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Technology Transfer When Management and Organization Matter

W. Mark Fruin

Technology transfer does not occur in a vacuum. Technology is transferred by human beings via organizations into social, economic, and political contexts. In such complex settings, the full consequences of actions to transfer technology may be hard -- even impossible -- to predict. This paper tries to reduce the complexity surrounding technology transfer by employing evolutionary organization models that look at the introductions of new agents in established environments and by modeling the multiple levels of interactions that occur when something like the Toyota Production System is transferred abroad. A case study of the transfer of photocopier technology from Japan to four overseas locations is described and analyzed in detail as a way to apply the evolutionary and embedded layer organization.

For too long the subject of technology transfer has been treated as strictly a technical issue and not as a technical, managerial, and organizational one. As a result, tremendous efforts made in the interest of transferring technology often yield unimpressive results. This paper argues that a more informed and inclusive view of technology transfer, one that anticipates managerial and organizational concerns, will yield far more impressive results.

Japanese Management Systems and Technology Transfer
During the 1980s and into the 1990s, the U.S. government and numerous American universities began to take seriously the competitive threat from Japan. The Massachusetts Institute of Technology took the lead in efforts to better understand what was being called "Japanese Technology Management". It offered Japanese language classes for engineers plus courses in Japanese management and social science subjects as well as Summer internship programs working for Japanese companies in Japan.
Other universities followed suit with funding from the Departments of Education and Defense provided to those universities with the most comprehensive and best run programs. At the height of the effort, a dozen different universities were offering Japanese language and social science classes to hundreds of engineers at the engineering and science universities in the country. Besides MIT, Stanford University, UC Berkeley, University of Washington, University of Michigan, and the University of Texas were some of the participating universities in the program. All of this activity was administered by the Japanese Technology and Manufacturing Research Project of the Manufacturing Studies Board under the National Research Council based in Washington, D.C.; I was a member of Academic Advisory Board to the Project from 1992-94.
While an important goal of the program was to understand the bases for the competitive successes of so many Japanese firms, the real purpose of the program was to develop the same sources of competitive advantage in U.S. firms. In order to identify those sources of competitive advantage, two other business and engineering school colleagues, Paul Adler and Jeffrey Liker, and I planned a conference and a conference volume, Remade in America - Transplanting and Transforming Japanese Management Systems. The conference and volume examined the efforts of Japanese firms to bring their management systems to the United States in wholly or partially owned subsidiaries as well as the efforts of American firms to imitate Japanese Management Systems (JMSs) on their own soil. In the book, we offered four models of how JMSs were transferred to the United States and, quite pointedly, how they were transformed in the process.

The Embeddedness of Management Systems
Before discussing each of the four models, it is important to recognize that technology is managerially and organizationally embedded. By embedded, I mean that economic actions occur in a social context; economic behaviors are socially embedded. The effectiveness of JMSs, such as the Toyota Production System (TPS), is conditioned by the structure of the factory and assembly organizations and corporate management systems that support it. Any attempt to transfer or implement the Toyota Production System without considering these complementary systems is likely to fail. In other words, even hard-edged production systems, like Toyota`s, are socially embedded.
Staying with TPS as an example, we identified three different organizational and managerial levels within which TPS operates. The first layer is the shop floor level of organization and management. The second is broader set of factory-level systems and structures that encompass shop floor activities. The third layer is the corporate management system and the specialized functional and strategic activities that occur at this level. There may even be a fourth layer which could be termed the institutional environment or the political, legal, and educational systems level within which firms operate. These layers or levels obviously condition and influence what firms do.
In short, in under to understand technology transfer, such as the transfer of the Toyota Production System to the United States, it is first necessary to understand that TPS is embedded in at least three levels of firm-specific organization and management. If TPS depends on other firms to provide parts and components or to assemble those parts and components for Toyota, the products and services of those firms are equally embedded organizationally and managerially.

Four Models of Embedded Technology Transfer
We argue that there are four possible explanations for the effectiveness of JMSs, as seen in the efforts of Japanese firms to transfer their management systems to the United States or in the independent efforts of American firms to emulate and replicate how Japanese firms are managed. The four models are:

  1. JMSs as Well-Designed Management Tools and Techniques,
  2. JMSs as Knowledge-Creating Small-Group Activities,
  3. JMSs as Enabling Bureaucracies
  4. JMSs as Multistakeholder Models of Governance
JMSs as Well-Designed Management Tools and Techniques
The most straightforward explanation of the success of many Japanese firms is one that attributes their success to superior production systems and the specificity, coherence, and rationality of the policies that guide production (Juran, 1988; Monden, 1983; Schonberger, 1982; Shingo, 1989). Production or shop floor tools and techniques, such as preventive maintenance, visual control, quality control standards, and the 5Ss, are immensely powerful even without considering what is happening elsewhere at the second and third layers of embeddedness.
American firms knew about the well-designed tools and techniques of Japanese firms long before they attempted to adopt them (Liker, 1997). Slow acceptance by U.S. firms arose because many features of JMSs-as-well-designed-tools-and-techniques contradicted accepted tenets of the American mass production model, such as economic order quantity production and MRP II shop floor scheduling (Womack et al., 1990; Koenigsaeker, 1997). Also, effective implementation of JMS as well-designed tools and techniques required more participative and less autocratic shop floor management systems than was often the norm, especially in the Big Three auto plants of the American Midwest. Such norms and practices can be traced back to Scientific Management assumptions that argued only engineering experts can do their own methods engineering, for example (Adler, 1993).
Another difficulty of technology transfer associated with JMSs as well-designed tools and techniques was that far more was known about some industries and industry practices than others. Toyota Motor Company is probably the most studied Japanese manufacturing firm and a lot more is known about its Toyota Production System than is known about the production systems of other firms. Furthermore, far less is known about other industries and their leading firms. Almost nothing has been written in English about the scientific instrument industry, the glass and ceramic industry, the non-electric machinery industry, and the non-automotive transportation industry. Only a little information is available for the paper, chemical, petrochemical, and pharmaceutical industries. More has been written on the electronics industry but even this is focused narrowly on consumer electronics and semiconductor chip manufacturers. In short, a lack of information concerning JMSs as well-designed tools and techniques in many industries has stymied the transfer of technology from Japan.

JMSs as Knowledge-Creating Small-Group Activities
Recently there has been a growing interest in how companies learn and create knowledge. Accordingly there is a literature that argues that the effectiveness of JMSs was not so much related to tools and techniques as it was based on the ability of Japanese firms to learn and create practical knowledge (Adler, 1993; Kenney and Florida, 1993, Fruin, 1997). The argument runs that commitment to small group activities helps to integrate individual and organizational learning and to encourage many different kinds of employees to identify new and better routines and to diffuse them across the organization (Cole, 1979; Fruin, 1998a; Lillrank and Kano, 1989).
Small group activities promote learning in three ways. First, they are a catalyst for generating new knowledge that will likely lead to improved organizational performance. Second, small group activities help diffuse learning and knowledge throughout the organization by encouraging learning within teams and by sharing learning and knowledge between teams. Many Japanese firms have structured and systematic programs for encouraging learning diffusion (Fruin, 1997). Third, small group activities are important for creating a sense of belonging, involvement, and participation. Such values are important for setting the tone of an open organization, one that encourages learning, knowledge creation, and the diffusion of new ideas and practices.
A number of problems have been identified in attempting to transfer Japanese- style small group activities to the United States and American firms. Small group activities in Japan often involve a significant amount of top-down direction on the part of management to focus the goals and efforts of rank-and-file employees (Fruin, 1997; Fruin and Nakamura, 1997). Small group activities in Japan depend on strong first-line supervisors (Cole, 1979). In the United States, efforts to encourage employee participation often deliberately bypass shop floor supervisors in order to "empower" mployees. At NSK in Ann Arbor, Michigan, for example, Japanese managers felt that the initial failure of quality control circles came from giving employees too much choice and not enough supervision (Brannen, Liker, and Fruin, 1999).

JMSs as Enabling Bureaucracies
In spite of the reliance of Japanese firms on small group activities to stimulate learning and knowledge creation, most studies suggest that Japanese firms are characterized by high levels of formalization and standardization or bureaucratization. Bureaucratization is considered the bane of organizations. Unlike the American penchant for "flat" organizations, most Japanese organizations boast tall, finely graduated, vertical hierarchies.
However, the form of bureaucracy found in JMSs is strikingly different from that of traditional organizational theory and American firms. Bureaucracies were traditionally designed for purposes of control, coordination, and compliance. Formal standards, rules, and operating procedures were designed to ensure that employees did the right things and that work was done correctly. Most scholars argue that the efficiencies of coercive bureaucracies come at great cost in the form of reduced commitment, morale, and flexibility.
In most high-performing Japanese firms, bureaucracy appears to enhance participation rather than subdue it, to encourage experimentation albeit within well defined parameters, and to identify best practices and opportunities for improvement. Hierarchy is based on expertise and experience rather than educational credentials and positional authority. When bureaucracy takes this "enabling" form, it seemingly enhances commitment, flexibility, and innovation while, at the same time, not reducing control and coordination.
The hypothesis of JMSs as enabling bureaucracies as been widely criticized. Some have seen Japanese bureaucracies as more refined but also more invasive (Babson, 1995; Fucini and Fucini, 1990). Some agree that Japanese bureaucracies may be more enabling but this occurs only because more subtle forms of coercion ensure employee compliance. Here, the so-called Three Treasures of the Japanese Employment System (lifetime employment, seniority-based compensation, and enterprise unionism) must be cited (Sullivan and Peterson, 1991). Clearly when transferring technology from Japan to countries with very different traditions of bureaucracy, workplace democracy, and individual rights, special attention must be paid to organizational design, form, and strategies for change.

JMSs as Multistakeholder Models of Governance
Given the recent spate of corporate governance scandals in the United States, involving Enron, WorldCom, AOL, and even General Electric, this last model of corporate Japan`s effectiveness is especially intriguing. Firms in Japan link stakeholders like local communities, unions, banks, employees, suppliers, and shareholders in distinctive ways (Aoki and Patrick, 1994; Dore, 1988; Fruin, 1983; Miyashita and Russell, 1994; Morikawa, 1992; Odagiri, 1992).
Management and unions are not determined adversaries in Japan and, as a result, information and authority asymmetries between managers and workers in terms of voice, rights, and benefits are significantly muted. Board members and top executives are generally promoted from within and because of shareholding patterns within firms of the same corporate grouping, corporate control is not often contested and hostile takeovers are rare (Gerlach, 1992; Kester, 1989). Suppliers cooperate closely with assemblers without too much concern for the appropriation of intellectual property, the risk of losing key employees, or excessive opportunism. Organizational learning spans corporate boundaries because suppliers are an integral part of the production system. Position and role in supplier networks are often defined by the evolution of technical capabilities, not ownership and financial relationships (Fruin and Nishiguchi, 1993; Nishiguchi, 1994; Stuart and Podolny, 1996).
Research on the more successful Japanese transplants in the United States shows that Japanese firms do attempt to recreate overseas at least some aspects of the multistakeholder model of governance, especially with respect to relations with unions, suppliers, and banks. However, this model of technology transfer effectiveness relies much more than the others on spanning of corporate boundaries and positive shaping of the institutional environment. It should be noted that many resources considered within the Japanese system of corporate governance, such as close relationships between firms and company unions, are distinctly different from how and where those resources are treated in the U.S. system. Such differences make this model of technology transfer problematic.

Structural versus Emergent Process Perspectives
So far we have examined different key factor models that seek to explain the effectiveness of Japanese management systems and how these might actually play out in terms of transferring technology to the United States. Although a number of organizational and managerial features that hypothetically explain the performance of leading Japanese firms was presented, the underlying causal model in each case was structural. In other words, whatis the structure of certain firm-level features or attributes as seen in Japan and how might they be altered when transferred from Japan to the United States. This structural model of technology transfer is well represented in the literature.

Technology Transfer as Structure Perspective

There is a large and growing literature on the diffusion of technical innovations and, hence, on technology transfer. The literature suggests that the speed and extent of diffusion depends on: first, characteristics of sender and receiver organizations; second, on the nature of communications between senders and receivers, and third, on what exactly is being sent (Damanpour, 1991; Rogers, 1983; Tornatzky and Fleischer, 1990; Wolfe, 1994). These somewhat ambiguous factors are typically operationalized and measured as the respective size differences of sender and receiver organizations, the differential resources available for promoting innovations in sender and receiver organizations, and the dependence of the organizations in question on the successful transfer of that information.
The respective sizes of sender and receiver organizations are telling indicators of how much time and effort might be spent communicating and facilitating innovation. On one hand, larger organizations have more resources to stay informed and manage information about innovations. But, on the other hand, larger organizations are often more entrenched with respect to the ways that they obtain and manage such information.
Smaller organizations are more flexible, able to do more with less, and less likely to be stuck in the stock of information that they have accumulated. As receiver organizations, smaller organizations are more profoundly changed when they adopt new technologies but that they do so less often (Rees, Briggs, and Hicks, 1984; Wiarda, 1987). In short, larger firms have more resources to innovate and adopt new technologies but they are less likely than smaller firms to innovate.
Slack resources and absorptive capacity are clear indicators that the nature of innovations will be clearly communicated, received, and acted upon. This rather mechanistic point of view says little about strategic intent, managerial discretion, and dynamic interaction of technologies and organizations, however. For this point of view, we have to turn to entirely different literatures.

Emergent Process Perspective
Instead of focusing on the structural features of the transfer content or context, we might do well to recognize the complexity and multiplicity of such structural determinants. That is, instead of looking at such features of JMSs as knowledge-creating small group activities and enabling bureaucracies as givens, we might see them as emergent process outcomes. By this I mean that the internal development of each firm's management system is only partly the result of deliberate planning. More often, management and organizational systems are the result of opportunistic, "ex-post" learning (Fujimoto, 1995). Such systems are not "designed" but, rather, are "emergent" in the way that the term is used by persons advancing an evolutionary view of the firm (Penrose, 1959; Nelson and Winter, 1982; Kogut and Zander, 1993; Noda and Bower, 1996).
If such systems cannot be deliberately designed, it is even more difficult to plan for how they might be deliberately transferred across cultural, institutional, and national boundaries. The tacitness of much of the knowledge that the underpins the production system and the values and assumptions that underlie the broader management system of the Toyota Production System, for example, ensure that local conditions will greatly affect the transfer process. The local environment, more than anything else, determines what is selected and retained and, hence, successfully transferred. Moreover, the influence of the local environment is likely to be so overwhelming that whatever is transferred will be transformed in the process.
JMS at leading Japanese firms may serve as a reference point but each effort to transfer JMS overseas will experience its own development sequence. Numerous unplanned adaptations or mutations will inevitably occur (Fruin, 1999). The necessity of transformation is clearly seen when JMSs are conceived of as institutionalized cognitive patterns (Tsoukas, 1996). First, sending firms in Japan develop models of what they think makes their systems work. Given the complexity, ambiguity, interconnectedness, and tacitness of these systems, the models are necessarily incomplete and imperfect. Second, receiving organizations have their own histories and these reshape and filter such models. Third, when two parties interact around technology transfer, these interactions are somewhat unpredictable and a series of negotiated settlements that lie somewhere in between the intentions of the senders and the aspirations of the receivers will be realized. What finally results will necessarily be different from what one started with.
The mode or vehicle for transfer will also greatly affect the transfer process. JMSs have been transferred abroad in three different ways - as greenfield operations, as brownfield operations, and as joint ventures. Of the three transfer modes, greenfield sites afford the best chances for successful transfer because the impact of the local environment is not confounded by a local partner`s pre-existing resources, routines, and practices. Transfer to brownfield sites is more problematic because pre-existing resources, routines, and practices dynamically interact with what is being introduced. Instead of a single point of reference, there is likely to be an ongoing debate, convert and overt, as to which of the features and attributes of the two systems are best (Salk and Brannen, 1998).
Most problematic are international joint ventures where choices made by on-site managers are subject to review and revision by home country managers. When both parent organizations share in shaping new organizational and managerial systems, the resulting outcomes are nearly impossible to predict in advance. Transformation rather than transplantation of technical, organizational, and managerial systems is the rule because local environmental effects are more powerful than the intellects and intentions of those who send and receive technology. For technology transfer to be successful, technology must be transformed and embedded.

In this paper, I have presented a number of ideas concerning technology transfer and the context for technology transfer with special reference to the transfer of Japanese management systems from Japan to the United States during the 1980s and 90s. Transfer from Japan has been the focal point because it makes little sense, in my opinion, to talk about technology transfer in the abstract. Instead the context for technology transfer must be considered and this includes the nature of technical, organizational, and managerial systems in technology-sending and -receiving organizations.
In spite of the difficulties of transferring technology when technology transfer is considered in this embedded, contingent way, it is undeniable that both the core and key aspects of JMSs were transferred to the United States. The successes of Toyota and Honda in the U.S. are well known. In my opinion, the revival of General Motors and Ford also owe much to the transfer of Japanese technology management to the United States. Likewise, other Japanese firms, such as Sony, Toshiba, Kubota, Kyocera, Matsushita, and Subaru have also done well in the United States. Successful performance at home and overseas offers powerful evidence of the successful transfer of technology from Japan to the United States.


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