Knowledge Partitioning in the Interfirm Division of Labor: The Case of Automotive Product Development

Abstract

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) 1

Beyond Product Architecture: Division of Labour and Competence Accumulation in Complex Product Development

“…As it turns out, for many firms outsourcing design and engineering tasks guided by modular product architecture led to problematic consequences, such a substantial decay of architectural knowledge and a subsequent loss of control over development projects (Lincoln et al, 1998;Takeishi, 2001Takeishi, , 2002Chesbrough and Kusunoki, 2001). Empirical evidence indicates a gap in our understanding of the impact of product architecture on task allocation, in particular as a response to the question of what type of competences firms developing complex products should retain in-house and what rationale they should follow in taking this decision.…”

“…Empirical evidence indicates a gap in our understanding of the impact of product architecture on task allocation, in particular as a response to the question of what type of competences firms developing complex products should retain in-house and what rationale they should follow in taking this decision. For example, task allocation decisions can generate extremely negative consequences on a firms' ability to understand the components of a product and to integrate them into a system, leading to 4 decaying project performance (Fine, 1998;Brusoni et al, 2001;Takeishi, 2002). The question is: given the need of leveraging external sources of innovation, how can firms avoid the negative consequences of outsourcing design and engineering tasks?…”

“…Empirical research has found that in order to address the remaining interdependences, component-specific knowledge is required (Takeishi, 2002). Component-specific knowledge also matters for a second reason, i.e., because product technologies can change (including the interdependences between parts of the product).…”

“…Product architectures need to be adapted over time to counter the risk of being stuck with an inadequate decomposition scheme (resulting in not addressing the remaining interdependences and thus, loss of control of product performance) (Chesbrough and Kusunoki, 2001;Brusoni et al, 2001). Again, in order to be able to adapt decomposition schemes according to interdependences, component-specific knowledge is required (Brusoni, et al, 2001;Takeishi, 2002). Thirdly, empirical studies in the Japanese automotive industry have concluded that component-specific knowledge is particularly important in the case of technological newness (Takeishi, 2002).…”

“…Again, in order to be able to adapt decomposition schemes according to interdependences, component-specific knowledge is required (Brusoni, et al, 2001;Takeishi, 2002). Thirdly, empirical studies in the Japanese automotive industry have concluded that component-specific knowledge is particularly important in the case of technological newness (Takeishi, 2002). The reason is that new technology is less well-understood and thus, an understanding of the interdependences with other components of the system can only be developed through strong knowledge of the component-specific technology of the other components.…”