Knowledge Works: Managing Intellectual Capital at Toshiba

Published by EH.NET (July 1999)

W. Mark Fruin, Knowledge Works: Managing Intellectual Capital at

Toshiba.

Japan Business and Economics Series. New York: Oxford University Press,

1997. 256 pp. $39.95 (cloth). ISBN: 0195081951

Reviewed for H-Business and EH.NET by Andrew Robertson, Harvard University.

Awash

in a sea of high quality, meticulously engineered electronic and mechanical

products bearing the label “Made in Japan”, Americans — both inside and

outside academia — continue to wonder, despite Japan’s recent economic

troubles, “How does Japanese industry do it?” In Knowledge Works:

Managing Intellectual Capital at Toshiba, Mark Fruin addresses this

perennial question through a factory organization at Toshiba’s Yanagicho

factory. At irregular intervals from 1986 through 1992, Fruin entered Toshiba’s

workforce to observe the complicated social patterns that generate change at

Toshiba. Because Toshiba devolves most of its resources related to product and

process development to the factory level, working in the various sections

responsible for bringing

new products on line permitted Fruin to study at firsthand the technical,

social, and cultural relations that structure Toshiba’s larger technology

strategy. In

Knowledge Works, Fruin argues persuasively that Toshiba’s success during

the 1980s in responding to rapid shifts in market preference, to the quickly

strengthening yen, and to the establishment — sometimes voluntary,

sometimes not — of international trade quotas, stemmed directly from the

development of a new form of factory organization, a form beyond simple mass

production, a form Fruin terms the “Knowledge Works”.

Briefly, this

book is a useful and thought provoking study of how a single

factory is organized to support rapid innovation in both process and production

technology. Fruin presents a useful model — that is, the knowledge works —

for analysis of this industrial form and supports his claims with detailed

descriptions of the technical systems, social organization, institutional

values, and individual attitudes that underpin this

form. The book is not, however, without its flaws, most prominent being

Fruin’s desire to generalize this form as a source and explanation of Japan’s

national rather than Toshiba’s corporate comparative advantage.

In the term “knowledge works”, Fruin playfully emphasizes the central point of

the book: “Knowledge works” are places where “knowledge works”. Put a little

more elegantly and emphatically,

“Knowledge works are a force for a new age, a postproduction age, of

intellectual capitalism. Instead of

making things, a production problem pure and simple, making the right things,

in the right amounts, at the right times and prices, is the postproduction

problem. And because nothing stands still, making righter thing, in

righter amounts, at righter prices and times, must be the goal.

Post production , or intellectual capitalism, presumes information processing

abilities of a high order,

on-site differentiation and integration of functions, a

customer-is-always-right point of view, and quite emphatically, an

environmentally conscious mode of operations” (p. 24).

Knowledge works permit a higher degree of responsiveness to changes in markets

by permitting higher levels of differentiation in a factory’s product lines and

simultaneously higher levels of

integration technically,

socially, and culturally across the different groups managing, designing,

and producing these products. While management remains well attuned to the

short-term exigencies of the market, still more important to the continued

vitality of both the factories as knowledge works and Toshiba as a corporation

is management’s strategic commitment to factories as sites for not only the

production of better products but also the production of better skilled, more

knowledgeable, better motivated workers on better organized, better managed

lines. Knowledge works prosper not by the traditional mass production

strategies of de-skilling and the division of labor; instead, at Yanagicho, the

factory provides the site where technicians, engineers, and managers from not

only Yanagicho but also other Toshiba plants, group companies, suppliers, and

even outsiders cooperate to attain the “physical, spatial, and functional

integration of labor and information (p. 17).”

Understanding the characteristics

of the manufacturing processes undertaken in knowledge works as being

profoundly determined by the particulars of a given site’s history provides

Fruin a useful explanation to understand how Toshiba innovates so quickly. It

does so because on the factory

floor, the whole organizational panoply of managers, engineers, technicians,

suppliers, assembly personnel, inspection personnel and such are synchronized

by a common set of values, practices, and goals. Technical knowledge, social

contracts, and cultural

intuitions combine seamlessly to create the basis for rapid process and

product innovation. Continuous and ongoing renegotiations of these compacts is

the norm which permits flexible response by management and engineering in the

deployment of Yanagicho’s intellectual, financial, and labor resources.

While it is the social and cultural dynamism and cohesiveness of “knowledge

works” that power technical development at Toshiba, it is the technologies

themselves that create value for the company. Which technologies — and

consequently which complementary skills and what forms of organizational

knowledge — to develop is central in determining which markets any given

knowledge works can and will be able to service. Fruin notes the presence in

each of Toshiba’s

knowledge works of what he terms “Champion Lines”,

families of products that provide not only considerable revenue flows but also

considerable and ongoing innovation in both product and process development.

“They lay a threshold of organizational knowledge on which related products

can thrive, one that ultimately justifies the high risk and cost of creating

multifunctional capabilities in particular product departments [of, that is, a

knowledge works.] (p. 47)” Yanagicho’s

“Champion Line” — plain paper

copiers — has defined the trajectory of technical, product, and market

development for the whole factory complex since the mid-1980s. While the

knowledge works form enables Toshiba to participate in the crowded and highly

competitive domestic copier mark et,

at the same time, in developing the technical know-how necessary to compete in

this market, Toshiba augments, complements, and improves the basic technical

and organizational knowledge present at Yanagicho and thus drives change in the

other product families produced there. Indeed, of the thirteen product lines

produced in the Yanagicho plant, fully two-third are

“historically and technically linked” to its plain paper copier line (p.

48).

Having introduced the concept and architecture of the Knowledge Works in the

first two chapters, Fruin spends the majority of the book studying how Toshiba

management maintains, extends, and reproduces the structures that define a

knowledge works. The third chapter describes how management promotes the

education, socialization and acculturation of its workforce to the needs and

values of a knowledge works through a continual process termed organizational

campaigning. The fourth describes how Toshiba — or more accurately the

Yanagicho factory — manages its relations with suppliers, encouraging

excellence and cooperativeness through the strategic exchange of knowledge,

expertise, and personnel. In the fifth chapter,

Fruin uses a case study of the development of the SuperSmart card — a credit

card sized computer —

to demonstrate the potency of knowledge works to develop rapidly (in only 22

months) a product embodying multiple technological innovations. In the sixth

chapter, Fruin examines how Toshiba responded to the problems encountered in

exporting both the know ledge works concept and plain paper copier manufacture

to a plant in Irvine,

California. Not surprisingly, the seventh and concluding chapter reprises the

basic argument of the book, pointing to Toshiba’s potential for flexible and

speedy innovation that

results from the presence of a corporate factory system organized around

knowledge works.

As noted above, this is a useful and interesting book. Having worked in the

Yanagicho factory as an employee, Fruin writes with an authority born of

experience. At

the same time, the book is more than simply a diary of production line

experience. His experience is structured by new readings of old arguments in a

variety of literatures in management and economics.

Moreover, his method is not limited by overly fastidious attention to

disciplinary boundaries. In trying to understand what motivates workers to

participate, Fruin bravely enters the problematic realm of individual values,

culture, and inevitably history. Knowledge Works persuasively

demonstrates the importance of these less quantifiable and more local aspects

of human experience in Toshiba’s development of a factory-based capability to

respond to and generate rapid change.

Using this multidisciplinary approach combined with a fine detail derived from

careful field research, Fruin has formulated an argument that emphasizes the

importance of a particular cluster of factors — some cultural, some social,

some institutional, some political, some market, and some technical — in

enabling the creation of know ledge works at Toshiba.

By so tightly and persuasively linking the factors of the knowledge works’

creation to the particulars of Toshiba’s products, market, organization,

and culture, Fruin renders any generalization of the knowledge works concept

problematic. After making a good case for knowledge works being the source of

Toshiba’s comparative advantage, Fruin — too boldly in my view

— continues, making much the same claim regarding the sources of Japan’s

national comparative advantage. For example,

in his conclusion Fruin writes,

The widespread existence of Knowledge Works in Japan but the relative scarcity

(or nonexistence) elsewhere suggests the powerful impact of national

competition on manufacturing organization at home, the competitive edge enjoyed

by Japan’s industrial firms in established product markets,

and their ability to respond quickly, even preemptively, to new domestic and

overseas markets (p. 210).

Since no company has experienced exactly what Toshiba has experienced and since

only

a few even come close in terms of market, product lines, and such, it is

difficult to believe that the knowledge work per se is widespread even in

Japan.

This is not idle philosophizing. Over the course of the book, we do in fact

learn that many of the

most prominent Japanese companies are not configured in a knowledge works-like

style of production. For example, serving as they do radically different

markets, Toshiba and Toyoda do not, indeed could not, operate using the same

production models (p. 206)

; for Hitachi,

Mitsubishi, and NEC, R&D deployment is mostly focused — contrary to knowledge

works best practice — at laboratories that are neither physically nor

institutionally linked to specific factory sites (p. 57-59);

and the competitive cooperation found in Yanagicho’s dynamic and responsive

supplier network derives from the shared intangible assets fostered under the

knowledge works approach rather than the formal, more static, and more widely

spread fiscal and organizational relations defining

traditional keiretsu and kiygo shodan business groupings (p. 99). These are not

inconsequential differences. In the knowledge works model, the structure of the

supplier network, the factory level allocation of R&D, and the organization of

production are key structuring elements. By and large, its seems that

knowledge works — in the mode in which they are implemented at Yanagicho and

described by Fruin — could be as rare in Japan as they are abroad. By making

an argument that ties knowledge works so tightly to the specific technical,

institutional, and corporate history of Toshiba and its Yanagicho plant, Fruin

renders the imitation of knowledge works by Toshiba’s domestic competitors only

slightly less problematic than their transplantation from Toshiba

‘s plants in Japan to new factories in the United States.

Another way to estimate the influence of knowledge works on Japanese industrial

development would be to ask when they first came into being. In terms of

knowledge works influencing larger issues of national comparative advantage,

earlier would be better to allow time for dispersal. Indeed,

Fruin argues,

“Knowledge Works are not a recent, postwar invention. They appeared during the

interwar period as focal factories: multifunction and occasionally

multiproduct factories that bore administrative responsibility for serving

regional markets at a time when national markets were not well integrated.”

(p. 31).

Here and elsewhere in the book, Fruin times the advent of knowledge works as

during the inter war period. I do not wish to suggest that Fruin is wrong in

drawing links to this period; however, these must be termed only the barest

beginnings of certain aspects of the knowledge works structure. They should not

be mistaken for the structure itself. Given that certain knowledge works

structures at Yanagicho such as total productivity organizational campaigning

(p. 69), the establishment of factory oriented R&D structures (p. 191), and the

creation of an active and responsive Supplier Association (p. 9 7) all stem

from institutional changes undertaken in the period between the late 1970s and

mid-1980s, the development of the knowledge works form should be seen as a

product of the slow down in Toshiba’s corporate growth engendered by “Oil

Shocks” and the

ending of Japan’s period of high economic growth.

Thus, to my way of thinking, the organization defined as knowledge works is

both more recent and less widely spread in Japan than is suggested by Fruin’s

otherwise well constructed and excellently researched book.