Ford and the Innovators Dilemma
Jan 26, 2016
Auto-maker to mobility provider
‘It’s not for others to disrupt us, it’s for us to disrupt ourselves.” This was the theme of Ford CEO Mark Fields' speech at the Detroit motor show last week. Disruption is the watchword in the auto industry as the tech industry begins seriously encroach on the auto industry.
Change is coming from multiple directions, not all of which fit the term ‘disruptive’ as defined by Clayton Christensen. The change in drivetrain from a combustion engine to electric led by Tesla is often described as disruptive but, in reality, is a change in the way cars a made. Moving to electric vehicles may shift some revenues around the existing market, but it does not represent a new business model that fundamentally reshapes the market. Ridesharing led by Uber, Lyft and Didi Kuaidi represent a shift from car ownership to transportation-as-a-service. Users pay for access to transportation rather than for ownership of a vehicle. This truly is a disruptive innovation as it will disrupt the existing automotive value chain. Increasing value and profits will be captured by software and application providers rather than hardware.
It is against this backdrop that Ford is attempting to position itself as a mobility company rather than simply an auto-maker. Ford is one of the first true disruptors. The Ford Model T in 1908 was the first mass produced automobile and ushered in the age of the affordable car. The question is, more than 100 years later, can the company disrupt itself rather than the market.
The strategy is Ford Smart Mobility, a programme that will drive Ford’s business in new areas like connectivity, data analytics, autonomous driving and customer experience. These are all services that will see Ford sell software and services to try to get closer to the customer. Rather than just provide the car and allow service providers have the relationship with the customer, Ford wants to make sure it captured value and profit as the disruption occurs.
Easier said than done
Identifying the changing landscape is the easy part. The real challenge for Ford is two-fold, one is culture and the other is sustaining shareholder value. On the culture front, software and services require a very different approach than hardware. Designing and building cars is a long process and Ford has become very good at it. People who are good at it have been hired and culture has been embedded that helps the company build better and better cars. But building a car requires a very different skillset and culture than delivering data analytics or connectivity for the driver. Data scientists need to be hired, user design needs to be a focus, and A/B testing needs to be infused across the company. In hardware companies, people good at hardware are highly valued and hold positions of power within the company. This means people with incompatible skill-sets and approaches to business hold powerful positions within the company and are reluctant to change what has made them and the company successful in the past.
Culture is difficult to change, but sustaining shareholder value can be more pernicious. The Innovators Dilemma is so difficult to address because executives have to make business decisions that go against the financial interests of the company. The fact is, as Ford tries to become a mobility company this takes resources away from their core money-making business. The return on investment for mobility services is lower and higher-risk than the auto part of the business.
Ford need to balance the legacy business model of selling cars with the growth business of selling services. Uber, on the other hand, is a technology company that has hired people and built a culture that values software ahead of everything else. The core business is providing transportation-as-a-service and providing the best possible customer experience. They can focus all of their resources on doing this and this alone. The whole company is pulling is the same direction making execution faster and easier.
Ford may well manage to change the culture and communicate its vision successfully to shareholders. In order to truly compete, they need to split the company. They need to be clear about exactly what disrupting yourself means:
Disruption means generating less revenue in the short term. When put in those terms disrupting yourself doesn’t sound quite so innovative. This is exactly what the Innovators Dilemma is so difficult to solve.
No one can serve two masters
Ford should split up the a newly created mobility entity and auto entity into two separate businesses. The mobility entity needs to be free to pursue strategies that may negatively impact the core business. This is much harder in a single entity. This business should be given the freedom to take risks and given more autonomy to make decisions. The mobility business can leverage the resources, infrastructure and institutional knowledge to serve customers, but not to be beholden to the core business.
Such an entity would have access to a huge installed base of cars generating a tremendous amount of data on the roads every day. This is real-time road and driving data Google needs. This data will give the company a major advantage in the machine learning space as discussed in my recent post The Only Thing That Matters in Machine Learning is… The two business approach gives Ford a fighting chance in the transportation-as-a-service market.
Please add your bio info through your member profile page, or through your dashboard.