The story of the PC industry has been etched in the minds of strategists as a template for how industries evolve in the knowledge economy. In the natural order of things, so the story goes, industries disaggregate as interfaces between various stages of the value chain become open and standardized, allowing value to migrate up or down the value chain. But value migration away from established players doesn't have to be inevitable, argue authors Michael Jacobides and John Paul MacDuffie. Auto manufacturers, for example, have kept a fairly constant share of their industry's total market capitalization despite much recourse to outsourcing and intense competition in the sector. Carmakers and other industry leaders like Apple and Google gain and hold on to strategic control and value in their industries in four key ways: (1) Controlling the assets least likely to be commoditized (and blocking others' efforts to do the same); (2) Serving as "guarantor of quality" to the end customer (including assuming responsibility for the entire product, even components made by suppliers); (3) Staying in close touch with changing customer needs (changes in the end consumer are often accompanied by shifts in who captures the most value in an industry); (4) Balancing the imperatives of growth and strategic control of the value chain. Through the lens of the auto industry, the authors look at how established players can defend value in their industries and how emerging players can change the competitive landscape to drive value their way.

Incumbents will beat new rivals for at least the next few decades because they're the ones that can handle cars' design complexity.

Honda of America has developed a comprehensive approach to teaching the principles of lean production to its suppliers, in which Honda and the supplier work intensively on narrowly targeted improvement projects in the supplier's plant. Called BP (for "Best Process," "Best Performance," "Best Practice"), this approach has been quite successful in enhancing supplier performance; suppliers participating in the program in 1994 averaged productivity gains of 50% on lines reengineered by BP. However, Honda has found there is high variation in the extent to which suppliers were able to transfer the lessons taught beyond the line or plant where the BP intervention occurred. Drawing on case studies of three of Honda's U.S. suppliers, this article explores how the BP process interacts with the broader relationship between customer and supplier in terms of organizational learning, technology transfer, and the transplantation of Japanese management practices to the United States. These cases illustrate the dynamics of the learning process and the complex relationship that emerges between the "teacher" (provider) of valuable knowledge and the "student" (recipient).