Deep-seated Value Creation in Japanese Manufacturing Firms: Accumulation of Organizational Capabilities and Management of Non-functional Premium Value (Japanese)

Kentaro Nobeoka

Discussion Papers (Japanese) from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: Despite having excellent capability for developing technologies and products, as well as for manufacturing, many Japanese manufacturers have been unable to link this capability with high business performance. New products, even those packed with new technologies developed in Japan, such as DVDs and flat-panel televisions, will soon be replicated due partly to increased product modularization. This paper discusses conditions that need to be satisfied in order to enable sustainable creation of added value without a product being replicated. In doing so, two related perspectives are taken into consideration. First, "long-term accumulation of organizational capabilities," rather than product differentiation and patents, is important in sustaining competitiveness. In this regard, the paper presents empirical data obtained from an analysis of 86 technologies that have long been contributing to the high performance of Japan's two major electrical manufacturers. Second, not only "functional value" based on numerically describable functions and specifications but also "non-functional premium value" is vital for sustaining high product value. Non-functional premium value refers to extra customer value; value recognized by customers as beyond the functions and specifications of a good and service. This includes, for instance, value derived by a consumer product fulfilling the personal tastes of a customer or value derived by production goods that provide solutions. Irrespective of Japanese companies' strengths in manufacturing capabilities, customer needs will soon plateau and this strength will become meaningless if functional value is all companies can offer. Japanese manufacturing is now being required to create deep-seated added value, that is, to create non-functional premium value through the accumulation of organizational capabilities. For the moment, however, Japan is facing particularly sizeable problems in creating such value.

Pages: 21 pages
Date: 2008-03
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