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Faculty & Research


Capability Building and Over-Adaptation - A Case of "Fat Design" in the Japanese Automobile Industry

Working Paper
This paper describes and analizes a phenomenon that the author calls “fat design” in the Japanese auto industry, a problem closely related to manufacturing firms’ response to variety in the market, based mainly on an evolutionary perspective in the theory of the firm. It applies a few alternative hypotheses and perspectives to the same case. Through this empirical analysis, the paper tries to compare different perspectives of the firm in terms of their ability to explain the dynamics of inter-firm competition. It focuses particularly on the evolutionary, or resource-capability, view of the firm, which may explain the fat design phenomenon in a reasonably consistent way. Fat design, in the present paper, refers to a problem that Japanese auto makers faced in the late 1980s and early 1990s, involving excessive product variety and model change frequency, as well as too many model-specific parts, and over-quality and over-specification of products. Many researchers and practitioners in the Japanese auto industry have regarded fat design as a main cause of overload for product engineers and erosion of its cost competitiveness since the beginning of the 1990s. After briefly describing the background and some basic facts on fat designs, the paper compares three alternative interpretations of this phenomenon: (i) adaptation to a temporary and abnormal environment (the “bubble” economy), (ii) lack of adaptation to totally new environment (the post-growth era), (iii) over-adaptation to a market variety and sophistication. The paper then explains that behind the three interpretations there are three different views of the firm: the equilibrium perspective, the paradigm-change perspective, and the capability-evolution perspective. The paper chooses the third view, the over-adaptation hypothesis based on the evolutionary (or resource-capability) perspective of the firm, as the main tool for explaining this phenomenon. The rest of the paper analyzes how the fat design problem emerged as a result of over-adaptation (or overshooting) by a Japanese auto maker. It explains how excessive accumulation of the very product development capabilities that contributed to product competitiveness resulted in a high cost structure: a side effect of inter-firm competition for dynamic capability building.