Sequences of Niche Strategies: An Exploratory Multiple-Case Study in Automotive Ştefan Vintilă Delft University of Technology of University Delft Cover illustration and layout design by Ideastoria [ideastoria.com] Original image from Projek 5 [source: http://www.projek5.com/uploads/1/5/0/6/15065416/1227771_orig.jpg] Sequences of Niche Strategies An Exploratory Multiple-Case Study in Automotive by Ştefan Vintilă in partial fulfillment of the requirements for the degree of Master of Science in Management of Technology, at the Delft University of Technology, to be defended publicly on Monday, the 17th of August 2015, at 13:00. Graduation committee: Chairman: Prof. Dr. C. P. van Beers Professor, Faculty of Technology Policy & Management, TU Delft Supervisors: Dr. J. R. Ortt Associate Professor, Faculty of Technology Policy & Management, TU Delft Dr. L. M. Kamp Assistant Professor, Faculty of Technology Policy & Management, TU Delft An electronic version of this thesis is available at http://repository.tudelft.nl/. This page intentionally left blank EXECUTIVE SUMMARY In the context of diffusion of innovation, strategic niches that emerge prior to mass-market adoption represent an important area of focus for radically new technologies, since these are typically introduced in several such subsequent niches. A niche strategy represents a response to circumvent a market situation characterized by hampered large-scale diffusion, by which a company deliberately focuses on strategic niches in the effort to either (1) develop a marketable product application or (2) market an already developed product in the existing regime, if and only if revenue can be derived from the market introduction. Ortt et al. (2013) reported ten generic niche strategies. Departing from the presumption that niche strategies can influence the market situation on the basis of which they arise, the notion of a sequence of niche strategies was conceptualized. It is defined as a series of niche strategies, in which the subsequent instances of the sequence are linked between one another on the basis of a specific rationale; the rationale can be based on either an emergent or deliberate logic. Using an exploratory multiple-case study research design, three automotive technologies were investigated: dual- clutch transmission, anti-lock brakes, and polymer exchange membrane fuel cell vehicle. The goal was to observe how sequences of niche strategies can be used for market creation. The following research questions were addressed: 1. What is a good approach to explore sequences of niche strategies for the case of radically new high-tech products? 2. How do barriers to large-scale diffusion change over the span of the market adaptation phase in the case of radically new high-tech products in the selected industry? 3. Why do barriers to large-scale diffusion change over the span of the market adaptation phase in the case of radically new high-tech products in the selected industry? 4. Based on which criteria should companies opt for a wait-and-see, niche or large-scale introduction strategy? 5. What could be the logic and rationale behind sequences of niche strategies for market creation? 6. What are logical sequences of niche strategies in the selected industry? The findings show that overall there is no consistent pattern in the dynamic of the barriers to large-scale diffusion. Three drivers can influence the barriers: (1) niche strategies, (2) external factors and (3) the change from one market to another. Among the three, external factors have the largest scope. Furthermore, except for ‗accidents or events‘, for all of the core and contextual factors which were (partly) removed by niche strategies, there is an available external factor to double that influence. Another interesting observation on the topic of external factors is that they are of two kinds: purely external factors –such as an economic downturn, autonomous improvements in other industries– or factors external to the particular niche strategies, but connected nevertheless to the market actors –such as internal R&D, lobbying by OEMs, etc. The latter ones can be seen as alternative or additional ways in which actors can guarantee or improve the success of current, or respectively future, niche strategies. ‗New high-tech product‘ and ‗customers‘ were found to be more prevalent than the other barriers. Fortunately for managers, these barriers also feature the largest cumulative array of external factors and niche strategies which may influence them. One of the contributions to science represents the finding that niche strategies need not necessarily circumvent or diminish the magnitude of barriers. They may also create new barriers, which had been eluded by the literature. This entails that managers should be well informed of the potentially unintended consequences on the market context, before deciding to introduce the product via a niche strategy. i Wait-and-see niche strategy proved effective when combined with internal product development, monitoring and change of the market context, and influence on the barriers via external factors. Niche strategies are an option when there are remaining barriers to large-scale diffusion. The strategy of large-scale introduction should be considered in the absence of barriers, but mass production facilities may be commanded even earlier than that; for e.g. when economies of scale are essential in decreasing the manufacturing costs. Lastly, mass market strategies can be conceived when there are remaining barriers, provided that the core factors can be removed via external factors. Three generic types of sequences were observed: (1) exploitation- or (2) exploration-oriented emergent ones, and (3) exploitation-oriented deliberate ones. Under this typology several sequences were uncovered, each addressing a certain rationale: for (1) they were changing market context, competitive response, diminish magnitude of barrier(s), and technology visibility; for (2) search for customer segments, and revenue diversifying efforts; and lastly for (3) market skimming, and removal of barrier(s). The sequences for each logic and rationale were very much case specific, and dependant on the initial market context and on the dynamics of the barriers. The development of the theory on the topic of sequences of niche strategies shows potential. The most important aspects left to be investigated by future researchers are: (1) performing an investigation of the impact of each individual niche strategy from the sequence on the factors, (2) detailing the concrete mechanisms by which niche strategies can impact the market context. Furthermore, greater managerial benefits would be derived if it could be identified how the combined effect of niche strategies and external factors could be leveraged as part of a sequence. Finally, among the significant contributions to science, the following are recalled: a dynamic model for market contexts, niche strategies, external factors, and the relationships between one another; the definition of niche strategy and sequence of niche strategies; the methodology for the investigation of sequences; revisions to the model on the pattern of development and diffusion by Ortt and Schoormans (2004); and lastly revisions to the model of niche strategies by Ortt et al. (2013). In this latter regard, several aspects have been suggested. Firstly, corrections should be made to the list of contextual factors: capital –or financial resources– was added to ‗natural resources and labour‘, and ‗installed base‘ was observed as new separate contextual factor. Secondly, the list of niche strategies was revised. The former ‗redesign‘ niche strategy was split into ‗technological redesign‘ and ‗social redesign‘. ‗Leasing‘ niche strategy was uncovered as an entirely new addition to the list; entailing the lease of the good in order to circumvent the prohibitive price barrier. Promising managerial implications ensue from the results. Among these, an important finding remains the cautionary word of advice towards the use of niche strategies. This decision can detrimentally influence the market context, since it may lead to the creation of new barriers – or current one(s) might be increased. Secondly, the impact of external factors was more consistent towards decreasing the magnitude of the barriers among the three change drivers, and they had shown the largest scope. Managers can leverage these factors –primarily those under the decision authority of the central actor– to alter the market context without the need for product introduction. ii ACKNOWLEDGEMENTS The culmination of this thesis is as much the impact of the sustained research work, as it is the influence of the supportive environment created by a selected number of individuals. I reserve the space herewith to express my gratitude to them. Firstly, I would like to thank my supervisors for their guidance, and for constantly challenging me to shift my perspective. Perhaps most indicative of this aspect were our fruitful discussions, which would more often than not span outside the intended initial scope. But at the boundaries of what I had formerly not considered stood some of the most interesting implications for the research. More specifically, I would like to express my gratitude to Dr. J.R. Ortt for having sparked my interest in innovation systems, and for supporting me to pursue the topic. His knack for visually synthesising seemingly disparate ideas, critical thinking and coaching were of great help. Equally so, I would like to thank Dr. L.M. Kamp for the motivation she has given me throughout the thesis work. Her keen eye for detail, the difficult –yet much needed– questions with regard to the research results, and her experience in another field were much needed. Secondly, I would like to express my gratitude to my parents who had supported me throughout this journey. For my mom goes a special thank you for teaching me the value of always be willing to take an extra step. For my dad I want to thank him for balancing the former mindset with a constant reminder of the greater picture. This succinct list barely attests to all the aspects for which I am grateful to them.