Intangible Specialization
1. What do you mean by Intangible Specialization?
Maelli (2005) explained that intangible specialization, based on the evolutionary specialization tries to explain the efficiency differentials in the process of designing and manufacturing of the different products that are made by the same organization (cited in Maielli 2008, p. 286). Thus it helps to affect the probability that a given or specific differentiation strategy would success. The concept or perspective of the intangible specialization was developed by Maelli in 2005 in order to explain why the Italian carmaker Fiat features their output-mix skewed towards low cost segment units compare to the different manufacturers from Germany, France and Sweden. Thus, the intangible specialization poses its distinctive problems that are not yet fully addressed. In the same way, it also claims that the ideas that Americanization is everywhere are considered as simplistic universalisms.
On the other hand, Maelli also focuses on the detailed the specific process of accumulation of technical skills in product design as well as mass production processes. It also pertains on relationship between the routines that strengthen and support the process of selecting the mission of the organization, routines that help to support the process and product design as well as the detailed product and process requirement of each and every segment of the domestic market that had helped to shape the process of accumulating the design skills as well as the reproduction of the different technical creativity as well as business ethos that are all oriented to the reduction of complexity cost.
In general, intangible specialization can be described as the rate of the difference in the different process that is being implemented by an organization in order to perform. It is considered as an effective strategy or approach that can be used by different organizations and companies that focus on their expertise. In the case of Fiat, the techno-structure of the company was long developed; it focuses on the cost-saving rules that pertain on the process of checking the effectiveness of the design, together with the calculation of the revenues per kilo. However, it is important to consider that the intangible specialization does not pertain on the routines per se, but focuses on the pattern of skills as well as engineering culture.
2. How did intangible specialization affect Fiat’s strategy and output-mix optimization in the 1970s?
It is important to take note that the intangible capital accumulation of Fiat was driven by the historically specific events, that had affected the confirmation of set of routines that support the product design, particularly during 1970s, where in the company had its major and first as well as the best opportunity to up market. During that time, the political as well as behavioral factors, together with the distribution of power between the production engineers as well as the marketing managers, together with the condition of the market and the relationship in the industry prevented the company to acquire new skills in the process of designing as well as developing up market units.
As a result, the company lost an important share in the market due to the different reasons, and it had resulted for the company to face a verge of bankruptcy. The process of restructuring of the company saw the production managers to regain the control of both the product renewal as well as the output-mix optimization. Aside from that in 1978, Rossignolo resigned in 1978.
In order to save the position of the company in the market, in 1979, the largest shares of the resources were all allocated to the Fiat Uno as well as to assist the small cars. The said action lead to another consequence to the company, and that is: the product renewal and the output-mix decision-making were both returned to the control and hands of the production engineers. Thus, it had turned the company to complete a process of decentralization. Consequently, the Automotive Division was transformed into the Fiat Auto SpA, it is a floated company that is controlled by the Fiat group and the largest share of resources was allocated to the designing and engineering the Panda and Uno. Aside from that the Lancia was incorporated in Fiat and share the engines, gearboxes and platforms of Fiat models. As a result, the surviving element of Lancia techno-structure were later on dismantled and case a huge dispersion of the technical expertise in the design and manufacturing quality.
However, the said concept had helped the company to deployed different robotics that can help to accomplish the minimization of the cycle time to a certain extent than the flexibility, which is considered as consistent with the output mix skewed to the mass-produced small cars. However, the said movement or strategy causes disagreement between the leaders or upper management of the company.
3. How did intangible specialization affect Fiat’s strategy and output-mix, optimization in the 1980s and 1990s?
The restructuring during the late 1970s of Fiat’s strategies supported the patterns of the intangible specialization that were all consistent with the neo-infant phase of the Italian market during the 1980s. On the other hand, during 1990s, further integration a well as maturation of the European Union market shows that once again, the output mix of the company is still considered as its weakness in terms of outlook. In addition, the reinforced patterns of the intangible specialization towards the process or strategy of manufacturing small cars had led to the failure of the second attempt in order to shift the up market during 1990s.
The result, momentously, the failure of the shift up market in the 1970s, together with the success of the 1980s had helped to strengthen the power of the production engineers in the firm as well as helped the tendency of the techno-structure in order to maximize the manufacturability of their design. Aside from that, because of the fact that for almost a decade, comparatively, few resources had been allocated and budgeted for the design and development of the different up market units, the process of developing the design skills as well as technical ethos towards the expansion of R&D, design, manufacturing as well as component cost was significantly limited. In short, the techno-structure was not yet ready to support a change in the output-mix strategy towards the upper segments of the market. Thus, during 1990s, product design had remained influenced by the same set of routines that had inspired the design of Fiat cars in the preceding years.
During the said span of time, intangible specialization had helped the company to focus on the restructuring of the entire process towards the production, as well as product renewal. This is due to the fact that during that time, the influence of other Asian manufacturers, particularly those from Japan are already entering the big picture. The said strategy was done in order to gain competitive advantage, particularly in the intermediate and upper segments of the market. However, despite of the said effort, the product renewal during 1988 to 1996 periods shows that the company had failed to match or harmonize its product renewal process with its objectives. Thus, the customer had rejected the process centered design of the Tipo, at the same time; Bravo and Brava were never able to regain its market share lost by the Tipo.
4. Should Fiat shift up market in the second decade of the 2000s? Suggest and justify possible scenarios and output-mix optimization strategies.
By analyzing the strategic choices as well as performance of Fiat from 1970s to 1990s, it can be said that the primary reason for the failure of the company focuses on the chronic overcapacity, poor product renewal strategies as well as redundancy and ineffectiveness of the managerial structure. On the other hand, it can be said that the output-mix optimization is considered as the key element or aspect in the current crisis as well as the future movement and perspective of the company.
Thus, it is important to consider that Ferrari will still remain as an independent as well as very successful company in the market for dream cars, while the Maserati and Alfa Romeo will be compete in the same segments as Mercedes and BMW. Thus, Fiat will compare in the lower and medium segments of the market, together with Lancia as a premium brand.
Focusing on the intangible specialization in Fiat, a well as Maserati and Ferrari, it shows that these companies set in the knowledge that are important for the mass-produce small cars, together with a level of quality that is applicable to the lower segments of the market; or on the different cars that were produced in limited number of the state-of-the-art units. But, Fiat would have to be able to transfer the different skills for both the mass-production as well as quality-production to Alfa Romeo in order to produce 500,000 units each year, at a level of quality as well as price that will be competitive and equal to BMW. The said scenario will be controversial because of the incentive of Fiat to strengthen and support platform as well as engine sharing between Fiat and Alfa Romeo will help to increase with the volume.
Bibliography
Maielli, G. (2005) ‘The Machine that Never Change: Intangible Specialization and Output-mix Optimization at Fiat, 1960s - 1990s Competition & Change’, vol. 9, no. 3, pp. 249 – 276
Maielli, G. (2008) ‘Counterfactuals, Superfactual and the Problematic Relationship between Business Management and the Past, Management and Organizational History’, vol. 2, no. 4, pp. 275 – 295
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