Complementarity and Cost Reduction :

The success of Japanese manufacturing firms such as Honda and Toyota has renewed attention to the importance of cost reduction on existing products as a source of productivity growth. Using survey data and interviews, this paper explores the determinants of average-cost reduction for a sample of 207 automotive suppliers in the United States and Canada between 1988 and 1992. In particular, the paper explores the efficacy of methods for mobilizing latent knowledge from decentralized sources such as workers and customers, or “voice”. Plants using voice practices did better than other plants if they had a highly effective suggestion program for workers, or if they adopted at least two voice practices, such as a) suggestions from workers and long-term, informationrich relations with customers, or b) suggestions from workers and efficiency wages for workers. Despite this evidence that certain practices may be complementary in their performance, there was little complementarity in adoption. (For example, firms with suggestion systems are slightly less likely to have voice with their customers.) This outcome was attributed to incomplete diffusion of the organizational innovation of ‘voice’. Thanks to Adam Jaffe, Kathryn Shaw, Richard Parkin, Laura Leete, Bob Slonim, Jim Rebitzer, and Scott Stern for helpful discussion, and to Lee Handwerger for research assistance. Thanks to the Alfred P. Sloan Foundation for funding via grants provided to the National Bureau of Economic Research Project on Industrial Technology and Productivity and to the MIT International Motor Vehicle Program. Additional support was provided by the Center for Regional Economic Issues at Case Western Reserve University and the Center for Global Partnership in Tokyo.