THE 1996 NEWCOMEN PRIZE ESSAY From Textiles to Automobiles: Mechanical and OrganizationalInnovation in the Toyoda Enterprises,1895-1933 William Mass 1 CenterJ½rIndustrial Competitiveness UniversityofMassachusetts, Lowell Andrew Robertson HarvardUniversity The storyof SakichiToyoda (1867-1930), the greatindustrial entre- preneurand nationalhero, is taughtto everyJapanese school child. Foreign touristsare told he wasthe Japanese Thomas Edison. As recentlyas 1985,the patentoffice listed Sakichi Toyoda as one of the ten mostimportant inventors in Japanesehistory. The textilemachinery company that he foundedeventually gavebirth to theToyota Motor Corporation.Before the Japanese stock market bubble burst, the Toyota Motor Corporationcommitted 150 billion yen (roughly$150 million) for the recentlycompleted Toyota Industrial Museum, a remarkablywell-done pa:an to a visionof socialprogress as technological progress.What is lackingis a senseof the criticaland essentialrole of social organization,without which the determinantsand consequencesof tech~ nologicaldevelopment will be misunderstood.This paperexplores both the organizationaland the technologicalaspects of earlyToyoda entrepreneurial historyfor insightsinto the foundationsof Toyota'spostwar performance and potentialimplications for economicdevelopment more generally. • The authorswould like to thank Qiwen Lu and Damian Kieran for their excellent researchassistance. In addition,we would like to thankour colleaguesTakeshi Abe, Eisuke Daito, KazuoWada, and particularly HideaM Miyajima for helpfuldiscussions and for their assistancein securingJapanese-language materials. All of them are exempt from any responsibilityfor our errorsof omissionand commission.The internationalcollaboration thathas supported this research has been funded by theSocial Science Research Council and the National Science Foundation. Some of the research was conducted while William Mass wasa HarvardNewcomen Fellow, and partsof this paperwere presentedto the Harvard BusinessHistory Seminar in a paperco-authored with HideakiMiyajima. An earlierversion of thispaper was presented at the"Symposium on IndustrialDevelopment and International Competition"at the Suntoryand Toyota International Centres for Economicsand Related Disciplines,London School of Economicsand Political Science, January 4-5, 1996.Finally, we want our readers to be aware that in this draft we have followed Western convention in placingJapanese surnames last in thetext, but first in listingbibliographic references. BUSINESSAND ECONOMIC HISTORY, VolumeTwenty-five, no. 2, Winter1996. Copyright¸1996 by theBusiness History Conference. ISSN 0849-6825. 2 / WILLIAM MASS & ANDREW ROBERTSON In The TechnologicalTrans•vmation ofJapan: From the Seventeenth to the T•ven•y-FirstCentury, Tessa Morns-Suzuki cited the surprising claim of a leading interwarJapanese technologist, the director of thepioneering RIKEN Institute MasatoshiOkochi that "Japaneseresearchers were skilledand original inventors,but that Japan'sweakness lay in an inabilityto commercialize radicallynew ideas"[pp. 116-7].Okochi's concern was that Japanesefirms wouldmore readilychoose to refineimported technologies where a market wasalready developed, rather than to bearthe greateruncertainty, associated risk,and heavy developmental costs of takinga moreradical innovation from laboratorybench to full-scaleproduction. Morris-Suzuki points to the exceptionthat proves the rule, by discussing"the classic example of Japanese innovation":the Toyoda Loom Works established by SakichiToyoda in 1906, and his son Kiichiro,who, drawingon his universitytraining, put in place systematicand costlylarge-scale research and extensiveprototype and mill testingto refinehis father's inventions. In a recentpaper on "The LearningProcess and the Market:The JapaneseCapital Goods Sectorin the Early TwentiethCentury," Tetsuro Nakaokautilized the conceptof appropriatetechnology to describethe possibilitiesearly in the industrializationprocess for indigenouslydeveloped technologicalleaps. For instance,domestic capital goods producers can serve nichecapital goods markets that supplymachinery to local manufacturers producingtraditional products. These sectors are poorly served by expensive and (for theixpurposes) inappropriately designed and specifiedcapital goods producedin developedeconomies. The indigenousinnovations reinforce and acceleratedevelopment, simultaneously altering previously existing conditions and openingnew opportunitiesfor "quantumleaps in technology"for indigenouscapital goods producers. Nakaokanotesl "One typicalexample of a manufacturerwho madethis leapsuccessfully is the Toyoda Loom Works" [Nakaoka, 1994, p. 13].Nakaoka citesthree "quantum leaps" initiated by Sakichiin narrowloom, ixonbroad loom, and automaticloom invention,the latterrefined by Kiichixo.Given the ongoingchanges in economicconditions that accompanysuccessful devel- opment,Nakaoka stressed the needfor recurringor continuoustechnological leapsto sustainthe developmentprocess. Each successivetechnological leap requkedupgraded and more expensive equipment and engineering know-how. Nakaoka identified insufficientcapital resourcesas the most general impedimentand barrierto sustaineddevelopment. Deciding where and how best to deployfinancial resources aimed at "quantumleaps" in technology requkesdeep knowledgeof the adequacyof the platformfrom which one attemptsto leap,the resourcesneeded to helpbridge the gap,and a strategy for theix effective mobilization. Thispaper describes how the Toyoda enterprises achieved international competitivenessin textile machinery production. It elaborateson and supple- mentsthe assessmentsof Morns-Suzuki and Nakaoka by addressingquestions about the relation between Sakichi and Kiichixo's mechanical innovations and INNOVATION IN THE TOYODA ENTERPRISES, 1885-1933/ 3 the technologyreadily available from foreignmachinery suppliers; the extent and characterof indigenousJapanese innovations in textiletechnology; the relationshipof strategicchoices and innovationsin both technologyand organization;and the riseof Japaneseindustrial leadership as reflectedin the negotiationsover technologytransfer and a proposedmerger between Platt Bros.and two Toyodaenterprises. Collaborative research reported elsewhere addressesrelated questionsabout the role of industrialorganization and nationalinstitutions in alteringthe strategicoptions available for Japanese textileand textile machinery enterprises [Lazonick and Mass, 1984, 1995; Mass andLazonick, 1990; Mass and Miyajima, 1993]. The insightsof Morris-Suzukiand Nakaokahighlight the unevenness anddiscontinuity of organizationaldevelopment and technological achievment in the processof economicdevelopment. The mostimportant and funda- mentalfeature of Japan'sinterwar growth was the character of andrelationship betweendevelopment in both 1) exportsectors, primarily light industries and especiallycotton textiles, and 2) importsubstitution in heavy industries. 'As a casestudy, this paper strives to buildan understanding of the uneven evolution of organizationsand the "leaps"toward international technological compet- itivenessin cottontextile machinery, the key to long-termcotton textile export success,as part of a continuousand cumulativedevelopmental process. We aimto presentan integratedview of elementsof continuityand discontinuity in the dynamicsof Japanesetechnology transfer and developmentand in particularto illuminatethe following phenomena: ß Finance and Markets - The critical access to finance and markets providedby Toyoda'ssustained relationship with the leadinggeneral tradingcompany Mitsui Bussan, and with individual Mitsui managers, was periodicallystrained as entrepreneurial initiatives required an independent developmentpath. ß Long-Term Relationsto Key Technologist$and Technicians- Therewas a remarkable,and generally unknown (at leastin the West), rivalrybetween the first and secondenterprises established by Sakichi Toyoda(Toyoda Loom Works and the Toyoda Automatic Loom Works), wherein he sustainedrelationships of mutual supportwith key technologistsfrom the company he formerlymanaged. ß ProductDevelopment and Manufacturing- Toyodaplayed a leading role in pioneeringthe introductionof the Americansystem of inter- changeableparts into Japanese manufacturing, essential to thecommercial success of mechanical innovations. ß Inventionand OrganizedIndustrial Research - Organizedindustrial researchplayed an earlyand leading role at Toyoda(and we reassessthe characterand relativeimportance of the accomplishmentsof Kh'chixo relativeto hisfather Sakichi). The centraltechnical innovations, embodied in the Toyoda automaticloom, resultedin successfulpioneering commercializationof automatic weaving machinery in competitionwith both importedtechnology and indigenousrivals because they were 4 / WILLIAM MASS & ANDREW ROBERTSON appropriatelydesigned to suitJapanese textile and machining capabilities, and they integrateddesign with the developmentof superiorToyoda manufacturingcapabilities. ß SocialOrganization and Individual EnterpriseDevelopment - The breadthand depth of theJapanese efforts to developindigenous textile technologyprompted widespread competition and simultaneously promoted the developmentof humanand technical resources that rivals sought to mobili7.efor theirown purposes.At the sametime Toyoda enterprises' strategyand structure led to theirrelative domination of theirrivals. ß TechnologyTransfer from Japanto Britain - We describethe nature and sourcesof tensionbetween