Building Dynamic Capabilities for Product Success in a Changing World

Manufacturing industries have experienced significant evolution through digitalization and mutual competition, fostering product improvements and coexistence among firms. By integrating best practices and addressing cross-departmental needs, these digital tools have enhanced efficiency and opened opportunities for new challenges in manufacturing.

In a stable market environment, mutual competition drives growth and “the rising tide lifts all boats”. This has been the case for many years and the European Automotive industry is a good example of an effective network of competing OEMs and suppliers that led to a unique and powerful industry, where OEMs drive brand, marketing and vehicle integration and Tier-One suppliers over time became system providers and technology and innovation drivers.

This led to a market with relatively few large players in both fields. These structures developed in a somewhat stable market environment. In recent years, however, two disruptive changes – climate change and the departure from fossil fuels and new, fast-moving competitors mainly from China – raise the question of how well such a model is prepared to manage these changes simultaneously.

How to Defend Premium Prices

Until recently, European manufacturers could justify the price premium for their products because of product characteristics: quality, energy efficiency, durability and service. However, at least some of these attributes are about to erode: For many customers, Chinese products are just “good enough,” but offer a significant price advantage – not least due to Chinese government funding, especially in the Automotive industry.

This puts European Automotive and Industrial manufacturers potentially in a difficult spot and calls for nothing less than a survival strategy: How should we overcome the situation together with customers as the IT partner? How can we develop suitable strategies and implement corresponding solutions together? How can Europe learn from a similar transition in the Japanese economy?

We’d like to discuss these issues and in correspondence with Mr. Ueno who manages global business strategy for Zuken, Inc. Japan.

Yasuo Ueno is the Senior Managing Executive Officer and in charge of Business Strategies at Zuken, Inc. He joined Zuken in 1985 in sales, and in 1995, he established PLM business. Today, his main role is to establish Zuken’s significant DX business based on CAD/PLM and MBSE.
He is also a member of the research group of Digital MONOZUKURI run by Prof. Fujimoto.

Yasuo Ueno: A balanced approach to drive Innovation and Efficiency

Let us first take a brief look at the situation in Japan: Japanese manufacturers, especially consumer electronics had successfully developed the market and until the year 2000. The business industry was big and strong enough and can be compared to today’s Japanese automotive industry.

At the time, the Japanese consumer electronics market consisted of approximately 100 competing corporations. Still, each was profitable through a sharp focus on efficiency, reducing the cost, delivering a broad portfolio of products and keeping competitive product quality. It was clear that CAD/PLM has significantly pushed this competition within Japanese electronics corporations to ‘co-evolution’ and support the race how could make many derivative variations of design, repository, colors, functions and so on one after another.

With the market success of the iPhone, it became clear that consumers in the electronics market were not looking for endless variations of similar products, but rather for new and engaging experiences. As digitalization advanced, Asian countries began to dominate the consumer electronics industry, as modular product architectures made it easy to generate variations quickly. Today, little remains of Japan’s once-thriving digital consumer electronics sector – perhaps one of the main reasons often cited when discussing the decline of Japanese manufacturing.

However, according to Prof. Takahiro Fujimoto, the data tells a different story. Around 1990, when Japanese manufacturing was said to be invincible, exports of industrial products were around 270 billion yen. In 2022, it exceeded 600 billion yen as the record high was more than double that. The manufacturing workforce has been shrinking, dropping from 15 million to 10 million employees over the past 30 years. Meanwhile, total real value added has steadily grown from 530 billion yen 30 years ago to 800 billion yen.

Japan might be most famous for its automotive market, but here are also other high-tech industries like medical, robotics, semiconductor equipment and infrastructure competing successfully in the global market. It can be said the Japanese industry is still strong when it comes to value added products. And the direction of Japanese manufacturers is set to grow in this area.

As the wage gap with China is continuously decreasing, according to Prof. Fujimoto, Japanese manufacturers will be able to compete widely enough against China, by continuously improving productivity and quality.

METI’s Call for “Dynamic Capability”

The Ministry of Economy, Trade and Industry (METI) strongly points out that companies must acquire what they call the ’Dynamic Capability’. Such capabilities will be needed in the organization because purely focusing on efficiency may lead to a lack of awareness regarding market changes and result in lost business.

METI has drawn lessons from the drastic transformations in the electronics industry and hopes that Japan’s high-tech sectors – including automotive manufacturing – will maintain their competitive strength. To develop innovative products, capturing market trends in an agile and flexible way, it is required to restructure the organizational capability.

The book ’Dynamic Capability and Strategic Management ’ was a must-read for Japanese managers as well as the book ‘Lead and Disrupt: How to Solve the Innovator’s Dilemma ‘. Let me introduce a significant chart which compares Dynamic Capability and Ordinary Capability here.

How Engineering IT Supports Both

What are the ‘organizational capabilities’, and what is our contribution to them? According to the book ‘Dynamic Capability’, it is researched that companies need both: the Dynamic capability and the Ordinary capability as organizational capabilities. And the research suggests balancing the existing business strengths and the new innovations is crucial for sustainable corporate success. Let me turn back to history and how Engineering IT has supported both capabilities.

We are confident that our engineering IT CAD/CAE and PLM technologies have increased our customers’ ‘Efficiency and technical fitness’ by containing ‘Best Practice’, and it certainly brought money and freed up human resources. CAD/CAE and PLM did contribute significantly to the customer’s ordinally capability.

It is same idea as stated in the beginning of the article that conventional digital tools had supported the organizational capability to correspond to mainly existing challenges in manufacturing.

To implement the best practice into the process is very important to squeeze out the limited resources. The 50years history of Zuken is almost concentrated on this contribution here. So let me introduce some pictures to remind Best Practices in our tools.

1. Dragon Router in CR-8000
   Left: Differential wiring is performed according to the specified wiring conditions, considering differential pairs (wiring time: several seconds)
   Right: Equal-length automatic meander wiring Both left and right side wiring is completed in tens of seconds to a few minutes.
2. 3D EMC Advise Enable to perform EMC verification on “electrical and mechanical components” and “PCBs and PCBs,” in 3D models
   
3. IPS with XVL-WR based on E3 conectivity
   Cable routes and movements analysis by XVL-WR with IPS(fleXstructures) for reducing rework
   
4. Automated appropriate components selection and output BOM for purchasing and manufacturing with plural variation by DS-CR
   Companies have gained significant efficiency by using these best practices in Digital Tools.
   

However, in today’s VUCA (Volatile, Uncertain, Complex, Ambiguous) market environment, it is not enough just becoming more efficient for innovation to happen, it is needed to sense, size and transform, it means anticiparte and act in a flexible and agile way. This is the Dynamic Capability which should be captured.

After talking about what ‘Innovation’ means, let me explain how engineering IT can contribute. Innovation as new combinations: In this sense, innovation arises from recombining existing knowledge and resources rather than purely new inventions. Today, this requires more agility and solving complexity issues. It also means the importance of leveraging and digitizing company assets for finding new recombinations.

MBSE: Enabling Dynamic Capabilities

How can IT contribute to this capability? One key lies in digitizing design assets: Using Model-based systems engineering (MBSE) to digitalize technical assets and development processes. I believe this database is the knowledge on each company because in similar product design cases, it can enable better reuse, validation and verification, and linkage from requirements to detailed design in a flexible and agile way.

Although the method and tools are born in Mil/Aero, at Zuken we understood that the concepts should also apply to manufacturing companies outside Aerospace and Defense – mainly B2B like automotive, medical, industrial equipment. Consequently, Zuken acquired the U.S. MBSE company Vitech in 2019. Our idea was accepted in the market and now over 30 companies are already in PoC of MBSE. We consider MBSE as a major enable for companies to develop the required Dynamic Capability.

Conclusion

In today’s volatile market, efficiency alone is no longer enough. True competitiveness depends on developing Dynamic Capabilities — the ability to sense change, seize opportunities, and transform with agility. By combining operational excellence with innovation, companies can stay resilient and drive sustainable growth.

In our next article, we’ll explore this idea further: How does “Dynamic Capability” reflect the challenges European manufacturers are facing? And what is the real focus of Industry 4.0 in Europe — driving these capabilities, or simply increasing efficiency through digitalization?