Management of Technology and Innovation in Japan

244 D. Ge and T. Fujimoto
Discussion
By looking at both matrices of supplier involvement patterns and the empirical
study results, we can arrive at the following conclusions. First, functional modularity
of auto parts but no structural one has positive influence on supplier B’s
ownership of design drawings while being involved in new product development
of auto maker A. Put differently, the DA system is very likely to be chosen under
the condition of high functional modularity among auto parts. Second, the internal
complexity of auto parts positively impact the design outsourcing decision of auto
maker A either adopt the DA system or choose the DE system. This result is correspondent
to the term of “black-box” parts, although the cost structure of the supplier
derived from product and process design of auto parts are not so hidden from
the eyes of auto maker A during their long-term transaction relationship. Third,
the DE system, which is a hybrid system between the DA and DS systems, is
likely to be adopted under the conditions of high internal complexity and low
functional modularity.
Functional Modularity and the Choice of the DA and DS System
As we know, subject to the constraint of the bounded rationality, new product development
is in nature a searching process in which iterative efforts of trial-anderror
are made to explore the necessary cause-effect linkages that lead to one possible
solution. When such complicated tasks are conducted across the boundaries
of firms, coordination becomes more demanding. Therefore, the successful involvement
of suppliers into early stage of product development to take advantage
of concurrent engineering, design-for-manufacturing and front-loading of problems
to be solved depends upon managing the trade-offs between the productivity
benefits and coordination costs. We distinguish two kinds of coordination costs
here. One is measurement cost, the other is adjustment cost. The former refers to
the cost to detect the responsibility for design quality problems when there is failure
to achieve the desired performances in the testing stage. The latter is the cost
incurred by design changes that are inevitable during the iterative trial-and-error
process of design. Whether the design changes can be localized in a limited scope
so that a chain effect is not triggered and the need for change does not spread out
to the whole development agenda is important to inter-firm coordination efficiency.
Therefore, the result of positive relationship between functional modularity
of auto parts and the choice of the DA system shows that compared to the coordination
costs, the benefits of design outsourcing are more dominant in this
situation. The well defined interfaces of functional parameters of auto parts make
it easy to identify the problems and pinpoint the responsibility and to conduct design
changes without incurring a long chain reaction as well. The high-powered
incentive is then offered to supplier by letting them claim the ownership of design
drawings. While taking more responsibilities for design quality, supplier has more
motivation to make innovations and to expand its transaction network.