“In times of increasing competition, innovation continues to be the ultimate source of competitive advantage (Claiborne, 2007, p.73).” Although innovation sometimes is viewed as a risky undertaking, a well implemented innovative business strategy can reap great rewards for a company. Successful innovation strategies need not only be applied to product design but can also involve innovating policies and procedures from within a company’s infrastructure (The innovation strategy, 2006, p.14). In the current business world, where more and more companies are becoming international competitors, it is more opportunistic than ever for companies to consider their options to innovate their products or procedures to precede and dominate the market. Claiborne (2007) states that “Successful innovations have three phases: identifying a market problem and creating a solution; conceptualizing, packaging, and analyzing the market; and implementing the plan (p.75).” A predominant problem in automotive markets can be seen in the adjustments made for rising fuel costs, or lack there of. Though some companies’ have adapted to the changing market, others have preceded their competition with breakthrough innovations in the automotive industry.
The automotive industry has experienced in recent years a shift from larger, more inefficient vehicles, towards smaller, more economically and environmentally friendly modes of transportation. Because of these changes in automobile consumer preferences, the automotive industry was faced with an issue of reforming their product base to accommodate for a new consumer need, a primary objective for more fuel efficient vehicles. The automotive industry’s acknowledgement of a market problem encourages innovation to take place to find a solution.
In comparison to other countries, the United States automotive manufacturers are lagging behind international competitors who have tackled the issue of fuel efficiency. “The most astounding fact is that many of the European high-fuel economy vehicles are produced by U.S. carmakers (Zuberi, 2007, p.12).” While there are some U.S. carmakers that have started to address the need for market innovation, there are many who have failed to properly analyze the markets new requirements. U.S. companies have failed to analyze methods of producing more fuel efficient vehicles that have been known to be successful in European and Asian markets. European and Japanese markets have already attained efficiencies of 43 and 50 miles per gallon respectively, while U.S. markets have only a handful of automobiles with an efficiency of 40 miles per gallon (Zuberi, 2007).
Besides analyzing previously used methods of innovation, a company must also create its own options towards an innovative product design through research and development. This phase of innovation can be very costly and carry a certain amount of risk for a company, though without this phase, there is little chance for a company to set itself apart from its competitors.
When starting this phase it is important to remember the company’s main goals and objectives towards innovation (Middel, Boer & Fisscher, 2006), in this case fuel efficiency. Also laying out whether the company’s goals are short term or long term innovative processes will help prioritize the company’s ability to implement new products into the marketplace. There are more factors that companies can include during the research and development stage to enhance the company’s innovation effectiveness.
Intra-organization commitment can strengthen the motivation of an entire company towards innovative goals (Middel, Boer & Fisscher, 2006). Claiborne claims “a business with an innovative culture is a learning environment. Innovation inspires employees to engage in a collective learning process (2007, p.74).” An open environment structure can increase the flow of ideas a company has at its disposal giving every employee the opportunity to contribute towards innovative goals with their ideas (Popp, 2002). Not restricting the brainstorming process to a set group or panel opens the floor to anyone with ideas that may help the organization achieve its goals. This method is also beneficial in terms of it letting employees from various job positions contribute to every part of the innovation process and not being confined to just the technical design or potential marketing strategies, etc. This open environment can also be implemented in a formal problem solving cycle. If a company is innovating from a previous product or product line, input from all levels of an organization is an effective way to encourage open communication and information flow (Middel, Boer & Fisscher, 2006).
In the case of fuel efficiency, Europe has successfully innovated a system of clean diesel engines that provide higher fuel economy than gasoline models (Zuberi, 2007), “Providing 20% to 30% better fuel efficiency than gasoline engines, and low CO2 emissions (Zuberi, 2007, p.12).” U.S. automakers have relied on the innovation of hybrid powered vehicles, produced until recently by only a few car manufacturers, powered by battery and gasoline to meet the market preference for fuel efficient vehicles. And yet still the European diesel industry has conquered an innovation of “nationwide availability of low-sulfur diesel at filling stations and the commercial success of diesel particulate filters (Zuberi, 2007, p.12).” These differences in innovation depth can be attributed to the research and development stage of the innovation process. Each of these regions of the world tried to accommodate for a problem that was facing the automotive markets, though the technical design of U.S. carmakers innovations impact on a smaller scale than the nationwide clean diesel engines of Europe. Researching the fuel efficiency issue aside, the technical development of fuel efficient autos by U.S. manufacturers is not substantial enough to properly meet the needs and preferences of the U.S. markets. This fact depends less on the cultural adoption of fuel efficient cars by consumers because the market demand cannot be met by the current capacities of U.S. automakers (Claiborne, 2007).
Cavusgil & Knight (2004) support the claim that “research and development productivity declines with the size and age of a firm (Lewin & Massini, as cited in Cavusgil & Knight, p.127).” This theory demonstrates that younger firms are more successful when responding to changing markets and “taking advantage of potential opportunities for significant changes in products by making either incremental changes in components or radical component changes leading to new product architectures (Sanchez, 1995, p.149).” As an American example, For Motor Company is a predominant competitor in terms of producing mainstream trucks and heavy duty work vehicles. Applying the theory of “cognitive limitations” to Ford’s efforts to adjust to the change in market preferences, shows a correlation between the age of the company and the company’s failure to take advantage and explore opportunities to innovate (Sanchez, 1995). As a competitor outside of the truck platform, Ford has not made any significant impact on the current hybrid vehicle innovations. As a result, Ford does not possess a sufficiently diverse product line to satisfy market preferences for fuel efficient vehicles (Sanchez, 1995).
After successfully carrying out the previous steps of the innovation process, it is important for a company to implement its strategy and products but to also be able to effectively measure their performance as well. Whether at a business or individual customer level, appropriate feedback will be needed to make any adjustments to the innovation strategy (Claiborne, 2007, p.74). This could be observed by examining the volume of sales of a newly implemented product and also customer reviews.
Another important process to be examined after implementation is the opportunity to update products. Working with a previous product design and feedback measures gives the company the opportunity to make continuous improvements to product platforms or components (Sanchez, 1995, p.149). This is a common practice in the automotive industry in terms of component recalls. After addressing issues of improvements to products, companies should examine ways to reduce costs as the volume of products sold increases (Claiborne, 2007). Companies should always be looking for ways to reduce expenditures, especially after implementing new products into the marketplace to obtain a high profit margin.
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Middel, R., Boer, H., & Fisscher, O. (2006, December). Continuous improvement and collaborative improvement: Similarities and differences. Creativity & Innovation Management, 15(4), 338-347. Retrieved September 19, 2008, doi:10.1111/j.1467-8691.2006.00407.x
Popp, D. (2002). Induced innovation and energy prices. The American Economic Review, 92(1), 160-180.
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Zuberi, B. (2007, August 20). The drive toward fuel economy. Business West, 24(8), 12-2. Retrieved September 19, 2008, from Regional Business News Database.