An Application of Technology Strategy Tools to the Introduction of Alternatively Powered
Automobiles to Worldwide Markets by an Established Firm
by
Joanne T. Woestman
Bachelor of Science in Physics with a Minor in Chemistry
Rensselaer Polytechnic Institute, Troy, NY
(1987)
of Philosophy in Physics
Doctor
and
of
Science
Master
Northeastern University, Boston, MA
(1993)
Submitted to the Sloan School of Management and the School of Engineering
in Partial Fulfillment of the Requirements for the Degree of
Master of Science in Engineering and Management
In conjunction with the
System Design and Management Program
at the Massachusetts Institute of Technology
February, 2000
Joanne T. Woestman 2000. All rights reserved.
The author hereby grants to MIT and Ford Motor Company permission to reproduce and to
distribute publicly paper and electronic copies of this thesis document in whole or in part.
-
Signature of Author
Joanne T. Woestman
System Design and Management Program
January 1, 2000
Certified by
Rebecca M. Henderson
Thesis Advisor
George Eastman LFM Professor of Management
Accepted by
Thomas A. Kochan
LFM/SDM Co-Director
George M. Bunker Professor of Management
Accepted by
Paul A. Lagace
LFM/SDM Co-Director
Professor of Aeronautics & Astronautics and Engineering Systems
MASSACHUSETTS INSTITUTE
OF TECHNOLOGY
FEB 012000
LIBRARIES
Joanne T. Woestman
SDM Thesis
February 2000
An Application of Technology Strategy Tools to the Introduction of Alternatively Powered
Automobiles to Worldwide Markets by an Established Firm
by
Joanne T. Woestman
Submitted to the System Design and Management Program
on January 14, 2000 in Partial Fulfillment of the Requirements for the Degree of
Master of Science in Engineering and Management
Abstract
Over the years, through the investigation of innovation and technological change in various industries,
scholars have observed a cyclical pattern of technological evolution. In industry after industry, a pattern has
been seen that alternates between periods of discontinuous technology change and periods of continuous
technology improvement.
The discontinuous phase of the cycle is characterized by a shift away from a dominant conventional
technology and a competition among a variety of new designs. From this competition, a new dominant
design emerges and the continuous phase of the cycle starts. The continuous phase is characterized by a
focus on improving the dominant design through product and process improvement techniques. This period
continues until a new technology threatens the dominance of the current design. Then the discontinuous
period begins anew.
Research has shown that the existence of this pattern of technological innovation does not mean that it is
easy to predict when the change in the cycle is about to happen. Research has also suggested that
different managerial techniques are appropriate and successful in the different stages of the cycle and that
firms that are successful in one stage often have difficulty making the transition to the next. These issues
present a challenge for firms in the midst of a cycle transition.
This thesis applies this model of technology cycles to the current automotive industry with a focus on
powertrain technology. The author asserts that conventional internal combustion engine technology has
been in a period of continuous improvement for nearly a century since it emerged as the dominant design in
the discontinuous phase in which the automobile replaced the horse-drawn carriage. And that it may be
entering a period of discontinuous change in response to public concern for the impact of automobiles on
the environment and increasing regulatory pressures that are forcing the industry to consider alternatives to
internal combustion engines.
Through an analysis of public data and personal experiences at Ford Motor Company, the author assesses
the possibility that the automotive industry is in the midst of a technology cycle transition and explores the
implications that this possible transition may have for Ford.
Thesis Advisor: Prof. Rebecca Henderson
George Eastman LFM Professor of Management
2
Joanne T. Woestman
SDM Thesis
February 2000
Acknowledgments
I would like to thank the administration of the System Design and Management (SDM) Program
of the Massachusetts Institute of Technology. The founders of this program have identified a
critical education need for future technical leaders in companies that develop, make and
distribute, complex, multi-system products. I appreciate the opportunity to learn from this
program and to participate in its development. It was a unique experience that I am confident will
prove extremely valuable throughout the rest of my career.
I would like to thank Ford Motor Company for the opportunity and the financial backing to
participate in the SDM program. It is gratifying to me to know that my employer believes in my
potential and is willing to invest in my future. Thank you in particular to the managers at Ford
who recognized that this program and I were a good match.
I would like to thank the professors of the SDM program and my classmates through the past
two years. I have learned from each of you. In particular, I would like to thank my thesis advisor,
Professor Rebecca Henderson. It was most helpful that she was excited my topic and that she
was willing to work with the unique challenges of distance learning. Additionally, I would like to
thank all the classmates that were willing to focus our team projects on issues that were useful
to my thesis, such as technology transfer, marketing hybrids, and hybrid system architecture.
Finally, I would like to thank my family. My husband Bill and my daughter Caitlin were supportive
throughout the program and willing to adjust their lives so that I could reach my goal. I appreciate
thier efforts and hope that someday, I can do something similar for them.
3
Joanne T. Woestman
SDM Thesis
February 2000
Table of Contents
1.0
2.0
3.0
4.0
5.0
Introduction
1.1
Technology Cycles
1.2
Managing Technology Cycles
1.3
A Possible Technological Discontinuity in Automotive Powertrains
1.4
Overview
Technology
2.1
Improved Internal Combustion Engine Technology
2.2
Alternative Internal Combustion Engine Fuels
2.3
Battery Electric Technology
2.4
Hybrid Electric Technology
2.5
Fuel Cells
2.6
Technology Assessment
Business
3.1
Market, Diffusion and Competition
3.2
Appropriability, Complementary Assets and Investment Dynamics
3.3
Monopoly Rents, Standards and Network Externalities
3.4
Risks for the Established Firm
Organization
4.1
External Partnering and Technology Transfer
4.2
Organizational Structure and Managing Relationships
4.3
A Technology Strategy
Ford Motor Company
5.1
Company Profile
5.2
Strategy and Leadership
5.3
Structure and Process
5.4
Culture and Incentive
5.5
Closing Remarks
4
Joanne T. Woestman
SDM Thesis
Chapter 1: Introduction
5
February 2000
Joanne T. Woestman
SDM Thesis
February 2000
Through the investigation of innovation and technological change in industries as varied as steel,
cement, typewriters, computer hard discs and watches, scholars have observed a cyclical
pattern of technological evolution.' The pattern alternates between periods of discontinuous
technology change and periods of continuous technology improvement. For instance,
mechanical movements dominated the watch industry for decades before quartz technology
took over and then the industry was transformed again by the development of digital watches.2
The discontinuous phase of the cycle is characterized by a shift away from a dominant
conventional technology and a competition among a variety of new designs. From this
competition, a new dominant design emerges and the continuous phase of the cycle starts. The
continuous phase is characterized by a focus on improving the dominant design through product
and process improvement techniques. This period continues until a new technology threatens
the dominance of the current design. Then the discontinuous period begins anew.
Applying this theory of technology cycles to the automotive industry reveals a long and productive
continuous improvement phase that began nearly a century ago. There are many different
technologies involved in the design and production of an automobile, and many of these
technologies have been through multiple technology cycles over the past decades. However, if
one considers the powertrain technology in personal transportation vehicles, the current
dominant design is clearly the internal combustion engine and it has been for almost 100 years.
The discontinuous phase that resulted in the dominance of the internal combustion engine
occurred in the late 1800s and early 1900s when the horse-drawn carriage lost its dominant
position and a competition between electric, steam and gasoline powertrains ensued.
In the time since the internal combustion engine attained its dominant position, its technology
has significantly improved. There is no doubt that today's internal combustion engine powered
automobiles are significantly improved over initial models in terms of metrics that automobile
consumers hold most dear, such as power, price, driveability, safety, cleanliness and comfort.
These improvements are the result of all the forces of the marketplace driving automobile
Tushman, M. L. and Anderson, P., eds., Manaiing Strateic Innovation and Change, Oxford University Press, New
York, (1997) chapters I and II.
2 "Technological Discontinuities and Flexible Production Networks: The Case of Switzerland and the World Watch
Industry", Managing Strategic Innovation and Change, eds. Michael Tushman and Philip Anderson, Oxford
University Press (1997), pgs 24-42.
6
Joanne T. Woestman
SDM Thesis
February 2000
manufacturers through the phases and steps of continuous improvement. Many of the
management techniques prevalent throughout the 1900s for Quality Management,
Product/Platform Development and Large Scale Manufacturing were started in or tested in the
automotive industry.
Throughout its reign as dominant design, the internal combustion engine powered automobile
has seen competition from other technologies, including improved electric vehicles, gas turbine
vehicles, various public transportation technologies and other personal transportation
technologies such as motorcycles and mopeds. The demise of the internal combustion engine
powered automobile has been predicted to be imminent several times, particularly in the latter
quarter of this century. However, the internal combustion engine powered car or truck is still the
preferred method for most people in economically developed locations to get from one place to
another.
Somewhat in conflict, however, with people's desire for the flexible mobility provided by the
modern day automobile, is people's concern for the environment. The automobile has been
linked to several environmental concerns; the most prominent of which is air quality. Internal
combustion engine powered vehicles are one of many sources of emissions that negatively
affect air quality. Response to public concern for the impact of automobiles on the environment
and increasing regulatory pressures are forcing the industry to consider alternatives to internal
combustion engines. A result of these pressures has been the design and development of many
demonstration products based on different powertrain technologies that are competing to be the
best alternative to the internal combustion engine for powering automobiles. In many respects,
this competition appears to be the onset of a discontinuous phase in the automotive powertrain
technology cycle. But is it?
The internal combustion engine has been the dominant design for a very long time, in fact, longer
than most currently living people have been alive. It has been predicted over and over again that
this dominance was about to end, but it has not for many different reasons. Because of this, it is
difficult for some people in the automotive industry to believe that this time the threat to the
internal combustion engine's dominance is real. However, the research on other industries in
the midst of a technology discontinuity has shown that the people in those industries also felt the
same way about their reigning dominant, but soon to be dethroned, technology.
7
Joanne T. Woestman
SDM Thesis
February 2000
It is difficult to determine if the auto industry is entering a discontinuous phase. However, if it is,
this has enormous implications for established automotive firms. Research has shown that the
management techniques that are effective in a discontinuous phase of a technology cycle are
very different than those that are effective in a continuous phase. In addition, research has
shown that the leading companies in the continuous phase, those that were the best at the
dominant design, are not likely to be successful.in the following continuous phase, once a new
dominant design has emerged. Long term denial of the change in phase has been shown to
significantly contribute to a firm's downfall. It may not be possible to know whether or not the
automotive industry is entering a discontinuous phase. It may, however, provide significant
competitive advantage for an established firm to analyze this possibility and to study how this
transition has played out in other industries; looking for successful strategies and learning to
avoid common pitfalls.
Currently investing in the development of alternative powertrains for cars and light trucks is
viewed by many major automakers as a cost of doing business, driven by regulation and the
desire to be seen as an environmentally friendly company. If, however, the industry is in the
midst of a technology transition, investing early in these technologies may be the only way to
survive the discontinuity.
In this thesis, a mix of public information, personal observations and analysis tools, learned
through the System Design and Management Program of MIT, are used to do two things. First,
to explore the possibility that the automotive industry is in the midst of a technology cycle
transition and second, to assess the implications that this possible transition may have for Ford
Motor Company. The thesis focuses on the following two questions. What challenges does
incumbent auto firm, specifically Ford, face in its efforts to develop alternative powertrain
technologies into products that create a competitive advantage and a profitable business? What
insight can be gained from a review of recent technology strategy research and literature to
suggest how Ford might deal with these challenges?
It has been assumed for this analysis that the technology cycle is that of the automotive
powertrain and not of the entire automobile. That is, if there is a discontinuity, afterwards the
dominant design will be a new way to power a personal transportation vehicle, not a new way to
8
Joanne T. Woestman
SDM Thesis
February 2000
get people and cargo from one place to another. Due to other issues related to the automobile,
such as urban congestion, the entire vehicle technology may someday be replaced, but this
possible transition is far beyond the scope of this thesis.
This analysis is intended to be generic to any established original equipment manufacturer of
automobiles. However, it focuses on the issues and the culture of Ford Motor Company since
this is the auto firm for whom the author works. Through an analysis of public data and personal
experiences at Ford Motor Company, the author assesses the possibility that the automotive
industry is in the midst of a technology cycle transition and explores the implications that this
possible transition may have for Ford.
In the thesis, the motivations for developing alternative powertrain technologies are reviewed and
each of the current alternative technologies is evaluated in terms of its product potential and
market opportunity. Then the organizational capabilities necessary to capitalize on these
technologies are discussed. The thesis draws on the theory and analysis to summarize a
technology strategy for gaining competitive advantage in the modern automotive industry by
selling automobiles that are environmentally friendlier than current internal combustion engine
powered products. This strategy focuses on how to create value with alternative powertrain
technology, how to capture this value in the face of competition and what organizational
processes are necessary to successfully bring these products to market. The conclusion of the
thesis then applies these ideas to Ford. This mix of complex technical and business challenges
is appropriate for a System Design and Management thesis as it effectively spans the disciplines
taught in the program.
Technology Cycles
The cyclical nature of technological progress can be seen in Foster's S-Curve model of
technological change. Foster used a series of S-shaped curves to show the birth, development
and decay of one technology in relation to another.3 The sketch below attempts to capture the
essence of Foster's model. The series begins with an initial innovation. This innovation is
3 Foster,
R., Innovation, The Attacker's Advantage, (NY: Summit Books, Simon and Schuster, 1986), Chapter Four,
"The S-Curve: A New Forecasting Tool", pp. 88-111.
9
Joanne T. Woestman
SDM Thesis
February 2000
developed with great effort and slow progress. As the innovation gathers momentum,
technological progress becomes swifter and the technology begins to improve rapidly as
measured by its most critical performance parameters. After some time, the technology
progress reaches a plateau where little improvement is made even as effort increases. At this
time, a second innovation begins to displace the first because it is superior as measured by the
same critical performance parameters. Because the S-shaped nature of the curve is repeated
over and over again, this series of curves suggests that technological change follows a cyclical
pattern.
Foster's Series of S-Curves
L
E
40
0.
0
U
E
Cumulative Effort
Other leading scholars in this field, Abernathy and Utterback, originally modeled technological
progress as a single cycle that starts with a period of product innovation. As product innovation
approaches its limit and a single design becomes dominant, a period of process innovation
follows.4 Later work by them showed that the cycle repeated itself, resulting in technology
cycles.5 The following figure shows a sketch of the original Abemathy and Utterback model.
4 Abernathy, W., The Productivity Dilemma, Johns Hopkins University Press, Baltimore, 1978.
' Abernathy, W. and Utterback, J., "Patterns of Industrial Innovation", Technology Review, 2:40-47, 1978.
10
SDM Thesis
Joanne T. Woestman
February 2000
Product and Process Innovation
product
process
Time or Effort
In their work, Anderson and Tushman describe the innovation cycle as periods of incremental
change punctuated by discontinuities and dominant designs.
Dominant designs are
characterized by conditions before and after their occurrence: "where before the dominant
design technology progress is driven by competition between alternative technological
trajectories, after the dominant design subsequent technological design is driven by the logic of
the selected technology itself."7
In addition, Anderson and Tushman assert that an industry evolves through a succession of
technology cycles. Each cycle begins with a technological discontinuity. This breakthrough
innovation is based on a new technology that is inherently better than the old technology as
measured by some critical technical and/or economic parameters. Each technological
discontinuity is followed by an era of ferment. In this era of ferment, two processes occur. First,
the old technology is displaced by the new technology. In addition, the owners of the old
technology often resist this displacement and the old technology can significantly improve during
this period. Second, there is a competition among variants of the new technology to determine
the new dominant design. The emergence of the dominant design ends the era of ferment and
an era of incremental improvement and/or process improvement begins. In this era, competition
among firms is no longer based on innovations in design, but on improvements on the dominant
Anderson, P., Tushman, M. L., "Managing Through Cycles of Technological Change", Managing
Strategic
Innovation and Change, Tushman, M. L. and Anderson, P., eds., Oxford University Press, New York, (1997) pgs. 4567.
6
11
Joanne T. Woestman
SDM Thesis
February 2000
design and improvements on process. Another characteristic of this era is the possible
development of product platforms that allow multiple variants of a product to be built off one
basic dominant design. This era continues until the next technological discontinuity arrives to
start the cycle anew.
Technology Cycles
Technological
Discontinuity
Continuous
Phase
Discontinuous
Phase
Dominant
Design
While different researchers use different semantics to describe the phenomenon of technology
cycles, there appears to be agreement on the nature of the two phases. One is a relatively
smooth phase of continuous improvement and the other is a more chaotic phase of
discontinuous innovation. A technological discontinuity separates the continuous phase from the
discontinuous phase and the emergence of a dominant design separates the discontinuous
phase from the continuous phase. A technological discontinuity has the power not only to
radically change the fundamental technology of an industry, but also to change the nature of the
business and the competition within it. The emergence of a dominant design also has the power
to change the nature of an industry. Abernathy and Utterback used the following example from
the auto industry to illustrate the power of a dominant design.
"During a four-year period before Henry Ford produced the renowned Model T, his company
developed, produced, and sold five different engines, ranging from two to six cylinders. These
"Technology Cycles, Innovation Streams, and Ambidextrous Organizations: Organizational Renewal through
Innovation Streams and Strategic Change", M.L. Tushman, P.C. Anderson and C. O'Reilley, Managing Strategic
Innovation and Change, eds. M.L. Tushman and P. Anderson, Oxford University Press (1997) pgs. 3-23.
12
Joanne T. Woestman
SDM Thesis
February 2000
were made in a factory that was flexibly organized much as a job shop, relying on trade craftsmen
working with general-purpose machine tools not nearly so advanced as the best then available.
Each engine tested a new concept. Out of this experience came a dominant design - the Model
T; and within 15 years 2 million engines of this single basic design were being produced each
year (about 15 million all told) in a facility then recognized as the most efficient and highly
integrated in the world. During that 15-year period there were incremental - but no fundamental
- innovations in the Ford product."'
Managing Technology Cycles
Because of the stark differences between the continuous improvement phase of technology
cycles and the discontinuous phase, different management techniques and strategies tend to be
successful in each phase. In the continuous phase, the focus is on process improvement, cost
reduction and economies of scales, all relative to the dominant design. Management skills
related to Total Quality Management, formal Product Development Processes, formal
Technology Transfer Processes across organizational boundaries and Integrating the Voice of
the Customer are likely to create competitive advantage. In contrast, in the discontinuous phase,
the focus is on product variation, product differentiation and developing a market. Management
skills related to Flexible Manufacturing, Skunk Works Management and Creative Advertising are
more likely to produce positive results.
Researchers in this area have studied what strategies have historically worked in each phase.
They have developed recommendations for how managers can either model their company to
succeed in the phase that it is in, or balance the two different sets of strategies in an
ambidextrous organization that can handle both phases at once. Tushman and Anderson
describe the different needs as follows.
"Continuous, incremental improvement in both the product and the associated processes, and
high volume throughput associated with incremental innovation requires organizations with
cultures, highly relatively structured roles and responsibilities, centralized procedures, efficiencyorientated engineered work processes, strong manufacturing and sales capabilities, and
demographically more homogeneous, older, and experienced human resources."
8Abernathy,
W. and Utterback, J., "Patterns of Industrial Innovation", Technology Review, 2:40-47,
1978.
13
Joanne T. Woestman
SDM Thesis
February 2000
"In dramatic contrast to incremental innovation, discontinuous innovation emerges from
entrepreneurial, skunk-works types of organizations. These entrepreneurial units are relatively
small, have loose, decentralized structures, experimental cultures, loose, jumbled work
processes, strong entrepreneurial and technical competencies, and a relatively young and
heterogeneous human resource profile."'
Abernathy and Utterback discuss the issue of how corporate structure and management
techniques relate to the technology cycle stage in a slightly different way. Instead of assuming a
specific stage and exploring the corporate structure and management needs, they assume a
specific corporate structure and management style and predict the possible technology phase.
They infer that a technological discontinuity is unlikely to occur in a corporate setting that is
appropriate for the continuous phase. And that the emergence of a dominant design initiates the
transformation of a corporate setting from one appropriate for the discontinuous phase into one
that is right for the continuous phase.'
0
They therefore recommend structuring one's
organization and management strategy to meet the needs of the phase that one is in, or that one
wants to be in.
In the continuous phase, markets are well defined, standards may exist, unit profit margins are
typically low due to competition, and production processes are efficient, equipment-intensive and
specialized. In these specialized systems, the economies of scale in production and the
development of mass markets are critical. The production unit loses its flexibility and becomes
dependent on high-volumes to cover its fixed costs. This makes it vulnerable to changes in
demand and technology. Change is costly in highly integrated systems because an alteration in
any one process or product attribute may have ramifications in many others. In this
environment, change and innovation are naturally incremental and have a gradual and
cumulative effect on product performance and process productivity.
In the discontinuous phase, innovations are more than incremental and there is a competition
among various possible designs until the dominant design emerges. Because the new
technology results in products that require reorientation of corporate direction or production
facilities, they are likely to originate outside organizations that are dedicated to specific high9 "Technology Cycles, Innovation Streams, and Ambidextrous Organizations: Organizational Renewal through
Innovation Streams and Strategic Change", M.L. Tushman, P.C. Anderson and C. O'Reilley, Managing Strategic
Innovation and Change, eds. M.L. Tushman and P. Anderson, Oxford University Press (1997) pgs. 3-23.
14
Joanne T. Woestman
SDM Thesis
February 2000
volume product development or production systems. If they are originated there, they are likely
to be rejected because of the constraints discussed previously that limit change in these
environments. A more entrepreneurial and fluid pattern of product change is required to
compete in the discontinuous phase so a more flexible and less cost focussed product
development and production process is needed. This need gives an advantage to small,
adaptable organizations with flexible technical approaches and good external communications. 1
Often these smaller organizations transfer technology into practice from larger and more
established organizations.
In this discontinuous phase the focus must be on developing a competitive advantage over
predecessor products based on superior functional performance rather than lower cost. In this
fluid phase, market needs are ill defined and can be stated only in the broadest terms. There is
significant uncertainty both in the technology potential and the market target. Management
techniques that are critical in the continuous phase to quantify the technology risks and the
market are fruitless in this discontinuous phase and if applied anyway are likely to provide
misleading results. A small, fluid entrepreneurial organization requires general-purpose process
equipment and the flexibility to quickly experiment with multiple designs.
Much has been written about how to manage a large company in the continuous phase. Many
techniques in continuous improvement, statistical process control, balancing functional and
product orientated organizational structures and developing metrics, incentives and
communication channels are standard tools in a modern day manager's toolbox. The auto
industry in particular is well known for its contributions to management science for the
continuous phase. Formal processes for developing products for identified markets and for
transferring incremental improvement technologies across organizational boundaries are well
established (even if not always followed).
In addition much has been written about how to start a new company and how manage a small
firm in the discontinuous phase. While many believe that an entrepreneurial spirit must come
from within a leader, a great deal of information about how to harness this spirit and develop the
necessary skills to go with it is available. A tougher question, to which it is more difficult to find
0Abernathy, W. and Utterback, J., "Patterns of Industrial Innovation", Technology Review, 2:40-47, 1978.
" Abernathy, W. and Utterback, J., "Patterns of Industrial Innovation", Technology Review, 2:40-47, 1978.
15
Joanne T. Woestman
SDM Thesis
February 2000
answers in the available literature, is how can a large established firm manage to survive in the
discontinuous phase? In fact, some researchers even question whether or not this is possible.
One of the lead researchers on this topic is Clayton Christensen. In his book, The Innovator's
Dilemma: When New Technologies Cause Great Firms to Fail, he proposes four principles of
disruptive technologies that if managers understand they can succeed in the face of a
technological discontinuity. The four principles are as follows.12
+ Companies depend on customers and investors for resources.
+ Small markets don't solve the growth needs of large companies
+ Markets that do not exist can not be analyzed
+ Technology supply may not equal market demand
The first principle reminds the manager that large established companies tend to focus on high
volumes to attain profits and on its current customers in mass markets. Therefore, it is unlikely
to have any incentive to invest in a new technology that may currently have a small market.
However, this new technology may be a technological discontinuity that will lead to a
discontinuous phase of the technology cycle and not investing in it may be a serious mistake.
His recommendation for avoiding this mistake is to build a new, autonomous and independent
business unit around the disruptive technology that is free of the mainstream company. In this
organization, the important customers will be in the small new market and the profit focus will be
on low volume and higher margin.
The second principle reminds the manager that new disruptive technologies typically enable new
markets to emerge and studies show that in emerging markets, the competitive advantage often
goes to the early entrant.13 Christensen advises that in order to get this new independent
organization interested in an emerging market, it is important to size the organization that is
commercializing the new technology to match the size of the emerging market. He uses a
simple example to make his point. "While a $40 million company needs to find just $8 million in
revenues to grow at 20 percent in the subsequent year, a $4 billion company needs to find $800
2C.M. Christensen, The Innovator's Dilemma:
When New Technologies Cause Great Firms to Fail, Harvard Business
School Press, Boston, (1997).
3 C.M. Christensen, The Innovators Dilemma: When New Technologies Cause Great Firms to Fail, Harvard Business
School Press, Boston, (1997).
16
Joanne T. Woestman
SDM Thesis
February 2000
million in new sales." 4 It is much easier for a small organization to respond early to
opportunities in emerging markets. If a larger organization waits until it makes economic sense
for them to invest, it may be too late.
The third principle somewhat speaks for itself. Using planning and marketing techniques that
were developed to manage technologies in the continuous phase is not only of no use in the
discontinuous phase, it may even be harmful. Companies whose processes demand
quantification of market sizes and financial returns before they can enter a market can get
paralyzed in the discontinuous phase when reliable data does not exist. Or even worse, they
can move forward, making decisions based on projections that have no basis in reality.
The fourth principle reminds the manager that when the performance of two or more competing
products has improved beyond what the market demands, customers can no longer base their
purchase decisions on which is the higher performing product. According to Christensen, the
basis of product choice often evolves from functionality to reliability, then to convenience, and,
ultimately, to price. He cautions that in efforts to continually gain competitive advantage by
developing superior products, a company may move too far or too quickly up-market and oversatisfy the needs of their original customers. This may open up opportunities for disruptive
technologies to enter the market at lower price and functionality points. If the new the
technologies improve, they may eventually take over the entire market. To maintain competitive
advantage, Christensen recommends measuring how mainstream customers use technology
and products to identify the points at which the technology available may exceed that required by
customers and when the basis of competition may change in the market.
Somewhat in agreement with Christensen ideas, Tushman and Anderson assert that "given the
nature of technology cycles, the roots of sustained competitive advantage lie in a firm's ability to
proactively initiate incremental, architectural, as well as discontinuous innovation."1 5 They
advise managers to develop the diverse competencies and organizational capabilities to shape
and take advantage of dominant designs and to build ambidextrous organizations with multiple,
"4 C.M. Christensen, The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail, Harvard
Business
School Press, Boston, (1997).
"5 "Technology Cycles, Innovation Streams, and Ambidextrous Organizations: Organizational Renewal through
Innovation Streams and Strategic Change", M.L. Tushman, P.C. Anderson and C. O'Reilley, Managing Strategic
Innovation and Change, eds. M.L. Tushman and P. Anderson, Oxford University Press (1997) pgs. 3-23.
17
Joanne T. Woestman
SDM Thesis
February 2000
internally inconsistent architectures. These ambidextrous organizations need to proactively
manage technology cycles by maintaining control over core product subsystems and by looking
for opportunities to shape technological evolution and influence the basis of competition through
dominant designs, architectural innovations and product substitutions.
Technology cycles require that sustained competitive advantage be built on simultaneously
operating in multiple modes: managing incremental, architectural, as well as discontinuous
innovation. This implies managing for short-term efficiency and long-term innovation. According
to Nadler and Tushman, managers have hardware and software tools in building organizational
architectures.' 6 Hardware tools include organization structures, systems, and rewards as well
as work processes and flows. Software tools include the firm's human resource capability, its
culture, norms, and social networks, as well as the characteristics and competencies of its
senior management team. An ambidextrous organization must use these tools to craft an
organization that hosts the multiple cultures, structures, processes, and human resource
capabilities that are required to be incrementally innovative while at the same time creating
products that might cannibalize the existing product line.
An ambidextrous organization can not help but be fraught with contradictions. While these
contradictions are necessary, they will create conflict and dissensus between the different
organization units - between those historically profitable, large, efficient, older, cash-generating
units verses the young, entrepreneurial, risky, cash-adsorbing units. In a sense an ambidextrous
organization is much like a family with its classic generation gap. Managing this conflict is the
challenge of the ambidextrous organizational manager. This manager needs to allow
entrepreneurial units to provide learning-by-doing data, insight and luck regarding possible
dominant designs, architectural innovations and product substitutions while, in contrast, allowing
the more mature units to drive sustained incremental innovation and more short-term learning.1 7
A Possible Technological Discontinuity in Automotive Powertrains
16 D. Nadler and M. Tushman, Strategic Organization Design, Scott Foresman Publishing, Glenville, IL. (1998).
17 D. Nadler and M. Tushman, Strategic Organization Design, Scott Foresman Publishing, Glenville, IL. (1998).
18
Joanne T. Woestman
SDM Thesis
February 2000
Automobiles are complex systems with multiple subsystems. They are also part of complex
transportation supersystems. The sketch below gives an idea of the nested nature of
automotive and transportation systems.
Transportation Supersystem
Train
Systems
Autc rmotiv
Supe
e
Vehicle System
Plane
Systems
Retailing
Centers
(Dealers)
Chassis
Body
ights, Sign
Refueling
Stations
and Traffic
Powertrain
egulation
Subsystem
Roads,
Parking Lots,
Bridges..
Energy
Generating
yste
Energy
Transmissio
yste
Electronics
nd Lighting
Interior
aintenance
and Service
tations
Driver
Heavy
Duty
Vehicles
)ther Cars
and Light
Trucks
Technology and technological change are part of this system of systems at every level. In order
to bound this analysis to a manageable size, the vehicle is considered the system and the
primary technology change that is considered is that of the powertrain subsystem.
The 1990s have been an era of significant advances in automotive powertrain technology. Many
of the technologies that were developed in this period, however, were not invented in this time,
but improved and brought closer to the current market. In fact, alternatives to the internal
combustion engine have been an integral part of automotive history. The dominance of the
internal combustion engine as the lead power source for personal mobility was the result of its
success in one of histories most intense competitions for dominant design.
19
Joanne T. Woestman
SDM Thesis
February 2000
The leading alternative powertrain technologies of today all date back several decades. Electric
cars were popular from the 1890s until around 1912. They were marketed as clean, userfriendly vehicles, especially for women drivers. It was not until the invention of the electric starter
that did away with the messy, hard-to-turn engine crank, that gasoline engine powered vehicles
were competitive in the women's market.18 Hybrid gasoline/electric engines have been pulling
trains since the 1930s and fuel cells powered spacecraft in the 1960s.
The start of the automotive industry was marked with a fierce competition between steam
engines, electric motors, gasoline internal combustion engines and alternatively fueled engines,
including Henry Ford's soybean powered engine. After the Second World War, gas turbine
engines were seen as likely powertrains for personal transportation.1 9 In the 1970s, the threat of
diminishing fossil fuel sources pushed new fuel-efficient technologies and in the 1990s,
worldwide concern for the environment has renewed the interest in efficient and environmentally
friendly powertrains. Throughout the last century, the gasoline powered internal combustion
engine has been subject to a continual onslaught of competition for dominance as the powertrain
of choice for personal transportation vehicles and yet it remains in the lead today.
There are reasons to believe that this time, the threat of a technological disruption or
discontinuity is real. On the other hand, there are reasons to believe that this threat will not be
significantly different this time than it has been in the past, and that the internal combustion
engine will continue to reign as the dominant design for at least a while longer. It is government
regulations that are supplying the current motivation for changing powertrains and are pushing
toward a technology shift in the industry.
The two main effects that automobiles have on the environment due to their powertrain
technology are their consumption of energy, specifically fossil fuel for conventional vehicles, and
their emission of pre- and post-combustion gases. The main source of automotive emissions is
post-combustion compounds that leave the engine through the exhaust system. A second
source is volatile organics that evaporate from the fuel system or escape the combustion
chamber through mechanisms other than exhaust.
"Back to the Future", Will Nixon, The Amicus Journal, Fall 1999.
I The Middle Years (1930-1960)", Godshall, Wagner and Wren,
SAE Technical Report No. 910903, 1991.
'8
'9 "The Automobile - Unwanted Technology: Part
20
Joanne T. Woestman
SDM Thesis
February 2000
In conventional spark-ignited, gasoline-fueled engines, air and fuel enter the combustion
chamber. Air is composed of approximately 80% nitrogen and 20% oxygen. Conventional fuel is
a mix of different hydrocarbon species and sometimes contains oxygenated hydrocarbon
species. In the engine, the air and fuel are compressed and ignited and the resulting gases are
exhausted. This exhaust consists of nitrogen, water, carbon dioxide, carbon monoxide, oxides
of nitrogen, and hydrocarbons.
Nitrogen is consider a benign emission since air is already mostly nitrogen and no more nitrogen
can come out than went in with the original air. In the past, water and carbon dioxide were
considered benign since they do not have direct adverse health effects on people, animals or
plants. They are, in fact, a necessary component of our environment. In recent years, however,
they have been tagged as greenhouse gases and their increasing quantities in our Earth's
atmosphere have generated concern.
According to current theory, greenhouse gases in the Earth's atmosphere can trap solar
radiation, which can cause the Earth's temperature to rise and can cause extreme variation in
weather around the globe. This Global Climate Change Effect could have significant
consequences for the Earth's environment and its inhabitants. Some studies have linked the
increase in greenhouse gases in the Earth's atmosphere to the Industrial Revolution and the use
of fossil fuels.20
University of Michigan biology professor, Jim Teen, speaking at a joint Engineering Society of
Detroit, Detroit Economic Club and University of Michigan symposium on climate change and its
implications for industry, summed up the concerns as follows:
"Allthe numbers are up. Atmospheric temperature, ocean temperature, temperature of the solid
Earth core, measurements of carbon dioxide in the air now compared to carbon dioxide in air
bubbles from Arctic ice. I believe all evidence suggests an unusual amount of warming. Now
the question is what's causing it. The answer is carbon dioxide."21
20
21
"Cars and Climate Change", Emilia Askari, The Detroit Free Press, March 20,
1999.
"Cars and Climate Change", Emilia Askari, The Detroit Free Press, March 20,
1999.
21
Joanne T. Woestman
SDM Thesis
February 2000
In the U.S, it is estimated that more than 25% of all the carbon dioxide released into the
atmosphere comes from cars and trucks. Since the Industrial Revolution started in the late 1 9 th
Century, the amount of carbon dioxide in the air has risen from 280 parts per million in 1860 to
360 parts per million in 1998. Additionally, average global temperatures have increased by 1
degree Celsius (1.8 degrees Fahrenheit).
Carbon monoxide is considered a health risk because it can replace oxygen molecules on
hemoglobin in human blood, thus inhibiting respiratory function. With the addition of solar
radiation, oxides of nitrogen can mix with hydrocarbons to form toxic and irritating agents,
including ozone and smog, that can adversely effect the respiratory system and the eyes. There
are over 200 different types of hydrocarbons in typical automotive exhaust, including methane,
ethyne, ethene, ethane, n-butane, isopentane, benzene, toluene, ethylbenzene and m-p-xylene.
Some of these are carcinogenic.
In the early 1950s, A.J. Haagen-Smit of the California Institute of Technology discovered the role
of emissions in smog formation.2 He demonstrated that smog problems resulted from sunlightdriven reactions involving nitrides of oxygen and hydrocarbon compounds, which were coming
from motor vehicles and other sources. Spurred by his findings and other research showing that
motor vehicles were contributing to high levels of carbon monoxide in urban areas, the state of
California introduced the first automobile emission standards. National standards followed soon
after in the mid-1 960s. Meeting these early emissions requirements accelerated or forced the
introduction of emission control devices on automobiles such as on-board computers, electronic
fuel injectors, catalytic converters and feedback control systems for metering air and fuel
mixtures.
In 1990, the US Congress enacted the Clean Air Act Amendments, which imposed new federal
regulations on automotive emissions, including a timetable for systematically lowering emissions
over a ten year period. Some states, especially California, have established emissions
standards that are even more stringent than the federal ones. California was the first state to
enact regulations and their legislation has been pushing the federal legislation ever since. In
addition to enforcing stricter emission standards, the 1990 regulations require on-board
2 "Cars
and Climate Change", Emilia Askari, The DetroitFree Press, March 20, 1999.
22
Joanne T. Woestman
SDM Thesis
February 2000
diagnostic systems to monitor the performance of several emission control components. Also,
new vehicles must meet compliance with these regulations for 100,000 miles or 10 years, which
ever comes first.
The 1990 regulations posed major technological challenges for automotive engineers. In fact, in
1995, members of the automotive engineering community cited emissions regulations as the top
technological challenge they faced and expected to face in the near future. Engineers surveyed
put emissions regulations at the top of the list of technological challenges (36%), followed by
cost reductions (28%) and alternative fuels (27%).
Today emissions controls are enacted in the U.S through the use of the Federal Test Procedure.
Each new vehicle is certified to meet certain emissions levels while under operation according to
the test procedure. The following plot shows the drive cycle used in the test. It is meant to
simulate typical American driving, combining cold start, urban and highway driving. A
representative vehicle is driven through this cycle on a dynamometer and the grams of carbon
monoxide, hydrocarbons and oxides of nitrogen emitted each mile are measured.
" Haagen-Smit, A.J. 1952. Chemistry and physiology of Los Angeles smog. Industrial and Engineeering Chemisty
44(6):1342.
2
Data from a survey conducted by Dupont Automotive and published in Design News (May 1995).
23
Joanne T. Woestman
SDM Thesis
February 2000
Federal Test Procedure
Drive Cycle
UDOS Speed Irace
60
5040
0.
(0
10
0
200
0
400
600
800
1200
1o00
140
Tine (s)
The allowable level of emissions in this test has decreased significantly over the years as stricter
and stricter regulations have been passed. The current levels are shown in the following table
Reaulations
California Emission Standards for
Car and Light Truck
T1
09s
F\/ n
'10 147
7
50
1 9r, nialrnr . A na nA
49ns
o
nn
a
-4none
-
1993
LEV
0.075 009
1 q F\/j n n
IAnnr%
CO
17
4.2
-1
15 - 25
N C)X
0.2
0.3
n
n
3
1--.5grams/mile
Proposed future levels are shown in the next table. It is a struggle for the automakers, not only to
achieve these levels, but also to measure their progress. As emission levels approach the
24
Joanne T. Woestman
February 2000
SDM Thesis
SULEV level, they also approach the limits of detection for emissions measuring equipment. To
achieve the proposed levels and demonstrate this achievement requires technological innovation
in both the vehicle systems and the emissions measurement equipment. It has been shown that
a SULEV level vehicle driving in Los Angeles will often emit cleaner air than it takes in; in other
words the SULEV vehicle is cleaning the air.
Standard
NMHC/NMO
CO
NOx
Mileage
1.0
0.02
120
G
SULEV
0.01
There is some debate as to whether legislating emissions has the desired effect on the
environment. However, data measuring the air quality in the Lincoln Tunnel in New York City
show that the technologies implemented to meet legislation in the 1970s and 1980s did have a
significant effect on reducing the negative impact of automobiles on air quality.2 5
LINCOLN TUNNEL AIR QUALITY DATA26
Pollutant
Improvement Interval
Percent Improvement
Hydrocarbons other than methane
1970-1986
74
Carbon monoxide
1970-1986
76
Oxides of nitrogen
1970-1986
62
Studies such as this have encouraged legislators to push their legislative powers. The California
Air Resource Board introduced a "zero-emission" statute in 1990. The law stated that at least
2% of a car company's sales in California in 1998 had to be zero emission (battery electric
technology is the only available zero emission technology for 1998) or equivalent zero emission
(less emissions than a power plant puts out to charge a battery). In addition it stated that by
2003 10% of cars sold in California have to be zero emission. The law mandated the corporate
sales, but made no mandate on the consumers to buy. Because this was deemed unrealistic,
the 2% regulation was dropped, but the enforcement of the 10% regulation in 2003 looms heavily
"The Automobile and the Atmosphere", John W. Shiller, in Energy: Production. Comsumption and
Consequences.
1990. National Academy Press, Washington, DC. Pgs 111-142.
26 Lonneman, W.A., S.A. Meeks, and R.L. Stella. 1986. Non-methane organic composition in the Lincoln Tunnel.
Environmental Science and Technology 20:790-796.
21
25
Joanne T. Woestman
SDM Thesis
February 2000
in the minds of automobile manufacturers. The legislation has also been modified to allow partial
ZEV credits for technologies that improve the environmental friendliness, but do not quite make it
to zero emissions, such as hybrid electrics and fuel cells with on-board gasoline or methane
reformers. Several other states have tried to enact similar legislation.
In addition to tailpipe and evaporative emissions regulations, there are regulations concerning
fuel economy. They are embodied in the Corporate Average Fuel Economy (CAFE) limits.
These laws restrict the allowable average fuel consumption for vehicles produced by any
individual vehicle maker. This law is intended to motivate manufacturers to improve the fuel
efficiency of all their models, focus on the fuel efficiency of their best selling models and to
continue to offer fuel efficient models, even if they are not the most profitable. For many
companies, this means continuing to make and sell small cars even though they can not make a
profit on them. If they do not do this, they will not be able to continue to sell their high volume,
high profit models, such as SUVs and luxury sedans that are not particularly fuel-efficient.
The CAFE values are obtained by combining the city and highway fuel economy test results and
computing an average, which is weighted by vehicle sales. The tests are conducted in a
laboratory by operating vehicles on a dynamometer. The current standards are shown in the
following table. Vehicles are divided into two basic categories: passenger cars and light-duty
trucks. This includes all four-wheeled highway vehicles of less than 8500 gross vehicles weight
rating. Heavy duty vehicles, motorcycles and off-road vehicles are not currently subject to
CAFE.
Vehicle Category
i-uei economy stanaara
Passenger Cars
27.5 mpg
Combined Trucks
20.2 mpg
2WD Trucks
20.7 mpg
4NVD Trucks
19.1 mpg
When manufacturers do not comply with the standard, they are liable for civil penalties. The
current penalties are $5 per vehicle produced for each tenth of a mile per gallon that the
26
Joanne T. Woestman
SDM Thesis
February 2000
manufacturer misses the standard. For example, if a manufacturer produces 1 million vehicles
in a year and misses the standard by 1 mpg, the fine would be $50million.
Legislation has been and will continue to be a strong driver of research and development for
alternatively powered vehicles. It can serve to motivate automakers to produce demonstration
fleets of vehicles with new and cleaner technologies. However, if legislation dictates that car
companies must bring certain products to market and there is no business case to do it, then
their introduction will follow the law and nothing more. The car companies will make and try to
sell just enough alternative vehicles to stay in business.
It is expected that regulations will continue to get stricter and stricter. Similar regulations apply to
vehicles sold in Europe and Japan and most developing nations are planning to impose
restrictions along these lines. Each increase in required emissions abatement calls for new
technology development to meet it, possibly leading to new costs for the automaker and the
consumer and making alternative products more viable.
These are the forces that are pushing for powertrain technology change in the automotive
industry. Will these forces result in a technological discontinuity or must such a discontinuity
come only from a disruptive technology that alters the marketplace? Abernathy and Utterback
suggest that automotive emissions regulations may "add new performance dimensions to be
resolved by the engineer - and so may lead to more innovative design improvements."2 7 They
caution, however, that the government can not stimulate productivity by forcing a young industry
to standardize its products before a dominant design has been realized.
Overview
This thesis applies the model of technology cycles to the current automotive industry with a
focus on powertrain technology. The author asserts that conventional internal combustion
engine technology has been in a period of continuous improvement for nearly a century since it
emerged as the dominant design in the discontinuous phase in which the automobile replaced
the horse-drawn carriage. And that it may be entering a period of discontinuous change in
27
Joanne T. Woestman
SDM Thesis
February 2000
response to public concern for the impact of automobiles on the environment and increasing
regulatory pressures that are forcing the industry to consider alternatives to internal combustion
engines.
In this thesis, a mix of public information, personal observations and analysis tools are used to
explore the possibility that the automotive industry is in the midst of a technology cycle transition
and to assess the implications that this possible transition may have for Ford Motor Company.
Each of the current alternative technologies is evaluated in terms of its product potential and
market opportunity and the business and organizational capabilities necessary to capitalize on
these technologies in the face of competition are discussed. Finally, the implications of this
analysis to Ford are analyzed.
In Chapter 2, the technologies that compete with the ICE are grouped into five categories;
improved ICE technology, alternative ICE fuels, battery electric technology, hybrid electric
technologies and fuel cells. If the new vehicles created with alternative powertrain technologies
must directly compete with conventional vehicles, the relevant s-curve parameters should be the
same. An S-curve analysis of the competing technologies shows that while ICEs may have
some advantage in currently meeting customer requirements, their potential for improvement is
limited. Fuel cells, on the other hand, have some issues in terms of currently meeting customer
requirements, but they have great potential for improvement with moderate effort. Hybrid
vehicles appear to be the in the best position; they are very close to meeting customer
requirements and they have only a few remaining technological challenges.
In the short term , hybrids appear to be the most promising, but in the long term fuel cells have
the most potential. Regulations are pushing the auto industry to develop vehicles with reduced
environmental impact, particularly mobile emissions. Hybrids provide reduced emissions
through a more optimal use of an IC engine but because they include an IC engine, their
emissions will never be zero. Fuel cell vehicles, on the other hand, are unlikely to have zero
emissions until an infrastructure of hydrogen fueling stations is developed, but if this
infrastructure can be built, they will offer the cleanest technological solution.
27
Abernathy, W. and Utterback, J., "Patterns of Industrial innovation", Technology
Review, 2:40-47, 1978.
28
Joanne T. Woestman
SDM Thesis
February 2000
Is it likely that the industry is in a technology transition and if so is the technology shift likely to
affect the entire vehicle or just the powertrain? While not definitively able to answer this
questions, in general, the analysis in Chapter 3 shows that if the transition is just in powertrain
technology, such that the new competing designs can be fit into existing vehicles, established
firms should be well positioned to bring these products to market. An established firm may gain
competitive advantage in the modern automotive industry by selling automobiles that are
environmentally friendlier than current internal combustion engine powered products. On the
other hand, if the transition involves much more than powertrain technology, such that new
vehicle concepts must be developed, the established firms are at risk to lose their competitive
advantage to smaller start-up endeavors that focus on small markets and alternative marketing
techniques.
Chapter 4 reviews the organizational capabilities required to bring alternatively powered vehicle
technology to market. The analysis suggests applying the concepts of an ambidextrous
organization in the short term by starting up a closely linked but separate venture to develop
alternatively powered vehicles. However, it will be important to prepare the existing organization
for the dramatic shift in competency that will be required if demand for alternatively powered
vehicles takes off and they replace conventional vehicles. Structurally this will be complicated
and there will always be a tension between the mainstream organization and the alternative
organization. Politically it may create a power struggle as to which part of the business should
get the resources and focus of upper management; this investment in the future of alternative
vehicles or the money-making conventional vehicle business. Culturally it may cause confusion
because the culture of the alternative project needs to be different from the culture of the
traditional organizations.
A technology strategy is developed for an established firm to gain competitive advantage in the
modern automotive industry by selling automobiles that are environmentally friendlier than
current internal combustion engine powered products. The strategy focuses on how to create
value with alternative powertrain technology, how to capture this value in the face of competition
and what organizational processes are necessary to successfully bring these products to
market.
29
Joanne T. Woestman
SDM Thesis
February 2000
Chapter 5 looks at Ford's organizational issues with regard to bringing alternatively powered
vehicle technology to market. Ford's organizational readiness for the possible technological
transition in the technology cycle of automotive powertrain technology is assessed in terms of
policy and leadership, structure and process and culture and incentives.
From the view of policy and leadership, Ford is well positioned in the sense that an
environmental policy is articulated and the leadership is committed to pushing the transition in
the person of Bill Ford and in maintaining the current technology in the person of Jac Nassar.
There remains the risk that the balance of power may not be maintained or that the workforce
will not be convinced of the sincerity of the policy or the leadership.
From the view of structure and process, Ford is at least trying to maintain an ambidextrous
organization. Rigorous processes are in the traditional organizationsbut the management
recognizes that these processes may not be appropriate for the alternative organizations There
are definitely still issues to resolve. In particular, there is no real mechanism for the moderately
sized program. The small project (under 1000/year) and the mainstream projects (over
100,000/year) are handle well in their respective organizations. Programs that are of moderate
size (20,000 to 50,000) per year are currently either handled as derivatives of mainstream
products or are canceled. Being a derivative of a mainstream product has great financial
advantages, but it can severely limit the amount of creative engineering and innovation that can
be included in the product.
From the view of culture and incentive, the structural division of the organizations responsible for
the new technologies from those responsible for the old technologies allows the existence of
multiple cultures. However, if a new design gains dominance and the technology cycle definitely
transitions, the organizational balance may be upset. The newer organization does not have the
culture, incentives and tools to succeed in the continuous phase of the cycle and the older
organization does not have the technological skills for the new technology.
30
Joanne T. Woestman
SDM Thesis
Chanter 2: Technoloav
31
February 2000
Joanne T. Woestman
SDM Thesis
February 2000
The diversity of available automotive powertrain technologies has been growing rapidly. As
society and the industry recognized that environmental improvement over conventional gasoline
or diesel fueled internal combustion engines was desired, a variety of research and engineering
efforts, with both industry and governmental funding, were started to focus on finding the best
alternative. The technologies range from improvements in ICE technology, including improved
engine efficiency, exhaust after-treatment and alternative fuels, to battery and motor technology.
When it comes to performance, range, cost, safety, reliability and user friendliness, it is hard to
beat the ICE. It has, after all, been under development for over a century. Currently no design
has shown clear dominance in the sense that it resolves the environmental issues, is superior in
performance and is cost effective. In addition, all automobiles that share the same road
systems, particularly highways, need to be compatible in terms of what is required, expected
and needed to assure a harmonious traffic flow. Dissimilar operating characteristics can easily
produce situations that result in roadway accidents. And people who drive one type of vehicle,
then transfer to another type of vehicle, also need comparable performance and operating
characteristics to avoid mistakes, confusion and accidents.
In the following discussion, technologies that compete with the ICE are grouped into five
categories; improved ICE technology, alternative ICE fuels, battery electric technology, hybrid
electric technologies and fuel cells. Each category of technology is reviewed using public data.
The purpose of this section is not to provide exhaustive trade studies of the available
technologies, but to give an overview of each technology, highlighting its environmental benefits,
the status of it technical development and it economic impact.
Improved ICE Technology
Over the past thirty years, many technologies have been developed to improve the fuel efficiency
and reduce the emissions of ICEs. Improved engine technologies reduce the amount of fuel
consumed by an ICE and therefore the amount of water and carbon dioxide emitted from the
tailpipe as well as the amount of carbon monoxide, hydrocarbons and oxides of nitrogen that
leave the engine for after-treatment. These include fuel injectors, exhaust gas recirculation
systems, improved air-to-fuel ratio control systems and improved engine designs.
32
Joanne T. Woestman
SDM Thesis
February 2000
Inside the engine, the fuel combustion process controls carbon monoxide (CO) formation. CO
increases almost linearly with excess fuel when the ratio of the intake air to the intake fuel
contains more fuel than necessary for complete combustion, i.e. the air-to-fuel ratio is rich of
stoichiometry.
Oxides of nitrogen (NOx) are formed at high temperatures behind the propagating flame in the
combustion cylinder and freeze at concentrations well above those associated with chemical
equilibrium. NOx requires nitrogen (N 2 ) and oxygen (02) during formation and thus typically
forms when there is excess 02 in the combustion cylinder. There is excess 02 when the ratio of
the intake air to the intake fuel contains more air than necessary for complete combustion, i.e.
the air-to-fuel ratio is lean of stoichiometry. NOx can be reduced by the use of exhaust gas
recirculation. This process mixes some exhaust from the previous combustion cycle in with the
air for the next combustion cycle intake to reduce the combustion temperature and thus reduce
the amount of NOx formed.
Hydrocarbons (HCs) arise from fuel being forced into areas of the engine combustion chamber
where a flame cannot propagate such as piston rings crevices, spark plug threads and head
gasket spacings. Fuel can also be forced into the oil layer along the combustion chamber wall
or in deposits. Incomplete combustion at air-to-fuel ratios rich of stoichiometry and bulk
quenching will cause increases in exhausted HCs.
A sample of emissions concentrations as a function of air-to-fuel ratio is shown in the following
plot. Here air-to-fuel ratio is plotted as lambda, which is the air-to-fuel ratio divided by the air-tofuel ratio at stoichimetry. This means that at stoichiometry, lambda is equal to 1, under lean
conditions, lambda is greater than 1 and under rich conditions, lambda is less than 1.
33
Joanne T. Woestman
SDM Thesis
February 2000
Engine Emissions as a Function
of Air-to-Fuel Ratio
W
2ih
Lean
GC
0
.7
0.8
0.9
1
1.1
12
1.3
A/F / A/Ftchiometry
Because of the importance of achieving an intake air-to-fuel ratio that is neither too rich (contains
more fuel than necessary for complete combustion) nor too lean (contains more air than
necessary for complete combustion), one of the major emissions improvement technologies
was an air-to-fuel ratio control system. Modern day air-to-fuel ratio systems include fuel injectors
that are electronically controlled to deliver the precise amount of fuel at the optimum time,
sensors to monitor the exhaust air-to-fuel ratio and engine operating conditions and an electronic
control module for feed-back control. A schematic of such a system is shown below.
The Air-to-Fuel Ratio Control System
Electronic
Control
mwlAir Intake
ssure
Unit
A/F
Engine
Oxygen
Catalyst
Sensor
34
En gine
seed
Joanne T. Woestman
SDM Thesis
February 2000
Improved after-treatment technologies reduce the amount of non-water and non-carbon-dioxide
exhaust emissions that leave the tailpipe such as hydrocarbons, carbon monoxide, oxides of
nitrogen and particulate matter. Some of these technologies include improved catalysts, afterburn treatments and particulate traps.
While all the ICE improvement technologies have been important and have contributed to the
reduction in vehicle emissions, it was the introduction the of the catalyst, formerly known as the
catalytic converter and sometimes known as the three-way catalyst, that made the greatest
impact. Air-to-fuel ratio control is a critical element in the success of catalyst technology. The
function of the catalyst is to complete the oxidation and reduction of any products of incomplete
combustion. Therefore it oxidizes the hydrogen, carbon monoxide and hydrocarbons and
reduces the oxides of nitrogen that are present in the exhaust. The efficiency at which the
catalyst is able to do this is strongly a function of air-to-fuel ratio.
Because precise air-to-fuel ratio control is not possible due to delays inherent in feedback
control, the system is controlled to constantly oscillate the air-to-fuel ratio between slightly rich
and slightly lean. The catalyst is designed to store oxygen in lean periods and use it in rich
periods to efficiently cleanse the exhaust of partially oxidized and partially reduced species. The
following plot shows the efficiency of a typical catalyst as a function of the engine air-to-fuel ratio.
TWC conversion Efficiency vs Lambda
-
-
-
.,.-.
-
100.
90.80
~
70.____
U
2_____
__
50.Er_
>
-
-
40.
-_
_
20
a
0
S10.____
0.
0.97
________
0.98
________
0.99
1
Lambda
35
___
1.01
1.02
1.03
SDM Thesis
Joanne T. Woestman
February 2000
It is evident that the catalyst is most efficient when the air-to-fuel ratio is held tightly near its
stoichimetric value. If this catalyst efficiency curve and the engine out emissions curve are
plotted together as a function of air-to-fuel ratio, it becomes obvious why air-to-fuel ratio is so
critical for efficient catalyst performance. This is show in the following figure.
The Catalyst Window
Engine Out Emissions vs Lambda
U
0.7
0.8
0.9
1.1
1
Lambda
-
1.3
AIF control is critical
n
0
1.2
1
L
a
1
to emissions control
The second most important issue that affects catalyst performance is temperature. The catalyst
conversion rates depend strongly on temperature. No significant conversion takes place until the
catalyst is warmed to about 3000C. Optimal temperatures are between 4000C and 8000C. It
may take over to a minute for exhaust gas to heat up the catalyst to high efficiency. Therefore, a
significant amount of the total emissions that a vehicle emits during a total trip are emitted in the
first few minutes of operation. This can be seen in the following diagram.
36
Joanne T. Woestman
SDM Thesis
February 2000
The Importance of Cold Start
Tailpipe HC Emissions (FTP Bag 1)
0.025
1500
0.02
1200
0.015
U
X
U-
9 00
Catalyst "Light-Off'
0.01
Temperature
600
CLU
0.005
0
300
0
-100
0
200
300
400
500
Time (s)
Because of this effect of starting the engine with a cold catalyst, many new technologies have
been developed to warm the catalyst up sooner. These include electronically heated catalysts,
exhaust burner systems, heat insulation devices, improved catalysts and catalyst placement
(moving the catalyst closer to the engine) and novel control strategies. Also devices to trap
emissions in these first minutes, so that they can be processed through the catalyst once it is
warmed up, have been developed.
Significant advances have been realized with these technologies and many of them have already
been incorporated into modern vehicles. In fact, it was technologies such as these that allowed
Ford to reduce the emissions levels of all its sport utility vehicles and minivans to LEV levels or
below in 1998.28 The figure below shows how fuel economy and tailpipe emissions levels in new
automobiles have improved over the thirty years of legislation from 1966 to 1996.
28
"All Ford Pickups To Be Low Emission Vehicle", http://FCN.ford.com
(July 26, 1999).
37
February 2000
SDM Thesis
Joanne T. Woestman
Fuel Economy and Emission
Improvements
220 110
1966
19 96
10.0
1966
2.5
0.4
ter
e ore
Catalyst Catalyst
0.04
999 T
1996 1996 ULEX
Fuel Required for 1 Mile
Family Size Vehicle
(grams/mile)
Hydrocarbon Emissions
(grams/mile)
The advantage of these technologies is that they are incremental innovations that require no
radical changes in manufacturing and/or infrastructure. This makes them more cost effective for
established manufacturers and more easily accepted by the public than radical powertrain
innovations. In addition, because they require no significant changes in the automotive
infrastructure of roads and refueling stations, they are somewhat within the control of the
automakers and require no large government intervention to come to market.
As these technologies are pushed to their limit to achieve further reductions in emissions,
however, they become increasingly more expensive and the question arises as to whether more
cost-effective technologies are available to achieve the same or better results.
Alternative ICE Fuels
Many alternative fuels for ICEs have been developed, including reformulated gasoline and diesel
fuel, other petroleum products and biomass generated fuels. The leading commercial
technologies include M85 (a mixture of gasoline and methanol), LPG (liquefied petroleum gas; a
mix of propane and butane), CNG (compressed natural gas), alcohol fuels, and hydrogen.
38
Joanne T. Woestman
SDM Thesis
February 2000
Some of these alternative fuels offer improved mobile emissions and some offer improved
overall emissions, including those produced during the manufacturing process of the fuel as well
as the use of the fuel. Those derived from sources other than petroleum also have the
advantage of reducing the dependency of non-oil-producing countries on oil-producing countries.
Those derived from biomass have the advantage of being produced from a short-term
renewable resource; that is a resource such as corn that can be renewed on an annual basis as
opposed to oil sources that take thousands of years to be renewed. Some environmentally
conscious alternative fuel users even get their fuel from natural recycling processes. For
instance, the Michigan Truck Plant of Ford captures the methane gas that is naturally produced
by its landfill and uses it as an energy source for running the plant. They do not, as yet, fuel their
vehicles with it, but perhaps they could.
The following table shows the alternative automotive fuels currently endorse by the US
Department of Energy and some of the relevant characteristics of each. 2 9 The table does not
include hydrogen because it is not a fuel that is currently available in the marketplace. It is,
however, under serious research and development as a possible fuel of the future. It main
advantage is that the products of combustion of pure hydrogen are only nitrogen and water, if
fully combusted. If not fully combusted, however, the products could also include oxides of
nitrogen or ammonia.
Compressed
Chemical
Ethanol (E85)
Liquefied
Liquefied
Methanol
Natural Gas
Natural Gas
Petroleum Gas
(M85)
(CNG)
(LPG)
(LPG)
CH 4
CH 3CH 2OH
CH 4
C 3H 8
CH 30H
Methane
Denatured
Methane that is
Propane
Methanol and
ethanol and
cooled
gasoline
cryogenically
Structure
Primary
Components
gasoline
Main Fuel
Underground
Corns, grains
Underground
A byproduct of
Natural gas,
Source
reserves
or agricultural
reserves
petroleum
coal, or woody
refining or
biomass
waste
natural gas
29
Data from the DOE's Alternative Fuels Data Ceneter, http://www.afdc.doe.gov
(November 29, 1999).
39
SDM Thesis
Joanne T. Woestman
February 2000
processing
29,000 Btu
105,545 Btu
73,500 Btu
84,000 Btu
65,350 Btu
Energy Ratio
3.94 to I or 25%
1.08 to 1 or
1.55 to 1 or
1.36 to 1 or
1.75 to 1 or
Compared to
at 3000psi
93%
66%
74%
57%
Gas
Liquid
Liquid
Liquid
Liquid
Energy Content
per Gallon
Gasoline
Physical Form in
Use
The table below shows the regulated emissions measured on the US Federal Test Procedure at
two ambient temperatures of gasoline, diesel fuel and the three leading alternative fuels.30 The
data is from tests run by The Technical Research Centre of Finland for the International Energy
Agency.
GASOLINE
M85
LPG
CNG
DIESEL
+22/-7 C
+22/-7OC
+22/-7 C
+22/-7 C
+22/-7*C
co
0.86/3.3
0.57/2.6
0.71/1.2
0.48/0.58
0.09/0.15
HC
0.09/0.50
0.05/0.86
0.14/0.23
0.21 /0.39
0.06/0.08
Nox
0.20/0.09
0.04/0.06
0.21 /0.29
0.02/0.08
0.45/0.45
A main disadvantage of alternative fuels is the lack of refueling stations that offer them and the
cost associated with developing an infrastructure of refueling stations comparable to the
gasoline infrastructure. Estimates for developing a large-scale and a small-scale hydrogen
infrastructure are shown in the following figures.31
' Nylund, Nils-Olof and Lappi, Maija, "Evaluating Alternative Fuels for Light-Duty Applications", SAE Report No.
972974, Society of Automotive Engineer, Inc. (1997).
" Cost estimates from "Fuels for Fuel Cell Vehicles: Vehicle Design and Infrastructure Issues" by Joan Ogden,
Thomas Kreutz and Margaret Steinbugler, SAE Report No. 982500.
40
Joanne T. Woestman
SDM Thesis
February 2000
Capital Cost of H2 Refueling Infrastructure ($/car)
for a system serving 1.41 million vehicles
-
700
on
H
600
-
qu-lco
0"ev
efMegSation
-
500
400300-
200
0
-
100-
LH2 by bruck
H2 Pipeline
site steam refo site electrotys
Capital Cost of H2 Refueling Infrastructure ($/car)
for a system serving 18,400 vehicles
700-
4003002003
~
100
0
LH2 by
truck
iem
H2 pipeline
site steam refo site
elecdrolys
Also none all of the fuels perform as well as gasoline in terms of energy density and some of
them require significant changes to the vehicle, including the addition of high pressure gas tanks
and safety precautions.
Most people are familiar with gasoline and so are not alarmed by its safety issues even though
there are many. Convincing the public of the safety of an altemative fuel will be critical to its
effective introduction in to the marketplace. Some of the safety issues associated with
alternative fuels include the following.3 CNG is odorless and odorants must be added to detect
leaks and spills. In the event of a leak, the gas will rise to the ceiling and may create a potential
3
Information from the DOE's Alternative Fuels Data
Ceneter, http://www.afdc.doe.gov (November 29, 1999).
41
Joanne T. Woestman
SDM Thesis
February 2000
risk for enclosed areas. Sturdy storage tanks must be used because of possible hazards
associated with high-pressure storage. E85 is an alcohol so it can be corrosive to some metals,
gaskets and seals. It is less volatile than gasoline even though it contains 15% gasoline. The
ethanol component of E85 is denatured to prevent consumption. LNG is cooled cryogenically to
temperatures that are so cold that bodily contact with the liquid or cold gaseous fuel, or metals in
contact with it, may cause frostbite. Odorants can not be added to LNG so methane gas
detectors are required to detect leaks. LPG requires strong tank construction, but its pressure
hazards are less than CNG. It should be odorized and/or detectors should be used to detect
leaks and spills. LPG is extremely volatile and LPG fires burn twice as hot as gasoline fires.
M85 is corrosive to several metals, rubberized components, gaskets and seals. Low flame
luminosity makes its fires difficult to visually detect in daylight. High levels of exposure through
inhalation, ingestion or direct contact with the skin can cause negative health effects.
The prices of alternative fuels fluctuate and their accessibility is regional. Propane is usually less
expensive in southern states because they have easy access to the Dixie pipeline; natural gas is
more economical in urban areas; and ethanol producers tend to sell their fuel in the Midwest to
cut down on fuel transportation costs.33 In general CNG, LPG and M85 are less expensive than
gasoline and E85 and LNG are more expensive than gasoline.
Battery Electric Technology
In the late 1800s, battery electric vehicles were quite popular, including vehicles such as the
Parisian electric tricycle, the Sturges electric motorcycle wagon and the New York City electric
cab.3 Their owners and users enjoyed the freedom from vibration, noise and exhaust fumes or
horse odors that these vehicles provided. Although severely overshadowed by vehicles powered
by internal combustion engines for most everyday travel needs, electric powered vehicles
continue to be produced today. Electric versions of wheelchairs, golf carts, forklifts, utility
vehicles, streetcars and railroad engines are available as well as several special purpose
passenger vehicles.
"Frequently Asked Questions", http:www.afdc.doe.gov/questions.html (November 29, 1999).
"Frequently Asked Questions", http:www.afdc.doe.gov/questions.html (November 29, 1999).
3 P.B. Patil, Automotive Engineering and Litigation, eds. G.A. Peters and B.J. Peters, New Garland Law Press, Volume
3, Chapter 6 (1990) pg. 506-507.
3
42
Joanne T. Woestman
SDM Thesis
February 2000
In the 1970s, due to the threat of petroleum shortages and concern for the environment, interest
in electrically powered passenger cars was renewed. Resulting from this interest were
significant improvements in electric vehicle technologies, including better batteries, motors, solar
cells and energy regeneration systems. Electric vehicle products of good quality were
introduced to the marketplace and many people believed that electric vehicles would finally
displace the ICE powered vehicles. Article after article has been written in technical periodicals
as well as popular magazines speculating or proclaiming that electric vehicles are about to
dominate the marketplace.
6
To date, however, this has not occurred.
"One of the major factors affecting the customer acceptance of electric vehicles is their
driveability, which can be defined as the response of the vehicle to the demands of the driver
expressed through the movements of the accelerator and brake pedals and the gear shift
lever." 37 Electric vehicles have some attractive driveability qualities. They are smooth and quiet
and since electric motors develop maximum torque at zero revolutions per minute, their launch
feel is wonderful. If, however, electric vehicles must share the roadways with conventional
vehicles, it is desirable that the electric powertrain mimic the response of good ICE powertrains.
An electric vehicle that is too quick or too slow to respond, has otherwise unpredictable
response or requires extensive driver retraining will be perceived negatively by the driver and in
extreme cases may even pose a safety risk.
Typical electric vehicle powertrain systems consist of battery, power cable, power converter,
motor and transmission connected in series. Because they are connected in series, the
efficiency of each component is critical. To calculate the efficiency of the system, the
efficiencies of each component are multiplied together. Therefore, if the efficiency of each
component is 90%, then the system efficiency is 0.9 x 0.9 x 0.9 x 0.9 x 0.9 = 0.59 = 59%. If the
efficiency of each component were 95%, the system efficiency would be 77%.
A critical element of the electric powertrain function is regenerative braking. In regenerative
braking, the kinetic energy of the moving vehicle is recaptured and restored back into the battery.
The motion of the vehicle wheels runs the motor backward to generate electricity and slow down
36
"Electric Cars - Hope Springs Eternal", IEEE Spectrum, April 1967, pg
49-60.
43
Joanne T. Woestman
SDM Thesis
February 2000
the vehicle. This can be used in place of or in addition to traditional friction brakes. Currently,
regenerative braking systems are limited by power and torque limitations of other powertrain
components so they do not have adequate torque capability to meet the braking requirements at
low speeds or during panic stops. Therefore, electrical braking must work in conjunction with
mechanical brakes.38 The importance of efficiency is magnified in regenerative braking because
the energy must pass through the system twice, once from the battery to the wheels and once
from the wheels back to the battery. In the case of the 90% efficient components, the
regenerative efficiency would be 0.59 x 0.59 = 0.349 = 34.9%.
Battery technology or lack there of, is frequently given credit for holding back the diffusion of
electric vehicles into the automotive markets. A battery cell is an electrochemical device with
negative and positive electrodes, separated by an electrolyte. The two electrodes chemically
react together, in a controlled manner through the electrolyte and via an external electric circuit,
to produce electricity. The rate of the reaction is related to the rate of electric generation and the
reversibility of the reaction is related the charge/discharge cycle capability.
Electric vehicles suitable for substitution of conventional vehicles require battery systems that
are safe, low cost and environmentally benign with excellent energy storage and
recharge/discharge cycle capabilities. This makes EV batteries different from other
rechargeable batteries that are available for other applications. "Lead acid batteries designed for
automotive starting, lighting, and ignition do not have appreciable deep-discharge deepdischarge cycle capability, while the purchase and disposal costs of cadmium batteries are
expected to be prohibitive for mass-produced EVs. Primary batteries, such as the commonly
available "alkaline" variety, are not rechargeable because of the irreversible physical changes
that occur to the electrodes during discharge. Some rechargeable alkaline batteries are
available, but they are not capable of the hundreds or even thousands of cycles necessary for
practical electric vehicles." 3 9
P.B. Patil, Automotive Engineering and Litigation, eds. G.A. Peters and B.J. Peters, New Garland Law Press, Volume
3, Chapter 6 (1990) pg. 506-507.
" P.B. Patil, Automotive En2ineerini and Litigation, eds. G.A. Peters and B.J. Peters, New Garland Law Press, Volume
3, Chapter 6 (1990) pg. 506-507.
Y R. Moy, "Advanced Batteries for Electric Vehicles", J. Environmental Law and Practice (November/December 1996)
pgs. 22-32.
37
44
SDM Thesis
Joanne T. Woestman
February 2000
The most commonly used battery technology in electric vehicles to day is lead acid. It is also the
least expensive. Generally, lead acid battery powered vehicles have a range of less than 100
miles per charge, and the life of the battery is about three years. Some current Ford, GM,
DiamlerChrysler and Toyota battery electric vehicles use lead acid technology. Nickel metal
hydride batteries also offer about 100 miles per charge, but at an increased cost. The life
expectancy of these batteries, however, is close to 100,000 miles. Ford, GM, DiamlerChrysler,
Honda and Toyota offer electric vehicles with nickel metal hydride batteries.
To propel promising battery technologies forward, the US government and the US automakers
formed the US Advanced Battery Consortium. This consortium has put forward the following
criteria for battery developers to use to benchmark a potential battery technology's potential for
commercialization as an electric vehicle battery technology.40
Parameter
Mid-term Criteria
Commercialization Criteria
Long-term Criteria
Price
<$150/kWh
<$150/kWh ($75 desired)
<$100/kWh
Cycle Life
600 @ 80% Depth of
1000 @ 80% DoD
1000 @ 80% Dod
Discharge (DoD)
1600 @ 50% Dod
2670 @ 30% Dod
Range of Life
100,000
100,000 Urban Miles
100,000
Calendar Life
5 years
10 years
10 years
Power Density
250 W/L
460 W/L
600 W/L
Energy Density
135 Wh/L
230 Wh/L
300 Wh/L
Specific Power
150 W/kg
300 W/kg
400 W/kg
Specific Energy
80 Wh/kg
150 Wh/kg
200 Wh/kg
Regenerative
75 W/kg
150 W/kg
200 W/kg
20% of rated power
20% of rated power and capacity
20% of rated power
and capacity
specification
and capacity
Specific Power
End of Life
specification
specification
Operating
Performance
4
-30 0 C to +650C
20% Loss at extremes of
-40'C and +500C
Data from http://www.uscar.org/techno/usabjan97.html, (November 17, 1999).
45
-40 0C to +850C
SDM Thesis
Joanne T. Woestman
Normal Charge
6 hrs. 20-100% SOC
February 2000
3-6 hrs. 20-100% SOC
6 hrs. 20-100% State of Charge
(SOC)
<15 min. 40-80% SOC
High Rate
<15 min. 40-80%
<30 min. @150 W/kg 20-70%
Charge
SOC
SOC
Efficiency at End
75%
80%
80%
Off-tether Pack
Thermal loss <3.2
3 days: <15% with no
Thermal loss <3.2
Energy Loss
W/kWh
performance loss
W/kWh
(<15% in 48 hrs) Self
12 days: cumulative loss <25%
(<15% in 48 hrs)
discharge < 15% / 48
with some performance loss at
Self discharge <15%
hrs
extreme temperature limits
month
/
of Life
There are several new battery technologies on the horizon including lithium technologies and
new sodium technologies. The demand for advanced batteries in electric vehicles, cellular
phones, notebook computers and portable video cameras has stimulated the development of
new battery technologies. The following tables summarize the battery chemistries proposed for
EVs and some of their cell characteristics.4 1
Negative
Electrode
rosiuve
Electrode
Sodium
Liquid
Nickel
Ceramic
nickel
sodium
chloride
beta
Cell
Optimum
Projected
Projected
Voltage
Operating
Energy
Power
Temperature
Density
Density
3000C
80-90
115 W/kg
2.6 V
Wh/kg
alumina
chloride
Sodium
Liquid
Liquid
Ceramic
sulfur
sodium
sulfer
beta
2.1 V
330*C
110
220 W/kg
Wh/kg
alumina
Lithium
Lithium-
Manganes
Organic
ion
carbon
e, nickel or
solvents
compound
cobalt
3.6 V
25*C
90
200 W/kg
Wh/kg
oxides
Nickel
Lanthanum
Nickel
Water and
1.2 V
250C
60-80
220 W/kg
4' 4' R. Moy, "Advanced Batteries for Electric Vehicles", J. Environmental Law and Practice (November/December
1996) pgs. 22-32.
46
metal
or
hydride
vanadium
February 2000
SDM Thesis
Joanne T. Woestman
hydroxide
lye
Wh/kg
alloys
Nickel
Cadmium
Nickel
Water and
cadmium
metal
hydroxide
lye
Lead
Lead metal
Lead oxide
Water and
acid
1.2 V
25 0 C
of
Prpoe
Cell Type
E
Bater
150 W/kg
Wh/kg
2V
250C
sulfuric
acid
Ecnmc
50
300 W/kg
35-44
Wh/kg
Chemistries
Projected Cost at
First
EV Technology
High Volume
Commercialization
Development
of Chemistry (not
Companies
EV)
Sodium nickel chloride
230-345 $/kWh
1986
AEG
Sodium sulfur
250-450 $/kWh
1966
NGK
Lithium ion
<200 $/kWh
1991
Varta, SAFT, Sony
Nickel metal hydride
250-350 $/kWh
1990
GM/Ovonics, SAFT,
Panasonic, Varta
Nickel cadmium
300-350 $/kWh
1909
SAFT, DAUG
Lead acid
120-150 $/kWh
1882
GM/Delphi, Horizon,
Hawker
Even though these and other advanced battery chemistries are under development for portable
electronic devices and EVs, there are significant distinctions between the battery characteristics
required for these different applications. Some of these include the following.
*
42
Portable electronic devices are generally designed to operate below 20 volts while advanced
EVs operate at 200-400 volts. This presents additional design considerations.
*
Maintaining temperature uniformity, a requirement for battery pack life, is more difficult in the
typically large battery packs of EVs compared to the relatively small packs of portable
electronics.
42 42
R. Moy, "Advanced Batteries for Electric Vehicles", J. Environmental Law and Practice (November/December
1996) pgs. 22-32.
47
Joanne T. Woestman
*
SDM Thesis
February 2000
The operating temperature range required for EV batteries is more hostile than that for
portable electronics.
*
EV battery systems are subject to greater vibrational stresses than the smaller batteries of
portable electronics, particularly in environments with poor quality roads.
*
The irregularity of EV operation, due to quick and slow accelerations and decelerations,
compromises the battery life cycle as compared to the more continuous power use of
portable electronic devices.
There some safety concerns with high voltage electric vehicle technology.43 Electrical circuits
are self-contained and grounded to limit the risk of shock from the vehicle frame, however,
typical battery packs store enough energy to produce a dangerous or even lethal shock.
Electrolytes in the battery may cause chemical burns and protective gear must be worn when
manufacturing and servicing battery electric vehicles.
Battery technologies have advanced significantly during the past decade. For example, lithium
ion and nickel metal hydride batteries, now commonplace in cellular phones and laptop
computers, were no more than engineering prototypes prior to 1990.44 However, considerable
work remains to be done before these batteries are available for widespread EV use. The key
issues to resolve include the following.45
*
Temperature sensitivity during operation and storage of the cells needs to be reduced.
*
Complete safety verification of fully engineered advanced EV batteries is needed.
*
Material and assembly cost reductions are necessary before advanced EV batteries can
become commercially viable.
Hybrid Electric Technologies
Information from the DOE's Alternative Fuels Data Ceneter, http://www.afdc.doe.gov (November 29, 1999).
44 44 R. Moy, "Advanced Batteries for Electric Vehicles", J. Environmental Law and Practice (November/December
41
1996) pgs. 22-32.
R. Moy, "Advanced Batteries for Electric Vehicles", J. Environmental Law and Practice (November/December
1996) pgs. 22-32.
41 4'
48
February 2000
SDM Thesis
Joanne T. Woestman
At present there is no dominant design for hybrid electric automotive powertrains, but there are
several concepts under investigation. A hybrid electric vehicle combines electric propulsion
(battery, flywheel or ultracapacitor and electric motors) with an auxiliary heat engine (gasoline or
diesel engine, gas turbine or even fuel cell) to utilize the advantages of each. None of the
component technologies are new developments, therefore, the required new product innovation
is one of systems integration and architecture. Because Ford already makes gasoline engine
vehicles and battery electric vehicles, it is well positioned to development HEVs that combine
gasoline engines with electric drive systems that consist of batteries and motors.
There is a spectrum of ways in which ICE power and electric power can be combined.
Spectrum of Hybrid Electric
Powertrains
S
trg
lcti
cesn
I-
InCe
E
The two main strategies to HEV design are first, to augment an electric vehicle with a heat
engine to extend its range (REHEV) and second, to augment an internal combustion engine with
an electric drive system to improve its fuel economy and reduce its emissions (FEHEV). The
table below reviews the attributes of automotive powertrain technology for gasoline vehicles,
REHEVs, FEHEVs and battery electric vehicles.
tK "'; 1: T11Total Range
477ij
350 miles
450-550 miles
330-370 miles
100 miles
0
electric range
none
<5 miles
30-70 miles
100 miles
*
gasoline range
350 miles
450-550 miles
300 miles
none
49
SDM Thesis
Joanne T. Woestman
February 2000
Fuel Economy
35 mpg
45-55 mpg
75 mpg (equiv)
100 mpg (equiv)
Re-Fueling
Fill-up
Fill-up
Daily Plug-in
Plug-in
Occasional Fill-up
Annual Fuel Savings
Base
$150
$200
$350
Environmental Friendliness
Base
SULEV*
SULEV* on gas
ZEV*
ZEV* on electric
Performance
4-cylinder
Like 6-cylinder
Like 4-cylinder
Like 4-cylinder
Price Premium
Base
$2000-$6000
$6000-$10000
$10000
*SULEV = US Government rating of Super Ultra Low Emission Vehicle
*ZEV = US Government rating of ZeroEmission Vehicle
Data from an internal Ford source
The advantages of gasoline vehicles include the convenience of refueling in terms of speed and
availability, long range and vehicle cost. The disadvantage is the environmental impact. The
advantage of the electric vehicle is its environmental impact, but its disadvantages include short
range, scarcity of appropriate battery charging stations, slow recharging rates, high cost and
poor cold weather performance. The goal of the HEV concept is to combine the technologies to
leverage the advantages and avoid the disadvantages of each.
The advantages of a hybrid over conventional vehicles lie in the fact that internal combustion
engines are most efficient under load and are inefficient when idling. In addition, motors can
deliver high torque at low speed. Combining the two power sources can offer more efficient
power or more torque across the operating speed range.
There are several different architectures that can make an effective hybrid system. One is a
series system. The series system allows the engine to operate at its most efficient operating
points, turning the motor to generate electricity without direct connection to the wheels. It then
uses the electric drive system to meet the torque demand of the driver. In this system, all the
power is converted to electricity. It behaves similarly to an EV with an on-board charger. They
are most effective for daily commuting and short trips in light-weight and aerodynamic vehicles.
50
February 2000
SDM Thesis
Joanne T. Woestman
A Series Hybrid System
14 Engine
G
ear
Battery
Wheels
Another hybrid architecture is the parallel system. In the parallel system, the engine has a direct
connection to the wheels and it can be used to either drive the wheels, run the motor to generate
electricity or both. The electric drive system in this case can also drive the wheels. In this way
the engine, the motor or a combination of both can drive the vehicle. This system improves the
fuel economy and reduces the emissions by increasing the average engine efficiency. Parallel
hybrids are most effective for retaining performance and keeping investment costs low (for
established firms) in vehicles that encounter heavier load conditions.
51
February 2000
SDM Thesis
Joanne T. Woestman
A Parallel Hybrid System
14 Engine
CVT
Wheels
BAttery
Another Parallel Hybrid System
14 Engine
CV
i B
Wheels
There is another architecture that is currently in production in the Toyota Prius vehicle that is
capable of behaving sometimes as a series system and sometimes as a parallel system. This
system is often called a powersplit system. It consists of an engine and two motors with a
planetary gear set connection. The planetary gear set allows the engine to either be directly
connected to the wheels (as in a parallel system), or isolated from the wheels (as in a series
52
Joanne T. Woestman
SDM Thesis
February 2000
system). The two motors act together to simulate a continuously variable transmission. The
smaller motor/generator controls the amount of torque traveling down the parallel path and the
amount traveling down the series path. The larger, post-transmission motor/generator improves
performance, allows for electric drive and regenerates braking energy. In this system, the
mechanical aspects of the transmission are greatly simplified, which should improve reliability.
Powersplit hybrid systems achieve some of the benefits of series systems and some of the
benefits of hybrid systems. They are a hybrid of the two hybrid systems.
planctary
-
attery
The nature of the hybrid system allows for the following hybrid operation and functions.
*
Engine Shutdown and Restart: In a conventional vehicle, the engine is tumed on at the
start of a trip and is not turned off until the completion. In a hybrid vehicle, the engine can be
turned off when it is not needed and quickly restarted when needed again. The engine may
be able to be turned off when the vehicle is stationary, for example at a stoplight. During
these times when the engine is off, it is not burning fuel or releasing emissions. The result is
improved fuel economy and reduced overall emissions.
*
Engine Downsize: Because the engine power is augmented by the electric drive power in a
hybrid, the size of the engine required to drive a particular size vehicle is reduced. It takes
much less power to drive a vehicle at a constant speed, even a high constant speed, than it
does to accelerate the vehicle. In conventional vehicles, the size of the engine must be
chosen such to meet transient requirements and thus is oversized for steady state
requirements. In a hybrid, the engine can be sized closer to the steady state requirements
53
Joanne T. Woestman
SDM Thesis
February 2000
and the electric drive system can maintain or even enhance transient performance. The
smaller engine results in high fuel economy and lower emissions.
"
Electric Launch and/or Drive: If the electric drive system of the hybrid vehicle is large
enough, the electric drive system will be able to accelerate the vehicle at low speed and drive
at speeds that require moderate power. Similar to the stop/start function, this allows the
engine to be turned off. During these times when the engine is off, it is not buming fuel or
releasing emissions. The result is improved fuel economy and reduced overall emissions.
"
Regenerative Braking: As discussed in the electric vehicle description, regenerative
braking allows the kinetic energy of the vehicle during decelerations to be recovered and
stored in the battery. Otherwise, this energy would just be lost in the heat of the friction
brakes. Re-use of this energy means that additional fuel does not have to be burned and
results in better fuel economy and less emissions.
Hybrid electric vehicles can either be charge-depleting or charge-sustaining. In a chargedepleting hybrid, the battery is charged from the grid through a charging station and the charge is
depleted during the operation of the vehicle. In a charge-sustaining hybrid, the vehicle is never
plugged into the grid and all the energy comes from the engine. The battery can be recharged
either by the engine running the motor to generate electricity or by regenerative braking.
Hybrids have been demonstrated to improve fuel economy in the range of 10 to 100% over
conventional powertrains and to meet SULEV emission requirements. The realized fuel
economy and emissions of a hybrid can vary greatly depending on where and how the vehicle is
driven. In urban areas, with significant stop and go traffic, is where the benefits of a hybrid are
most apparent. At highway speeds with high load (such as towing) is where the benefits are
least realized. The electrical system of the hybrid has many of the same operating and safety
concerns of electric vehicles, but they tend to be smaller and the vehicle is not totally dependent
on them. For instance, in cold weather that causes batteries to be sluggish, the battery electric
vehicle will be disabled, but the hybrid vehicle will just use the engine more than it would in
warmer weather.
54
Joanne T. Woestman
SDM Thesis
February 2000
Fuel Cells
Fuel cells are actually a type of hybrid electric technology but they warrant their own category for
two reasons. The first is that they hold the potential, albeit possibly unrealizable potential, of
operating with pure water and energy as their only by products. The second is that they are
currently getting a great deal of attention and publicity in the auto industry.
The fuel cell vehicle concept is a natural outgrowth of the failure of electric vehicles to dominate
the automotive market. The motivation behind abandoning the internal combustion engine and
moving to electric automotive powertrains is to create a vehicle that is not a source of mobile
emissions. In most respects the electric vehicles developed are quite good. They are free of
mobile emissions, very quiet and have acceptable driveability and handling. Unfortunately,
however, they are run on batteries.
As mentioned earlier, the problems with batteries are that even with the best batteries developed
to date, an electric car can only travel a little over 100 miles in warm weather and needs to stop
for a considerable length of time to recharge. If the weather is cold, the range drops off
significantly. Unless the recharging is done by a specially developed system, it can take hours,
and there is no infrastructure of these special recharging systems. Compare this to the 300
miles in almost any weather with a few minute refuel at convenient gas stations that conventional
cars can deliver and the utility for electric vehicles seems quite low.
A solution to some of these problems with electric vehicles is to use the very good electric drive
system that was developed for them, and generate the electricity on-board as in a hybrid electric
vehicle. The fuel cell is a natural choice for this application. It is a very efficient generator of
electricity and if powered by only hydrogen and oxygen, produces only electric current, water and
heat.
Fuel cells work by the reverse of electrolysis. If an electric current is run through water, the
water's constituent components - hydrogen and oxygen - separate. If the process is run
backwards, combining hydrogen and oxygen, electricity is generated. This is significantly
different from a battery. Though batteries also work by reverse electrolysis, often using
environmentally unpleasant metals such as lead, they have to be recharged with electricity,
55
SDM Thesis
Joanne T. Woestman
February 2000
which can be a lengthy process. A fuel cell does not need the weighty metals and needs only a
relatively quick recharge with hydrogen.
The problems with fuel cells as the solution for electric vehicles are that there is no infrastructure
to supply hydrogen on demand, the water inherent in the system can freeze when the system is
shut down and there are safety issues associated with storing hydrogen on-board an
automobile. Largely because of the Hindenburg disaster (the hydrogen filled Zeppelin that
exploded over Lakehurst, NJ in 1937, killing 36 people) 46 and the Challenger disaster (the US
space shuttle that exploded in 1986 possibly due to a seal leak in the hydrogen tank), hydrogen's
explosive nature has a negative image. It could be difficult to convince the public that hydrogen
can be stored safely on-board a motor vehicle.
The next step solution to this problem is to incorporate an on-board reformer to reform gasoline
(or possibly another hydrocarbon fuel) on the vehicle to obtain the hydrogen to feed the fuel cell.
Along with the added complexity and cost of designing a reformer into the system, this solution is
a step backward in terms of meeting the goals associated with developing an alternative to
internal combustion engines.
Fuel Cell Vehicle Configurations
Gasoline
storage
Reformer
storage
Fuel cell
stack
Fuel cell
stack
Peak
Battery
otor
Peak
Battery
Motor
optional)
46
optional)
Motor/
Generator
Motor/
Generator
Gear
Gear
Bill Siuru, "Fuel-Cell Powered Vehicles", Electronics Now, vol.69, May 1998, 5 0
p +.
56
Joanne T. Woestman
February 2000
SDM Thesis
If gasoline is reformed on-board the vehicle, the result is a stream of hydrogen to feed the fuel
cell and a stream of 'left-overs' that includes carbon dioxide, carbon monoxide, oxides of nitrogen
and possibly some unreformed hydrocarbons. These 'left-overs' are exactly the emissions of
internal combustion engines. It was the elimination of these emissions that motivated the
introduction of fuel cell technology in the first place so reintroducing them to the system is a
definite step backward. The emissions from a fuel cell vehicle with an on-board reformer should
be less per mile traveled than for an internal combustion engine powered vehicle, however, so
perhaps this is a reasonable interim solution while the hydrogen fuel delivery infrastructure is
being developed.
There are fuel cells that run directly on methane, rather than hydrogen. However, since there is
no infrastructure for methane and the methane powered fuel cell's output would include carbon
monoxide (poisonous) or carbon dioxide (a greenhouse gas) as well as water, heat and
electricity, this does not totally alleviate the problems either. The fuel economy of fuel cell
vehicles designed for different fuels is shown in the following chart.
Gasoline FCV
Increase over today's gasoline
Methanol FCV
Hydrogen FCV
1.5-2.3 x
2.5 x
2.8 x
42-64
69
80
vehicles fuel economy
Equivalent fuel economy in mpg
Currently fuel cell powertrain component costs are extremely high. However, they are actually
less complicated and have many less parts (and many many less moving part) as compared to
conventional powertrains so they should eventually prove to be incrementally cheaper and more
durable in the long run. This condition, however, is definitely many years away. The following
chart gives some information about the current economics of fuel cell vehicle components.
Cost Estimates for Mass Produced Fuel Cell Vehicle Components
Component
Low Estimate
High Estimate
4 Jason Mark, "Environmental and Infrastructure Trade-Offs of Fuel Choices for Fuel Cell Vehicles" SAE Report No.
972693.
57
SDM Thesis
Joanne T. Woestman
Fuel cell system
February 2000
$100/kW
$50/kW
Fuel cell processor system
$25/kW
$15/kW
Hydrogen storage cylinder
$1000
$500
Motor and controls
$26/kW
$13/kW
Peak power battery
$20/kW
$10/kW
Extra structural support
$1/kg
$1/kg
Gasoline tank
$100
$100
Technology Assessment
If one looks carefully, one can find a significant amount of alternative powertrain technology
already out in the market. "At Budget's EV (environmental vehicle) Rental car desks in the Los
Angeles and Sacramento airports, you can rent Honda's natural gas-powered Civic GX." "Or
you can try one of several electric vehicles - a GM EV1, Ford Ranger EV, Honda EV Plus, or
Toyota RAV4-EV - and get a free recharging at 100 stations in Sacramento and at more than
300 in L.A.. Natural gas-powered taxis can be found in New York City and Hartford; a few
hydrogen-powered fuel-cell buses operate in Vancouver and Chicago." 48 Toyota sells a hybrid in
Japan and Toyota and Honda will both sell hybrids in the U.S. within the next year.
The following table shows the efficiency of converting on-board vehicle fuel energy into road work
for a variety of systems.4 9 It shows that electric vehicles are the most efficient, followed by fuel
cell vehicles. This suggests that in the long term, electric or fuel cell technology should provide
the best solution. In the short and intermediate term, however, much more than system
efficiency must be considered.
System
Efficiency
Gasoline Internal Combustion Engine Vehicle
"Reinventing the Wheel - The cars of tomorrow", Fortune Magazine (October 7, 1999).
49 Data from from "An Analysis of the True Efficiency of Alternative Powerplants and Alternative Fuels" by Matthew
4
Brekken and Enoch Durbin, SAE Report No. 981399.
58
Joanne T. Woestman
SDM Thesis
February 2000
Baseline internal combustion engine
18%
Transmission
90%
Efficiency ofconvertingfuel to road work
16%
Series Hybrid Electric Vehicle
Direct injection gain
30%
Atkinson cycle gain
15%
Removed throttle and reduced friction gain
15%
Optimization gain
20%
Optimized engine gain
33%
Generator
95%
Battery charging
85%
Battery discharging
85%
Electric motor and control
90%
Regenerative braking gain
5%
Efficiencyof convertingfuel to road work
27%
Natural Gas Vehicle
Compression ratio gain
20%
Lean-burn operation gain
10%
Atkinson cycle gain
10%
Variable valve timing gain
15%
CVT gain
10%
NGV ICE
30%
Transmission
90%
Efficiency of convertingfuel to road work
27%
Battery Electric Vehicle
Battery discharging
85%
Electric motor and control
90%
Regenerative braking gain
5%
80%
Efficiencyofconverting fuel to road work
Fuel Cell Electric Vehicle
50%
Fuel cell
59
Joanne T. Woestman
SDM Thesis
February 2000
Electric motor and control
90%
Regenerative braking gain
5%
Efficiencyof converting fuel to road work
47%
Fuel Cell Vehicle with Gasoline Reformer
Gasoline reformer
75%
Fuel cell
45%
Electric motor and control
90%
Regenerative braking gain
5%
Efficiencyof convertingfuel to road work
32%
In addition, the appropriate technology choice can depend on the use of the product. The
following two charts show that while electric vehicles win out for short trips, they do not for longer
trips. Fuel cells, on the other hand, perform well for both short and long distances.50 This is
related to the inefficiency of recharging batteries.
Comparative Efficiency of Alternative Vehicle Propulsion Systems
for 600km range
35-
0)
W
0Ci
C0
0
20-
5-I-
0=
Gaoin
aurlGa
a Fe Cl
2 ul elHyrd-lcri
leti
'0 Comparative efficiency of alternative vehicle powertrains for 600km range from "An Analysis of the True Efficiency
of Alternative Powerplants and Alternative Fuels" by Matthew Brekken and Enoch Durbin, SAE Report No. 981399.
60
Joanne T. Woestman
SDM Thesis
February 2000
Comparative Efficiency of Alternative Vehicle Propulsion Systems
for 150km range
70*
C
w
60-
0=
0
C
40
0~
cc0
Gaoln
Natra Ga-a
ulCl
2Fe
elHbi
lcrc
Eeti
A classic tool for comparing and forecasting the development of different technologies is the Scurve. "The S-curve traces out the path of development of new products and processes with
each successive point on the curve representing an improvement in performance. The pattern
of the S-curve repeats itself again and again in industry after industry."45 The halves of the 's'
shaped curve describe the two major phenomena of technology development, learning and
diminishing returns.
The usefulness of the S-curve is based on a few assumptions. One, that the important
performance parameters of the product or process can be defined. Two, that the progress of
these parameters versus the effort to make the progress can be traced to date. And three, that
some limits on these performance parameters can be estimated. If these three assumptions
are reasonably true, then the S-curve can provide a basis for foreseeing how much further
current products can be improved and how much effort it will take to get them to higher
performance levels. If multiple curves are compared, it may give insight into how products will
"1 Foster, R., Innovation. The Attacker's Advantage, (NY: Summit Books, Simon and Schuster, 1986), Chapter Four,
"The S-Curve: A New Forecasting Tool", pp. 88-111.
61
SDM Thesis
Joanne T. Woestman
February 2000
fare in future competition, what new products are worth trying to develop and how much effort
will be required to develop them.
If the new vehicles created with alternative powertrain technologies must directly compete with
conventional vehicles, the relevant s-curve parameters should be the same. In this case, it is
not acceptable for alternative powertrain vehicles to exceed conventional vehicles on some new
s-curve and fall significantly short of the typical automotive customers' expectations for an
individual mobility device.
While niche markets are a part of the automotive business, they are rarely the source of
significant income for the major players. Some alternatively powered vehicles may, however, be
profitable in some market of their own, without having to directly compete with conventional
vehicles. If so, it may be acceptable for these vehicles to fall short on a few of the conventional
customer requirements and to excel in some particular attribute that is significant to their own
market.
Some of the critical customer requirements for new cars are shown in the following table. Also
shown are evaluations of how the competing designs rank on these parameters. Note that these
evaluations are based on the author's knowledge and experience with proprietary data.
Therefore rather than numerical values, qualitative ratings based on personal experience and a
few public references are used.
Value
Cost2
Good
Ok
Bad
Ok
Bad
Efficiency
Ok
Ok
Ok
Ok
Good
Operating cost
Good
Ok
Ok
Ok
Ok
Good
Ok
Ok
Good
Ok
Performance
0 to 60 time5
Dan McCosh, "Hybrids Get Real", PopularScience, vol.252, num.3, March 1998, p 7 2
* Matthew Brekken and Enoch Durbin, "An Analysis of the True Efficiency of Alternative Vehicle Powerplants and
Alternative Fuels". SAE Technical Paper Series Report No. 981399, 1998.
1 Larry Brandenburg, "The Ford Fuel Cell Vehicle Program", Seminar given at Ford Research Laboratory, (October
1998).
.
5
62
Joanne T. Woestman
February 2000
SDM Thesis
Top Speed
Good
Ok
Ok
Good
Ok
NVH
Ok
Ok
Good
Ok
Good
Range
Good
Ok
Bad
Good
Ok
All weather reliability'
Good
Ok
Bad
Ok
Bad
Passenger & cargo capacity
Ok
Ok to Bad
Ok
Ok
Ok
Refueling time
Good
Ok to Bad
Bad
Good
Ok
Refueling convenience
Very good
Ok to Bad
Bad
Very Good
Bad
Emissions
Ok
Ok
Great
Good
Great
Crashworthiness
Ok
Ok
Ok
Ok
Ok
Evaporative emissions
Ok
Ok
Ok
Great
Great
Utility
Safety
The figure below shows the classic s-curve with areas of the curve marked by letters.
The S-curve
W potential valueE
E
C
iCtial value
AEFFO
CUMMULATIVE EFFORT
These letters are used in the following table to show approximately where each vehicle design is
on its s-curve. This does not mean to suggest that all the designs are on the same s-curves. It
just gives an evaluation of how much effect added effort would have in improving each design on
each particular parameter. For example the conversion efficiency s-curve for an IC engine has a
maximum determined by the laws of thermodynamics of about 35%, while the laws of
" Larry Brandenburg, "The Ford Fuel Cell Vehicle Program", Seminar given at Ford Research Laboratory, (October
1998).
63
SDM Thesis
Joanne T. Woestman
February 2000
electrochemistry limit the efficiency of a fuel cell to be about 60%. Of course the efficiency in
both cases is less than these theoretical limits as soon as the rest of the vehicle system is
added; about 15% for ICEs and 40% for fuel cells. 56
It is difficult, of course, to be certain of where a technology is on the s-curve because one never
really knows the maximum value. In evaluating electric vehicles, for instance, I have assumed
that some amount of effort (not yet expended) will produce a good battery. A great deal of effort
has been put into this already with very little result. There is no way to know if this relationship of
great-effort-yields-little-result indicates region A to B of a steep s-curve, or region D to E of a flat
one.
Value
Cost
B
D
B
C
Efficiency
C
C
C
C
Operating cost
B
D
B
C
0 to 60 time
B
D
C
D
Top Speed
B
D
C
C
NVH
B
C
B
D
Range
C
E
C
C
All weather reliability
B
D
C
C
Passenger &cargo capacity
C
E
C
C
Refueling time
C
D
C
C
Refueling station convenience
A
E
C
B
Emissions
B
D
C
E
Crashworthiness
B
C
C
C
Evaporative emissions
B
C
C
E
Performance
Utility
Safety
A comparison of the two previous tables, shows that while ICEs may have some advantage in
currently meeting customer requirements, as demonstrated by their lack of bad ratings in the
56
Larry Brandenburg, "The Ford Fuel Cell Vehicle Program", Seminar given at Ford Research Laboratory, (October
64
Joanne T. Woestman
SDM Thesis
February 2000
first table, their potential for improvement is limited, as demonstrated by their numerous D and
saturated ratings in the second table. Fuel cells, on the other hand, have some issues in terms
of currently meeting customer requirements, particularly cost, all weather reliability and refueling
convenience, but they have great potential for improvement with moderate effort. Hybrid vehicles
appear to be the in the best position; they have no bad ratings in the first table and many C
ratings in the second. Electric vehicles are difficult to evaluate because no one knows how
steep the s-curve for battery performance really is.
Before writing off fuel cells and jumping on the hybrid bandwagon, it is critical to remember why
the auto companies are even considering switching from ICEs. Regulations (and conscience)
are pushing the auto industry to develop vehicles with reduced environmental impact, particularly
mobile emissions. Hybrids provide reduced emissions through a more optimal use of an IC
engine but because they include an IC engine, their emissions will never be zero. Fuel cell
vehicles, on the other hand, are unlikely to have zero emissions until an infrastructure of
hydrogen fueling stations is developed, but if this infrastructure can be built, they will beat the
hybrid, hands-down.
1998).
65
Joanne T. Woestman
SDM Thesis
Chapter 3: Business
66
February 2000
Joanne T. Woestman
SDM Thesis
February 2000
The business position for an established firm trying to bring alternatively powered vehicles to
market will strongly depend on the extent of technological change required. In general, if the
technology transition is just in powertrain technology, such that the new competing designs can
be fit into existing vehicles, established firms should be well positioned to bring these products to
market. An established firm may gain competitive advantage in the modern automotive industry
by selling automobiles that are environmentally friendlier than current internal combustion engine
powered products. On the other hand, if the transition involves much more than powertrain
technology, such that new vehicle concepts must be developed, the established firms are at risk
to lose their competitive advantage to smaller start-up endeavors that focus on small markets
and alternative marketing techniques.
Developing and marketing alternatively powered automotive products is significantly different
from developing and marketing conventional automotive products. In the case of conventional
vehicles, a successful method for developing products is to determine a customer need and
focus the product development effort on meeting that need. In the case of electric vehicles, the
motivation behind the product development process was not to meet a customer need, but to
meet a government regulation that restricted the sale of conventional vehicles if a specified
number of electric vehicles was not also sold. Developing electric vehicles was not a business
opportunity; it was a cost of doing business.
Now that the electric vehicle mandate has been postponed, all the alternatively powered vehicle
products are somewhere in the middle. There is not yet a government mandate that specifically
requires the sale of these products. However, only a small number of consumers are buying the
products available now. The impetus from regulation still remains. The US government, as well
as other governments around the world, have made it quite clear that if they do not see tangible
evidence that the auto industry is actively pursuing alternative powertrain technologies for the
purpose of improving fuel economy and reducing emissions, aggressive legislation will quickly
be enacted.
At the 1999 North American Electric Vehicle and Infrastructure Conference, Ford announced that
its Ranger EV was leading the commercial electric vehicle business in North America with the
67
Joanne T. Woestman
SDM Thesis
February 2000
sale or lease of over of 560 units, distributed over 26 states, in the 1999 model year.57 By
contrast, the small electric vehicle company, Solectria, considers itself to be the maker one of
America's most popular electric vehicles, with deliveries of over 350 vehicles in 38 states since
1991.58 While both companies have reason to be proud, Solectria is comparing its results to the
business results of other small companies. The manager's of Ford's electric vehicle business
have to resist the temptation to compare their results to the sales of other Ford vehicle models,
where sales of less than 100,000 per year are cause for discontinuing the product.
On the other hand, some customers have indicated a desire to drive cleaner vehicles, but not at
the expense of any attribute that they currently enjoy in their gasoline vehicles. Since current
electric vehicles lack similar range and cold weather performance, they may not be the right
alternative vehicles to offer to the mass market. Many automotive companies want to be seen
as a leader in environmental stewardship and a leader in technological innovation. The question
remains, however, is there a market for alternatively powered vehicles and if so where is it, how
big is it, which product is right for it, and how best can an established firm capture it?
Market, Diffusion and Competition
In order to analyze the diffusion of alternatively powered vehicles into the marketplace, it is
necessary to answer three key sets of questions.
Is this a radical innovation? Will people still want conventional vehicles if alternative vehicles are
available?
* Will the product be marketed in new markets or will it be marketed as a direct substitution for
current vehicles?
* Will an entirely new infrastructure be required? If so, who will develop it, the auto industry, the
fuel industry, government or a combination?
The first two sets of questions are intimately linked. The first is asking how the customers will
respond. If alternative vehicles become available and meet or come close to meeting the same
"Ford's Ranger EV is Leading Commercial Electric Vehicle in North America", http://www.fcn.com,
(November 18,
1999).
5 "About Our Company: Solectria", Vehicle Development
and Company Milestones 1984-1999,
http://www.solectria.com/Company, (November 17, 1999).
57
68
Joanne T. Woestman
SDM Thesis
February 2000
customer requirements as conventional vehicles, will the environmental friendliness of these
vehicles be enough motivation to make people only want alternative vehicles and no longer want
conventional vehicles? Or will people be unwilling to try something new?
The second questions are asking what the producers of these vehicles will do. Will they attempt
to make alternative vehicles that meet the same customer demands as conventional vehicles
and try to sell them to the same customers as they currently sell conventional vehicles? Or will
they try to exploit some attribute of alternative vehicles on which conventional vehicles fall short
and not worry about them meeting all the conventional vehicle customer requirements?
The answers to the third set of questions obviously affects how quickly the products can diffuse.
They also affect who has control over the diffusion process. If an entirely new infrastructure for
refueling is not required, then the automobile manufacturers and the customers will control
diffusion with conventional supply and demand dynamics. If, however, the new refueling
infrastructure is required, the fuel industry and the governments will likely be in control.
With or without a new fuel, alternative vehicles will require some new infrastructure for servicing.
Manufacturers can control this by providing service through their dealerships. If alternative
vehicles diffuse significantly into the market, eventually non-dealer service centers will train their
technicians to service them as well.
The diffusion of automotive products with alternative powertrains into the global market will
depend strongly on the answers to the key questions outlined above. If the auto companies
insist on trying to create alternative vehicles for direct substitution of conventional vehicles, and if
they succeed in creating alternative vehicles that meet customer demands, and if the customers
accept these substitutes and appreciate their environmental friendliness, then the diffusion rate
will depend on how quickly the infrastructure can be built. If the infrastructure is only service, as
mentioned earlier, this could be done quickly through the automobile dealers. If the infrastructure
requirements include new refueling stations then the process will be much slower.
If the auto companies insist on trying to create a vehicle that is a direct substitution for
conventional vehicles, and if they are not able to create alternative vehicles that meet all the
customer demands, and the customers are slow to accept these substitutes and appreciate
69
Joanne T. Woestman
SDM Thesis
February 2000
their environmental friendliness, then the diffusion is likely to linger in niche markets such as
government owned vehicles (police cars, taxis, mail trucks,. ..).59 In this case special refueling
stations could be built for the niche markets (one at the police station, one at the post office...).
This is similar to the diffusion of electric vehicles into the market so far.
If the auto companies abandon the idea of direct substitution and try to exploit some unique
aspect of alternative vehicles, then the diffusion will strongly depend on the ability of the
producers to educate the consumer as to the benefit of these new vehicles.
Two other strong influences that will affect the diffusion of alternative vehicles into the
marketplace are the economy and regulation. When economic conditions are good, people and
governments can afford the luxury of worrying about long term environmental effects. When
economic conditions are poor, however, focus quickly shifts to more day-to-day concerns such
as food, jobs and shelter.
Ford sells 10 different alternatively fueled vehicle (AFV) models and dominates the market,
selling approximately 90% of all AFVs worldwide. They reported an increase of sales in US fleet
AFVs of over 24% for the 1999 model year, compared to the 7% increase in the entire industry's
light truck sales for the same period. 6 0 Toyota brought a hybrid vehicle to market in Japan and
sold approximately 25,000 vehicle in the first year and a half. They will introduce the vehicle in
the US and Europe this year and predict combined sales of 20,000 vehicles per year in these
two markets.61 The automotive companies of Daimler-Benz and Ford have teamed up with fuel
cell manufacturer, Ballard to make fuel cell vehicles and they predict that they will be producing
between 40,000 and 100,000 fuel cell powered vehicles by the year 2004.2 All of these sales
predictions are assuming that governments will offer tax incentives that will bring the purchase
price for these alternative vehicles in line with those of conventional vehicles.
According to John Wallace, Director of Ford's Environmental Vehicle Center, the electric vehicle
business is not a good business to be in right now, but it could improve. "A lot of money is
'9 "Ford Motor Company and Utilimaster Deliver for the United States Postal Service", Environmental Vehicles E V
News, http://www.ford.com (October 15, 1999).
Http://FCN.ford.com(June 15, 1999).
Bickers, Charles, "Split Personality: Hybrid cars offer the best of
both worlds", Far Eastern Economic Review,
August 2, 1999.
60
6'
70
Joanne T. Woestman
SDM Thesis
February 2000
flowing down the toilet. Phase one of electric vehicle development will run between '96 and '99,
and we'll see industry volumes of only a few thousand units. Phase two will run between 2000
and 2004. That's when we'll have the first advanced batteries, though they'll cost a lot. At that
time, volumes will reach into tens of thousands. Phase three will come sometime around 2004
or 2005.. .when advanced batteries will be much more affordable. Industry volumes then could
reach into the hundreds of thousands."6 3
Not everyone agrees. Most of the auto companies are only entering the EV business because of
the California government mandates. America Honda has fulfilled its obligations to sell a certain
number of EVs in California and has suspended it sale of electric vehicles in the US until the next
quota is set in 2001.64 In addition, Ray Geddes, CEO of electric drive maker Unique Mobility,
states "I believe electrically powered vehicles will one day dominate the transportation industry.
The question is when?" He also says that currently the most promising markets for his
company are those that can deliver cash flow sooner rather than later. "In our case, this means
low-voltage drive systems for existing markets such as wheelchairs, light industrial vehicles, golf
carts and lawn care products. We also think electric scooters have high near-term potential.
With time, automotive mass markets will develop - and we'll be ready." 65
Some data on the sales of alternatively powered vehicles so far is shown in the following table.66
Fuel
1992
1996
1997
1998
Ave. Annual
Growth Rate
LPG
221,000
263,000
271,000
279,000
4.0
CNG
23,191
60,144
73,773
85,122
24.2
M85
4,850
20,256
20,656
21,370
28.0
E85
172
4,536
9,389
10,872
99.6
1,607
3,280
4,040
4,761
19.8
Electric
62
Dan McCosh, "Fuel Cells: Around the Corner?", PopularScience, vol.252,
num.3, March 1998, p 76
.
63 "An Interview with John Wallace, Ford Motor Co." from the Southern
Coalition for Advanced Transportation
website (November 17, 1999).
6 "Honda of America to Rest from EV Sales", Comline Website (May 3, 1999).
65 "An Interview with Ray Geddes, Unique Mobility Inc."
from the Southern Coalition for Advanced Transportation
website (November 17, 1999).
66 Data from the Southern Coalition for Advanced
Transportation website (November 17, 1999).
71
Joanne T. Woestman
SDM Thesis
February 2000
The figure below shows four possible diffusion curves for the future. The steepest curve
assumes successful direct substitution. The first year sales are made to governments and
innovators. The second year picks up more government vehicles (the government schedules a
certain amount of replacement vehicles each year) and early adopters. If there is no significant
cost or performance penalty for an alternative vehicle compared to a conventional vehicle, then
the chasm will be crossed and sales will pick up. By the third year, the auto companies may be
offering several products with alternative powertrains (a sedan, a van, a coupe,...). As demand
picks up, economies of scale can be realized and costs may become competitive with
conventional vehicles. Eventually, the auto industry is revolutionized and ICEs do not power
most new vehicles sold. If the availability of different fuels could further improve the sales
alternative vehicles, then at this point it becomes feasible to invest in a new infrastructure.
The next steepest curve shows a less aggressive diffusion. In this case the vehicles are almost
as good as conventional vehicles but there is some customer resistance to switching. People
may not trust this new technology. They may miss the "rev" of their IC engine or may be fearful
of anything powered by hydrogen. In the first few years, most of the sales are to the government
and innovators, but after about three years, people become more educated about and trusting of
this new technology and early adopters start to buy. After that sales continue to grow.
The next steepest curve shows a very slow diffusion. In this case the diffusion is dependent on
the growth of a new infrastructure. The first five years are almost entirely government and
innovator sales. As a limited number of refueling stations become available, the early adopters
begin to buy. The chasm will only be crossed if the government or the fuel industry heavily invest
and develop the infrastructure. But, of course, they only want to invest if they can be sure that
sales will pick up and sales will only pick up if they invest. This cycle takes a long time to play
out and diffusion is slow.
The flat curve shows failure to diffuse. Either alternative vehicles just can't compete, the
economy goes sour or no further emission regulations are passed and the auto companies and
the public loose interest.
72
Joanne T. Woestman
February 2000
SDM Thesis
Possible Diffusion Curves for Fuel Cell Powered
Vehicles
3e+6
Number
2e+6
Of
Vehicles
Sold
le+6
0
0
2
4
6
8
10
Years after first introduction
In an article published by SAE in 1996, a study was reviewed that assessed the technical and
economic potential of electric and hybrid electric vehicles. The authors surveyed 93 expert
respondents from the automotive technology field, including 44 people from the industry, 13 from
government, 9 academics and 27 others. One of their key findings is summarized in the
following quote from the paper.
"EVs will penetrate the market first, followed by internal combustion engine powered HEVs, while
gas turbine and fuel cell powered HEVs will not have any significant penetration until after 2020.
By 2020, EVs and internal combustion engine powered HEVs are projected to have
approximately a 15% share of the new vehicle market. They will also cost significantly (18-50%)
more and will have characteristics slightly inferior to 1993 gasoline baseline cars."61
The authors then used the Delphi method of forecasting and turned their survey data into a
model that predicted the following market forecast.
67 "The prospects for Electric and Hybrid Electric Vehicles: Second-Stage Results
of a Two-Stage Delphi Study", Ng,
Anderson, Santini and Vyas, SAE Report No. 961698 (1996).
68 "The prospects for Electric and Hybrid Electric Vehicles: Second-Stage Results
of a Two-Stage Delphi Study", Ng,
Anderson, Santini and Vyas, SAE Report No. 961698 (1996).
73
SDM Thesis
Joanne T. Woestman
February 2000
Application of Market Penetration Model for New Technologies
from SAE 961698 by Ng, Anderson, Santini and Vyas
16
12 10 -
-0- ICE-HEV
O .EV
- FC-HEV
-V
GT-HEV
Other
--
,
14 -
6-4
AW-4
2
2000
2005
2010
2020
2015
2025
2030
2035
Year
One way to evaluate the competition within an industry to assess its attractiveness for entry is to
use the Five Forces Model. This model was developed by Porter to show the five forces that,
when taken together, help to explain the overall level of profitability that one may expect in a given
industry.69 A Porter Five Forces model for the Automotive Industry is illustrated in the following
figure.70 This figure is for the industry in general and is not specific to alternative powertrains.
Sharon Oster, Modern Competitive Analysis, Oxford University Press, New York, 1994, chap.3
' Sharon Oster, Modern Competitive Analysis, Oxford University Press, New York, 1994, chap.3.
69
74
Joanne T. Woestman
SDM Thesis
February 2000
Barriers to Entry
high
Intensity of
Supplier Power
Competition
Buyer Power
high
Substitution
low
The center box indicates that the modern automotive industry is fiercely competitive. It is truly
'Big Business'. It is capital intensive and global. It has excess capacity and substantial specific
assets. Its profitability has long been cyclical and is strongly linked to local and global economic
conditions. Because there is variation in demand in this cyclical business and because it
requires substantial specific assets, competition during economic downturns is so fierce as to
significantly reduce profitability. In economic upturns, however, abundant profits are possible.
Specific to alternative vehicles, there is ample reason to believe that the competition among
alternative vehicle manufacturers will be fierce. Most of the established firms that sell in the US
have introduced the electric vehicles that they were designing to meet the California mandate
even though it was postponed. Ford is a leader in alternatively fueled ICEs, but has significant
competition from other major automakers. Toyota has introduced its Prius hybrid in Japan and
both Honda and Toyota have announced plans to sell hybrids in the US by the end of 2000. Most
major companies have showed demonstration hybrid vehicles to the press and the public and a
few have even shown fuel cell vehicles. There is some partnering among companies going on
to share the cost and risk of developing these technologies, but all the partnerships preserve the
rights of each partner to put the technology into their own brand of vehicles.
The top box indicates that the barriers to entry in the automotive business are huge. The cost of
failure, the specific assets, the start-up costs, the economies of scale, the learning curve
effects, the brands, the excess capacity and the fierce competition all serve to deter new
75
Joanne T. Woestman
SDM Thesis
February 2000
entrants. There have been very few new entrants in the major markets for decades and most of
the new entrants in emerging markets are either joint ventures with incumbent firms, firms that.
are substantially propped up by the local government or a combination of both.
If alternative powertrains can be retrofit into existing vehicle bodies, there is little reason to
believe that these barriers to entry will not carry over to the alternative vehicle business. If,
however, it requires new vehicle concepts to gain the advantages of alternative power sources,
the current barriers to entry into the automotive business may be reduced or may be replaced by
a new set of barriers for entry into the alternative business. In fact, some of the attributes that
make today's leading automotive firms successful, may be their downfall if total vehicle
technology radically changes. This will be discussed later in this chapter.
The lower box indicates that there are few substitutes for the personal freedom of mobility that
an automobile provides. There is, of course, in some locales, other means of transportation,
including buses, trolleys, trains, planes, boats, bicycles and, of course, the human feet. But few
of these alternatives provide the freedom to go almost anywhere, at almost anytime, with
whomever and their cargo, for a somewhat affordable price. There has been a great deal of
effort over the past few decades to convince people to seek alternatives to their cars because of
pollution, traffic and noise, but still the number of miles traveled by auto per person per year
continues to climb at a very fast rate.71 People are very reluctant to give up their cars and trucks
for any of the possible substitutes.
For any specific alternative powertrain technology developed into a product, there are several
possible substitutes as discussed earlier, including better conventional ICEs or any one of the
other alternative technologies. Any of these could win out as the future vehicle of choice. Once
a company has committed to design and production of one specific technology, it will incur great
cost and effort to switch. Many companies are developing several different small programs to
test the market before committing to any large volume production. According to John Wallace,
the Director of the Environmental Vehicle Center at Ford, "In situations with high rates of change,
you don't want to have a single path. Rather, its essential to look at a variety of alternatives."
72
" Matthew Brekken and Enoch Durbin, "An Analysis of the True Efficiency of Alternative Vehicle Powerplants and
Alternative Fuels", SAE Technical Paper Series Report No. 981399, 1998.
72 http://www.thecarconnection.com/news on April
26, 1999.
76
Joanne T. Woestman
SDM Thesis
February 2000
The box on the right indicates that buyer power in the auto industry is moderate. For the
individual car buyer, sources of power include the choice to purchase a used vehicle instead of a
new vehicle and the freedom to purchase from any carmaker since cars are essentially
standardized products. There are a few large volume purchasers who buy fleets of vehicles
such as rental car companies, police and postal organizations and taxi companies. But even
these fleets of vehicles are small in number compared to the number of vehicles sold to
individuals. Therefore these fleet buyers do not enjoy significantly more buyer power than the
individual buyer does.
There is no reason to expect that this situation will change if alternative vehicles are sold as
substitutes for conventional vehicles unless it changes for the entire industry including
conventional vehicles. With the advent of Internet auto sales, it is possible the entire automotive
retail business may be changing. If, however, alternatively powered vehicles are sold in niche
markets, buyer power will increase and Internet selling may facilitate this.
The box on the left indicates that the power of suppliers in the automotive industry is medium.
While the vehicle manufacturers are dependent on suppliers, there are enough of them for each
out-sourced component or system that no single supplier can cripple the assemblers. The level
of standardization among car parts also greatly reduces the power of the automotive suppliers.
In recent years, modeled after the Japanese Kansai method of running an auto company, many
US companies are trying to partner closely with their suppliers to integrate them into their
product development and manufacturing systems without integrating them into their firm.
Specific to alternative powertrains, supplier power increases. There is, as yet, no in-house
-
capability to build many of the components of alternative powertrains in any of the automotive
manufacturers. For instance, there are several fuel cell manufacturers but only a few of them
are developing the capability to build the type and quantities of fuel cells required for the
automotive industry. If only a few manufacturers supply alternative automotive powertrain
components and their capacity is insufficient, the vehicle assemblers will be somewhat at their
mercy. If vehicles of any one specific technology become popular or legislated, it is likely that
one of the big vehicle assembler will try to integrate a manufacturer of this technology into their
77
Joanne T. Woestman
SDM Thesis
February 2000
firm. It was these concerns that motivated Diamler to partner with Ballard on fuel cells and
motivated Ford to join in the partnership.
Other forces not included in the Porter diagram are unions, trade associations and the
government. In the US, Germany and a few other countries, labor unions are a major force in
the auto industry; capable of shutting down operations and influencing major business decisions.
Trade associations such as SAE (formerly known as the Society of Automotive Engineers), have
a significant effect in organizing standards and disseminating information. Governments have a
great deal of influence in the auto industry through regulation. This influence is increased in the
case of alternative vehicles because not only are government bodies legislating changes in
automotive powertrains, they are participating in the efforts to development them.
In the US there is a program called The Partnership for a New Generation of Vehicles. This
program began as a collaborative effort between the US Federal Labs, the US Automotive
Research Coalition (essentially Ford, GM, Chrysler before Diamler-Chrysler and major
suppliers) and US university researchers. The goals of PNGV include developing new
manufacturing technologies and a vehicle that would serve as a replacement for typical US
family sedans with about 80 mpg equivalent fuel economy. 73 Similar government supported (but
less government funded) efforts are underway in Europe and Japan. The motivation of
governments to get involved is to speed up the development of technologies that may help to
solve local and global environmental deterioration problems and to reduce dependency on oil
owning nations. These are, of course, concerns of public good.
The auto industry leaders are also hoping that governments will subsidize the introduction of
alternative technologies into the marketplace. At the opening of Ford's new research center in
Aachen, Germany, Bill Ford called upon European governments to "introduce harmonized
incentives and standards throughout the European Union to assist the rapid introduction of
environmentally friendly alternative fuel vehicles."74 He said "There is no point in offering
technology that sits unused in the showroom. We must create the best conditions for the
73
7
http://www.ta.doc.gov/pngv (Fall, 1999).
http:/www.fcn.ford.com (June 15, 1999).
78
Joanne T. Woestman
February 2000
SDM Thesis
widespread market entry of alternative fuel vehicles in Europe. This is where governments can
help."
5
Appropriability, Complementary Assets and Investment Dynamics
All the major players in the automotive industry have considerable complementary assets and
appropriability is tightly held by the big players, but somewhat loosely held among them. The
76
figure below shows a tool to assess the effects of appropriability and complementary assets.
In the automotive case in general, and specifically in the alternative vehicle case, the situation is
best described in the lower right box where the advantage goes to the owner of the
complementary assets.
Appropriability and
Complementary Assets
Complementary Assets
loose
tight
Balance
Innovator
of
Power
Owner of
Complementary
Assets
Nobody
The three key avenues to appropriability are patents, trade secrets and speed. In the auto
industry patents are very tightly held against outsiders but somewhat loosely held among the
major players. If an individual entrepreneur, a small business or a supplier infringes on a patent,
the auto manufacturer who holds that patent is likely to seek retribution.
" http:/www.fcn.ford.com (June 15, 1999).
76 Tool from R. Henderson's course on Technology Strategy taught at MIT's Sloan School of Business, Fall
Semester, 1998.
79
Joanne T. Woestman
SDM Thesis
February 2000
If, however, another major auto manufacturer infringes, it is less likely that the first automaker will
pursue it. This is largely due to the fact that the major players occaionallly (and unintentionally?)
infringe on each other's patents and they all have very large legal departments. If one were to
sue the other, the second would just counter sue on some other issue and the suits and costs
could escalate quickly. Avoiding this 'can of worms' has established a tacit understanding
among the major auto companies that minor infringements will be ignored and licensing
opportunities will not be rare for major technologies.
A second influence on this phenomenon is the capability of all the major players to reverseengineer each other's products. Any small modification can result in a new patent that
significantly weakens the power of the original. Benchmarking is common practice in the
industry and imitation is rampant. This is also why trade secrets are very difficult to keep in this
industry. Once the product is out, it is likely that the secret is too.
Speed can be an advantage in appropriating the value of being first to market, but often in this
business, it can be more profitable to be a fast follower. While the patent literature on alternative
powertrains, especially fuel cells, has been skyrocketing lately,77 based on the past history of the
auto industry, there is no reason to believe that these patents will afford any manufacturer a
significant advantage.
Some of the complementary assets that the incumbent automaking firms hold include the
following:
*
Marketing expertise
*
Sales and distribution capability
"
Repair infrastructure
*
Manufacturing and assembly facilities
*
System engineering and integration experience
*
Established product development processes
"
Testing abilities
"
Regulatory experience
"
Brands and reputation
*
R&D organizations
77
Rob Adams, "Patents and Alternatively Powered Vehicles", SAE Technical Paper Series Report No. 981127, 1998.
80
Joanne T. Woestman
*
Logistics expertise
*
Experienced people
SDM Thesis
February 2000
Two of the key assets that established firms in the automotive industry hold are experience and
know-how for meeting or exceeding government automobile safety regulations and protecting the
firm from unwanted litigation. Government safety regulations can be complex system level
requirements that must be meticulously cascaded down to subsystem and component levels to
be achieved. With a few exceptions such as the aerospace and children's toys industries, the
auto industry is one of the most regulated industries and one that receives some of the most
ardent media attention for failure. Missing on safety requirements can be extremely costly in the
auto industry either because of penalty fees or litigation expenses and most importantly because
of public reaction. Experience in this arena can not be undervalued.
Specific to alternative vehicles, there are some competencies and complementary assets that
the auto companies are missing. These include the capabilities to design and make some
specific components such as fuel cells and hydrogen storage devices. These missing assets
may end up being a source of power for suppliers. They may also provide opportunities for new
entrants into the supplier business, but not the vehicle assembler business.
Based on this analysis of appropriability and complementary assets, it is evident that returns
from powertrain-only innovation are likely to be realized through competition in the product
market. In this case, it is likely that if there is value in this innovation, it will be the incumbent
assemblers and their suppliers who will be able to capture it.
78
The figure below shows a tool used to explore investment dynamics. This matrix evaluates
how the extent of the innovation and the possibility for cannibalization affect the relative
motivation of an incumbent versus an entrant to invest in the technology.
7'
From Professor Henderson's Technology Strategy class, MIT (Fall, 1998).
81
SDM Thesis
Joanne T. Woestman
February 2000
Investment Dynamics
Will the new technology
compete with the old?
No (radical)
.
z
Yes (incremental)
I=E
?>E
I<E..
If substitution of alternatively powered vehicles for conventional vehicles occurs, these two
technologies will compete. Because of the appropriability and complementary assets issues
discussed above, if an incumbent invests, the product is much more likely to be introduced
sooner. (Note that this is not the same statement as the technology is likely to be developed
sooner). Therefore for direct substitution, the case falls in the lower right box where the
motivation balance is unknown. As noted earlier, the motivation to invest in this case is may not
come from a solid business case for the profitability of fuel cell vehicles, but from selfpreservation efforts in the face of threatening regulation.
There are two scenarios where direct substitution may occur but alternative vehicles and
conventional vehicle will not directly compete. The first is one in which regulation forces
consumers to buy the cleaner vehicles and the second is one in which the consumers
environmental conscience leads them to view the fuel cell vehicle innovation as radical. That is,
they will think that the emissions elimination is so important that they would never buy a
conventional vehicle again. In these cases, the situation is best described by the top left box of
the diagram, where the entrant has more motivation than the incumbent. In fact, it would appear
that the entrant has the opportunity to put the incumbent out of business! However, because of
the enormous barriers to entry in this business, it is unlikely that an entrant would have the
opportunity to do this unless the vehicle product is entirely different than today's automobiles.
This will be discussed in a later section.
If substitution does not occur and the alternatively powered vehicles can create a new market of
their own where they do not compete with conventional vehicles, then the case falls in the lower
82
Joanne T. Woestman
SDM Thesis
February 2000
left box where the entrant has more motivation to invest than the incumbent. This may explain
why the incumbents in the auto industry are not very interested in the non-substitution scenario,
as stated earlier. There may be a business case for someone to invest in this new market, but
why would an auto firm want to distract itself from the profitable auto industry to participate?
This logic as applied to electric vehicles, answers the questions often raised about why car
companies are not very interested in developing closed community golf-like carts, electric
bicycles and such. It is interesting to note, however, that one of the auto industries former
leaders, Lee lacocca, has started just such a business in California. He obviously believes that
while this business is not quite right for a major automaker, it is still a good opportunity for a
small business.
One aspect of the situation in the investment dynamics for alternatively powered vehicles that is
not captured in this tool is the effect of the fierce competition in the industry. If the introduction
date of the innovation depends on whether the incumbent is investing, there may be an
advantage for the incumbent to not invest and protect itself from cannibalization. In the case of
alternative vehicles, however, even though the introduction date is dependent on some
incumbent investing, the cannibalization effect is diminished by the likelihood of another
incumbent investing and 'stealing' market share. If one automaker chooses not to invest, the
innovation is likely to happen anyway. It is just that in this case, the innovation is unlikely to come
from an entrant and likely to come from a competitor. This may mean that the situation is best
described by the top right box where the incumbent has more motivation to invest than the
entrant does. The barriers to entry discussed earlier further enhance this motivation imbalance.
Monopoly Rents, Standards and Network Externalities
There are essentially no opportunities left in the auto industry for monopoly rents since the
competition is so fierce. General Motors enjoyed some opportunity to extract rent in the US just
after World War I when it held about 50% of the market. Now no one company holds much
more than 25% of any single market and there is no monopolist.
If the clean vehicle legislation were rewritten to mandate that consumers buy the alternative
products instead of mandating that the auto companies sell them, then the first company to
83
Joanne T. Woestman
February 2000
SDM Thesis
market with the new technology could enjoy monopoly pricing until the other companies catch
up. This is probably the main reason why the legislation is not written that way.
The issue of standards comes into play in this case through the infrastructure of fuel delivery and
through service and repair. For instance, for fuel cell vehicles with on-board reformers, the issue
is repair and service, but for on-board hydrogen storage fuel cell vehicles, the standards issue
includes fuel delivery infrastructure as well. Level ground competition is required to get the
necessary infrastructure change, hence the collaborative efforts between companies and
between the industry and government.
There are some elements of dynamic lock-in related to network externalities in the alternative
vehicle business. There are some significant one-to-many advantages in that if many people
have the same technology, then service centers and fuel suppliers will find it worth their while to
invest in the ability to service and refuel vehicles with this technology. For instance, if the fuel
cell vehicles do not have on-board reformers, then having a significant installed base will be
critical to motivating the fuel delivery industry to invest in convenient hydrogen fueling stations.
The two lock-in curves shown in the following figure approximate the dynamics for vehicles with
and without infrastructure issues.
Dynamics of Lock-in
Without on-board reformer
With on-board reformer
10
> 10
CM
M
08
.C
08
>
.0
0
0
CA
0)
080.
0) 04
0,4
0
181)2
0.
0
0'0
00
0.2
0.4
0.6
08
0.2
04
0.8
1.0
Share of base that is FCV
Share of base that is FCV
84
08
1.0
Joanne T. Woestman
SDM Thesis
February 2000
There is another possible lock-in issue for alternatively powered vehicles. If one manufacturer
succeeds and demonstrates to government that implementation of this technology is possible,
then regulation could require the other companies to follow and lock in the design of the first
company, in effect forcing a dominant design.
There is another aspect to capturing value with the implementation of alternative green vehicle
technology. The automotive manufacturers that invest in this technology, bring products to
market and advertise their accomplishment can extract the intangible benefit of an enhanced
reputation as an environmentally friendly and technologically advanced company. There is some
evidence that this may effect sales.
At a recent speaking engagement at Ford Motor Company, Joseph Kennedy, Jr., a leading
environmental activist and lawyer, stated that he and several of his colleagues and friends
intended to purchase their next new vehicles from Ford. 79 This is because of Ford's recent
appointment of environmentalist (and great-grandson of Henry Ford), William Clay Ford, to the
position of Chairman of the Board and because of Ford's subsequent announcement of its
commitment and action plan to becoming a leading corporate steward of the environment.
Admittedly the benefits of an enhanced reputation are difficult to measure and are not likely to be
enough of an incentive to invest, but they can be real are a source of extra value.
To summarize how an established firm can capture the value of alternatively powered vehicle
technology, the sources of value include complementary assets, regulatory compliance,
economies of scale, great product (or at least as good as conventional vehicles), network
externalities, enhanced reputation, customer learning and technology to solve infrastructure
issues.
Risks for the Established Firm
In the previous discussion, it was assumed that the possible and possibly imminent
technological discontinuity in the auto industry was at the powertrain subsystem level. In this
case, the incumbent auto firms have significant advantage as was previously discussed. If,
85
Joanne T. Woestman
SDM Thesis
February 2000
however, the technological discontinuity significantly spreads to other vehicle subsystems or is a
discontinuity in the technology of the automobile in general, the established firms may be at
considerable risk. While few in the automotive industry believe that this will happen, there is
some evidence that it is possible.
One of the major vehicle subsystems that gives the established firms their advantage is the steel
body. The steel body manufacturing process is capital intensive and its product, the steel 'bodyin-white', is the cheapest and strongest design for automotive body products. Some new
technologies offer competition to the steel auto body technology, in particular composite
structures. Since some of the exotic powertrains that are environmentally friendly in terms of
emissions are too heavy, partnering them with low weight body technologies makes sense. In
addition, one of the most direct methods for improving the fuel economy of a vehicle, with or
without an alternative powertrain, is to reduce the weight of the body. While steel technology
current has the best strength to weight attribute balance, other technologies are improving
quickly and may soon compete.
-
Amory Lovins, the director of the Rocky Mountain Institute, vows to bring his Hypercar concept
a carbon fiber body with fuel cell powerplant - to market in five years. 80 He claims that he can
build a competitively priced car, with a high level of performance, 120 miles to the gallon and no
emissions. Because the carbon-fiber car can be made without the manufacturing lines of big
automakers, Lovins hopes to interest high-tech firms that do not currently make cars. According
to Lovins, the auto industry is "a classic overmature industry in which technical innovation was
stagnant until just a few years ago. This is an attribute of an industry that is ripe to be replaced
by something completely different. It's like the electric typewriter industry right before the PC."81
The established automotive firms have developed composite structure technologies of their own.
However, they are not bringing them to market for a variety of reasons, including their reparability
and a belief that customers will be reluctant to drive light weight composite vehicles on the same
roads as heavy weight trucks and sport utility vehicles. If, however, vehicle technology
undergoes a technological discontinuity such that most vehicles on the road become light weight
Ford Technical Specialist Conference, Dearborn, MI, October 1998.
80 "Composite Character Cars will have to lose a lot of weight", Jay Akasie, Forbes, (November 2, 1999).
81 "Innovator sees his ideas take shape", The Detroit
Free Press (March 15, 1999).
9
86
Joanne T. Woestman
SDM Thesis
February 2000
composite vehicles, it is possible that it will be too late for the established manufacturers of
steel-based cars to successfully change to the new technology.
In addition to the possibility that the technology of vehicles may shift too far and too quickly for
current established firms to maintain their advantage, if the technology shift occurs in
conjunction with a shift in retailing mechanisms, the established firms may really lose out. For
instance, if an entrant company can develop new technology vehicles that can be made and sold
for a low price across the Internet, with no complications from traditional car dealers, this entrant
may indeed beat out the incumbent firms. Almost all the established firms that build
conventional vehicles, particularly Ford, are investing heavily in Internet retailing options.
Success in this endeavor is not assured, however, and includes complications relating to
dealers and other factors. A complete discussion of this is beyond the scope of this thesis.
Another scenario in which the established firms do not have a clear advantage is in economically
developing markets. The established firms are fiercely fighting for dominance in emerging
markets. Because these markets have little or no infrastructure, the infrastructure issues
associated with alternative powertrains have little consequence and an entrant firm with a good
inexpensive alternative product may develop an advantage. In particular, if this entrant is native
to the market, it may enjoy government subsidy and home field advantages.
Christensen claims that established firms lose their advantage in the face of disruptive
technologies, as opposed to sustaining technologies. 2 Sustaining technologies can be
incremental or radical in nature, but they all improve the performance of established products
along the dimensions of performance that mainstream customers in major markets have
historically valued. Disruptive technologies, on the other hand, tend to result in worse product
performance along traditional dimensions, at least in the near term. However, they bring to
market a very different value proposition that had not been previously available with the old
technology. "Generally, disruptive technologies under-perform established products in
mainstream markets. But they have other features that a few fringe (and generally new)
82
C.M. Christensen, The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail, Harvard Business
School Press, Boston, (1997).
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customers value. Products based on disruptive technologies are typically cheaper, simpler,
smaller, and, frequently, more convenient to use."8
In his book, "The Innovator's Dilemma," Christensen applies his theories on managing disruptive
technological change to the case of electric vehicles. He uses a case study format and a
personal voice to suggest how he, as a hypothetical manager in a major automaker, might lead a
program to develop and commercialize electric vehicles. 4
He first tries to answer the question of whether electric vehicle technology is a disruptive or
sustaining technology. Using his technique of graphing the trajectories of performance
improvement demanded in the market versus the performance improvement supplied by the
technology, he concludes that "electric vehicles have the smell of a disruptive technology. They
can't be used in mainstream markets; they offer a set of attributes that is orthogonal to those that
command attention in the gasoline-powered value network; and the technology is moving ahead
at a faster rate than the market's trajectory of need."85
He then discusses the potential market for electric vehicles and concludes that "we don't have a
clue about where the market is, the one thing we know for certain is that it isn't in an established
automobile market segment."86 But because early entrants into disruptive technology markets
can develop capabilities that constitute strong advantages over later entrants, he recommends a
business plan for learning. The plan should attempt to hit the right market with the right product
and the right strategy the first time out, but plan to be wrong and to learn what is right as fast as
possible.
He recommends looking for opportunities where performance oversupply (which occurs when
the current technology actually supplies more performance than the customer actually uses or
needs) opens the door for simpler, less expensive and more convenient technologies to enter.
He claims that performance oversupply has occurred in the auto industry, citing that there are
" C.M. Christensen, The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail, Harvard Business
School Press, Boston, (1997), pg. xv.
14 C.M. Christensen, The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail, Harvard Business
School Press, Boston, (1997), chapter 9.
85 C.M. Christensen, The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail, Harvard Business
School Press, Boston, (1997), chapter 9.
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practical limits to the size of auto bodies and engines, to the value of going from 0 to 60 in fewer
seconds, and to the consumer's ability to cope with available options choices. He supports this
claim with the evidence that the most successful entrants in the North American market during
the past thirty years have succeeded because the have competed on the basis of reliability and
convenience and not because they introduced products with superior functionality.
Christensen puts forward a few elements of strategy that he deems appropriate for the electric
vehicle developer based on his assumption that EV technology is disruptive. He asserts the
following:
*
The winning design will be characterized at the start by simplicity, reliability and convenience
and will grow in markets where these attributes are important.
*
The technology plan should not call for any technological breakthroughs on the critical path.
The product should consist of components built around proven technologies put together in
novel product architectures to offer a set of attributes that conventional products do not.
*
A product platform should be designed that enables quick and low cost changes in features,
functions and styling.
Initial products should be introduced at low price points.
*
A new distribution channel should be sought.
The analysis in this thesis suggests that Christensen's suggestions may be relevant. The
analysis makes it clear that currently alternatively powered vehicles do fall short of conventional
vehicles in mainstream markets and that they do have other attributes that can attract a fringe
market. Most of the products that the established firms are developing are not, however,
typically cheaper, simpler, smaller or more convenient to use. If an entrant firm can manage to
accomplish this, perhaps by using composite body structures and other non-powertrain
technologies, then they may be able to create a significant competitive advantage.
It is possible that concern about this possibility is what prompted Ford to recently purchase
majority interest in the small start-up firm, Th!nk. Th!nk is a Norway-based manufacturer of the
two-seat Think Electric City car that is made with a thermoplastic body (similar to Rubermaid
86
C.M. Christensen, The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail, Harvard Business
School Press, Boston, (1997), chapter 9.
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products). Ford claims that "among the reasons for the acquisition were the support of
development of new concepts in the use of plastic-body components, as well as support of
Th!nk's approach to low-volume and lean, flexible manufacturing."8 7
In general, this analysis suggests that alternative powertrain system technology need not be
disruptive, but if it is coupled with other alternative vehicle system technologies, it may be and
that this could have significant consequences for the established firms.
87
"Ford plugs in to Th!nk electrically", Bob Jennings, Syndey Morning Herald, Sydney, Australia (October 21, 1999).
90
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Chapter 4: Organization
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The organizational capabilities required to bring alternatively powered vehicle technology to
market are not obvious. The question of how to deliver the value of this technology may be the
most difficult question posed in this analysis. The internal combustion engine powertrain has
been the heart of the automobile for almost a century and the automotive firms have been
structured and restructured to support its development for just as long. While the switch to
another type of powertrain may not be seen by outsiders as radical (because the new products
compete with the old), in the auto business, this shift is down right revolutionary.
There is huge organizational inertia resisting this change. As Bill Siuru writes in Electronics
Now, "automakers are understandably reluctant to cast aside their huge investment in the
internal combustion engine for a new technology that would require another huge investment for
new manufacturing facilities and whose consumer acceptance is still an unknown quantity."88
This huge investment includes much more than manufacturing facilities and capital investment,
it includes investment in competence and capability, in people and organizational structure, in
reputation and in corporate identity. For instance, Ford Motor Company is approximately
347,000 people, all of whom know their role in bringing conventional vehicles to the customer.
What would each of their roles be in an alternative vehicle company? What would the 100s of
internal combustion engine (and related specialty) engineers do?
Making alternatively powered vehicles functional and even desirable is a challenge that is likely to
be solved in the near future. Making an auto company into an alternative vehicle company may
be impossible.
External Partnering and Technology Transfer
There is a considerable amount of basic and applied research that needs to be done to support
alternative vehicle technology. Answers to many basic questions in materials science,
electrochemistry and environmental chemistry could support and catalyze the alternatively
powered vehicle technology development.
.
" Bill Siuru, "Fuel-Cell Powered Vehicles", ElectronicsNow, vol.69, May 1998, p 6 8
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Because the new powertrain technologies may be critical to emissions abatement and because
emissions abatement is an issue of public good, the research and development efforts are
strongly supported by government. It is not unusual to have research efforts supported by
government labs, but it is rare to have industrial development efforts done in government
laboratories. Because the technology is good for the public and because the auto industry is
under-motivated to push it, as discussed in the section on investment dynamics, the government
has stepped in. (In the US, it is also helping the government labs shift their focus from defense
to domestic issues now that the Cold War has ended).
The Partnership for a New Generation of Vehicles (PNGV) is a historic public/private partnership
between the U.S. federal government and the private auto industry, announced at the White
House in September of 1993 by President Clinton, Vice President Gore and the CEOs of the
domestic auto makers. It draws on the resources of 7 federal government agencies, the national
laboratories, universities, suppliers and the United States Council for Automotive Research
(USCAR), a cooperative, pre-competitive research effort between Daimler-Chrysler, Ford and
General Motors. Under the leadership of the Department of Commerce, the seven federal
operating agencies are actively contributing to the development of new automotive technologies
for PNGV. The seven agencies are the Department of Commerce, the Department of Defense,
the Department of Energy, the Department of Transportation, the Environmental Protection
Agency, the National Aeronautics and Space Administration and the National Science
Foundation. This national government/industry partnership research program also includes
research support for over 350 automotive suppliers, universities and small businesses.
PNGV's have three primary goals. The first is to significantly improve the national
competitiveness in automotive manufacturing. The second is to apply commercially viable
innovation to conventional vehicles. The third goal, dubbed the "Supercar" goal, is to develop an
environmentally friendly car with up to triple the fuel efficiency of today's midsize cars - without
sacrificing affordability, performance, or safety.8 9 PNGV considers its success in these goals as
important to the U.S. for a number of reasons, including jobs and global competitiveness,
reducing U.S. dependence on foreign oil and environmental issues. This program represents a
shift in the relationship between the U.S. government and the major firms of the auto industry. It
seeks progress through partnership and cooperation to address the nations goals rather than the
89
Information from http://www.ta.doc.gov/pngv (December 9, 1999).
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confrontational and adversarial relationship of the past. A similar partnership has been formed in
Europe to address their own interests.
Research Focus
Public
Private
Applied
Basic
As graphically depicted in the figure above, this situation is changing the traditional roles of
government and industry in basic and applied research. Traditionally, government invests in
basic research to further the public good and industry invests in applied research to capture the
value of technology. In the case of alternative powertrain technologies, government is investing
in both basic and applied research to escalate the pace of the development of clean vehicles and
industry is investing in applied and basic research to increase its adsorptive capacity and
maintain its competitive edge.
Because appropriability in the auto industry is tightly held against outsiders and somewhat
loosely held among insiders, public and joint research programs are less risky, in terms of
contractual complications, than they would be otherwise. Also, in the present case, the
established firms are not expecting to make money from alternative vehicles in the near term; at
the present level of development there is little money to be made. They are investing to ensure
that they are ready if the technological breakthroughs that they deem required to substitute
conventional vehicles with alternative vehicles occur. And to convince the government that best
efforts are being put forth to address pollution issues and that stricter regulation will do no good.
Because most of the companies are investing to protect their existing business in conventional
vehicles and not to really develop an alternative vehicle industry, it is safe to do this work
collaboratively; no one is making money and everyone is sharing the risk. In addition, the
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contracts protect the rights of each manufacturer to put the technology into their own vehicles in
their own way. The main concern is avoiding the legal implications of collusion.
As has been outlined in this thesis so far, there is no dominant design to replace the internal
combustion engine and there is a competition among various possible designs. Because none
of the auto firms can afford to fully develop all the different possible designs, they are
collaborating on research and development. DaimlerChrysler and Ford are investors in Ballard,
a fuel cell manufacturer. Toyota and GM have hooked up to work on hybrid vehicles and fuel cell
technology. BMW, VW and Mercedes are discussing the merits of various fuel delivery
systems.90 And numerous other partnerships across the world are developing to investigate
competitive technologies for a possible new dominant design.
Because this technology change is definitely a jump from one s-curve to another on almost any
metric, adsorptive capacity will be critical. Therefore it is essential that the R&D organizations
within the auto companies do research in the key related areas and that the companies have
effective technology transfer processes.
Technology transfer is a critical process for any company that creates a product with an evolving
technology base. For instance computers are continuously becoming faster, cheaper and able
to process more data by incorporating new technologies into their product architectures.
Automobiles are continually changing their level of performance, safety and environmental
friendliness as new technologies are added to them and to the processes by which they are
made. For a large corporation, with multiple products and manufacturing processes, it is
important to develop a system to transfer technologies from technology generating portions of
the company, such as research or advanced engineering, to product development and
production sectors of the company. This is the function of the Technology Transfer Process.
Heuristically, the goal of the technology transfer process is to ensure that the right technologies
are incorporated into the right products at the right time. Some companies choose to have a
formal process that orchestrates which technologies are to be transferred to whom, when, and
by what path. There may also be a few side processes that are not included in the formal,
documented process but which assist in accomplishing the same goal. The process may be a
90 "Reinventing the Wheel - The cars of tomorrow", FortuneMagazine (October 7, 1999).
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corporation-wide process or it may be a division-by-division set of policies depending on the
breadth of the company's product portfolio. Alternatively, companies may choose an informal
process that relies on the personal initiative of technology developers or product developers to
push or pull technology into new products. Which type of process a company chooses, formal,
informal, company-wide or divisional, will impact its success. Indeed, it is unlikely that there
exists a single, perfect process suitable for all types of companies across all possible industries.
Research has shown that the architecture of a company's technology transfer process is
intimately linked to the structure of its organization, the diversity of its product offerings, and the
product development cycle time in its industry.91
In addition, the type of technology transfer process that is appropriate and most likely to succeed
depends on where in the technology cycle the transferable technology resides. For the
continuous phase of the cycle, a formal process that can continually funnel incremental
technology improvements from the technology developers to the product developers is likely to
be most effective. In a discontinuous phase, however, a less formal process that can handle
multiple competing technologies at once is more likely to succeed.
Whether to centralize R&D efforts on alternatively powered vehicles or to distribute them across
the organization depends on the goals of the firm. If the goal is to develop the technology enough
to evaluate its potential and to convince the government that the firm is trying to find solutions to
automotive emissions issues, then a centralized effort makes sense. If at some point, however,
the goal shifts to actually bringing alternative products to market and changing the company into
an alternative vehicle company, then to be quick and effective, the effort should be distributed
throughout the organization.
Another reason for distributing the development effort through the organization is to begin the
process of transforming the company's competencies. For instance, if the engineers
responsible for the alternative powertrain are integrated into a powertrain organization, as
opposed to an alternative vehicle organization, their alternative expertise will seep into the
competency of the powertrain organization. Conventional gasoline internal combustion engine
engineers will learn, even if only by osmosis, some of the issues related to running engines on
9'
"A Comparison of the New Technology Transfer Process Initiatives at Ford Motor Company and Texas
Instruments", Howard Gerwin, Everado Ruiz and Joanne Woestman, Final Project in Organizational Processes course
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alternative fuels or integrating engines into hybrid systems. If, however, the engineers
responsible for the alternative powertrains are isolated from the traditional powertrain engineers,
they may be more free to experiment and develop new concepts, but their learning and
experience will not be transmitted to the powertrain organization. Then if the alternatively
powered vehicle sales pick up and cannibalize the sales of the conventional vehicles, the
powertrain organization will become obsolete and the alternative organization will have to deal
with all the issues of scaling up quickly. This is a delicate balance and the right timing for
integration may be difficult to achieve, but it should definitely be sought.
Organizational Structure and Managing Relationships
The decision of how to structure the organization responsible for bringing alternative vehicles to
market depends on four key metrics; competition/strategy, competence, incentives (risk and
effort) and contracts. The possible structures range from an organization that is fully integrated
into the current organization, to a venture capital company that is supported by the firm but
functions separately, to a 'garage' effort that receives start-up funds from the firm but functions
entirely independently.
Because of the necessary complementary and specific assets, the level of risk and the other
barriers to entry in the auto business, a 'garage' effort is unlikely to work. However, because of
the inertia of the existing organization and its resistance to change, fully integrating an
alternatively powered vehicle program into the firm may doom the effort to failure. The figure
below shows a tool for evaluating how the four metrics map to the possible structures.9 2
in the MIT SDM program.
92 Tool used in Prof. Henderson's Technology Strategy class, MIT (Fall, 1998)..
97
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Organizational Structure
Integrated
Venture
Garage
Competence
-
Competition/Strategy
Incentives (Risk & Effort)
--
-
Contracts
From a competition and strategy point of view, in order to leverage the complementary and
specific assets of the firm, it is best to integrate the alternative vehicle development effort.
However, in order to temporarily protect the existing conventional vehicle business until it is clear
that the alternative automotive powertrains will become the new dominant design, it may be
better to separate the effort somewhat.
Hence the marker in the figure is placed between
integrated and venture, but closer to integrated for the strategy metric.
From a competence point of view, if the project is not done within the firm, there are at least two
issues. The first is that if alternative vehicle sales take off and they replace conventional
vehicles, the conventional organization becomes obsolete since the competency is not
integrated with it. The second issue is that if the project is not integrated into the firm, it may not
be taken seriously, and the firm may not develop the competence to scale up production of
alternative vehicles. If alternative vehicle demand takes off, the company may loose the
opportunity to grab market share. Since both of these risks are critical to the long-term survival
of the firm, the marker in the figure is placed soundly under integrated for the competence
metric.
In terms of incentives, 'garage' operations may offer the best incentives for personnel in terms of
bonus and reward for success, but this project is far too risky for a garage operation. However,
doing the project outside of the firm may generate more effort and more effort in this case could
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make a big difference. On the other hand, a great deal of effort can be generated in this case by
the desire to do public good and improve the environment so it may not be necessary to take the
project entirely out of the 'stodgy old firm' to generate incentive. The marker in the figure is
placed under venture for the incentive metric.
In terms of contracts, the automotive assemblers have so much power because of the barriers
to entry that contracts are only somewhat risky. A supplier or separate organization that
develops an alternative powertrain technology or an alternatively powered vehicle will be unlikely
to be able to bring it to market in such a way as to compete with or substitute for conventional
vehicles without partnering with an automotive assembler. On the other hand, if automotive
assembly capability is over capacity and the manufacturing capability for the new technology is
under capacity, the competition to contract with the new technology suppliers may be brutal. In
this case, the supplier may be able to play one assembler off another and gain a serious
advantage in contract negotiations. This would motivate the assembler to integrate the
alternative powertrain technology supplier into its organization. Therefore, the marker in the
figure is half way between integrated and venture for the contracts metric.
To summarize this analysis, in the short term it appears to be advantageous to start up a closely
linked but separate venture to develop alternatively powered vehicles. However, it will be
important to prepare the existing organization for the dramatic shift in competency that will be
required if demand for alternatively powered vehicles takes off and they replace conventional
vehicles. To succeed, it will be necessary to integrate the alternative vehicle program into the
existing organization well in advance of the take off in alternative vehicle demand in order to be
fully prepared to take advantage of the change and beat out the competition.
Assuming that it is best to create a separate, but internal, product development venture project,
the question remains of how to manage it. In order to build communication between alternative
powertrain engineering and marketing and between alternative powertrain engineering and
conventional powertrain and vehicle engineering, a matrix organization with a heavyweight
project manager or leader and lightweight ties to functional organizations should be established.
Having a heavyweight project manager is meant to ensure that the alternative vehicle program
gets the attention and focus that it needs. Having ties back to the functional organizations is
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Joanne T. Woestman
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meant to ensure that some of the experience and knowledge from the alternative vehicle project
filters into the main organization in case the radical industry shift to alternative vehicles occurs.
A plethora of criticism has been made about matrix organizations, focusing on the difficulties of
giving people two bosses. However, much of the auto industry is already matrixed and if the
project manager is heavyweight, it will be clear which boss has first priority.
Looking at this issue from the three organizational perspectives, structural, political and cultural,
this project-focused venture with functional ties will create challenges from each perspective.
Structurally it will be complicated and there will always be a tension between the product focus
and the function focus. Politically it may create a power struggle as to which part of the
business should get the resources and focus of upper management; this investment in the
future of alternative vehicles or the money-making conventional vehicle business. Culturally it
may cause confusion. The culture of the venture project is bound to be remarkably different than
the culture of the traditional functional organizations and people trying to move back and forth
through these two cultures could find it unnerving.
These are exactly the issues discussed in the introduction with regard to the ambidextrous
organization. Because of the stark differences between the concerns and goals of the
conventional powertrain and product development organizations and the venture project
organization, different management techniques and strategies will be appropriate in each. The
ambidextrous company needs to be able to manage both of these types of sub-organization
within its organization. Upper management needs to manage two sets of metrics, two
organizational substructures and two cultures. In addition, it needs to match the talents and
motivations of its employees to the appropriate suborganization. The people who are excited by
the challenges and uncertainty of the venture should be in the venture organization and the
people who are best at managing the continual improvement process should be in the
conventional organization. In the best of worlds, the conventional organization should also
include people open to the new technology who can strategize the best way to transform the
conventional powertrain competencies into the alternative powertrain competencies.
In terms of leadership and strategy, it will be critical for the organization to have strong leadership
that can communicate the importance of being ambidextrous and that can manage the duality. It
will be important to have a clear strategy to maintain two types of organizations under one
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corporate umbrella and to allow each organization to perform according to its purpose without
comparison to the other along inappropriate metrics. The leadership and the strategy need to
balance the short term goals of the conventional organization with the long term goals of the
alternative organization. In addition, the strategy needs to manage the corporate image and
brands to give a clear message to consumers about how the company is trying to balance its
two types of business. For example, a company that makes big fuel inefficient sport utility
vehicles and argues with the government about environmental regulations may find it difficult to
capitalize on the environmental image benefits of making alternatively powered vehicles. While
the organization may need to have the dual nature of conventional vehicles and alternative
vehicles, the message to the consumer needs to be consistent.
In terms of structure and process, the conventional organization needs to maintain the rigid
structure and processes appropriate for the continuous incremental improvement phase of the
technology cycle. The alternative, organization, on the other hand, will need to be managed with
a more fluid nature that can change quickly as the designs change and as the business
changes. The alternative organization may need to fit into the conventional processes as much
as possible so that it can leverage the assets of the conventional business, for instance building
off existing platforms and maintaining commonality in non-powertrain related subsystems. As an
example, if there is no reason why the cabin (including seats, dash, interior surfaces and such)
of the alternative vehicle needs to be different from a conventional vehicle, then great cost
savings can be realized by carrying over these subsystems from conventional programs. To do
this, the processes of the alternative program will have to successfully mate with the
conventional processes. Because the alternative product volumes will be much lower at the
start, it is unlikely that the conventional program will change to meet the alternative program's
needs.
In addition, managing the structure and process associated with partnering with outside
organizations will have to be carefully handled by the alternative organization. It will be difficult to
get the attention of conventional suppliers due to low initial volumes. There may be concerns in
the unions about displacing their conventional powertrain skills and competencies and there may
be an unwillingness of assembly plants to deal with the alternative powertrain as an option on an
otherwise conventional vehicle. Partnering with the government and other companies will
require a balance between openness for useful dialog and protecting proprietary information.
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In terms of culture and incentive, it will be important to maintain two separate cultures, one for
the conventional organization and one for the alternative. For long term success, however,
these two culture needs to respect each other and communicate their learnings. In the
alternative culture, it will be important that people are not too risk adverse and that failure is
acceptable. It also will be important that special attention is paid to recruiting. It may be difficult
to attract high caliber people to the alternative organization if it is viewed negatively because of
near-term low profit potential instead of being viewed positively because of its long-term
potential.
To try to alleviate some of the tensions and to catalyze the learning of the main organization from
the alternative powertrain venture in preparation for the escalation in alternatively powered
vehicle demand, engineering personnel could be rotated through the functional organizations, the
venture project and other product development projects. This may help to create incentives that
encourage powertrain engineers to continually update their skills.
Because of the importance of complementary assets, the relationship between the main firm
and the altemative powertrain venture should be managed as a long-term relationship that builds
trust. Because the firm wants to foster creativity and risk-taking in the new venture, the venture
needs to be managed with a spirit of intrepreneurship. However, because the venture may need
to be quickly integrated into the main organization if alternative vehicle demand takes off, it
should not be managed radically differently from other projects in the company's product
development system. There is some risk that the relationship between the main firm and the
alternative powertrain venture will be unproductive because the two organizations will have very
different ways of operating and are likely to have significant cultural differences. In this case,
there may be no painless way to make this relationship work and the established firm may in the
end lose out to a new enterprise.
Christensen's case study of the electric vehicle as a disruptive technology was discussed in
earlier chapters. In his book, he also reviews some of the organizational issues associated with
the case study.93 In reference to the electric vehicle program within an established firm that he
9 C.M. Christensen, The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail, Harvard Business
School Press, Boston, (1997), chapter 9.
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is hypothetically managing, he says that "creating an organizational context on which this effort
can prosper will be crucial, because rational resource allocation processes in established
companies consistently deny disruptive technologies the resources they need to survive,
regardless of the commitment senior management may ostensibly have made to the
program."94 He recommends forming a separate entity that is spun off from the mainstream
company and is an independent, autonomously operated organization. This can be an
autonomous business unit of the firm or an independent company whose stock is largely owned
by the corporation. He also asserts that this project should be managed as a heavyweight team
in this independent organization.
Some of the benefits that Christensen identifies with his proposal for an small and independent
organization include the following:
*
a focused organization would be better able to address the needs of small markets because
its financial metrics would allow it
*
in a small organization, products with success in small markets would generate energy and
enthusiasm as opposed to skepticism about their worth compared to mainstream products
" an independent organization would have limited resources that could serve as motivation to
find some set of customers and some product to make itself cash-positive as soon as
possible
Christensen cautions, however, that "the danger in making this unequivocal call for spinning out
an independent company is that some managers might apply this remedy indiscriminately,
viewing skunkworks and spinoffs as a blanket solution."95 According to him, it is only appropriate
when confronting a disruptive technology.
A Technology Strategy
Christensen, The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail, Harvard Business
School Press, Boston, (1997), chapter 9.
9 C.M. Christensen, The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail, Harvard Business
School Press, Boston, (1997), chapter 9.
94 C.M.
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The goal of a technology strategy is to maximize the flow of technology through the company's
value chain; to leverage the technical capabilities of the company, to develop technology and to
get it into products with attributes that customers value, generating profits for the company.
The Value Chain
Technical
>
Capabilities
Product
Atrbutes
Customer
Values
Profits
The technology strategy for a company can be expected to change over the life cycle of the
company's industry. A schematic of the Industry Life Cycle Model is shown in figure below. For
the automotive business, the industry has long been in the incremental innovation phase.
However, the regulatory pressures to develop environmentally friendly vehicles are pushing it up
against a discontinuity. If it becomes required of the industry to replace the internal combustion
engine, the industry will enter an era of ferment where no dominant design exists. Eventually,
the next generation of vehicles will be developed and the industry can settle into a new dominant
design. The goal of an individual company at this point should be to develop a technology
strategy that ensures that as the industry moves through this cycle, the company moves with it
and does not disappear.
The Industry Life Cycle Model
Era of Ferment
Dominant
Discontinuity
Incremental
Innovation
Based on the analysis in this paper, the following recommendations can be made for a
technology strategy for a major player in the automotive assembly business:
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*
Ensure executive level commitment to developing alternative vehicle technology
*
Closely monitor the competition
*
Create a separate, but internal, product development project to develop a few alternatively
powered vehicles
*
Give this project a heavyweight project leader
*
Develop an alternatively powered vehicle to substitute for conventional vehicles with minimal
infrastructure impact
*
Run the project just like any other project in the product development process
*
Rotate engineering personnel through functional organizations, this project and other product
development projects
*
Develop relationships with alternative powertrain component manufacturers
*
Develop relationships with governments
*
Do basic and applied research to enhance adsorptive capacity
*
Create incentives that encourage powertrain engineers to update their skills
*
Build a reputation for being an environmentally friendly and technically advanced company
*
Prepare the existing powertrain organization to move quickly if the dominant design shifts
For this technology and this business, the answers to the three key questions of technology
strategy, how to create value, how to capture value in the face of competition and how to create
an organization to deliver value, can be summarized as follows. To create value, develop a
vehicle product that competes on the conventional vehicle attributes and is more
environmentally friendly. To capture value, leverage the firm's complementary assets.
To
deliver value, be the quickest competitor to integrate the new powertrain products into the firm's
product development system.
Even with this formulated strategy, getting this technology to work, bringing it to market and
making money from it is a very risky proposition. Backing away from this challenge, however,
may be more risky. If the industry shifts away from the internal combustion engine, only the
strong and prepared auto companies will survive.
105
Joanne T. Woestman
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Chapter 5: Ford Motor Company
106
February 2000
Joanne T. Woestman
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There are many ways in which an automotive company can improve its environmental
friendliness. It can focus on its manufacturing processes and facilities to increase recycling,
reduce waste and emissions and substitute harmful materials and processes with more benign
ones. Or it can focus on its products to increase the use of recycled materials and improve fuel
efficiency and emissions inherent in the products.
The improvement of processes may be somewhat costly, but it is not particularly risky. The
improvement of automotive products can also be done incrementally with modest cost and risk.
One of the biggest challenges, however, is to radically change the heart of the vehicle, the
powertrain. The internal combustion engine (ICE) has been the dominant design for automotive
powertrains for over half a century and changing it to a more environmentally friendly alternative
powertrain design is not only costly, but risky as well.
Increasing regulatory pressure and customer expectations are forcing the industry to consider
alternatives to internal combustion engines, but which alternatives are most likely to succeed?
The competing technologies include significantly improved internal combustion engine systems
that may include added exhaust after-treatment technologies, hybrid vehicles that combine
internal combustion engines with an electric system, electric vehicles, fuel cell powered vehicles
or even some yet-to-be-thought-of technology
The key challenges to Ford in bringing cars and trucks with alternative powertrains to market
include technical issues, market issues and organizational issues. Choosing the right
technology for the right market and creating the right organization with the appropriate structure,
incentives and culture will be essential for success. The competitive nature of the industry, the
questionable market and the technical potential of the alternative vehicle technologies and their
associated infrastructure technologies must to be critically analyzed. The need to change the
corporate competencies, the capitol investments and possibly the structure, incentives and
culture also should be handled carefully.
Company Profile
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Joanne T. Woestman
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Ford Motor Company was founded in 1903 by the pioneer of the industrial assembly line, Henry
Ford. It is the world's second largest corporation and conducts business on six continents
providing automotive and financial products and services. It is best known as an original
equipment manufacturer (OEM) of cars and trucks, but engages in several other businesses,
including automotive components, vehicle leasing and rental, land development and financial
services. It has recently begun to branch out into other automotive related businesses such as
after-market automotive accessories, automotive repair, automobile junkyards and auto
insurance. The enterprises and subsidiaries of Ford Motor Company include Ford Automotive
Operations, Visteon Automotive Systems, Ford Motor Credit Company, Ford Motor Land
Services Corporation and The Hertz Corporation.
Ford Automotive Operations (FAO) is the largest producer of trucks and the second largest
producer of passenger cars and vehicles worldwide. Under the brands of Ford, Mercury,
Lincoln, Jaguar, Volvo Cars, Mazda, Aston Martin and Think!, Ford offers for sale more than 75
types of vehicles.96 FAO operates more than 105 manufacturing facilities in more than 38
countries to produce passenger cars, trucks, engines, transmissions and stamped sheet metal
parts.97 It employs more than 267,000 people in its plants, testing facilities, research and
development facilities and offices worldwide. In 1998, FAO sold more than 6.8 million vehicles
around the world and its sales and revenue totaled more than $101 billion.98
Visteon Automotive Systems is an enterprise of Ford Motor Company that was launched in
September 1997. It is the second largest automotive supplier in the world. Visteon specializes
in chassis systems, climate control systems, electronic systems, exterior systems, glass
systems, interior systems and powertrain control systems. It employs approximately 80,000
people in 50 plants, 28 joint ventures and 37 technical centers and sales offices in 21
countries.99 Its sales and revenues in 1998 totaled approximately $18 billion.
Ford Motor Credit Company was established in 1959 as an indirect and wholly owned subsidiary
of Ford Motor Company. It is the world's largest automotive financing company and the world
96 The FordMotor Company EnvironmentalReport, Published by Ford for Ford Stockholders in 1998.
97 The FordMotor Company Annual Report, Published by Ford for Ford Stockholders in 1998.
9 The FordMotor Company Annual Report, Published by Ford for Ford Stockholders in 1998.
"
The FordMotor Company Annual Report, Published by Ford for Ford Stockholders in 1998.
108
Joanne T. Woestman
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leader in vehicle leasing. It provides many financial services including retail leasing and financing
for new and used vehicles, wholesale financing, capital loans for dealers and automotive
insurance. It provides financing services at over 290 locations in 36 countries.10 0 It employs
15,600 people and has over 8 million customers.101 More than 11,500 dealerships worldwide
used Ford Credit financing for approximately 4 million new and used vehicles in 1998, resulting in
$145 billion in assets.10 2
Ford Motor Land Services Corporation was established in 1970 as a wholly owned subsidiary of
Ford Motor Company. It provides real estate services to Ford activities worldwide, including
construction, engineering, architecture, space planning, purchasing, sales, leasing, development
and facilities management, environmental protection and energy efficiency.
The Hertz Corporation was established in 1918 and has been a majority-owned Ford Motor
Company subsidiary since 1987. It is the world's largest car, truck and equipment rental and
leasing company with 6,100 locations in more than 140 countries.1 3 It employs 24,800 people
and had over 30 million rentals in 1998.1 04
Policy and Leadership
The Ford Motor Company Board of Directors has an Environmental and Public Policy
Committee that reviews all the company's environmental policies and practices. The Board and
the CEO have made the following environmental pledge:
"Ford Motor Company is dedicated to providing ingenious environmental solutions that will
position us as a leader in the automotive industry of the 2 1st century. Our actions will
demonstrate that we care about preserving the environment for future generations."
Ford has a long history of environmental awareness and conservation that started with Henry
Ford. Henry Ford was an avid conservationist. He believed that industry should preserve forests
The FordMotor Company Annual Report, Published by Ford for Ford Stockholders in 1998.
10' The FordMotor Company Annual Report, Published by Ford for Ford Stockholders in 1998.
102 The FordMotor Company Annual Report, Published by Ford for Ford Stockholders in
1998.
03
The FordMotor Company Annual Report, Published by Ford for Ford Stockholders in 1998.
109
SDM Thesis
Joanne T. Woestman
February 2000
and mines and draw its materials instead from the fields and farmlands. He replaced wood with
recyclable steel in his early automobiles out of concern for natural resource preservations. He
went to great lengths to develop manufacturing techniques that allowed the use of agricultural
products in the manufacture of automotive components. Most noteworthy was his work in the
use of soybeans to make plastic components. "By 1935, two pounds of soybean products went
into every Ford car - in the paint, horn button, gearshift knob, door handles, accelerator pedal
and timing gears."1 05 As the company grew and built factories to meet customer demand, Ford
also set aside land to grow crops for use in company products.
In terms of alternative powertrains, Ford built its first electric vehicle in 1908 and has been a
leader in alternatively fueled vehicles for more than three decades. This commitment to
conservation and the environment continues in the Ford family with Bill Ford, the great grandson
of Henry Ford and Chairman of the Board of Ford Motor Company.
Unfortunately, like all the major automobile manufacturers, Ford also has a history of resisting
environmental legislation, particularly with regard to gaseous emissions and electric vehicles. A
recent article in the Amicus Joumal, the quarterly magazine of the Natural Resources Defense
Council (NRDC),
06 describes
the U.S. auto companies' behavior as schizophrenic with regard
to legislation mandates of electric vehicles. In January of 1990 at the Los Angeles International
Auto Show, GM unveiled a prototype electric car, built for them by a small company called
AeroVironment. "The two-seater went from 0 to 60 mph in 8.5 seconds, had a range of 75 miles
on a full charge of its lead-acid batteries, and could be recharged in two to three hours." 107
Months later, the California Air Resources Board (CARB) passed a mandate ordering the seven
largest automobile manufacturers to ensure that by 1998, two percent of their cars sold in
California would be electric vehicles. In 2001, the mandate was to rise to 5% and in 2004, it was
to rise to 10%. According to the NRDC, "for the next six years, the Big Three of Detroit [GM,
Chrysler and Ford] indulged in a certain schizophrenia. While select groups of engineers
developed EVs, corporate leaders and lobbyists vigorously fought CARB's mandates - with
04 The FordMotor Company Annual Report, Published by Ford for Ford Stockholders in 1998.
'0 The FordMotor Company Environmental Report, Published by Ford for Ford Stockholders in 1998.
06 The NRDC is a national non-profit organization that describes its mission as "protecting the world's natural
resources and ensuring a safe and healthy environment for all people. According to the magazine, NRDC has 400,000
members and a staff of lawyers, scientists and other environmental specialists that combine the power of the law, the
power of science and the power of people in defense of the environment.
107 "Back to the Future", Will Nixon, The Amicus Journal,Fall 1999, pg. 17-22.
110
Joanne T. Woestman
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February 2000
partial success." The 1998 deadline was dropped, but the 2004 requirement for 10% EVs still
stands. According to the NDRC article, the oil industry was a larger political force in California
and was responsible for much of the work to publicly discredit the EV mandate.1 08
In 1989, as part of an attempt to develop a less adversarial relationship with environmental and
safety regulating bodies, the Ford Board of Director's Environmental and Public Policy
Committee, then chaired by Bill Ford, issued the Ford Motor Company Health and Environmental
Policy to guide the Company's business. The text of the policy, the original of which is signed by
the Company's chief executive officer, is shown in the following box.1 09
'0' "Back to the Future", Will Nixon, The Amicus Journal, Fall 1999, pg.
17-22.
'0" The Ford Motor Company EnvironmentalReport, Published by Ford for Ford Stockholders in 1998.
111
Joanne T. Woestman
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February 2000
Ford Motor Company Health and Environmental Policy
ustainable economic development is important to the welfare of the company, as well as to society. To
e sustainable, economic development must provide protection of human health and the world's
nvironmental resource base. It is Ford's policy that its operations, products and services accomplish
their functions in a manner that provides responsibly for protection of health and the environment.
Fordis committed to meeting regulatory requirements that apply to its businesses. With respect to
health and environmental concerns, regulatory compliance represents a minimum. When necessary and
appropriate, we establish and comply with standards of our own, which may go beyond legal mandates.
In seeking appropriate ways to protect health or the environment, the issue of cost alone does not
preclude consideration of possible alternatives, and priorities are based on achieving the greatest
anticipatedpractical benefits while striving for continuous improvement.
Ford's policy of responsibly protecting health and the environment is based on the following principles:
Protection of health and the environment is an important consideration in business decisions.
Considerationof potential health and environmental effects - as well as present and future regulatory
equirements - is an early, integral part of the planning process. Company products, services,
processes and facilities are planned and operated to incorporate objectives and targets that are
periodicallyreviewed to minimize to the extent practical the creation of waste, pollution and any adverse
impact on health and the environment. Protection of health and the environment is a company-wide
responsibility. Management of each activity is expected to accept this responsibility as an important
priority and to commit the necessary resources. Employees at all levels are expected to carry out this
responsibilityas part of their particular assignments and to cooperate in company efforts.
The adoption and enforcement of responsible, effective and sound laws, regulations, policies and
Iracticesprotecting health and the environment are in the company's interest. Accordingly, we
articipate constructively with government officials, private organizations, and concerned members of the
eneral public. Likewise, it is in our interest to provide timely and accurate information to our publics on
environmental matters involving the company.
Ford's environmental pledge is starting to be reflected in its products. All its light truck and sport
utility products have been certified as Low Emission Vehicles (LEVs) and its lead minivan
product has been certified as an ultra low emission vehicle (ULEV). It is, of course, easier to
certify truck products as LEVs and ULEVs because the standards for trucks are lower than for
112
Joanne T. Woestman
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cars. Certifying the truck products ahead of regulatory demand puts Ford in a good position in
the event that truck emission regulations are made stricter to equal car emission regulations.
The legislation to do this has been put forward in California.
Ford is also a leader in alternatively fueled automotive products (AFVs). In the 1999 model year
Ford offered 11 North American AFVs;1 0
*
Bi-fuel natural gas F-Series pickup
*
Dedicated natural gas F-series pickup
*
Bi-fuel propane F-series pickup
"
Bi-fuel natural gas Econoline van
*
Dedicated natural gas Econoline van
*
Bi-fuel propane Econoline van
*
Bi-fuel natural gas contour sedan
*
Dedicated natural gas Crown Victoria sedan
"
Taurus E-85 flexible fuel vehicle
"
Ranger E-85 flexible fuel vehicle
"
Ranger electric vehicle
In addition to these products for sale, Ford has developed several concept and demonstration
vehicles that it has shown to the media. Of most significant note is the P2000 light-weight family
sedan with several different possible powertrains, including a high efficiency diesel, a lowstorage hybrid electric and a fuel cell powertrain. Some of these projects are in conjunction with
PNGV, some are with the DaimlerChysler, Ford and Ballard joint effort and some are
independent Ford projects.
In contrast, Ford also offers one of the biggest SUVs on the market, the Excursion. When the
Excursion was introduced last year, the Company received a significant amount of press, most
of it negative, with regard to the contradiction between its goal to be viewed as environmentally
friendly and its production of this product. At 8600 to 9200 pounds gross weight, the Excursion
is certified as a heavy-duty truck, but is being marketed as a family SUV. Because of its size, it
is not particularly fuel efficient when compared to other family transportation vehicles and even
"0 The FordMotor Company EnvironmentalReport, Published by Ford for Ford Stockholders in 1998.
113
Joanne T. Woestman
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February 2000
though it is certified as a low emissions vehicle, it is certified under heavy truck regulations which
are less stringent than regular passenger car and light truck standards."'
Ford management defends its decision to make the Excursion with the following points. 12
*
"We could make all 80 miles-per-gallon small cars, but if customers aren't buying them, if they're all sitting
unsold on dealer lots, they're not doing the environment any good and Ford is not going to be in business very
long."
*
"A low-emission vehicle (LEV) - or better - in all US States and on all engines, Excursion produces up to 43
percent fewer smog-forming exhaust emissions than permitted by law."
"
"Excursion features superior passenger and cargo room. It tales two average full-size sedans to move the
nine passengers and luggage that can be easily accommodated by one Excursion, making the Excursion the
more fuel-efficient transportation alternative."
"
"Nearly one-fifth of each Excursion is made out of recycled consumer material, including various steel,
aluminum, rubber and plastic parts."
"
"Excursion also is highly recyclable. More than 85 percent of this vehicle can be recycled by weight at the end
of its automotive life."
*
"More than 800,000 Windstars and Ford SUVs - including Excursion - will take to US roads in 1999 - sparing
the air of 6 million pounds of pollution each year they're on the road."
One argument that the Ford public relations experts tend to leave out is that the profit on this
vehicle is high, keeping the Company in good financial standing and providing funds for more
environmentally friendly, but less profitable products. Even with these arguments in the
Excursion's favor, the contrast between the Company's goal for an image as an environmental
leader and its continued growth in large SUV products is difficult to dismiss.
"You can have any car, as long as it's green." William Clay Ford, Jr. uses this slogan to indicate
that he wants to change the direction of the Company that his great-grandfather, Henry Ford,
founded almost a century ago. The slogan is a new spin on Henry Ford's famous remark that
"You can have any car, as long as it's black." Henry Ford used his slogan to promote his
Company as the world's first mass producer of affordable automobiles. His Company painted all
its Model Ts black because they found a black paint that dried faster than other paints and
allowed quicker and less costly manufacturing. Quicker and less costly manufacturing allowed
"'"Ford Excursion won't be the dirtiest monster on the road", DetroitFree Press, (May 20, 1999).
12 "Ford defends the blue oval's green record", Sydney
Morning Herald (May 17, 1999).
114
Joanne T. Woestman
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February 2000
Henry Ford's company to offer automotive transportation at a price that most people could afford.
Bill Ford, the Chairman of the Board of Ford Motor Company since January 1999, uses his
slogan to promote his goal that the Company will become the most environmentally friendly
automaker in the world.
According to Ford, "You can't deny that cars affect the environment and because of this I'm
convinced, that the automotive industry has to face the environmental question if it wants to
survive in the next century and beyond."' 13 Mr. Ford is a self-proclaimed conservationist and
environmentalist who drives an electric vehicle to work and is active in many environmental and
conservationists groups and activities. His public speeches frequently indicate that he not only
believes that attention to environmental issues is a necessary cost of doing automotive
business, but he believes that it can be an advantage in the business. He says, "I want the
customer to be attracted by our products because he is convinced of them and of their
ecological harmlessness. If we manage to achieve this, our targeted economical growth will
come automatically."
Currently investing in the development of alternative powertrains for cars and light trucks is
viewed by many major automakers as a cost of doing business, driven by regulation and the
desire to be seen as an environmentally friendly company. The industry has a reputation for
opposing environmental regulation and only slowly making product and manufacturing changes
to improve environmental friendliness.
In contrast to Mr. Ford's remarks, the Company's CEO, Jac Nassar, makes more conservative
statements. "We have publicly committed ourselves to the strategy of cleaner, safer,
sooner."1 1 4 The policy states the company's commitment to bringing products to market that
are cleaner and safer when the technology allows. Explaining this policy, Mr. Nassar says, "By
when the technology allow[s] we mean that when the technology is available, when it is
affordable to the consumer, and when we can build it in large volume to have a substantial effect
on clean air, then we [will] implement the technology without regard to regulatory timetables or
requirements."' 1 5
"' "Ford Chairman Wants to Unify Economy and Ecology", Jurgen Lewandowski, Suddeutsche Zeitung, (June 29,
1999).
114 "Ford Shows Environmental Commitment with LEV Trucks", www.fcn.ford.com, (May 20, 1999).
" "Ford Shows Environmental Commitment with LEV Trucks", www.fcn.ford.com, (May 20, 1999).
115
Joanne T. Woestman
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February 2000
The 'cleaner safer sooner' policy can help push incremental improvement in the conventional
technologies. The conventional technology is proven. The volumes are easy to achieve
because the customer is familiar with the base technology and will easily accept minor changes.
Finally, the cost is likely to be affordable because the investment required to manufacture a
modification of an old technology is likely to be small compared to that required to adopt a totally
new technology. Actively pursuing incremental technology improvements that enhance the
environmental friendliness of the product will protect shareholder value in the short run and avoid
a bad environmental reputation. These ideas appear to be what drives Mr. Nassar's focus on
environmental issues.
To bring radically new technologies to the market requires a belief that taking technology risks,
starting small and investing early will provide a competitive advantage and will bring great returns
in the long run. These ideas are more in line with how Mr. Ford talks about Ford's environmental
initiatives.
It is the author's impression, after listening to and reading about the remarks of these two
Company leaders, that they have different ideas of how Ford should be an environmental leader.
When Mr. Nassar boasts about Ford's environmental leadership, he often focuses on the fact
that the Company's trucks meet Low Emission Vehicle standards several years before the
government requires and that the Company's plants have achieved the highest environmental
rating by the International Standards Organization, ISO14001. While Mr. Ford also often
mentions these Ford green initiatives for conventional vehicles when he talks about the
Company's environmental leadership, he is more likely to talk about the development of fuel cell
vehicles, leadership in alternatively fueled vehicles and the competitive advantage of
environmentally friendly products and processes. It is not surprising that these two company
leaders would express different ideas about how Ford can or should be an environmental leader.
Their backgrounds, leadership roles, responsibilities, level and type of power are significantly
different.
As the great-grandson of Henry Ford, Bill Ford grew up with the name Ford, in the automotive
manufacturing capital of the U.S. and with ties to the Company from the day he was born. He
was born in Detroit in 1957. He holds a Bachelor of Arts degree from Princeton University and a
116
Joanne T. Woestman
February 2000
SDM Thesis
Master of Science degree in management from Massachusetts Institute of Technology. He
joined the company in 1979 and has served in a variety of management and executive positions
in the US and Europe, including Finance, Car Product Development, Truck Engineering and
Manufacturing, Marketing and Business Strategy. He became a member of the Ford Motor
Company Board of Directors in January 1998. He became chairman of the board in January
1999. He serves as chairman of Environmental and Public Policy Issues Committee, chairman
of the Finance Committee and as a member of the Organization Review and Nominating
Committee. In addition to his positions within Ford, Mr. Ford is vice chairman of the Detroit Lions
professional football team and a member of the NFL Finance Committee and NFL Properties
Committee. 11 6
When Bill Ford was named chairman, he became the first family member to run the Company in
19 years. The Ford family controls 40% of Ford Motor Company's voting shares and a vast
family fortune. His position is an unusual power-sharing arrangement in that he is the chairman
of the board, but there is a separate CEO. The job requires Mr. Ford to manage this balance of
power with CEO Jacques Nassar and to balance his long-standing environmental activism and
his position as chairman of the second largest corporation in the World.
A recent interview with Bill Ford published on The Car Connection web'
what drives him.
17 site
gives insight into
"Q: It may be a bit premature, but what type of mark would you like to leave as Chairman of
Ford Motor Co.?
A: I look at this in the long term. I feel like I'm working for my children and grandchildren. I want to
leave not only this company better than I found it, but society better than I found it.
Q: You're known as an environmentalist. How does that affect what you do at Ford?
A: I would like us to lead the next industrial revolution. If that sounds like Pollyanna, look at what
we're doing. Our plants everywhere around the world are as clean as our plants in the U.S., even
though they don't have to be. We've taken a leadership position on the development of fuel cells.
Have we gone far enough? Certainly not. But do I think we're making progress? Yes, I do.
116 "Biographical Information on Company Officers", www.fcn.ford.com, November 2, 1999.
m "Ford's Bill Ford: The Chairman With His Name On The Sign Talks About The Future",
www.thecarconnection.com, August 16, 1999.
117
SDM Thesis
Joanne T. Woestman
February 2000
Q: Is there a business case to be made for going green?
A: By meeting
IS014001 (a standard affecting plant emissions), we save hundreds of millions of
dollars a year, by using less water, creating less waste. And if fuel cells do come home and the
only emission that comes from their tailpipe is water, then we're essentially out of the regulatory
game, and look at what we're spending now on compliance and lobbying. Ultimately, it's an
issue of corporate responsibility and appealing to an ever-growing segment of society. If we wind
up on the wrong side of this issue, people will start viewing cars as a social liability, rather than a
freedom."
Bill Ford's environmental interests coupled with his power are well known and not always
welcome in the auto industry. His campaign, undertaken before he was chairman, to raise taxes
on the low price of gasoline in the US was unsuccessful and unappreciated in the industry. His
announcement, since becoming chairman, that the Company European models would meet
Euro IV emissions levels five years before they are required by law, "caused irritation in the
industry, which had planned to spread the considerable costs of developing these motors
[engines] over a period of ten years."
18
In the past his environmental initiatives were taken somewhat lightly both in the company and in
the industry. Perhaps because fundamental changes in the auto industry, as in most
businesses, can only be made if there is enough money in the bank, and if the boss has enough
power to counter all objections. Previously he was only one of many family members who
controlled the 40% of Ford voting shares, but now he is at the top of the Company, during a
profitable period when the Company has cash reserves. Whether his ideas are unrealistic
ideals that will spend all the Company's money and give the competition an advantage or are
visionary goals that will allow Bill Ford to affect the twenty-first century in ways similar to how his
great-grandfather transformed the twentieth century is yet to be determined.
Jacques Nassar's realism and power balance Mr. Ford's idealism and power. These two men
are quite different. Mr. Nassar, President and CEO of Ford Motor Company, is a hard-charging
Ford veteran with the nickname "Jac-the-Knife", earned for his cost cutting measures in multiple
Ford divisions. He was born in the Middle East and moved as a child to Australia where he later
received a degree in Business Studies from Royal Melbourne Institute of Technology and joined
Ford of Australia in 1968 as a financial analyst. He held positions in Ford operations all around
118
Joanne T. Woestman
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February 2000
the world, including Asia-Pacific, Latin America, Europe and the United States. In 1990, he was
appointed president of Ford of Australia. In 1993, he was elected a Ford vice president and
named chairman of Ford of Europe. In 1994, he became group vice president of Product
Development, Ford Automotive Operations (FAO) and in 1996, he was elected an executive vice
president of FAO and chairman of Ford of Europe. He was elected to the board of directors in
1998 and is a member of the Finance Committee and the Organization Review and Nominating
Committee. He became CEO and president in January 1999.
Mr. Nassar's major initiative as CEO has been to transform the Company into what he calls a
"Consumer-Focused Organization." His predecessor, Alex Trotman had set the corporate vision
"to be the world's leading automotive company." Mr. Nassar has changed this vision "to be the
world's leading consumer company that provides automotive products and services." 11 9 He
admits that the change is subtle, but claims that "connecting with consumers is the key to
business success."02 0 He defines a consumer company as "one that is continually gathering
unfiltered consumer insights worldwide to:
"
Connect with current and potential customers and anticipate their present and
future needs;
" Translate consumer needs into a competitive advantage, using fast cycle time
and generation of breakthrough products and services;
*
Focus on building sustained relationships;
" Effectively manage a portfolio of brands; and
"
Continuously grow shareholder value."1
He claims that the ten characteristics that top consumer companies share are Total Customer
Experience, Product Hits, Customer Loyalty, Retailing and Distribution, Brand Process,
Logistics, Build to Demand, Customer Knowledge System, E-Commerce and Growth. He also
asserts that the market values companies with a consumer focus, siting that the price-toearnings ratios are over 30 for companies that have a reputation of being consumer focused
"Bill Ford Says Environmental Issues Must Be Faced", Jurgen Lewandowski, Der Standard, August 19, 1999.
"9 The FordMotor Company Annual Report, Published by Ford for Ford Stockholders in 1998.
120 The FordMotor Company Annual Report, Published by Ford for Ford Stockholders in 1998.
1 The Ford Motor Company Annual Report, Published by Ford for Ford Stockholders in 1998.
118
119
Joanne T. Woestman
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February 2000
such as Disney, Procter & Gamble, American Express, Wal-Mart, Coca-Cola, Dell and 3M, while
Ford's is currently about 11.122
Mr. Nassar has set lofty financial goals for the company, telling the media that his management
team's goal "is to be in the top 15% of S&P 500 companies for shareholder returns, over time. It
may not be realistic to expect to be in the top quartile every year. But we must be there
consistently to achieve our vision." 2
Nassar's focus on the customer's wants and short-term financials such as shareholder returns
is to be expected since it is part of his job and these are definitely the metrics on which a CEO is
judged. They contrast, however, and perhaps compliment, Bill Ford's focus on long term viability
and products that mainstream consumer's may not be quite ready for yet. Admittedly, Mr. Ford
is in the comfortable position of having the freedom to focus on the long term, both because he
is not the CEO who is responsible for running the business on a daily basis and because he has
the security of the Ford family behind him.
This balance of power at the top of the Company may be viewed as an advantage or a
disadvantage. It may be an advantage in that it ensures leadership on both short-term and longterm issues. It may help to have ambidextrous leadership to develop an ambidextrous
organization. If it leads to a power struggle, however, it may result in little progress on either set
of issues. So far, it appears that they are able to manage the situation to the Company's
advantage.
Structure and Process
The three major elements of the Ford Automotive Operations are Manufacturing, Marketing,
Sales and Service and Product Development and Quality. The Manufacturing Organization
consists of Advanced Manufacturing Engineering, responsible for developing new manufacturing
techniques and processes, Powertrain Operations, responsible for the manufacturing of
122
The FordMotor Company Annual Report, Published by Ford for Ford Stockholders in 1998.
23 The FordMotor Company Annual Report, Published by Ford for Ford Stockholders
in 1998.
120
Joanne T. Woestman
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February 2000
powertrain components and systems and Vehicle Operations, responsible for the manufacture
of vehicle systems and assembly of vehicle products.
The Product Development Organization of the Company is structured around three Vehicle
Centers (VCs), the Small and Medium Car VC, the Large and Luxury Car VC and the Truck VC.
Each of the VCs is responsible for following the Ford Product Development Process to develop
products related to their theme. A Process Leadership Organization, a Design Organization, a
Research and Vehicle Technology (RVT) Organization and a set of business services support
all of the VCs. The business support services include Human Resources, Public Affairs,
Controller and Strategy. The function focused organizations are matrixed across the product
focused organizations (the VCs) as shown in the following figure.
-
-----------------Small Car Vehicle Center
Pr.DC
ATEG
Al-d
-I
rrtu
O
CYCLE PLANNING
h
BEVELOPMENT
LrWLux Car Vehicle Center
Truck Vehicle Center
I
YRihl
DESIGN
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RVT consists of the Research Laboratory, the Advanced Engineering Organization (AEO), the
Environmental and Safety Engineering Organization, and the Environmental Vehicle Center
(EnVC). It is also responsible for the interfaces to the organizations outside the company such
as universities, PNGV, the Daimler-Ballard-Ford venture and Th!ink. Vehicle programs that are
just demonstration projects where only one or two vehicles are built to test the feasibility of a
technology concept are usually done within Research. Concept vehicle programs that are
focused on attributes other than environmental friendliness are usually done within AEO and
small environmentally focused alternative powertrain product programs, such as those for
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demonstration fleets or controlled sales where less than one thousand vehicles per year are
produced, are usually done within EnVC. If any of these programs are planned to be scaled up
to full production levels (tens of thousand or hundreds of thousand per year) then they are
transferred in the mainstream product development organization. Once in the mainstream,
programs at the few tens of thousands compete directly with those with the few hundreds of
thousands and the metrics tend to favor the larger programs.
This past year Ford bought majority interest in Pivco Industries, the about-to-go-bankrupt
manufacturer of the purpose-built two-seater electric city car, Th!nk. The Th!nk is a unique
electric vehicle designed specifically for urban driving. It has a matte-finish, thermoplastic body
which is integrated with a steel frame. It has a top speed of about 90 km/hr and a real world
driving range of 85km between charges. It can be plugged into a normal European 220-volt
electrical outlet and takes about 4 hours to recharge.
The assembly line where Th!nk is built does not snake for miles, it does not involve hundreds of
people and tons of expensive, task-specific tools. Rather it is made on a small line with less
than a dozen stations and with attention to personal craftsmanship. It involves no painting (a
huge operation with significant environmental consequences in a traditional automotive plant)
and is made of roughly 425 parts, a small fraction of the number parts on conventional vehicles.
With fewer parts per vehicle than conventional automobiles, Th!nks design phases are shorter,
manufacturing is simpler and recycling is easier. Much of the parts are out-sourced from over
80 different suppliers and more than 90 percent of the vehicle is recyclable.
In addition, the distribution channels for Th!nk are unconventional. The new vehicles will be
offered for lease through Ford's Hertz rental car business. Hertz will serve as the distribution
network for Th!nk. Customers will have their vehicles delivered by Hertz right to their home or
business. When the vehicle needs service, Hertz will pick up the car and supply a replacement
vehicle for the day. In addition, Th!nk customers will be offered special rates for rental of larger
vehicles through Hertz. "We know a two-seat car can't always meet a driver's needs, such as at
family vacation time, said Peter Hagen, General Manager Hertz Norway. We hope that knowing
they can make use of a larger vehicle when needed will give customers greater flexibility."A24
"Th!nk and Hertz Team Up to Offer Customers a Unique Service Experience",
EVNews, http://www.ford.com
(October 15, 1999).
124
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Joanne T. Woestman
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February 2000
Ford management says among the reasons for the acquisition were the support of development
of new concepts in the use of plastic-body components and electric vehicle technology, as well
as support of Th!nk's approach to low-volume and lean, flexible manufacturing. 2
In many
ways, the Th!nk program resembles the electric vehicle program that Christensen discussed in
his book. 126 If altemative powertrain technologies do turn out to be disruptive to the auto
industry, perhaps Ford's involvement with Th!nk will help it survive.
In terms of structure, Ford's organization allows for some features of an ambidextrous
organization. In general, the different suborganizations have different metrics, processes,
customers, team sizes and tools. In Research, small teams work together to handcraft their
product and their customers are EnVC (if the product is environmentally focused) and AEO (if it
is not). In EnVC and AEO, somewhat larger teams develop the products and produce them in
conjunction with Advanced Manufacturing using pilot production techniques. The EnVC
customers are the small markets on which they are focused, usually fleets or specific
geographic areas such as California. The AEO customers can be markets on which they are
focused (such as the youth market, or India or China) or they can be the mainstream product
development organization if demand for the product grows. In the mainstream organization, the
teams are very large, the manufacturing processes are full scale and the customers are the
mainstream car buyers.
At Ford, the technology transfer process is called the Technology Deployment Process and has
been revamped in the last few years.12 7 The goal of the process is the obvious one: implement
the right technology on the right vehicles at the right time. The old process was very vertically
organized with four technology theme groups co-chaired by vice presidents and directors. The
groups were organized around the major themes of technology that are related to the company's
business: manufacturing, powertrain, electronic systems and vehicle systems. Technology
theme group metrics focused on the quantity of technology transferred and not on the business
value of the technologies. The technologies chosen were based on what the research and
25 "Ford plugs in to Th!nk electrically", Sydney Morning
Herald(October 21, 1999).
126 C.M. Christensen, The Innovator's Dilemma: When New Technologies Cause Great Firms
to Fail, Harvard
Business School Press, Boston (1997).
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Joanne T. Woestman
SDM Thesis
February 2000
advanced engineering groups wanted to 'push' into the products and not particularly on what the
customers of these technologies, both internal customers in the product development and
production sectors of the company and the external purchasers of the end-product, wanted to
'pull' into the marketplace. It was determined that the Theme Group Process was ineffective, too
political and too slow. Therefore, after a lengthy benchmarking activity that examined the
technology transfer process of several other large companies (including those considered to be
leaders at timely inclusion of new technologies into their products), a new process was
developed.
The new process attempts to refocus the technology selection process on customers' needs
and the business value of potential technologies. As a secondary goal, the process tries to
reduce the political red tape and bureaucracy associated with the Theme Group process. The
new Technology Deployment Process includes identifying customer wants and cost and
investment targets for each product segment, developing advanced technology strategies,
prioritizing projects and developing a technology plan. The figure below shows a schematic of
the official Ford process.
VEHICLE CENTERS -
4-
ALTERNATIVE
FUEL VEHICLES
PNGV
OUNCILS
TECHNOL
A NIZED BY
A TTRIBUT
ADVANCED TE
Technology
Prove-out
Vehicles
MANUFACTURING
OPERATIONS
GY STRATEGIES
PROJECTS
PLAN
TECH
Platform
Demonstration
Vehicles
IMPLEMENT the RIGHT TECHNOLOGY
on the RIGHT
at the
VEHICLES
RIGHT TIME
Much of the information on Ford's Technology Transfer Process was adapted from "A Comparison of the New
Technology Transfer Process Initiatives at Ford Motor Company and Texas Instruments", Howard Gerwin, Everado
Ruiz and Joanne Woestman, Final Project in Organizational Processes course in the MIT SDM program.
127
124
Joanne T. Woestman
SDM Thesis
February 2000
As indicated in the figure above, the process is driven by establishing customer wants and
affordable cost and investment targets to focus the corporate technology effort. The term
"affordable targets" is used to refer to financial targets that meet the corporate goals for
profitability for a specific market segment. The vehicle centers (responsible for the product
development of each type of vehicle), the alternative fuel vehicle activities, the manufacturing
operations and the PNGV (partnership for a new generation of vehicles; a government-industryacademia collaboration of which Ford is a part) are the customers of the new technologies and
are responsible for implementing the new technologies into production. Together they develop a
list of the customer wants and affordable targets. For example in 1998, the top six general
wants which were targeted by the company as the keys to future customer satisfaction were as
follows:
"
High Mileage Reliability
"
Delivery of Low Cost and High Value Products
*
Environment
*
Safety and Security
*
Package Efficiency and Functional Styling
*
Exciting , Great to Drive Vehicles
The complete list of wants and monetary targets is submitted to the Technology Councils. The
Technology Councils are made up of representatives from the Product Strategy Office, the
Advanced Technology Office and the Vehicle Centers. It is their job to develop the Corporate
Strategies for each attribute and to direct the advanced technical effort. The current Technology
Councils, which are organized by vehicle attributes, are as follows.
*
Comfort and Convenience
*
Noise, Vibration and Harshness
*
Dynamics
*
Safety and Damageability
*
Vehicle Fuel Economy, Emissions, Performance and Powertrain Systems
*
Vehicle Systems*
*
Manufacturing*
*
Electrical, Electronics and Security*
*signifies " enabling councils" that provide technology required by all other Technical Councils.
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Joanne T. Woestman
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February 2000
Ideally, the researchers and technology developers in the Research Lab and the Advanced
Engineering Activities would at this point read the customer wants list and develop projects to
meet the wants at the targeted costs. What actually happens is that a few project leaders do
this but many just look for a want that they can claim their current project is aimed to fill. Then a
list of proposed projects that are (at least claimed) to be targeted to the customer wants and
monetary targets is submitted to the Technology Councils. The Technology Councils prioritize
the proposed projects and generate a Corporate Technology Plan.
Each council has several focused forums composed of the directors, managers and technical
specialists involved in tasks related to that forum's product attribute. The function of each forum
is to fulfill its section of the Corporate Technology Plan. It is important to note that although it is
not shown in the figure, the process also includes a pathway by which Ford's suppliers can
become involved in Ford's Technology Deployment Process. The suppliers enter the process
through the Ford Supplier System. This allows suppliers to submit ideas and technologies to the
Technology Councils and get their projects included in the Ford Technology Plan. It is the
suppliers' job to implement their piece of the plan and deliver the agreed upon technology at the
agreed upon time and price.
The metrics used to measure the success of the process focus on how many projects are
implemented on vehicles, how many projects are championed by customers in the vehicle
centers and manufacturing operations, how many projects develop new technologies or
methodologies and how many projects are considered fundamental research. It is interesting to
note that Ford has a target for fundamental research in a time when many companies are
eliminating it - the Company wants to do some fundamental research but sets a firm limit on how
much it thinks is in the Company's best interest. This Technology Deployment Process is an
ongoing one that is revisited annually. The timeline below gives an idea of the timing of the
annual re-evaluation.
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Joanne T. Woestman
February 2000
SDM Thesis
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In addition to this formal Technology Deployment Process, Ford has a few side processes that
contribute to the transfer of ideas, concepts and technologies from the research and advanced
engineering activities of the Company to the product development and manufacturing activities of
the Company. These side processes include a Ford Technical Journal, a Ford intranet,
personnel rotations and transfers, and joint projects across divisions, occasionally co-located.
The Ford Product Development Process (FPDS) is the system with which the mainstream
product development organization plans, design, develops and launches new vehicles.12 8 It is
one of five formal subprocesses in the larger Ford Enterprise Process depicted in the diagram
below. The other processes are Management Systems, by which information is arranged and
delivered using computers; Order-to-Delivery, by which materials are controlled starting from
capacity planning and concluding in delivery of a vehicle product to the customer; After-Sales
Service, by which global customer needs are addressed by Ford Customer Service Division;
and the Ford Production System, by which Ford's manufacturing facilities are managed.
Much of the information on the Ford Product Development Process was adapted from Company training materials.
127
February 2000
SDM Thesis
Joanne T. Woestman
Enterprise Process Model
CUSTOMERS
DEAER
MANAGEMENT
SYSTEMS
ORDER
AFTER
DEUVERY
SERVICE
FORD PRODUCT
-+DEVELOPMENT
SYSTEM
SALES
-yTO
::PFORD PRODUCTION SYSTEM
SUPPLIERS
The Ford Product Development Process follows systems engineering methodologies that
originated in the aerospace industry. The key FPDS milestones are shown in the following chart.
The system engineering process cascades customer-driven vehicle targets to systems level
targets to subsystem targets to component targets as depicted in the left side of the "V" in the
figure below. The prove-out starts with the components and progresses through the subsystem
and system levels to the vehicle.
FPDS Milestones
tc
Vehicle
s
ar
System
Readiness
amSubssem
Approval
CiA Of
Sig -Off Sul r
Approval
The process is scaleable to meet the mission of different program teams. It can serve missions
ranging from minor trim changes to existing products up to entirely new platforms. In addition,
there is a similar process for powertrain development that is also scaleable. The powertrain
process is designed to scale from a re-calibration of an existing engine and transmission
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Joanne T. Woestman
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February 2000
combination to an entirely new engine and new transmission. There is, however, no level for the
process to be scaled to accommodate an entirely new powertrain technology concept!
In terms of process, Ford has formal processes for Technology Transfer and Product
Development that work moderately well for conventional vehicular products. These processes
are not geared for technological discontinuities, but for pushing incremental technology
improvements into products. They are both technology pull oriented processes with some
allowance for technology push. To some extent the alternatively powered vehicle programs are
absolved from following the exact details of the processes because they are somewhat isolated
from the main product development organization, but a great deal of effort is spent by the
alternative organizations struggling to adapt the processes to their needs or explaining to upper
management why they are not using the processes.
Culture and Incentive
The major organizations which move a product from concept into production and the process
flow can be represented by the following graphic.
"Wall of
Technohgy
Invention"
Ford Bshelf
Research
Laboratory
-
Advanced
Engineering
*Concept Reajy,
-----
Pre Program
Trechno ogy
Forward
Model
--
Manufacturing
-
Customer
'do wnselect")
Tuple
The organizations represented by the first two shaded boxes in the figure can be characterized
as technology creators and those represented by the next two shaded boxes can be
129
Joanne T. Woestman
SDM Thesis
February 2000
characterized as technology implementers. Manufacturing and the final customers are the
technology beneficiaries.
As seen in the following list, there is a fundamental difference in the focus of the technology
creators and the focus of the technology implementers. In addition, the technology creators are
primarily organized by technical / functional area of expertise and the technology receivers are
organized typically by product line or vehicle program. The Forums of the Technology Transfer
Process are designed to serve as an interface between the creators and implementers.
*
Scientific Research Lab - focus on technologies 5 - 10 years from production
*
Advanced Vehicle Technology - focus on technologies 4 - 6 years from production
*
PreProgram - focus on programs 3 - 4 years from production
*
Forward Model - focus programs 2 - 3 years from production
*
Manufacturing / Launch - production
An analysis of each of these organizations shows that the technology creators and the
technology implementers have different motivations. The technology creators are looking for
funding for future work and the prestige that comes from having research projects either
published in scholarly journals or put into production. Opportunities for advancement are based
on how well their creations can be implemented and on the quality of their scholarly publications
and "pure research". At times, the second opportunity may be in direct conflict with the first
because the best technology creations are best kept secret as long as possible.
The technology implementers on the other hand are looking for technologies which are ready for
implementation, that is technologies that are capable of meeting all program targets for function
and cost with very limited engineering work and low risk. In addition, they look to the advanced
engineering activities to provide technical support and depth to resolve complicated or technically
challenging issues during the normal course of implementation engineering. Advancement
opportunities are afforded to those who consistently deliver programs. They don't want to risk
successful implementation on a risky technology. They often will prefer to stick with tried and
true solutions.
In the Ford system, a great deal of the power is in the hands of the implementation managers.
They set the parameters for ready / not ready and can reject technology as not ready. They are
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Joanne T. Woestman
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/
continually pushing for no risk technologies. In addition, some power resides with the Lab
Technology Managers. They will not support a project that they do not, at least tacitly, believe in
and they have a degree of autonomy since the Research / Advanced Technology budget is
dictated from the corporate level. This gives some degree of independence for pure research
and reduces the amount of direct pressure that can be brought to bear on the technology
creators to work on specific projects.
There are many things that go into determining which R&D projects are funded at Ford. The
system places a premium on negotiating skills. Projects are proposed in a variety of ways and
the technology forums negotiate which projects will have priority and which will not. Strong willed
research managers will always be able to get some of their pet projects funded, no matter what
the downstream customer says, but they are not able completely ignore the customer. The
technology forums give the implementation managers a strong voice in the negotiations over
which projects live and which ones die. The forums also force the research lab personnel to
show the implementation management what is coming down the pipeline and might be available
in the future.
At times, the power shifts from the technology implementers to the technology creators. In
times of technical crisis, the implementation managers are often reduced to begging the
research lab for any help they can provide in terms of new methods or new technologies. This is
especially prevalent in the realm of emissions control development where regulations are
pushing technology development.
Since the Research Lab is centrally funded, if a few of its projects do not get high priority in the
Technical Councils, it can still peruse them. This allows the Company to balance the pull of
technology from research to production with a bit of technology push. This can be very
important in areas where the customers may not yet know what they want. For instance before
global positioning became available for the general public, most customers did not know that
they wanted their rental car to give them directions in a strange city. Keeping the right balance of
technology push and pull is an ongoing challenge for Company management.
In terms of alternatively powered vehicles, the technology creator's culture embraced the
opportunity to participate in the development of these new technologies and the impending
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Joanne T. Woestman
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government regulations ensured funding. Multiple concepts and demonstration vehicles were
developed and the Research and Advanced Engineering organizations, including the
Environmental Vehicle Center, are quite proud of their accomplishments and have received
considerable press with regard to them. The people in these organizations tend to be highly
educated, well traveled and individualistic. They tend to believe that they are valuable to the
company because they can think of new ideas, develop new concepts and learn new
competencies.
On the other hand, the technology implementers culture has not embrace the new powertrain
technologies so easily. The pace and rigidity of their processes and metrics does not encourage
taking the risk to implement something really new. The people in these organizations tend to be
less educated than the technology creators (although still well educated compared to the U.S.
population as a whole), from the Midwest U.S. and more group orientated. They tend to think
that they are valuable to the Company because they can deliver on time, on budget and because
they have experience in a specific competency. Some of the new powertrain technologies pose
a threat to the relevance of their competency and therefore are not welcomed with open arms.
Possibly, one of the greatest barriers to Ford's success in the application of alternative
powertrain technologies is getting these technologies through the technology transfer process.
A major stumbling block in this process is the difference in cultures between the research lab
and the production engineering groups. In production engineering, the image of the research lab
is one of a scientific, university-like Ivory Tower. Typical perceptions that implementation
engineers have about the Research Lab culture are:
*
"They take 2 years to do what we need done in 1 week"
*
"They don't know what it really takes to put a product into production."
*
"They don't feel the time pressure we feel"
*
"They don't understand the difference between demonstrating a technology once and producing 300,000 per
year of something."
Research Lab scientists have a similarly difficult time understanding their counterparts in
product development engineering:
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Joanne T. Woestman
SDM Thesis
"
"Production engineering is merely approximation work"
*
"They apply brute force to solve "elegant" problems"
"
"They don't understand technology and don't want to"
February 2000
"They want something which can be implemented with "no work" and "no risk""
"They are just too shortsighted and bottom line focused"
One key action by management which has been beneficial in bridging the culture gap has been
the implementation of standard corporate definitions of some key terms which are constantly
used in discussions between the two groups. Key vocabulary to the Technology Deployment
process are the words "project", "concept ready", "implementation ready" and "production".
Because of the importance of understanding these fundamental concepts across the entire
multinational work force, the company has established corporate definitions of these concepts.
Even so, it is the miscommunication of these ideas that causes the greatest difficulties in the
system. For instance what it means to be implementation ready to a researcher developing a
technology may be that it works well in the lab. This may be entirely different from what it means
to a product engineer trying to incorporate the technology into a product. It is unlikely that the
researcher has considered total costs, packaging, interactions with other components of the
system or even less likely interaction with neighboring systems. All of this and much more must
be considered before the production engineer will consider the technology to be ready to
implement.
The perception of the "Ivory Tower research" culture at Ford is perpetuated by the fact the
research lab in Dearborn is located in its own separate facility inside Ford's main Research and
Engineering complex. Some other advanced engineering activities are not even located inside
the main complex. The fact that Research has its own, very modern, facility functions as a
"double edged sword". The separation can be good because it allows the resources and
facilities to be protected from being dragged into the day to day operations of the product
engineering activity and to remained focused on the "long term". On the other-hand, it tends to
reinforce an "us vs. them" mentality between research and production engineering. There is the
perception that the "PhD's in their labcoats" are just sitting around in their "country-club" facilities
without any pressure to deliver.
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Joanne T. Woestman
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From a culture and incentive point of view, as long as the market needs for alternatively powered
vehicle can be met by small volume, experimental or demonstration programs, Ford is well
positioned to succeed. The structure of its organization allows for ambidextrous management
with dual metrics and different cultures. If, however, the market for these vehicles takes off and
it becomes necessary to move their development out of the smaller organizations into the
mainstream product development organization, Ford is likely to meet up with significant conflict
and inertia in its workforce.
Closing Remarks
The information assembled in this thesis does not prove that the auto industry's technology cycle
is on the verge of a technological discontinuity. It was not meant to. The information to prove the
existence of a technology discontinuity is unlikely to be available until after such a discontinuity
occurs. However, the analysis suggests that the powertrain subsystem technology cycle may
be approaching a discontinuity, but it is difficult to predict if and when a technology transition will
occur. Based on the history of the auto industry's cycles and the pace of change in the industry
in the past, it is likely that if it is the established firms that control the pace of the technology
transition, it will be somewhat slow. If, however, the heart of the change is driven by an entrant
to the business or takes place outside of currently established markets, it is possible that the
pace of change could be swift.
The analysis implies that a technology transition in the auto industry is likely to be driven by the
established firms unless the new technology is a disruptive one. It appears that if all of the
following factors remain true, that the technology will not be disruptive:
*
The major technology changes are within the powertrain subsystem and can be retrofitted
into existing vehicle systems
*
The products can diffuse into the established markets via conventional distribution methods
The ways in which people use automotive products does not dramatically change
If these factors do not remain true, then the technology transition may be disruptive and the
*
established firms may loose their advantages.
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Joanne T. Woestman
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February 2000
Because of biases resulting from her experiences in the auto industry, it is next to impossible for
the author to have an objective opinion as to whether or not a disruptive technology shift is likely.
It is difficult to see a forest through the trees. From the inside, it appears that it may be more
likely that a totally new technology for getting from one place to another, such as personal planes
or 'wormhole transporters', will develop before mainstream markets will entirely give up their
cars. If the environment and urban congestion continue to concern society, however, smaller
transportation devices such as mini-cars, scooters and bicycles or mass transportation
systems could replace much of the auto market. This could downsize the auto industry, or push
automakers to make more min-cars, but opportunities should remain for most established firms.
The available information indicates that the established firms are well on their way to developing
viable alternative powertrains to the internal combustion engine. The initial impetus was due to
government regulations, but it appears that the industry competition is now driving the search for
a new dominant design. If the dominant design is going to be one of the ones already under
consideration, it is likely to be based on fuel cell technology. However, because fuel cell
technology is far from ready for the mainstream markets, it is likely that products based on a
variety of alternative technologies will be available for some time. Since the established firms,
and possibly governments, are driving this process, it will be somewhat slow. Due, however, to
the pace of change in general in the twenty-first century and to the intensity of competition in the
modern day auto industry, the pace is likely to be quicker than change has historically occurred
in the auto industry.
The analysis suggests that the position of Ford Motor Company is this process is not bad. Ford
has all the advantages of the established firms plus some additional advantages stemming from
its leadership and its potential for an ambidextrous structure. Unfortunately, Ford also has all the
disadvantages of the established firms, including capital investments in the old technology and
cumbersome processes, with the additional disadvantages of a big-US-auto-business culture
and its possibly competing goals of selling large SUV products and developing a green image.
In terms of technology development, Ford's position is also not bad. Based on the rate of new
technologies appearing in products, it appears that Ford is on par with respect to improvements
in internal combustion engines, with Honda ahead and many others behind. Based on
leadership in sales, Ford is ahead with respect to products based on alternative fuels. Due to its
135
Joanne T. Woestman
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February 2000
partnership with Ballard and DiamlerChrysler and its public demonstration vehicles, it appears
that Ford is ahead with respect to fuel cells, although it is difficult to know this for sure based only
on public and Ford information. And based on the fact that Honda and Toyota will be selling
hybrid electric products this year and Ford will not, it appears that Ford is behind with respect to
hybrid electric technology. However, based on its demonstration vehicles, Ford does not appear
to be that far behind.
This study, in which the tools of Technology Strategy were applied to the introduction of
alternatively powered automobiles to worldwide markets, presents a few suggestions for Ford.
Ford should leverage the dual nature of its leadership and grow the ambidextrous nature of its
organization with careful management of the interfaces between the conventional part, the
alternative part and entities outside the company. In addition, it should create value by
developing a product that competes on the conventional vehicle attributes and is more
environmentally friendly, leverage its complementary assets to capture this value and be the
quickest to integrate the new powertrain products into its product development system.
136