Issue: Nov 2008


Automotive Industry: It’s Time to Roll



by Melody Jill Avery Cazort

Automotive Industry: It’s Time to Roll

The purpose of the article is to teach leaders about innovating forward into the twenty-first century based on the history of the automobile industry. Historical mistakes, theoretical research, and recent studies can not only guide leaders regarding decisions today, but also demonstrate the potential that creativity has in industrial growth and development. After reviewing history, the article presents research about change and methods of innovation, thus demonstrating how patterns occur but also have exceptions. The article shows how necessary innovation can be to an industry, as it influences and drives a business sector. The article concludes with compelling evidence for leadership to act quickly, make creative changes, and innovate for the automotive industry, thus convincing leaders that it’s time to roll.

The Automotive Industrial Times

The history of the automotive industry reveals many leadership mistakes in responding to surrounding changes that demand refocusing for business growth. Leaders can learn from history in order to avoid the same mistakes. We begin to learn about the past in this section.

Early Consumer Demand

Henry Ford’s Model T was not in demand anymore in the 1920s and buyers desired a fresh vehicle (Tedlow, 2008). Customers wanted more selections and features from a vehicle, including the status that it represented. However, Ford insisted on selling this model, believing that people would buy the basics and be satisfied with mere transportation. When his top executive warned Ford to revise it, Ford fired the employee. Ford’s conviction to keep the vehicle the same and ignore the public’s desires for extras in an automobile resulted in lost sales. Instead, buyers purchased from another leader who would acknowledge their demands. The following paragraph demonstrates how the role of innovation along with the courage to use it advanced this industry’s development.

El-Messidi said that Alfred Pritchard Sloan, Jr., of General Motors answered these consumer demands for an automobile. Sloan initiated the idea of annual models, offering diverse cars at different costs, and therefore gained market share from Ford’s company (2008). Although Ford’s lack of action may not have been intentionally unfair or selfish, Sloan’s reaction to the multitude of customers was more of a positive nature. Sloan could have reacted greedily and helped develop a dominating force with Ford in the business arena of automobiles. However, the behavior of Sloan aligned with a biblical verse. Exodus 23:2 (New American Standard Bible) says, "You shall not follow the masses in doing evil, nor shall you testify in a dispute so as to turn aside after a multitude in order to pervert justice” By not following the masses of his era in selfishness and dealing more fairly with the public, Sloan was rewarded with sales.

Tedlow explained how this market change occurred with a conceptual model of an industry, consisting of two parts that vary (2008). In this concept, every industry consists of one part, the core, which is a product’s basic purpose or use. The other part of an industry has the augmented features, which one may call “the extras.” Over a product’s lifetime, these two components shift, giving way to one another. It is common for leaders to make the mistake of ignoring and deny this prototype, which represents industrial change. The following example could explain this in more depth.

If you remember a new product in the past, it probably originally sold as a basic model. One example product could be cell phones; it began as a way to communicate. The core part of the industrial model was the largest. Then the public wanted so much more from their phones such as internet, music, games, cameras, and video. Now the industrial model has shifted and consists more of augmented features, the extras. The cellular phone industry reacted creatively and to gain sales. Innovation directed this field of business. The next paragraph shows how a similar change occurred in automobiles, providing another leadership lesson in ignoring change.

A few years after Sloan modified vehicles, the augmented features’ component of the automobile industry grew, and the core became smaller (Tedlow, 2008). As the augmented features enlarged, Americans no longer wanted the same old package. People wanted big purchases, such as engines, and car details that were popular. In the 1970s, changes emerged again and the balance between the core and augmented extras altered still another time. This time, consumers returned to basic transportation and wanted economical, reliable vehicles. The three leading automobile manufacturers made an error because they did not respond to them. However, the Japanese reacted to this consumer demand and Tedlow professed that they met these new demands, which were more of the core product.

Another author, El-Messidi, explored further regarding this historical lesson of replying to consumers. El-Messidi explained, “By the end of the 1970s, Japanese automakers were selling 2.5 million cars a year in the United States, which amounted to about one of every four units sold” (p. 5, 2008). Later, American manufacturers reacted to the Japanese firms by modifying factories and beginning to build smaller vehicles. This rapid innovative response from the foreigners proved profitable.

Thus, the balance between the core and the augmented features in an industry appear to run in cycles. Nevertheless, don’t stop here; the plot thickens. The story shows something else concerning industrial change. It also proves that usual rules in industrial growth can be broken. The next paragraph will show how.

Patterns and Models in Industrial Innovation

The creativity from the Japanese in the previous story defied a customary growth pattern found in most industries. Utterback (1996) explained that the pattern begins when a dominant design emerges in a new industry. This dominant design is a new product with a particular set of features that the consumer market selects and the manufacturers will have to adhere to in order to achieve sales. As the dominant design becomes well known and popular, only a minimal number of big businesses will retain a place in the arena. More often than not, the remaining, thriving firms are the same ones that entered very early into the industry, when it was brand new. The innovative Japanese automakers had not entered the industry at the beginning. However, through their creativity and modernization, the Japanese broke this typical industrial growth pattern. The following paragraph provides more history and study of this business field, as it demonstrates that the automobile industry did hold fast to another new product innovation pattern.

Utterback (1996) presented a method of innovation for the automotive industry. This common cycle for novel products shows the volume of companies entering and exiting at particular points of product development. This entry and exit simulates a chart showing a tall hill-shaped curve. It begins with a low line representing very few firms, probably small ones, as new product starts. After some time in the market, the innovation moderately gains some firms, growing into a “rapid wave” (Utterback, p. 32). The chart shows a sharp raised line here. Following this, the industry proceeds into the well-known dominant design stage as described previously, with a few large firms existing, likely the ones that operated initially. From the late 1800s to around the 1920s, the firms in the automotive industry grew. The early 1920s introduced use of the all-steel vehicles bodies; at this crucial innovation, firms peaked at around one hundred firms. As the years proceed, the number of businesses dwindled to approximately twenty in 1960. The next paragraph explores how leaders can utilize these industrial patterns.

This model of firm entry and exit in product innovation could be useful today to foresee how many firms would operate in the life of new creative idea in the American automotive industry. However, this model may not apply in reference to global industries. As a previous paragraph showed an example, a greater number of Japanese firms have a tendency to join some industries subsequent to establishing the dominant design instead of prior companies.

Additionally, this finding concerning other countries researched more in depth. Now that we have looked at historical data, industrial patterns, and innovation, we will examine the automobile industry’s future with their leadership at the wheel.

Time for Innovation

In the early days of the automobile, law officials tried apprehending speeders in unique ways that we would not attempt today (Varrasi, 2005). Officers would shoot at vehicle tires or stretch chains across the streets. As the public made sure that this law revised, the automotive industry needs to respond to the consumers demand for innovation, as the next section steers leaders in the right direction.

The Market Needs Change

McElroy (2008) asks, “When will the auto industry bring forth a truly modern, innovative vehicle design?” (p. 1). In most decades throughout automotive history, car designs progressed. For example, the industry stylishly integrated bumpers into the vehicle in the 1980s and added flush-mounted glass for a more contemporary look. This answered the customers’ desires.

However, we are in the twenty-first century now and not much has changed in the automobile since then (McElroy, 2008). Today’s clientele insist on receiving the latest fashion; it is a major factor in buying. McElroy also asks why no manufacturer presents a new idea. Is it is the conservative nature of this industry? Does innovation risk too much money? Good outcomes are possible, such as the following: An innovative new design could challenge the high oil costs to where people can realize a difference. Additionally, a new design could make a memorable impression, hailing an automotive company as “a true visionary, the industry leader” (p. 2) “The automotive industry desperately needs to show the public and government regulators that it's turning out modern cars that are sustainable and safe,” (p. 2) McElroy stated.

Tedlow (2008) advised the automotive industry to learn from history. As Ford's Model T and the 1980’s Japanese car history showed, automakers steadily improved their basic product before returning their focus to the core, basic product. The industry is failing to react to shifts, consumer demands, and technological innovation. Tedlow proclaimed that this era’s automotive industry rejects the fact that customers’ demand has changed and consumers are screaming for innovative changes. Leaders should respond to the current environment and not allow their firms to diminish as Ford allowed.

Conclusion

Leaders should learn lessons from automotive history and to consumer demand. Today’s leadership should pay attention to current data that others in history did not have and respond to it. If leadership will learn from past mistakes, learn theoretical studies, about research, business concepts, consumer data, and marketing information, they can advance the automotive industry forward, becoming contemporary. The public is waiting a more sustainable, safer, and economic automobile. You should answer them and make what they want. Leaders should take action now to become the industry leader, meeting the challenge of creativity, to make you and your company a legend in its own time.


References

El-Messidi, K. (2008). Automobile industry. Microsoft Encarta Online Encyclopedia 2008. Retrieved October 13, 2008 from http://encarta.msn.com/encyclopedia_761563934_3/ Automobile_Industry.html#s24

McElroy J. (2008, July). Show me the 21st century. Ward's Auto World, 44(7), 12. Retrieved October 11, 2008, from ABI/INFORM Global database.

Tedlow, R. (2008, July). Leaders in denial. Harvard Business Review, 86(7/8), 18-19. Retrieved October 13, 2008, from Business Source Complete database.

Utterback, J. (1996). Mastering the dynamics of innovation. Boston: Harvard University School Press.

Varrasi J. (2005). Wheeling and Dealing. Mechanical engineering, 127(4), 44-46. Retrieved October 11, 2008, from ABI/INFORM Global database.


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