Online ISSN 1347-4456 Print ISSN 1347-4464

ABAS: Annals ofBusiness AdministrativeScienceVol. 1, No. 1, April 2002

TAKAHASHI, N.

1

WI, John H.

9HELLER, Daniel A.

17

The degree of self-determination and job satisfaction of white-collar workers inJapanese firms.

Organization strategy of established firms for adapting to a change in productarchitecture: The dynamic management of subunits inside an organization.

Learning from a strategically allied firm: Incorporating a teaching perspective.

http://www.gbrc.jp© 2002 Global Business Research CenterAnnals of Business Administrative ScienceVol.1, No. 1, April 2002

CHIEF EDITOR

Junjiro Shintaku

University of TokyoEDITORIAL BOARD

Makoto Abe
University of Tokyo
Takahiro Fujimoto University of Tokyo
Makoto Kasuya
University of Tokyo
Hotaka Katahira
University of Tokyo
Nobuo Takahashi University of Tokyo
Technical Editor: Maki Nishida, Global Business Research Center

Annals of Business Administrative Science is published quarterly in January, April,July, and October, by Global Business Research Center, Marunouchi, Chiyoda-ku, Tokyo,
JAPAN. http://www.gbrc.jp

Annals of Business Administrative Science Vol.1 (April 2002)

Organization Strategy of Established Firms forAdapting to a Change in Product Architecture:
The Dynamic Management of Subunits
Inside an Organization
WI, John H.
Faculty of Economics, University of Tokyo
E-mail: wi@e.u-tokyo.ac.jp

Abstract: This paper analyzes the organization strategy of an established firm when achange in product architecture occurs on a previous product. For the purpose, thepaper analyzes an organizational design and management of an established firm inovercoming the restrictions from past resources and in creating heterogeneous
resources required in new product architecture.
Keywords: established firm, change in product architecture, management of subunits

1. Introduction

physical components and functions, which have to

The purpose of this paper is to analyze thebe arranged in the product development processorganization strategy of an established firm when a(Ulrich, 1995). A change in product architecture ischange in product architecture occurs on a previous

disruptive change in the corresponding relationshipproduct. For the purpose, the paper analyzes the

between functions and components when neworganizational design and management of an

functions or new components are combined into aestablished firm in overcoming the restrictions fromprevious product (Wi, 2001c).

past resources and also in creating heterogeneous
resources required in new product architecture.
Product architecture is defined as a design ofAn established firm that has developed andproduced a previous product confronts difficulty inadapting to a change in product architecture. As an9

Wiestablished

firm

had

knowledge

throughaaccumulatedtransaction cost of resources (Williamson, 1975;

immensetheTeece, 1982), immobility due to stickiness ofknowledge prevents an established firm fromknowledge (Szulanski, 1996), and path-dependency

adapting to a change in product architecture

which restricts a search for new partner of(Henderson & Clark, 1990; Christensen, 1997;

transaction (Walker, Kogut, & Shan, 1997).

previousproduct,Therefore, the paper examines the possibility of

Christensen, Suarez, & Utterback, 1996; Cohen &overcoming such restrictions from past resources andLevinthal, 1990; Hannan & Freeman, 1977).
andutilizing various resources accumulated in an

Christensen et al. (1996) argue the failure ofestablished firm through managing subunits insideestablished firms in American Hard-Disk Drive

an organization.

For

example,Christensen(1997)(HDD) industry. According to these researches, those

For the analysis, the paper examines a change

firms failed to adapt to the change in HDD

in PC architecture from a desktop computer to aarchitecture because they were restrained by thelaptop computer and also analyzes NEC’s case. NEC

customer power for the previous HDD product.

has dominated the Japanese desktop computer

Henderson and Clark (1990) also argue that themarket in the 1980s. Market share of NEC reachedfailure of established firms in the semiconductor

about 40% in the mid-1980s. NEC is defined as an

photolithographic alignment industry was due to theestablished firm in the PC industry.

rigidities of information filters and information

In spite of being an established firm, NEC waschannels in the organization. Hence, organization

able to develop and release a laptop model computer

management is essential to an established firm inin October 1986 when Toshiba, a pioneer in laptop

adapting to a change in product architecture.

computer market, introduced the first laptop

Some researchers insist on organizational

computer J-3100. After revising the functional

separation as an organization strategy of an

combination of laptop computer several times

established firm, which means setting up a corporate

reflecting the user needs at the stage of productventure or a subsidiary outside an established firm

evolution, NEC succeeded in dominating the laptop(Henderson & Clark, 1990; Christensen, 1997;

computer market. Therefore, NEC is fit for theChristensen et al., 1996).

analysis object of this paper.

However, though it is possible to overcome therestrictions from past resources by organization

2. A change in PC architecture

separation, it becomes difficult to utilize the various

As product architecture changes from a previous

resources accumulated in an established firm,productbecause there exist obstacles such as increase oftechnological changes on the product, various
10

adapting

touser’s

newneedsorAdapting to a Change in Product Architecture
products with various combinations of new and oldcomputers appeared as shown in Figure1 according

functions appear. In this case, the core concept of theto the various interpretations by laptop computer

product and the core component of the previous

manufacturers (Wi, 2001a, 2001b).

product do not change. Nevertheless, components
or linkages between components are altered when a

3. NEC’s adapting process to laptop

change in product architecture occurs. Core concept

architectureis defined as a core component that regulates anNEC introduced a laptop model computer 98LT toentire product architecture (Clark, 1985). For

the Japanese market in October 1986. Comparedexample, versatile CPU in a PC is defined as a corewith other manufacturer’s laptop computer, 98LT

concept and do not changed in desktop computer or

emphasized information portability (see Figure 1).

laptop computer.

98LT’s display was LCD, which was light andIn the early stage of a change in PC architecture,comparatively cheap, and HDD was not combined

desktop PC manufacturers confronted difficulty ininto the hardware. Being in pursuit of information

understanding the new product, laptop computer,portability, information processing was sacrificed on

because various interpretations had been possible.

98LT. As a result, 98LT was not able to sustain

Though architecture of a laptop computer differedcompatibility with NEC’s desktop computer 98

from that of a desktop computer, core concept wasseries, which had been the de facto standard in

not different.

Japanese PC market in mid-1980s.

In the early stage of laptop computers, variousHowever, majority of laptop computer users didinterpretations concerning usage had been discussed.

not support 98LT. The market share of NEC’s laptop

At that time, it was perceived thatlaptop

computer

usage

would

bedifferent from that of desktop computer.
However,

laptopcomputermanufacturers were not certain whether
laptop computers would be used as aFigure 1. Appearance of various laptop computers
Price （Yen）
900000DG/1

800000J-3100700000600000

PHC-16IBM PC コンパーティブル

500000

word-processer or a communication
tool like a PDA (Personal Digital
Assistant);

whethercomplementary

beingaoramachine

PC-5000
400000HC-88
300000PC-98LT

200000FM-16πTandy200

PC-8201

100000

X-07
PB-100F

0competingmachine

withdesktop

87computers. As a result, various laptop
116

54wight (kg)

32

10

Wi
computer was 19% during October 1986 toorganizations in charge of desktop computers andDecember 1987. It was too small a share comparedlaptop computers. The subunit which had been inwith that of Toshiba’s 50.6%, then the dominator incharge of desktop computers was separated from that

laptop computer market, and also considering theof laptop computers at NEC. NEC Yonezawa, a plant

market share of NEC’s desktop computer 42% at thelocated in Yonezawa city, which was an independent

same time: Toshiba’s share was just 4.3%. Toshiba’s

factory of NEC, has been in charge of laptop

laptop computer was expensive and much heavier

computers from 98LT to the latest model.

(6.8kg) than 98LT as a result of emphasizing

As mentioned above, desktop 98 series by NEC

information processing. These results revealed that

Johoshori (information processing in Japanese)

laptop computer users demanded more information

subunit became the de facto standard in the Japaneseprocessing than information portability.

market. Through developing and selling 98 series,
NEC Johoshori subunit accumulated huge amount ofReflecting user needs, NEC transformed its
emphasizing

knowledge. One of these knowledge was theinformation portability: incompatible with desktop

expertise and experience concerning sustaining of

98 series, to a new laptop computer 9801-LV,

compatibility between desktop hardware.

product

strategy

from

98LT,

capability:

In the mid 1980s, NEC was the only

compatible with desktop 98 series. After strategy

manufacturer who tried to maintain compatibility

transformation, NEC succeeded in regaining support

between laptop and desktop hardware. Other desktop

from users and catching up with Toshiba. NEC wasmanufacturers such as Fujitsu, Sharp and Matsushita

able to dominate Japanese laptop computer market

soughtonce more in 1990.

processing

emphasizing

information

processing

higherperformance

ratherthanofinformationcompatibility

between

The Laptop computer’s case of NEC is different

hardware. For example, when Sharp developed andfrom the result of prior researches in that NEC wasreleased X68000 with high performance AV device,

able to adapt to the change in PC architecture.

compatibility

Though Christensen (1997), Henderson and Clark

sacrificed.

betweenformer

hardwarewas(1990) argued the failure of an established firm in

Knowledge accumulated in NEC Johoshori

adapting to the change, NEC had succeeded insubunit suppressed the appearance of a new PC

developing a laptop computer in the early stage andarchitecture,

catching up with Toshiba by reflecting user needs incomputer had been inferior to desktop computer inproduct evolution stage.

the point of information processing capability,inThe reason NEC was able to adapt to a change

keepingPC

impossible.

architectureisthatNEC

separated
12

laptopperfectcomputer.

hardwareBecausecompatibility

laptopwasAdapting to a Change in Product Architecture
At that time, there was a rapid transition fromFigure2. Absorbing resources from other subunits

monochrome display to colored-display in desktop
computer technology. However, it was impossible toNEC Densi Device

NEC Home
Electronics

installandusecolored-display

softwaredesktopdeveloped

computeronforClassmate

laptop

PC 8400

computer combined with monochrome display.

PC 8500

Consequently, NEC Johoshori subunit made a98LT

decision

tosuppress

developmentofNEC Johoshori

NECYonezawa

laptop9801-LV<Legend>computer.

Flow of product order in NEC
Flow of knowledge

On the other hand, NEC Yonezawa had
accumulated the technology required in laptop
computer. As NEC Yonezawa was independent fromcompact-sized peripheral devices such as portable

NEC Johoshori, the knowledge concerning desktop
computers

did

not

restrict

laptopprinter, portable scanner, etc. When the suggestion ofcomputerdeveloping laptop computer came from NEC Densi

development at NEC Yonezawa. The first laptop

Device, we thought the new product would growcomputer developed by NEC Yonezawa was called

rapidly and the development would be possible with“Classmate” which was ordered unofficially by NEC

our accumulated know-how and resources.”

Home Electronics, an independent subunit in charge

But technologies such as mounting chips in theof home electronics, in 1983. Though NEC

integrated board were not sufficient in NEC

Yonezawa succeeded in developing a prototype,

Yonezawa, NEC Densi Device sent five engineerstransition to the development stage was interrupted

into NEC Yonezawa and made them co-work tofor several reasons.

develop PC-8400.

In 1984, NEC Yonezawa tried to develop

Figure2 shows the process by which NEC

another laptop computer PC-8400 that was ordered

Yonezawa absorbed the resources from NEC Densi

by NEC Densi Device, an independent subunit inDevice. Five engineers played an important role suchcharge of semiconductor, Densi meaning electronics

as designing, technological advising, and developingin Japanese. Kiyoshi Kanoh who was chief engineer

several types of board. As a result, NEC Yonezawa

in NEC Yonezawa at that time explains thebecame

background why NEC Yonezawa began to developthetechnologicallaptop computer.

onlysubunit

resourcesthat

accumulated

concerning

laptopcomputers.

“In the early 1980s, we had been searching newAbsorbing resources from another subunit

product areas and focused on the light-weight,

continued after the development of 98LT. Shown in13

WiFigure2, NEC Yonezawa had absorbed BIOS

change in product architecture. In Figure 3, four

information of desktop 98 series and expertise on

patterns of organization strategy are presented.
Vertical axis of Figure 3 is the choice of

product development from NEC Johoshori subunit

organizational pattern in charge of a new architecture,

after NEC shifted its product strategy.

established organization and separated organization.

4. Discussion and conclusion.

Established organization indicates a subunit that is in

The paper analyzed NEC’s case to examine thecharge of a previous product and separatedorganization strategy of an established firm. Twoorganization is defined as an organization separated

points have been made clear as follows.

from an established organization such as a subunit

First, NEC Johoshori subunit in charge ofinside a firm, a corporate venture, and a subsidiary.

desktop computer was not able to develop a new

Horizontal axis is the choice between utilizingarchitecture. This result supports the argument of aresources inside a firm and creating new resources

prior research such as Henderson and Clark (1990).

outside a firm.

Second, NEC was able to adapt to a change in PC

Prior researches have merely classified type 1

architecture due to organizational separation insideand type 3 according to the vertical axis. Type 1 isan organization. As NEC Yonezawa had accumulated

considered as an undesirable organizational strategy

technological resources independently in the process

when adapting to a change in product architecture.

of developing a laptop computer, NEC as an

Type 3 became a reasonable pattern of organization

established firm has been able to develop and evolve

strategy on the case. However, if organizationa laptop computer. The second point has been madestrategy is sought in two axes, NEC’s case does notclear through the analysis.

fit in either type 1 or type 3. That is, NEC fits a newtype 2, which is a combination of separated

The results mentioned above show anotherorganization and utilizing resources inside a firm.

pattern of organization strategy for adapting to aThisFigure3. New pattern of organization strategy
Separated

Ⅱ

paper

presented

theneworganization strategy of an establishedfirm through dynamic management ofⅢ

subunits:

organization

suppressing

anestablishedsubunit and utilizing or setting up another
Establishedorganization

subunit at the same time inside a firm.

ⅠⅣ

Utilizing resources

Creat ing new resources

inside a firm

In type 2 such as NEC, it becomesoutside a firm

14

importanthowtomobilize

variousresources accumulated in the subunits.

Adapting to a Change in Product Architecture
Modern industrial enterprises are organized based on

Christensen, C. M., Suarez, F. F., & Utterback, J. M.

multidivisional structure. The interactions among(1996). Strategies for survival in fast-changing

divisions are suppressed and each division has fullindustries. (Working Paper 97-009). Boston:

function concerning production and sales (Chandler,Harvard Business School.
Clark, K. B. (1985). The interaction of design

1990; Weick, 1976). Within the organizational
structure,

eachdivision

accumulates

hierarchies and market concepts in technologicalvariousproduct-related resources. However, the risk ofevolution. Research Policy, 14, 235-251.

inefficient resource-utilizing increases at a firm

Cohen, M. W., & Levinthal, D. A. (1990).
Absorptive capacity: A new perspective onlevel.

learning

If a firm permits each division to enclose its

innovation.

Administrative

Science

Quarterly, 35, 128-152.

resources, interaction between subunits or creating
heterogeneous resources required in new architecture

Hannan, M. T., & Freeman, J. (1977). The

will be difficult. Hence, the organizational rule orpopulation ecology of organizations. American

policyJournal of Sociology, 82, 929-964.

wheresubunits

areallowedtouseheterogeneous resources of one another becomes

Henderson, R. M., & Clark, K. B. (1990).

essential in adopting organizational strategy type 2.

Architectural innovation: The reconfiguration ofexisting product technologies and the failure of

The organizational rules or policies that
expedite transfer of heterogeneous resources areestablishedfirms.

permitting competition among subunits toward a

Quarterly, 35, 9-30.

AdministrativeScience

new architecture (Wi, 2001a), establishing personal

Kusunoki, K., & Numagami, T. (1997). Intrafirm

networks and communication channels throughtransfers of engineers in Japan. In A. Goto, & H.

company-wide rotation of engineers (Kusunoki &Odagiri (Eds.). Innovation in Japan. London:

Numagami, 1997 Lynn, Piehler & Kieler, 1993), andClarendon Press.
Lynn, L. H., Piehler, H. R., & Kieler, M. (1993).

constructing relationship of trust in a firm (Szulanski,1996).

Engineering

careers,job

rotations,andgatekeepers in Japan and the United States.

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