Beware the Ripple Effect

Automologist LILY cautions the auto industry as waves of change are upon it.

It seems like Google and Apple are serious about making an impact in the automotive industry with their driverless concept and electric vehicles; the question I want to know the answer to is how many players in the industry will be affected? Can the introduction of driverless vehicles affect the value chain of the car industry?

What about the social changes when drivers are made redundant and when driving tests will be irrevocably altered? If you consider the ripple effect, the prospects are both scary and exciting at the same time.

Some cars are built for more than practical purposes but also for the pleasure of driving itself, such as Ferrari’s, Lamborghini’s, Maserati’s and so on; it would be meaningless if you do not need to drive these cars. How less interesting the drivers of these cars will be when they are merely sitting inside the car without controlling it (and let’s be honest, we do check out the drivers of expensive cars, and that’s one of the reasons people buy these cars anyway).

Kodak went out of business because it did not evolve at the same speed as the digital world. Not that the people in the organization did not foresaw the changes; Kodak was established on a culture of change and innovation, after all, and employees were sensitive to the technological changes surrounding them; but their voices were not heard. Leaders need to be prepared to listen to internal voices, otherwise these voices lose momentum and any change management that needs to take place becomes an insurmountable hurdle.

Understanding our organization’s assets and aligning them with the current characteristics of the industry – eg. the structure, segmentation, trends, etc – will help us stand firm as the ripples wash over us. At the beginning of India’s automotive industry in the eighties, Honda, equipped with its resources and assets, approached the biggest motor scooter manufacturer in the country, Bajaj Auto, to propose a joint venture. The Japanese automaker was turned down and eventually paired up with a different manufacturer; it managed to take control of 11% of India’s scooter market, yet that did not affect Bajaj Auto’s market share; soon, Honda left the scooter manufacturing game in India. But we know that that was not the end. Honda came back stronger.

Today, 2013/2014 data shows that Honda’s scooter market share is more than half while Bajaj no longer has any:

Granted, in the two-wheeler segment in India, scooter makes up only 22%. However, looking at the overall motorcycle market in 2013/14, Honda’s market share has caught up to half of Bajaj’s, which has been slipping in recent years. Honda has somehow managed to turn the tide to its advantage.

Once a leader, not always a leader; there are many case studies from different industries to prove this. But the battle will not end as long as we do not surrender.

In anticipating the ripple effect from Apple’s and Google’s catalytic ventures, we have to from time to time assess whether our assets and resources are aligned with the industry’s characteristics. Having said that, if our resources, assets, capabilities and market position is the same as our competitors’, we would most probably pursue the same strategy; if different, we may react differently when faced with the same market opportunities and threats. Considering this, Apple may or may not be a threat to us.

Strategic management reminds us to think and plan for the long-term. Besides listening to internal voices and aligning our assets with industry characteristics, listening to external voices to know what our customers really want will prepare us for the ripple effect. After all, companies like IBM survived from near death in 1993 because it heard what its customers really wanted and acted on it. Do our customers want the type of car produced by Apple? Or are Apple’s and our target customers mutually exclusive. Does my organization have very different resources, assets, capabilities and market positioning as compared to Apple’s?

Sun Tze’s Art of War mentioned that by knowing both your enemy and yourself, you will win the battle; just don’t forget to perk up your ears to listen to internal and external voices if you want to thrive in the modern business environment!

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