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Coming out of the crisis in the auto industry: Ambidextrous management of the transition to electric mobility
Submitted by Heike Prof. Dr. PROFF, University of Duisburg Essen on 12 févr. 2010 - 01:54
Type de publication:Conference Paper
Source:Gerpisa colloquium, Berlin (2010)
Today, 18 months after the outbreak of the crisis, it is difficult to propose how the traditional automotive companies (automobile manufacturers as well as suppliers) could overcome the present sales crisis – not even the dimension and the duration of the crisis can be measured precisely. After the phasing out of scrapping bonus schemes in many European countries a massive decline in sales is expected. The trend outside the European markets can also not be forecasted exactly. Even a second wave of insolvency among automotive companies can not be ruled out for 2010.
However, it is certain that traditional automotive companies have two essential options for growth and thereby overcome the crisis:
- through a yet stronger, locally adapted and therefore more systematic commitment to the emerging markets of the BRIC-countries Brazil, Russia, India and China and
- through the transition to electric mobility.
Our article to the 18th International Gerpisa Colloquium “The Greening of the Global Auto Industry in a Period of Crisis” is focused on the second growth option: Overcoming the automotive crisis through the transition to electric mobility. Since existing business models for vehicles with combustion engines will have to be optimized for at least the next 20 to 30 years alongside the development of fundamentally new business models, the specific challenge in the transition to electric mobility consists in the ambidextrous management of both existing and new competencies.
Ambidexterity means (e. g. Tushman/O’Reilly, 1966) concurrent
- resource exploitation and alignment of the latter, requiring a strong orientation to efficiency and
- development of a new resource exploration through adaptability to environmental changes, demanding a very challenging orientation to flexibility
and therefore the coexistence of “diverging logics” (Kohnlechner/Güttel 2009: 45) or “competing frameworks” (Gilbert 2006: 150). According to Gibson/Brinkshaw (2004) one has to distinguish between structural ambidexterity in case inconsistent patterns of activity are to be pursued in different organizational decision entities (think of an efficient, resource exploiting sales department alongside a flexible, resources exploring R&D department) and contextual ambidexterity in case employees split their working hours in activities related to either efficiency or flexibility.
The research on ambidexterity can be best described as multi-disciplinary. Within the research on strategy, organization and innovation it theoretically and empirically addresses processes of innovation, learning and development. Raisch/Birkinshaw (2008) provide a comprehensive overview of literature on the topic. Based on the strategic competence management the phenomenon of ambidexterity describes a well-balanced mix of strategies existing of strategies to enhance current competencies and the renewal of competencies (Sanchez et al. 1996; Volberda et al. 2001). In this dynamic explanation of competencies within the framework of a competence-based view of strategic management, improvement and renewal of competencies alternate in the course of time (idea of “cycling”, Volberda et al. 2001 and Proff, Proff 2008). Frequency and amplitudes of the cycling are much stronger in very dynamic industries that cope with multiple and intense environmental changes through constantly radical innovations like the pharmaceutical industry or the biotechnology (cf. Sanchez 1997) in contrast to mostly stable industries like the traditional automotive industry, coping with rare and weak changes through incremental innovations (cf. figure 1 a).
During a discontinuous economic and technological change in traditional industries – for instance during the transition from the traditional automotive industry to the new technology of electric mobility existing companies generally lack the competencies necessary for the new technology. Due to path dependencies in the development of technological competencies, this lack of competence cannot be regained without leapfrogging (cf. e.g. Brezis et al. 1991). If the old technology persists in principle, ambidexterity of a renewal of competence and leapfrogging is to be sought after instead of cycling (figure 1b).
See attached file for image
See Attached file for image
A firm has to absorb external knowledge to manage the leapfrogging. That requires a high external absorptive capacity (Cohen, Levinthal 1990). The information about the environmental changes has to be assimilated and implemented. Assimilation and implementation are dependent on the state of knowledge, the qualification of the employees and their own activities in R&D (cf. ebd). It is expected that the capability of absorbability of external developments accumulatively increases with the available knowledge (cf. Pavitt 1985, p. 6) and that a high level of knowledge intensifies the absorptive capacity. It increases with the qualification of the employees and with own research and development because the capability to implement external technological knowledge then significantly is higher than in case of only monitoring the technological development (cf. Bernstein, Nadiri 1989, p. 251).
These explanations cause two starting-points for leapfrogging:
- Acquisition of external knowledge (McEvily et al 2004) through new employees having the required know-how or by headhunting employees of competitors or suppliers or through acquisition of firms having the new know-how. As competencies normally are bound to complex routines and by that in teams, the acquisition of firms is the faster, but more risky way to catch up a technological lag. The acquisition of a firm does not assure a successful implementation of know-how. Empirical research has shown that up to three quarters of all acquisitions were not successful (cf. Luchs, Meckl 2002, p. 10). According to Ahujy, Katila (2001) the acquired company should be complementary and feature a medium “technological strageness”, since the internal absorbability will then be the highest (cf. Cohen, Levinthal 1990). Furthermore, the managers of this company should be integrated into the organization of new competencies.
- Cooperation in the case of absence of knowledge. Instead of acquisition, the correction of a technological gap could also be overcome by cooperation with a technologically superior company. This attempt can close the gap of competence without building up competencies on your own. However, this requires intensive contacts and trustful cooperation.
To manage such a leapfrogging, even if the old technology continues to exist and is to be optimized, two key questions have to be answered for the implementation of an ambidextrous management:
- Where will the company install its new activities of development? and
- Are there certain transition points or milestones only during the transition?
To 1: the new technologies are often developed in innovative business units which do not seem to be bound into the traditional efficiency oriented business units that optimize old technologies. In transition to a new technology, e. g. in transition to an electronic newspaper (cf. Gilbert 2006), to digital photography (cf. Benner/Tushman 2002) or to electric mobility the goal is to eventually substitute the old technology by the new one. Therefore this is not an unrelated service to minimize the specific risk as in the case of portfolio management, but a close cooperation of parallel activities concerning not only the top management. For instance, engineers of traditional combustion engines need to be included in the development of electric vehicles in order to continue the tradition of vehicles of the company and to transfer the image of the brand and product onto the new vehicle. Therefore the change cannot be solely accomplished by contextual ambidexterity of the top management team while the remaining employees initially have to deal with the old technology, followed by the new technology after the occurrence of an exact and abrupt change, but requires the management of a contextual and structural ambidexterity in a long phase of transition, deeply affecting all business units.
To 2: While most companies watch the development and define milestones (partially specific to segments) to subsequently rethink their business models, the definition of a so called tipping point could also be used to divert the resources for development and innovation away from the traditional combustion technology to electric mobility. From this point on the previous technology wouldn’t be refined further and its production would be transferred to low cost countries. Companies that miss out on electric mobility would then disappear from the market.
As a first step of a long term research, the considerations about possible strategies for a transition to electric mobility (ambidextrous management of an improvement of the old competencies and development of new competencies through leapfrogging via acquisitions and cooperation in order to get nonexistent knowledge) and about the recommendations regarding implementation (i.e. deeply implementing ambidexterity in all business units and estimating a tipping point towards this new technology) have been discussed with 15 top managers of automotive manufacturers and suppliers. The results of these discussions will be summarized in the conference paper. Following that, the decision behavior of managers in the transition to electric mobility will be simulated in experiments.
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