Creative accumulation in a mature industry - Understanding the current transformation of the automotive industry

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Abstract:

The automobile industry constitutes a paradox for established innovation theories. Few sectors have displayed such stability in their dominant product designs and incremental improvement of core technologies as the automotive industry, making it an archetypical example of a capital-intensive, oligopolistic sector competing on process efficiencies along stable trajectories.
Emerging economies and state support have added a few new actors, and hard-pressed “old economies” have seen the demise of some older firms, but the basic industry structure has remained unchanged for a long time. Repeatedly researchers have expected this stable pattern to break down and open up for new radical departures, for example in the aftermath of the oil shocks in the early 1980s (Altshuler 1984), following rising environmental concerns (Nieuwenhuis and Wells 1997), or the Californian zero emissions vehicle (ZEV) mandate (Pilkington and Dyerson 2005). But the incremental trajectory prevailed and researchers forecast that the industry would fail to accommodate new technologies or regulation.
Extrapolating previous trends, Fontaras & Samaras (2010:1832), for example, argued that the European industry would have great difficulties in achieving EU´s emissions targets for 2012/15, since their technologies were already “being pushed to their limits”. In the same vein, the innovation theorist Clayton Christensen predicted that electrical vehicles implied a disruptive threat to established automakers “…the electric vehicle is not only a disruptive innovation, but it involves massive architectural reconfiguration as well, a reconfiguration that must occur not only within the product itself but across the entire value chain…”(Christensen, 1997/2003, p. 252). In the tradition of industrial life cycle studies, innovation and change was expected to come from new firms enjoying an “attacker´s advantage”, which incumbents with their “core rigidities” would have a hard time to match.

And yet, the last five years have witnessed a remarkable vitality among automotive incumbents, both car makers (OEMs) and component specialists. Improvements in established technologies have accelerated, and far from being ”pushed to the limit”, a report from Transport & Environment, 2011 shows that automakers will comply with EU´s new CO2 emission limits well ahead of time. At the same time a range of new modular innovations are introduced, from multi-speed gearboxes and dual-clutch transmissions, advanced valve management systems and regenerative braking, to collision avoidance systems and other proactive safety equipment. Ten years after corporate lawyers succeeded in winding down the Californian Zero Emissions Mandate, electric vehicles have re-emerged on the back of advances in lithium-ion technologies. The new EV industry includes startups, such as Tesla and Fisker. But far from being caught off-guard, incumbents dominate sales and production. Whereas the highly publicized Tesla sold 2,500 roadsters 2008-2011, Nissan’s produced 10,000 Leaf cars in its first fiscal year ending in March 2011, and Mitsubishi 5,000 EVs in 2010. Rather than being a breakthrough opportunity for “attackers”, the surge in interest for electric vehicles offers Japanese incumbents who failed to compete with Toyota´s hybrid cars a new chance, making use of economies of both scale and scope. And far from implying a “massive architectural reconfiguration …across the entire value chain” the new technologies involve a dynamic expansion of supplier networks, with ample opportunities for incumbents such as Bosch, Continental and Valeo to augment product lines with profitable high-tech modules.

The growth of Asian economies, in particular China, signifies an epochal shift in the centre of the industry, but so far this change has not threatened but created opportunities for Western incumbents. Taken over by Geely in 2010, Volvo Cars, for example, has embarked on its boldest expansion plans ever, doubling production capacity within a few years, and launching highly ambitious product and technology plans, with its Scalable Product Architecture for product development, a new platform for future power-trains (“Volvo Environmental Architechture”) and an ambition to take a lead in premium market for electrified vehicles, such as a plug-in diesel hybrids.
How can this “incumbent vitality” be explained in theoretical terms? Previous GERPISA studies, for example Freyssenet (2009) has analyzed different corporate trajectories within the industry. This paper purports to analyze dynamics at an industry level, which neither fits the “creative destruction” framework, nor the notion of incremental innovation in stable structures. Instead the paper will propose creative accumulation as a fruitful concept to grasp the composite and contradictory nature of current developments in the auto industrial (cf Bergek et al 2011). Creative accumulation stresses the tension between the creativity aspect, implying responses outside of the range of existing practice, and the accumulation aspect, implying knowledge development on the basis of established practices. Creative accumulation means that new and old technological disciplines and areas of expertise have to interact in novel ways to develop products with substantially improved or changed performance. New fields of knowledge have to be aligned with existing, rapidly evolving, technologies – there is no Archimedian fixed point. The paper ends by discussing organizational implications, in particular the challenge of managing creative accumulation processes by means of dynamic integration, instead of separation and isolation, as recommended in the literature on disruptive innovation.