PRODUCTION PROCESS STRUCTURE AND

TECHNOLOGICAL CHANGE
William J. Abernathy, Harvard Graduate School of Business Administration

ABSTRACT
A descriptive life cycle model of process development and innovation, as
previously reported, is used as a framework to analyze historical trends in the
technological development of U.S. automotive engine plants. Using the plant as
the unit of analysis, the author examines trends in product diversity, equipment
development, backward integration, and productivity improvement. Results sup-
port the original research framework and help to clarify the important impact of
process changes on the sources of productivity improvement, the capability for
product innovation, and the cost of change.

How should overall production policies be reconciled with policy choices

in other functional areas such as marketing or research and development (R&D),
or finance? Is a production policy that seeks productivity gains through back-
ward integration consistent with an R&D program that envisions a rapid rate
of major product innovation? Would a marketing policy that seeks increased
product line diversity be consistent with a program in which cost advantages
are sought from large capital investment in advanced production equipment?
These are not unreasonable questions, but currently there is no policy frame-
work within which they might be studied.
Research reported in this article offers some initial findings about the ag-
gregate policy relationships raised by the preceding questions. Empirical find-
ings suggest a common framework that can be applied to evaluate choices that
affect backward integration, product innovation, productivity improvement,
and process improvement.
The research methodology underlying this study is historical. The feasi-
bility of a few general but central hypotheses about the direction and nature of
production process development are examined through analysis of technological
changes at the Ford Motor Company from the early 1900’s to the present. The
results support the general hypothesis and lend credance to the descriptive model
about process change, innovation, and productivity on which the hypotheses
and the research are based. The course of development in a production process
is seen to have a major impact on product and process innovation, the sources

This paper is based on a forthcoming book, The Prodiicrivity Dilemma: Roadblock to 111-
mvarion in the Automobile hdustry, by William J. Abernathy. The underlying research was sup-
ported by the Division of Research, Harvard University, Graduate School of Business and by a
grant from the National Science Foundation, Office of National R & D Assessment DA-2057/.
Appreciation is expressed for the cooperation of the Henry Ford Museum, Greenfield Village,
and of individual managers of the Ford Motor Company, although they are in no way responsible
for the observations and conclusions of this paper.

607
608 DECISION SCIENCE [Vol. 7

of productivity improvement, and the cost of change. The research framework

has interesting implications for future research in production and operations
management.
RESEARCH FRAMEWORK AND WORKING HYPOTHESES
The central idea underlying the study is that production processes develop
over time with a common pattern. The hypotheses about development are em-
bodied in a descriptive model of development which anticipates a common pat-
tern of change among different industries. The unit of analysis is the plant and
its technology as specially defined for this research.
This unit of analysis refers to a production process that is organized in
one location under the direction of a senior operating manager to produce a
complex but functionally homogeneous product line. The unit bounds and calls
attention to the major elements of the processes that are central to its develop-
ment: the characteristics of the product line and its standardization, labor
inputs, equipment, process organization, and the flows of materials and work
that are inputs to the process. Plants which produce either unrelated products
or near commodities and in which product innovation is practically ruled out,
like oil refineries, are excluded by these definitions. An engine plant, as in the
present research, a pocket calculator or furniture plant, etc. are all suitable
candidates.
The descriptive model of development is reported more completely in earlier
articles [ l ] [2]. Briefly stated, however, it characterizes a general pattern of
technological change that would seem to be evident over the life cycle of many
complex products and their production processes. The model, which is sum-
marized in Figure I , represents the transition of a plant from an idealized initial
or fluid state toward a second idealized, highly developed or specific state.
Early in the life of process and product, technical advances and market expansion
and redefinition result in frequent competitive improvements. The rates of product and
process changes are high and there is great product diversity among competitors. The
process itself typically is composed largely of unstandardized and manual operations
or operations that rely upon general purpose equipment. During this state, the process
is fluid, with loose and unsettled relationships between process elements. Such a sys-
tem is “organic” and responds easily to environmental change, but necessarily has
“slack” (resources are underutilized).
As development takes place, price competition becomes more intense. Produc-
tion systems, designed increasingly for efficiency, become mechanistic and rigid. Tasks
become more specialized and are subjected to more formal operating controls. In terms
of process, the production system tends to become elaborated and tightly integrated
through automation and process control. Some subprocesses may be highly auto-
mated with process specific technology while others may still be essentially manual or
rely upon general purpose equipment. Islands of mechanization and automation ap-
pear and as a result production processes in this state will have a segmented quality.
Such expensive development cannot occur however, until the product line is mature
enough to have sufficient product volume and at least a few stable product designs.
As a plant becomes elaborated, increasingly integrated and investment in it
becomes large, selective improvement of product and process elements becomes in-
creasingly difficult. Product and process become interdependent, and spect@, the
process becomes so well integrated that changes are very costly and systems-like in
19761 PRODUCTION PROCESS STRUCTURE 609

nature since they must consider many ramifications. Change comes more slowly but
may be spurred by the development of a new technology, a sudden or cumulative shift
in the inputs, the requirements of the market or external regulation [l, pp. 378-3961.
Some of the elements of this model have been tested through research that
the model itself stimulated [ 5 ] . Other elements are indirectly supported by find-
ings from research that was conducted for other purposes [l]. The present
historical research on the development of engine plant technology at Ford was
undertaken to explore a few general hypotheses that could best be studied by
focusing on technological change in one process over time. A few of these initial
hypotheses were:
1. The technological development of a plant will be evolutionary in nature, and it will
proceed from conditions that are described as fluid toward a highly developed spe-
cific state.
2. A certain degree of evenness in development is required among the major aspects
that determine the plant’s technology (as given in Figure 1). For example, change in
important product line characteristics like product standardization, will not be inde-
pendent of other aspects such as equipment development.
3. Innovation and productivity advances will depend upon changes in the stage of de-
velopment.
A focus on engine plant development in the Ford Motor Company is par-
ticularly useful for several reasons. The U.S. automobile industry has been of
vital economic importance since its inception, and the engine plant is at the
heart of this industry. Ford has been a major factor in the industry since its
inception, and it has operated with management continuity for about seven
decades. Data about Ford is also accessible because many books, articles, and
reports have been written about the company and because a corporate archive
is maintained.
PROCESS DEVELOPMENT IN ENGINE PLANTS
The history of engine plant technology at Ford reveals a complex course
of development that involves change in many different aspects. By examining
changes in just six of the many different aspects, however, it is possible to cut
through some of the complexity, explore the questions that were posed for
research, and grasp the underlying pattern of process change that has determined
Ford’s competitive capabilities. Table 1 defines the five aspects that will be ex-
plicitly examined in this section. They are: 1) the diversity in product line that
is accommodated in one plant; 2) the degree of specialization in process equip-
ment; 3) the degree of process integration among different production opera-
tions; 4) the extent of backward integration in inputs that support engine pro-
duction; and, 5) the concentration and decentralization of engine plant opera-
tions. The following section considers these five aspects in aggregate and relates
the overall development of the plant to a sixth aspect-productivity improvement.
Figure 2A, 2B, and 2C present time series trends for the first five of these
six aspects. Data underlying these indices were obtained from open trade litera-
ture published in various years and from the Ford Archives. The particular
measures that are used to represent each of these four aspects are developed
below.

Summary of Hypothesized Relationships Among Aspecrs of a P l a n t
INNOVATION
Frequent b novel p r o d u c c
innova t i a n - m a r k e t s t imu-
lnted.
Direction
of
Tans 1t i o n
Cost s t i m u l a t e d incremen-
t a l innovation predomin-
s t e r . Novel chnnges in-
v o l v e s i m u l t a n e o u s prod-
L C C and proccss ad;?ta-
Source: " I n n o v a t i o n and t h e Evolving S t r u c t u r e o f t h e Firm" by W . J . Abernat.hy and Jarnas U t t e r b a c k ,
Harvard B u r s i n e s s School Working Pnpcr 75-18, J u a e 1 9 7 5 , p.18.
PRODUCT LINE
lllgh prodinat line d l v c r -
s i t y prilduccd ca c u s c me i
order.
A t l c a s t OIIC modcl s o l d
0s produccd i n subatnn-
t i p 1 vuhmcs.
-I
Damlnnnt design a c h i e v e d
llf glily f i ~ a n d o r d i z e d
product v i t h f c v u J o r
opcions
Comodity-like product
s p e c i f l e d by rechnical
pacumc.t e n .
FIGURE 1
PIIODIICTION PROCESS OKChNIZATIONAL CONTROL
C o n t r o l aclllcvod tl8roagh
c r w t l o i i of v o r t l c u l
Infurln.,rlon n y w t c w .
l r r ~ u r u lr e l d l i a n s , l i n l -
son ond p r o ) c c t groups.
C o n r r a l nchluvcd by nean8
of g o a l s c t t l n g . Iiicr-
n r c h y and rulrs YS t h e
f r c q u c n c y oi ch.tngc
decr'uxs.
--
Burcaucratic, v e r t i c a l l y
Integrated production i n t o g r . t e d . nnd h i r r -
p r o c e s s d c b i g n c d ns a nrchically u r e a n i r o d
"syatcn>." r r l t h f v n c t i o n n l cmplrasis.
Labor t ~ i b k sp r c d o m i n a n t l y
ones <if syotcms nonitor-
ing.
SPECIFIC BOUNDARY
m
w
0
KlNC OF CAPACIN
--.?
Small s e a l c , l o c n t e l l ncnr
c e c l l n o l o g y riourcc or "Dfr.
Lou l c v c l o [ bockvnrd
verrlcnl integracion.
CL.IILl'nlired gu,,*'rnl purponu
, o l i a c l t y ~ l i e i l :a r a l c in-
c r c ~ : . c su r c a c l i l u v c d by
b r e n k l n g borrlrnccks.
F a c i l i t l c s locatcd t o
achieve l a w f a c t o r I n p u t
COSCE, to mlnimirc disrup-
c l o n and f n c i l l t s t c
distribution.
Large scale f e c l l i t i e s
specialired to p a r t i c u l a r
trchnologics. capacity
i n c r e a s e s a c h i e v e d only
by d C s 1 ~ u i n gnew f a c i l l t i e a
19761 PRODUCTION PROCESS STRUCTURE 61 I

TABLE 1
1. Product Diversity of the Engine Plant-The number of different automotive
passenger engines that were produced by one engine plant in various years.
Engines are counted as distinct units if they mechanically differ in respect
to bore, stroke, cylinder alignment, or valve configuration.
2. Process Equipment Specialization-The maximum number of different
operations that are performed either simultaneously or automatically at one
station by one machine in engine production.
3. Process Zntegration-The number of different stations in the production
process that are linked and integrated together with transfer equipment so
that they function as a continuous automatic process unit.
4. Backward Integration-The degree to which corporate backward integration
extends toward raw material sources for the major materials and components
that are used in engine production. This is approximated as the average
number of major process stages leading up to engine assembly (e.g., ore
extraction, iron and steel making, part forming or foundry, rough machin-
ing, finish machining) that Ford owned and operated at a particular time
for a sample of 12 engine parts.
5. Process Concenlration-An indication of the extent to which major engine
manufacturing processes are concentrated in one facility under common
operating control, as opposed to being decentralized in separate specialized
plants. The average number of backward integration steps (from 4 above)
that are managed as a common unit with the engine plant are taken as
an indication of concentration.

Product Line Diversity

The top graph, Figure 2A, indicates product line diversity by showing how
the number of different engines produced per plant has changed over time. The
dates of a few major product and process changes are noted at the top and are
further marked by vertical lines through all graphs in Figure 2. This graph
shows that the range of product diversity is rather narrow, from 1 to a maximum
of 3 engines over the entire period. These narrow limits are maintained despite
major changes in policy regarding product standardization and an almost con-
tinuous growth in the number of passenger engines in Ford’s overall corporate
line of engines.
There was just one engine and one engine plant in the early model T era
(1908-1926) when the expression “any color as long as its black” reflected the
standardization policy. A broadening of the corporate line of engines began in
1932 with the great depression, and today a line of nine engines make up the
engine line. After World War I1 there was a peak in product diversity as the
produce line was expanded faster than modern new plants could be built. Since
then, the diversity has been slowly reduced through the addition of more engine
plants. There are now six plants.
This relatively constant diversity and the corresponding increase in the
612 DECISION SCIENCE [Vol. 7

FIGURE 2
Trends in Five Plant Indices
A. Product Divsraity
New Model Introduction Introduction of

8.

i!
Bquipunt Specialization k Procssa Intr&mtion
l50. 150
p‘ - - - - -- - - --
+r
.rl
d 125. :2Procese
+. Integrntion

Proceas Concentration
2.

number of plants are best interpreted as a technological limitation in the plants

capability. The increased number of plants cannot be explained simply by scale
or growth in volume or by changes in the organization of product divisions or
by changes in the rate of new engine introduction. The maximum output rate
per plant (about 2 million engines per year) was reached in 1922 and has never
been exceeded. For the peak year of 1973, corporate wide passenger engine
production was only a little more than 50% larger than the 1922 (Model T)
level. Currently, because there are many plants, the output per plant is much
lower than previously. Plants are now functionally organized and controlled
as was the case in the 1920’s’ so the increased number of plants is not needed to
provide separate facilities for different product divisions. The rate of new engine
model change per plant has also slowed since the 1950’s with the trend toward
decreased diversity.
19761 PRODUCTION PROCESS STRUCTURE 613

The most plausible explanation for the trends in diversity would seem to
originate from developments in engine plant technology that have acted to re-
duce the plant’s capability for diversity. The narrow range of variation in actual
diversity and the presence of consistent long term trends toward lower diversity
since the 1950’s would seem to suggest that changes in product diversity may
be an important parameter of technological development. The only known
research that deals generally with product diversity is the work of sociologists
on technology and organizational structure [3] [4] [6]. The trends observed at
Ford are consistent with this research; but, given the importance of the impli-
cations for capacity planning, it is surprising that more research has not ad-
dressed the basic considerations involved.
Equipment Development and Process Integration
The two curves in Figure 2B reveal several underlying tendencies in the
development of engine plant process equipment and at the same time provide
insight into the forces that reduce product line diversity, increase the cost of
change, and cause product and process innovation to be linked. The solid curve
traces progressive improvement in the number of different process operations
that are performed by a single machine at one work station. For example by
1912, a single machine was in use that performed 24 operations simultaneously
(e.g., drill 5 holes from 3 different directions, ream, mill, etc.). Although the
reported number is for the one machine in the process that performed the most
operations, this maximum number is also a general indicator of capability levels
for there were typically many other machine tools in the process that approached
this maximum level. This number can also be interpreted as a general index of
specialization in machining capability. As more functions are added to machines,
their use becomes increasingly limited to a particular product and a particular
operation in the overall process.
The build-up in equipment specialization as reflected by this index nicely
mirrors the broad range of changes that accompanied the development of process
equipment technology in Ford’s engine plants. Before 1910, the manufacturing
process was essentially a job shop. Engine design changed frequently; parts
were routed over long indirect paths to machine groups that were arranged by
type of equipment. General purpose equipment was utilized even though ma-
chine tools designed particularly for engine manufacture were available from
U.S. machine tool suppliers.
As demand for the Model T grew, there was intense pressure to expand
capacity through process innovations. Under this pressure, the production
process evolved toward a very strict line flow configuration through a continu-
ing series of changes that improved balance, reduced cycle times, and introduced
mechanical transport and moving assembly in a variety of applications. Ford’s
own machine tool design group and outside suppliers responded by incorporat-
ing more and more functions in individual machine tools. Individual machine
tools became “islands of growing mechanization” in the line flow process. By
the time demand for the model T peaked, a maximum of 48 distinct functions
were performed by one machine. Many other machine tools approached this
614 DECISION SCIENCE [VOI. 7

limit. In a very real way the pattern of equipment development was linked with
the organization of the production process. An orderly and highly regular pro-
duction process was essential to machine development, but equipment develop-
ment in turn reinforced and enabled this pattern.
This same mode of equipment development was continued and extended
after the Model A was introduced and again after the V-8 was introduced in
1932. A peak level of specialization equal to 83 was reached during the depres-
sion, but by this time a new trend in mechanization was beginning to ernerge-
the transfer machine.
Shortly after the new and highly complex V-8 engine block was placed in
production, Ford introduced the first automatic transfer machine. It only moved
the work piece a few inches, but it represented a change in the thrust of process
innovation from unit equipment advancement to systems integration. With this
innovation, the principal mode of mechanization changed from a growth of
individual “islands of mechanization” to a joining of highly mechanized units.
The dotted curve in Figure 2B traces progress in this second mode. This graph
indicates the maximum number of separate machine tools that are integrated to
form a single process unit that performs automatically.
As the graph indicates, progress in transfer line integration was rapid.
When Ford’s innovative Cleveland Engine plant was put in operation in 1951,
most major machinery operations on large parts were controlled automatically
by transfer lines. The equivalent of 150 separate machine tools were integrated
into one line. Since that date, the mode of equipment development has been to
extend integration: transfer lines have been extended further into manual as-
sembly operations, and feedback and control have been added to correct for
tool wear, locate failures automatically, inspect parts, etc.
These developments in equipment capability have acted to make product
change and process change interdependent and to increase the cost of change.
In the early years before the Model T when the production process was fluid,
almost any engine could be produced without significant impact on the pro-
duction process. Five or six engines for models A through S were designed
and produced before the Model T became a mass produced car, and there was
little impact on the production process. This flexibility decreased as equipment
capability advanced. For example, the introduction of both the Model A and
the V-8 engines required that more than half of the machine tools in engine pro-
duction be scrapped or redesigned. The change in ability t o accommodate new
product design is also reflected in the specialization of the process equipment.
The introduction of both the Model A and V-8 engines is associated with an
abrupt dip in the specialization index. Today, with the introduction of a new
engine, the entire transfer line is typically replaced and often stored so the engine
can be put into production again. A more advanced line i s introduced with the
new engine at a cost of more than $20 million.
To summarize, the course of development in process equipment has been
associated with and perhaps instrumental in changing basic capabilities. Equip-
ment development is tied closely to the organization of the production process,
the level of interdependence between product and process, and the cost of
change. It would seem that these fundamental changes help to explain why the
 19761 PRODUCTION PROCESS STRUCTURE 615

capability to accommodate diversity has decreased and why there has been a
reduced rate of product change. Although the total cumulative impact of these
developmental trends has been great, they have come about largely through
incremental and evolutionary change.
Backward Integration
The final graph, Figure 2C, is concerned with changes in Ford’s backward
vertical integration in the streams of material and components that support
engine production. To form a rough indication of backward integration, a
generalized set of eight process steps has been defined to represent the major
groups of production stages in the chain that converts raw material into final
engine parts (ore extractions, smelting or iron production, part forming, etc.).
The differences between engine parts (carburator, cylinder block, etc.) in
the level of backward integration at any time can be roughly represented by
the number of steps through which backward integration extends. The average
number of backward integration steps for a sample of 12 engine parts has been
used to construct the index of backward integration. Relative changes in this
index provide a basis for making rough comparisons of period to period changes
in backward integration.
Figure 2C graphs changes from period to period in two slightly different
versions of this index. The solid line labeled Backward Integration reflects the
full integration level of the corporation, irrespective of whether the included
process operations are centralized or decentralized. The dashed curve titled
Process Concentration includes only those process operation steps that are lo-
cated with and managed as part of the engine plant. This latter index helps to
show how much of the overall manufacturing process for engine parts was cen-
tralized and managed as part of an engine plant. It reflects the degree to which
process operations are concentrated in one plant.
The profile of change in these two indices as illustrated in Figure 2C calls
attention to two important characteristics of engine plant development. The first
is a dependency between product innovation and backward integration. The
second is the plant concentration-decentralization hump that occurs over time.
The shallow deflections in the indices that parallel the introduction of the
Model A and V-8 engine are a surface indication of very dramatic and abrupt
changes in the composition and extent of backward integration. The consistent
effect of major model changes has been to destroy channels of backward inte-
gration. The extent of the impact is masked in the present data because rapid
re-integration moves accompanied major model changes. For example, the
Model A incorporated new and advanced engine components (aluminum pistons,
carburators, starters, and many alloy steels) that were purchased from innovative
suppliers even though Ford had previously integrated backward to produce
corresponding parts for the Model T. The same impact on backward integration
is also evident for the first mass produced V-8 engine, in later post World War
11 engine introductions, and to a much greater extent in major model changes
for bodies in all periods. As the technology has matured, however, the impact
of model changes on backward integration levels seems to have decreased.
The degree of backward integration that a company achieves is often dis-
616 DECISION SCIENCE [Vol. 7

cussed as if it were a stable long-term position. A much different conceptual

perspective arises from the present profile of integration in Ford’s engine plants.
Instead, the level of backward integration would seem to be a point of dynamic
equilibrium. Product innovation continually erodes the paths of backward in-
tegration, and just to stay even a policy of rather continuous reinvestment is
required at a rate that depends upon the degree of product innovation. In broad
conceptual terms, the level of backward integration depends upon the rate of
product innovation.
As a final observation about the data in Figure 2C, it is interesting to
speculate about the trend toward concentration and then deconcentration.
Until the 1930’s, more and more process stages were integrated directly in the
engine plant in Ford’s giant Rouge River facility. Then, the trend was reversed,
and specific process steps were separated out and organized as independently
managed facilities. This trend in deconcentration has continued up to the 1970s.
One of the more recent changes has been to separate the founderies that produce
cast iron engine components from the engine plants themselves. These changes
have acted to create plants with relatively similar process technologies. It would
seem that this trend is related to the overall course of development that the
engine plant has followed as it has advanced and matured. As a more or less
standard product and process is adopted and as the inputs to a product stabilize,
the major elements can be separated out and organized as decentralized facilities
that are easier to manage.
Aggregate Process Development and Productivity
The capsule history as outlined above has focused on a few aspects among
the several that would be needed to fully characterize the course of engine plant
development. There have also been parallel changes in other aspects, such as labor
and task characteristics, organizational structure, product standardization, etc.,
that nicely complement the particular changes observed here and round out a
composite pattern of development.
The way that the plant as a whole has developed is characterized by parallel
changes in equipment characteristics, the organization of the production flow
process, integration in the flows of inputs to the process, the rate of product
change and diversity (or conversely product standardization), and labor and task
characteristics. A certain degree of balance or evenness in the level of develop-
ment among all of these different aspects has been important to the develop-
ment of the plant as a whole. For example, when a high level of product stand-
ardization is lost, as during a period of major model change, a cross impact may
be observed in backward integration, the level of equipment development, and
and the type of skills required of the workforce during the new model intro-
duction. The overall path of progress over time is marked by some periods of
evolutionary progress toward an increasingly advanced state and other periods
of little progress or even reversal when some of the necessary conditions that
enable progress have been withdrawn.
This concept of a path of development at the aggregate plant level is il-
lustrated by the bottom curve in Figure 3. The stage of development is repre-
 19761 P R 0 D UCTION P R 0 CESS STR UCT U R E 617

FIGURE 3
Stage of Development and Labor Hours per Engine

/
Labor H a w s per Engine

\
\ Korean War

\
---
L
Truck
P
‘+- ’I-
-v”r

5.

sented by the inverted scale along the left margin. For this scale the origin repre-
sents the most advanced state. The aggregate level of engine plant development,
as depicted by the curve in various years, reflects varying historical conditions.
It is a weighted index of equipment development, integration, process flow con-
figuration, product standardization, labor task characteristics, etc. Although
there is room for disagreement about the exact stage of development in any year,
there should be little question about the overall shape of the curve. It is deter-
mined by major structural changes in the important aspects that shape the
technology of engine plants. The early years were marked by rapid change, and
this was followed by a plateau. In the early 1950’s, the introduction of extensive
integration through the use of transfer lines caused a shift in conditions.
The second curve in Figure 3, the dotted upper line, plots actual changes
in total labor hours per engine. Changes in this curve reflect variations in labor
productivity. By comparing changes in the two curves, one can gain insights
about the relationship of productivity and development.
Labor hours per engine were reduced rapidly during the early years of de-
velopment when only one relatively standardized engine was produced (Model
T). There was a corresponding rapid advance in the engine plant’s level of de-
velopment. The minimum was reached at least two years before the Model T
was discontinued. The rate of engine design changes then increased, beginning
with the changes that were made to incorporate a starter on the Model T. With
618 DECISION SCIENCE [Vol. 7

increased product change rates and diversity, the rate of labor utilization also
increased. For the next two decades, the base line trend in the number of labor
hours per engine followed a steady upward movement. Labor inputs also are
seen to react sharply to new model introductions.
The rate of labor utilizations was decreased substantially in the early 1950’s
through the introduction of engine plants that incorporated the new transfer
line technology. Since this time, new engine plants have been designed specifi-
cally for each new major engine design. Thus, the process technology is exactly
matched to the product. The cost involved in this mode of change is reflected
more heavily in investment than in increased labor hours.
Although the rate of change has slowed since the 1950’s, the overall trend
would still seem to be moving toward higher labor productivity rates and a
higher degree of process development.
These data show that throughout the entire period of seven decades, there
has been a strong relationship between labor productivity improvement, process
development, and product innovation. There is a tendency in the literature to
assume that marketing strategy can be divorced from productivity issues and
production policy. The present data show that they are all intimately related.
A high rate of product innovation seems to have induced a reversal in the level
of process development, thereby increasing labor input rates. Conversely, a high
rate of productivity improvement would seem to constrain product innovation
by making change more costly and by restricting the range of product line
diversity.
The principal mode of rapid productivity improvement has changed dramat-
ically as the engine plant evolved from the fluid stage of development toward a
highly advanced state. I n the fluid stage, a learning curve phenomenon appears
to be principally important. In this case the long term learning curve is a period
of rapid transition in the plant’s stage of development, Important skills that were
initially labor and management embodied are transferred to capital embodied
capabilities. During this transition, major process innovations in equipment
typically take the form of new machines that are a mechanical or electronic
analogy to human behavior.
I n the more advanced stage of development, productivity gains are achieved
principally through major investments in entire systems or plants. Advances
are realized through effectively integrated or optimally designed systems for a
particular product. These productivity gains are sometimes referred to as static
economies of scale since they depend upon investment, can be purchased, and
need not be achieved through the dynamic or learning curve processes.
CONCLUSIONS
Present observations pertain only to one case, but they are considered im-
portant because they establish the feasibility of a set of hypotheses about the
way that a plant and its technology evolve over time.
1. The use of the plant and its technology as a unit of analysis appears to
provide fruitful focus for research. This level of abstraction seems to represent
capabilities that endure for long periods and have a force of their own in in-
 19761 PRODUCTION PROCESS STRUCTURE 619

fluencing innovation, productivity, production, and marketing policy, as well as

some aspects of the overall structure of the firm.
2. Choices that are made in regard to process capabilities can be regarded
as a global trade off among several dimensions. Any choice in the trade off has
repercussions for both flexibility and efficiency. In more specific terms, there is a
set of important related global policy decisions. In product line policy there are
basic choices of product diversity, standardization, and innovation; in production
policy there are questions of backward integration, productivity improvement,
and process development. These decisions have often been considered as inde-
pendent when in fact they are highly related. Collectively, this set of decisions
and the relationship between seem to provide the first step toward a policy
framework for technology decisions in production.
3. The learning or experience curve seems to be a subordinate embedded
relationship within this policy framework. The learning curve is a case in which
product innovation is constrained and productivity is emphasized. Costs decline
in this case as the plant evolves toward a highly advanced stage of development.
Productivity gains are achieved through a change in process structure. There
are other embedded policy relationships within this same framework.
4. Choices made in respect to this set of policy variables seem to be an im-
portant and almost direct influence in the competitive capabilities of a firm or
industry. Little research has been done on variables such as product line di-
versity, process configuration, product standardization policy, and vertical
integration; however, they are major determinates of a firm’s competitive capa-
bility. The present research suggests that a basis for such analysis is present. It
is hoped that the present work may call further attention to this important area
of inquiry.
REFERENCES
[I] Abernathy, William J. and P. L. Townsend. “Technology, Productivity and Process Change.”
TecliiiologicalForecastiiig arid Social Cliaiige, Volume 7 (August, 1975), pp. 377-396.

[2] Abernathy, William J. and James Utterback. “Innovation and the Evolving Structure of
the Firm.” Harvard Business School Working Paper 75-18, June, 1975.

(31 Harvey, Edward. “Technology and the Structure of Organizations.” Americaii Sociological
Review, Vol. 3, No. 2 (April, 1968), pp. 247-259.

[4] Hickson, D. J., et at. “Operations Technology and Organization Structure: An Empirical
Reappraisal.” Admbiistrative Sciences Quarterly, Vol. 14, No. 3 (Sept., 1969), pp, 378-397.

[5] Utterback, J. and W. J. Abernathy. “A Dynamic Model of Process and Product Innova-
tion.” Omega, Vol. 3, No. 6 (1975), pp. 639-656.

[6] Woodward, Joan. Zitdustrial Orgaiiizariori: Theory arid Pracfice. London: Oxford Univer-
sity Press, 1950.