The automotive environment has evolved into a globally hyper-competitive market. Leading market suppliers, for the most part, have similar raw material and processing costs. This is a clear recipe for product commoditization often giving your customer significant leverage. More and more suppliers are finding that new technology can be the key to improved profitability and reduced exposure to commoditization. In fact new technology is a differentiator!
Two examples of using technology as a differentiator include the Stow 'n Go® seating for Chrysler minivans and the Sync® infotainment system for Ford Focus (among other Ford vehicles in North America). In 2004 Chrysler's minivans were going through a mid-cycle freshening and needed a differentiator from the rest of the segment offerings. The solution was a mid-cycle enhancement that included the Stow 'n Go® seating system. This was an instant hit for Chrysler and they picked up significant volume with the new technology. In North America, Ford wanted to extend the production life of the C170 Focus until the next generation C1 Focus was introduced in 2010. Ford added the Sync® infotainment system as a key feature on the freshened Focus, and that added technology has proven to be a winner with increased sales for Ford.
Technology can be a suppliers' best friend but it can also be a money pit if not managed properly. Examples where massive resources have been deployed on a technology that was either too expensive, or something that the market did not value, litter the automotive landscape. The original BMW iDrive feature is one example with high development costs and low consumer acceptance.
CSM believes the first step to ensure your organization has a robust Technology Management Process (TMP) is to first identify technology opportunities that meet financial targets; and second, which technologies consumers will accept. These can then be prioritized to fit within the organizations' long term strategic objectives.
TMP works best when it is a coordinated effort between, sales and marketing, engineering and manufacturing departments. New ideas can emanate from anywhere within the company, so ideally an organization would like to have a process that encourages ideation from the top down and bottom up. The voice of the customer also provides the source for new ideas or concepts. When all areas work in concert good things can happen. Potential roles for each department in this Nomination Process include:
This shared responsibility in the Nomination Phase is the key to managing costs and successfully bringing new technology to market. Each approved idea should be given a limited budget to fund the next phase, Validation, which will dictate if the project should be modified or cancelled before more money is spent.
It is important to take a hard look at the concept and reevaluate the market demand for this technology during the Validation phase. This is not always easy as firms can be excited about new ideas - perhaps more than the market will. Being too close to the situation can blind an organization of the technology's potential for success.
Tough questions need to be asked to separate an organization from the euphoria of the new technology itself. Having a third party, one without a vested interest in the outcome of the process, perform this analysis would be beneficial. Questions to ask could include:
If the answer is yes to one or more of these questions then the chance for success is increased.
At the end of Phase 2, a detailed project plan and budget should be developed to support Phase 3 - Deployment. This should include ROI analysis containing development costs, capital expenditure costs, target piece price and anticipated production volumes for a minimum five year planning horizon.
This phase identifies which targeted customer will become the first for this new technology and what the rest of the pecking order looks like. This may sound simple. Many would suggest a prospective customer is the best choice, but this may not be the best direction. A prospective customer may entertain a discussion of the technology developed, but ultimately decide the risk is too great. Taking the technology to a customer with which a dominate position already exists may be the wrong choice for the first application.
Additionally, customers often do not want to buy patented technology as it limits the sourcing to just one firm. To avoid this, consider giving a license for the technology to a second manufacturer. This may sound unusual, but is done frequently. Selling a license to a firm within the target customers' supply base will help with market entry. Licensing other manufacturers allows an indirect management of market pricing (i.e., your cost will always be lower without the license fee).
Picking the target customer cannot be completely discussed in this short article since it involves several key variables such as the overall strategy of the firm, the current customer and product mix, competitor strengths, and the appeal of the technology to a broad or narrow range of vehicles. These are important questions to be asked by the third party as noted during the Validation phase to provide additional clarity.
This phase involves several factors and also requires significant planning. There are two key sub-areas to be addressed: 1) sustainability of the ideas within the system; and 2) sustainability of the system with new ideas.
Practical sustainability techniques for ideas already in the system include projecting the selling price with costs down five and ten years from now. Then ask the following questions:
Keeping the new idea process moving can be problematic, but offer increased opportunities as well. It is always easier to get new ideas adopted if there is a tail wind behind the technology. Today, several "tail winds" for technology already exist. CSM believes demand for these will continue over the next 5-10 years. These "tail winds" of interest for manufacturers include:
New technologies can be key to improving the profitability of suppliers and reducing exposure to commoditization. Using technology as a differentiator is important, but requires careful management to move through the phases described here. First, ensure a robust process is in place to identify technology opportunities and prioritize those that fit within long-term strategic objectives. Second, objectively reevaluate the market demand and the technology's ability to satisfy it. Third, identify which client will become the first for the new technology that will avoid commoditizing the technology. And finally, significant planning must be addressed to sustain the technology over a five to ten year period to lower the associated costs. Following the phased approach noted here will ensure a successful introduction of new technology and reduce risk.
Paul Haelterman can be reached via email at paulhaelterman@csmauto.com
