written by Alain Veuve MD, Switzerland
Perpetual Disruption: An object lesson from the automotive industry
Perpetual Disruption: An object lesson from the automotive industry
March 17, 2016 | Categories: Digital Business & Marketing , Digital Transformation
About author Alain Veuve Alain Veuve MD, Switzerland

A couple of weeks ago, during lunch with Michael Stucki, he asked me why I had such an interest in the automotive industry. Since then, after having posted a blog about the Faraday Future press conference, I’ve been confronted by the question more and more often, and I’ve noticed that most people don’t realize that exemplary change processes are currently underway in the industry, changes that are driven by culture and new technology.

BMW, BMW, BMW

Sometimes I regret having written the article about my disappointment with BMW, for now I am often asked about it. From people that have been upset by BMW in one way or another (“Scandalous. They didn’t vacuum my trunk during servicing”), people that want to convince me that there are no better cars and people that simply have a Goliath complex and want to see everything dead that’s big.

I have nothing in common with any of them. BMW is neither stupid nor lost. My disappointed was much rather targeted at BMW for long neglecting technological innovations and consequent decisions in many areas. They have left this path. What you get from BMW today is, at the most, qualitative mediocrity at a premium price (brand Agio).

How could this happen?

The reasons are varied, yet typical for those industries that no longer dare to create true innovation, but rather focus on incremental improvements to a product model. The reasons, by no means all-inclusive, are as follows:

Success

As odd as this might sound, but one of the biggest problems regarding innovation and newly invented products is a business that’s humming along. There are two dimensions to this; a) The fear of losing existing business and deviating from the path of success and b) The fundamental predisposition of humans to make less of an effort, when things are going well.

The very rare exception are business people and companies that develop new things from a position of strength. Though everyone rambles on and on about this, one will actually find few companies that, upon closer examination, are successful and strong, even though they are fundamentally healthy. Rather, it’s those companies that have to do something, either because they’re new or because their business is threatened.

NIH syndrome

The not-invented-here syndrome is widespread. Sometimes new paths are attempted compulsively, even when it isn’t needed at the moment. Certain concepts are simply good and accepted and can be copied and used in a meaningful way. For example, the operating concept behind a large touchscreen. Tesla didn’t invent it, it passed its trial by fire in the iPhone long ago. To copy it and use it in an automobile is neither groundbreaking nor a stroke of genius. It is simply the most logical step in solving the issue of handling. There are no objective reasons why BMW and others couldn’t have done the same.

Bogged down product thinking

A further point is bogged down product thinking. Sometimes, or so it seems, a car must have a combustion engine. If, however, we compare physical basics, everyone will quickly realize that an electric engine has fundamental advantages.

Why then weren’t new concepts developed along these guidelines and fundamentals, especially when we consider the compulsion to decrease emissions? From a factual perspective, BMW and other manufacturers had far better conditions to build a car of this sort than Chevrolet or Tesla.

Last week I wrote an article about how industries are trodden paths. And I think the same thing applies here as well. Apparently, a certain culture and mindset are missing in order to be able to think beyond one’s own product concept.

Me-Too Digitalization & Innovation. Yippee!

And now, startled by Tesla, everyone is talking about digitalizing, mobility of the future, E-mobility and software-driven concepts. At first, this is good, as the entire industry has been set in motion.

It also creates competition, and with it, ultimately, better concepts for the customer. For, not much that was fundamentally better was created in the recent past. And a lot more would have been possible.

But when Harald Krüger says he wants thousands of additional software engineers at BMW in the next five years and that strategic training takes a whopping 18 months, I get a really queasy feeling. Is the number of people in any given sector a serious KPI? I think not, at most it’s an indicator. And the five-year timeframe? Roughly corresponds to the time in which Tesla developed the Model S.

5 years are the new 15 years.

Unfortunately, though, this hasn’t yet arrived in Krüger’s corporate world.

And therefore it is, sad to say (without cynicism), not very likely that he and his company will play a pivotal role in this new age of the automotive industry. As an investor, I would get extremely cold feet upon hearing such a statement.

All technologies are relevant!

A lot is being said today about digitalization in the automotive sector, which indeed isn’t wrong. I’m a little concerned, though, that other technologies will be neglected for the time being. For now, digital technologies enjoy top priority, simply because we have a lot of devices and machines that aren’t yet organized on a software basis.

All of this must be made up, that much is clear, but it isn’t everything by any stretch of the imagination. A combination of different technologies will provide us with hitherto undreamed of improvements in the future. We can already detect the disruption of disruption on the horizon.

Object lesson

This is all interesting because technological progress changes a deadlocked industry accordingly. For most players this development was predictable in a certain way, but the industry leaders especially were unable to be the drivers of this development.

This is a game with an unclear outcome and with potentially high social costs. And, regarding Tesla, a game being played on an uneven footing; for one, because Tesla has far fewer resources, for another, because Tesla doesn’t have the same goals as the traditional automotive corporations.

No winner-takes-it-all game

Additionally, it is definitely not a winner-takes-it-all game. And it is also far from clear whether Tesla will emerge as the economic beneficiary from the battle that is looming in the near future.

Thus, it remains exciting. The next chapter of the book will be opened at the end of the month, when Tesla will introduce its entry-level Model 3 for a price of approximately 32,000 Euros. Together with the Chevy Bolt (Opel Ampera-e), this model will be the acid test when comes to drive technology and concept in the automobile market. And with it the ultimate test for BMW and others, who heretofore have nothing comparable to counter with.

Thus, another round of the games is “declared open”. To date, we’ve been the witnesses to truly great theatre! And it can only get better.