Organizational Capabilities in Product Development of Japanese Firms: A Conceptual Framework and Empirical Findings

Using a large-scale data set on product development organizations of Japanese manufacturing firms, this paper explores the effects of organizational capabilities on product development performance. We present a conceptual framework assuming that organizational capabilities consist of multilayered knowledge. Based on the idea, we classify organizational capabilities into “local,” “architectural,” and “process” capabilities along two dimensions: modularity and designability. The empirical analysis demonstrates differential effects of different types of organizational capabilities on different types of product development performance, and compares the differential effects between two types of industries that differ in terms of their product characteristics: system based and material based. The central message from our analysis is that the process capabilities emerging from dynamic interaction of knowledge play a crucial role as core capabilities for product development of Japanese firms in the system-based industries in which Japanese firms are relatively competitive. In the material industries, however, local capabilities have major effects on performance while effects of process capabilities are limited, which underlies the relative weakness of Japanese firms in developing material-based products. Our results raise some intriguing implications on the competitive advantages and challenges of Japanese firms' product development.