling Design Flows

3

Performance Measurement -- A Multi-Layer Approach

4

Product-Process Architecture

5 Capability-Architecture Fit --- Explaining Competitiveness

C Takahiro Fujimoto, University of Tokyo

Design-Based Comparative Advantage Decisions and Behaviors of Designers

CapabilityBuilding Environment CapabilityBuilding Competition

Customer or Market Requirements

Manufacturing (monozukuri) Capability

Fit?

(Selected by Products)

(local concentration) CapabilityBuilding Capability

Product-Process Architecture

Comparative Advantage of Design Sites

Other Environmental Factors, and Chances

C Takahiro Fujimoto, University of Tokyo

Constraints imposed by Society Constraints imposed by Technology

3 Architectural Thinking and Industrial Classification Supplementary industry classifications -- based on product-process architecture Product architecture, Basic way of thinking of engineers when they design functions and structures of a new product Figure 4

Product Function

Product Architecture

Mapping between Functional and Structural Elements

Product Structure

Compo nent Interface

Interface Component

Sub-functions

C Takahiro Fujimoto, University of Tokyo

Basic Classifications of Product-Process Architecture Modular architecture one-to-one correspondence between functional and structural elements

Computing

PC

Projection

Projector

Printing

Printer

PC System

Integral architecture Handling many-to-many correspondence Ride between the functional Fuel Efficiency and structural elements

Body Suspension Engine

Automobile

Open architecture: Closed architecture: C Takahiro Fujimoto, University of Tokyo

“mix and match” of component designs across firm mix and match only within a firm

Three Basic Types of Product Architecture (1) Closed-integral , (2) Closed-modular, (3) Open-modular Figure 6 Basic Types of Product Architecture Integral small cars

Modular

mainframe computer

motorcycle machine tools

Closed

game software compact consumer electronics

LEGO (building-block toy)

personal computer (PC) Open

bicycle PC software internet

C Takahiro Fujimoto, University of Tokyo

Closed-Integral Architecture (Car)

Figure 6 Basic Types of Product Architecture Integral small cars

Modular

mainframe computer

motorcycle Closed

machine tools game software compact consumer electronics

LEGO (building-block toy)

personal computer (PC) Open

bicycle PC software internet

C Takahiro Fujimoto, University of Tokyo

Closed-Modular Architecture (Mainframe Computer)

Figure 6 Basic Types of Product Architecture Integral small cars

Modular

mainframe computer

motorcycle Closed

machine tools game software compact consumer electronics

LEGO (building-block toy)

personal computer (PC) Open

bicycle PC software internet

C Takahiro Fujimoto, University of Tokyo

Open-Modular Architecture (PC)

パソコンの写真を貼 り付ける Figure 6 Basic Types of Product Architecture Integral small cars

Modular

mainframe computer

motorcycle Closed

machine tools game software compact consumer electronics

LEGO (building-block toy)

personal computer (PC) Open

bicycle PC software internet

C Takahiro Fujimoto, University of Tokyo

Closed-Integral Architecture (unit-body)

Figure 6 Basic Types of Product Architecture Integral small cars

Modular

mainframe computer

motorcycle Closed

machine tools game software compact consumer electronics

LEGO (building-block toy)

personal computer (PC) Open

bicycle PC software internet

C Takahiro Fujimoto, University of Tokyo

Closed-Modular Architecture (Body-on-Frame, or Truck-type)

Figure 6 Basic Types of Product Architecture Integral small cars

Modular

mainframe computer

motorcycle Closed

machine tools game software compact consumer electronics

LEGO (building-block toy)

personal computer (PC) Open

bicycle PC software internet

C Takahiro Fujimoto, University of Tokyo

Quasi-Open-Modular Architecture? (Chinese local makers)

Figure 6 Basic Types of Product Architecture Integral small cars

Modular

mainframe computer

motorcycle Closed

machine tools game software compact consumer electronics

LEGO (building-block toy)

Similar Exterior Design to Honda, but Very Different Architecture ? -- Rear Drive, Truck Architecure, Toyota &Mitsubishi Engines Available personal computer (PC)

Open

bicycle

PC software internet

Quasi-Open-Modular Architecture? (Geely) Copying Foreign Integral Model + Modification

Figure 6 Basic Types of Product Architecture Modular

Integral small cars

mainframe computer

motorcycle

Mix and match of many copied-modified parts as “generic” parts

Closed

compact consumer electronics

LEGO (building-block toy)

personal computer (PC) Open

C Takahiro Fujimoto, University of Tokyo

machine tools game software



bicycle PC software internet

TATA NANO (India) base model price = $2500 (upper model is more expensive) More toward integral architecture than we expected

Figure 6 Basic Types of Product Architecture Integral

Different architectural strategies between Chinese and Indian local auto makers?

small cars

Modular

mainframe computer

motorcycle Closed



machine tools

game software

compact consumer electronics

LEGO (building-block toy)

personal computer (PC) Open

bicycle PC software

C Fujimoto and Ge, University of Tokyo

internet

Evolution of Architectures – a Macro-Micro Loop –

Customer or Market Requirements

ProductProcess Architecture (Selected by Products)

Constraints imposed by Society Constraints imposed by Technology

C Takahiro Fujimoto, University of Tokyo

Evolution of Architectures Designers’ Intentions -- or Chances

variation

selection

retention

Over-Performance Surviving Architectures Improving Functions

Designer

-- by Performance

Unintended Design Changes -- by Cost Simplifying Structures Under-performance

MicroArchitecture

C Takahiro Fujimoto, University of Tokyo

Constraints by Society, Markets, Physics --

MacroArchitecture

Loops of Macro-Architectures and Micro-Architectures Macro-Architectures ・・ are Selected by Society, Market and Technology Architecture of the Whole Product = Aggregation of Parts’ Architectures Macro-Architectures Affect Structures and Cultures of Industries and Firms Macro-Architectures Affects Micro-Architectures through Structures/Cultures

Micro-Architectures ・・ are Selected by Designers’ Intended/Unintended Behaviors The Same Product may Have Different Architectures Layer by Layer (Vertically), or Area by Area (Horizontally) Ex Ante, Designers Intend to Improve Performances or Decrease Costs by Changing Micro-Architectures Ex Post, Micro-Architectures that Survived in Internal/External Selection Environments are Aggregated into a Macro-Architecture of the Whole System C Takahiro Fujimoto University of Tokyo

Selection of Macro-Architectures ・ Technological Progress Expands Cost-Performance Frontier ・ The Same Kind of Products with Different Architectures May Have Different Cost-Performance Frontiers ・ Customers of Different Tastes (e.g., Performance-Oriented or Cost-Oriented) May Select Products of Different Architecture Performance-Oriented Customers May Choose Integral Architecture; Cost-Oriented Customers May Choose Modular Architecture ・ Architectures, Coordination Mechanisms, and Industrial Structures are Selected Simultaneously Modular Architecture -- Market Coordination -- Dispersed Industrial Structure Integral Architecture – Organizational Coordination – Concentrated I Structure ・ Organization’s Coordination Capability Building → Market’s Coordination Capability Building →

Shift to Integral Architectures Shift to Modular Architectures

・ Middle Range in the Architecture Spectrum Relational (Long-Term) Contracts and Other Hybrid Coordination Mechanisms. C Takahiro Fujimoto University of Tokyo

Technological Progress Expands Cost-Performance Frontier

Average Cost (Price)

t

t+1

t+2

Technological Progress Performance C Takahiro Fujimoto, Based on Shintaku (1986, 1994), University of Tokyo

Expanding the Frontier (Electric Calculator)

Casio

Price (yen)

Function Index C Shintaku

Sharp

Architectures and Cost-Performance Frontier

Average Cost (Price)

Modular

Intermediate

Integral

Performance C Takahiro Fujimoto, University of Tokyo c/f Aoshima and Takeishi, 2001

Overall Cost-Performance Frontier (Envelope)

Average Cost (Price)

Integral



Intermediate

Modular

Performance C Takahiro Fujimoto, University of Tokyo

Overall Cost-Performance Curve and Choice of Architectures Overall Cost-Performance Curve Average Cost (Price)

Customer Types and Overall Reservation Price Curves Price

Integral Indifference Curve of Performance-Oriented Customers



▲ Indifference Curve of Price-Oriented Customers

Modular Performance

C Takahiro Fujimoto, University of Tokyo

Modular

Intermediate

Choice of Price-Oriented Customers

Choice of Intermediate Customers

Integral Choice of PerformanceOriented Customers

Architecture, Coordination Mechanisms, and Organizational Capabilities

Selection of Architectures Environments Customer Tastes Social Constraints Technical Constraints

C Takahiro Fujimoto, University of Tokyo

Selection of Coordination Mechanisms

Organizational Capability for Coordination

Competitiveness Production Cost Coordination Cost Transaction Cost

Architecture and Coordination/Transaction Costs

Average Cost

Organizational Coordination

Average Cost

For Given N (# of Parts) ・・

For Given N (# of Parts) ・・

1 1/ N

Modular

Integral

Architecture Spectrum

C Takahiro Fujimoto, University of Tokyo

Market Coordination (Transaction)

Coordination Cost

Transaction Cost

= b0N+(b1N2)I

= c0N+(c1N)I

Total Factor Cost

Total Factor Cost

= a0



1/ N

Modular

Integral

Architecture Spectrum

= a0

Selection of Coordination Mechanisms by Architectures Average Cost

Market’s Transaction Cost

Organization’s Coordination Cost



1/ N

Market is Selected

Organization is Selected

Modular

Integral

Architecture Spectrum C Takahiro Fujimoto, University of Tokyo

Choice of Relational (Long-term) Transactions

Average Cost

Organizational Coordination Cost

Relational Transaction Cost Spot Market Transaction Cost 1

1/ N Market Modular

Relational Transaction

Architecture Spectrum

C Takahiro Fujimoto, University of Tokyo

Org. Integral

Coordination Capability Building, Choice of Architectures, and Choice of Coordination Mechanisms ① Choice of Architecture and Coordination Mechanisms (Before Capability-Building) Average Cost

② Choice of Architecture and Coordination Mechanisms (After Capability-Building) Average Cost Organization’s Coordination Cost(1)

Organization’s Coordination Cost(1)

Capability Building A

A Coordination Cost(2)

Transaction Cost (Market)

1/ N Market Modular

C Takahiro Fujimoto, University of Tokyo

Transaction Cost (Market) 1 Organization Integral

1/ N Market Modular

1 Organization Integral

The Architecture - Capability Framework 1

Design-Information View of Manufacturing

2

Organizational Capability – Controlling Design Flows

3

Performance Measurement -- A Multi-Layer Approach

4

Product-Process Architecture

5 Capability-Architecture Fit --- Explaining Competitiveness

C Takahiro Fujimoto, University of Tokyo

Design-Based Comparative Advantage Decisions and Behaviors of Designers

CapabilityBuilding Environment CapabilityBuilding Competition

Customer or Market Requirements

Manufacturing (monozukuri) Capability

Fit?

(Selected by Products)

(local concentration) CapabilityBuilding Capability

Product-Process Architecture

Comparative Advantage of Design Sites

Other Environmental Factors, and Chances

C Takahiro Fujimoto, University of Tokyo

Constraints imposed by Society Constraints imposed by Technology

Hypothesis: Capability-Architecture Fit at National Level A group of firms in the same country or region, facing similar environmental constraints, national-regional institutions, demand patterns or other forces specific to a particular geographical area may develop similar types of organizational capabilities Products with the architecture which fits this organizational capability tend to demonstrate competitive advantage (-- if not profitability) Figure 6 Basic Types of Product Architecture

History matters

Integral small cars

Modular

mainframe computer

motorcycle Closed

game software compact consumer electronics

Japan’s Architectural Comparative Advantage

machine tools LEGO (building-block toy)

personal computer (PC) Open

bicycle PC software internet

C Takahiro Fujimoto, University of Tokyo

Ratio of Export and Integral Architecture Index Scatter chart(1) (Regression Equation for Assembly products:52sample)

Ratio of Export and Integral Architecture Index Scatter chart(assembly products:52sample) 100.0% 90.0% 80.0%

Ratio of Export

70.0% 60.0% 50.0% 40.0% 30.0% Regression Curve

20.0% 10.0% 0.0% -3.000

-2.500

-2.000

-1.500

-1.000

-0.500

0.000

0.500

Week                          Integral Architecture Index                Strong Ratio of Export

C Oshika and Fujimoto, MMRC, University of Tokyo

1.000

1.500

Ratio of Export and Integral Architecture Index Scatter chart(2) (Regression Equation for Process-Oriented Products:43sample) Ratio of Export and Integral Architecture Index Scatter chart(Raw Materials products:43sample) 100.0% 90.0% 80.0%

Ratio of Export

70.0% 60.0% 50.0% 40.0% 30.0% 20.0%

Regression Curve

10.0% 0.0% -2.500

-2.000

-1.500

-1.000

-0.500

0.000

0.500

1.000

Week                          Integral Architecture Index                Strong Ratio of Export

C Oshika and Fujimoto, MMRC, University of Tokyo

1.500

2.000

Predictions on Architecture-based Comparative Advantage Japanese firms -- integration capability More competitive in products with closed-integral architecture. based on integration-based manufacturing capability Chinese firms – mobilization capability More competitive in labor-intensive products with open-modular (or quasi-open) architecture Korean (large) firms – concentration capability More competitive in capital-intensive products with modular architecture (moving toward integral?) ASEAN (and Indian?) firms – labor-retaining capability?? More competitive in labor-intensive products with closed-integral architecture? U.S. firms – conceptualization capability More competitive in knowledge-intensive products with open-modular architecture European firms – expression capability More competitive in closed-integral products based on brand-design-marketing capability C Takahiro Fujimoto, University of Tokyo

Architectural Geopolitics: A Prediction in the Pacific Region Integral Axis

Japan

Korea Modular Axis

China (south)

Taiwan

ASEAN India?

C Takahiro Fujimoto, University of Tokyo

US

Industrial Marathon Continues in Asian Industries What is Going On in the Early 21th Century? Globalization – as Realization of International Division of Labor Microscopic Intra-industrial Trade based on Comparative Advantage

The Key Is Architecture-Capability Fit -- Comparative Advantage of Design Capability-Building Competition Evolutionary Learning Capability Strong Strategies and Strong Operations C Takahiro Fujimoto, University of Tokyo

Reference •

Asanuma, B. (1989). “Manufacturer-supplier relationships in Japan and the concept of relation-specific skill,” Journal of the Japanese and International Economies, Vol. 3, pp.1-30.



Baldwin, C. and Clark, K.B. (2000). Design Rules, MIT Press



Clark, K.B. and Fujimoto, T. (1991). Product Development performance, Harvard Business School Press, Boston.



Fujimoto, T. (1999). The Evolution of a Manufacturing System at Toyota (OUP)



Fujimoto, T. (2007). Competing to be Really, Really Good, I-House Press, Tokyo.



Fujimoto, T. (2007) “Architecture-Based Comparative Advantage – A Design Information View of Manufacturing.” Evol. Inst. Econ. Rev. 4(1): 55-112.



Ohno, K., and Fujimoto, T., ed. (2006) Industrialization of Developing Countries: Analyses by Japanese Economists, National Graduate Institute for Policy Studies



Ulrich, K. (1995). “The role of product architecture in the manufacturing firm,” Research Policy, Vol. 24, pp. 419-440.



Womack, J., et al., The Machine That Changed the World (Rawson)