The Response of High-End Car Manufacturers in the Automotive
Total Page：16
File Type：pdf, Size：1020Kb
The response of high-end car manufacturers in the automotive industry on the emergence of car sharing services A multi-case study on Audi, BMW, and Mercedes Benz Bachelor Thesis BSc. Economics and Business - Business Studies Fabian F. A. Koning, 10462430, University of Amsterdam Supervisor: W. Dorresteijn Introduction In recent years the attitude towards consumption have shifted and brought increasing concern over ecological, social, and developmental impact and therefore “collaborative consumption” has become an appealing alternative for consumers (Hamari, J., 2013). The automobile industry is considered as the largest and fastest growing platform for CC. The increased popularity of shared economy platforms have led to a rapid growth of businesses which focus on the sharing of automobiles like Zipcar and Car2Go. The purpose of this research is to identify how high-end car manufacturers respond to the emergence of these disruptive innovators. Therefore the research question is: “How did high-end car manufacturers respond to the growing trend of car sharing services?” Despite the abundance of literature on the effects of car-sharing services on the household vehicle holdings, there is a lack of quantitative/qualitative studies on the response of car manufacturers. Therefore it is important to acknowledge the countermeasures taken by high-end car manufacturers to foresee a change in the traditional automotive industry due to the emergence of car sharing organisations and their growth. Literature Review Innovation “The most important business issue of our time is finding a way to build companies where innovation is both radical and systemic” (Hamel, 2002). The importance of organisational innovation was first documented as long ago as Schumpeter (1950). According to Schumpeter, organisations should innovate in order to renew value of their asset endowment. Even before this, although the term innovation may not have been used extensively, processes that are associated with innovation and economic and technological change were perceived as being important (Lorenzietal., 1912;Veblen,1899;Schumpeter,1934). As Zara and Covin (1994, p.183) suggest: “Innovation is widely considered as the life blood of corporate survival and growth”. Baragheh (2009) states that the connotation of the “innovation” phenomenon can be described by newness:“Innovation is the generation, development, and adaptation of an idea or behaviour, new to the adopting organization” (Damanpour, 1996; Higgins, 1995); of success: “The first successful application of a product or process” (Cumming, 1998); and of change: “Innovation is conceived as a means of changing an organization, either as a response to changes in the external environment, or as a pre-emptive action to influence the environment” (Damanpour, 1996). sFurthermore, the extent to which internal operations or external customers value a change, is As Baragheh (2009) mentions, technical innovation creates changes in processes, functionality, or utility and does not create value directly. The extent to which internal operations and external customers value change is where leverage is created (Paap & Katz, 2004) Innovation can be classified as changes in processes, products and services. Johne (1999) differentiates product and process innovation from market innovation. Other objects of innovation mentioned in the literature include organisation, transaction, management style and business model (Slappendel, 1996; Higgins, 1995; Paap and Katz, 2004), although these types mainly relate to process innovation (Baragheh, 2009). Furthermore, Edquist (1997) distinguished innovation by aggregation level. Innovation appears at an individual level (improvement), at functional level (process improvement or adaption), at a company level as an entire value chain (radical product and service innovation, new business models), and at industry level (technology breakthroughs) as systems of innovation. The impact that innovation has can vary from incremental or sustainable innovation to radical or disruptive innovation. As Figure 1 depicts incremental innovation development remains within the boundaries of its existing market and technology or processes of an organisation, where disruptive innovation tends to emerge in new markets with new technologies or processes (Baragheh, 2009). Figure 1: Innovation application space (Baragheh, 2009) Disruptive innovation The continuous process of industrial renewal was first documented by Schumpeter (1942) with his creative destruction theory. According to this theory, dominant industries transform and become obsolete as a result of the invention and application of newly derived innovations by other firms. This theory was further elaborated by Abernathy and Utterback (1978), who claimed that the emergence of a new technology develops in phases. The pre-dominant phase, where several designs of the new technology are introduced, which will eventually lead to one industry standard design. The dominant design is set once the standard design becomes broadly accepted. From that point competition shifts to process innovation and efficiencies resulting in cost reduction and economies of scale. This contributes to get a broader market acceptance of the dominant design and deterrence of other designs (Abernathy & Utterback, 1978). Bower and Christensen (1995) were the first to introduce a more specific explanation of why many incumbent firms fail in the face of new technologies and coined it “disruptive technology”. According to Christensen, “disruptive technologies are technologies that provide different values from mainstream technologies and are initially inferior to mainstream technologies along the dimensions of performance that are most important to mainstream customers” (Bower & Christensen, 1995, p.45), but “they have other features that a few fringe (and generally new) customers value” (Christensen, 1997, p.18). Due to the changing customer values the new technology will eventually displace the established technologies and, in the process, entrant firms that supported the disruptive technology will displace incumbent firms that supported the prior technology (Daneels, 2004). This process can best be described by the joint consideration offered by technological alternatives and the trajectories of performance demanded in various market segments (Daneels, 2004). Christensen introduces these aspects of changing performance with time, he identified three critical elements of disruption, as depicted in figure 2. First, in every market there is a rate of improvement that customers can utilise or absorb, represented by the dotted line. Second, in every market there is a distinctly different trajectory of improvement that innovating companies provide as they introduce new and improved products. He further explains that this pace of technological progress almost always exceeds the ability of customers in any given tier of the market to use it, as the more steeply sloping lines in figure 2 indicate. Consequently, a company whose products are considerately positioned on mainstream customers’ current needs today will probably exceed the demand of those same mainstream customers in the future, resulting in performance overshoot with over-served customers. Figure 2. The Disruptive Innovation Model The market disruption occurs when, despite its inferior performance, the new product displaces the mainstream product in the mainstream market (Daneels, 2004). Christensen mentions two preconditions for such a market disruption to occur: performance overshoot on the mainstream products, and asymmetric incentives between existing healthy business and potential disruptive business. Despite its profound impact on business management literature and management practices, scholars from several disciplines of management research have generated critiques, doubts and challenges concerning the disruptive innovation model (Cohan, 2000; Danneels, 2004; Govindarajan & Kopalle, 2006a, 2006b; Markides, 2006; Schmidt & Druehl, 2008 ). Most importantly, several scholars address the wide scope of the disruptive innovation concept (Yu & Hang, 2009). Christensen responded by refining his theory and emphasising that disruptive innovations could be broadly classified into low-end and new-market innovations (Christensen & Raynor, 2003). Low-end disruptions are those that attack the least-profitable and most over-served customers at the low end of the original value network, new-market disruptions create a new value network, where it is the non-consumption, not the incumbent, which must be overcome (Christensen and Raynor, 2003). Furthermore, in recent years scholars noted that the theory lacks clear-cut criteria to differentiate between sustaining and disruptive innovations. Hence, the predictive use of the theory is challenged stating that it is difficult to distinguish between inferior products and products that underperform but have the potential to be disruptive (Daneels, 2004). Therefore, Govindarajan and Kopalle (2006) introduced a scale for measuring the disruptiveness of innovations. For an innovation to be considered disruptive it had to meet the following four criteria: (1) offer a new set of features, performance and price attributes relative to the established products; (2) initially provide an unattractive combination for the mainstream customers; (3) attract a new customer segment that values the new set of features, performance and price attributes; and (4) disrupt the mainstream market after subsequent development over time. They