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Retaining Leadership in the Innovation Stakes

Case Aims: To illustrate that technological innovation demands a long-term commitment to retaining market leadership through superior capability

In the 1920s, Henry Ford engaged in technological entrepreneurship by importing production processes he had observed in Chicago's meat-packing plants into the car industry. His new approach was so successful that a new, rapidly accepted industry convention was established: to be successful, a high-volume car manufacturer must be capable of utilising mass-production manufacturing in order to supply customers with a low-cost, standard product. The other convention which emerged was that, due to the cultural variations between nations, the dominant suppliers in most markets tended to be domestic producers. Although before World War II manufacturers engaged in innovation, this tended to be of an incremental nature, leading to product improvements such as automatic gearboxes, power steering and hydraulic brakes (McKinely and Starkey 1994).

After World War II, price continued to be the critical factor influencing the purchasing decision of the average customer. This implied that successful firms needed to maximise manufacturing productivity. Less effort was put into either conventional or entrepreneurial innovation. Instead, in order to remain competitive, the primary focus was to achieve economies of scale. This was usually delivered through industrial mergers between domestic producers, eventually leading to only one or two firms dominating each home market in the West (e.g. Ford and General Motors in America; British Leyland, subsequently Rover Group, in the UK; Volkswagen in Germany; Fiat in Italy, Renault and Citroen in France). As these firms gained experience in manufacturing technology to further optimise productivity, there was a convergence in car design. This led to the standard volume-car specification being based upon front-wheel drive and four- or six-cylinder engines (Helper and Henderson 2014).

The OPEC oil crisis of the 1970s sparked much higher customer interest in fuel economy, offering both European and Japanese producers the opportunity to break into the largest car market in the world, the USA. While the US car makers were struggling with the joint problems of learning how to make smaller cars and manage in what had become a highly unionised production environment, the Japanese were left to experiment with unconventional concepts such as robotics, Just In Time (JIT) to further enhance productivity and Total Quality Management (TQM) to improve 'build quality'. Their success in these areas permitted them to become global players in the world car market. Furthermore their new approaches to manufacturing soon became the standard which other major firms have had to adopt in order to remain significant high-volume producers.

Many Japanese advances in manufacturing which took firms such as Toyota and Honda to market leadership were achieved by being willing to act entrepreneurially and challenge industrial conventions established by



the major Western manufacturers. Once their entrepreneurial ideas were recognised as being superior to existing conventions, their new ideas were adopted by other organisations and became the new conventions within a given sector (Townsend and Calantone 2014).

Long lead times can exist between concept identification, completion of fundamental research and the ability to launch a new product based upon a new technology. An example of being prepared to make this level of commitment to technological entrepreneurship is provided by Toyota. Long before the American or European car manufacturers had exhibited any concerns over rising oil prices, Toyota as the world's leading automobile manufacturer had the strategic insight to change vehicle transportation from a dependence on hydrocarbons to utilising other types of fuels. Their first product was the highly successful hybrid, the Prius. Since Toyota launched the Prius the company has focused on continuous innovation to improve this vehicle and to expand the company's hybrid product line (Rapp 2007).

Toyota's fundamental operating philosophy has always been to build 'better products at lower costs'. To this end, Toyota has developed unique production systems designed to eliminate all forms of waste. The knowledge of all individuals within the organisation is highly valued and exploited to the full through emphasis on improving personal job roles and working environments. As nations seek to respond to global warming, Toyota has focused on exploiting technological innovation to manufacture environmentally friendly cars offering lower emissions and improved fuel economy. Recently the company has exploited Japan's capabilities in consumer electronics to evolve the car into a mobile telecommunications device. The ultimate aim is to equip their new cars with a communications platform and a smart function capability to enhance car safety and to optimise energy consumption (Gao and Low 2014).

The expected next development in alternatives to cars using petrol is the fuel-cell vehicle, or FCV. These vehicles run on electricity generated by combining hydrogen with oxygen, with only water vapour created as a byproduct. Two major constraints, similar to the initial hurdle facing electric cars, are the high development costs and the lack of re-fuelling infrastructure. Toyota's entrepreneurial solution is to offer its fuel-cell components and FCV patents to others free of charge until 2020, plus approximately 70 patents for the installation and operation of hydrogen fuelling stations. Although the move risks Toyota compromising its leadership in FCV technology, the decision is perceived as less important than the need to stimulate an industry-wide effort to rapidly expand the required infrastructure to achieve market penetration for the new technology. Toyota's decision comes ahead of the launch of its new fuel-cell sedan, the hydrogen-powered Mirai, in the USA and Europe in 2015 (Muller 2015).

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