Why disruption will make the third road of management the best way for organizations to grow. Example of mobility and automotive companies:
If in current conditions, organizations using all sources of ideas, thinking and acting globally and locally, and giving more freedom for quick implementation are more efficient. What will it be under future technical and business disruptions? We saw that moves were slow and are accelerating. For example, still 2 billion people do not have access to electricity or current water at home even if both inventions came 150 years ago. It will probably take less than 30 years for all to have access to energy and water. It will also take much less for everyone to have a mobile device.
The most important change to come, beyond what we saw earlier is that digital will create disruption coming from new areas of business. New actors will enter the game. Start-ups will enter the business of lodging, medical care or mobility without owning a room, a hospital or a car. Already in 2009, Google made it possible to improve the tracking of epidemics through search queries in a cheaper manner, more accurately and faster. It takes one day instead of a week with traditional the network of medical doctors making a weekly report for the DOH. This can have a huge impact on reduction of the number of victims -250 000 to half a million fatalities in the USA alone for influenza*. In the future, the border between different sciences and between business sectors will be more blurred than ever. No sector can pretend to be immune to a disruption coming from another one or one that did not exist. And this phenomenon is not reserved to mature countries. In China for example, e-commerce has grown so fast that it could catch up US mix of sales in less than a decade. In Kenya, where people pay their invoice with their mobile handset, digital is reinventing the banking business, leapfrogging the western “brick and mortars” business model. Examples are many to come: Drones will be critical to optimize the usage of chemical and water in the agricultural business. What is the meaning of investing in brick and mortar bank branches at each street corner in a digital world where cash will only be virtual? In an interview, Daphne Koller co-founder of Coursera, the leader in Massive Online Open Courses (MOOC) explains that through online students forum, the average time to solve an issue is just 22 minutes*
It would be too simple to say that most professors will be replaced by digital solutions but their role will be completely transformed in the coming years as we saw earlier: from lecture preparer and givers to counselor, advisor and supervisor. The content of MD work will also completely move away from today’s owner of knowledge to something different to define. Indeed, knowledge has become accessible to the most and will even become more through the combination of big data and IOT such as connected watch or other objects that will monitor in real time people’s actual condition and activity. Diagnosis of diseases can be more reliable and anticipated thanks to the use of digital. The same evolution will happen to lawyers, as tons of research will be reduced to a simple click to past cases. Already, in France as in many countries, it is possible to get advice or get legal documents filled on line like on legalstart.fr. Other online companies propose to fix most of cases up to a certain amount. Those activities were the territory of lawyers until very recently. Lawyers’ role will have to be redefined if they want to stay relevant in tomorrow’s world.
As a result, those new business models can redefine the norms that took years, decade or centuries to be established. New companies in emerging markets particularly India and China, as explains David Baverez in his book “Génération Tonique” will define norms that will be just what is necessary for the new middle class. Well established companies from mature world will have to reassess norms that over time have become too heavy, too complicated or simply too old. A new frugal economy will appear. More and more customers are expecting it. The success of simpler appliances, notebooks, and low cost cars are good examples of this new demand. Who needs a 1 million MRI to do a simple check-up? Who needs to spend years and tens of thousand dollars in a brick and mortar universities when science and knowledge doubles in 5 years and when the rules of marketing or business will be outdated in less than 10 years? It is not sure that future medical or legal specialists will have been trained during hard working years at university but will rather follow an initial training to understand how to use the new tools that will be followed with a regular “lifetime” digital training.
The online training is indeed a sector that is growing at fast speed. Recently the take over of Lynda.com, specialist on online training by LinkedIn the professional social network is a sign of the potential of this domain. Business schools like INSEAD understood it and see themselves as a provider of state of the art lifetime training to their alumni. The development of MOOC’s is absolutely paramount in the way it gives to all access to the best education from the best institutions. It still needs to find its own business model but is very promising. I have followed several of them recently. For the learning of Python from University of Michigan 180 000 students were following. I remember that professor Craig Wright of Yale University was telling at the end of his first and remarkable MOOC on classical music that more than 80 000 students had followed his online class. As he explained, it is more than the cumulated numbers of students he had in his entire career. Craig Wright is not a beginner. He was born in 1940 and was 70 when he did his MOOC. By the way, even though I was raised in a musical environment as my mother was a famous French violin player and soloist who played in some of the most famous concert halls of the world. Still thanks to Craig Wright’s communicative passion, pedagogical abilities and tools, I learned more in a few weeks about the history of the classical music than in my entire childhood.
The consequence for companies is that they need to rethink their mission not from a product or technology point of view but from a “contribution to the world” point of view. They will need to reassess the real value of they proposition. They will need to think even more than today of actual customer needs and how to meet them in a more pragmatic and efficient way. It will not be possible to rely only on the experience of veterans of a company or a sector. It will be necessary to have big antennas and ears in all parts of the world, diverse sectors and people of different ages and origins to see how those needs could be met in a different manner. Diversity in the management teams for strategy and implementation will be absolutely critical.
To illustrate this disruption and the way car makers will have to set-up their organization, I will describe how the biggest revolution in the automotive industry that will make the individual mobility, accessible, sustainable, safe and convenient will not come from automotive technologies but from other sectors. I will explain why I am convinced that the car manufacturers will have to change their way to operate if they want to stay relevant. Elsewise, only a few will remain and become the manufacturing arms of players who will define the business and create the added value. The survivors will become the “Foxconn” of the mobility business. There is no shame to that -Foxconn is a remarkable and innovative company- but it must be understood by them and be a clear choice. Dieter Zetsche, the CEO of Daimler the mother company of Mercedes cars, said his company “would not allow itself to be demoted to the role of dumb supplier” It should not simply produce cars for the Silicon Valley giants. “We don’t want to become contractors who have no direct content with customers any more and supply hardware to third parties,” Zetsche understood that the risk is there and that the real added value is not in the production but in offering customer a superior mobility experience.
Why the real revolution in the auto sector is not where most people think it will be.
I am often asked what my view is on the future of the automotive industry. The question about the trend in powertrain technologies or market segmentation often comes. In an interview given for Reuters at the Frankfurt motor show in 2009, I answered that the future would be impossible to forecast and diverse in its solutions*. There will be room for different type of technologies and the regulators and the customers would both be as important as technical progress. Especially, I explained that I did not believe to the rapid growth of pure electric drivetrains. What I had not anticipated in 2009 is that the real revolution would not come from technology, regulation or customers’ demand changes only but also from the digital disruption.
Innovation in car technology and production is on the way:
Two major launches have taken place in the past months and each from a company I have been lucky to work for. Both are major contributions to the key challenges of the automotive industry in the coming years. Toyota Mirai (which means future in Japanese) is the first production car driven by fuel-cell technology. Fuelled with hydrogen, it only emits water. It is one of the promising answers to the end of dependence to fossil fuels. Renault Kwid is the cheapest modern car from an advanced manufacturer and the best compromise between ultra low cost and attractiveness. The car was totally designed in India and can achieve an impressive retail price of 4000 dollars. Both products represent the result of years of R&D activities and innovation approach of car design.
In the case of Mirai, it is the fruit of more than 5 billions dollars and 10 years of intensive research activity. Starting from a cost per unit of one million dollar in 2006 to an acceptable one allowing a start of sales at a reasonable price for a premium production model of 70 000 dollars, the step by step progress has been impressive. Yoshikazu Tanaka is its chief engineer and has worked under the authority of Satoshi Ogiso who was also the chief engineer of the third generation of Prius. For the Renault Kwid, a specific project has been put in place in India under the authority of the engineer Gérard Detourbet who postponed his retirement –he worked until 70 years old to be still in position at the launch of the car- each traditional standard has been challenged to reduce cost. For those who think you need to be young to have a challenging spirit, Gérard shows that young mindset is not correlated with age. Contrary to the traditional approach that consists in optimizing carry over, each part of Kwid was redesigned from scratch. From the thickness of the steel metal plate to the number of screw to hold the wheel, every accepted practice and standard was challenged. The team challenged past and old standards from functional value and from what customer really needed. The result is that many suppliers are new to the industry. For Mirai and for Kwid, the traditional ways of designing a car were questioned and new solutions were found by remarkable engineers excelling in their core competencies, innovative drive train technologies for Toyota in the continuity of hybrid and design to cost for Renault in the low cost area in which it already had achieved a recognized leadership.
Does this mean that the clean and affordable cars will look like Mirai and Kwid?
The contribution of those two products to the future mobility landscape is fundamental. Environmental sustainability and affordability for the masses are indeed critical factors for the future of the auto business. But an even more important breakthrough is to be found somewhere else. Even with existing mechanical and production knowledge, daily individual mobility cost, convenience and environmental footprint can be reduced by a much bigger factor. As a rule, product or technological innovations-such as hybrid or new low-cost car introductions- have brought, at best, improvements in the area of 20-30% in either fuel efficiency or price reduction (and never in both) The mobility revolution we are entering will have a much higher impact. The combination of both technological progress and this new disruption will bring cheap, safe and clean individual mobility for all.
Individual mobility has been a key driver of growth and has become a need
Let’s go back to the genesis of individual mobility. Until 19th century, mobility was rare and reserved to happy few. Its practical conditions were slow, very dangerous, expensive and uncomfortable. When as a child, with my father and grand-father, we spent our week-ends to go back to the region of our ancestors to research and draw our genealogical tree, we noticed that our family – they were “laboureur” then “journalier” which means they were selling their workforce by the day- moved a total of 8 kilometers in 300 years between 16th and mid-19th century. The only trips they probably did were rather unfortunate as they took place during Napoleon’s wars early 1800 from which 7 out of 8 brothers never came back. The 8th was my direct ancestor. If he had been killed as his brothers, I would not be writing this book. With the apparition of steam engines and trains in the middle of the 19th century distances suddenly became much shorter. For example, little fishermen villages on the coast of Normandy became over night fashionable resorts, taking in safe conditions just 4 hours of Paris by train against at least 4 days previously. But the mobility was still relatively expensive and limited to areas close to the train stations. Only the companions spent long period travelling to learn the best practices of their specialties in each region of France before mastering their techniques. Early 1910’s, Henri Ford brought the most fundamental technical revolution of the 20th century: access to individual mobility. Through car ownership, humans were able to move, when they wanted, where they wanted, with whom and what they wanted in relatively safe and confortable conditions. But cars were still reserved to a minority mostly in developed countries. Since then, the car has never stopped growing in importance reaching always-increasing parts of the world population.
For three quarters of the world population, it is still an unaffordable dream. Even if it often criticized for its supposedly or real negative impacts on environments and human’s health, its growth has been continuous and car is still associated with freedom for the vast majority of the world population particularly the least wealthy. Its contribution to economic development was critical, which turned into increase in wealth, access to modern comfort and paramount surge in life expectancy. Those improvements are by far more than offsetting by an at least double-digit factor any negative impact. The new car market is now of 90 millions vehicles per year. With the addition of used cars, no region is completely out of reach of individual mobility. It is now estimated that more than one billion units are in operation** or more than one car for every 7 inhabitants of the planet. But this average hides geographical differences. If there are 850 vehicles for 1000 inhabitants in the US, the figure is only 25 in some parts of Africa. Even if the US figures remains an exception, the average of other mature countries is in the area of 500 to 600. The current “developed” model, if extended to this average data, would eventually lead to 4 billions units in operation and a total market of roughly 350 millions vehicles per year. With current known technologies and even the one in the pipelines, no doubt this would bring many challenges to overcome. Some “logical” analysts are regularly predicting that car mobility is getting to its end and propose to limit its accessibility. In fact, the room for increase of car ownership in emerging economies, the physical impossibility –cost and practical feasibility- to offer alternative collective transportation systems and the need, if not the thirst, for mobility have turned down those predictions so far. Indeed, in mature markets, people prefer moving to suburban areas where cars can be easily used as shown with the negative correlation between wealth and density of population***. In emerging countries, governments understand that access to mobility is a prerequisite to development. As a result, developing an automotive industry is a priority for most populated countries.
The idea that people own a car, and spend a big amount of money for it just because they are addicted or love their car is simply wrong, at least for the very big majority of citizens. People need a car for their daily life, to be able to work, have access to cheap supply of goods and of daily food, visit friends and relatives and have cultural and leisure activities.
Freedom of move is driving demand
Some product planners, having noticed that most car trips are done on short distance and with rarely more than one occupant per car, have thought that more economical and environmentally friendly solutions such as 2 seats cars –Smart- or zero emission vehicles –EV- would develop. In reality, with some “niche” exceptions, it proved each time a failure. The reason is easy to understand: people who buy a car are looking for freedom of movement; unless under regulatory of economic constraint, any solution limiting the car usage is seen as an unacceptable trade-off. This limitation can be the number of passengers, the load capacity or the driving range. And this is even truer when those solutions are more expensive than traditional car offer, which is the case for zero emission or ultra compact cars. People buy a car for the around the year usage. As most households own one or two cars, they expect it to be able to be used for any usage of daily life: going shopping with the family at the supermarket, carrying back the bulky boxes from IKEA, accompanying the neighbors’ children to the soccer training on Sunday afternoon or going on holidays with the trunk full of luggage for instance. The car must be versatile enough to carry several passengers, a sufficient quantity of luggage and to go long distance at relatively high speed and all this protecting the occupants in case of a crash. The result is that most of the time, the car is over designed for the “average” usage it is done of it. Indeed, it is mostly used at relatively low speed, with 1.3 persons on average (and 7 times out of 10 only the driver) on board. But people don’t buy a car for an “average” usage. They need the car for a multitude of conditions. I remember that in charge of innovation at Renault 20 years ago, Georges Douin asked my team to evaluate the potential market of a Smart competitor. It was just a few months before its introduction. With Alain Felce, the mobility expert of the department, we answered that the probable market in Europe of a 2 seats relatively expensive car would be limited to roughly 100 000 a year. Indeed only very wealthy urban families living in the center of advanced European big cities already owning at least one if not 2 cars would find any interest in it. Renault never even started studying a competitor and our prevision proved eventually true.
What makes a car expensive and emitting?
There are three main drivers that define the cost and environmental footprint of a car:
- The first one is quite basically its purpose and size. To use the car off-road, bigger wheels, higher ground clearance and more robust chassis are necessary, to carry more than 5 passengers, a third row of seats making the car longer and often taller, increasing the weight and aerodynamic resistance will have to be added; to increase load, the vehicle will need to be dimensioned for more severe crash and more braking capacity and will need a bigger engine. Those requests will have an impact on weight, price and emissions.
- The second element is the maximum speed. For example, even if it is proven that high speed has a negative impact on crash fatality and pollution, Germany has always resisted to generalized speed limit and it is the only developed country to do so. The reason is simply that German automotive industry image is largely relying on the commonly accepted idea that German cars are designed for high speed. As a result, in some customers’ mind, there have the reputation to be safer, more stable, and more reliable. In reality, this idea is largely overstated as cars of all brands, and particularly those sold in Europe, are designed for high speed. But this absence of speed limit in Germany has shaped the definition of cars in Europe and to some extent in the world. Indeed all makers want to show their ability to compete in extreme conditions. This is the reason why most makers often quote the famous car track Nürburgring in Germany as a reference for car development. Still, it is true that being able to reach 200 or even 250 km per hours will require more severe general specifications with of course a bigger engine and transmission, brakes and tires, stronger cooling and anti roll bar suspension for the stability and as a result heavier body and more cost. Of course a heavier car equipped with a larger engine emits much more especially in daily usage. Even if the car will never reach in most cases more than 130 kilometers per hour, the higher the maximum speed, the heavier and more consuming the car will be. The energy spent to offset aerodynamic resistance and to stop a car is proportional to the square of the speed. As a result, it is necessary to spend twice the energy to drive or absorb a crash at 140 kilometers per hour compared to 100 kilometers per hour. As most of the time a car is used at far lower speed, idling at traffic light on in congestion, commuting time hardly depends on the maximum speed of a vehicle. It is even often the opposite. When the speed limit of the often saturated Parisian “Péripherique” highway was decreased a few years ago, the average speed actually increased as a result of a smoother traffic. For daily usage in urban or suburban areas, most cars are over engineered. Europe has become under the technological intellectual “domination” of German brands –the tagline of Audi for example is “Vorsprung durch Technik” or “progress through technology” the continent where the accumulation of official or non-written norms, as the result of tests of German magazines, has been the strongest.
- The third element having a big influence is the level of passive safety. Passive safety requirements are good for cars occupants if an accident occurs but bad for the cost and weight of a car as it increases significantly the rigidity of the body, enlarges the size of zones to absorb the deceleration in case of a crash and requires a lot of heavy and expensive features such as always more numerous airbags or body reinforcements. And as we saw earlier, the higher the speed of the crash, the heavier and the more expensive the protection systems will be. In this area too, Europe has taken the lead, first under German media pressure then under some manufacturers’ influence. Makers as Volvo and then Renault took initiative to make road a safer place.
There is a gap between common usage and specification
As we understand, there is now a big gap between products in the market and real needs and ability to purchase. The result is that contrary to most markets in the world, the European market is on the downward slope. Even worse, the European new car market is mostly made of fleet and rental cars sold after a few months with huge rebate. For most brands, mix of sales is also decreasing with more and more small cars. Private buyers buy second hand cars rather than new ones. Except for premium brands, profits in Europe are thinner than in other regions as cost cannot fully be reflected in the final price. Some exceptions are brands with strong and differentiated products such as Nissan with SUV’s as Qashqai or Toyota with its hybrid family of locally produced models. Another phenomenon of the European market is its polarization. Premium brands are growing mainly as companies use them as a way to reward executives. Value brands such as Dacia and until recently Skoda or Korean brands are the other winner of this evolution. Dacia, was an unknown brand from Romania taken over in 1999 by Renault. It was revitalized by its parent company and now offers simple, robust and reliable cars at affordable price. It often occupies it many European countries, some of the top positions of the sales ranking to retail customers. The brand is not only purchased for its exceptional “value for money” but has become a symbol of the “smart buy”
A few years ago, after a internal comparative drive of a Dacia model with other equivalent size but double price models, drivers could not find any value to justify such a different gap. The only differences found were in the area of detailed high-speed performance, noise, comfort electronic device, smoothness of the tactile contact with some materials and design details. All nice to have but none of which were absolute necessities.
The new mobility paradigm is not the technology but the adaptation of the business model to the needs.
In a summary of the current situation, we see that technical breakthrough is on the way, individual mobility is feeding growth and has become a need, freedom is driving demand that will continue to grow, and we understand that purpose of the vehicle, maximum speed and passive safety are key to explain cost and emission. As a result there is an increasing gap between the specifications and the actual usage of the car.
In the area of mobility, there are two revolutions that are taking place. And those two revolutions are reshuffling the cards of the business. As a consequence of those revolutions, new comers, start-ups and the new giants of the digital economy, the GAFA, are entering the game.
The first one is the usage of big data and digital application that can put in contact different actors of the mobility depending on their needs and what they can offer. Typically, Uber or Blablacar can optimize in real time the matching of different actors offering or in search of mobility solution. Uber can even charge differently depending on actual condition and make people pay according to the real value of their needs.
The second one is the growing importance of electronics in the car itself leading to autonomous driving and connection with the outside world. Google and other actors are actively entering the business of digital in the car, from connectivity -how the car connects with outside world- to how the car can drive autonomously and safely.
The combination of the two elements big data and autonomous driving opens the door to a new field of mobility landscape and new services at minimum cost. Indeed, as some already predict, in the long run, most people will not own but use on demand a car that will come to them when they need it. Ultimate mobility will be a service close to a “driverless Uber”. The advantages of such a system will be many: no burden of ownership, shared amortization, no parking problem, ability to spend time during trips –sleep, work, watch movie, play games…-, lower insurance cost, traffic time optimization….
But the biggest impact is elsewhere: it is in the type of cars that are going to be on the road. The chief thrust of the Smart or zero emission car design, which was that most of the time, needed range or number of passengers was limited, could not face the reality of freedom ownership. But a park of multiple cars available for multiple usages can better match the actual need of the public. Let’s imagine with one example how this could look like for a specific but daily usage: For instance, when you want to go, alone, in an urban area from point A to B, you simply need a one-seat vehicle that can drive at a limited speed.
This type of usage –urban short distance trip- is becoming the majority of the usage for the growing urban population. Indeed, the threshold of 50% of the world population living in urban areas has been passed in 2006. This proportion keeps on growing and is even reaching more than 70% in developed countries. Without anticipating the nature of the vehicle, we can guess that at worst, it would be very light, electric as cost of batteries and driving range would not an issue anymore. It would then be clean, economical and silent. As the equipment to make this car autonomous – outside of the car connectivity, sensors and actuators- are the same as the one that are needed to make the car avoid crashes, most of the passive safety features such as sophisticated and heavy airbags would become redundant. This type of vehicle could redefine the standards of current vehicles in a much more frugal way. It would not need the bells and whistles that current cars have. It would need to refocus on basics such as durability. Todays cars are used on average 4% of the time on distances of 10 000 miles. Those on demand products would need to be more durable. This is not an issue as for example Tokyo taxis have specification to drive 500 000 kilometers with a breakdown rate of less than 2%. The cost of usage of individual mobility would be a fraction of owning and using one’s car. The cost of the car itself would be much lower. As it is not owned but shared, the cost is also shared among users. The energy to move the car would be much lower. Less traffic jams, no parking fee, less maintenance or insurance costs would make the service really cheap compared to ownership. And there would be no fine. A rough calculation is that it could be in the order of magnitude of a fifth of the current cost per mile. This breakthrough would put individual mobility at the hand of a much higher percentage, if not almost all of the world population. Other types of need would remain and future mobility operators would adapt. Uber already does by offering different types of vehicles. Through big data, mobility operators will even identify clients with similar needs and can propose a car-sharing scheme reducing even further the cost. And other advantages can be seen. Bringing children to school – for example, in France more than 50% are brought by car by their parents or neighbors- would not even require a driver and as a consequence a return trip. We can be sure that plenty of future start-ups or current players will find new usages and benefits in the years to come.
As a result, estimation that eventually in a horizon of a generation, 50% of world individual mobility can be made by cheap, shared, clean vehicles is not a dream. Other advantages would result in higher average speed as the traffic would be optimized through a better efficiency of existing road infrastructures and price modulation depending on the time of the day and actual demand, traffic light would disappear as all moving objects would be connected, higher safety, deletion of wasted time and stress, no parking burden and a much nicer, cleaner, quieter and beautiful urban environment.
In short, impact on the environment – noise, accidents, congestion, visual pollution, local and CO2 emissions would also be reduced in proportion. Parcel delivery would become the rule whether it is the case for shopping or holidays luggage. Impact on the economy would be paramount by increasing access to jobs or to employees for companies, reduction in wasted time in congestions, shut down of unprofitable collective transportation lines … For some users, ownership would still remain, either because they live in remote areas, have a heavy usage of their vehicle or that they have specific needs. Some nostalgic people considering their car reflecting their status might still exist… as long as they don’t drive themselves their car as human driving will eventually be forbidden except on private tracks as it is to dangerous and inefficient. But let’s not anticipate a too deterministic way the future will look like. Some fantastic new breakthroughs will take place both in the technological field such as Mirai or Kwid or in the model itself. In short the new mobility landscape will be very different from today. It is impossible to foresee what this landscape and when it will happen precisely. It will depend from many factors: infrastructure, regulation, wealth, customers’ needs and past history… And most probably many different types of usage and services will coexist. The services will have a part of global component and will be adapted to fragmented needs. The timeline of implementation is also difficult to forecast.
And in fact change has already started:
The three areas of disruption are the distribution, on board technology and connectivity and the new services of mobility.
- Distribution will be the first to be impacted: Distribution still accounts for the one of the biggest part of car purchase. It is estimated that almost a third of the list price of the car is on average spent in distribution cost. One part is returned to the customer in the form of discount or commercial offer. Another part is spent in fixed marketing expenses, as advertising, sponsorship for example. The last part goes to the dealer and his sales organization to pay for the salesman, the cost of the premises, the test drive cars and the inventory. There are huge gains to be expected in the three areas. Nowadays, most new car buyers have already made their choice on Internet before going to the dealer. Trust in dealers has never been so low. A study showed that, among the Y generation in the US, the so-called millennial, going to a car dealer to purchase a car is an experience that is as if not more painful that going to the dentist. Even though dentistry has made huge improvement to reduce pain, it is not a glorious result for the car distribution business. New players in the used car markets bringing more transparency are already existing such as Auto1.com the German start-up that proposes to buy back second hand cars at a better price than traditional dealers thanks to an optimized digital organization. The decrease in accidents rate and maintenance needs will accelerate the restructuration of the current after sale activity and eventually the dealer business model. In the aftersales market, some start-ups, like “Eliocity” in the area of IOT already propose to install a device that is connected and can identify all improvement updates or necessary fixes without going to the brand official dealer. The start-up will then suggest the shop that can perform the update at best value. The updates and fixes are not necessarily developed by the carmaker itself. With the development of 3D printing, third parties might not need to rely on manufacturer or big organizations parts wholesales centers. The business model where dealers don’t make big profit on new car sales but recover on aftersales might not last long either. Tesla and other makers have already started experiencing dealer-less sales. Tesla and other makers have already started experiencing dealer-less sales. Existing dealers and their representative organizations feel the threat and are fighting through lobbying activity, with some successes in several American states, or in Europe to protect the exceptional status of automobile distribution. As a Brazilian dealer told me, “We need to change our mindset. Our role is not to sell cars anymore; we need to reinvent a new customer’s experience if we want to stay relevant.”
- Autonomous driving already partially exists: Autonomous driving is a reality and pieces and bits of the system are already installed in modern cars. Thanks to the combination of passive safety and crash avoidance systems. Volvo already claims that in 2020, no occupant of its cars will ever be killed or badly injured in an accident. Tesla promises to update –and upgrade- the cars it sells today to eventually become autonomous. The car will be upgraded like a PC or a smartphone is today. Google and many others already have hundreds of autonomous cars on open roads. The technology is already ready. There are still issues to be solved such as cost, reliability, regulation and acceptance. The recent recall of 1.4 millions cars by FCA, after a magazine demonstrated it was possible to hack a Jeep from distance, will of course remind us that some other hurdles exist. The French pilots and aviation pioneers Nungesser and Coli could never cross the Atlantic Ocean and crashed between France and the US on the 8th of May 1927. No trace of their plane was ever found and speculation whether they reached the American coast still exists. Two weeks later, Charles Lindbergh on board of the Spirit of Saint Louis, succeeded in the opposite direction from west to east, and therefore benefiting of tailwinds. He landed on the 21st of May in Le Bourget in the suburb of Paris. A crowd of 150 000 Parisians welcomed the hero in an incredibly enthusiastic manner. At that time, technical progress still made French people dream. Today, millions of passengers fly on intercontinental routes every year in incredibly safe conditions. The history of air transportation did not stop after Nungesser and Coli’s accident. No doubt that, with always more visible merits, the first implementations of autonomous driving will begin in a few years and will spread gradually faster than one might imagine. It will probably start on highways and in cities to limit congestion, accidents and pollution. As for aviation yesterday, revolution in individual mobility is on the way. One million people die every year in traffic accidents and 5 billions do not have access to individual mobility. The accidents that will necessarily occur should not let us forget what is really at stake: clean, cheap and safe mobility for all.
- New mobility services are launched every week: On the mobility side, application that optimizes connection between providers –professional or private- and customers of mobility are surging. Car sharing and self service cars systems are booming in all big cities. The biggest megalopolis of the world, Tokyo, seems to be gradually entering the post ownership era. In Tokyo, most people don’t own a car any more and the combination of exceptional public transportation service, dense taxi offer of a superior quality, multiplication of car sharing scheme and electrically assisted bicycles combined with a very good information system provide a very efficient and attractive alternative to individual car ownership. Car ownership in return has become very expensive as tolls, mandatory parking and other taxes and technical control have surged. The result is that if you make the -economically irrational- choice, which I did, to own and use a car, Tokyo has become the most agreeable city to drive. Inside Tokyo, traffic jams are rare, other drivers polite and parking is relatively easy to find. And the move could accelerate in emerging countries that do not have infrastructures or enough means to develop them. India is already taking the lead in car sharing. The partnership between Tata and Uber will be interesting to monitor as India could become the first country where a big part of the population could leapfrog ownership to access to individual mobility. With still relatively low cost of manpower, Uber type of application represents a viable and economical alternative to new car ownership for growing populations having access to middle class. Indeed, the price of a car remains similar whichever the country an this is not the case for manpower. Therefore in India sharing makes a lot of sense. India has an underdeveloped road infrastructure, a small number of dealers and a limited automotive industry compared to its population. For a 1.3 billion country the need of cheap mobility is huge.
Investors have already anticipated the potential of this new mobility as Uber estimated value is in the area of 50 billions dollars, as much as General Motors market capitalization, and Uber does not own a factory or even a car.
Yet car manufacturers who want to stay connected with customers must act in the three areas:
Distribution will be impacted depending of the ability of actors to protect status quo. In countries where number of dealers is limited, cautiousness in new investments should be the rule. The role of the dealer should change from sales repair and maintenance where needs are going decreasing to offering anew experience which cannot be offered by new actors. It is what Apple does in his Apple stores and what Burberry and Audi have tested in their flagships.
Connectivity will be come the new battle of technology and cars will need to be upgraded as Tesla has understood. Premium brand have all the legitimacy to lead this field. The car will move from assistance to system that will gradually replace the driver, as it is already the case in parking conditions. In Japan, one third of accidents happen during parking. From 2020, most probably, in some conditions and areas, cars will drive completely autonomously. It is critical for car makers to own their priceless customer data.
As for mobility services, the move is already well advanced with services developing very fast. Depending on national and local conditions, the move can happen quickly. In regions where people own a car, the marginal usage costs is small. Those regions will be the least impacted in the short run. It is the case for mature countries and particularly their always-bigger suburbs. Reversely, the move potential is big in emerging markets with growing needs and in huge cities like Tokyo or Chinese metropolis under the pressure of regulators to limit the usage of individual cars. This is why Uber has partnered with Tata and plans to put one million cars on the roads. Japanese tech company DeNA plans to introduce the first autonomous taxis in Tokyo for the olympic games in 2020. Alone or with partners, car manufacturers should start real mobility services. The cost and risk is as low as the certainty to become irrelevant is high if they don’t take quick initiative.
Let’s insist that the role of legislator will be paramount. They might be shared between the conservative approach to protect existing threatened actors, taxi drivers, cars dealers, driving school… and the more optimistic approach based on common good resulting from safe, clean and cheap mobility. This new mobility will favor growth and eventually new jobs creation.
Eventually customers’ acceptation will be a important element of the equation. From my experience having interviewed and attended group interviews of customers in many countries, more customers are already ready to change their relation to automotive than are not. And this trend is recent and accelerating everywhere.
We are now at the exact moment where customers’ demand, technological improvement and environmental needs meet to create an irreversible revolution in the mobility as important as the first steam engines or the democratization of cars.Individual mobility will be accessible for all, clean and practical and the question is not anymore whether this revolution will happen but when, how and which actors will be the dominant ones. For a car manufacturer, and they are called manufacturer not mobility providers, the question is existential. From the 15 or so global car makers (Toyota, VAG, GM, Renault-Nissan, Ford, Hyundai, FIAT-Chrysler, Daimler, BMW, PSA, Suzuki, Mazda, Mitsubishi Motors, Tata-Jaguar-Land Rover, Geely-Volvo, Subaru and a few other Chinese contenders) other actors of mobility such as car rental companies, insurance firms, new comers such as Uber or Blablacar –the number one digital platform in Europe for car sharing- taxi companies, railways and public transporters or GAFAs, every one wants to get its part of the cake.
For a commuter whose daily service would cost 10 dollars or less, the turnover produced by one car that would be shared could be over a period of 10 years in the area of 100 000 dollars from which the cost of the car itself would represent around 2% (and the manufacturing assembly cost less than 0.2%). Entire parts of the automobile sector will be completely transformed. If, as Carlos Ghosn declared recently, taxis, in current form, won’t exist anymore in 20 years all areas of the sector will be impacted, from driving schools to car dealers, repair shops, insurance, rental to manufacturing itself.
In this new context, the question is to know who are the actors that can thrive on the wave of customers’ relationship. Who will be the Fuji or National Geographic who anticipated the change in business and who will be the Kodak and Britannica who stayed until their end in the denial of change?
Until recently, high entry barriers protected car manufacturers. The investments and know-how requested to built R&D, manufacturing and distribution structures are huge. This mostly made potential new entrant give up. But as the paradigm changes from producing objects to managing customer’s mobility, those assets are not necessary anymore. With simpler cars, importance shifting to electronic and strong suppliers, access to technology has become easier. Having a lot of assets immobilized in manufacturing and dense and capillary dealer network could become a handicap. What will be important is the understanding of customer needs and ability to get the best of big data to make relevant individual offers. In those areas, car manufacturers have not proven so far their ability to perform contrary to GAFA or other new comers. But they have access to a lot of their customers’ data. Those data are not yet used in the right way. This way would be to show consideration and understanding of individual needs to make the right offer.
What is true for the mobility sector is also true in other industries. Banks, insurance, airlines, hotels, universities and others will have to rethink their role. The challenge for those industries will be to choose if they want to continue manufacturing cars, managing branches, flying planes, offering standard rooms, giving one size fit all lectures in a classroom or if they want to offer freedom of mobility, manage wealth, offer piece of mind, deliver dream and provide tools that empowers. They all have unique know-how and access to customers’ data. But it is not enough; it will require a new mindset and organization. Those who will transform their way of managing their operations might surf on the wave. For those who want to stick to current practices, Zetsche’s nightmare will become true.
What are the conditions to succeed in the new coming landscape:
A new road of management is needed.
If not all sectors will be impacted the same manner, all sectors will have to deal to some form or another with consequences of disruption. What are the consequences in terms of management?
Disruptions will imply from existing actors much more than managing current organizations. They will nee to revisit their current business practices.
Can current dominant roads of management cope with those disruptions? Neither the existing Japanese road nor the western one can do so. In the Japanese system, as the organization is very homogeneous, disruptive ideas are rare. Even the idea itself that dramatic change is needed is alien to an organization that is based on harmony and progressive improvement. But even if it went to decide to go in this direction, the speed of implementation would be too low. As Steve Jobs had anticipated in 1985 or 30 years ago: “Out of that understanding, they (Japanese companies) will reinvent it in a more refined second-generation version. That strategy works only when what they’re working with isn’t changing very much—the stereo industry and the automobile industry are two examples. When the target is moving quickly, they find it very difficult, because that reinvention cycle takes a few years. As long as the definition of what a personal computer is keeps changing at the rate that it is, they will have a very hard time”. It does not mean that Japanese organizations cannot. They have demonstrated their ability to innovate and act quickly. But this will require for most of them to adapt their model as we will see below. At least for big companies, western model where the power is centralized does not work better. In a complex environment, a central function cannot oversee everything. Forcing dramatic changes can only work if people adhere to the project. Otherwise new entrants that can introduce innovations will move much faster. In his book “Reinventing Organizations” Frederic Laloux writes: “Innovation doesn’t happen centrally, according to the plan but at the edges, all the time, when some organisms senses a change in the environment and experiments to find an appropriate response.” But contrary to the “Third Road”, Laloux does not see the need of having strategy or guidelines. We will see that, even more in a fast changing world, having guideposts is a must.
How can the “Third Road” deal with disruptions?
The “Third Road” of management’s basic principle is to establish “freedom within a frame”
Can the “Third Road” be a philosophy that drives change for the coming business revolution? I call it a philosophy, as it is a way of considering management rather than a set of strict and inflexible principles.
Let’s summarize in a different way the principles of this philosophy.
- A strategy is defined collectively. There are three main merits of having a “crowd-sourced” strategy. The first is that the organization will grasp all ideas wherever they come from. Indeed good ideas come from everywhere. The second is to leverage resources wherever they are and what ever they are. Those resources don’t need to be located at the headquarters. This is particularly true for Japanese companies where diversity is particularly low. Diversity is in the virtual global organization that sets the strategy. The third is that the local and functional teams adhere to the strategy as they have been part of the process, have contributed and understand the intellectual journey that led to it. This buy-in is an absolute necessity for the next steps.
- The strategy is revised regularly. There are three reasons why this revision is essential. First, it is necessary to acknowledge the changes in the environment especially when those are happening at a rapid pace. A big part of the activity of the team is to keep itself updated on what is happening out there. The second is to analyze the best practices in the organization. As we saw, local freedom allows a lot of initiative of local tests that are encouraged. The mindset is “fail fast fix fast”. The third one is to reevaluate on a regular basis the relevance of the strategy in a PDCA cycle -Plan Do Check Act- manner. Is the organization on the track to achieve its ideal situation or should elements of the strategy be amended?
- The regions and operations implement the strategy freely. There are also three merits for that. First, as speed is a key factor of success, there is no time to get approval. Second, motivation and accountability will be bigger if the local teams act freely and as the teams work in total transparency and have contributed to the strategy, control is not necessary. Third the best use of resources is to add value not to fill bureaucratic tasks. A lot of administrative tasks can be deleted and human resources reallocated.
It requires for the leader qualities which are different and more demanding. The leader cannot enforce a strategy –as it is defined collectively- and even less an operational decision as it is left to the regions and operations. His influence will depend on the trust and confidence he inspires. He will need to listen, observe, facilitate. But he will need to check that the strategy is strong and alert when he sees complacency.
What Disruptions add to the “Third Road”
For existing firms and jobs having worked during decades following certain logic, new offer reshuffles the game as the way people behave will be different.
If an organization decides to go for a dramatic adaptation to the new environment, big changes are needed. What are the conditions to achieve this shift?
There are 2 prerequisites to success:
- The first condition is to admit that change is needed, as the risk of denial exists. There is no going back to the 1980’s. The world has changed and change is accelerating. Cards are reshuffled. Therefore the way doing business needs to be changed. You don’t manage a company in an environment where it is easy to understand customers, where the number of significant markets is small and where there is no risk of new entrants as you do when disruptors claim they will reinvent the business you are in. It might sound easy but it is generally the biggest hurdle. Without a sense of urgency, entropy tends to remain low. It is particularly difficult when a company is profitable. Especially, in the past years thanks to a better economy and favorable exchange rates, Japanese firms have “mechanically. Improved their P&L sheet. Once the “burning platform” is shared among the organization, it is critical to define how the change should be conducted. The “Third Road” is a philosophy of management but in recent time, many theories or practices have been developed to deal with our new environment. I have already mentioned the books of Frederic Laloux on self-managing “teal” organization, Rodolphe Durant and his book “Organization, Strategy and society”. Companies such as IBM, intend to introduce values as guiding principles for action. Ericsson puts network organization at he heart of its way of acting and in China, as Edward Tse explains in his book “China’s Disruptors” how Zhang the founder of Haier, world leader of electric appliances is reinventing the way doing business. “Zhang says his goal is to turn Haier into an “ecosphere”: an organization in which many people have decision-making power, and those at higher levels are only responsible for setting the overall master direction.” We see that many are those who ask themselves about the way to make an organization relevant and all are going in the same direction. We can summarize the common keywords are empowerment, speed, collaboration and purpose.
- The second prerequisite is to give to the company a brand strategy. This brand promise should include a purpose: what the company should contribute to and stand for. For example making better cars means that the purpose of the company is to be a manufacturer. “Das Auto” Volkswagen’s tagline expresses this purpose of being a reference in car making. The risk of limiting a purpose to an object is that it is limited in time if the business changes. Reversely, “just do it” Nike’s slogan is not about making shoes –which by the way Nike does not produce itself- but empowering everyone to move and take initiative of doing sport whichever level one is. It opens the door to offering much more than an object or a pair of objects shoes. If car manufacturers want to stay connect with customers, they will have to change their purpose and probably stop being called “car manufacturer”. Then, on top of the purpose the brand promise should clarify what the company will offer that is unique from a consumer point of view not from the company point of view. But this clarification needs to contain an emotional aspect. Product and services pass, emotion stays. Then and only then, the teams will propose and implement innovations that will feed this promise. Brand is even more important in a world where there is little room for the one who are not first. Everyone knows the name of the first, less often the name of the second. If Facebook is the number one dominating social network, LinkedIn can thrive because its purpose brand promise and differentiation is clear. LinkedIn is the leading professional network.
The conceptualization of the “Third Road” is not an academic exercise but the result of a personal practice of managing innovation, strategy and brand in complex environments. I have, tried, failed and tried again until I could assess what worked better or worse. Particularly at Nissan and Toyota, which have experienced turnaround, I have observed, analyzed and acted.
The “Third Road” is not a recipe for all. It is just an inspiration for survival, success and contribution to a better world. It is a philosophy that sets a frame for a company to have a purpose and move quickly towards its objectives. The “Third Road” of management gives a clear frame of how to initiate this move with the support of all members of each organization.
*** Rémi Prud’homme research