Abstract
This chapter focuses on the formation and evolution of organizational capabilities in manufacturing at the individual firm level. Empirically, we look at the emergence of the manufacturing system at the Toyota Motor Corporation, the Toyota Production System, between the 1930s and the 1990s.
We propose to link the resource-capability view of the firm with the evolutionary framework in social sciences or a dynamic perspective that can separately explain an observed system’s survival (i.e., functional logic) and its formation (i.e., genetic logic). Within this evolutionary framework, two main concepts are proposed: multipath system emergence, for analyzing the complex variations in manufacturing system changes, and evolutionary learning capability, for explaining why certain firms can develop competitive manufacturing capabilities faster than their competitors.
We apply these concepts to a historical analysis of the manufacturing system at Toyota. More specifically, we investigate the origins of several major organizational routines of the Toyota Production System and show that they emerged through the unpredictable patterns of various evolutionary paths, including rational calculation, random trials, environmental constraints, entrepreneurial visions, and knowledge transfer, i.e., through multipath system emergence.
It follows from this that Toyota, as a consistently competitive manufacturing firm, possesses not only (1) routinized (static) manufacturing capability and (2) routinized learning (continuous improvement) capability but also (3) evolutionary learning capability, which is a firm’s dynamic capability-building capability to improve productive performance in the long run in a situation of multipath system emergence. In other words, a firm’s evolutionary capability, or the capability of building capabilities despite a situation of unpredictable multipath system emergence, is critical to its long-term survival and growth, particularly in industries where competition is intense, market/technology environments are uncertain, and products/processes are complex.
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Notes
- 1.
Population ecology models may be applied more effectively in the case of earlier phase of automobile industrial evolution, in which many births and deaths of individual automobile manufacturers were observed. See, for example, Abernathy (1978) and Carroll et al. (1996) for the case of the US auto industry.
- 2.
Note that I use the term neo-Darwinism rather broadly here, as synonymous with Modern Synthesis, the prevalent theory in biological evolution that includes revised Darwinism and Mendelian genetics.
- 3.
- 4.
For the concepts of resource, organizational routine, capability, and competence, see, for example, Penrose (1959), Nelson and Winter (1982), Dosi (1982), Barney (1986), Rumelt (1984, 1991), Wernerfelt (1984), Itami (1984), Chandler (1990, 1992), Prahalad and Hamel (1990), Grant (1991), Leonard-Barton (1992), Teece et al. (1992), Kogut and Kulatilaka (1992), Iansiti and Clark (1993), and Teece et al. (1994). For evolutionary aspects of the organization and its strategies and technologies, see also Weick (1979), Nonaka (1985), Mintzberg (1987), and Burgelman (1994).
- 5.
- 6.
- 7.
See Merton (1968) for this notion, which is related to his discussion of latent functions and dysfunctions.
- 8.
The neoclassical decision theory further assumes that economic actors are equally capable and face an identical environment.
- 9.
See, for example, Weinberg (1975). For an application of the concept of emergent process to organizations and management, see Mintzberg and Waters (1985). In the natural sciences, the so-called chaos theory is a similar attempt to explain apparently disorderly or irregular phenomena through subtle interactions between deterministic processes and random processes (see, e.g., Hall 1991). However, the current chapter does not try to apply this stream of research to social systems directly.
- 10.
- 11.
Similar concepts include static versus dynamic routines (Nelson and Winter 1982), absorptive capacity (Cohen and Levinthal 1990, 1994), as well as dynamic capability (Teece and Pisano 1994). The concept of evolutionary capability adopted here is different from these concepts, in that the former emphasizes the nonroutine and emergent nature of the process for creating routines.
- 12.
These routines may not only yield lower levels of in-process defects and field defects but also facilitate problem recognition and thereby trigger continuous improvement (kaizen) activities, which is an aspect of the improvement capability discussed later. Thus, the two types of routine capability tend to overlap in real shop floor settings.
- 13.
See Abernathy (1978) for the concept of productivity dilemma.
- 14.
- 15.
Retention of solutions may also be regarded as an essentially static capability, since it enables repetitive activation of the same information.
- 16.
- 17.
- 18.
There is always the risk that such logic may lead to an infinite chain of backward explanations (capability of capability building and so on). The present framework with three layers of capabilities tries to avoid this by giving each construct a concrete definition, rather than by simply calling them meta-routines. Thus, improvement capabilities manage repetitive routine changes, while evolutionary capabilities cope with nonroutine emergent changes. Also, in practical terms, it is rather meaningless to discuss the capability to build evolutionary capabilities, because the creation of an evolutionary capability itself is likely to be a unique series of historical events, whose stable pattern cannot be analyzed through a meaningful hypothesis-testing process. Being aware of this problem, in the present chapter, we will not try to go further backward and explain explicitly why a company like Toyota was historically able to build a certain evolutionary capability. It would be impossible, in the first place, to explain such rare events through the concept of organizational capability.
- 19.
The idea of multilayer structures in organizational capabilities, routines, programs, knowledge, learning, etc. is not particularly new in the literature on organizational studies. For instance, the concept of initiation as the creation of new programs (March and Simon 1958), structuration as conditions governing continuity or transmutation of the structures of rules and resources (Giddens 1984), double-loop learning (Argyris and Schön 1996), and higher level learning (Fiol and Lyles 1985) all assumes a multilayer structure. Our definitions of improvement versus evolutionary capabilities are somewhat different from the above concepts, as they emphasize the distinction between repetitive regular changes and emergent irregular changes within the system in question. Also, the distinction between improvement capability and evolutionary capability is different from the traditional distinction between the ability to handle incremental innovations and that needed for radical innovations (Abernathy and Utterback 1978, Hayes and Wheelwright 1984). The evolutionary capability discussed here is not the ability to perform a one-off, major system change, but the ability to cope with an emergent process over an extended period.
- 20.
To the extent that organizational learning is “encoding inferences from history into routines that guide behavior” (Levitt and March 1988) or “improving actions through better knowledge and understanding” (Fiol and Lyles 1985), evolutionary learning capability may overlap the concept of a certain higher-order learning ability to change routines for learning or values (Argyris and Schön 1996; Fiol and Lyles 1985). For concepts and definitions of organizational learning, see, for example, Fiol and Lyles (1985), Levitt and March (1988), and Argyris and Schön (1996).
- 21.
- 22.
- 23.
The original sentence is a famous statement by Louis Pasteur: “Fortune favors the prepared mind”. Its relevance was pointed out to me by both David A. Hounshell (Carnegie Mellon University) and the paper by W. M. Cohen and D. A. Levinthal “Fortune Favors the Prepared Firm” (1994).
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Fujimoto, T. (2018). Evolution of Organizational Capabilities in Manufacturing: The Case of the Toyota Motor Corporation. In: Fujimoto, T., Ikuine, F. (eds) Industrial Competitiveness and Design Evolution. Evolutionary Economics and Social Complexity Science, vol 12. Springer, Tokyo. https://doi.org/10.1007/978-4-431-55145-4_6
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