The Extent to Which Technological Innovation Has Disrupted the Automotive Sector - Literature review Example

THE EXTENT TO WHICH TECHNOLOGICAL INNOVATION HAS DISRUPTED THE AUTOMOTIVE SECTOR By Name Course Instructor Institution City/State Date The extent to which technological innovation has disrupted the Automotive Sector Introduction In the automotive industry, disruptive innovation is presently happening on a number of fronts. Disruptive innovation can be described as a phenomenon through which an existing sector or market is transformed by innovation by introducing affordability, convenience, simplicity, and accessibility where high cost and complication are the status quo. Disruptive innovation is normally achieved by designing a diverse set of consumers in a new-fangled market and ultimately reducing the costs in the existing market. In the automotive industry, automakers have started digitalising their end-products; thus, making the industry highly disruptive. The digitalization has enabled the marginal cost attributed to adding new supply to reduce to zero. Electric Vehicles (EVs) are likely to disrupt conventional the automobiles that use Internal Combustion Engine (ICE). In consequence, this would enormously impact the environment, the industry, and lives of many people. Since the advent of 21st century, the automotive industry has experienced increased sales of EVs in the marketplace. Thanks to disruptive innovation, automakers can now cars that have added value n the ways that they can overcome the incumbent products. The objective of this piece is to examine the extent to which technological innovation has disrupted the automotive industry. Disruptive Innovation Disruptive innovation, according to Christensen (2017), can be defined as a process through which as service or product is originally introduced at the bottom of a market in simple applications before relentlessly moving up the market, and ultimately displacing well-established companies. Given that companies are inclined to innovate faster as compared to the evolution of the customers’ needs. The majority of firms normally end up manufacturing products which are very expensive, sophisticated, and complicated for the customers. As mentioned by Christensen (2017), firms pursuing such ‘sustaining innovations’ are inclined to become successful because they charge the highest prices to their most sophisticated as well as demanding end-users at the top of the market. Figure one: Representation of Disruptive Innovation Theory (Christensen, 2017) In so doing, the companies will be unknowingly be disrupting the bottom of the market. A disruptive innovation allows for an entire new consumers population at the bottom of the market to access a service or product, which in the past could only be accessed by consumers with lots of skills or money. Initially, the disruptive businesses attributes consists of smaller target markets, lower gross margins, as well as simpler end-products, which is less appealing than the existing solutions in terms of performance metrics (Christensen, 2017). Innovation Strategies in the Automotive Industry Since the production of the first automobile, product innovation has become a mark in the automotive industry. It has enabled automakers to stay ahead of the competition or to survive in a market that is dynamic and fiercely competitive. The automotive industry has for many years been depending on the continuous improvement trend rooted in incremental product innovation, process innovation as well as the espousal of new component technologies. The automotive styles’ language has progressively changed from the boxy shape to flowing, curvy shapes and now to contemporary edgy, prismatic and complex shapes. In the modern-day world, the automotive industry in entirety is experiencing a renaissance in aspects of interior and exterior design with the aim of making all vehicles more idiosyncratic by appearance to the customers who prefer vehicles that resonate with their personality. The new generation customers are no longer considering the performance and quality of the car. For instance, Audi was one of the pioneers in the design-driven innovation. As mentioned by Farhana and Bimenyimana (2015), the design has become a differentiator for the modern-day target customers; therefore, automakers are using design-driven innovation to manufacture long-lived product for both high-end and low-end market. Electric Vehicles According to Menk and Patterson (2015), the majority of automakers have started developing electric vehicles and this technological innovation has become more practical for the modern-day society. A number of companies have taken the electric vehicle idea to a whole new level; thus, changing how people view human-vehicle interaction. For instance, Tesla Motors is one of the pioneers behind the electric vehicle technology since its establishment in 2003. The company used lithium-ion battery cells and AC motors to create the first electric vehicle that could move over than 200 miles per charge. Over the years, Tesla has made progress in its attempt to replace ICE cars and to develop a cheap mass market EVs. Even though the affordability goal is yet to be realised, the launch of 2015 Model S retailing at$69,000 is a clear indication of the company willingness to expand at exponential levels (Menk & Patterson, 2015). The company is planning to introduce $35,000 Tesla Model 3 in 2017 and is planning to offer battery charging facilities that cover 98 per cent of the population in the United States. In terms of performance, Frohman (2014) posits that EVs provide major benefits over ICEs, particularly with reference to torque. In addition, the EVs are environmentally friendly, waste less energy and are more efficient as compared to ICEs. More importantly, EVs do not need filters, clutches, transmissions, oil changes or spark plugs. Therefore, EVs significance, undoubtedly, surpasses the mere automotive performance. Given that EVs source their power from electricity, they could utilise power generated from different sources, such as hydroelectric, the wind, nuclear, and solar. All these sources can help reduce overreliance on fossil fuels as well as the greenhouse gas emissions, which is the major contributor to climate change. Furthermore, the energy from such sources cheaper as compared to gasoline. According to, Frohman (2014), the utilisation of electric drivetrains provides scores of possibilities for a vehicle’s design and performance. For instance, Tesla Model S is the same as Rolls-Royce, Chevy Equinox (SUV), and Toyota Prius in terms of easy control, luggage capacity, and efficiency, respectively. The EVs have eliminated the drivetrain, transmission and conventional engine; thus, creating adequate space for the design of the car. Model S has removed the ICE design constraints to open up new design possibilities. Still, irrespective of these advantages, EVs are experiencing widespread adoption barriers. Furthermore, the EV cars are suffering from slow speeds, small ranges, costly batteries, and time-consuming and challenging recharging conditions. Other barriers include technical barriers, higher purchase prices, as well as administrative, institutional and market availability. A number of well-established companies such as Google and Apple have started investing in EV technologies. Based on disruptive innovation, a company like Apple is a master. The company has penetrated and mastered varied and multiple industries such as tablets, music, computers, and phones and have recently turned their attention towards the automotive sector. As mentioned by Menk and Patterson (2015), Apple’ ‘Titan’ project will bring major disruptions in the automotive sector. Currently, Apple is the world’s largest company in terms of market capitalisation. Therefore, through its integrated ability to enter into new markets and produce new innovative products, its ‘Titan’ project would undauntedly disrupt the automotive industry and improve the EV market. Apple is planning to release its fully electric vehicle in 2019, but it will not be fully autonomous. Through the Titan Project, Apple intends to expand the EV market by attracting its loyal consumers who currently are comfortably using the company’s products such as iPhone, MacBook, iTunes and many others. Through the incorporation of this familiar interface, the company plans to make the idea of EV technology more appealing to consumers who are reluctant to purchase the product. According to Harvard Business Review (2015), out of 16.5 million automobiles sold in the United States in 2014, only 119,710 were all-electric cars. For this reason, the established automakers have shown little interest in EVs not because the number of people desiring for EVs is very small. However, companies like Tesla believe that these preferences would ultimately change and the number of EVs sold would increase tremendously. If this materialises, companies’ like Toyota, GM, Volkswagen, and others would be disrupted and would be forced to move to EVs swiftly through their dealerships, supplier networks, and existing manufacturing capabilities to repel the threat. Simoudis (2015) argues that firms in the automotive value chain are facing unpredictable future. Due to various problems such as loss of productivity, climate change and pollution, the attitudes of the consumer towards car ownership as well as use has started changing.  In the coming 5 to 30 years, these changes would more likely affect the automakers, their dealers, their suppliers as well as other industries involved in the automotive value chain.  Besides that, the consumers’ interest in EVs has started growing (especially amongst the green consumer). Many people have also started showing interest in autonomous or self-driving cars with the aim of reducing accidents as well as mobility for the handicapped and the elderly.  The success of Uber, Zipcar and Tesla Motors, the increasing expectation of Google’s self-driving cars, and the anticipated entry of Apple in car business are some of the factors that are expected to disrupt the automotive industry. As a result, automakers have invested heavily in research and development (R&D). Because of the potential disruption and challenges that automakers are facing as a result of new business models, technologies, and societal trends, they have started to re-think their approach towards innovation.   Fully Automated Vehicles and Ride Sharing A self-driving car, according to Menk and Patterson (2015), will be one of the main technological innovations that would disrupt and bring major changes in the automotive industry. The automotive future would certainly consist of autonomous vehicle technology considering that the current form of this technology has started moving closer to the mainstream. The autonomous vehicle technology will come into the mainstream by 2025 and once they arrive, the roads would be able to handle traffic volumes; thus, increasing commuters efficiency. Besides that, this technology will eliminate the human factor and this would lead to the reduction in the number of accidents. Well-established companies like Google have invested heavily in self-driving vehicles. Although Google has successfully developed this technology, they are yet to apply it in reality. As mentioned by Menk and Patterson (2015), the Google car has continually been criticised for being ‘too safe’ to the extent that it cannot make split-second decisions that are normally made by humans. Still, Google plans to penetrate the automotive industry using its self-driving vehicle. Ride-sharing such as Uber and Lift is considered as one of the most disruptive innovations in the automotive industry. Since its establishment in 2009, Uber has experienced a huge growth and has been considered as a revolutionary technology that enables car owners to offer taxi services to any person that requests a ride. The service has become common because it is more convenient and cheap as compared to traditional taxi services or using own car. Ride-sharing has made a number of people to give up car ownership; thus, posing a serious threat to the sales volumes in the automotive industry. The convenience of ride-sharing applications, their cheap price and easy availability could convince many people aspiring to own a car to change their minds. For this reason, many automakers are trying to upgrade their car models with the aim of attracting consumers from the younger generation. In recent times, for instance, Ford launched a car-sharing program which will enable people to lend their vehicles to some of its customers in order to enhance their maintenance. In populated cities like New York, Dubai and Beijing, the cost of ride-sharing is much lower as compared to owning as well as maintaining a car. If many people start choosing this cost-effective alternative to owning a car, the automakers will start losing business. According to Jiang et al. (2015), by the end of 2014, the majority of automakers across the globe were manufacturing their own versions of autonomous, self-driving cars. The majority of them have realised that the future of the automotive industry is self-driving cars. Some of the automakers have adopted the incremental approach while others are planning to release a fully autonomous car into the market. Regardless of the approach, the autonomous cars would help reduce traffic congestion and would reduce exhaustion associated with long-distance situations. In the coming years, cars would become self-sufficient and would achieve the fully autono­mous status. In the automotive industry, the key innovation trends according to Selhofer et al. (2012), are established and steered by global megatrends, especially the raw materials shortage as well as climate change. Such megatrends have brought forth challenges in the automotive industry. Pollution and climate change awareness amongst the consumers in the U.S. and Europe; thus, forcing automakers to produce energy efficient cars. Even though the low cost of EVs could be a necessary factor of disruptive strategy, Barkenbus (2009) observed that it was absolutely not sufficient. However, this has changed because people have started buying cars on the basis of careful economic and environmental calculations. Christensen et al. (2016) argued that when performance surpasses the basis of competition, disruptive innovations surface; therefore, the companies’ ability to handle the external complementors would play a crucial role. In the early industry stages of integrating the products and services, the hierarchical control manages the core processes. In this case, Innovation can be considered as a core process through which companies collect and assimilate information from external sources, and could ally for resources that are considered critical. When companies adopt disruptive strategies, their capability to leverage complementors could improve their chances of becoming successful. In view of this, complementors can be managed through innovation contests, innovation ecosystems, developer programs, and engaging with stakeholders. These platforms could result in new market disruption considering that complementor interactions normally introduce new dimensions of competition. Therefore, the production of EVs could be a market disruption of ICE cars that appeals to customer groups who prefer consuming green products. Conclusion In conclusion, this piece has examined the extent to which technological innovation has disrupted the automotive industry. As mentioned in the paper. Technology evolution and products digitalisation in the modern society has enabled a number of automakers to create business models that would allow for the introduction of autonomous, self-driving cars. Technological innovations such as ride-sharing have disrupted the sales volumes of the automakers. The disruptive innovation process has enabled a number of automakers to revolutionise the global markets through innovations to the extent of developing new products that could replace the existing cars, all for a lower cost. This can be evidenced by Apple, Tesla, Google and Uber pursuit of automobile systems. The autonomous initiatives steered by these companies would likely disrupt the automotive industry. Such disruptions would force the current automotive industry leaders to improve as well as re-evaluate their products, or they risk losing out to the new technology-based companies. Without a doubt, the future of this industry is presenting scores of new oppor­tunities and but also challenges. For the incumbents to become the drivers of change and gain from the disruption brought about by the new players, they must make strategically vetted and fundamental decisions now. If they fail to do so, they would lose many customers to the new entrants and could lead to the collapse of the business. References Barkenbus, J., 2009. Our electric automotive future: CO2 savings through a disruptive technology. Policy and Society, vol. 27, pp.399–410. Christensen, C., 2017. Disruptive Innovation. [Online] Available at: http://www.claytonchristensen.com/key-concepts/ [Accessed 25 July 2017]. Christensen, C.M., Altman, E.J., McDonald, R. & Palmer, J., 2016. Disruptive Innovation: Intellectual History and Future Paths. Working Paper. Boston, MA: Harvard Business School. Farhana, M. & Bimenyimana, E., 2015. Design Driven Innovation as a Differentiation Strategy - in the Context of Automotive Industry. Journal of Technology Management & Innovation, vol. 10, no. 2, pp.24-38. Frohman, M., 2014. Applying the Theory of Disruptive Innovation to Recent Developments in the Electric Vehicle Market. Thesis. Ōita, Japan: Ritsumeikan Asia Pacific University. Harvard Business Review, 2015. Tesla’s Not as Disruptive as You Might Think. [Online] Available at: https://hbr.org/2015/05/teslas-not-as-disruptive-as-you-might-think [Accessed 25 July 2017]. Jiang, T. et al., 2015. Self-Driving Cars: Disruptive or Incremental. Applied Innovation Review, 1(1), pp.1-20. Menk, D. & Patterson, J., 2015. Disruptive Innovation and How It’s Changing Automotive. [Online] Available at: http://tradeinvest.babinc.org/ambrit/practical-advice/automotive/ [Accessed 25 July 2017]. Selhofer, H., Arnold, R., Lassnig, M. & Evangelista, P., 2012. Disruptive Innovation: Implications for Competitiveness and Innovation Policy. Policy Brief. Brussels: European Commission. Simoudis, E., 2015. The Innovation-Driven Disruption of the Automotive Value Chain. [Online] Available at: https://corporate-innovation.co/2015/07/04/the-innovation-driven-disruption-of-the-automotive-value-chain-part-2/ [Accessed 25 July 2017]. Read More