“Bounded rationality” has become such a key concept that the mere mention of the name “Simon” calls this phrase to mind. Nonetheless, this phrase does not appear in the original text of Administrative Behavior (Simon, 1947, 1957, 1976, 1997). In spite of this, the index of the third edition (Simon, 1976), published two years before Simon received the Nobel Prize in Economics, includes the subheading “Bounded Rationality” in three locations under the heading “Rationality.” This paper combines the writings contained in these three locations into three characteristics: (I) That is bounded by the constraints of individual rationality; (II) That makes it impossible to know all alternative behaviors and their consequences and maximize the given values as assumed in game theory; and (III) The organization provides that with a decision-making environment in which behavior that is rational from the standpoint of the given environment is also rational from the standpoint of the group. In the third edition, Simon essentially called that “bounded rationality” and drew a sharp distinction from game theory. However, the concept embodied in that is Barnard's “restricted but important capacity of choice.”

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Beginning in the latter half of the 1990s through the early 2000s, research on dynamic capability (DC) emerged. Teece, Pisano, and Shuen (1997) were famous for being quoted even while only having a working paper, which was subsequently published. They were followed by Eisenhardt and Martin (2000). Then, researchers such as Zollo and Winter (2002) studied routines and organizational learning with a focus on the keyword “capability.” These three influential papers cited the following concepts as elements that comprise DC: 1) the level of environmental change; 2) organizational processes or routines; 3) resource configuration; 4) the role of managers (for example, decision making with regard to resource investment); and 5) learning mechanisms. Later, many researchers adopted a resource-based view (RBV) and presented their studies as incorporating DC if they contained the keywords “change,” “competitive advantage,” or “capability” even though they were merely descriptions of static resource states and discussions of their changes. By casually labeling research on R&D, acquisitions, or alliances as DC theory, these later studies a) caused ambiguity and confusion with regard to what “dynamic” means and b) lost sight of the essence of DC theory with various solutions concerning whether the concept can be explained with the stable characteristic of capability.

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In general, research on software development outsourcing, which implicitly assumes application software development, tends to ignore hardware product characteristics. However, in embedded software development, the skills and knowledge required of engineers can differ depending on hardware product characteristics. This study employs the data from an interview-based survey to identify the impact of hardware product characteristics on software development outsourcing. In the case of embedded software, engineers at companies that undertake outsourced work must possess not only knowledge of software developed by the outsourcer but also technical information and knowledge regarding hardware product characteristics that can only be acquired from the same client. This accumulation of firm-specific knowledge and information occurs on a continual basis, and is necessary for this type of outsourcing business. Thus, maintaining a low engineer turnover is important.

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Regarding disruptive innovation, Christensen and Raynor (2003) assume that there are two types of customers: overshot customers in existing markets and entirely new nonconsumers in other markets. In the case of large-scale casting market within the casting industry, customers demand high quality casting surfaces. The new method of casting termed full mold casting (FMC) could only achieve low quality results compared with existing wood pattern-based sand mold casting, which had sufficiently high quality in its casting surfaces. Even in that market, however, the casting of metallic molds for automobiles had particular requirements because casting surfaces were later dealt by mold companies. Thus, customers welcomed shorter delivery times even with lower quality casting surfaces. Kimura Chuzosho Co., Ltd. first acquired certain customers who desired shorter delivery times, and then improved casting surface quality and productivity over the course of doing business with them. Eventually, they became successful in capturing more than half the market for automobile metallic mold castings. Improving the quality of casting surfaces led to market share gains for single castings used in machine tools, which demanded higher mid-range casting surface quality. Moreover, by fully mechanizing numerical control (NC) processing, the company was able to acquire market share in castings for high-end mass-produced machine tools, which demanded high-end casting surface quality and was an area that was considered difficult for FMC. In this manner, by keenly focusing on the specific requirements of their customers, Kimura had secured orders from customers who were neither nonconsumers nor overshot customers. As business continued, the company became successful in steadily improving overall quality, cost, delivery (QCD), and FMC became an example of disruptive innovation vis-à-vis existing wood pattern-based sand mold casting. The logic behind occurrences of disruptive innovation is simpler than the analysis of Christensen, Anthony, and Roth (2004): Even if a company can acquire only a small portion of customers with particular, specific requirements using QCD-related technologies, which are perhaps even toy-like in comparison with existing technologies, such company will have opportunities to improve the overall QCD as its business continues.

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