The Process and Strategy of Innovation in the Automotive Sector - Essay Example

Innovation in the Automotive Sector Innovation in the Automotive Sector Introduction The process of innovation generates value bycreating, developing and implementing new technologies in products and services (Smith 2010, p. 14). The automotive industry has been innovating in many areas not only for maximising returns and profits for shareholders but also increasing market share and consumer satisfaction. This has mostly been in the form of cost and functional innovations that target specific market segments, driven by fashion, individual choice, mobility and comfort. However, one key concern that has driven innovation in the automotive industry is the environmental factor coupled by regulatory requirements. Companies such as Ford, Volkswagen, General Motors and Google have embraced the concept of renewable and sustainable energy not only to be efficient in managing business demands but also adapt to the changes and opportunities of dynamic markets (Smith 2008, p. 103). Further, some manufacturers are not only developing vehicles that run on alternative fuel but are also developing manufacturing plants that run on alternative energy. However, it is also acknowledged that this innovation is still not fully developed but the increasing prices of fossil fuels and evolving customer choices are some of the factors driving it to full implementation. This paper will discuss and critically analyse the innovation strategy and process as has been witnessed in the automotive industry. The automotive sector is made up of companies that manufacture, service, design, sell and market vehicles, representing a highly fragmented and complex supply chain. The activities of this supply chain account for 25% of the global energy consumption (Tziovaras 2011, p. 30). In the 20th century, landmark vehicle production started when the assembly line was introduced. Later, as the innovation process progressed, modular platforms evolved and were characterised by robots and just-in-time production. In that era innovations were mainly in functionality, reliability, safety and costs. However, in the 21st century, innovations in the automotive industry are mainly driven by responding to the social and environmental changes. The shift towards the greening of the automotive industry is typical of disruptive innovation because the technology has the potential to apply new sets of values and create a new market with the ability to overtake the current market (Zeleny 2009, p. 9). The innovation may not have reached the desired level of use, but the European Emissions Standards introduced in 1993 are among the legal frameworks in place to push such innovations. By 2014, the industry had adopted the sixth (Euro6) generation of the standards. This strategy was informed by the knowledge that road transport accounts for up to 20% of the total carbon dioxide emissions and 12% of that are from passenger cars alone. Therefore, the focus of future development is on increasing the segment of alternative energy in the automotive industry. This has given rise to new business trend in which vehicle manufactures are running their business and planning future and long-term strategies that point towards investing in renewable energy (Zeleny 2009, p. 14). In this sense, Volkswagen has been the most aggressive manufacturer by far after it invested in two North Sea wind firms in its initiative towards renewable energy objectives. Such innovations not only hedge the automotive sector against the volatility of energy prices in future but also take advantage of the increasingly developing wind power sector. The United Nations’ ambitious goals vested in the “Sustainable Energy for All” initiative have encouraged the automotive sector to take advantage of the opportunities to contribute to social and environmental causes. The sector consumes considerable amounts of energy to manufacture its products and also emits toxic gases and waste products. However and more importantly, it has the capacity to use the design of its products to determine how energy will be consumed by end-users as they use the products. This places the automotive sector at the forefront in research and development of innovative energy efficient technologies and alternative fuels by creating next-generation vehicles (Smith 2010, p. 9). This has resulted in key innovation trends to address opportunities of sustainable energy. There have been technological advances such as downsizing and turbo charging that have improved conventional internal combustion engines aimed at fuel efficiency. Then, there are also hybrid technologies deployed in large vehicles while vehicles are made lighter by using materials such as carbon fiber and aluminium. Then more recently, alternative and advanced fuels have been developed and mainly include gaseous fuels, sustainable biofuels and electricity. For example, by 2011, the Chinese automotive industry was already producing half a million units of alternative energy vehicles per year. This number represented a combination of all-electric, methanol/ethanol, gas/hybrid and electric/hybrid vehicles. In the US, General Motors had at the same time retrofitted a manufacturing plant in Michigan 40% of its operations could be fueled by landfill gas. The automotive industry has been regaining stability and profitability since the 2008 financial crisis, albeit at a slow pace, and vehicle manufacturers have been growing and becoming more complex. This means that it has also been increasingly difficult for them to align and integrate different functions of their businesses because of budget constraints and the need to focus on the large industry. However, the emphasis on renewable and sustainable energy by environmentalists has presented the opportunity to become innovative and plan strategically for future profitability (Black 2006, p. 114). The emphasis motivated manufacturers to produce vehicles with improved fuel efficiency and economy by manufacturing vehicles that can use more than on energy source. To ensure that their investments in the innovation earned maximum returns, the automotive industry embarked on aggressive initiatives to raise awareness of the benefits fuel flexibility in vehicles. That also triggered the conversion of production processes and manufacturing plants to ones that used renewable energy and recycled waste materials and byproducts (Oliver 2006, p. 229). A specific example is the manufacturing plant set up in Morocco in 2012 by an alliance between Nissan and Renault, key players in the automotive sector. Fully embracing the innovation, the plant is the first in the world with zero effluent and zero carbon emission. Compared to a plant with a similar capacity of producing 400,000 units per year, that represented 98% reduction in emissions and 70% reduction in water consumption (Abood 2012, p. 12). Even though it is still taking shape, the innovation is already realising substantial savings in energy by combining best practices with innovative technologies in order to recover energy in paint shops. Some manufacturers are using biomass boilers to produce superheated and high-pressure water for the painting process and other manufacturing processes. For example, the Renault-Nissan plant in Morocco runs the biomass boilers on fuel generated from olive stones sourced locally and electricity is generated by wind and hydraulics (Abood 2012, p. 12). This innovation has seen more manufacturers aiming at producing vehicles at sustainable plants that feature waste reduction. For example, Toyota’s president announced that the company believes vehicles that use green energy should come from green manufacturing facilities. To that end, the company has developed six facilities in different countries that use renewable and sustainable energy. These are designed to fully use natural resources and exist harmoniously with the environment. Toyota’s innovation mainly includes developing low-carbon manufacturing technologies and planting trees around their factories. Another Japanese manufacturer, Honda, developed a test track facility that has 70,000 solar panels (Levy 2011, p. 47). Apart from powering the facility used for car development, the company also sells excess renewable energy. This innovation has seen an increasing number of vehicles and facilities that have less harmful environmental impacts than conventional ones that run on gasoline and diesel. However, the conventional vehicles can also be turned into greener vehicles as the innovation has enabled the mixing of renewable fuels with fossil fuels. This is a new value that targets the environmentally conscious market. The key benefits to be realised from the initiative to go green by the automotive sector are environmental, health and monetary (Chesbrough 2003, p. 39). Environmentally, vehicle emissions still contribute considerably to the concentration of gases that, in turn, contribute to climate changes. For example, in the UK, the automotive industry is the third-largest source of emissions. Health wise, studies have linked vehicle pollutants to ill health including cancer, cardiopulmonary and respiratory diseases that account for more than 30,000 premature deaths in the UK alone. In the whole of Europe, 13,000 children aged below four die annually because of outdoor pollution (Levy 2011, p. 91). In monetary terms, operators of hybrid taxis in New York and the vehicle manufactures that are already using facilities with renewable energy have reported that the reduced consumption of fuel has saved them thousands of dollars. Criticism However, this innovation has not been without criticism. Some studies have suggested that manufacturing, shipping and disposing of some types of vehicles that use renewable energy is extremely expensive. Coupled by the short life of these vehicles, the reduced environmental impacts are said to still outweigh any energy saving the vehicles achieve. However, when this opinion is critically analysed and also judging by the response from consumers, it can be shown to e be premature as the technology is still undergoing innovation at a rapid pace (Smith 2008, p. 32). The European Union is aggressively promoting such vehicles in conjunction with manufacturers using both nonbinding and binding measures. For example, by 2010, the union was providing consumers with tax incentives for vehicles that were electrically chargeable and others that used alternative fuel. The improved fuel economy realised by the automotive industry has created revenue growth, brand enhancement and better risk management (Moore 2006, p. 43). Further, the development of energy efficient manufacturing facilities has achieved cost reductions. It should be acknowledged that the initiative is a long-term strategy. It aims at ensuring consumers have a universal access to contemporary energy services, increase the rate of improving energy efficiency and increasing the global share of renewable energy. A study by the United Nations supporting the initiative reported that the global fleet of passenger vehicles will double by 2035 and exceed 1.7 billion units (Dannenberg & Burgard 2015, p. 6). This is set to drive oil consumption to a higher level despite the ongoing gains in fuel economy, and the deployment of vehicles that use renewable energy will impact positively on the negative aspects of fossil fuels. This disruptive innovation is technologically straightforward and consists of components put together in the architecture of vehicles that will offer better value for consumers (Roy 2014, p. 98). Vehicles powered by conventional fossil fuel store the fuel in metal tanks while electric vehicles store energy in batteries. This means that battery technology is improving, although the manufacturers of the batteries are also facing challenges. For example, the durability and safety of the batteries in real-life use has been questioned by critics. However, to address this challenge, General Motors produced an electric plug-in vehicle in 2010 that was not only affordable but stored energy longer in lithium-ion batteries (Tziovaras 2011, p. 31). From the business perspective, this was a positive addition to the supply chain because General Motors become the largest single buyer of lithium-ion batteries in the world, buying the product from Asia. Conclusion It has been shown that the process of innovation generates value by creating, developing and implementing new technologies in products and services. In the automotive industry, innovation has not only targeted maximising returns and profits for shareholders but also increasing market share and consumer satisfaction. This led to the innovation of flexible-fuel vehicles based on the global concern of climate change. Taking advantage of the business opportunities presented by an environmentally conscious market and supported by law in certain jurisdictions, manufacturers are steadily embracing the innovation, and this is not only in their products. As the manufacturers produce more vehicles that run on technologies and fuel other than fossil fuel and internal combustion engine, they are also developing facilities in which they design, manufacture and assemble vehicles using renewable energy. However, the innovation has also come under criticism because of the high production costs and the relatively short life of the vehicles. Although these have been claimed to outweigh the energy saving initiative of the whole idea, it can also be argued that the technology is still evolving. 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