Abstract
What factors facilitate and constrain the sustained development and replication of
organizational capabilities at suppliers? This question is addressed in a comparison of
historical case studies at Toyota, Nissan and Honda in Japan. First, as expected, replication
difficulty is overcome by enabling companies to share the practice, rather than the
representation, of tacit knowledge. Second, the interdependence in the hierarchy of routines,
that constitute organizational capabilities, has led companies to broaden the scope of supplier
development over time. Third, this broadening challenges suppliers to accept customer
companies’ intervention in internal investment decisions, requiring a certain mode of
corporate governance. It is argued that the boundary of a capability-based firm may go
beyond legally distinct units of financial control when firms are subjected to a cumulative
process of capability enhancement.
Supplier development - a company’s undertaking to improve its supplier’s
capabilities has been taken for granted in the Japanese automotive industry for several
decades, and has received attention in the US only recently (Handfield et al 2000). But unlike
in the case of new product development process (notably Clark and Fujimoto 1991; Nobeoka
1997), the automaker’s organization structure and process for providing supplier
development have not been studied systematically. More generally, theories of organizational
learning and knowledge sharing rarely demonstrate how tacit knowledge move across firm
boundaries. This article fills this gap, by showing that the transfer of organizational
capabilities from the customer to the supplier company requires not only financial and
resource commitment, but also a distinctive organizational and governance structure that
facilitates long-term cumulative learning.