Management Accounting Research, 1995,6,399-414

Interactive control in target cost management

Takeyuki Tani*

This paper discusses target COSt management (TCM) from the viewpoint of simultaneous engineering. Firstly, it shows empirically how simultaneous engineering is implemented in Japanese companies. Secondly, it formulates and then tests hypotheses on the influential power of managers involved in the process of target costing. Thirdly, it describes processes of interactive control directed at information and value sharing among managers that help explain why simultaneous engineering is working effectively in Japanese companies. It also formulates and tests hypotheses on information and value sharing among managers. Fourthly, it concludes that interactive control in TCM helps generate unique ideas for product development and cost reduction, and that Target Cost Management is a key subsystem of strategic cost management. © 1995 Academic Press Limited

Key words: interactive control; simultaneous engineering; product development; target cost management.

1. Introduction

Target cost management' (TCM) is concerned with simultaneously achieving a target cost alongside the planning, development and detailed design of new products by using methods such as value engineering (VE). TCM emerged at Toyota in 1963 and it has spread to other Japanese automobile companies and their suppliers. It is now used in most companies in assembly industries and even in some process-type companies in Japan (Tani et al. J 1994).

TCM was born from the idea that most costs are fixed in the early stages of product development and therefore the management of product development is essential to reduce costs drastically. TCM, as revealed from case studies, presents many topics for research: these include the purposes of TCM, simultaneous engineering in TCM, PDCA (Plan-Do-Check-Action) cycle of TCM-incIuding the setting of target costs, tools for TCM, organization for TCM, relationships with suppliers, and the globalization of TCM.

This paper focuses on a key feature of TCM; simultaneous engineering. TCM is

" School of Business Administration, Kobe University, Rokko, 657 Kobe, Japan.

I We use the term 'target cost management' instead of 'target costing' because it is neither a costing system nor a system for setting target costs. Some literature written in English is available for TCM. See, Monden (1989), Sakurai (1989), Yoshikawa et al. (1989), Yoshikawa et al. (1990), Monden and Hamada (1991), Worthy (1991), Horvath (1993), Kate (1993b), Monden and Lee (1993), Society of Management Accountants of Canada (1993), Tanaka (1993), Yoshikawa et al. (1993), Tani and Kato (1994), Tani el al. (1994).

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© 1995 Academic Press Limited

400 T. Tani

r Manager of product planning

__ ~---- __ -----L

Manager of production preparation

Product planning

Development

Detailed design

Production preperation

Manufacturing

Figure 1. Model of simultaneous engineering.

normally applied in the product development style characterized as simultaneous engineering or 'rugby' style product development (Takeuchi and Nonaka, 1986). A functional manager who is responsible for a stage in product development should influence the activities of the functional managers of the subsequent and preceding stages to achieve through cooperation the targets of costs, quality, timely introduction of new products to the market etc. (see Figure 1).2 This is quite different from the traditional 'baton relay' style of product development which follows a clear sequence of product planning, product development, detailed design, production preparation, and finally manufacturing. For example, early in the development and/or detailed design stages of product development, the manager of production engineering responsible for production preparation infuses ideas on the manufacturability of the new product to secure considerable cost savings at the manufacturing stage. In this case, production preparation is done simultaneously with product development. In another case, managers of product planning and development monitor the activities of managers of subsequent stages to ensure the product concept is maintained.

This paper will first describe the pros and cons of TCM by focusing on simultaneous engineering. Then, to verify simultaneous engineering in Japanese companies, it shows empirically the influential power that each manager involved in TCM has over the various stages of product development. Data collected through a questionnaire survey on 'TCM practices' by the Kobe University Management Accounting Research Group are used for this purpose. Following this, some hypotheses on environmental factors are formulated to explain the different involvement and influential power of each manager at various stages of product development. The hypotheses are then tested empirically. Then, it is explained why simultaneous engineering is working effectively in Japanese companies. One answer suggested is that a product manager acts as a leader for the product development and coordinates activities of functional managers to promote simultaneous engineering. In another case, a staff office for TCM is active in promoting simultaneous engineering. Another answer can be found in the concept of interactive control. This covers information and value sharing amongst managers through vertical and horizontal interaction. The paper demonstrates that product planning and cost meetings are devices for interactive control and are therefore very important for

2 Takeuchi and Nonaka (1986, p. 139). The figure is modified to show the stages in product development.

Interactive Control in TCM 401

simultaneous engineering to work effectively, so managers involved in product development can influence development stages for which they have no functional responsibility .

Product planning and cost meetings are held at critical stages in product development and TeM, namely long-range planning, product planning, setting target costs, cost review and cost improvement. The paper describes who is involved in these meetings and which information is shared amongst the managers involved. It also formulates and empirically tests some hypotheses on how environmental factors affect information and value sharing amongst managers. The conclusion is that interactive control in TeM helps generate unique ideas for product development and cost reduction, and that TeM is a key subsystem of strategic cost management. Lastly, the paper tentatively suggests that horizontal interaction amongst functional managers is more important than vertical interaction for cost meetings but that vertical interaction between top and middle management is crucial for product planning meetings.

2. Methodology of the survey

The main objectives of the survey were to investigate the practices of TeM and to develop a theory to explain TeM system design." The topics covered with respect to TeM are; its adoption and initiation, its objectives and coverage, its organization, its cost elements, setting target costs, monitoring its activities, tools for TeM, relationships with suppliers, the globalization of TeM activities, the influence of each manager involved in product development, meetings and information sharing, environmental factors, and organization structure.

The questionnaire was distributed to all 703 manufacturing companies with listed stocks on the Tokyo Security Exchange, Part I, on 27 November 1991. The number of valid responses as of 20 December 1991 was 180 with a response rate of 25.6%, of which 60.6% (109 companies) adopted TeM.

3. Simultaneous engineering

Process of simultaneous engineering

A typical simultaneous engineering application in a context of TeM is that at the product development and/or detailed product design stages, production engineers engaged in production preparation are involved in product development activities to infuse ideas on manufacturability to produce significant cost savings at the manufacturing stage. Another example is the involvement of purchasing personnel in product development. There is limited opportunity for cost reduction if parts procurement activities take place after receipt of the detailed design. It is better to consider reducing the number of pans or using common pans in products at an early stage of product development. Therefore, i.t becomes necessary to ask purchasing managers to participate in the earlier stages of product development and infuse their ideas on product development then (Kato, 1993a,b; Tani, 1993; Tani and Kato, 1994). On the other hand, product planning personnel cannot just

3 For the diversity of TCM practices revealed by the survey, see Tani and Kato (1994) and Tani et al. (1994). For the analysis and observation based on contingency theory, see Tani and Kato (1994) and Tani et a/. (1993b).

402 T. Tam

throw a ball 'over the wall' to development and detailed design. They have a responsibility to monitor the activities of development and detailed design managers to ensure that the original product concept is maintained in these later stages. Simultaneous engineering emphasizes that at least two departments should engage in every stage of product development activities.

Simultaneous engineering in Japanese companies provides at least two lessons.

First, that drastic cost reduction will not be realized without cooperative efforts between departments. It is too late if production engineering discovers the layout of pans is inappropriate for efficient manufacturing. Second, cooperation between departments is imponant for the emergence of strategy. TCM consists of people from different functions and different disciplines-interaction amongst them often creates unique ideas that are strategically very important (Nonaka, 1990). Simultaneous engineering, therefore, helps generate unique cost reduction ideas and strict cost targets can stimulate personnel to create totally different ways of realizing minimum costs (Iwabuchi, 1992; Shimizu, 1992).

Evidence for simultaneous engineering

Survey data collected illustrates how simultaneous engineering is practised in Japanese companies. Table 1 shows the mean score of influential power of each manager at each stage of product development. The power of each manager is measured on a seven point scale, one for 'little influential power', seven for 'very strong influential power', and zero for 'not involved', 4

Throughout the product development process, functional managers who are expected to playa dominant role in TCM, i.e. the managers of product planning,

Table 1

Infiuential power of managers in product development

Production Development Detailed design z-test results
planning
Mean n so Mean n so Mean n so Plan., Develop-
dey. ment/
design
Accounting 2.2885 104 1.9342 2.3980 98 2.0993 2.6731 104 2.3042 -0.9972 -2.0876*
Sales 5.9714 105 1.1640 4.5876 97 1.9352 4.4175 103 2.0794 7.4194**· 1.1035
Purchasing 3.6058 104 1.8244 4.2041 98 1.8047 5.1058 104 1.7175 -3.1120** -4.5273 .....
Product planning 6.3158 95 1.3068 5.8989 89 1.2159 5.1075 93 2.0771 3.5911*** 3.3677**
Development 6.1651 103 1.2917 6.2292 96 1.3878 5.4381 105 1.9852 -0.5201 4.9209***
Detailed design 6.0289 104 1.1697 5.7579 95 1.3661 6.4412 102 1.2233 1.4988 -4.9584"'**
Production 4.7885 104 1.5497 4.9583 96 1.4136 5.6792 106 1.3277 -1.0397 -4.3001"'*
engineering
Production 3.7333 105 1.7935 3.4227 97 1.8865 4.4904 104 1.9458 1.4374 -5.8946*"'*
Product Manager 5.0930 86 1.9074 5.0750 80 2.0914 5.2706 85 2.1010 0.9480 -1.1494
Divisional 5.8391 87 1.4775 5.7662 77 1.5295 5.5000 86 1.9205 1.0249 1.1253
manager "'..., PSO.OOI;"" PSO.OI; '" PsO.05.

4 For the product managers, 'not involved' occurred in two instances. One was a case of a lightweight product manager, the other was a case where no lateral relation such as product manager is organized. The latter may account for the relatively low influence of product managers shown in Table I.

Interactive Control in TCM 403

development, detailed design, production engineering, purchasing and sales, have relatively strong powers. Also, product managers and divisional managers have significant power but, as expected, accounting managers were not strongly involved in product development. Interestingly, the power of product and divisional managers remains constant throughout the processes which may reflect their leadership of product development activities through coordinating the work of functional departments." In contrast, the functional managers tend to have strong power over only part of the product development activities." These results lend empirical support to the claim that Japanese companies utilize overlapped product development or simultaneous engineering as shown in Figure 1. For example, product planning managers have the greatest power at the product planning stage for which they are responsible but they have less power over the subsequent stages. Similarly, development managers are the most powerful managers at the development stage but even at the design stages they continue to have significant, if lessened, influence. Likewise, purchasing managers and production engineering managers who are responsible for the later production preparation stage playa role in the preceding development and detailed design stages.

When TCM is implemented with simultaneous engineering, all related functional managers hold some power throughout the product development processes, for example, a product planning manager can influence the detailed design whilst checking whether the drawings realize the product concept that he or she established. Similarly, a manager of production engineering can argue that basic design activities should take the manufacturability or the ease of production into consideration with the managers of development and detailed design. Nevertheless, each manager plays the dominant role at the stage for which he or she is responsible and tends to be relatively less powerful in the stages adjacent to their own.

Enuironmental factors explaining influential power of managers

Contingency theory. Hypotheses to explain the design of TCM were formulated from the information processing model of contingency theory (Galbraith, 1974) which argues that structures and processes of organizational planning and control systems are contingent upon environmental uncertainty. This is modelled in Figure 2. Two environmental factors are seen as important, the complexity and the uncertainty of the decision environment (Nonaka, 1974) but in this paper only the uncertainty factor is considered" because TCM is deemed to be a response of Japanese companies to environmental uncertainty. B The uncertainty of the decision environment is determined by the variability and specificity of factors needing to be considered in decision-making. In this study it is assumed that uncertainty is governed by the frequency of technological innovation, the diversification of

5 Clark and Fujimoto (1991) argue that in automobile industries the performance of companies with heavyweight product managers are superior to those with lightweight product managers. They also describe in detail how a heavyweight product manager behaves.

6 A r-test was applied to measure whether the influential powers of different types of managers were significantly different at each stage of product development.

7 The complexity of decision environment is measured by the number of elements that need to be considered in decision-making and the degree of heterogeneity amongst them. This dimension is measured by two variables; the diversity of product market (heterogeneous customers and market), and diversity of production technology (heterogeneity of engineers, production facilities and technical know-hews).

8 See Tani (1993) and Tani and Kato (1994).

404 T. Tani

Environmental
uncertainty

Organizational
structure

TCMsystem
Scope ofrCM activities
Objectives of rCM
Organization of rCM
Setting of target costs
Monitoring of TCM activities
Tools forTCM Figure 2. Contingency model of target cost management (TCM).

customers' needs, and the intensity of market competition, as these three variables are believed to be key factors in explaining the design and activities of TCM.

Diversified customers' needs. Customers' needs have become widely diversified and changing over time. To attract customers, companies have had to introduce market-oriented product development. As the competition for attracting customers gets harder, the timely introduction of new products into the market becomes more critical in meeting competition. Consequently, market-oriented product development and the timely introduction of new products have become increasingly important objectives of product development and therefore TCM.

To realize market-oriented product development in a highly competitive environment, information and ideas from a sales manager covering topics such as customers' needs, their reaction to current products and customer demographics, have to be infused into the early stage of product planning when the product concept is established. This information is most effectively and timely accessed by a sales manager. By definition, managers in charge of product planning playa crucial role in attracting customers, and product managers must initiate and coordinate the activities of functional managers involved in product development from its earliest stages. Product managers play a role of a heavyweight with greater authority to secure market orientation.

The first three hypotheses on the influential power of sales managers, product planning managers and product managers are derived from their perceived roles in satisfying diverse customers' needs.

Interactive Control in TCM 405

(HI-I). The more diverse are customers' needs, the higher is the influential power of sales managers, product planning managers and product managers, during the stage of product planning.

(Hl-2). The more intensive is market competition, the higher is the influential power of sales managers, product planning managers and product managers during the stage of product planning.

CHl-3). When the timely introduction of new products is a key success factor, the influential power of sales managers, product planning managers and product managers will be high during the stage of produce planning.

On the other hand, to mitigate the possibility of increased costs to meet diversified customers' needs, the managers of production engineering and purchasing may have to infuse cost reduction ideas during the stage of development and/ or detailed design. Therefore, the fourth hypothesis was formulated.

(HI-4). The more diverse are customers' needs, the higher the influential power of purchasing and production engineering managers is during the stage of development and/or detailed design.

Accelerated technological innovation. Technological innovation brings keen competition among firms pursuing strategies of differentiation over new product developments. The timely introduction of new products into the market is essential to acquire or maintain competitive strength. Cost leaders also have to invest heavily in new technology to maintain their competitive strength as cost leaders. In both cases, the timely introduction of new products or new technology is essential to meet competition. As the frequent introduction of new products or technology is very expensive, TCM has to be adopted from the early stage of product planning to have a chance of low COSt competitive technological innovation. To achieve these ends a product manager must act as a leader and/or coordinator from an early stage of product planning by introducing technological innovation as timely and inexpensively as possible.

A manager of product planning normally has the greatest power over establishing a product concept. On the other hand, in an environment of accelerated technological innovation, managers downstream of product development, such as product engineering and purchasing managers can be very influential in the stages of development or detailed design. In this environment, product development gets more frequent, and opportunities for cost reduction through TCM become fewer, because drastic cost reduction always needs new innovative ideas. Therefore, managers of downstream activities must infuse more ideas on cost reduction in the stages of development or detailed design.

This led to the formulation of two other hypotheses.

(H2-l). The more frequent is technological innovation, the higher is the influential power of product and product planning managers in the stage of product planning.

(H2-2). The more frequent is technological innovation, the higher is the influential power of purchasing and production engineering managers in the stages of development and/or detailed design.

406 T. Tani

Empirical results

The measures for environmental uncertainty used in Kagono (1980) were used to measure the environmental factors in this research. The frequency of technological innovation was measured by the frequency of new product and new technology developments in the relevant market. Intensity of competition was measured by competitiveness in the product market. Diversified customers' needs were measured by a surrogate-the diversity of devices for sales promotion, in the belief that diversified devices for sales promotion will be applied more when firms must attract customers with varied needs. This is supported empirically." The necessity of timely introduction of new products was measured by the relative importance managers attached to an objective of TCM-the timely introduction of new product.'? Pearson correlation coefficients testing the hypotheses are given in Table 2.

Table 211 gives evidence to support validity of (H2-1). The more frequent the development of new products and new technology in the market was, then the more influential the product planning and product managers were in the product planning stage. However, the influential power of sales managers in the product planning stage also increased when technological innovation got more frequent, which was not predicted. It could be that in an environment of technological innovation finding a product that meets customers' needs involves creating a technologically new product. This may require sales manager to be heavily involved in product planning so their information and ideas infuse the product concept.

(Hl-3) also receives empirical support, When the timely introduction of new products is crucial to competing, sales, product planning and product managers are very influential in the product planning stage. The suggestion is that these managers play a very active role in the product planning stage to produce technological innovations as timely as possible with competitively lower costs. To help to timely

Table 2

Influential power of managers in the product planning stage

Environmental factors

Sales manager

Product Product
planning manager
manager
0.2439"(95) 0.4516***(86)
0.2715*"(95)
0.2935*"(87) 0.3251 *"(79) Diversity of sales promotion Frequency of developing new product and new technology Competitiveness of product market Timely introduction of new product

0.2007* (l05) 0.2540**(J 05)

0.2358*(96)

*"* P::sO.OOl; "" P::SO.Ol;" P<0.05. (Figure in the bracket is a nwnber of valid cases.)

9 Diversified customers' needs are captured in the relative importance of market-driven product development as an objective for TCM. The relative importance of this objective was positively correlated with the diversity of devices for sales promotion (r = 0.2456, P < 0.05, ,,= 101). nus implies also that market-driven product development is essential for effective sales promotion.

10 Relative importance of the objective was positively correlated with diversity of devices for sales promotion (r = 0.2907, P< 0.01, 11 = 99). This shows that timely introduction of new products is essential for effective sales promotion.

II Some variables are interrelated. Timely introduction of new product is one objective of TCM. Therefore, as supposed, the variable is correlated with environmental factor; 0.2907 (P < 0.01, " = 99) with diversity of devices for sales promotion and 0.2215 (P< 0.05, 11 = 100) with frequency of developing new product and new technology.

Interactive Control in TCM 407

Table 3

Influential power of a purchasing manager in the detailed design stage

Diversity of sales promotion Frequency of developing new product and new rechnology

0.2020* (103) 0.2115* (104)

.. P:s 0.05. (Figure in the bracket is a number of valid cases.)

introduce a new product into the market, a sales manager can provide information about market trends and infuse ideas about product concepts whereas a product planning manager can help establish product concepts based on market information whilst the product manager can initiate product development, partly through gathering information and ideas from the managers involved and coordinating their activities.

(H2-2) was supported for purchasing managers but not for production engineering managers. The more frequent the development of new products and technology in a market was, then the more influential the purchasing manager became in the detailed design stage (see Table 3). The results suggest that the role of a purchasing manager in TCM is more responsive to accelerated technological innovation than that of a production engineering manager. In such circumstances, the purchasing manager is expected to gather information on technological innovations, be involved in the detailed design stage, and infuse ideas on reducing the number of parts and the shared use of identical parts amongst products and to promote standardization to produce greater cost savings.

Table 3 indicates that the influential power of purchasing managers in the detailed design stage is positively correlated with the diversity of devices for sales promotion, which was taken as a surrogate for diversified customers' needs. This supports (HI-4) with respect to the expected relationship of purchasing managers' influence to the diversity of customers needs but not to hypothesized relationship for production engineers' influence. The suggestion is that purchasing managers have to be heavily involved in the detailed design stage to infuse cost reduction ideas whilst retaining good adaptation to diversified customers' needs.

(H 1-1) regarding the effect of diversified customers' needs upon high influence during the product planning stage was supported only for sales managers (see Table 2). The information and ideas of a sales manager in the product planning stage appear important in establishing a product concept that attracts customers. However, the power of product and product planning managers appeared insensitive to the differences in diversified customers' needs, although they were influential at the product planning stage. It is tentatively suggested that other factors such as the intensity of competition in the product market, the necessity for the timely introduction of new product, and the accelerated pace of technological innovation more significantly affect the power of product and product planning managers during the product planning stage. Indeed, the results testing (Hl-3) and (H2-1) on the effect of the timely introduction of new product and the accelerated technological innovation, respectively, empirically supported this claim for product and product planning managers. CHI-2) on the consequences of competition in product market upon the influence of management groups was supported for product planning managers but not sales and product managers.

408 T. Tani

4. Interactive control

Product planning and cost meetings

The effect of environmental factors upon the influential power of the various managers involved in product development can assist in understanding why simultaneous engineering works effectively in Japanese companies. A relevant contribution lies in the concept of interactive control (Simons, 1987 a.b, 1990; Dent, 1987), which emphasizes how control resides in shared information and values amongst managers gained through vertical or horizontal interaction.!"

Simons (1987 a, b, 1990) points out that vertical interactive control helps top management to communicate and share its value systems with middle management, helps gather information from middle management that is pertinent to strategy formulation, and activates the emergence of strategy through middle management. Dent (1987) discussing horizontal interactive control reponing how the overlapping measurement of departmental performance promotes horizontal interaction among managers in a computer company resulting in successful joint problem solving.

This paper focuses on two TCM meetings, product planning and costs, to show how they act as devices for interactive control. Product planning meetings at a corporate level were organized in 61 companies out of 104 (58.7%). These are held at the long-range planning and product planning stage (Monden, 1992). Cost meetings at a corporate level were organized in 53 companies out of 109 (48.6%). These are held at critical stages of TCM, namely setting target costs, cost review and cost improvement.

Membership of both meetings revealed by this survey research is shown in Table

4. When Table 1 and Table 4 are compared we find membership and influence have similar distributions: those who are very influential in the product planning stage (managers of product planning, development, detailed design and sales) are frequent members of product planning meetings. Frequent members of the cost meeting (the managers of development, detailed design, production engineering and purchasing) which sets target costs, reviews cost and oversees cost improvement, are powerful in the stages of development and detailed design. The overlapping of membership and influence distributions implies that these managers infuse their ideas to the product planning and/or cost meetings which serve as devices for interactive control to share information and values amongst managers'<s-managers can influence a development stage for which they have no functional responsibility to achieve cooperatively the objectives of TCM.

The influence oj environmental factors upon the subjects of produce development meetings Product planning meetings may act as devices of interact live control. When customers' needs are more diverse product planning meetings must obtain information on this topic from a sales manager so all the managers involved can work jointly on adapting the product concept to customers' needs. This becomes more

12 See Tani (1991, 1992) for empirical research on vertical interactive control in a budgetary control setting.

13 A sales manager has lower influential power in the stage of development and detailed design (see Table 1). However, Table 4 shows that he or she is a frequent member of the cost meeting. This is because a sales manager is influential in setting final sales price which is one of the subjects in the cost meeting held at the stage of production preparation.

Interactive Control in TCM 409

Table 4

Membership of product planning meeting and cost meeting

Product planning meeting no. (%)

Cost meeting no. (%)

President Vice-President Divisional manager Product manager

Manager of product planning Manager of development

Manager of detailed design Manager of production engineering Production manager

Sales manager

Purchasing manager

Accounting manager

41(71.9) 31(54.4) 44(80.0) 28(50.0) 50(87.7) 50(87.7) 39(68.4) 33(57.9) 27(47.4) 39(68.4) 22(38.6) 22(38.6)

25(48.1) 23(44.2) 34(68.0) 23(46.0) 36(69.2) 41(78.8) 37(71.2) 38(73.1) 33(63.5) 43(82.7) 38(73.1) 32(61.5)

imponant when competition to attract customers gets harder, i.e., when the timely introduction of new products becomes competitively more significant. In this case, competitors' reaction to diversified customers' needs will also need to be a subject of the product planning meeting. Technological innovations and the possible reaction of competitors form another important subject of product planning meetings in an environment of accelerated technological innovation. Managers must share their information and then adapt the product concept in a timely way to meet their perceptions of how technology is changing.

Following a logic similar to that underlying the previous hypotheses, four further hypotheses based on the importance of information for product planning were derived for testing how environmental factors affect the content of product planning meetings.

(H3-I). The more diverse are customers' needs, the more subjects relating to customers' needs are discussed in product planning meetings. (H3-2). The more intensive is competition in the market, the more the reaction of competitors to diversified customers' needs are discussed in the product planning meeting.

(H3-3). The more crucial is the timely introduction of a new product, the more the reaction of competitors to diversified customers' needs are discussed in the product planning meeting.

(H3-4). The more frequent is technological innovation, the more technological innovation and reaction of competitors to accelerated technological innovation are discussed in the product planning meeting.

Empirical evidence

To test the empirical validity of the above hypotheses, questions on which subjects were discussed in product planning meetings were asked in the questionnaire. Some of these are listed in Table 5, which shows the number and percentage of the companies which discussed each subject in the product planning meeting.

410 T. Tani

Table 5

Subject of product planning meeting

No. %

Changed taste of customers Marketing tactics of competitors Possible introduction of new product

by competitors

Possible introduction of new technology by competitors

39 42 49

(69.6) (75.0) (87.5)

(78.6)

44

As can be seen from Table 5, diversified customers' needs and accelerated technological innovation are frequent topics in product planning meetings. The hypotheses were formulated on the assumption that the importance of each subject changes according to the presence of environmental factors to enable relevant information to be shared to achieve cooperatively the objectives of TCM. Responses that indicated discussion of the following topics were taken as surrogates for each environmental factor being a subject for discussion at meetings, namely: 'changed taste of customers' representing information and discussion of customers' needs; 'possible introduction of new product by competitors' indicating the reaction of competitors to diversified customers' needs and accelerated technological innovation; and likewise 'possible introduction of new technology by competitors' as representing discussion of competitors' reactions to accelerated technological innovation. The importance of each topic for product planning was measured on a seven point scale; one for 'little importance' and seven for 'very important'. 'Not discussed in the product planning meeting' was scored as zero.

Pearson correlation coefficients between the importance of subjects and environmental factors are shown in Table 6. The results in the table do not support (H3-1) directly. Table 6 shows that the changing taste of customers is monitored more in an environment of severe competition in the product market and/or in an environment of more frequent technological innovation, which may imply that the changing taste of customers is monitored in a concentrated fashion only after competition to attract customers gets harder. However, the diversity of devices for sales promotion (a surrogate of diversified customers' needs) and the likelihood of competitors introducing new products being discussed are positively correlated with one another (see Table 6). This may mean that competitors' reaction to diversified customers' needs and/or accelerated technological innovation is monitored more in product planning meetings when customers' needs are diversified. Thus, there is tentative empirical support for H3-1.

Returning to the positive correlation between the changing taste of customers and accelerated technological innovation as a subject, it is wonh recalling that a similar relationship was observed for the influential power of sales managers in the stage of product planning. This suggests that in an environment of technological innovation finding a product that meets customers' needs and which is technologically possible, sales managers play an important role gathering information on customers' needs and infusing their ideas into the product planning meeting to establish a product concept.

Interactive Control in TCM 411

Table 6

Importance of topics in produce planning

Frequency of topic
Changed Possible Possible
taste of introduction introduction
customers of new of new
product by technology
competitors by
competitors
0.2197* (106)
0.3062** (l05) 0.2483* (106) 0.2401* (lOS)
0.2466* (l05) 0.2353* (106) Environmental factors

Diversity of sales promotion Competitiveness of product market Frequency of developing new

product and new technology

* .. P:s 0.01; .. P:s 0.05. (Figure in the bracket is a number of valid cases.)

Both (H3-2) and CH3-3) receive empirical support. As the competition to attract customers gets harder, then possible introduction of new products and technology by competitors is increasingly monitored in the product planning meeting, presumably to jointly mull over ideas for introducing new products as timely as is possible. Lastly, (H3-4) is empirically validated. Table 6 shows that the possible introduction of new products by competitors is more intensively monitored in product planning meetings in an environment of accelerated technological innovation presumably to share the information among managers and to help them adapt the product concept to the changing technology in a timely manner.

5. Concluding remarks

TCM has been discussed in the light of simultaneous engineering, with a view to empirically testing whether interactive control in TCM is the reason why simultaneous engineering works effectively in Japanese companies. The major findings may be summarized as thus:

C 1) An analysis is provided of the influential power of various groups of managers involved in product development and simultaneous engineering where at least two departments are involved in every stage of product development and they cooperate to meet targets that include cost, quality and timely introduction of new products.

(2) Six hypotheses were formulated on the determinants of influential power of managers to help explain their different involvements in simultaneous engineering. It was found that the influence of managers varied according to the environmental factors of diversified customers' needs (Ht-I to Hl-4) and accelerated technological innovation (H2-1 to H2-2). More specifically:

(2-1) Sales managers were highly involved in the product planning stage to infuse market information and their ideas on how best to adapt to diversified customers' needs when customers' needs are diverse (Hl-I) and/or when the timely introduction of new products is a key success factor (HI-3).

(2-2) The influential power of product planning managers is more responsive to

412 T. Tani

accelerated technological innovation (HZ-I), intense competmon in the product market (HI-Z) and/or the necessity for timely introduction of new products (Hl-3) than to diversified customers' needs (HI-I).

(2-3) The necessity for timely introductions of new products (HI-3) and/or accelerated technological innovation (HZ-I) significantly affect the influential power of product managers who take initiatives from an early stage of product development.

(2-4) Purchasing managers are heavily involved in the detailed design stage to infuse ideas on cost reduction when there is pressure to adapt to diversified customers' needs (HI-4) and/or accelerated technological innovation (H2-Z).

(3) Product planning and cost meetings are key devices of interactive control to share information and values. Simultaneous engineering works effectively only after information and values are shared. Simultaneous engineering is strategically important as it helps generate unique cost reduction ideas due to the interaction it promotes between managers from different functions and disciplines. This is the primary strategic contribution of interactive control in the context of TCM.

(4) Four hypotheses were formulated on the determinants of shared information in product planning meetings (H3-1 to H3-4) which proved to be valid. In product planning meetings, information essential for a company to adapt strategically to diversified customers' needs and accelerated technological innovation was monitored interactively. This is the second strategic aspect of interactive control in TCM.

(5) It was found that the influential power of sales managers in the product planning stage and the importance of shared information on customers' needs increase under conditions of accelerated technological innovation. The implication is that products that meet customers' needs must be selected from a range of products that are technologically possible in an environment of accelerated technological innovation. In such instances information on customers' needs from sales managers is essential for establishing the product concept. This may be a previously unthought of strategic feature of TCM in that its process helps select products for development. Further in-depth case study is needed to confirm whether this is the case.

(6) Interaction between managers involved in simultaneous engineering is horizontal in nature. Each manager of a stage in product development interactively shares information and infuses ideas from their functional viewpoint. However, careful observation of Table 4 reveals that top management interacts more frequently with functional managers in product planning meetings than in cost meetings, presumably to collect information for strategy formulation from middle management and to infuse its values and ideas into middle management to facilitate strategy implementation and emergence. This may be another new feature to TCM which presents a challenging topic for further case study.

(7) As pointed out in the preceding two paragraphs, case study research following the results of this survey may offer the best way forward. This may uncover more detailed aspects of how simultaneous engineering and interactive control operate within TCM. For example, the involvement of managers in product development and how information and values are shared during the process of TCM are topics best suited to case research. It is hoped that the observations obtained in this survey research will stimulate further case study on interactive control and TCM.

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