Relational View Four Prerequisites of Competitive Advantage
Relational View Four Prerequisites of Competitive Advantage 104
Popular in Advanced Strategic management
Popular in General
One Day of Notes
verified elite notetaker
This 15 page Reader was uploaded by alireza goudarzi on Tuesday October 21, 2014. The Reader belongs to 104 at Stanford University taught by proff. nassimi in Spring2014. Since its upload, it has received 96 views. For similar materials see Advanced Strategic management in General at Stanford University.
Reviews for Relational View Four Prerequisites of Competitive Advantage
Great notes!!! Thanks so much for doing this...
Report this Material
What is Karma?
Karma is the currency of StudySoup.
You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!
Date Created: 10/21/14
ANNALS OF BUSINESS ADMINISTRATIVE SCIENCE 13 2014 7790 Available at wvvwgbrcjp httpdxdoiorg107880abas1377 Online ISSN 13474456 Print ISSN 13474464 2014 Global Business Research Center Relational View Four Prerequisites of Competitive Advantage Mizuki KOBAYASHIZI Abstract Dyer and Singh 1998 use the dyad or network rather than the single firm as their unit of analysis and suggest a relational view RV which considers interfirm competitive advantage However when discussing competitive advantage from the perspective of RV one must be aware that the special case of Toyota and its suppliers is the assumption Even in comparison with other Japanese automakers Toyota and its suppliers have certain characteristics such as a they are geographically close to each other b they have substantive special assets and c they proactively share knowledge via human interaction and have a systematic interorganizational learning system to support this knowledge sharing Thus firms trying to acquire competitive advantage of RV need to meet the above prerequisites Further RV discussions advocating an increase in special assets for longterm transactional advantage rely on d product features If one assumes a lesscomplex product such as a personal computer with frequently changing transaction partners where shortterm transactions are insignificant the effectiveness of RV cannot be guaranteed Given these considerations this paper summarizes the characteristics a through d as prerequisites that generate competitive advantage from the perspective of RV a Graduate School of Econon1ics University of Tokyo 731 Hongo Bunkyoku Tokyo Japan jennieyenyengmailcom A part of this paper was originally published as Kobayashi 2013 in Japanese 77 Kobayashi Keywords relational view competitive advantage prerequisites special case product feature 1 Introduction In the field of strategic management there has been much interest in explaining differences in firm performance with primarily two research approaches The first approach uses industries as the units of analysis and considers the competitive advantage of a firm given its position in a particular industry The second approach uses firms as the units of analysis with differences in performance dependent on the fundamental differences in each firm However Dyer and Singh 1998 highlight that these two approaches overlook the important fact that advantage or disadvantage in a single firm is related to the advantage or disadvantage embedded in its network Dyer and Singh therefore suggest Relational View RV as a way of focusing on relationships with other companies with regards to competitive advantage RV focuses on dyads or networks as the units of analysis where advantages that are difficult to replicate by rivals are created through investments in special assets among firms exchanging knowledge complementary resources and building effective governance mechanisms Profit built on such relationships relational rent is defined as supernormal profit jointly generated in an exchange relationship that cannot be generated by either firm in isolation and can only be created through the joint idiosyncratic contributions of the specific alliance partners Dyer and Singh suggest factors in determining relational rent sources of competitive advantage as well as the sub processes that facilitate these factors1 However it must be considered that RV was originally developed 1 See Dyer and Singh 1998 or Kobayashi 2013 for further details 78 Relational view based on the specialized case Toyota and its suppliers Dyer discovered that Toyota had built relationships with suppliers that differed from its competitors and conduct a quantitative analysis using a survey data of the Japanese and US automakers and suppliers Dyer 1996a 1996b 1996c 1997 These studies uncover the fact that Toyota maintains relationships with its suppliers much closer than those kept by other domestic or US automakers Specifically Dyer highlights that there was a physical distance b investment in special assets and c knowledge sharing via human interactions Further the effectiveness of RV which advocates investment in special assets and long term relationships is reliant on d product features as seen in the automotive industry RV s convincing points are weakened with relationships and products or industries such as personal computers with their frequently changing relationships and affinity for short term transactions From the perspective of RV firms with the same prerequisites as Toyota generate competitive advantage This paper discloses four prerequisites of RV a through d Section 2 summarizes the special prerequisites of Toyota by mainly reviewing Dyer s researches and Section 3 discusses the relationship between RV and product features 2 RV Based on a Special Case Despite Toyota s management system having been studied worldwide it has created advantages that are difficult to replicate by other firms Dyer 1996b Spear 81 Bowen 1999 Close relationships 2 The data included Japanese and US automakers Toyota and Nissan from Japan Ford GM and Chrysler from the US and 50 of their domestic suppliers Cusumano and Takeishi 1991 is also an example of a comparative study of Japanese and US supplier systems 79 Kobayashi with suppliers is considered as one important element to build a superior management system Fujimoto 1997 2012 Sako 2004 Dyer explains the special relationship Toyota has with its suppliers even compared with other Japanese automakers and also discusses the level of investment in related special assets for the Japanese and US automakers and their suppliers This paper summarizes such relationships in three aspects each of which is discussed below 21 Physical distance Dyer 1996a asserts that suppliers are located close to manufacturers to keep inventory and transportation costs low between firms leading to effective coordination activities In his 1992 survey Dyer discovered that the distance between the three US automakers and their suppliers was on average 500 miles This was a much larger number than the average distance of suppliers from the two Japanese automakers Of the two the average geographical distance between Toyota and its suppliers was much shorter at 592 miles than Nissan which was 1 139 miles In addition to Dyer 1996a 1996c 1997 Fujimoto 1997 and Fruin 2008 also note the proximity of Toyota to its group of suppliers 22 Investment on special assets High investment3 in physical assets such as special supplier equipment tools and dies and low transaction costs4 between firms is one of the indicators that imply a special relationship between manufacturers and suppliers Rising investment costs is considered as an issue However though initial investment in physical assets 3 In Dyer 1996a the ratio of equipment investment by suppliers for specific manufacturers is used 4 In Dyer 1997 transaction costs as the dollar value of parts purchased per procurement employee and higher economic value of purchased parts led to lower transaction costs 80 Relational view such as establishing new specialized production lines can be huge transactional relationships continue over the long term in the end offsetting the initial investment costs and leading to improved productivity Dyer 1996a 1997 Regarding investments in physical assets the ratio of investment in special assets by suppliers for specific manufacturers is higher in Japan than in the US According to Dyer s 1992 survey among Toyota and Nissan suppliers 21 of equipment on average was specific to those automakers while among the three US automakers suppliers the average was 1319 Japanese automakers had lower transaction compared with the US automakers The economic value of parts purchased by Toyota was highest overall at 126 million followed by Nissan at 97 million Chrysler at 57 million Ford at 53 million and GM at 16 million Dyer 1997 In other words Toyota had the lowest transaction costs among Japanese automakers and Toyota s special relationship with suppliers is striking Dyer 1997 Fruin 2008 Fruin 81 Nishiguchi 1993 According to Dyer 1996b US automaker Chrysler s traditional method for selecting suppliers was to simply pick those with the lowest parts cost However Chrysler faced severe financial straits at the end of the 1980s and began a management overhaul in 1989 In addition to changing the organizational structure Chrysler introduced J apan style supplier relationships as part of its reforms Prior to these changes Chrysler tried as much as possible to keep investment in special assets with its suppliers to a minimum and investment in special equipment and factory startups consumed 2050 of Chrysler s internal budget After the implementation of reforms Chrysler changed its basis of supplier evaluation from cost to capability standard increased investment in special assets with suppliers and began joint work with suppliers at early stages of product development As a result of these efforts to build close relationships with suppliers Chrysler overtook GM and Ford in 81 Kobayashi terms of ROA in 1991 and greatly reduced development lead times from 234 weeks to 183 weeks though there was still a large gap with their Japanese competitors The effectiveness of a Japan style supplier system is globally acknowledged from this example of Chrysler though simultaneously one can observe that the relationship built by Toyota with its suppliers as well as the advantages derived from it are difficult to replicate by other firms 23 Knowledge sharing Prior research has noted that product development lead times can be reduced by a high level of knowledge sharing through human interaction between automakers and suppliers Dyer 1996a Based on Dyer s 1992 survey face to face interactions5 between Toyota and its suppliers annually averaged 7236 man days while at Nissan it annually averaged 3344 man days and the average of the US automakers was 1025 man days 757 for Chrysler 1206 for Ford and 1107 for GM The number of guest engineers working at Toyota was twice as high compared with Nissan or the three US automakers What is behind the knowledge sharing between Toyota and its suppliers is a systematic inter organizational learning system Dyer 81 Nobeoka 2000 Manabe 81 Nobeoka 2003 This system can be described to the Kyohokai supplier association Toyota s operations management consulting division Jishuken voluntary small learning group and interfirm employee transfer5 Within this system 1 network members are committed to the Toyota network 2 sharing knowledge and values to build mutual trust and 3 studies are not limited to between manufacturer and supplier but rather as a 5 Interactions between Toyota engineers or purchasing counterparts and supplier engineers and sales personnel 5 See Dyer and Nobeoka 2000 Manabe and Nobeoka 2003 for more details on these efforts 82 Relational view member of a supplier network which enables the transmission and sharing of explicit and implicit knowledge among participants Toyota selects educates and evaluates its suppliers without forcing them to relinquish their way of conducting an operation In doing so Toyota s internal production system can be turned outward changing to an interfirm based production system and enabling close coordination between Toyota and its suppliers In other words the long term and strong relationship between Toyota and its suppliers is difficult to imitate as they are supported by a systematic network Fruin 2008 Sako 2004 Further Fujimoto 1995 1997 and Konno 2007 focus on product development activities and note that even among Japanese automakers Toyota has a high level of knowledge sharing with its suppliers Konno 2007 investigates the number of patent applications7 and joint patent applications8 in Japan within the auto industry The results showed that Toyota Nissan and Honda had 6070 of patent applications overall with Toyota having the most In joint patent applications Toyota Nissan and Honda again formed the top three and Toyota once again had the highest number9 This quantitative research shows that Toyota and its suppliers were the most active with regards to joint development In addition to these figures Fujimoto 1995 1997 provides findings using a case study of j oint development between Toyota and its suppliers In general the parts can be divided into three categories supplier proprietary parts detail controlled parts and black box parts These divisions are based on transaction patterns between automakers and suppliers the parts development capability of suppliers and their level of involvement in automotive 7 Based on data from 1993 to 2004 of nine large Japanese automakers 8 Based on data from 1993 to 2004 of nine large Japanese automakers with joint patent applications between automakers and suppliers 9 Year over year refer to Konno 2007 for specific figures 83 Kobayashi development Supplier proprietary parts are completely developed and manufactured by suppliers and then selected and ordered by automakers from a catalog Detail controlled parts are designed by automakers who provide drawings to suppliers who in turn manufacture those parts For black box parts automakers create basic design information and suppliers perform both detailed design as well as manufacturing Automakers test prototypes and approve designs Suppliers that provide drawing approved parts are relatively more involved in development which often requires long term buildup of design capability and technical support from the automakers Asanuma 1989 Fujimoto 1995 According to Fujimoto 1997 Toyota s business resources were constrained in the post war period and as a result of a sudden expansion of production volumes the company was forced to utilize its suppliers creating the black box parts method for its key parts However this method is also used by other Japanese automakers though not as effectively and comprehensively as in Toyota It is noted that these automakers depend more on its own development resources than on joint development with its suppliers Based on the above research the relationship between Toyota and its suppliers the basis of RV requires rather special prerequisites besides the elements abstracted as RV However not all firms can realize an RV style management strategy based on the special case of Toyota 3 RV and Product Features The perspective of product features brings limitation to the effectiveness of RV In recent years architectural theory is used to explain product design Architecture is a design concept for products and processes and is categorized into integral and modular architectures Fukuzawa 2008 Ge 81 Fujimoto 2004 Ulrich 1995 84 Relational view Integral architecture features a high level of dependency among components and requires intensive coordination It limits independent design and free combinations of components On the other hand modular architecture has a pre determined interface enabling independent design and free combination of components Interfirm relationships can also be applied into two categories based on the perspective of architecture Manabe 81 Nobeoka 2003 The integral architecture requires specialized know how and complex coordination between firms In contrast modular architecture enables a system of external procurement of parts independently designed Parts can be easily interchanged as can suppliers In this system transactional relationships are typically relatively short term Regarding this point Han and Konno 2001 use the integral component development case of an automotive air conditioner to explain the relationship between product architecture and interfirm coordination An automotive air conditioning system is between a car s engine block and interior s instrument panel Air conditioning is highly reliant on surrounding parts as an automobile has more electrical systems For example if the size of the windshield or the specifications of other parts are not determined several critical product specifications of the air conditioner also cannot be determined In turn the product specifications of the air conditioning system heavily in uence engine output and other functions Accordingly automakers and suppliers continually examine designs and avoid issues that can appear at a later stage in the development process Suppliers dispatch their engineers to automakers so that they can closely coordinate at a face to face level with the client In other words from this example one can understand that products with the characteristics of an integral architecture require close interfirm coordination when it is a joint product development This type of close coordination enables specialized skills shared between 85 Kobayashi two firms In general firms acquire much rent and build long term relationships with partners having such specialized skills Asanuma 1989y On the other hand in the case of products such as DVD players personal computers or motorcycles modularization becomes the norm and companies purchase modules for assembly into a final product Ge 81 Fujimoto 2004 Ogawa Shintaku ampYoshimoto 2005 Coordination among firms is less required with each company independently developing their own parts and component units For example in the case of China where hundreds of motorcycle manufacturers and suppliers appear in the market transactions are left to the market and investment in special assets and maintenance of special relationships are not required This enables an easy change of transaction partners In other words one can surmise that RV which advocates for an increase in special assets and long term relationships may be effective in products with integral architectures such as automobiles Products with modular architecture frequently change transaction partners and are characterized by short term transactions whereby the effectiveness of RV cannot be guaranteed The way an interfirm relationship is built differs based on product or industry features 4 Conclusion Unlike ISV which uses industries as the units of analysis or RBV which uses individual firms as the units of analysis RV focuses on building interfirm competitive advantage This paper identifies four prerequisites Figure 1 that create competitive advantage from the perspective of RV which Dyer and Singh 1998 suggest First RV is based on the model of Toyota and its suppliers In reality the example of Toyota is one with special prerequisites to a large extent In comparison with the US or even with other Japanese automakers 86 Relational view P hy5icaI Speciial Dli5tan c e Assets Elm 35 Rhquot iquot eml aoquoti39iquotquot i39Pl Ma my as Iquot ii HE pnssi Ihvle Cm petitiie Adula ntage Freq uent as 1 ntEEn3 Pussi HIE S quot Perch itectu me Il39IWIEldg E P rduct Sharing Flelatures Figure 1 Relational view Four prerequisites of competitive advantage Toyota and its suppliers a are in relatively close location to one another b have many investments in special assets and c proactively share their knowledge via human interactions Behind the various efforts of suppliers lies a systematic inter organizational learning network to support them Accordingly Dyer and Singh 1998 more accurately discover that companies meeting these prerequisites from the standpoint of RV can generate competitive advantage Another point is the d affinity between product features and RV The effectiveness of RV which advocates investment in special assets and long term transactional relationships depends on product features such as automobiles It is not assured whether RV can be effective for products having features with short term transactions or frequent changes in transactional partners such as personal computers 87 Kobayashi From the perspective of RV companies meeting these four prerequisites will generate competitive advantage References Asanuma B 1989 Manufacturer supplier relationships in Japan and the concept of relation specific skill Journal of the Japanese and International Economies 3 130 Cusumano M A amp Takeishi A 1991 Supplier relations and management A survey of Japanese Japanese transplant and U S auto plants Strategic Management Journal 128 563588 Dyer J H 1996a Specialized supplier networks as a source of competitive advantage Evidence from the auto industry Strategic Management Journal 1 74 27 129 1 Dyer J H 1996b Does governance matter Keiretsu alliances and asset specificity as sources of Japanese competitive advantage Organization Science 76 649666 Dyer J H 1996c How Chrysler created an American keiretsu Harvard Business Review 744 4256 Dyer J H 1997 Effective interfirm collaboration How firms minimize transaction costs and maximize transaction value Strategic Management Journal 187 535556 Dyer J H 85 Nobeoka K 2000 Creating and managing a high performance knowledge sharing network The Toyota case Strategic Management Journal 213 345367 Dyer J H amp Singh H 1998 The relational view Cooperative strategy and sources of interorganizational competitive advantage Academy of Management Review 234 660679 Fruin W M 2008 Business groups and interfirm networks In G Jones amp J Zeitlin Eds The Oxford handbook of business history pp 244267 Oxford UK Oxford University Press Fruin W M amp Nishiguchi T 1993 Supplying the Toyota production system Intercorporate organizational evolution and supplier 88 Relational view subsystem In B Kogut Ed Country competitiveness pp 225246 New York NY Oxford University Press Fujimoto T 1995 A note on the origin of the Black Box Parts practice in the Japanese motor vehicle industry In H Shiomi amp K Wada Eds Fordism transformed The development of production methods in the automobile industry pp 184218 New York NY Oxford University Press Fujimoto T 1997 Seisan shisutemu no shinkaron Evolution of production system Tokyo Japan Yuhikaku in Japanese Fujimoto T 2012 Evolution theory of production systems Annals of Business Administrative Science 1 1 2544 doi 107 880 abas 1 125 Fukuzawa M 2008 A generation selection process of product architecture A case of development of the firmware in digital MFP Annals of Business Administrative Science 7 118 doi 107880abas71 Ge D amp Fujimoto T 2004 Quasi open product architecture and technological lock in An exploratory study on the Chinese motorcycle industry Annals of Business Administrative Science 3 1524 doi 107880abas315 Han M 85 Konno Y 2001 Architecture tokusei to seihin kaihatsu pattern Jidousha buhin no case Architecture features and product development pattern Case of automobile parts In T Fujimoto A Takeishi amp Y Aoshima Eds Bijinesu akitekucha Business architecture Strategic design of products organizations and processes pp 229245 Tokyo Japan Yuhikaku in Japanese Kobayashi M 2013 Kigyokande tsukuriageru advantage Keieigaku rinkou Dyer and Singh 1998 Inter firm advantage Reading Dyer and Singh 1998 Akamon Management Review 125 397414 in Japanese Konno Y 2007 Enhancement of the advanced RampD cooperation between automakers and suppliers in the Japanese automobile industry Annals of Business Administrative Science 6 1534 doi 107880abas615 Manabe S 85 Nobeoka K 2003 Network shinrai Kouchiku mechanism to paradox Network trust Building mechanism and paradox 89 Kobayashi Discussion Paper Series J50 Research Institute for Economics amp Business Administration Kobe University in Japanese Ogawa K Shintaku J amp Yoshimoto T 2005 Architecture based advantage of firms and nations New global alliance between Japan and catch up countries Annals of Business Administrative Science 4 2138 doi 107880abas421 Sako M 2004 Supplier development at Honda Nissan and Toyota Comparative case studies of organizational capability enhancement Industrial and Corporate Change 132 281308 Spear S 85 Bowen H K 1999 Decoding the DNA of the Toyota production system Harvard Business Review 775 96106 Ulrich K 1995 The role of product architecture in the manufacturing firm Research Policy 243 419440 Received June 2 2013 accepted December 9 2013 90 Copyright of Annals of Business Administrative Science is the property of Global Business Research Center and its content may not be copied or emailed to multiple sites or posted to a listserv Without the copyright holder39s express Written permission However users may print download or email articles for individual use
Are you sure you want to buy this material for
You're already Subscribed!
Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'