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This post is not part of the 20 post which I was required to submit for my Strategic Management course, Though please do check out this video on Disruptive Innovation, it is the 1st video which is part of a series by Clayton Christensen.

The Automotive Industry and its Software dependance

The automotive industry faces more pressure to innovate than ever. Traditional markets in the industrialized nations are saturated with vehicles, and customer expectations for innovative functionality are no longer restricted to premium cars. Emerging markets are highly competitive and vehicle makers strive for a competitive edge while aggressively containing costs.Virtually every area of the vehicle faces emerging technologies that add to the cost and complexity of development. Hybrid electrical vehicles and fuel-cell engines are changing the demands on development of power train systems. Active and passive safety features like ABS and Airbags are expected as standard equipment, even in small cars. Further safety improvements require innovative technology such as collision detection systems or night vision. The sophistication of navigation and entertainment systems is also accelerating, across all categories of vehicle. The common factor among all of these new and evolving systems is that they are all heavily dependent on software to function. Software has effectively become the driving force of innovation in many areas of technology and, in particular, in the form of embedded systems in vehicles.

Until the 1970s innovation was built on mechanical or hydraulic components. In September 1968 Citroen introduced their “curve light technology” with a Bowden cable connection between steering wheel and headlight. Bosch introduced the first electronic ABS that was ready for serial production 1978. By 1981, GM was using microprocessor-based engine controls executing about 50 000 lines of code across its entire domestic passenger car production. Since the late 1990s automotive innovation has been mainly based on software. Driver assistance systems like the autonomous cruise control technology that was introduced in 1998 would be impossible without software. This is a clear and continuing trend - according to a study conducted by the Center for Automotive Research, PriceWaterhouseCoopers, VDA and the city of Leipzig, electronics and software accounted for about 16 percent of a vehicle’s total value in 1990, increased to 25
percent by 2001 and by 2018, their share of a car’s total value is expected to climb to almost 55 percent.

As the amount and complexity of software in vehicles continued to grow, OEMs and suppliers realized the importance of software engineering as self-contained engineering discipline. Specific tools emerged to address the particular challenges of software development in the automotive industry. Change management and requirements management systems are well established at most automotive development organizations, as well as version control and configuration management tools. However, the majority of organizations are addressing these challenges with stand-alone or loosely coupled ‘suites’ of tools. This approach to management of the software engineering lifecycle poses significant risks and challenges, including:
> A lack of traceability across entities in the repositories, resulting in errors, rework, risk to quality and significant manual effort;
> Reuse is limited to entities in one repository, inhibiting collaboration and limiting the value of reuse;
> Process and information silos across the organization, which reduces visibility into project status and obscures the impact and cost of change; and
> A lack of support for cross domain product line management.

These outstanding risks and challenges continue to be strong barriers for the industry in general and these can be used as useful focal points for all ongoing endeavors by companies to revamp their businesses to attain a sustainable competitive advantage.

New Technologies threaten existing firms

When do new technologies emerge that overtake existing technologies? What can organizations do to be prepared for such an eventuality and make sure they are not dislodged by new entrants? A framework developed by Clayton Christensen of Harvard Business School provides a good answer. A proven technology improves over a period of time to produce rates of performance improvement well beyond customer needs. When customer needs are more than satisfied, the differentiated offerings of existing players lose their meaning3 . Under such circumstances, if a new technology fares relatively low on some of the currently accepted attributes, but scores heavily on a new attribute, it has the potential to unseat the older technology. Thus, in the disk drive industry, capacity became less important and factors such as physical size and reliability became the important attributes. So, smaller disk drives began to gain popularity.

Many established firms are overtaken by new technology, not because they do not invest sufficiently in research and development, but because their business philosophy and deep rooted culture act as stumbling blocks. As Christensen has explained, they are so much glued to the needs of existing customers that they
overlook what other segments are looking for. Moreover, when overheads are high, there is a tendency not to take seriously new technologies with little revenue or profit potential in the short run. On the other hand, for smaller nimbler rivals, even small markets can be quite lucrative. Consequently, smaller companies who are not glued to the existing customers and who have an open mind, come up with innovations that dislodge well entrenched market leaders. In his book, “Mastering the Dynamics of Innovation,” James Utterback describes the extent to which established players go to resist all efforts to understand new technological developments and instead strengthen their commitment to the older products: “This results in a surge of productivity and performance that may take the old technology to unheard-of heights. But in most cases this is a sign of impending death… Industry outsiders have little to lose in pursuing radical innovations.
They have no infrastructure of existing technology to defend or maintain… Industry insiders… have huge investments in the current technology; emotionally they and their fortunes are heavily bound up in the status quo and from a practical point of view, their managerial attention is encumbered by the system they have – just maintaining and marginally improving their existing systems is a full-time occupation.”
Often the impact of an innovation depends on complementary inventions. Many new components may be needed to develop a larger technological system that can fully exploit the new technology. Laser needed fibre optics, to be used in telecommunications. The computer industry could take off only after the integrated
circuit had been developed. Established companies are handicapped by the tendency to compare the new technologies with the older technologies they are going to replace. They overlook the fact that the cumulative effect of several improvements within a technological system over time can sometimes be immense. Consequently, their commitment to new technologies is often inadequate.

Many companies fail to assess the impact of a new technology. Bell Labs for instance did not think it necessary to apply for a patent covering the use of laser in telecommunications. Only later did it realize what a powerful combination laser and fiber optics made. Inventors, owing to their highly technical orientation, often
fail to assess correctly how the technology will be used. Marconi, the inventor of the radio is a good example. He felt that it would be used between two points where communication by wire would be impossible. Potential users he identified were shipping companies, the navy and newspapers. Marconi, however, failed to
consider the possibility of communicating with several people at the same time. The full potential of a new technology is sometimes recognized only decades later. Take the case of the telephone. Even though the telephone has been around for more than 100 years, only now have applications like voice mail and data
transfer emerged. Identifying uses for new technologies is very difficult. Aspirin, one of the world’s most widely used drugs has been around for 100 years, yet its efficacy in reducing the incidence of heart attack due to its blood thinning properties was discovered only recently.

Need for Green Innovation in the Auto Industry

The 21 st  century brought new concerns and pressures to the way companies innovate. If in the past innovation was predominantly driven by the intention of exceeding customers’ expectation or to create simpler and less costly processes; today many organisations are required to respond to environmental and social demands.
With regard to the environment, the major environmental concerns in the 21st century are: atmospheric pollution (and its consequences  for human health, global warming and ozone layer depletion), scarcity of freshwater, raw material and land availability. All these environmental impacts have a great impact on how companies manage their business, and therefore, they are also a driver to innovation. For instance, the availability of land can create a pressure on the prices for land disposal, which “forces” organisations to innovate in order to reducer the waste from their production sites.
Within this new context for innovation management, we would define green innovation as those innovations in the products, processes or in the business model that lead the company to higher levels of environmental sustainability. A higher level of organisational environmental sustainability is reached by the minimisation of environmental impacts, and mainly by, the creation of positive impact on the environment.

Looking back at the history, it is possible to note that the automobile industry has had few radical changes over the last 30 years. However, these few changes were often remarkable and had a significant impact on practice and academia. The mass production, Toyota Production System – “Just in Time” - and the modular consortium are important innovations from the production system perspective. Also, the transfer of the assembly plants to developing countries and global outsourcing are evident changes in the industry’s business and operations strategy. In addition, the automobile industry was the pioneer in the use of robots and it still is the main destination of the use of robotics, still being responsible for 60% of the total utilisation of robots in the world .

Nevertheless, these changes have been insufficient to make the sector more sustainable. As evidence of this the automotive industry is still struggling against economic, environmental and social challenges. The many economic challenges currently facing the industry: notably over-capacity; saturated and fragmenting markets;
capital intensity; and persistent problems with achieving adequate profitability. Strong dependence on fossil fuels and large consumption of raw material lead the environmental problems. As a result, in a near future, it is expected that the sector will face strong pressures and take initiatives in order to reduce the environmental burdens from car use and its production process.
Although the environmental impacts of the automotive industry are spread through out the whole life cycle (e.g. production, use and the end of life of vehicles), the use of the cars is where there is the major energy consumption and emissions. Nevertheless, environmental pressures occur to reduce emissions and waste throughout production, use and end-of-life vehicles.