Monday, 7 January 2008

Parallel Industry Learning - Re-Inventing the Mainstream - Airfix Kits, Barbie Dolls and iPODS

Since the 1930s volume has been king for those who had the staying power to effectively 'hold their breath' until the weaker competition was eliminated. We saw it in the US in the 1930s & 50s, in Europe in the 50s & 70s, then South Korea in the 90s and obviously China today.

In the mature market fight to at least sustain value, it is long recognised that the once simple mainstream vehicle segments viewed in earlier decades have radically transformed; fragmenting due to both consumer pull and product push in the ever spiralling bid for automotive individuality and/or tribal kinship.

Paradoxically, whilst new platform/product business cases have grown in scale & complexity, their ROI/ROE rewards have dwindled, certain companies seen as value destroyers, as an ever increaisng array of variants and spin-off models are generated to, theoretically, compete in ever partitioned sub-segments, and so maintain market-share.

VMs of course recognise lessons from the past and the zeitgeist of the current, and so endeavour to devise their own platform, modules and components strategies to maximise applicability without undermining vehicle identity.

"Enginuity" & "Imagineering" are 2 phrases used by the Engineering Function to describe the black art of maximising appeal whilst minimising cost. [Traditionally over-simplistically perceived as a 60/40 'common-dedicated' ratio for both BoM Costs & Parts Count]. Include into this 'estimational flux' what are often 'fluid' (highly variable dependent) sales unit projections and the foundations of what should be a solid business-case can often appear as at best shaky ground. Unsurprisingly IRR and NPV finance measures of a new programme may be easily 'massaged' to make the project (artificially) stand. And this is just the start of the value destruction process.

A recent saving grace to the downfall, is the emergence of BRIC+ markets. Assisting by swelling core model/platform demand volumes and so the supporting the viability for spin-offs destined for saturated western markets.

The industry will of course continue to witness regional expansion and contraction, and the operational demise of those who can no longer compete alone - hence the strategic alliance efforts of regionally constrained 'local' producers like PSA, AvtoVaz, Maruti and Chery to name a few.

It is this structural re-moulding, as opposed to true operational remoulding, that provides the continuous re-play of age-old mentalities and reaction.

However, in fairness, periodically VMs do try to broaden their perspectives. Typically reverting to industry peers, looking and learning from the niche producers that are utilised for the engineering development & production of variant specials (typically cabrios). But the build methods used by the likes of Bertone, Pinifarina, Valmet, Karmann etc aren't as 'scalable' as often initially perceived or desired. Yes they can be tweaked, and modern systems like 'BIW roundabouts' assist build time and quality, but it is still a long way from the true efficiencies of a well considered high volume production line since complexity & cost have real-world boundaries. Hence a production efficiency gap tends to span between 10,000 and 40,000 unit capacity - highly inconvenient when spin-off variant projections often sit in this arena.

Beyond this, conventional operational practices also see diminishing returns; whether in terms of: 'spin-off' programme resource, production-line flexibility, the limitations of the typical (dealer) retail environment and supporting marketing spend. Each may be effectively stretched beyond notional limits and can be counter-productive.

Whilst this inefficient 'norm' can continue to work for higher margin, premium branded vehicles, what of the mid-stream automakers who seek to fight their decline and demise? (And are willing to recognise and admit the artificial bouyancy of emergent market demand to investors).

Such VMs, whether American, European, Russian, Indian or Chinese, need to think of alternative courses that both maximise platform/component share efficiencies and also maximise the opportunity for revenue-earning personalisation propositions.
They will have studied the examples of VW Beetle, New Mini and now New 500 and recognised that the icon product serves as the cornerstone and stage from which to dress the set. But this course is available only to the few able to re-invent their past glories; and even this second time around, as with Mini, requires additional variant model support (ie Clubman/SAV) . All the same, pertinent aspects can be seen as to how to develop a mass-customisation regime/pallette.
The solution invariably lies between the two notional polar opposites of a say Ford Focus C/C and the simplicity of a graphics pack for a Base Fiat 500. Move into a conceptual middle ground and the envelope expands if you can find the right formulae.

investment-auto-motives has drafted the outline of such formulae, one both advantageous to the consumer in terms of a truly personally modifiable vehicle and to the VM in terms of an expanded core-product philosophy. We paraphrase it as: Airfix Kits, Barbie Dolls & iPODS since these reflect the fundamentals of:

a) Modularity & Co-Creation
b) Fashion Adaptation
c) Permutational Technologies - Vehicle Attributes & User Interface.

In short it draws upon elements that have tended to have been considered individually, not cohesively, possibly because the auto-industry, especially under times of strain, is such a conservative animal. However the exception has been of course 'Smart', partially achieving a) and b) by endeavouring to mimic the user experience of the Swatch watch. Take these idioms much further than the Smart case and add a dual aspect technological dimension and new dimensions in vehicle development, manufacture, retail and through-life ownership revenue appears.

The likes of Ford, GM, VW and others should seriously review their ability to reach such a paradigm breakthrough in mainstream sectors, since eventually without an at least partial re-invention roadmap, they will be squeezed more and more as the BRIC+ 'floatation device' itself possibly subsides. Undoubtedly, their central focus will be set on organisational structural change efforts such as peer M&As, alliance partnerships etc, but there needs to be accompanying highly strategically directed R&D initiatives (beyond CAFE and CO2 etc) which fundamentally seeks to alter the conventional gameplay. Best do it now whilst in what remains of a global driving seat and able to direct the winds of change in their favour.

Airfix Kits, Barbie Dolls and iPODS ....Truly educational toys.