Last month global management consultancy, The Boston Consulting Group (BCG), published its annual report on the world’s most innovative companies. As usual there were some interesting insights, but the one which stood out most was that nearly ‘half’ of the Top 20 were car makers.
In fact, three companies in the top 10 and nine in the top 20 were large global auto makers, with two – Ford and BMW – breaking into the top 10 for the first time since the survey began in 2005.
Linking innovation to competitive advantage
Whichever form innovation takes, the goal is to create value, capture or defend market share and build a sustainable competitive advantage. Key to this is protecting intellectual property (IP) rights, or in simple terms, ensuring your most clever ideas cannot be copied and used by competitors.
Top innovators treat innovation as an integral part of their businesses, systematising its creation, harnessing its use and managing it as a source of competitive advantage to deliver long-term value.
Unlike fashionable young software companies in the Valley, who ‘disrupt’ the status quo of established players, automotive innovation is less about big steps and more about ‘pace’ and ‘momentum’ – top performers control a disproportionate share of the IP within their industry measured by the breadth and depth of impact of each key innovation.
They all have strong processes, a clear mandate for those tasked with its creation and a focus on managing the return on every innovation.
Technology companies traditionally dominate the list and indeed positions 1 to 4 comprise; Apple, Samsung, Google and Microsoft, but car makers are now the dominant sector, with Volkswagen and General Motors rising 31 and 16 places since 2012, demonstrating just how quickly the innovation landscape is changing.
In fact there are more automotive companies than consumer product goods (CPG) companies in the top 50, and more automotive than technology companies in the top 20.
The survey found that for companies in the automotive and technology sectors, CEOs perceive innovation as their number one priority (according to 85% of respondents), while 70% say they plan on increasing their investment in innovation in the coming year.
The survey collected the views of 1,500 senior executives representing a wide selection of industries worldwide.
Rankings were based on respondents picks supplemented by three financial measures; three-year total shareholder return (TSR), three-year revenue growth and three-year margin-growth of each company. These were weighted 80 per cent in favour of respondent votes, 10 per cent for TSR performance and 5 per cent each for revenue and margin growth.
The Top Innovators
Notable omissions in this year’s survey include; Porsche – the world’s most profitable car company and the highest performing sports car maker for efficiency and sustainability, and perhaps Volvo – the market leader in vehicle safety systems and first to showcase a self-parking car which interacts with other road users.
Both companies invest heavily in R&D, capture and protect their IP and a use it as a means of establishing a competitive advantage, so perhaps we’ve spotted a flaw in the survey methodology or a limitation in the awareness of respondents.
It’s surprising to note Audi is only 19th, given their innovations in lighting, success in using the weight-saving principles of the Volkswagen Group MQB platform and their market lead in vehicle interior design.
Both Kia and Nissan drop substantially from 2012, while Renault although leading the mainstream EV charge (together with Nissan) are failing to translate this into shareholder returns and margin growth. Clearly respondents are punishing these companies for their lack of competitive advantage – showing that the primary goal of innovation is to create ‘value’ from ideas.
Most Innovative Automotive Companies in 2013
|Overall rank||Company||Change from 2012|
|13th||General Motors||Up 16|
|18th||Honda||Returned to list|
|20th||Daimler-Benz||Returned to list|
|43rd||Fiat||Returned to list|
|Source: 2013 BCG Global Innovators Survey.|
Many people I’ve spoken to over the years see the automotive and technology sectors as one of the same. Whereas in the past, manufacturing, vehicle design, and the driving experience were viewed as a priority, customers are increasingly looking for two things in their cars – efficiency and connecting with their busy lives.
Manufacturers are striving toward every higher fuel-efficiency standards which mandate an average of 54.5 mpg in the U.S. by 2025, with 64.8 mpg in Europe and 50.1 mpg in China by 2020. Where this used to be a regulatory pressure, since the global economic downturn in 2008, buyers now look to ‘future proof’ their fuel spend by buying the most efficient models from manufacturers who take the challenge seriously.
Since the global economic downturn, buyers now look to ‘future proof’ their fuel spend..
BMW is one such manufacturer, who are aiming to become the number one provider of sustainable and efficient vehicles in the premium sector. True to their goal they recently launched the world’s first electric-powered sub-brand – BMW ‘i’ – which will soon begin deliveries of the new i3 urban vehicle and i8 sportscar. Sales of the i3 have exceeded expectations, with the car maker now considering increasing its production.
Technology is at the core of this strategy, with both cars built using a carbon-fibre-reinforced plastic (CFRP) passenger cell, pure-electric or petrol-hybrid powerplants and a host of sustainable materials used to build the interiors.
Elsewhere in the range, BMW have introduced innovations such as brake energy recuperation, stop-start and precision fuelling and emission controls with savings of up to 30% now common between each model generation. Cars are now smarter, cheaper to make, much more fuel efficient and use less of the earth’s precious resources.
Three of the fastest growing business proposition at the moment are social media, mobile applications and cloud-based services, which coincidentally are neatly summed up in the automotive innovation called connectivity.
‘Connected driving’ refers to the range of solutions designed to enhance the driving experience (such as improving safety, infotainment, real-time navigation and car-to-car interaction) and enable drivers to carry out more tasks while on the move (including autonomous driving).
“Lexus Hotspot” is a new service available on the car maker’s new IS saloon, which offers high speed Wi-Fi connectivity for every vehicle occupant. It offers simultaneous use of up to five devices, plus in–car interaction between devices for business and gaming use. Parent company Toyota is top of the automotive innovators and fifth overall on BCG’s list, climbing up one place since 2012.
Car buyers now expect advanced electronic and entertainment systems in their cars, which seamlessly connect with their devices. They also expect app-like functionality, to configure and personalise cars to suit their lifestyles, which in turn places car makers in the very same position as consumer technology brands such as Apple and Samsung.
Car makers such as Ford and Volkswagen have created Silicon Valley labs to foster creativity, innovation, and entrepreneurship – resourced from the very same talent pools as used by Google, Microsoft and IBM. The incubator Plug and Play Tech Center is one such partnership who work with Volkswagen to develop innovations and technologies for its future vehicles.
In fact, you can’t move in Silicon Valley without stumbling across a car maker behaving as a consumer technology business; Nissan, Mercedes-Benz and of course, Tesla are all innovating to deliver safe, convenient and intelligent solutions to our future in-car needs.
It won’t have escaped your notice how fast the technology behind automotive lighting is moving.
Audi are the most ‘visible’ innovator, initially with its trend-setting day-time running lights (DRL), then in 2008 when it moved from bi-xenon to the brighter and more energy efficient full-LED headlights.
The cleverness behind such technology is the way in which it ticks so many boxes in the competitive strategist’s toolkit.
Their lighting is distinctive and instantly recognisable, using technology which Audi has protected and is clearly leveraging in its cars.
In fact so effective is this leverage, that a facelift can be accomplished simply by a change in lighting design – no sheet metal or expensive new tooling, a simple software change will soon be sufficient to completely change the front and rear styling of a car.
SEE ALSO: The truth about Ferrari’s brand power..
Up-and-coming car makers
More than half of the most innovative companies in the BCG Most Innovative Companies list are more than 50 years old. They owe their success to a number of factors, including a keen eye to the future and learning how to institutionalise innovation within their organisation.
But in the automotive sector, innovation is not a privilege exclusive to the giants.
Contrary to popular belief, the idea of ‘blue-sky’ thinking (imagining without boundaries) is actually the antithesis to innovation. Remember the old saying; “Necessity is the mother of invention”? Well one of the biggest limitations facing any car maker is access to sufficient money and resources, but often necessity breaks through and the limitation becomes an advantage.
That’s particularly true when it comes to chassis development.
Look at some of the latest big-brand innovations; BMW’s all-carbon passenger cell for the i3 and i8, the carbon-fibre monocoque used in the Alfa Romeo 4C, the use of extruded aluminium in Aston Martin’s VH architecture, and in some respects Jaguar’s all-new iQ[Al] scalable vehicle architecture.
Many of these innovations are derived from low-volume applications such as motorsport, and from smaller engineering-led companies including Lotus and more recently Tesla.
The new Zenos E-platform uses an innovative new material technology which sandwiches a thermoplastic core between two skins of recycled carbon. This in turn is fixed to an extruded aluminium spine, to which the suspension is then mounted. So innovative is this approach that a premium manufacturer has since adopted it for the floor plan of its new product range – proof that often it helps to be small (and free of entrenched behaviours) in order to develop something new.
Many of the breakthrough ideas of the past decade are not new, merely innovations which now assembled, make sense in our time. Electric vehicles which were once viewed as impractical and too expensive are now a reality, thanks to improvements in the cost and durability of batteries. But they’ve been around since the mid-19th century and we’re only just seeing them gain traction now in the mainstream.
That’s another topic worth exploring, so if you’d like to dive a little deeper there’s a BCG report called ‘Powering Autos to 2020’.