DO NOT COPY 63 Specifications—Do We Really Understand What They Mean? P Specifications—Do We Really Understand What They Mean? Rajesh Nellore, Klas Söderquist, Gary Siddall, and Jaideep Motwani the noise was magnetic interference from wire harnesses above the radio. The automotive manufacturer deter- mined that the supplier was at fault and tried to force the supplier to pay the damages. But the specifications did not require the supplier to evaluate the effects of magnetic interfer- ence. So the manufac- turer was unsuccessful in collecting damages from the supplier, and it had to foot the bill for more than a thousand radios that had already been produced. This problem can be traced back to the fact that the supplier obtained only approximate pa- rameters in the specifications from the OEM, calling for further development by the supplier itself. However, the supplier’s capabilities and capacities were not suited to such a task; it re- quired well-defined, detailed specs from the OEM. Problems like this are often due to buyers and suppliers interpreting the term “specification” in different ways. And with so many different types of suppliers, the specification parameters have to be made very carefully. Kamath and Liker (1994) have classified sup- pliers into four types: Partner, Mature, Child, and Contractual (or Commodity) suppliers. Pa rtners, which sit at the top of the hierarchy, are able to develop entire subsystems and work with differ- ent concepts through an independent engineer- ing capacity. Mature suppliers, which we will call Adult, need only rough specifications as a base for starting the development work; these might include the minimum distance between the radio and the wire harnesses in the dashboard, the eople engaged in development work communicate requirements with the help of specifications, or “specs.” Developing a product such as an automobile results from the interaction of thousands of collaborators who belong to various departments. Different types of specifications convey each department’s distinct requirements—market segment specs originate from the marketing department, after-sales specs from the after-sales department, and so on. They all come together to form the product’s overall technical specifications, which are then broken down by subsystem and component. The original equipment manufacturer (OEM), its suppliers, or both develop these specifications. In varying degrees, OEMs and suppliers cooper- ate to fulfill a set of needs. However, in examin- ing many development projects, we have ob- served that suppliers do not always satisfy the specifications. In fact, the final developed prod- uct might be totally different from the product that was originally intended. Both the OEM and the suppliers blame each other for the failures, and occasionally some of the suppliers are let go. To understand the reasons behind this prob- lem, we set out to identify the different facets of a specification. We conducted in-depth case stud- ies in six automotive supplier firms and one Eu- ropean automotive manufacturer, and sent ques- tionnaires to 400 global automotive suppliers. Although these studies were conducted in the auto industry, the findings have implications for companies in other industries as well. What Is a Specification Problem? Let’s take an example to understand the prob- lems caused by the disregard for specifications. A customer satisfaction inquiry revealed problems with the radio in a car model. Specifically, the customer could not listen to the music because of a continuous humming noise. The root cause of Companies must take care to fit the level and complexity of specifications to the type of supplier, using these eight dimensions as a guideline. Business Horizons Copyright © 1999 by Indiana University Kelley School of Business. For reprints, call HBS Publishing at (800) 545-7685. BH041