ParisTech Review

ParisTech Review – In a recent book coauthored with Christopher Midler and Romain Beaume (in French), you make a call to “Reinvent the industry by innovation”. One would expect such a book to deal with biotechnologies or nanotechnologies. And yet, you take example of the automotive industry…

Rémi Maniak – The strangest thing is that today everyone seems to rediscover the importance of “traditional” industry. Everyone agrees that within developed nations, innovation is a crucial factor to save the industry. But how? We tried to understand how players in a mature field were able to truly innovate, beyond empty words and pledges. The automotive sector is a perfect observation site. Cars have apparently followed the same design principle for over a century (four wheels, a gear…). How can this industry, which has been announced dead many times, still survive and appeal customers?

To understand what was going on, we decided to focus on the innovation processes of nine constructors. Easier said than done! We had to win their trust to let us enter their organizations and analyze real projects. We were hunting for the genuine processes – not official PowerPoints! Over several years, we were able to analyze 26 technological innovation projects and a few radical product innovations, such as electric vehicle or low cost cars. Constructors have dramatically changed their innovation management since the 90s, that’s the least we can say!

Could you refresh our memory?

In the 90s innovation was mainly about product development. The challenge was to launch more products, in order to reach a wider variety of markets or stimulate a faster renewal of old vehicles – all of this within an increasingly limited budget envelope. It worked so well that in 20 years, the best management practices have been widely disseminated (heavy projects, platforms, co-development…). And the race has now reached its own limits.

Paradoxically, the more organizations structured themselves in order to increase the launch of new products, the less they were able to deviate from the traditional dominant design. Several factors explain this stability: platform design and the widespread standardization of parts, increasingly repeated technical specifications, stabilization of the reference systems… Constructors were aiming for innovation – they only achieved standardization. To keep innovating, they had to try something totally different. And so they did.

What do these new strategies look like?

The challenge for constructors is to add spice to their offer without losing the development capabilities they have carefully built over the years. This can only be done by playing on two levels of innovation: adding “small” innovations to new, traditional products; or developing completely new products, such as electric vehicles.

The first level of innovation focuses, roughly speaking, on equipment. In the 2000s, dozens of innovations of this type were launched on new models to help them stick out within an increasingly saturated market: Head-Up Display on the windshield, 4-wheel drive vehicles, keyless ignition solutions, intelligent parking assistance systems, panoramic windscreens, stop-start systems that automatically shut down and restart the engine when idling… Constructors have highlighted these specific innovations when promoting new models.

On the second level of innovation, they have strived to break market rules. By developing radically new products, by using new technologies but also by changing the conceptual framework around these products, the issue was to create new markets where innovators would stand as pioneers – and eventually have a clear edge for being the first to get in. The hybrid, electric, low-cost vehicles are different attempts to destabilize the dominant design, sometimes successfully, by searching to carve a new path through innovation.

On these two scales, the innovation strategies from the 2000s also stand out for their multi-product continuity.

You mean a vision of innovation that stretches over several products?

Exactly. And it’s not so simple. The 90s accustomed us to think these processes according to the “funnel” metaphor: ideas enter from one end and products come out from the other end. To elaborate both innovation and new products, you need to make very bold moves. It can work, but it’s risky. Whatever the results, efficient innovation processes are able to use these bold moves and move forward to develop different products. When over ten products are developed simultaneously every year, innovation must be conceived on a multi-product basis! Innovations are prepared, added to a first product, discarded, added again, modified, deployed… Thinking about innovation on a single product scale doesn’t account for these “innovation journeys”. You need to keep a clear track of these innovation processes to be able to drive them within the right perimeter and towards the right horizon.

Precisely, how do these strategies impact the firms’ organization?

It touches to all levels. From research to development, sale, purchase, marketing, management control…

Let us consider three of these elements. First of all, we can see that competitiveness must be supported by a coherent link between mainstream and innovation. This requires putting in place a multiparty decision center that decides of (and is accountable for) these multi-move strategies. For technological innovations, this center must decide which products will benefit from a pool of innovations, and how will these product/innovation combinations be presented in a coherent promotion agenda. As for breakthrough products, this center will be in charge of coordinating, on one hand, the development of standard products that will extend the existing line of products; with, on the other hand, the development of pioneer products, of new markets, new concepts, new capabilities…

Secondly, at operational level, the competitiveness of innovation journeys is submitted to specific criteria, quite different from the traditional quality-cost-delays criteria. For one part because what the firm aims at is global value rather than cost reduction. This opens a whole new set of criteria: the likeliness of paying new features, the consequences for the firm, the positive effects on the order book (the conquest of new customers)… From another point of view, the competitiveness of innovations largely depends on the opportunities they are able to create. Then again, this paves the way for a completely new set of management tools: the ability to integrate multi-products in the firm organization, consistency regarding the reference systems, to deploy technologies on the whole line of products, to grasp the key assets than define a new product concept…

Third and last element to take into consideration: the fragmentation of teams traditionally based on the division between “upstream” research and “downstream” development. The deployment of new technologies implies focusing on transversal teams, within the vehicle programs, and on innovation deciders who work on the whole process. Major product breakthroughs may require a project team working from “outside” the rest of the organization, free from any established standards (conception, commercialization…). Renault’s Logan and Toyota’s Prius projects worked out with such teams. Then, the challenge was to keep their specificities and implement them on several other products as well as disseminate their best management practices within the normal standards. By the way, these two projects were great achievement for their constructors.

This calls for the issue of competencies. How does a firm know how to define its key competencies in such an unpredictable environment?

It’s huge challenge! A brief detour through the academic literature can help us understand what is at stake.

The issue of reconfiguring key competencies in a firm fuels a very intense academic debate at this very moment. Research on conception engineering and skills dynamics has shown it was better not to exhaust the competencies with projects but rather use projects as learning opportunities. One can think of all the research on “dynamic capabilities”, that could be defined as a firm’s ability to integrate, develop and reconfigure the internal and external competencies in order to cope with a changing environment. The framework of analysis of the innovation journey responds to this type of theory, by describing a coherent process with the renewal dynamics of both products and competencies.

Specialized literature recognizes development processes of new products as crucial drivers for dynamic capabilities. However, in some sectors (especially in the car industry), the development logics cannot always sustain enough learning loops. The development process of a new product is close to a zero-order activity – an activity that cannot regenerate its products and competencies well enough and that is forced to propose simple and poorly attractive new products.

The innovations developed within these projects come up as a challenge to the reference systems. All the specifications, frameworks, validation processes to develop and industrialize innovation must be renewed. This whole renovation process completely updates the knowledge bases, reshaping the routines by integrating new generative models as well as new technical and functional parameters.

Sometimes, competencies are the sole purpose of innovation. A Japanese constructor once told us that they had implemented an innovation for the only reason that they wanted to challenge their technical departments. For another constructor, we noticed that the implementation of an innovation had helped increase the global quality of a determined field.

It looks like a win-win situation for everyone… but routine and inertia both weigh on big organizations. Applying the principles you have analyzed to industrial-scale firms seems much more complicated, don’t you think?

Obviously. The tension comes from the highly delicate dosage between innovation and mainstream. On one hand, if a firm relies too heavily on innovations, it will disorientate its customers and put at risk its actual competitiveness. On the other hand, relying only on the mainstream locks the constructor in a hyper-competitive field, where he must struggle to reduce costs, without any specific edge, by using as far as possible all the inherited assets, such as his reputation on specific markets.

Apart from the strategic tension, there is also an operational tension, as well as heated debates between departments. Organizations and processes are there to overcome the tensions, but the changes are very important indeed: repositioning of the profitability parameters, transformation of some capabilities, creation of new drive tools, heavy changes in the purchase policy… All of these moves go against a whole set of “invisible technologies” – to speak like Michel Berry – inherited from 30 years of rationalized conception.

But it is neither the first, nor the last time the car industry sector has to reinvent itself. The innovation imperative forces firms to overcome their routines and experiment with internal transformations. Our role, as researchers in management, is to accompany these experimentations and formalize them at a level generic enough for others to use them.

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