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The Evolution of Technology: From Radical to incremental innovation Anyone trying to buy a car in 1905 was confronted with a bewil- dering array of products and technologies. There were cars powered by steam, electricity, or gasoline; cars with three or four wheels; cars with open-air cabs or closed carriages. These differ- ences were not merely cosmetic. Structural features, mechanical principles, and performance characteristics varied widely from car to car. Seventy-four years later, before the oil crisis of 1973, that technological diversity had all but disappeared. To be sure, the cars of the early 1970s displayed an immense, if superficial, varia- tion in styling and model choice. But the underlying technology-- the fundamental characteristics of structure and mechanical system--had become standardized. So, too, had the processes of production. This evolution of the automobile industry from a state of tech- nological diversity to one of standardization--and, for that matter, from a state of rapid and at times radical change to one of incre- mental innovation--is neither a random event nor an event pecu- 1 far to the automobile industry. The history of many industries and of many individual products shows the same development toward mature standardization from an earlier, more f luid condition. The technological maturation of the auto industry, however, appears to be closely related to the nature of competition. In this chapter we contrast U.S. development with the quite different pattern in Europe. The evidence confirms the importance of com- petition and consumer tastes and suggests that government policy may affect the character of technological advance. INFANCY TO MATURITY: A PARADIGM OF TECHNOLOGICAL EVOLUTION In general terms the evolution of a given product line and its associated production processtes) can be meaningfully described by 35

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37 (1) the character of the production process~es), (2) the diversity of the product line, and (3) the nature of innovation. Table 3.1 describes several characteristics of the stages of development of a product. At the early stages, new products typically lack well- defined performance criteria, and market needs or process diffi- culties are approached through a variety of different product or equipment designs. Given a broad spectrum of possible designs, each embodying a fundamentally different technology, the product line is necessarily diverse. As a result, change is rapid and often alters the nature of the product itself. The production process, in turn, must be highly flexible, relatively labor intensive, and somewhat erratic in workilow. At later stages of development, however, technological diver- sity gives way to standardization. Innovation, even if significant, alters only a small aspect of the basic product. Indeed, innovation at the mature-product stage is often difficult to perceive for any but the most knowledgeable engineers working on the project. Economies or scale guarantee a Production orocess unlike the fluid _. · r ~ "job shop" of the early years. Workflow is now rationalized, inte- grated, and linear; skilled labor is now replaced by highly specific "dedicated" equipment. The development of technology from the fluid to the specific or mature state is initially a process of successive selection among competing design concepts; at the latter stages, it consists of refinements and extensions of concepts currently in use.2 In identifying the nature of technical change associated with this pattern of evolution, it is helpful to distinguish between radical and incremental innovation. As used in this analysis, product innovation is labeled "radical" if it cannot be produced effectively in the existing production process. An incremental innovation, in contrast, utilizes the existing setup. The labels "radical" and "incremental" refer not to the change itself but to its impact on the production process. It is essential in this context to distinguish between the general design concept and specific improvements in that concept through technical change. In automobile engines, for example, the V-8 gasoline engine was a general design concept that underwent a long series of improvements through innovations in materials and mechanical features. Such innovations are incremental; they refine and improve a general design concept that is currently in use. Radical innovation occurs with the introduction of a new approach or concept that cannot be produced effectively with the existing production process. A radical innovation need not be completely novel. Radical departures from existing concepts may have been known and available for some time but not used because of market preferences, relative prices, or technical problems. The evolution from radical to incremental innovation is

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38 characterized by a "technological hierarchy" within each of the various technical systems or components that make up the product in question.3 This hierarchy of development arises out of technical and economic constraints that strongly influence the sequence of system developments. To use the engine as an example, the fundamental design choice seems to have been the type of fuel (which also implies external versus internal combus- tion). Once the gasoline engine achieved market dominance, other aspects of the engine (cylinder configuration, fuel delivery, materials) were successively chosen, developed, established, and then refined. The sequence is rarely of a rigid or linear sort. Many innovations come in bunches and interact with one another. Yet some appear to be of a more fundamental nature, affecting a significant number of cooperating features or aspects of the tech- nical system; these require priority in development. It is clear that a critical point in the transition from fluid infancy to standardized maturity is the development of a "domi- nant product design"--a synthesis of earlier innovations and design concepts that achieves significant market acceptance.4 Both in components and in systems and overall product configuration, a dominant design permits standardization and economies of scale and, thus, introduces cost as a major aspect of competition. . . . THE U.S. EXPERIENCE At first glance the automobile industry appears to be an exception to this process of development. A growing diversity in styling, m odel choice, and available options seems to belie any broad movement toward standardization. Appearances, however, are deceiving. Despite apparent diversity the underlying move in that direction has been pronounced. The pattern is well illustrated by the development of the gasoline engine. Developments in Engine Technology We have already noted the diversity of engine options available in the early days of the industry. Following the market's selection of gasoline over the electric and steam designs, technical change was focused on the development of cylinder configuration, mech- anical efficiency, and materials. Though the basic combustion concept (internal) and fuel (gasoline) had been selected, there was a great deal of experimentation with other aspects of design. As Charles Sorenson, Ford's production manager in the Model T years, put it

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39 . . . it took four years and more to develop the Engine for the] Model T. Previous models ~two-, four-, and six-cylinder] were the guinea pigs, one might say, for experimentation and development.5 The history of engine development at Ford is presented in Table 3.2. The table indicates the various cylinder configurations and the range of displacement and the number of different models in each category. Until 1970 two epochs are evident. The first lasted from 1910 until 1932 and was dominated by the four- cylinder IL-LH engine. ~ . . .. ~l~he only other engine produced in that period was a V-LH ~ used in Lincolns. The second major epoch stretched from 1947 to 1970 and was the heyday of the V-OH 8. In this scheme, the period 1932 to 1942 was a transition era in which the \/-LH 8 was joined by several V-LH 12 models in the Lincoln and by in-line, four- and six-cylinder versions. The V-OH 8 emerged as the dominant design, although several IL-OH 6 engines were available on small models. At the same time that a single configuration achieved domi- nance, manufacturers offered an increasing range of size and performance options. Thus, from 1958 to 1970, Ford produced 15 different sizes of the basic V-OH 8 engine. Moreover, the basic engine was constantly refined and developed through the use of new materials and components. Yet from a manufacturing stand- point, and from the perspective of competitive rivalry, the engine offerings at Ford were highly standardized. Diversity in the size of the engine did not require diversity in process capability. Quite the opposite was true, because the dimension along which variation was introduced (cylinder size) was relatively easily accommodated in the same production process.6 Likewise, the innovations that advanced engine capabilities preserved the competitiveness of the existing concept and extended its range of performance. Even though from a technical or engineering standpoint developments in such materials as grey cast iron may have been significant and even revolutionary, little change in basic manufacturing processes was required to implement a new material. The standardization of the engine was intimately related to changes in the engine production process. Originally character- ized by ill-structured tasks, highly skilled craftsmen, a job-shop workflow, and general-purpose equipment, the production of engines was transformed into a tightly integrated process utilizing operative skills, dedicated equipment, and much higher levels of automation. We refer not to the modern engine plant but to the engine plants of the late 1920s. In the case of Ford the surge in volume following the Model T both facilitated and made impera- tive the introduction of a less flexible, more specialized process capable of turning out a standardized product at lower and lower costs.

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41 Modern developments have accentuated the pattern established in the 1920s. Two trends have been dominant. The first was the continued development of automatic transfer machines that link operations without operator intervention. The growth of transfer capabilities preceded the second major trend: the development of higher levels of automation involving feedback control and machine self-correction. These advances have occurred within the context of a relatively stable product design and continued specialization or dedication of a particular production line to a particular engine. The Body and the Assembly Plant The process of technical development played out in the engine-- establishment of dominant design, refinement, and extension--was repeated in the other major technical systems of the vehicle. Work on transmissions, bodies, and other components resulted in the development of preeminent concepts. Historical accounts make clear, however, that product technology in Ford's assembly plant (bodies, components, and the like) remained fluid and unstable far longer than was the case with engines.7 A string of early innovations increased the scope and variety of assembly operations, among them: left-hand steering wheel (1908), steel running boards (1909), electric lights made standard (1915), baked enamel finishes by dipping (1917), starter available as an option ( 1920), and pyroxylin paint multicolors and closed steel bodies (1925~. . ~ _~ 1 _ a_ ~ I ~ ~ . . · . . ~ In time, though, the pace of radical innovation diminished, giving way to the annual model change as the principal source of incremental innovation in body configuration. With the evolution of common body/frame "families" and the standardization of com- ponents within families, diversity among models has proven more and more a styling--and not a technological--reality. All that distinguishes most models from each other are appointments and trim; technological differences are embedded in component lines. . . . Variation in styling and similarity in technology thus offer double support for the U.S. automakers' traditional balance of marketing strategy with production efficiency. Differences among models most important in the showroom simply do not bulk large in the production process. Between 1949 and 1972, for example, the fraction of Ford assembly plants that produced only a single car (i.e., cars of a single wheelbase) rose from 6 to 35 percent.8 And in those plants that produced two cars, the cars generally came from the same family. How different this is from the situation before World War II when many of Ford's 32 assembly plants were involved in the production of each Ford car .

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43 Modern assembly operations are highly mechanized, integrated, automated, and specialized. The data in Table 3.3, which presents three characteristics of process technology at Ford during the period 1914-1974, document this point very clearly. When Ford changed over from the Model T to the Model A in 1925, all produc- tion facilities had to be closed down for a period of nine months, which effectively abandoned market leadership to General Motors (GM). Though the conversion wrought great changes in the engine and components plants (many machines were scrapped altogether; 4500 new ones were bought and over 50 percent of the machine tools were rebuilt), the assembly plants were only minimally affected. By contrast, conversion of a modern assembly plant to a new vehicle family takes months of planning and several months of retooling. Unlike their highly flexible precursors, the assembly plants of the mid-1970s were highly specialized and capital intensive. Two additional points are worth making about the development of the automobile at Ford. Though we have spoken mostly about engines and bodies, we could just as easily have spoken about transmissions or other major components. On balance the market views the car as a whole, and the evolutionary picture we have drawn applies to the whole car as well as to its individual systems or components. The Model T. for example, was a dominant design for almost 20 years. It was designed td capture the "basic transportation" market and embodied a synthesis of major advances designed to reduce weight, toughen construction, increase reliability, and lower cost. The development of closed steel bodies in the 1920s changed the character of the automobile. "Basic transportation" was replaced by roominess, comfort, and smoothness of ride as principal design criteria. Developments along these lines led to the all-purpose road cruiser, which dominated the U.S. market from 1948 to 1970. In a functional sense, the designs of the major manufacturers in that era were quite similar. The dominant over- all configuration included a large V-8, water-cooled, front- mounted gasoline engine, with rear-wheel drive, automatic transmission, and a comfortable roomy interior. Throughout the era of the all-purpose road cruiser, improve- ments in technology (as opposed to, say, the great changes in sheet metal usage and appearance) have by and large been the result of incremental and not radical innovation. Nor is this pattern of development limited to Ford. By the early 1970s all of the major U.S. manufacturers had undergone a comparable evolution through the stages outlined above. All of them became the purveyors of a standardized product and the masters of a specialized process technology. . . lo. . .

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44 CONTRASTS IN THE EUROPEAN EXPERIENCE When compared with European developments the evolution of the automobile in the United States reflects both a distinctive tech- nological thrust and a particular mode of competition. Though innovation in each technical system was not the result of a coordinated development effort, the character of the changes introduced were related through the driving force of consumer preference and market competition. Almost from its beginning the U.S. industry was oriented toward the mass market and the provision of a comfortable, reliable, general-purpose vehicle easy to operate and to maintain. Major developments in the technical systems that achieved market dominance were those that reduced costs, increased comfort, and eased operation. Model changes in the pre-World War II years were more important competitively than in later years when designs stablized, but the market in the 1920s and 1930s did not demand continuing advances in the technical sophistication of the product. Indeed, sophisticated engineering features, or advanced technical changes that departed from the main lines of develop- ment, often met with market failure. Rather than advanced designs and engineering, demand centered on costs and styling and acceptable levels of perfor- mance. As was noted in Chapter 2, the success of GM's strategy seems to confirm the secondary role of evident technical advance in competition. GM avoided competition on the basis of advanced technology and adopted an approach emphasizing incremental change, acceptable designs. and broad Droduct-line Doliev to meet market needs. The contrasts with European developments are instructive. Although the industry began in Europe, it grew far more vigorously in the United States.9 By the 1920s, 1 out of every 5 Americans owned an automobile; in Germany, only 1 out of 56. In comparison to their U.S. counterparts, European drivers were more sophisti- cated. They were attracted to features that required and enhanced driving skill. It was not a mass market. In fact, not until the 1 950s did car ownership in Europe become genuinely widespread. Beyond such differences in timing, systematic government policy after World War I helped distinguish the European industry from the American. Various tax and regulatory policies defined the market and shaped its development in each of the producing European nations. In Britain, for example, there was a horsepower tax, which strongly influenced the development of a small-bore, long-stroke engine. Then, too, high fuel costs-- also, to some extent, a reflection of government tax policy-- placed an early premium on fuel efficiency. The result was a path of technical development that emphasized vehicle performance. ~ - ~ r - - - - ~

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45 Beyond tax and regulatory measures, government policy on transnational trade had a profound influence on the growth of distinctly national markets. Surrounded by relatively high tariff barriers (e.g., the French had a 90 percent tariff in 1931 ) and m otivated by distinctive domestic tastes and preferences, the European auto firms developed sharply differentiated products with distinctive national characteristics. Thus, the major German firms produced cars that were quite different from those developed by the French. Within the context of broadly similar national technology, the particular firms in each country developed products and systems that were different. While BOW products, for example, were more closely related to those of Audi and Mercedes than they were to those of Peugeot or Renault, their design and technical features were distinctly different from their domestic competitors. Both among countries and among firms, the phenomenon of a "dominant design" failed to emerge in most of the major technical systems. In engines, suspensions, drive trains, fuel delivery, and so forth, a diversity of technology characterized the European market. The absence of a dominant design and the consequent diversity in automotive technology in Europe seem to have been a result of the nature of competition. It is true that government trade policy had a strong bearing on the growth of national markets, but diversity has persisted long after the European Common Market was established. _ ~ . 1 1 ~ — . · . · . . Table 3.4 provides examples of the kind of distinctions industry experts use to characterize products of the major producing countries in Europe. These differences reflect a long tradition of technological development in each country that has been preserved despite greatly increased inter-European trade. It appears that preferences and tastes remain sufficiently diverse to St]DOOrt range of designs Ancl t-rhnir;~l nntinnc —or - l~loreover, the search for competitive advantage demands it. The European emphasis on vehicle performance Ornate Onr1~r_ "unities for competitive advantage through _ _ ~ . . ~ ~ I! ~ _. nonincremental Innovation and advanced engineering. 1ne Industry originated less in the demand for basic transportation and more in the search for high-performance luxury vehicles. Cost was far less important; technical performance was essential. In this sense the European industry retained a level of diversity in design approaches more characteristic of the fluid stage of U.S. development. In this context it is not surprising that the European sub- sidiaries of U.S. companies have been operated as separate businesses. This is true not only in terms of manufacturing, product policy, and market strategy but more importantly in terms of organizations, systems, and personnel. The changes in the U.S. market in recent years have prompted concerted effort to bring

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46 TABLE 3.4 National Characteristics in European Automobiles Major Producers Characteristics France Renault, Peugeot-Citroen Soft ride; low performance, highly idosyncratic styling. West Germany VW-Audi, Opel, BMW, Quick acceleration; firm ride; high Mercedes, Ford performance/high speed. Italy Fiat, Alfa-Romeo High revolutions; specializing in small sporty cars. Sweden Volvo Large, heavy cars; safety or~enta- tion; distinctive styling, boxy. SOURCE: Discussions with industry observers. the U.S. and European pieces of the U.S. domestic producers closer together. We have argued that technical diversity and national identity characterized the European market from its inception and that they have persisted in the face of large trade flows. There are indications, however, that the quite different U.S. pattern of development is present in the low-cost segment of the market. Within the last few years, for example, the major manufacturers have developed low-priced cars with very similar technical con- figurations. Indeed, the Renault R5 with its boxlike exterior, front-wheel-drive, four-cylinder engine, and 4- to 5-gear manual transmission seems to have established a dominant design in what m ight be called the "econobox" segments. Ford (Fiesta), Fiat (Strada), VW (Rabbit), and GM (Kadett) have all offered products with a similar design approach. The appearance of standardization in the low-priced segment reflects the efficiency orientation of consumers in this market. Performance in terms of handling, power, and so forth are less critical than low-cost operation and efficient use of space. Efficiency and cost also seem to have played a role in the decision of Ford of Europe to break away from nationally based designs. I ~ ~= Awry `o ra~ona~ze His European operation led Ford to develop a truly European product line and to coordinate its European production facilities. As in the United States, Ford sought to decrease the underlying technological diversity of its European products at the same time that it increased their variety in styling and appointments. Though Ford offered, say, four engine types within a given model, it kept those engines common across several model lines. While specializing engine production by plant, Ford could thus retain a real measure of choice on the showroom floor.t ° Furthermore, European-wide sourcing of components allowed T ~ ~ ,

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47 plants to be dedicated to a smaller number of products than before. The Fiesta plant that Ford built in Valencia, Spain, specializes entirely in the production of Fiestas. It is, of course, less flexible than the older plants, which had to accommodate several different models, but it has been able to achieve for his:,h~r levels of automation and integration. ~ Tl~ ~ · . . ~ O ~ ~ ~= reeve to curopean-w~ae sourcing and increased common- ality is also apparent at Volkswagen (V W). Commonality and standardization have been introduced to such an extent that VW's whole European product line uses only one automatic transmission. The eight models in its line (and the many variations within those models) require only five basic platforms and four basic engines. While the available evidence suggests that GM's subsidiaries have developed a similar approach to design and sourcing, other major producers have continued in traditional patterns. A degree of standardization in the lower-priced segments has been a factor in the recent penetration of the Japanese into the European markets. While not as technically sophisticated as some of the leading European firms, the Japanese have developed very reliable vehicles of acceptable function and styling and are selling them at prices below comparable European products. In contrast to the United States where the Japanese price their vehicles above the market, in Europe the Japanese have used a penetration pricing policy. This approach has been highly successful in those segments where Decency and low cost are paramount. TECHNOLOGY CONVERGENCE: I MPLICATIONS FOR COMPETITION ANI) ORGANIZATION The diversity of product technology in Europe underscores the intricate connection between the character of competition and the pattern of technological innovation. With much less emphasis on product performance in the U.S. competitive arena, particularly after 1945, technology assumed a neutral role in the fight for competitive advantage. The very notion of convergence in product and process characteristics across firms implies a similar evolution of technology and organization within firms. The patterns are not identical either in specific forms or in their timing, but in its fundamental characteristic the evolutionary process has signifi- cant commonalities. Evidence for this proposition is provided by the pattern of diffusion of several major innovations Fines ~ l . . ·, ~ . . ~ ~ , ... _, _. , ~, ~—~~l l~#— ~ 'CEIL' ~ ' ' . . ~ . . . presents Dyson data for a few s~gn~cant technological developments from 1910 to 1974. The rapid diffusion evident in the data suggests that the productive units in the major firms were at similar stages of development when the innovations were introduced.

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48 o 0 20 - C: C: O 40 11 O 60 At AL C: a: LU 80 Car Lines with Closed Steel Body Cars with Air Conditioning Cars with \ Power Steering \ - Cars with Automatic Transmission Cars with Disc Brakes \ \ \ ~ ~ \ ~ \ Coo; 1 1 1910 1920 1930 1940 1950 1960 1970 1 1 1 1 \ \ \ \ I I I I I I ,J YEAR FIGURE 3.1 Diffusion of selected Abernathy, 1978.) innovations. (Adapted from The almost complete diffusion of the innovations in Figure 3.1 suggests that any competitive advantage accruing to the innovator was shortlived; what was initially a unique feature available on a limited basis became widespread, even standard equipment on all cars. Where competitors are at similar stages of development, and where development has proceeded through a particular sequence of dominant designs, technology becomes competitively less sig- nificant. Because all firms have evolved in a similar fashion, no single firm can sustain a competitive advantage through incremen- tal product innovation. Rapid replication by competitors quickly eliminates any gains. Under these circumstances the incentive for significant product innovation is diminished. Innovation occurs, but as we have seen it is increasingly incremental, defensive, and invisible. This is not to argue that the innovative process in a mature or maturing industry is not a significant factor in any given firm's competitive survival. Clearly the product does evolve and change; the production process becomes increasingly more productive. Without refinements in existing design concepts a firm will fall by

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49 the wayside. What is important however is that innovation is incremental and slowly cumulative in its impact. It is critical for survival but not for competitive advantage. This changing pattern of innovation as a product matures is accompanied by an evolution in the capabilities of the firm as an organization. The organizational changes are likely to be complex, but a few key stylized facets of development will serve to indicate the basic pattern of evolution. As far as technology is concerned, the key competitive task for the maturing firm is the steady refinement of design concepts currently in use. This fact conditions the kinds of technical changes made, the character of technical and human resources the firm acquires, and even the origin of improvements. Innovations of a radical sort are destructive of existing capital and generally highly risky in both the market and technical senses. A sweeping shift to totally new design concepts requires an entrepreneurial thrust both in its technical development and in its commercial application. In contrast, an organization with a dominant orienta- tion toward mass production of a mature product, economies of scale, and incremental innovation must place far greater emphasis on cost control and coordination. Entrepreneurship in such a setting may be quite dysfunctional; where it exists, it is likely to be organizationally separated from the core activities of the firm. Rather than brilliant but risky technologies, the firm oriented toward incremental innovation will emphasize engineering appli- cations that push existing in-use technologies to their limits. With an increasingly complex process the successful firm in a maturing industry is likely to evolve an organization and a man- agemer~t team that excels at coordination and control. As the production process becomes increasingly capital intensive and complex, there is likely to be greater specialization of tasks both f or workers and managers and an increasin~lv hierarchical organization. O ~ · O ~ ~ · · ~ With competitive emphasis on production, costs, and incre- mental change, the organization adapts to support that thrust. Firms in the auto industry seem to fit this pattern of organiza- tional evolution quite well. If the auto companies excel at anything, it is in the efficient operation of a highly complex production process. Indeed, if one were to ask what does the auto industry do well, coordination and control--essentially a cost emphasis through exploitation of economies of scale--would be high on the list. It is important to see, however, that the organi- zation's capabilities in other dimensions--rapid innovation, for example--may be more limited. The implication for responses in the current crisis are clear: Should major changes in strategic emphasis be required, success- f ul adaptation will involve a fundamental organizational trans-

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50 f ormation as well as changes in characteristics of products and technologies. The changes required will apply not only to design and engineering but also to the relationship between these functions and operations and to top management. If innovation becomes a more significant factor, a closer integration of R&D and the marketplace will be required. Design targets and the discipline imposed may well change. Competition will turn more on the ability to bring new ideas into operation than on the bureaucratic control of the cost of a standarized product. NOTES 1. The basic notion of process and product evolution has been developed in a series of articles by Abernathy and Townsend (1975), Utterback (1974), and Utterback and Abernathy (1975~. For an extension and application to the auto industry, see Abernathy (1978~. 2. The notion of a "design concept" in this context was introduced in Abernathy (1978), p. 54. 3. The technical hierarchy referred to here has been discussed in Abernathy (1978), pp. 20,62-65. 4. For a discussion of the concept of "dominant design," see Abernathy (1978), p.57, and Abernathy and Utterback (1978), p.46. 5. Sorensen (1956), p.102. 6. Abernathy (1978), pp.95-97. 7. For evidence on this point, see Abernathy ~ 1978), pp. 114-143. 8. Abernathy ~ 1978), pp.131 -132. 9. For a wealth of historical data on the international . automotive industry, see Wilkins (1980~. 10. See Doz (1979) on these matters. 11. Ibid., pp. 20-22. 12. The evolution of organization in the auto industry has been examined in Abernathy (1978) and Chandler (1964~.