Innovation in Driverless Automotive Industry - Literature review Example

INNOVATION IN DRIVERLESS AUTOMOTIVE INDUSTRY

Introduction

Over the past two years, the driverless cars have dominated the headlines, and there is much excitement surrounding the notion of an automobile that does need to be driven by an individual. Earlier in 2015, a car created by Delphi was reported to have completed over 3000 miles road test across the country. And why has the notion of a car without a driver created so much hype? The introduction of the vehicles raises hopes of a safer, convenient and productive transport. It is expected that self-drive cars will significantly reduce accidents while enhancing mobility especially for the sick and the elderly.

All over the world, the innovative technology is been tested. In the UK, the government allowed the cars to be tested on the road. The Lutz Pathfinder was tested in the country while the government spent considerably to ensure they complied with the road rules. Elsewhere in Australia, the government has expressed its willingness to support self-drive cars through legislation and licensing.

Several manufacturers have been dashing to ensure the technology is seamless. Car makers – Honda, BMW and Nissan are all attempting to perfect the technology. The tech industry is also a participant in the market for the driverless vehicle with the most prolific stories coming from Google and Apple. However, the parts manufacturer, Delphi, seems to be leading the pack.

Incremental v/s Radical Innovation

The term innovation can be defined as either doing a new thing or doing something that has already been done in a new way (Gibb, 2002). For the driverless vehicle, it is apparent that it fits more into the former description. Vehicles are not a new invention, but the idea of a driverless car is. When the internet was developed for US military use, it was a new thing. According to Greenstein (2010) the internet improved beyond its prototype status that its use was extended to new users and applications. Likewise, the driverless cars is a new thing that promises convenience, safety and fuel efficiency.

There are various innovation capabilities that firms may possess, and they include unaware, reactive, strategic and creative (Hobday et al., 2004). Most of the supplier businesses in the automotive industry are mostly in the passive category. Likewise, Delphi is a firm which was initially very passive. However, it demonstrated that even the most cumbersome of the firms could efficiently respond to changes. For example, IBM shifted its focus from desktops to business applications. Likewise, Delphi has also demonstrated flexibility in innovation by entering into the driverless market. It has even taken significant steps in the industry becoming the first company to test drive for over 2000 miles without experiencing any problems. In that context, the parts manufacturer has employed innovation as a strategy.

Innovation can either be based on component or even architectural. For component, innovation only affects a small portion of the whole product. For example, component innovation in the computer industry affected chip manufacturing. They were faster and performed better on the board. On the other hand, architectural innovation involves changing the whole system. Using the same example of computers, the architectural innovation occurred when they were changed in structure as a whole. The original size shape was modified considerably. Apple was among the pioneers in the market for handheld devices. Delphi is an established parts manufacturer that has the knowledge and expertise to undertake component innovation. However, they are into architectural innovation. Self-drive vehicles are revolutionary, and most of the functionalities and abilities experience a significant change. Driverless vehicles involve changing several components to make it intelligent and can operate with minimal input from the individual. The innovation process, however, would not be possible without replication of routines that have been found to work. D’Adderio (2014) contends that the successful replication of routines is critical to an organization’s success and profitability. Having the right parts or component innovation does not mean that architectural invention will be successful. The latest successful test drive across the US helped the country collect relevant data that would be used to continue with the research on driverless cars. Such data helps to innovate further and come up with the right product that would lead to sales. When Delphi finds the best way to make the whole vehicle, they will then attempt to find the best ways to do a particular thing. They will make a routine to make consistently the product that would meet the demand in the market. According to Popadiuk and Choo (2006), the division of labor between component suppliers and system integrators is crucial if innovation is to be managed in the right way.

It is essential to distinguish between innovation and invention. Baron and Shane (2008) contend that innovation is when individuals capitalize on the invention. Dodgson et al. (2008) and later Christensen (2011) categorized innovation into two: incremental and radical. Most of the innovations fall into the incremental category, for example, making a phone faster or thinner. Incremental innovation involves upgrading a product that is already on the market. Delphi, a parts manufacturer, did not upgrade the way cars operate but came up with a new way that vehicles could be used. A self-drive car is still an average car but with modifications that make it unnecessary to have a driver. On the other hand, radical changes can be described as ground-breaking. They imply variations in the way a thing works. One company that has been associated with radical changes in the market is Apple (Verganti, 2008; Norman and Verganti, 2014). When the technology firm introduced iPods and iTunes into the market, they were revolutionary in that they started digital music downloads. Dedrick et al. (2009) describe an iPod as small computer usually dedicated to music processing. One distinguishing factor between incremental and radical innovation is the fact the latter is associated with a higher degree of uncertainty (McDermott and O'Connor, 2002). For Delphi, they are not sure how the market for driverless cars will perform. The self-drive cars are thus in the radical innovation category.

There are various reasons that drive a company like Delphi to innovate radically. Successful innovations result in higher margins, improved return on investment, greater productivity, lower costs, increased value addition and expanded sales volume. Taking the case of iPod, Dedrick et al. (2009) contend that Apple’s gross margins for the high-end product were considerably higher than those of their close competitors in the market. Regardless of these benefits, innovation is risky and can lead to significant losses. These risks may include market risks. New revolutionary products are usually accompanied by uncertainties regarding demand and how the competitors would react to that. Additionally, innovation is also associated with technological risks. There is often a general uncertainty as to whether the technology will work as it is supposed in the market. Delphi is very sure that the technology supporting its driverless vehicles will perform well in the market. Other risks are operational, organizational and financial. When all these risks combine, the rate of failure of the newly developed product goes up. Various studies show that innovation is a highly risky business (Evanschitzky, et al., 2012).

Despite the stated risks, then why do organizations choose to innovate? Dodgson, et al. (2008), in their discussions on potential risks and benefits associated with innovation, concluded that it is riskier not to innovate than do so. Christensen (2011) puts the whole issue into context by using the example of Kodak. The original digital camera was invented by Kodak in the year 1975. However, the company chose to bottle up the technology based on the fear that introducing it into the market would significantly affect their other products currently in the market. The decision contributed to their downfall according to Christensen (2011). When Sony together with other competitors designed their own digital cameras, it was already too late for Kodak whose analog offerings were overtaken in the market by the new products. The type of innovation that replaced the analog types of camera is discontinuous innovation. Alternatively, the case of Kodak can be termed as disruptive innovation according to Christensen (2011). The products start gradually from the lower end of the market and replace other more established brands.

In the case of the motor vehicle industry, it is imperative to stay shoulder to shoulder with new technology so that a firm can potentially access the premium market. According to The Economist (2014), are responsible for up to 50% of the profits. Therefore, it is always important to keep that in mind. Delphi together with other companies trying out the self-drive technology is conscious of the potential benefits that a successful new products development can bring. There are significant incentives if a company can enter or increase its share in the motor vehicle premium market. Therefore, like the other firms in the industry, Delphi feels that they must be part the radical innovation and keep up with emerging technologies. The risk of not embracing innovation exposes established players to discontinuous innovation initiated by other companies. It is important that a firm desists from holding on to existing skills and knowledge and improving on the same trajectory. Delphi is at the stage where it has successfully avoided these risks.

Innovation Process Evolution

Delphi Automotive, a parts manufacturer, felt that they needed to be part of the autonomous cars product development so that they can benefit from it. The firm has a wealth of experience in motor vehicle industry, and the idea of accessing the premium market through a self-drive car was appealing. Therefore, their team of engineers worked hard to ensure the notion became a reality. The engineers at the company came up with a new idea of making the current vehicles better. Lately, the company has become the first to test an autonomous vehicle across the US for over 3000 miles. According to Bloomberg (2016), Delphi hoped to capture about two terabytes of data from the test drive. However, the trial was only meant for the highway situation. Other companies like Google have also tested the product on the roads and were involved in a number of problems. Several accidents have been witnessed with other road tests. However, Delphi’s test was successful over a long distance, and that set up for a market introduction in the near future. If the innovation performs well in the market, it will create demand. The process whereby innovation reaches the market by starting in the industry is referred to as technology push (Mohr, et al., 2010; Horbach, Rammer and Rennings, 2012). In cases where a new demand occurs and the firms create products to satisfy it is the market pull. Currently, there is no demand for self-drive vehicles, and the industry has come up with the service in the hope that demand would be created in the process. Technology push and demand pull often follow another. At present, the demand for driverless vehicles can be described as non-existent it thus a clear case of technology push. In customer wants discourses, there are usually arguments regarding latent demand where the consumers are not yet cognizant of. The current car owners may not a car that they do not have to drive themselves but desire higher mobility, fuel efficiency, and greater comfort. If Delphi succeeds in offering autonomous vehicles in the market, they are likely to accrue significant benefits. The companies are racing to be the first-movers so that they may enjoy the advantages of being the first before others join the fray. The second-movers are the enterprises that enter the market after the first organization. The benefits that Delphi will get from being the second-mover include getting the opportunity to learn from the mistakes and successes of the first company. In the context of road testing, Google may have been the first but Delphi’s test was more successful. They may have learned valuable lessons from Google. Thus, it can be argued that being second is better than first when it comes to innovation.

Dittrich et al. (2007) argue that strategic changes are necessary for firms to survive in difficult environments. Some of the challenges include intense competition and rapid technological change. According to Dittrich et al. (2007), there are several ways that strategic changes can be effected and that includes entering into strategic alliances. An example of such a partnership was between Apple and IBM. The objective of the alliance is the joint technological development that would lead to the making of better products (Hagedoorn et al., 2001; Gomes-Casseres, 1997). As an automotive parts firm, Delphi was most of the time under intense competition from new old businesses in the market. Likewise, the rate of technological advancement is a risk to the parts industry. That is because, as new developments in the field come up, the organization is forced to develop new equipment to keep the pace. Delphi realized that it had to enter into a partnership with car makers since it is not itself a vehicle manufacturer. Then company’s current alliance automaker such as Audi is strategic. The partnership has allowed it to innovate in the face of rapid technological change and exploit new capabilities.

Innovation Diffusion and Acceptance

In the late stages of innovation, it imperative that firms in the industry involve consumers. For example, the first units produced should be used to ferry commuters at specific locations and destinations. That would help the company gain insight into their preferences and to gauge how the technology performs in real world situation. The action will be necessary for diffusion which Johnson, et al. (2011) defined as the rate of innovation spread among the users (p. 303). The rate at which people will adopt the technology will determine whether the innovation will be a success or failure. The difference can be illustrated by the difference between the rate of adoption of iPod and television sets. The iPod reached the same amount of units sold that took the television almost four decades. The adoption rate is necessary and is defined as the relative speed at which the members of society accept to use the technology. When it comes to self-drive vehicles, it is quite difficult to estimate the rate of adoption. Rogers (2003) suggested a three-pronged method of attempting to determine it. The first method involves drawing conclusions from the previous innovations that are almost similar in nature. The second approach according to Rogers is finding out about the perceived attributes of the innovation from potential adopters so that they may refrain from relying too much on actual characteristics. The third method involves conducting a study to determine acceptability in the market. For Delphi, any of these methods can apply, but the third one is the most appropriate. However, none of them are perfect given that consumers’ intention to purchase may vary significantly with their eventual resolve to buy (Arts, et al., 2011). People may rate the idea of having a car that drives itself profoundly and may even desire owning. However, when the time comes to buy the product, they are not confident enough or uncertain about having such a car. Therefore, the behaviors of the consumer following the introduction of the technology into the market are highly unpredictable.

Conclusion

The process of innovation has both benefits and disadvantages. For one, firms must ensure they innovate because failing to is risky. Kodak is a great case of a company that shelved the digital camera invention and was overtaken by other. Delphi has taken necessary steps to develop the driverless vehicle in the market. It has entered into strategic alliances and committed resources to ensure they benefit as first-movers in the market. It has gone through different stages and is almost on the last one before they can introduce the product to the market.