ENTREPRENEURSHIP

Assignment 2

Muhammad Zun Nooren Bangash

Reg. No 209195
ME-09 B
Discontinuous innovation to fuel auto industry’s greatest revolution in a century

A. What is "Discontinuous or Disruptive Innovation" explain with examples?

Disruptive innovation is an innovation that creates a new market and value network
and eventually disrupts an existing market and value network, displacing established
market-leading firms, products, and alliances. It can also be referred as to a technology
whose application significantly affects the way a market or industry functions. Hence, it
can be defined as means to develop new technologies obtained not by just merely
improving the existing technology but by an entirely different solution using knowledge
from different fields. It has the ability to destroy existing earning structures in a single
stroke.

Some examples of discontinuous or disruptive innovation are:

1) The emergence and future advancement of electric vehicles, which employ an entirely
different type of motive power and are better for the environment

2) The commercial use of carbon fibers and other advanced materials other than steel

3) Trial runs of self-driving vehicles facilitated by advancements in information and

communication technologies

B. Who will control discontinuous innovation in the Auto Industry?

The analysis of patent information presents highlights that technological advancement
is driven by suppliers in Europe and by automakers in Japan. Bulk of technological
advancement is overlooked by automakers and their affiliated part suppliers in Japan.
On the other hand, in Europe automakers employ suppliers to handle this task. Hence,
more patents are filed by suppliers than automakers.

Automotive technology maps are obtained by utilizing patent information. In can be

gathered that Automotive technology is be broadly divided into four major domains
(engines & drive systems,body & interior, ICT & controls, batteries & materials)

Among the Japanese automobiles’ manufacturers, Toyota has the largest number of
patents filed and has the most extensive development coverage. Furthermore, it has
strong ties and research with its major suppliers DENSO and AISIN SEIKI. As stated
earlier a different kind of situation is observed in Europe. ROBERT BOSCH, one of the
leading suppliers, has the most filed patents each of it crediting to the fact that a lot
of advancement in technology is being done by BOSCH. So, it can be concluded that
it is at the helm of technological development in European automotive industry.
Now, moving onto to the comparison between the automotive markets of Japan and
Europe.
 Data shows that Toyota and DENSO are ahead of BOSCH and VW in all domains of
technology but when it comes to power supply units and electric valves, they do not
hold a candle to them. Furthermore, when it comes to comparison only between
BOSCH and DENSO then BOSCH has the upper hand.

The data also highlights the fact that BOSCH slowly but gradually is catching up to
Toyota and DENSO combined and it can be predicted that it will cross them if it
continues on the same path.

Keeping all this in mind, it is stated that either can dominate the discontinuous
innovation era. However, it all hinges on the fact that which of more closely
understands the future needs, can provide new feasible solutions and form critical
partnerships.

C. Are technology patents good indicator of innovation?

The number of patents filed indicate innovative behavior and superiority to some
extent but innovation cannot be only expressed by the number of patents. Cultural
behaviors and perspective also have a role to play. For example, even though BOSCH
has much more R&D budget than DENSO still the number of patents of the latter are
more. Now this may be influenced by cultural difference of filing patent and the
secretive nature of European competitors. These factors are also essential in gauging
innovation. Besides these other factors include: quality, impact and novelty etc.

D. What is the major reorganizing scenario considering Alliances and

Mergers & Takeovers (M & A)?
The automotive industry will experience the greatest revolution in a century. Now,
this transformation and reorganization is mainly due to two factors:

(1) The identity of the competitors and regulations of competition are changing

As a vast amount of development was and is being seen through disruptive innovation
and trend is shifting towards EV so companies and firms related to ICT industry,
material industry and electronic component industry have a huge advantage. Because
of the new and decisive technologies these firms possess they could easily start exerting
bottom-up control over automakers. It is evident that automaker-specific technology is
no longer at an advantage and if they wish survive then should evolve with the changing
trends and development.

(2) Multi-polarization of regions/fields of competition

In the upcoming years lack of resource will be a major issue in advanced and developed
nations. Because there both continuous and discontinuous are seen and they will
eventually lead to this problem. In order to tackle this issue, Global-mega suppliers are
seeking ways to boost their production capacity in terms of volume with the same
amount of investment and resources. Their target is well over 10mn units. It also seen
that some firms like BOSCH and Continental are evolving their management strategy to
achieve the target of 20mn units which is well beyond the reach of a single supplier.
This situation is seen in various products and components. Now, if Japanese
automakers and part suppliers want to survive in this ever-changing market and
increase their production in terms of volume then they need to go under
reorganization.

To counter the mega-supplier-controlled framework in terms of volume would call for a

base strategy of establishing a Japan-wide 20mn club. This would involve not only the
10mn units of the Toyota Group (Toyota Motor, Daihatsu Motor, Hino Motors), but also
the volume of other producers like capital alliance partner FHI, technical alliance partner
Mazda, and Suzuki, which, although independent, is attractive for its solid base in India
and its strong ability to compete on costs.

Toyota Motor company understood the changing situation so they brought about a
major improvement in its management structure back in April 2016. Seven-company
system was implemented in which Toyota Motor’s management team had control over
the seven companies defined for various areas and frameworks and monitored their
operation and performance.

Drastic ideas could be called for if the company sets its sights on implementing a major
reorganization of parts suppliers and finding subsequent roles for them, as well as on
new collaborations with automakers in the future. This could include a shift in
management structure, built around a transition to a holding, and the formation of a
Japan-wide alliance with the Toyota Group at its core.

There may come a time when the company will call itself simply Toyota instead of
Toyota Motor, as a result of growth in non-manufacturing fields in line with changes in
society. If Toyota Motor’s high stakes in some parts suppliers could cause concern
among the other automakers, then a possible alternative would be making Denso the
principal in a holding company structure for the parts business. Denso is a good
candidate among the suppliers due to its technological superiority as evidenced by the
wealth of patent holdings.