Research Paper Inter-Industry Innovations in Terms of Electric Mobility: Should Firms Take a Look Outside Their Industry?

Inter-industry innovations in terms of electric mobility: Should firms take a look outside their industry? Research Paper Inter-industry innovations in terms of electric mobility: Should firms take a look outside their industry? Stephan von Delft* * University of Münster, Institute of Business Administration at the Department of Chemistry and Pharmacy, Leonardo-Campus 1, 48149 Münster, Germany, [email protected] The beginning electrification of the automotive powertrain is supposed to have a major impact on the automobile value chain - reshaping it significantly and brin- ging up new alliances, business models and knowledge bases. Such a transformation of the value chain might fade boundaries between hitherto distinct knowledge bases, technologies, or industries. Over the past decades, the blurring of industry boundaries – the phenomenon of industry convergence – has gained attenti- on from researchers and practitioners. The anticipation of a convergence process plays an important role for strategic and innovation management decisions, e.g. for new business development, mergers and acquisitions or strategic partnerships. However, despite the relevance of convergence, it is often challenging for incum- bent firms to (1) foresee such a transformation of their environment, and (2) respond strategically to it. Hence, this study presents a tool to anticipate convergence and strategic implications are discussed. 1 Introduction stitute rules of conducting business” (Hacklin et al., 2009, p. 723). Firms facing such a situation, thus Technological change is known as a key driver have to adapt to new knowledge bases and new of economic growth and prosperity (Schumpeter, technologies which do not belong to their former 1947; Abernathy and Utterback, 1978; Kondratieff, core competences or their traditional expertise 1979). From the first steam engine to the latest (Curran and Leker, 2011). Scholars reason that this developments in nano- and biotechnology, com- assimilation of knowledge and technology is a key panies have constantly benefited from and pro- factor for successful innovation management in actively promoted the development of new tech- converging industries (Bierly and Chakrabarti, 2001). nologies and scientific research. A special pheno- Hence, the anticipation of convergence plays an menon of technological change is known as indus- important role for management decisions, like new try convergence. Traditionally, it has been associated business development, mergers and acquisitions, with the fading of industry boundaries between or strategic research and development (R&D) part- information technologies, consumer electronics nerships. But how can firms anticipate the blurring and telecommunication (ICT) (Duysters and Hage- of industry boundaries and, thus know if they should dorn, 1998; Pennings and Puranam, 2001). Recent- take a look outside their industry? And what con- ly, convergence has also been observed in other sequences do blurring industry boundaries have industries, e.g. the chemical, pharmaceutical, and for firm’s strategic and innovation management? food industry (Bröring et al., 2006; Curran and Leker, Taking the current trend of battery electric vehi- 2009a). When hitherto distinct industries conver- cles as an example, I used a bibliometric analysis ge, the emergence of technological innovations at of patents and scientific publication as an indica- the borderline of these industries brings up new tor for a beginning convergence process between applications and combinations, resulting in a situa- the automotive industry, producing electric vehi- tion where “established paradigms will be repla- cles, and the chemical industry, producing batte- ced by new ones […] and thereby disrupt and sub- ries and battery components for those vehicles. Journal of Business Chemistry 2013, 10 (2) 67 © 2013 Institute of Business Administration Stephan von Delft Based on this quantitative analysis, I deduce basic new players will appear along the value chain, inten- implications for strategic and innovation manage- sifying competition, and reshaping the business ment in the field of electric vehicles. Recent exam- landscape (Roland Berger, 2009). This reshape of ples from the automotive and chemical industry the entire automobile value chain is estimated to are used to support the concept of this study. include skill shifts from mechanics to battery che- The remainder of this paper is organized as fol- mistry and electronics (McKinsey, 2011), as well as lows. In the next two sections the ongoing debate an intensified competition (McKinsey, 2009). This on battery electric vehicles and theoretical deve- transition calls for the development of a new lopments relating to industry convergence are sum- knowledge base which can only be achieved through marized. Section 4 explains the methodology applied strategic partnerships and innovation alliances in research; and section 5 presents the results of (Capgemini, 2009), as the required competences, the analysis. The paper concludes with a discussi- e.g. in battery chemistry, would “overburden the on of the findings and future research opportuni- R&D departments of a single carmaker” (McKin- ties. sey, 2011, p. 14) in terms of fundamental research and financial risks. While consulting companies 2 Electric mobility have been very active in this field, it is remarkably that academia has neglected many managerial The automotive industry has a long-standing aspects of the ongoing debate on electric mobili- history and denotes one of the most important pil- ty. lars of our economy. However, global trends, such Besides a few exceptions (Mikkola, 2001; Pohl as emerging markets, increasing political regulati- and Yarime, 2012) scientific studies have so far focu- on, climate change and increasing oil prices have sed on life-cycle costs of electric vehicles (Werber forced automotive companies to combine their tra- et al., 2009), the dynamics of the interdependen- ditional businesses with innovative ways of ener- cies between car manufacturers and consumers gy supply (Drapcho et al., 2008; Nag, 2008; Booz & (van Bree et al., 2010; Zhang et al., 2011), or the pos- Company, 2009; Deutsche Bank, 2009). The result sible penetration of electric vehicles in specific coun- is an increasing degree of electrification in the auto- tries (Weinert et al., 2008; Duke et al., 2009). Based motive industry called electric mobility1 and cap- on a patent and publication analysis, I will address tured by the catchphrase “e-mobility”. Some scho- this gap and discuss several management challen- lars focus on the electric engine of a vehicle and ges, as well as possible strategies to respond to the the electric energy source when they refer to elect- electrification of the automotive powertrain. To ric mobility (Möller, 2010), while others like the IEA better understand those challenges, I will first give (2009), Canzler and Knie (2010) and Karg and Rein- a brief overview of the value chain of battery elect- hardt (2010) have a broader understanding of electric vehicles. ric mobility. Instead of solely focusing on the change All types of battery electric vehicles use a more from internal combustion to electric power supply, or less powerful battery for energy storage, whe- they define electric mobility as a new traffic sys- reby the lithium technology, e.g. lithium-ion- or tem, with new infrastructure, so called “smart” lithium-air-battery, is a promising candidate (Win- electric grids, as well as new business models. Others ter and Besenhard, 1999; Thielmann et al., 2010). again, like Schill (2010) argue that there is no clear This technology is therefore used in the analysis. definition of electric mobility. In this work, I focus The simplified value chain of electric vehicles, shown on battery electric vehicles. The importance of the in figure 1, is compared to the traditional automo- vehicle-grid-connection and the potential impact tive powertrain value chain characterized by a sig- of other electric vehicles types, e.g. fuel cell elect- nificant “chemical part” . ric vehicles, should thereby not be reduced. The design of lithium batteries for electric vehi- The electrification of the powertrain is conside- cles requires advanced chemical know-how, e.g. in red to be one of the most fundamental technolo- chemical engineering and physical chemistry, becau- gical changes for the automotive industry. The con- se all components are specifically designed for sulting company McKinsey for example observes usage in electric vehicles. Therefore, tier-3 and tier- a “dramatic shift in the value chain, affecting mar- 2 firms (raw materials and cell components) are ket fundamentals and required competences” basically chemical companies. Automotive sup- (McKinsey, 2011, p. 9), while Boston Consulting iden- pliers are positioned on tier-1 (battery tifies the emergence of new business models, e.g. integration/assembly) or tier-2 level (electronics business models that are built around leasing con- for batteries). However, cell electronics must meet cepts (BCG, 2010). Roland Berger concludes that the specific requirements of the battery design, 1) Sometimes also framed “electromobility“. © 2013 Institute of Business Administration 68 Journal of Business Chemistry 2013, 10 (2) Inter-industry innovations in terms of electric mobility: Should firms take a look outside their industry? which implies a strong connection between auto- 3 Industry convergence motive suppliers and chemical companies at this

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