Adaptation to Technological Innovation and Corporate Core Rigidities

■2012 JSPS Asian CORE Program, Nagoya University and VNU University of Economics and Business Adaptation to Technological Innovation and Corporate Core-Rigidities Nagoya University TomomiHAMADA* ABSTRACT: This paper postulatesthat corporate core-rigidities affect an established firm‟s adaptation to technological innovation This manuscript further clarifies that when the implementation of new activities is sacrificed at the cost of an established firm‟s core-rigidities, the firm may find it difficult to incorporate (either incrementally or radically) new technological innovations into their operations To analyze these issues in greater detail, this paper evaluates the Toyota Motor Company as a case study for an organization‟s struggle to simultaneously adapt two innovations.Interviews at the Chinese production base for Toyota served as the methodology for this case study KEYWORDS: Architectural innovation, Radical innovation, Incremental innovation, Core-rigidities To considera firm‟s failures to adapt, to technological INTRODUCTION In previous research related to technological change, theclassification approach centers on analyzing innovation, a phenomenon has been theoretically and specific characteristics and propertiesof technological pragmatically explained whereby an established firm innovation cannot competitive problem.Historically, this approach has not adequately environment resultant from radical changes in the explained how, in some instances, established firms industry‟s technological capabilities When these have maintained their market position while launching technological changes occur, the industry is often a product that either (a) incorporates or (b) ignores inundated with new entries or outsiders, making for an technological innovations that highlight its value in a increasingly competitive environment(Cooper and changing environment Schendel, 1976; Tushman and Anderson, 1986; Cooper For example, Toyota Motor Corporationsucceeded in and Smith, 1992; Utterback, 1994; Tushman and situatinga hybrid vehicle (HV) in the existing O‟Reilly, 1996; Christensen, 1997; Tripsas and Gavetti, gasoline-dominated automobile market, although it is 2000) To consider the challenges posed to the capable of supplantinggasoline-powered vehicles (GV) established firm by innovation and environmental in the future Similarly, in an examination of the changes, researchers have tried to analyze and classify Polaroid the characteristics of technological innovationsthat (2000)discoveredadaptivedifficultyduring prompt large-scale technological change in a given organization‟s transition from analog to digital imaging industry This immediately adapt to the However, Corporation, stood in this raises Tripsas contrast to a and the potential Gavetti the Fujifilm Corporation,which developed a digital camera with For these reasons, understanding the cause behind flash memory despite their longstanding success with successful adaptation to technological innovation analog imaging requiresthe analysis offactors endogenous to the firm On the other hand, there is some evidence to suggest that stifle innovation implementation Such an that established firms sometimes experience trouble approach emphasizes a focus on an individual firm‟s adapting to even the most minor of technological organizational characteristics and properties In this innovations To expand upon an above example, manuscript, consider that Toyota may experience success related to automobile industry, HV and ULCV (representative of its HV models, but has failed to launch a ultra-low cost radical and incremental innovation, respectively) for vehicle (ULCV) in emerging markets as a means to be emerging markets, andanalyzeToyota‟s reactions to competitive there them In doing so, I seek toillustrate that corporate These casesdemonstratedoutcomesdiscordantfrom core-capabilities can hinder an organization‟s adaption thoseof previous research.Specifically, previous work to innovation, and that the innovations to which an in this field has historically shown that established organization fails to adaptare not always radical Iinvestigatetwo innovations in the firmsthat find radical or disruptive technological innovation difficult.However, cases such as those LITERATURE REVIEW mentioned above are not uncommon Most established In this section, I review the previous literature firms traditionallyattempt to adapt to survive future oncategorization of innovations, with a particular changes in the operational environment by learning emphasis on an established firm‟s adaptation and from the adaptive strengths and weaknesses of other organizational firms in the industry As a result of this learning process, Incremental innovation and radical innovation were the some firms gaina dynamic capability (Teece, Pisano, primary categories identified in the early stages of andShuen, 1999; Eisenhardt and Martin, 2000; Adner related research (Attlee, Bridges, and O‟Keefe, 1984; and Helfat, 2003) to acquire resources from resource Dewar and Dutton,1986; Tushman and Anderson, routes different from so far 1986).Incremental innovation is signified byrelatively reaction to such innovations Contrarily, firms that fail in incremental innovation minor technological change to anexisting product for development arealso no longer unusual.Theycannot improving and enhancing its extant function In adapt to incremental advances in technological contrast, radical innovation is indicated by large-scale capability, product changes in engineering or chemical technology that technological skills, competencies, capacities for yield products that are vastly different than those that research comparatively currently exist In addition to developing new products, abundant assets Clearly, there is some discrepancy radical innovations may succeed in pioneering new related to how well some firms adapt to technological markets in which to operate.Using the concept of innovation Some firms can adapt to innovations in “core-competencies”(Abernathy and Clark, 1985), their respective industries quickly whereas others Tushman and Anderson (1986) denoted that the cannot.Because of this, innovation categorization incremental theories that are contingent upon changes in firms‟ traditionallycompetence-enhancing physical or material capacities are insufficient for firms, revealing the underlying causes for why differences in competence-destroying for themAs such, radical adaptive capabilities exist innovation is typically brought into extant industries by despite and theirpossession development, and of innovationis while radical for established innovationis outsiders or new entries rather than established firms in environmental those industries innovation Henderson and Clark (1990) discussed product change, exogenous technological As the study of organizational problems in adapting to architecture in relation to the study of incremental and a radical innovation In doing so, they expanded organizational structural inertia (Hannan and Freeman, innovation categorization byfocusing on product core 1977) concepts withproduct Montgomery, 1988) have evolved as critical concepts components.Their research has enabled us to classify in organization theory (Henderson and Clark, 1990; incremental and radical innovation in a more structured Burgelman, 1991; Tushman and O‟Reilly, 1996; fashion Further, Christensen (1997) mentioned that Gilbert, 2005) Organizational inertia refers to a firm‟s radical innovation could have social and industrial tendency to maintain the status quo and is directly impacts that forceleading firms to withdraw from their related to the firm‟s age, size and complexity (Barnett respective industries He also supplemented the and Carroll, 1995).Organizations with high levels of existing innovation taxonomy by introducing the inertia may find it especially difficult to adapt to concepts ofsustaining innovation and disruptive environmental change (Hannan and Freeman, 1977) and their linkages innovation competitive and environment incumbent has inertia progressed, (Liberman and Focusing on the characteristics of core-capabilities Christensen‟s (1997) additions to the categorization of (Prahalad and Hamel, 1990), Leonard-Barton (1992) innovations have contributed to understanding not only demonstrated that firms with strong core-capabilities that some firms fail, but why they fail They tend to experience difficulty inimplementing radical accomplish this through quantitative and qualitative new observations of corresponding case studies They also core-capabilities as a“set of knowledge”thatis deeply demonstrated rooted in the knowledge and value-system of an competence a positive requirements relationship and between technological or activities.Leonard-Barton organization‟s constituents (1992) defined Core-capabilities are architectural change Further, they demonstrate that the comprised of four dimensions: values and norms, skills greater the discordance between extant competencies and and those required to innovate, the more difficult managerial technological these core-capabilities canprevent a firm‟s implementation of implications,we can predictthe degree of difficulty a new activities because changing them is extremely firm will experience in adapting to innovation by difficult As such, they can be rightfully dubbed observing innovation‟s “core-rigidities” Leonard-Barton (1992) described characteristics or attributes in relation to a firm‟s core-rigidities as theflipside of core-capabilities She competencies concluded that core-rigidities are those characteristics Despite adaptation and their becomes.Given categorizingthat contributions to the literature, knowledge base, technical systems systems, Furthermore, and some that contribute to an organization‟s structural or thesecategorizationtheoriesfail todirectly identifythe incumbent cause of a firm‟s difficulty in adaptingto innovation.In competitive other words, obstacles to adaptation originate from the position contributes to an understanding of those characteristics Because organizational characteristics that promote a failure to theycannot mention the fatal problem withina firm‟s adapt As a caveat, however, Leonard-Barton (1992) inappropriate actions in adaption, namelyendogenous argued thatcore-capabilities only hinder new activities organizational problem, even if they can detail external when of a givenorganization inertia, they thus environmental are making change accompanied adaptation to difficult.This with radical innovation.She made no conjectures regarding and primary respondents were top managers of these core-capabilities and their impact on implementing three firms Technical information related to machinery incremental innovations was available from industry experts Supplemental Regardless of the nature of an innovation (i.e., information about Toyota was obtained from publicly incremental or radical), the firm that strictly adheres to available sources, including annual reports, business its core-rigidities tends to experiencedifficulty in magazines, and newspaper articles These data were adapting to innovation Given this, I observe the case drawn primarily from Nikkei Business Press magazine of Toyota Corporation to analyze an established firm‟s and Nikkei Newspaper dilemma in balancing existing core capabilities and implementing new innovations in the industry It should be noted that this case study is currently in progress, so it is impossible to presently determine Toyota‟s strategy with respect to the ULCV METHODS AND DATA This research analyzes Toyota‟s core-rigidities and CASE STUDY current measures in dealing withtwo different Two innovations innovations, the aforementioned HV and ULCV for Toyota currently faces uncertainty in the form of two emerging markets I indicateToyota‟s core-capabilities innovations, HV and ULCV for emerging markets according to Leonard-Barton‟s research Following These industry innovations require Toyota to take this,Iobserve whether(a) these core-capabilitiesfunction immediate action, but must be careful about how to as rigidities in reacting to innovations,and (b) whether proceed in the future.Toyotahas already launchedits new HV model, Prius,and maintains a 70% market share of activities required to implement new innovationare in contrast with Toyota‟s core rigidities the world HV market.However, it has thus far been Practically speaking, it is sometimes arguedthat ULCV unable to launch a ULCV priced low enough to for emerging markets is not a technological innovation establish a strong presence in Brazil, Russia, India, However, because the ULCV is intended to improve and/or China (BRIC), widely accepted to represent the cost performance of an existing product and that strong emerging markets for ULCVs.In this section, I improvement requiredthe development of a revamped consider how changes are required in the two types production system, supply and suppliers system, and ofinnovations, and why Toyotawill continue to product architecture, ULCV can be called an experience difficulty in propagating its ULCVsdespite incremental“innovation” its success with its HV model To validatetheoriesdevelopedfrom open First, the changes and impacts of the two sourceinformation and extant literatures, interviews innovations should be considered HV is strongly were conducted with the executives of three Toyota considered to be one of the automobiles that can fully Group Chinese production bases These interviews supplant GV in the future.Factors such as increasing were carried out at Guangzhou Toyota Motor Co., Ltd fuel prices, enhanced regulatory environment, and (GTMC), Denso (Guangzhou Nansha) Co., Ltd increasing public eco-awareness have stimulatedstrong (DMNS), and Aisin Seiki Foshan Automotive Parts sales growth for HVs According to Toyota, for Co., Ltd (ASFA) Interviews wereconductedorally, example, HV sales have increased annually, from 6,400 units sold in 2000 to over six million units sold With faculty members of universities in the Tokai area of Japan, I made an appointment through Japanese headquarters and visited these Chinese production bases to carry out interview research with executives in March 2012 in 2011.Although this growth indicates a strong guaranteed However, even with such uncertainty, movement toward HVs, the advent of the fully electric Toyota anticipates its HV to become the primary vehicle and performance improvements of the GV vehicle of choice in the future suggest that the growth of the HV is not fully Table Principal changes in automobile parts of component modules between GV and HV GV Main Component/Car Type Example Power Train Engine (Motor) Mechanism Element Transmission Mechanism Element HV Toyota [Premio] Toyota [Prius] 4-cylinder engine + CVT Belt (2) Water pumps Air compressor Rolling bearing (18) Spool valve (8) Electromagnetic solenoid (5) Brake and clutch (2) Pulley (2) Planetary gear CVT Belt Torque Converter Lock-up clutch Alternator Starter 4-cylinder engine + hybrid system ― Accessory Drive, Traction and Power Generating Motor ― Battery, Inverter Rolling bearing (14) Planetary gear (2) Damper Traction motor Power generating motor Air compressor Engine cooling Motor/inverter cooling Dynamo-electric brake High pressure battery (Ni-MH) Inverter DC-DC Converter Battery monitoring system High pressure harness Source: Nikkei Automotive Technology (2010)p31, and author revised partially Notes: the number of parts shown in () is estimated in generic research of Nikkei group, and not actual number Although it has experienced success with its HV The automobile markets in developing countries model, Toyota also should simultaneously considerhow have also been rapidly expanding According to to deal with the emergence of ULCVinnovation in FOURIN World Automobile Statistical Yearbook emerging markets Because the majority of automobile (2010), the ratio of sales in emerging markets in markets shift from developed countries to developing developed countries is increasing annually and countries characterized by economic and population exceeded 50% in 2010.Those in the middle income growth, launching ULCV models has become a bracket in emerging markets will require an automobile priority among established automobile firms A priced appropriately for their income level The ULCV 2010survey by Euromonitor International showed that can be that automobile the total middle-income population in developing Thus far, Toyota has been unable to price its ULCV countries (annual disposable income: $5,000~$35,000) model lowenough relativeto rivals, so its share of increased from 0.6 billion in 2000 to 2.8 billion in 2010, emerging markets remains modest Incontrast, firms while the low-income population (less than $5,000) that are ranked lower in the world market are decreased from 3.2 billion to 1.4 billion over the expanding their share in emerging markets by sametime economic implementing a low cost strategy FOURIN (2010) situationisimproving, emerging markets in developing reported that Toyota‟s ULCV market share in BRIC are countries show potential to further expandin the future Toyota is 2% (9th), 5% (5th), 1% (not reach 10th), 6% frame Because their (6th), respectively.These numbers are low transmission components Simultaneously, the power comparedwithother established rivals like Hyundai output from the motor battery has drastically increased Motor Company, Volkswagen Passenger Cars, Nissan Taken together, this means that the component and Renault Even local firms have performed better architecture has been fundamentally altered Due to than Toyota‟s ULCV in some emerging markets this drastic change in product architecture, the new Next, I will focus on product architecture in the technologies inherent in HVs are indicative of a context of these two innovations First, Idescribethe “radical architectural differences between GV and HV See 1990).Additionally, HV stands asa viable alternative to Table for a summary of these differences GV, so it can also be considered a “disruptive The power source of new automobiles has transitioned from gasoline to electricity, thus reducing innovation” (Henderson & Clark, innovation”with potential for replacing GV in the future the number of parts required for the engine and Table 2.Variety of Measures in ULCV Measures in Cutting Cost Detail Example of Measures  One door mirror at driver side, One windshield wiper, no backdoor, no wheel cover, comparative small trunk space, no tail gate, no air-conditioner/defroster/vacuum booster, fixed seats, not plastic indoor cover, no power window, no bumper painting (Tata)  Meter: analog speedometer without tachometer Lamp type fuel gauge (Tata)  The rate of modularized Parts from suppliers reach 80% (Tata) Reducing of Process Number in  Cutting the number of parts, reducing press section to the limit to short manufacturing process Manufacturing  Pressed parts changed to pipe and cut equipment expenses (Tata)  Communize similar shaped parts to the limit, and modularize by changing slightly product architecture (VW)  Full speed set in 105km/h without disk brake in front wheel and anti-lock brake system (Tata) Function and Specification Cut  Sliding mechanism is set only in driver‟s seat, and without reclining (Tata)  Arranging beads partially in car framework, ensure basic stiffness (Nissan) Weight Saving  Omitting partially high cost damping material, more low grade material such as resin form laid on floor (Nissan) Source: Nikkei Automotive Technology, Nikkei Monodukuri, Nikkei Business Survey is based on each firm‟s standard modelautomobile The Number of Parts Cut Similarly, some changes are required for the successful Toyota’s Core-capabilities and Core-rigidities launch of ULCV in emerging markets.Fundamentally, Although Toyotapossesses the highest standard of “gasoline-engine technology in the world and has used that technology the product concept automobile”remains unchanged However, ULCV to requires exhaustive cost cutting in manufacturing withoutreservation, it has shown difficulty in adapting Withouta changein the existing design method, to manufacturing process, and quality management, Additionally, in March of 2012, Toyota declared that it automobile manufacturers cannot offer ULCVs at a had no plans toenter the ultra-low price market as price low enough for emerging markets, particularly in “Toyota bland.”In this section, I analyze the four developing 2, dimensions of Toyota‟s core-capabilities (which, given somefirmsachieve price reduction by minor changes in their organizational inertia, can be considered product architecture or the manufacturing process core-rigidities) in the context of the organization‟s without sacrificingthe safety and utility of their historical experience I then verify hypothesis through automobiles These changes in architecture are minor, interview observation however, and the product concept is not dramatically According to Leonard-Barton‟s (1992) four dimensions, altered skills and knowledge base, managerial systems, countries As Consequently, shown inTable ULCVsrepresent an“incremental innovation” from existing GV launch incremental radical innovation innovation, like specifically HV ULCV technical systems, and values and norms, Toyota‟s exclusive core-capabilities can be described as follows: Toyota‟s knowledge of methods to improve quality Dominant knowledge regarding quality and and safety serve as the skills and knowledge base safety, described in Leonard-Barton‟s (1992) taxonomy of Long-range cooperation labor-management, and with suppliers, capabilities As evidenced byKaizen‟sactivities, every the Japanese constituent believesin givingthe highest priority to management system, safety Education and training related to product safety The Toyota Production System (TPS), and at Kaizen are extremely thorough.Additionally, A distinct culture and philosophy because product performance (particularly with respect These core capabilities are displayed in Figure to safety) is subjected to strict self-evaluation criteria Toyota‟s automobiles have received positivefeedback Figure1 Four Dimensions of Toyota‟s Core-rigidities fromJ D Power and Associates‟Initial Quality Study, which sets a worldwide standard for quality evaluation Through high quality and safety standards and TPS, KNOWHOW OF QUALITY AND SAFETY Toyota has succeeded in distancing itselffrom itsWestern rivals and only continues to improve Toyota‟s skill and knowledge base is critical for implementing HV because it allows for the targeting of DISTINCTIVE CULTURE AND PHILOSOPHY existing users in the GV market A “user‟ssense of values LONG TERM COOPERATION IN TOYOTA GROUP TPS regarding automobile quality”remainsunchanged, so Toyota can differentiate itself fromrivals by using its established advantage in quality and safety This dimension offers Toyota a These capabilities have been strengthened and protected and have long been considered to be a source sustainable competitive advantage not only in traditional GV, but also in the HV market of competitive advantage against Western firms Unfortunately, Toyota‟s strengths in regard to this Because they are largely intangible and are integrated dimension hamper the organization‟s ability to so of implement cost cutting strategies required for theorganization, their removal would be extremely launching an ULCV To maintain theexclusive benefits difficult.Therefore, thesecore-capabilitiesmayfunction garnered from building a high reputation regarding the as rigidities when the firm implements new activities quality of its automobiles, Toyota cannot launch a Given this, we can begin to understand why Toyota productfalling below the existingstandardfor quality as cannot successfully launch ULCV despite its huge designated by the company‟s self-evaluation criteria success in launching HV Below, I detail the properties Ultra-low pricing requires revampingquality evaluation of each of the four dimensions of core-capabilities criteria and drastically altering expectations about (Leonard-Barton, 1992)anddescribe how each affects quality standards.As such,Toyota should remove this the implementation of both HV and ULCV, particularly dimension from its core-capabilities if it aims to when core-capabilities are so ingrained as to be successfully launch ULCV Such cost cutting proposals considered core-rigidities coupled with a degradation in product quality must be deeply into the corporate resources ordered from top management since employee Skills and Knowledge Base education about quality and safety is ingrained through all aspects of the organization and behaving accordingly And also in HV, they formerly cope with R&D and manufacturing to supply Management System parts of HV to Toyota So the suppliers of minimum Toyota‟s core-capabilities related to its management necessary which Toyota should protect according systemare long-range cooperation with suppliers, toCSR are remained as it was in Keiretsu of HV labor-management cooperation, and a conventional Therefore Toyota‟s suppliersdo not obstruct Toyota Japanese management system Among these, the most fromlaunching HV important point in considering the management To launch ULCV priced low enough for emerging system‟s relationship with drastic and incremental markets, Toyota should switch from the high-cost innovation is the cooperative relationship with Japanese suppliersof Toyota Group to local suppliers suppliers Toyota‟s cooperative relationship with offering comparatively low prices and quality parts suppliers is sustainable, based on customary mutual However, Toyota switching suppliers could damage trust, and adheres toToyota‟s standards for corporate therelationship with Toyota Group suppliersas CSR social The activities.Betraying the expectations of Japanese firms Japanese-specific Keiretsu (pyramid) system, which would likely result in a damaged corporate image illustrates the relationship between Toyota and its Additionally, some of Toyota‟s suppliers (and suppliers, can be imagined as much stronger closely employees) are dependent upon Toyota for financial united “value-network” described by Christensen stability Abandoning these suppliers could leave these (1997) The Toyota Group contains approximatelya firms in financial ruin, thus further damaging Toyota‟s dozen tier one (T1) suppliers They are all Japanese image This runs contrary to Toyota‟s declaration of firms dedicated to the same standards of product cooperation with suppliers As such, a change in supply quality and safety as the Toyota Corporation Therefore, management stands as an obstacle in cost cutting, and the quality control and knowledgeof Toyota Group‟s thus is also an obstacle in launching ULCV suppliers responsibility are However,Toyotadoes and philosophy considered nothave the exemplary managerial Technical System capability to oversee the thousands of suppliers on the With respect to the technical system component of lower levels of the Keiretsu pyramid.So, Toyota Toyota‟s core-capabilities, the corporation utilizes a entrusts T1 suppliers to manage those suppliers at Tier number of sophisticated technologies that are often 2, and does not deal with them directly referred to as “lean production systems” in the West By altering parts in a product architecture, a firm As the industry has grown, Toyota has differentiated likewise alters the network from which it obtains itself from its Western rivals by establishing a supplies In the case of the transition from GV to HV, just-in-time (JIT) inventory system, multiple small the parts equipped in the engine motor, drive system, quantity production systems, total quality control transmission device, and steering gear system of (TQC) and improvement (Kaizen) activity, production GVsareeliminated due to the drastic change in product leveling, multi-skilled worker development, and architecture As such, suppliers of these parts are automating subsequently excluded from Toyota‟s value network production system has proven to beefficient and Despite the ever-changing myriad supplies Toyota requires to produce its HV, its T1 suppliers are able to maintain demand by predicting product innovations various production outcomes.This methodical to the point that even rivals attempt to imitate it for financial gain In actuality, this system is not an obstacle to launching HV Although the modular parts supplied to intangible nature, Toyota‟s values are extremely rigid Toyota for their HV line are different than those To launch ULCV, Toyota should adjust itshigh-level supplied for their GV line, the assembly process quality evaluation criteria.For example, by accepting remains unchanged As such the production system can lower grade raw material or parts, Toyotacan foster a remain the same, although the architecture changes less stringent adherence to established norms and And somewhat.To illustrate, in Tsutsumi factory in Toyoda removing city, new“Prius”line supplementary safety cannot be accepted by existing concordantly with their traditional GV models, safety evaluation criteria of Toyota.It requires Toyota the“Camry” and “Premio.”This indicates that HV abandon pride,established status, and corporate identity requires no change in the established TPS concept corresponding to “world highest quality” And traffic Toyota manufactures their On the other hand, technology related toTPS also facilitates the launching of ULCV TPS makes a short deft movement is ideal style in slightly cost cutting and additional functions strengthen accidents due to it would injure Toyota‟s reputation Toyota is afraid it above all else in launching ULCV Given everything discussed above, Toyota‟s improving cost performance TPS has been established core-capabilities have a minimal impact on the launch as providing the highest quality and safety precautions of HV The target user of HV is the same as theGV, so a at every point in the production process So if it would change in theevaluation criteria about quality and be intended drastic cutting cost with sacrificing them to function of the product are not needed Technologies launch ULCV, production system requires change such and skills required in launching HV are also not in as reducing of process in manufacturing and promoting contest with existing core-capabilities, so Toyota can modularization of parts.Additionally, communizingthe obtainthem interface among parts production modules simplifies repercussions the production system but requires a durability ofperformingradical product architectural change in downgradeby way of reducing theintegration process shifting from GV to HV immediately Therefore, without Toyota detrimental is capable This would lead Toyota to concede its advantage in However, launching ULCV is in contest with integration technologies This, in turn, would destroy Toyota‟s core-capabilities in some aspects.Most the main concept of TPS Therefore, TPS is both a primarily, for Toyota to adhere to its established benefit and a detriment in launching the Toyota ULCV high-quality criteria, it cannot meet the low costs line needed to produce a viable ULCV To verify that thehypothesis about Toyota‟s Values and Norms core-rigidities in ULCV is accurate, Iinterview top The above described dimensions of Toyota‟s core managers of three Toyota Groups firms It is to a capabilities comprisethe organization‟svalues and discussion of these interviews I now turn norms They are informally called “Toyota‟s DNA”and permeate corporate culture, organizational structure, INTERVIEW and the personal values of employees and managers In this section I detail the results of interviews with These values have a tendency to remain extremely top managers from GTMC, DMNS, and ASFA rigid since they have been established through the Specifically, Idocument how the top managers of experienced successes of the organization.Established production bases near emerging markets feel about firms, especially those with a history of success tend to Toyota‟s core rigidities and their impact on launching maintain their core values Coupled with their the ULCV line of automobiles The interviews focus onrespondents‟ intention tolower prices by reducing switch from Japanese to Chinese suppliers, which can existing quality evaluation criteria, what kinds of offer cheaper parts at a reduced level of quality They dilemma they encounter, and whether they intend to consider abandoning the long-term relationship with switch Keiretsu suppliers suppliers in Toyota-Keiretsu and intend to sever it to The strategic policies of the three firms regarding a switch to local suppliers are nearly unanimous To the extent that Toyota‟s quality evaluation criteria permit launch ULCV, they must possess a willingness to Table Parts of Interview Questions and Answers Rate of Local Procurement GTMC Nearly 100% Current Situation of Procurement from Chinese Firms Buyers of all suppliers 163, and planning to expand local procurement - Plan to switch procurement from Japanese to Chinese suppliers Yes, but it has not yet found a partner Plan to cut product cost Yes, [measure] decreasing transaction prices of parts Plan to cut quality evaluation criteria to reduce cost The departments absolutely need Japanese managers However,interviewsalso the No Quality assurance, R&D, and operation management These departments need constant contact with the Japanese headquarters suggestthat Toyota DMNS Approximately 15%(the rest is from internal procurement) Approximately 1% until 2008, and now promoting local procurement Toyota 50% Nissan 20% Foresees firms such as Hyundai, VW, Fordetc.30% Yes, searching and expanding Chinese suppliers, and switching is dependent on Buyers quality evaluation criteria Yes [measure] making manufacturing equipment in the firm and increasing the rate of local procurement No for Toyota, depends on parts/partner Quality assurance ASFA Nearly 100％ 21, and exploiting local procurement Toyota 100％ Yes, but it has not yet found a partner Yes, [measure] searching for a Chinese firm to supply low-grade materials or building machines No Quality assurance, knowhow-related (especially casting section) department and Chinese culture.Japanese managers at Toyotaare subordinate firms have extreme difficulty in lowering conscious that their own DNA attaches greater the grade of quality evaluation criteria The top importance to high quality relative to manufacturing manager of GTMC stated that Toyota does not efficiency currently consider cost cutting at the expense of quality Quality care is also an obstacle to improving the rate a viable strategy Managers at DMNS and ASFA of resource procurement from local Chinese firms expressed similar sentiments.Additionally, thetop ASFA‟s technology department manager noted: “At managers of the three firms noted that they would this time, we have no criteria to evaluate their never remove a Japanese manager from quality products‟quality from a technological perspective control.ASFA‟s manager commented: “When I asked a because they have not caught up with our agreed Chinese employee to adopt Kaizen improvements, he quality level No firms can answer our requests, replied „why should I this?‟” This comment excluding Japanese firms.” ASFA is thus struggling to suggests that Chinese employees not yet develop local Chinese firms as suppliers fullyunderstand Toyota‟s quality values ASFA also Japanese managersare also conscious that their experienced its automobile is not priced lowenough to appeal to the manufacturing line when it tried to implement middle-class of emerging markets GTMC‟s top manufacturing methods that are more amenable to manager said, for example, that“comparative high quality-controlproblems in pricing is one of the causes for poor sales.”Top dimensions of the firm‟s core-capabilities and the managers of DMNS and ASFA likewise stated,“we are implementation of new production activities are in under pressure from Toyota to slash costs, but its contrast with one another This research also revealed quality evaluation criteria is still high So we cannot that innovations to which a firm cannot adapt need not offer it appropriate proposition ofparts price [sic].” be radical or disruptive in nature Incremental In regard to Toyota‟s future movement into the Chinese innovations can be just as difficult to adapt to market, all managers agreed:“For launching an appropriate priced product to market, we should This case study also provided the following suggestions: consider applying lower priced low grade parts or When a firm faces a new innovation, it must materials, and also exploit local suppliers‟ networks for consider whether its core capabilities are a it But we cannot accomplish [sic] with using existing facilitator or obstacle to adopting that conventional ordinal design drawings so far, we should innovation drastically revise design drawings frameworks, If the emerging innovation is a “disruptive supplier specification innovation” that will replace an old product, evaluation criteria, and evaluation criteria from scratch.”Based on this, there the firm must abandon those core seems to be a consensus among managers inside the capabilities that hinder that innovation‟s Toyota Group that an inherent trade-off exists between adoption emphasizing quality and expanding market share As noted above, ULCV is an incremental Under thesecircumstances, Toyota aims to balance innovation,not accompanied by radical technological functionality and cost by increasing transactions with change, but launching it requires radical new creative local perspectivesin Chinese firms and pursuing innovative manufacturing, designing, and technology through low-cost manufacturing, but marketing Technological changes in launching ULCV without sacrificing quality may be incremental, but they require the firm‟s values In conclusion, the interviews clarified that Toyota and to be changed.As such,established firms should deal Toyota Group firms have recognized that their specific with “incremental innovation” with “radical new” strict quality evaluation criteria and organizational perspectives It is too risky, and potentially costly, to values system areacting as obstacles in launching dismiss incremental innovation as “just incremental.” ULCV Still, they expressed a willingness to change Because corporate core-capabilities are, by their rigid dimensions by revising design drawings, definition, inherently built into the historical culture of making minor conceptual changes in TPS, and an organization, they are not easily changed or exploiting local suppliers to the extent possible These abandoned.In consideration of this point, for the rigidities may be more amenable to change than the established firm which faces a novel innovation, a more ingrained values and norms that serve as determination of a strategy about the adoption of that obstacles to launching the ULCV.In sum, the innovation is paramount.Thefirm should alsorecognize interviews revealed that Toyota currently facesa whether existing core-capabilities are in contrast dilemma in launching ULCV due to its core-rigidities withadapting that innovation, clarifyingexpendable dimension(s)of core-capabilities, and developing a the DISCUSSION AND CONCLUSION This case studyclarifies that a firm may experience difficulty inimplementing new activities when four strategic planfor abandoningthem to adapt the innovation effectively ACKNOWLEDGMENTS Vol.30, pp.682-695 This research was supported by the Grant-in-Aid for Asian CORE Program "Manufacturing and Environmental Management in East Asia" of Japan Society for the Promotion of Science (JSPS) Gilbert, C G (2005) “Unbundling the Structure of Inertia: 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