J PROD INNOV MANAG 2014;31(1):4–7

© 2013 Product Development & Management Association

DOI: 10.1111/jpim.12075

Evolution and Transformation of Innovation in the Global

Automotive Industry
Janell D. Townsend and Roger J. Calantone

The automotive industry is an integral component of the global economy and is unique in that it encompasses every
aspect of the value chain—from raw materials to design and development, manufacturing, sales and service, and even
disposal. All of these value-creating areas are undergoing significant innovative change as a result of environmental
and competitive forces. In this issue, we explore some of the most salient topics related to innovation and product
management in the context of the contemporary global automotive industry.

A
dvances in product innovation have tremendous
implications across the spectrum of product and
service categories and industries. The automo-
tive industry is not unique in this respect. It is unique,
though, in that it involves every aspect of the value chain
through an elaborate network of suppliers on one side of
the organization and extensive distribution on the other
side. It is a complex web that includes everything from
natural resources through multiple levels of suppliers
who contribute to product development, through the
original equipment manufacturers (OEs) and their dealer
and distributor networks, through the service and even-
tual disposal and ultimately recycling of a substantial
portion of the product. Market size and significance of
expense for the companies and their consumers means
the stakes are high for all players in the process; such
complex systems have enormous and multifarious
impacts on many sectors of the economy. Innovation and
model renewal is institutionalized in the automotive
industry. Models are scheduled for replacement or
“refreshing” on a regular basis for technological updat-
ing, style makeovers, as well as right sizing of production
and strategic repositioning.
Product- and process-based innovations abound in
automotive products and services, and have far-reaching
implications for consumers, business, and society. Con-
sumers’ expectations are converging globally for these
highly visible, image-driven consumer goods. There is
increasing demand for sophisticated technologies and
exceptional design at the luxury end of the product spec-
trum and basic features at an extremely low cost at the
Address correspondence to: Janell D. Townsend, School of Business,
Oakland University, 348 Elliott Hall, Rochester, MI 48114. E-mail:
townsend@oakland.edu. Tel: 248-370-2544.
other end. Companies are managing the new product
development and innovation processes in an environment
of increasing government oversight of energy policy and
consumption, increased influences on ownership struc-
tures, and increased safety regulations. The products and
features automotive companies develop, produce, and
offer in the future will clearly be influenced by these
factors, while simultaneously finding ways to satisfy both
the salient and unarticulated wants and needs of consum-
ers. In order to compete effectively, OEs are increasingly
turning to their supply chains for help in achieving inno-
vation goals, with relational systems developing a more
important role in the process.
The automotive industry context, therefore, is particu-
larly fertile for academic investigation and inherently
germane for the practical application of theoretical con-
cepts. Gaining a greater understanding of the phenomena
associated with the process of innovation in this industry
is fundamentally important and has wide-reaching out-
comes. The following special issue focusing on innova-
tion in the global automotive industry presents a mix of
papers in terms of empirical and theoretical approaches,
as well as multiple levels of analysis. They all have clear
industry implications for the practice of innovation
management strategy at the interface of products and
consumers, society and the firm, and between collabora-
tive partners.
Product development remains one of the most sub-
stantial costs and most important investments for auto-
motive OEs. Product life-cycle management is a major
point of consideration not only because of the massive
resource and financial costs involved up front but also due
to the importance of product acceptance in the market-
place. On one hand, technology has allowed for the
improvement of time and integration; on the other hand,
technology has also become a driver of product changes
INNOVATION IN THE GLOBAL AUTO INDUSTRY
themselves. Yet, for all the progress in products and life-
cycle management, in the first paper of this special issue,
Takahiro Fujimoto reviews how the existing theoretical
foundations of evolutionary product architecture fail to
explain the increasing velocity of derivative innovations
that characterize recent automotive history. Modular or
integral approaches to product architecture development
vary based on exogenous factors. Looking into the future,
much of the expected innovation will be driven by con-
sumer demand for product features and government
involvement through standards, regulation, and taxation.
Key to the innovation process are the influences of con-
sumers and governments, providing segue to the next
topics covered in this special issue.
Understanding consumer decision-making in an
increasingly dynamic environment becomes of utmost
concern. Henry Ford has been attributed as saying that if
horse and buggy drivers had been asked what type of
innovation they sought, they’d say they wanted a faster
horse. For much of its history, the auto industry has
followed this thinking and been driven by engineering or
financial-based decisions. A prime example is when the
German OEs resisted adding cup holders to vehicles
because they held a performance-oriented perspective
and just didn’t believe people should drive with open
liquids. However, in contemporary product development,
the role of the consumer, especially lead users, is far more
integral to the process. Identifying and satisfying con-
sumer expectations that include such things as the
merging of communication technologies and the ability
to integrate seamlessly with other products, demands for
improved safety devices, expectations for increasing
levels of product and service quality are all among the
types of applied issues that need to be considered.
In their paper, John R. Hauser, Songting Dong, and
Min Ding investigate the role of heuristics in the devel-
BIOGRAPHICAL SKETCHES
Dr. Janell D. Townsend is an associate professor of marketing and
international business in the School of Business Administration at
Oakland University. She earned her Ph.D. from Michigan State Univer-
sity in Marketing and International Business. Dr. Townsend’s research
interests are broadly defined by strategic and international marketing
issues, and fall within the nexus of branding, innovation, and globaliza-
tion of the firm.
Dr. Roger J. Calantone is the Eli Broad Chaired University Professor of
Business at Michigan State University. He is Chairman of the Marketing
Department and Co-Director Institute for Entrepreneurship & Innova-
tion. His research interests are eclectic, including innovation, NPD,
decision support systems, relationships within large scientific teams, and
classification.
J PROD INNOV MANAG 5
2014;31(1):4–7
opment of consumer preferences. In an era when the
majority of consumer research is completed prior to vis-
iting a dealer or distributor, understanding the process by
which consumer preferences are formed is an important
area of study. Their research makes a significant contri-
bution because it suggests articulated preferences are
more accurate measures when engendered by self-
reflection; but articulation of preferences prior to self-
reflection interferes with the accuracy of preference
articulation. To create enduring preferences, which could
impact a number of pre- and post-purchase product evalu-
ations implies early communication with customers
should encourage self-reflection.
An interesting development is that recent industry-
based research indicates fuel efficiency is quickly becom-
ing the primary concern of consumers in all product
market segments. Government intervention has been a
major driver of both industry innovation and consumer
demand for alternative fuels and drive train technology.
In Europe, this has been done mostly through taxation,
while in the United States it has been done mostly
through negotiated industry standards. The United States
encouraged corn-based ethanol production for a time, and
encouraged imports through reduced tariffs, while Brazil
actually achieved energy independence through regula-
tion and mandates for ethanol-consuming engines. In
response, global automakers developed dual-fuel internal
combustion engines to accommodate either gasoline or
ethanol-based fuels for the Brazilian market. This inno-
vation eventually was transferred to other parts of the
world, illustrating a way that new products are introduced
to various markets. Yet, there is often a limited ability for
governments to influence the actual nature of innovation
and product diffusion through intervention techniques.
Although the U.S. and Chinese governments have sup-
ported policies, at both the industry and consumer level,
to encourage the development and acceptance of electric
vehicles, neither of these markets has substantial sales
resulting from these initiatives. The fundamental reason
appears to be lack of adequate innovation in battery
development or infrastructure to allow for long-distance
travel. This leads to range anxiety for consumers and
lowers sales volumes. This reciprocal relationship
between innovative product development and support
infrastructure or externalities can be observed in many
industries, but is particularly relevant for the high capital
investment-based automotive industry.
As observed by Matthias Holweg in his paper, a
review of the state of innovation in the United Kingdom
suggests that the internal combustion engine will remain
primary for the foreseeable future, mostly due to these
6 J PROD INNOV MANAG
2014;31(1):4–7
infrastructure issues. While it is anticipated that a variety
of alternatives will be available in the marketplace, the
expectation is that continued incremental innovation of
existing technology will forge the way forward in low-
carbon emission vehicles. This is important in light of the
findings of two studies undertaken as part of the research
paper presented by Jonatan Pinkse, René Bohnsack, and
Ans Kolk. Their research employs qualitative and quan-
titative methods to consider how firm-level strategies for
creating both transformational and systematic innova-
tions that are adopted by consumers are impacted by both
private and public initiatives. An important finding of
their research suggests even if government initiatives fail
to create consumer interest in low emissions vehicles,
private initiatives may help to overcome the obstacles.
The competitive environment in the automotive indus-
try has become increasingly complex in the global mar-
ketplace. Globalization of the industry has meant major
changes to the way products are developed, where inno-
vations are conceived and the environmental market con-
ditions that influence the nature of the innovations.
Although competitive landscapes appear to be somewhat
slow moving in individual and mature markets, emerging
markets are much more volatile and have different needs.
Thus, innovation is taking many forms, with the integra-
tion of communications and safety technology taking an
equal footing with respect to low-emission alternatives in
the more mature markets. However, less developed
markets are growing through the emergence of middle-
class populations, often moving from other forms of per-
sonal mobility to purchase their first automotive product.
Automotive OEs are taking alternative routes to manage
competition in this complex and multifarious environ-
ment. M. Berk Talay, Roger J. Calantone, and Clay M.
Voorhees contribute to our knowledge of the competitive
environment by considering the interactions between
competitors over time. Their research shows that innova-
tion is fundamental to the survival of automotive brands
over the long term, but competitors make gains from
innovations via comparative moves. An important finding
is these gains are temporary. Understanding the impor-
tance of continuous product innovation is therefore criti-
cal for automotive firms operating in a hypercompetitive
marketplace, with a myriad of competitors.
Innovation is also taking place in different organiza-
tional forms in the contemporary environment than it has
in the past. In the United States and European markets,
the OEs were historically vertically integrated through
the entire value chain. Japanese OEs, however, were
bound with their suppliers through keiretsu systems that
were based on firm-level collaborative interactions and
J. D. TOWNSEND AND R. J. CALANTONE
capabilities coordinated through inter-ownership and a
central financial system. Changes to management think-
ing has seen a dismantling of the integrated enterprise and
a focus on core competencies through spin-offs and some
loosening of the financial binds of the equity stakes that
anchored the keiretsu systems. Relatively closed systems
do still exist in some markets like Korea, and some of the
Japanese keiretsu systems remain largely in place. An
interesting approach has been taken by the Chinese,
where they have effectively created vertical integration
for some of the larger OEs through a series of joint
ventures with foreign firms. This is possible, of course,
because of effective, if not always direct, government
ownership—which is something we also see in other
parts of the world, including the United States and
Europe. Global equity-based partnerships, like that of
Renault-Nissan and Fiat-Chrysler, and the purchase of
established brands from developed markets by emerging
market firms, like Volvo and Jaguar Land Rover, have
also changed the nature of innovation and product devel-
opment processes. In this dynamic paradigm of owner-
ship structures and control, regardless of the actual
functional form, the management of supply chains has
become fundamentally important.
We address this issue of innovation management in the
supply chain through studies that consider developing
capabilities to achieve the greatest return from collabora-
tive ventures, building productive relationships and orga-
nizing for creating product features. Anja Schulze,
Gundula Brojerdi, and Georg von Krogh make a unique
and significant contribution to the literature related to the
skill sets required to generate positive outcomes from
collaborative relationships. In their study, they investigate
the role of a firm’s ability to transfer knowledge, in con-
trast to the majority of research that has been concerned
with absorptive capacity. In terms of knowledge develop-
ment in the new product development process, this
important contribution illustrates the need for capabilities
on both sides of an equation. If knowledge development
is to be successful, then both disseminative and absorp-
tive capacity must be present in the collaborative
relationship.
Other important dimensions in the new product devel-
opment process are more specific to the OE–supplier
relationship. In particular, supplier involvement with
innovation efforts has become a topic of considerable
interest. Ruey-yer “Brian” Jean, Rudolph R. Sinkovics,
and Thomas P. Hiebaum therefore make significant
contributions to the literature with their paper presented in
the special issue. They consider dimensions of the
relationship between supplier involvement, and product
INNOVATION IN THE GLOBAL AUTO INDUSTRY
innovation and performance. Their results are interesting
because they suggest a nonmonotonic relationship be-
tween product codesign and innovation performance. The
implication is that either an arm’s-length market-based
relationship in product design or greater integration are
anchored ends of a spectrum and more likely to result in a
mutually successful collaborative efforts. Further, since
the context of this study is the Chinese automotive market,
the findings can support efforts to develop opportunities in
what is now the largest car market in the world. Although
the market is still emerging, the volume alone is incentive
for OEs to get their product innovation efforts right.
Finally, we close the special issue with an interesting
study from Rémi Maniak, Christophe Midler, Romain
Beaume, and Felix von Pechmann who consider the
dynamic capabilities required to refresh products in a
competitive marketplace. In the true spirit of JPIM, mul-
J PROD INNOV MANAG 7
2014;31(1):4–7
tiple theoretical lenses from alternative functional
schools of thought are employed to understand the com-
plexity of managing the new product process to create
and update products through alternative organizational
forms. This brings us full circle to the first paper of the
special issue. Gaining a better understanding of these
organizational considerations will help to unlock the
future of both incremental and transformative innovation
in the automotive industry.
Much knowledge is yet to be discovered in the realm
of product and service development across industries; and
observable phenomenon in many areas of the automotive
industry are generalizable to other contexts providing a
sound foundation for study. This special issue of JPIM
has explored some of the most salient topics; indeed,
there are a multitude of areas that can be explored in the
future research.