Essay: Disruptive innovation in the automobile industry

From times immemorial, innovations and disruptive innovations, in particular, have been the key to the survival of the human species. Numerous scripts and carvings on clay and stone have been found pertaining to the millennia before Christ era depicting the innovations in agriculture introduced by the agrarian communities of those times. Over the course of history, mankind has perfected its industry by not only relying on disruptive technical evolution but also by reinventing it as new resources have created new technical means and made possible disruptive innovations. (Majumdar, Banerji, & Chakrabarti, 2018)
There are two types of innovations in technology: Sustaining and Disruptive. Sustaining innovations/ technologies tend to maintain a rate of improvement; that is, they give customers something more or better in the attributes they already value (Bower & Christensen, 1995). Disruption (disruptive innovation) describes a process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses. (Christensen, McDonald, Altman, & Palmer, 2018) Disruptive entrants target segments of the market that have been neglected by the incumbent typically because it is focusing on more profitable areas. For example, Xerox let Canon create the small-copier market. Bucyrus-Erie allowed Caterpillar and Deere to take over the mechanical excavator market. Sears gave way to Wal-Mart. (Christensen, Raynor, & McDonald, 2015)
However, there is debate surrounding the concept of disruptive innovation due to the misunderstanding of its core principles according to Clayton Christensen, one of the world’s top experts on innovation and growth.
Talk about the debate on what a disruptive innovation is
As a result of disruptive technologies, Organisations in today’s hypercompetitive world face the paradoxical challenges of “dualism,” that is, functioning efficiently today while innovating effectively for tomorrow. (Paap & Katz, 2016) This pushes organisational leaders to focus on the present and the future, in most cases to the exclusion of everything else. After all, a fast-changing world leaves little time for nostalgia and irrelevant details or, worse, strategies for winning the last war. However, A sophisticated understanding of the past is one of the most powerful tools we have for shaping the future. (Seaman JR & Smith, 2012)
Rationale
If you want the present to be different from the past, study the past.”              ~Chinese Proverb
The automobile industry in disruption. The impact of the Tesla Model 3 was felt in the automotive industry long before it actually hit the market with 400,000 reservations. Tesla CEO Elon Musk branded the event as a “wake up” call for the industry (Lambert, 2016). With Apple and Google both reportedly working on vehicles as well, they are looking to enter into the automotive market in the next several years. Their advantages with regards to battery management, operating system development, VR, and other software and hardware integration will allow them to leapfrog into the marketplace rapidly. (Butler, 2016)
This means that now more than ever, established companies need to avoid making the same mistakes incumbents in the past have made; they need to avoid active inertia (Sull, 1999) and poor resource allocation processes (Bower & Christensen, 1995) among others if they are to adapt, compete and better yet thrive in this new climate. Therefore, a historical review of companies entering their markets with disruptive new technologies in other industries, can unearth lessons that established companies in the car industry can implement to cope, compete and hopefully retain their market share in such a climate. Lessons, such as what strategies other incumbents used to cope with the disruption, were they successful, can they be improved upon, or better yet can they be anticipated on some level.
This research project will be the first to critically explore what lessons established car companies can learn from other industries after examining the research compiled on what kind of threat disruptors posed and continue to pose as well as how established companies in other industries have reacted to this threat. My research design, findings and discussion will revolve around 3 research questions;
1. What is the nature of the threat from new entrants with disruptive innovative technology to an industry from established companies in the industry?
2. How have established companies reacted to this threat in the last 20 years?
3. What lessons can be learned by established car companies?
Literature Review
What is the nature of the threat from new entrants with disruptive innovative technology to an industry from established companies in the industry?
A disruptive technology offers a novel mix of attributes compared to the established technology, but it is inferior to the established technology according to the needs of consumers in the primary (mainstream) market segment. The disruptive technology is, therefore, initially purchased by consumers in a secondary (niche) market segment who place high value on the new technology’s attribute mix. As the new technology matures, its performance improves, but its perceived quality in the primary segment remains inferior to that of the established technology. Despite this performance inferiority, the new technology is able to enter the primary segment because the established technology is “oversupplying” customer needs. This highlights the danger to incumbent firms from dismissing new technologies as inferior and therefore irrelevant to their market positions. (Adner & Zemsky, 2005)
How have established companies reacted to this threat in the last 20 years?
Interestingly, most studies of innovation show that incumbent leaders were very aware of the new technologies that eventually disrupted their business successes. (Paap & Katz, 2016)  In the case of Kodak and Fujifilm, both companies saw the digital age coming as early as 1979 and 1980s respectfully. Fujifilm developed a three-pronged strategy: to squeeze as much money out of the film business as possible, to prepare for the switch to digital and to develop new business lines. (Economist, 2012) Kodak on the other hand chose an incremental and hybrid approach to the digital technology in order to transform the company gradually from its traditional film-based business to the new digital age. By the end of 2002, the sales of analog cameras and film still accounted for 64% of global photographic products by value. It might be, hence, understandable why Kodak decided to pursue an incremental and hybrid (evolutionary), rather than revolutionary, approach. (Tesfaye & Nguyen, 2012)
(Charitou & Markides, 2003) stated that disruptive innovations are not necessarily superior to the traditional ways of competing, nor are they always destined to conquer the market. Rushing to embrace them can be detrimental for established companies when other responses, including ignoring the innovation, make more sense. For example, American broadcasting companies sued Aereo, a service that let its customers watch live network TV over the Internet for $8 per month. This was a landmark case that if Aereo had won could have opened the doors for a viable alternative to cable and satellite TV. (Kovach, 2014) This was a tactic designed by the cable companies to completely halt a potential disruptor like Aereo. As (Faktor, 2016) put it, such tactics knock the teeth out of disruptors.
(Bower & Christensen, 1995) in their works cited that none of the established leaders in the disk – drive market learned from the experiences of those that fell before them i.e. disruptors in the disk driver market were rampant and each time one arose and attained dominance in the market, they did not learn from past incumbents and as a result, not one of the independent disk-drive companies that existed in 1976 survives today.  This has to do with factors such as bureaucracy, arrogance, tired executive blood, poor planning, and short-term investment horizons as contributors to this issue. Therefore, the role of incumbents in enabling disruptors is important.
What lessons can be learned by established car companies?
The role of disruptors is vital to enable disruptive innovation, and disruptors are suggested as incumbent leaders who dominated the existing market. (Park, 2018) Disruptors’ behaviours have been explored to understand how disruptors behave to enable disruptive innovation. The approach with performance trajectories (Anderson & Tushman, 1990) or cycle times ( (Park & Lee, 2006) is examined to occur disruptive innovation from technology perspective. And the dependence on market segments is also investigated from a market perspective. The recent literature suggests the effect of strategy enabling disruptive innovation. (Park C. , 2018)
Understanding the role incumbents play to enable disruptive innovation can help established car companies create business models that are designed to anticipate disruptors in the industry and facilitate on going innovation. In their works, (Paap & Katz, 2016) highlight that recent empirical studies have convincingly demonstrated a consistent, albeit disturbing, pattern of results with respect to the management of innovation. In almost every industry studied, a set of leading firms faced with a period of discontinuous change fails to maintain its industry’s market leadership in the new technological era.
In recent years, research on disruptive innovation has paid more attention to the role of business models (Habtay, 2012)i.e. the ways in which firms create, deliver and appropriate value. The increased focus on business models could be related to the large number of product and service innovations displaying disruptive characteristics. (Sandstrom, 2015). Evolutionary theory posits that established firms, particularly successful ones, have developed efficiently functioning and closely interwoven strategy, technological capabilities and profit models. Although useful in continuously changing business environments, once an incumbent firm confronts disruptive change, the co- evolutionary fit among these components may impede incumbents’ ability to respond effectively. (Habtay, 2012) The results gained from Habtay’s and Sandstrom’s work offer insight into business models that could be incorporated by established car companies into their business models.