In Which Industries Does Japan Excel? The Compatibility between Architecture and Organizational Capability

The first part of this paper discusses from a conceptual perspective the impact that the fit between product architecture and organizational capability has on competitive performance. Integral product architecture is compatible with capability to integrate after a project starts, while a modular approach is compatible with the ability to make selections before a project starts. Capability to integrate is what makes Japanese companies internationally competitive, whereas they are lacking in capability to make selections. If product architecture is integral, product functions are enhanced by coordination among component design parameters. Japanese firms' capability to integrate lies in their capacity to carry out such coordination effectively and efficiently. In contrast, modular product architecture does not require much design adjustment among components in order to achieve the product functions that customers want, and success comes from the ability to cautiously select pre-designed components procured on the global market. U.S. firms have strengths in such selection capability.

In addition to product architecture, environmental uncertainty is an important factor when considering compatibility with organizational capability. Uncertainty means a situation where there is a wide range of business lines, products and technologies from which to choose, and where it is difficult to know which to select. A high degree of uncertainty over which components to select and how to assemble them is often a feature of modular production. In other words, selection capability is vital for modular production, since the level of uncertainty is high. The empirical research outlined in the second part of the paper shows that, faced with a high degree of business uncertainty, most Japanese firms produce disappointing results because they lack selection capability. The poor performance of household electrical appliance and IT manufacturers around 2000 is symbolic of this phenomenon.