Radical innovations introduced by large
established automotive firms
Master Thesis
MSc Strategic Innovation Management
Student name: Mirza Selimovic Student number: S3273636
MSc: Strategic Innovation Management Supervisor: Prof.Dr. Dries Faems
Co-supervisor: Prof.Dr. Thijs Broekhuizen
Date: June 25, 2018
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ABSTRACT: In this paper, we focused on radical innovations introduced by large established firms
in the automotive industry. We focused on the automotive industry because of the characteristics of that particular industry, which should act as barriers to radical innovation and should lead to technical inertia. However, the current developments show that the large established firms actually do invest in new and alternative technologies. Thus, we have researched what factors influence the introduction of radical innovations by incumbent firms and which innovation activities they perform. We also linked the activities to the influencing factors. We have analysed three firms and conducted eight interviews about the automotive industry. We found that the external factors law and regulations, competition, customer demand, and internal factors previous investments, fear of damaging reputation, and building reputation influence the introduction of radical innovations by incumbent firms. In addition, our findings show that even though large firms prefer not to invest in new and alternative technologies, they are in a way forced to keep up with the latest developments because of the six influencing factors. Moreover, incumbent firms are usually not the first to introduce radical innovations. Their strategy is to keep up with the latest developments by collaborating with external organisations, who usually are the first to develop radical innovations. Afterwards, they introduce the innovation when the technology is more matured and accepted by customers.2
1. INTRODUCTION
Radical innovations are a precondition to being able to survive in an intense market with global competition and achieve long-term success (Levinthal and March, 1993). A shared thought in the field of innovations is that large incumbent organisations infrequently introduce radical innovations. These large organisations have difficulties with exploring new domains and remaining innovative, even though these large organisations can invest sufficient resources. In the field of innovation, this is known as the "incumbent's curse" (Chandy and Tellis, 2000). According to Chandy and Tellis (2000), these incumbent firms are so infatuated with their current success and are hampered by their current routines that they fail to introduce the next generation of radically new products. In addition, other studies have argued that the efforts of incumbent firms, concerning radically new technologies, are characterised by "underinvestment" and "incompetence" (Henderson, 1993). The study of Ghemawat (1991) argues that because of their large investments in existing markets or products, large incumbent firms are susceptible to "technological inertia". Thus incumbent organisations tend to introduce more incremental innovations.
An industry where the "incumbents curse" and “technological inertia” evidently should be noticeable is the automotive industry. It should be noticeable because of the characteristics of the automotive industry, which should act as barriers to radical innovation. Innovation in the automotive industry is highly institutionalised, for example, the car models are scheduled for replacement on a regular basis for technological updating (Townsend et al., 2014). The industry is associated with mass efficient production characterised by the all-steel-body structure and high capital intensity (Ceschin & Vezzoli, 2010; Zapata et al., 2010) and their primary source of profits is the sales of vehicles (Wells, 2006). Therefore, future technology choices in the automotive industry are highly depended on existing cost consequences and amortisation of sunk costs. Thus if a future technology choice requires the premature abandonment of existing high capital intensive systems or the introduction of an alternative high capital intensive systems, the chances are high that large organisations in the automotive industry will show resistance because it also brings the risk of cannibalisation of past
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Looking at the characteristics of the automotive industry, the incumbent firms in this industry should correspond with the findings of the study of Henderson (1993) who argues that the efforts of incumbent firms, concerning radically new technologies, are characterised by "underinvestment" and "incompetence", and with the study of Ghemawat (1991), who argues that because of large investments in existing markets or products, large incumbent firms are prone to "technological inertia". However, the automotive industry is transforming recently, and the dominant trends in this transformation are radical innovations such as autonomous driving, alternative powertrains, and connected mobility. Because of the trends in the automotive industry; customer needs and business models are changing, new competitors are entering the market from other industries, there are shorter innovation cycles, there are more radical innovations, and the introduction of new core competencies requires even more capital than before (European Commission, 2017). All these trends in the industry provide new challenges for the automotive industry (Mckinsey&Company, 2016; PWC, 2017). The incumbents in the automotive industry such as BMW and Volkswagen are preparing themselves to be able to compete in the near future by investing more in R&D regarding new and alternative technologies (BMW, 2018; Volkswagen, 2017). In addition, the 2017 Global Innovation 1000 study placed six large established carmakers on the list of top 20 R&D Spenders, in which Volkswagen is ranked second on R&D expenditure. In the year 2017, Volkswagen has spent 15.1 billion on R&D, and approximately 4.4 billion in 2004 (Businessinsider, 2017). Moreover, more car manufacturers such as BMW and Volkswagen are now also on the lists of most innovative organisations. For example, in 2013, fourteen large established carmakers where among the top 50 most innovative companies in BCG's survey, compared with only five in 2005. BCG‟s survey draws on several sources, including an analysis of patent filings, the results of a U.S. consumer survey, R&D spending, and an annual study of the world‟s most innovative companies (BCG, 2014).
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investments and where the decisions are largely made on their capital intensity, which should lead to "technological inertia" according to Ghemawat (1991). Thus, the goal of this study is to understand why we see large established firms introducing radical innovations and how they introduce radical innovations. To achieve our goal, we will focus on the external and internal factors that influence the introduction of radical innovations by large firms. This will enlarge our understanding as to why incumbent firms are introducing radical innovations. By focusing on the activities the incumbents perform, we will provide a clearer view of the innovativeness of incumbents in the industry, which activities the incumbents are performing because of the previously elaborated factors, and how they are connected with each other. With this study, we aim to enlarge our overall understanding of incumbents and radical innovations. Thus, we have stated the following research questions:
1) What factors influence the introduction of radical innovations by large established firms in the automotive industry?
2) How are large established firms in the automotive industry introducing radical innovations?
5 innovation departments, and teams.
The paper is structured as followed. First, we provide a theoretical framework which discusses previous research and their findings regarding radical innovations and incumbents. Afterwards, we elaborate on the research approach. In the fourth section, we present the findings. In the fifth section, we provide the discussion, managerial and theoretical implications. Finally, we elaborate on the future research possibilities and limitations.
2. THEORETICAL FRAMEWORK
This section elaborates on previous research and their findings regarding radical innovations and incumbents. The findings of previous studies are applied in the automotive industry to find out the similarities. In addition, the theoretical framework also defines relevant key concepts regarding radical
innovations and incumbents.
2.1 Radical innovation
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We focus on radical innovations, and we use the definition of Chandy and Tellis (1998) to have a clear definition of radical innovation. We will use the definition of Chandy and Tellis (1998) for radical innovation because we build on a significant amount of theory produced by their paper. They define radical innovation as “A new product that incorporates a substantially different core technology and provides substantially higher customer benefits relative to previous products in the industry” (Chandy and Tellis, 1998, p. 2). According to the literature, some large organisations struggle to introduce these radical innovations, and they call it the "incumbents curse".
2.2 Incumbents
In this paper, we focus on incumbent firms in the automotive industry. Incumbency of a firm reflects whether the firm has participated in the previous generation of products. An incumbent is usually a large established firm that has manufactured and sold products belonging to the product generation that preceded the radical product innovation (Chandy and Tellis, 2000). These incumbents have difficulties exploring new markets and remaining innovative, even though these incumbent firms can invest sufficient resources. In the field of innovation, this is known as the “incumbent‟s curse”. The incumbents are so infatuated with their current success and are hampered by their current routines that they fail to introduce the next generation of radically new products (Chandy and Tellis, 2000).
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and Tellis, 2000; Henderson, 1993). However, the efforts of incumbents in introducing new alternative technologies are characterised by underinvestment because of their large investments in existing markets or products. Thus, large incumbent firms are prone to “technological inertia” and do not want to invest in new technologies (Henderson, 1993). In sum, because of perceived incentives, organisational filters, routines and procedures, and previous investments, incumbents are reluctant to introduce radical innovations, and tend to introduce more incremental innovations.
2.3 Automotive industry
An industry where the “incumbents curse” and “Inertia” should be noticeable is the automotive industry. This is because of the characteristics of the particular industry which also act as barriers to radical innovation. The automotive industry is known for their mass efficient production characterised by the all-steel-body structure and high capital intensity where the decisions are largely made on their capital intensity (Zapata et al., 2010). Therefore, future technology choices are highly depended on existing cost consequences. Moreover, the car models in the automotive industry are scheduled for replacement on a regular basis for redesigning the exterior, technological updating, as well as rightsizing of production and strategic repositioning, which is more an incremental innovation (Townsend et al., 2014). Thus, because of these characteristics, if a future technology choice requires the premature abandonment of existing high capital intensive systems, or the introduction of alternative high capital intensive systems, the chances are high it will meet resistance from the large organisations in the automotive industry (Zapata et al., 2010). In sum, the automotive industry is characterised by high capital intensity, large previous investments, high dependence on costs, and efficiency.
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increasing R&D expenditures in new and alternative technologies, and ranking among the top R&D spenders (BCG, 2014; Businessinsider, 2017), which is contrary to the findings of Ghemawat (1991) and Henderson (1993). Thus we focused on why we see these developments and how these incumbents in the automotive introduce radical innovations because of these developments.
3. METHODOLOGY
This section presents the methodological approach of the study and will elaboration on how we collected and analysed the data.
To answer the research questions, we found qualitative research to be the most suitable because qualitative research has the ability to give meaning and underlying reasons as to why and how incumbents introduce radical innovations (Gephart, 2004). In addition, qualitative research is also appropriate to study and theorize about strategy decisions because qualitative data have particular strengths for understanding reasons. The strength is the capacity to capture phenomena in rich detail (Langley et al., 2011). In addition, we analysed press releases and annual reports to gather information about historical decision-making patterns and radical innovations activities. This information provided additional information regarding the questions why and how incumbents in the automotive industry are introducing radical innovations. We also performed literature review to link theory to practice, and steer the research. The next two sections will elaborate more broadly on the data collection and data analysis.
3.1 Data collection
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conducted interviews with individuals that have multiple years of work experience in the automotive industry or are currently working for a large automotive organisation. These interviewees consist of automotive innovation managers, automotive consultants, and strategic automotive advisors. The interviewees have been selected because of their relevant functions and work experience, which makes them suitable for gaining knowledge about the automotive industry. Semi-structured interviews were appropriate for this research because it allowed us to go deeper in to certain topics when necessary, which gave a more clear understanding about the underlying reasons as to why and how incumbents introduce radical innovations (Blumberg et al. 2014). We used secondary data to gather information about historic decision-making patterns and radical innovations activities. The gathered secondary data also helped us formulate questions for the semi-structured interview. We also conducted a literature review to increase validity of the research, link theory to practice, and to steer the research.
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3.2 Data analysis
For the literature review, we documented 1) the search terms, 2) the sources, and 3) the results (Wolfswinkel et al., 2013). To select the right papers, we used relevant search terms, checked forward and backward citations, filtered out doubles, and we set aside papers by virtue of not fitting criteria and quality (Wolfswinkel et al., 2013). The search terms are related to the topic and research questions of this research. Also, we used an asterisk to find more articles related to the word but formulated differently. We controlled the quality of the paper by looking at the impact factor, citations, and if the content has significant value for the research. After the search process, we found and used 33 relevant articles. The process is shown in figure 1. The coding of the literature existed of open coding (conceptualising and articulating the often hidden aspects), Axial-coding (identifying the interrelations between categories and their sub-categories), and selective-coding (identifying relations between the
main categories) (Wolfswinkel et al., 2013).
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configure the data into a sensible visual aid. It also provides a graphic representation of how we progressed from raw data to terms and themes in conducting the analyses.
In addition, we sorted the results of the analysed innovation activities of three incumbent firms in figure 4.0. This figure provides an overview of the innovation activities that the incumbents are performing. The figure presents three different tables of three different analysed firms. We have sorted the activities in a 3 x 4 dimension matrix. On the left row the dimensions are sorted based on the goal of the activity. The top row exists of four dimensions and is sorted based on the organisational proximity. By sorting the activities based on these dimensions, we can group the activities in categories which provide a better overview of the types of activities incumbents perform, and we can link the activities to the factors that are influencing incumbents to innovate. To find these links, we conducted within-case analysis and a cross-case analysis for the secondary and primary data to find patterns. Finally, we compared the analysed data with the existing literature.
4. FINDINGS
“Driverless vehicles will change the world, just as cars did before them” (The Economist, 2018)
A quote from the Economist about the introduction of driverless cars and their impact on the industry. When searching for information about radical innovation in the automotive industry, one will be very quick to find information about driverless vehicles, connected (E-)mobility, smart cities, and alternative powertrains. These are all new innovations that are going to change automotive industry, and the incumbents of the automotive industry are also fully aware of the impact these innovations bring and are preparing themselves for the future. The CEO of Volkswagen stated:
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This quote states that incumbents need to change if they are willing to compete for the long term. In addition, we have asked eight interviewees if they think that the incumbents have become more innovative and changed their strategy by investing more in radically new and alternative technologies. All interviewees agreed that the incumbents invest more in radically new and alternative technologies and also have become more innovative than, for example, ten years before. Thus, to find out why incumbents invest more in radically new and alternative technologies, we have discussed the factors that influence the introduction of radical innovations, and the innovation activities of incumbents.
4.1 The external factors influencing radical innovations
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Figure 2 focuses on the external factors influencing radical innovations. In the next section, the themes will be elaborated.
4.1.1 Laws and regulations
When asked the question: “Why are large organisations innovating in the automotive industry?” law and regulations are one of the most frequently given answers. Seven of the eight interviewees argued that law and regulations have a significant influence on why incumbents are innovating. One agreed that it has some influence, but not as much as believed by others. However, in overall law and regulations do seem to have a positive effect on stimulating radical innovation by incumbents. An interviewee explained that an average car with a certain amount of weight is not allowed to have a certain amount of emission in the near future. So you see especially that the larger cars manufacturers are struggling to meet those guidelines. Thus they try to introduce alternative powertrains. In addition, other interviewees also argued that regulations encourage organisations to re-develop technologies to meet the newly introduced guidelines regarding the reduction of emission. Besides the reduction of emissions, the interviewees also mentioned that cities and regions are introducing more emissions-free zones, and governments are prohibiting certain cars with certain fuel from entering specific locations. An interviewee mentioned: “In the past, you did not buy a green vehicle for fun, but it was made fiscally attractive. Now for example, at certain places in Norway, you are allowed to drive on the bus lane” (Interviewee 7). According to several interviewees, if the incumbents want to compete in the industry, they have to introduce cars that can enter these cities and offer these advantages, because this is the future. If the incumbents do not deliver these advantages, they will have a competitive disadvantage.
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stricter, more zero-emission zones are being introduced, and it is becoming more attractive to drive zero-emissions cars.
4.1.2 Competitive environment
Together with law and regulations, the competitive environment is the most frequently given answer to the question of why incumbents introduce radical innovations. Seven of the eight interviewees gave competition as an answer. One interviewee mentioned that the world is changing and incumbents need to stay alert. The competition is increasing, and more start-ups in the market are introducing radical innovations in the automotive industry and are challenging the industry. Another interviewee mentioned:
There are so many start-ups and scale-ups that they (incumbents) really woke up, thinking: ooh this is now a serious market, we really have to do something now. So in the last ten years, they are innovating more, and before they really did very little and preferably as little as possible was my idea. Now they are awake. Now I think they will think for a while before they go to sleep and do nothing (Interviewee 8).
The incumbents are concerned with retaining their market share, and also want to play a part in the new developments. According to an interviewee, there is so much development going on, that it is going to nibble the old system down. The incumbents do not want to gain a reputation as a firm that is lacking behind. So they are watching all current developments and trends. If they see potential, they need to make a bet the horse decision, because if you do not hook up and miss the boat, then you are the "loser". In addition, there are market challengers like Tesla who are introducing radical innovations and challenging the current industry. One interviewee mentioned:
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These new developments, start-ups, and market challengers are pushing the incumbents to change their strategy and to invest in new and alternative technologies, to be able to compete in the market. Visiting the website of BMW or Ford, one will find a considerable amount of information regarding the new technologies they are developing and innovation activities they are performing to show the world that they are still in the race.
4.1.3 Customer demand
During the interviews “customer demand” was also provided as an answer to why there are more radical innovations like alternative powertrains being introduced by incumbents. Customer demand is an important aspect for the incumbents. One interviewee mentioned:
For those big car companies, they say if there is not a demand we do not make those cars. It is difficult to predict the market. It is a big risk of course if you make cars that nobody wants to buy (Interviewee 8).
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development of the technology, and the increasing trend to live greener, it has become more attractive for the customer to buy cars with alternative powertrains. This has led to an increase in the customer demand.
4.2 The internal factors influencing radical innovations
The next section will elaborate what internal factors influence the introduction of radical innovations. Figure 3.0 shows the data structure of the research regarding internal factors. The first-order concepts of the internal factor are again quotes from interviews about the automotive industry. We grouped these quotes also into second-order themes, which led to an aggregate dimension. We will elaborate on the themes separately.
4.2.1 Previous investments
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You do not want to throw away the knowledge by introducing another transition/technology. The big cars manufacturers have invested a lot in their current technology, have bought the machines that are good for many years, and have trained their people to use the technology. If they strive for another transition/technology in one go, then they throw away a lot of money (interviewee 1).
According to the interviewees, this also one of the main reasons why incumbents usually are not the first to introduce radical innovations, like for example alternative powertrains. By introducing alternative powertrains, the incumbents would cannibalise previous investments. Thus they try to stall the new regulations from happening too soon. An interviewee mentioned that incumbents even have lobbyists in Brussels who, for example, ensure that the requirements are weakened regarding emissions. Thus the incumbents do introduce radical innovations however they want the transition to happen slowly. For example, Volkswagen tries to make the transition in using alternative technology by optimising the current technology to realise cost reduction and invest that money in the alternative technology. On the website of Volkswagen, they mentioned that becoming one of the world's leading providers of sustainable mobility calls for substantial capital expenditure. This expenditure is to be funded primarily through efficiency gains across all brands and functional areas. Thus, we see incumbents investing in radical innovations and switching to alternative technologies, but they do it slowly and try to prevent cannibalisation as much as possible. Therefore, they usually are not the first to introduce these innovations, and sometimes even try to delay new regulations. However, they do not want to stay behind and be labelled as the not innovative type and thus introduce radical innovation. This has to do with their image and reputation. The next section will elaborate on this topic.
4.2.2 Fear of damaging reputation
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usually not the first one to create alternative technologies and introduce them on the market, and this has to do with their reputation. Incumbents are careful and do not want to damage their reputation by introducing technologies in the market that are not working correctly. They usually wait until the technology is more developed, and when they are confident that the technology is going to be the future, they will invest in that technology and introduce it on the market. An interviewee mentioned: "For the incumbents, it is of course also their image and the reputation that can work against them because people know the incumbents of their good solid models" (Interviewee 8). This is also a reason why the incumbents are usually not the first to introduce the technology. However, when the technology is more developed, and they believe that the technology is going to be the future, they innovate and introduce models that are of high quality. The incumbents invest a lot of time and resources to develop that technology so that the technology becomes of high quality and does not damage the reputation. Therefore, the reputation makes the incumbents hesitant to be the first to introduce radical innovations. However, when they innovate, they introduce technologies of high quality because of their reputation.
4.2.3 Building reputation
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Large car manufacturers are not going to think of the new materials, but they are busy with innovation, they are constantly using the radar, their own radar, watching what happens, what are the start-ups doing, how can we improve our product, conversations with suppliers, who re-challenge the car manufacturers (Interviewee 4).
When the incumbents notice that customers positively receive the innovation, they try to introduce similar innovation and show the world that they can introduce these innovations as well to protect their reputation.
4.3 Innovation activities
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21 4.3.1 Incubation
We classified most activities as incubation. BMW has 6 activities we classified as incubation. FORD has 4 activities that we classified as incubation. Finally, Volkswagen has 3 activities that we classified as incubation.
Universities
Looking at figure 4.0 it is noticeable that all three organisations collaborate with universities. For example, Volkswagen Group and Stanford University have been working intensively with experts from Aurora to integrate Aurora‟s self-driving system including sensors, hardware and software, such as machine learning and artificial intelligence technology in Volkswagen Group‟s vehicle platforms (SmartCitiesWorld, 2018). BMW worked with LA University students on creating new concepts for a future vehicle interior whose occupants would no longer be shackled by the need to drive, and they are also working with several different universities to develop new technologies. Finally, Ford is collaborating with St. Petersburg State Polytechnic University to observe orbital robot communications and explore new ways to create connections between vehicles and roadside infrastructure, such as traffic signals. All three organisations are collaborating with universities to gain new knowledge regarding new systems and to develop new technologies.
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for the development for radical innovations. We classified collaborations with universities are classified as boundary crossing and outside the firm, which confirms the impression given by the several interviewees that radical innovations are usually not primarily developed by incumbents themselves.
Innovation office
Another activity classified as incubation that is used by all three organisations is the opportunity to submit innovative ideas or designs. BMW has the Virtual innovation agency. According to BMW, their task is to ensure that the BMW Group maintains its innovative drive and technological leadership over the long term. They try to achieve this by continually looking for new and unconventional ideas for every aspect of future mobility. This process includes extending the focus beyond their own research and development projects to include the creative ideas of consumers. Ford has the Consumer innovation office. On their website, consumers can follow a couple of instructions to submit their idea. They also mention that they have strict processes that balance both interests of the consumer and Ford. It is also possible to submit innovative ideas or designs at Volkswagen. Volkswagen has an e-mail where the consumer can send in their ideas. All three organisations communicate this possibility differently to the consumer. BMW has the most inviting page, followed by ford. The least inviting page is that of Volkswagen.
This activity is classified as an outside activity and corresponds with the statements of several interviewees who mentioned that incumbents usually are not the first to come up with the innovation. Instead, they are watching all the new developments and when they see potential they invest in the new technology. With the use of these innovation offices, the incumbents try to keep abreast of all innovations by making it possible for consumers or start-ups to submit the ideas.
Departments and Teams
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2018). BMW has the Institute for mobility research, which is a research facility of the BMW Group. The research facility focuses on developing new innovative technologies in the domain of mobility and transport. They aim to make a contribution towards ensuring sustained mobility in the long term, in a diverse and demanding environment (IFMO, 2018). Finally, Volkswagen has also their own research and development department which will develop fully autonomous vehicles with self-driving systems in-house from 2021. The investment program hired around 1.000 additional software specialists (Volkswagen, 2018). All three organisations have their separate departments and teams focusing on developing new technologies. We linked this activity to the internal influencing factor “reputation” elaborated in the previous section, which influences the large organisations to not wanting to stay behind. All three organisations are investing organisational resources, like departments and employees to develop technologies that show that they are not staying behind and that they are also introducing the newest innovations.
Additional innovation activities
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We classified several activities as both incubation and acceleration. BMW has 3 activities that we classified as both incubation and acceleration. FORD also has 3 activities that we classified as incubation and acceleration. Finally, Volkswagen has 7 activities that we classified as incubation and acceleration.
Innovation Centres
The first noticeable innovation activity classified as incubation and acceleration are the innovation centres. All three of the organisation have an innovation centre. BMW has the autonomous centre where more than 2,000 BMW employees work on developing and road-testing driverless cars. In addition, BMW also has the BMW Lab where employees work together with customers to gain their input regarding connect vehicles. Ford has a Research and Innovation Center in Palo Alto, advancing the Ford Mobility initiative by accelerating innovation in connectivity, mobility, autonomous vehicles, the customer experience and big data. Finally, Volkswagen has three future centres in Germany, USA, and China, where designers and digital experts are working together on the vehicles of the future. The difference between the three organisations is that BMW has an autonomous centre that is only focusing on autonomous driving, and a BMW Lab that is only focusing on connected vehicles. However, both Ford and Volkswagen have innovation centres that focus on multiple innovations. We linked these activities to the statements of interviewees that the large established firms do not want to stay behind, and thus try to develop their technology to stay in the race. By having these innovation centres, the three large firms try to develop innovations which make them able to still compete in the future market.
Departments and Teams
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engineers and designers who are finding new ways to integrate digital technology into the F-150. Finally, Volkswagen has the Group Digital Services Committee who are developing and expanding smart mobility offerings. Thus all three organisations have a separate unit that is focusing on developing and accelerating innovations. Having separate units and departments for innovations is a strategy incumbent‟s use according to an interviewee.
The organisations are mainly splitting low-speed activities with high-speed activities, what do I mean by that? For example, everything about software development has a very different Speed level than developing a fuel engine. The companies are also preparing for
developments such as electric driving and autonomous driving, and also for these developments you see activities that fit well with the current processes and activities that do
not fit well. So you see that those activities are going to be split (Interviewee 4).
Thus by splitting their activities, the incumbents are trying to improve their efficiency.
Collaboration with cities and partnerships
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Volkswagen, they do not mention that the partnerships will be served to come up with new technologies. In the next section, "acceleration" will be elaborated more broadly.
4.3.3 Acceleration
We classified several activities as acceleration. BMW has 3 activities that we classified as acceleration. FORD has also 3 activities that we classified as acceleration. Finally, Volkswagen has 2 activities that we classified as acceleration.
Partnerships
BMW and Ford both have partnerships to accelerate their innovation process. BMW, for example, has entered into a partnership with Intel and Mobileye under which the companies are working to develop a scalable system that can be adopted by carmakers to pursue state-of-the-art autonomous designs. Ford entered into a partnership with Baidu, an open platform that is said to help its partners accelerate the development of their autonomous driving systems. However, as mentioned in the previous section, Volkswagen has mentioned entering partnerships, but to both source innovations and to further develop innovations. The partners in the mentioned collaborations are from a different industry. An Interviewee also mentioned during an interview that innovations often originate from different industries and that these innovations also often can be implemented in the automotive industry. Thus these incumbents collaborate with partners like Intel to implement innovations that were invented in a different industry to improve their products.
Departments and Teams
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consortium that aims to accelerate the development of fully driverless cars by 2021. Ford has the HP Fleet Insights, a project to collect and analyse data from HP's corporate fleet of cars, which will serve to create connected vehicles. Volkswagen also has the centre of excellence which aims to become a technology leader in automotive traction batteries.
4.3.4 Acceleration and commercialisation
There are just a few activities that we classified as acceleration and commercialisation. BMW has 0 activities that we classified as acceleration and commercialisation, Ford has 1 activity which is classified has acceleration and commercialisation, and Volkswagen has 2 activities that we classified as acceleration and commercialisation.
Departments and Teams
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5. DISCUSSION AND IMPLICATIONS
In this section, we will discuss the main findings and the theoretical and managerial implications. Afterwards, we will discuss the limitation and future research possibilities.
5.1 The influencing factors
Several scholars (Ghemawat, 1991; Henderson, 1993) have argued that the efforts of incumbents, concerning radically new technologies, are characterised by "underinvestment" and "incompetence” and that because of large investments in existing markets or products, large incumbent firms tend to introduce more incremental innovations”. We contribute to this literature in several ways.
(i) First, by analysing the automotive industry, we have found three internal and three external factors that influence the introduction of radical innovations by incumbent firms. The results of this research show that the external factors law and regulations, competition, customer demand, and internal factors previous investments, fear of damaging reputation, and building reputation influence the introduction of radical innovations by incumbent firms. By analysing these factors, we have increased our knowledge regarding the motivation of incumbents in the automotive industry to introduce radical innovations. Our research shows that while large firms prefer not to invest in new and alternative technologies, which is in accordance with previous findings of several studies (Henderson, 1993; Ghemawat 1991), incumbents are in a way forced to keep up with the latest developments because of the six factors influencing incumbents to introduce radical innovations. External and internal factors that influence radical innovation have been analysed before (Koberg et al., 2003). The paper of Koberg et al. showed that different mixes of environmental and organisational variables were significant predictors of incremental and radical innovation. Our research similarly shows that environmental and organisational factors do influence the introduction of radical innovations by incumbent firms in several ways. However, we distinguish ourselves by explicitly analysing the automotive industry and by taking in to account the latest developments, like for example autonomous driving.
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which activities they perform. Our findings showed that incumbents are not the first to introduce radical innovations. However, their strategy is to keep up with the latest developments by collaborating with external organisations like start-ups, cities, and universities, who usually are the first to develop radical innovations. Afterwards, when the technology is more matured and accepted by customers, they introduce the radical innovation by creating separate organisations, innovation departments, and teams.
5.2 The external factors
Next, we will discuss the effect of these six factors and compare the findings to previous research. We will also provide managerial implications that emerge from the factors. Our findings show that three external factors influence incumbents in several ways.
(i) The external factor "law and regulations" is one of the most interesting findings. The effect of regulations on innovation has already been discussed in several articles. One well-known article is the article of Porter (1991). Porter argues that strict environmental regulations do not hinder competitive advantage, but they often enhance it because tough standards trigger innovation. According to Porter, properly constructed regulatory standards, which aim at outcomes and not methods, will encourage organisations to re-develop their technologies. Our research contributes to this literature by confirming that law and regulations are indeed a key factor that serves as motivation for incumbents to introduce radical innovations, and by showing that this factor has stimulated incumbents to collaborate with cities, universities and different industries to introduce alternative mobility solutions and radical innovations.
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Analysing this trend helps incumbents anticipate for the future through early preparation.
(ii) Another external effect is market competition. Several authors have studied the relationship between market competition and innovation. One of the most well-known studies regarding competition and innovation is that of Joseph Schumpeter (1942) who argues that monopoly can promote innovation by providing a "more stable platform" for R&D. According to Schumpeter, large firms provide a more stable platform to invest in research and development and perfect competition is not necessarily the most efficient market structure to promote R&D. Our research contradicts the findings of Schumpeter. Our results instead correspond with Teece (1992) who argues that Schumpeter has framed the organisation size hypothesis in a way that is not relevant today, as the boundaries of the firm can no longer be assessed independently of the collaborative relationships. Teece (1992) argues that successful innovations require intricate forms of business organisation, and to be successful, innovating organisations must form linkages, upstream and downstream, lateral and horizontal. Our research contributes to the literature of Teece (1992) by emphasising the importance of having different collaborations to be able to introduce radical innovations, by confirming that incumbents in the automotive industry have several collaborations upstream, downstream, lateral, and horizontal to introduce radical innovations, for example, collaborations with customers and suppliers. Our second managerial implication is that if incumbents want to profit from new knowledge and resources to develop radical innovations, they can collaborate with external organisations. Collaborations with universities and start-ups can provide incumbents with the possibility to develop radical innovations, even though their internal core-organisation is not suitable to introduce radical innovations. Start-ups and universities have necessary resources, like flexibility and knowledge, that incumbents can profit from and vice-a-versa.
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old technology does not serve well, or because of experimental users, or both. Our findings show that because of the (fiscal) advantages from the government, development of the technology, and the increasing trend to live greener, the customer demand has increased in the emerging alternative powertrains market. However, the old automotive technology that incumbents provide cannot serve this market. Thus with the increasing customer demand in this market, the incumbents are incited to introduce technologies that can serve this market, or else the incumbents can be replaced by new firms. This confirms the importance of customer demand and shows that customers can influence the introduction of alternative technologies (Malerba et al., 2007).
We again emphasise that managers need to be aware of the external factors that can influence radical innovations. Incumbents need to analyse emerging markets and prepare themselves to be able to serve that market if necessary, or else they can be replaced by new firms (Malerba et al., 2007).
5.3 The internal factors
Our paper also showed that three internal factors influence incumbents in several ways.
(i) Our findings show that previous investments are an important internal factor that influences incumbents in introducing radical innovations. Several studies have elaborated about this internal factor and have argued that because of previous investments, incumbents are hampered in introducing radical innovations (Henderson, 1993). Our findings contribute to this literature by showing that this is certainly true to some degree. However, our findings showed that incumbents do invest in new technologies, but, the incumbents do not want to make the transition too soon and cannibalise their previous investments. Our findings show that the previous investments to some degree do impede companies from investing in new technologies too fast. However, the large organisations are in a way forced to invest in new technologies because of the previously elaborated external factors. Our findings emphasise the importance of the six factors that influence the introduction of radical innovations. It shows that even though an organisation prefers not to make the transition, they are forced by factors like, for example, law and regulation and competition.
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for adopting another technology arises. Investing in one technology will make it more difficult for incumbents to make the transition to another technology. This is the reason why incumbents need to be fully aware of the latest developments and, if necessary, be partly involved in the development of several technologies, by for example collaborating with universities or institutes, or sponsoring them. (ii) Another internal factor is fear of damaging reputation. Reputation is a competitive advantage because of the potential for value creation, but also because of the intangible character which makes replication by competing firms considerably more difficult (Roberts et al., 2002). Our research confirms the findings of Roberts et al. (2002) by showing that incumbents fear to damage their reputation by introducing new technologies that are not accepted by customers or are of high quality. Damaging their reputation can lead to less potential for value creation, which the incumbents want to prevent by not introducing new technologies in the early stages of development.
(iii) However, our findings also confirmed the importance for incumbents to have a good reputation, which leads to incumbents trying to show the world that they are also very innovative and still in the race. The explanation we present is that if incumbents do not keep up with the latest trends, they can be labelled as the not innovative type and damage their reputation, and the paper of Roberts et al. (2002) showed that firms with relatively good reputations are better able to sustain superior profit outcomes over time.
Thus, our final implication for managers is that it is not necessary to be the first to introduce alternative technologies. However, it is important to show the market that the firm is not lagging behind the competition. If the customers perceive the organisation as a firm that is lagging behind the competition, it can damage the reputation of the firm and can lead to less potential for value creation.
6. LIMITATIONS AND FUTURE RESEARCH
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40 APPENDIX A – Interview questions
Questions about radical innovations in the automotive industry
1- Which organisations do you think are the most innovative in the automotive industry? 2- Do you think that large organisations are lacking in introducing radical innovations, and why? 3- Has the innovation activities of incumbents changed in recent years and how?
4- What is the motivation of large organisations to introduce radical innovations, and why? 5- Do you think that large organisations have adapted their strategy/ organisation in the past
years to be able to introduce these innovations, and how have they adapted their strategy/ organisation?
6- Which activities/factors are crucial for large organisations in the automotive industry to be able to innovate radically, and why?
41 APPENDIX B – Coding organisations innovation activities
BMW
Topic Objective Approach Organisational proximity
Market proximity
Autonomous centre Developing and expanding the open platform for autonomous driving
More than 600 BMW Group
employees are now working in cooperation with other partners at a campus near Munich
Periphery Incubation and Acceleration Virtual innovation
agency
Sourcing new ideas Making able for consumers and start-ups to submit ideas
Outside Incubation
3D development: virtual and mixed reality
Opening up entirely new opportunities for developers to develop by using virtual reality
Virtual reality will be an integral part of many developer workplaces in the future
Core Acceleration
BMW Labs Testing new Connected Drive services with customers during the development stage and obtain their active input.
Collaborating with customers at development stages Periphery Incubation and Acceleration BMW supplier
innovation Award
Sourcing new innovative ideas/technologies Stimulating innovation by giving awards to suppliers Outside Incubation BMW Start-up Garage Cooperating with start-ups to source new
innovations
Offering start-ups resources when collaborating Boundary crossing
Incubation The Institute for
Mobility Research (IFMO)
Project key developments in the field of demographics, business, transport policy, technology and energy into the future and assess their impact on mobility development.
Developing cross-modal scenarios and technologies Periphery Incubation
Centre of Urban mobility Competence
Develop solutions for urban traffic problems Centre will develop solutions to urban traffic problems using BMW products and mobility services.
Boundary crossing
Incubation
RAD HUB Develop ideas for products and services, by sharing their broad knowledge from a wide variety of disciplines and opening up different perspectives.
The rad°influencer come together in impulse groups to discuss potential technologies and solutions
Periphery Incubation and Acceleration
A consortium led by BMW & Intel
Becoming the industry-wide blueprint for autonomous vehicles.
Holding a consortium with different partners to further increase the development of technologies
Boundary crossing
Acceleration Collaboration
University LA
Generating Ideas Using proposals from students Outside Incubation
Partnerships mobility Development of autonomous driving BMW, Intel and Mobileye entered into a partnership Boundary crossing
42 University
collaborations
Develop and further develop technology Partnering with universities Boundary crossing
Incubation and Acceleration
Ford
Topic objective Approach Organisational proximity
Market proximity
Ford Consumer Innovation Office
Sourcing ideas from consumers and start-ups Allowing consumers to submit ideas Outside Incubation HMI Team
(human-machine interaction)
Finding new ways to integrate digital technology into the F-150
Directing the work of more than 130 researchers, engineers and designers
Core Incubation and
Acceleration Research and
Innovation Center Palo Alto *
Creating new connections between automotive and computer technology
Ford opened the doors to its new Research and Innovation Centre in Palo Alto.
Periphery Incubation
Stanford Research Park (silicon valley)
Advancing the Ford Smart Mobility initiative by accelerating innovation in connectivity,
mobility, autonomous vehicles, the customer experience and big data.
Expanding Research and Innovation Center team, which includes new hires as well as transfers,
Core Incubation and
Acceleration
“virtual factory,” Improving quality and cut costs in real-world manufacturing facilities
Creating and analysing computer simulations of the complete vehicle production process
Core Acceleration
Big DATA solutions Innovation Center
Reduce congestion and create cleaner cities. Working in Palo Alto Research and Innovation Center
Periphery Acceleration Ford Engineering
Laboratory
Taking advantage of globally connected technologies to develop light, durable EV batteries.
Expanding engineering capabilities, adding research and engineering capabilities in Europe and Asia
Periphery Incubation and Acceleration University of
Michigan Battery Lab
Develop batteries that are smaller, lighter and less expensive to produce.
Working with battery lab at the University of Michigan Boundary crossing Incubation Electrified Powertrain Engineering program (EPE)
Developing new and innovative technologies for electrified vehicles
Hiring more than 120 additional electrified vehicle engineers and moving the EPE team into its own dedicated facility, Ford Engineering Laboratory.
Core Incubation
The Ford Vehicle Harmony group
Developing important vehicle chimes that break through the clutter and get noticed.
Setting up the Ford Vehicle Harmony group. Core Incubation and Acceleration St. Petersburg State
Polytechnic University
Creating connections between vehicles and roadside infrastructure,
Collaborating with St. Petersburg State Polytechnic University
Boundary crossing
Incubation
Partner Baidu Introducing autonomous driving Collaborating with platform Baidu Boundary
crossing
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Ford city solutions Develop new mobility solutions regarding cities Collaborating with cities Boundary crossing
Incubation and Acceleration
Volkswagen
Topic Objective Approach Organisational proximity
Market proximity
Collaboration with Hamburg
Becoming end-to-end mobility provider Collaborating with cities Boundary crossing Incubation and Acceleration Founded company
for Self-driving
Bring highly automated driving functions to market as a core competency from 2021
A company is currently being founded that will develop a Group-wide self-driving system. Strategic partnerships are also being explored.
Boundary crossing Incubation
Center of excellence Becoming a technology leader in automotive traction batteries.
VW will pool its battery cell and battery module expertise in a centre of excellence. Accelerating the enhancement of expertise and technological change.
Boundary crossing Acceleration
16 strategic Groups Transforming the business to adapt to the changing environment
Transforming the core automotive business; establishing a new mobility solutions business; strengthening the Group‟s innovative power; and secure funding for investments.
Core Acceleration and
commercialisation
MOIA (Build mobility solutions business)
Mobility company named MOIA that Volkswagen set up in 2016 to become one of the leading providers of innovative transport services
Strategic investments and partnerships are planned for this
Periphery Acceleration
A new series manager
Improve cross-divisional project-work, strengthen the entrepreneurial spirit in the Group throughout all of the organisational units involved.
Appointing a new series manager, Core Acceleration/commercialisation
Group Digital Services Committee
Develop and expand smart mobility offering
A cross-brand decision-making committee for the Volkswagen Group called the Group Digital Services Committee has been set up for this purpose.
Periphery Incubation and Acceleration
Platform to connect activities
A holistic stimulus for innovations, entrepreneurship and change, but also actively encouraging this. Remaining agile
The Volkswagen Group is creating a framework that takes a holistic approach to the different aspects of organisational
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and competitive development.
K-B Procurement Sourcing products and services for the Group that provide optimum customer value using the best possible cost structures
Gaining access to supplier innovations, leveraging Group-wide synergies and ensuring a supply chain that excels in all dimensions.
Core Incubation and Acceleration
K-GE Research and Development
Generating sustainable growth while serving as an example in relation to the environment, safety, integrity and resource efficiency at the same time,
Networking among experts, collaborative working relationships on equal terms, an innovative working environment and
selective pooling of development activities to leverage synergies and efficiencies
throughout the Group.
Periphery Incubation and Acceleration
Future centres Offer the best-possible customer
experience and make optimum use of the latest technologies.
Group Future Centers in Germany, the USA and China, designers and digital experts are working together on the vehicles of the future
Periphery Incubation and Acceleration
Increasing partnerships for mobility solutions
Adopting and creating new services en technology
Partnering and acquisitions Boundary
crossing/outside
Incubation and Acceleration
In-house development (autonomous cars)
Coverage of all market segments. Fully autonomous vehicles with self-driving systems (SDS) developed in-house from 2021. Investment program and around 1.000 additional software specialists
Core Incubation
Stanford University Development of autonomous driving Collaborating with Stanford University Boundary crossing Incubation
45 APPENDIX C – Research steps overview
Date 2018 5-feb 12-feb 19-feb 26-feb 5-mrt 12-mrt 19-mrt 26-mrt 2-apr 9-apr 16-apr 23-apr 30-apr 7-mei 14-mei 21-mei 28-mei 4-jun 11-jun 18-jun 25-jun Week 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Literature review
Search for literature
Find gap Write introduction Conceptual part Searching literature Writing theory Methodology
Writing data collection
Writing data analyses
