This paper demonstrates the importance of knowledge for effectivemanagement of outsourcing. Drawing on an empirical study on automakers?management of supplier involvement in product development in Japan, this paper showsthat the level of own knowledge is critical for automakers to gain better outcome fromengineering outsourcing. While the actual tasks of designing and manufacturingcomponents could be outsourced, automakers should retain the relevant knowledge toobtain better quality of component design. Knowledge partitioning should bedistinguished from task partitioning.Furthermore, the results indicate that effective pattern of knowledgepartitioning differs by the nature of component development project in terms oftechnological newness. For regular projects, it is more important for automakers to havea higher level of architectural knowledge (how to coordinate various components for avehicle) than of component-specific knowledge, which is supposed to be provided bysuppliers. However, when the project involves new technology for the supplier, it isimportant for the automaker to have a higher level of component-specific knowledge tosolve unexplored engineering problems together with the supplier. In innovativeprojects effective knowledge partitioning seems to demand some overlaps between anautomaker and a supplier, rather than efficient and clear-cut boundaries.This paper further reveals that some automakers manage knowledge better thanothers by combining various organizational mechanisms, including career developmentpolicies, extensive documentation of technological information, internal trainingprograms, and incentive schemes. Difficulty of implementing those mechanisms in aconsistent and complementary manner seems to explain why there is a significantvariance among automakers in knowledge level.
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