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Technology Development Center in Novi Case Study
Part 4: Case StudiesC-48
technology development center in Novi, Michigan, in May 2016 and one of the first projects at the new facility will be the self-driving Chrysler Pacifica hybrid minivan, developed in-house.25
But given its deep pockets, Google could conceiv- ably also still buy an ailing carmaker, such as Saab, still struggling to recover after its purchase by National Electric Vehicles Sweden (NEVS), which is owned by Hong Kong-based energy company National Modern Energy Holdings. Or it could approach Volkswagen to take over the Seat or Skoda subsidiary, which seem to be duplicating each other’s offerings in the VW brands family.
To further complicate things, it is not just in the visible corners of the technology world that prominent companies like Google are working on autonomous automobiles and from which sudden advances could emerge. In start-ups, universities, and R&D centers around the world, leading technologists are work- ing on pre-commercial solutions. In early 2013 there were multiple reports about companies and individ- uals who were working on an affordable self-driving feature. One of them is Professor Paul Newman from Oxford University who works on self-driving technol- ogy that utilizes cheap sensors.26 Also, Intel awarded the top prize in its Gordon E. Moore competition27 to a Romanian teenager for using artificial intelligence to create a viable model for a low-cost, self-driving car. One company took it a step further and designed a commercial self-driving accessory that can be installed on selected models of compatible cars with sensors mounted on the rooftop. It is a startup called Cruise,28 which emerged from a Silicon Valley incubator, Y-Combinator, and started accepting pre-orders for it assisted driving system in mid-2014. In March 2016, Cruise was acquired by GM, which appears to be interested in integrating the system into the design of its own cars.
Another critical element of autonomous driving— mapping and location services—is also flourishing glob- ally, especially in Europe. Nokia Corporation’s former mapping business, HERE—based in Berlin—provides an open platform for cloud-based maps. HERE is not only the main alternative to Google Maps, but also the market leader in built-in car navigation systems. According to Nokia’s website,29 four out of five cars in North America and Europe feature HERE integrated in-dash navigation. Not surprisingly, in August 2015 BMW, Audi, and Daimler announced their acquisition
of HERE.30 These 3 automobile companies will be directly controlling an essential part of the autono- mous automobiles’ value chain—mapping and location services—while securing the supply of critical geo- location data in their automobiles.
It would be wrong to limit the ecosystem view to traditional geographies, like Silicon Valley in the U.S., or other entrepreneurial hubs like Berlin in Europe and R&D labs in Japan that have been strong in auto- motive or IT innovation for decades. A look into the future of the automobile has to consider developments in Asia. For instance, autonomous taxi startup nuTonomy announced a pilot in Singapore that it could become the first company to operate Level-4 driverless taxis commercially in a city.31 And, as men- tioned, BMW selected Baidu as its partner in the Chinese market when, in the Fall of 2014, it needed a high- resolution GPS system to start testing in Shanghai and Beijing, two of the most demanding, densely populated, and vast automotive markets in the world. And now Baidu claims it is developing its own automated car, but unlike Google, it works on driver assistance and is not a fully self-driving car.
The Chinese market is already the largest and the fastest growing in the world, with 18 million cars sold in 2013,32 a compound annual growth rate (CAGR) between 2005 and 2012 of 18.1%, and an expected 6.3% average year-over-year growth through 2020 making it a tremendously important market for BMW.
Luckily, BMW made an early, courageous decision to enter the Chinese market, benefiting from the excellent relationships held by a former BMW board member and former government executive in charge of the compa- ny’s government relations. The effort bore fruit: in 2013 BMW sold 390,713 cars in China, up 20% from a year earlier. This meant that China had officially overtaken the U.S. (375,782 cars sold) as the group’s biggest market and had outpaced the overall company’s market growth of 13.9 percent.33
As Riedheim leans back in his sleek BMW carbon fiber chair, he wonders how this ecosystem might evolve and how should BMW position itself within it? What are some plausible, alternative futures? Having stud- ied disruptive innovation and strategy throughout the years, Riedheim knows that big bets often don’t pay off because too many variables in a market forecast change. So, understanding these alternative futures first will help him to craft a strategy that is robust against different market states.
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Case 3: Future of the Autonomous Automobile: A Strategy for BMW C-49
Exploring the Future Through his work with design consultancies over the years, Riedheim has learned that this exploration first requires a clear view of all the uncertainties that could combine to pivot the market and ecosystem in one direc- tion or another.
Key Uncertainties Many uncertainties related to self-driving automobiles will prompt both business executives and policy makers to act of one kind or another. In this complex ecosystem issues emerge in six different areas:
■ Social: Who will use self-driving cars? Autonomous vehicles can be used to transport people who
cannot drive, either because they are elderly, too young, physically or visually impaired. A car that today is driven by a family member can become an independent transportation vehicle for all fam- ily members, even those under 18 and without a driver’s permit. However, it is not clear if, or how, this technology might be adopted by the consumer majority. What will be their aspirations, concerns, anxieties, and potential mistakes? Additionally, the permissible behaviors allowed in the car itself will depend on whether the vehicle is fully self-driving. For instance, driver-passengers could be able to spend their time in the car messaging, reading, or working. Drinking alcohol might also be permissible, since the fully autonomous car will not require any interven- tion by the passenger . . . or will it? What if systems
Figure 2 Investments and Resources as Represented by Patent Growth in Key Technology Spaces Related to Autonomous Automobiles (Graphic Developed Through Quid.com)
This image shows the vast expanse of the technology ecosystem that contributes intellectual property and capabilities to the domain of autonomous automobiles. The volume of innovation is substantial and hints at the commercial promise that innova- tors see in this area. In the last five years the following patents have been registered: 208 for Component Automatization, 168 for Lighting Technology, 119 for Server Technology, 118 for Driving Mechanism Technology, 101 for Energy and Battery Technology, 94 for Heavy Machinery Technology, 87 for Internet Protocols & Communication, and finally 81 for Autonomous Driving & Driver Assistance. Please see the Appendix for a list of the Most Frequent All Original Patent Assignees and Locations of Origin.
fail and driver-passengers are required to become active drivers?
■ Technological: Today self-driving cars are possible because of the existing hardware and software tech- nology. However, as described, there are both cars with fully self-driving features pre-installed (such as Google’s car), and systems like Cruise, which can allow other cars to become self-driving. The devel- opment cost of these technologies differs widely and will influence pricing to consumers and hence the adoption response by consumers: for instance, a survey by JD Power and Associates found that only 20% of Americans currently would ‘definitely’ or ‘probably’ buy a self-driving car if the price was only $30.000.34
■ Economic: Firstly, there are of course various crises in Asia, the U.S. and Europe that have depressed consumer spending over the past two decades. Will the global and regional economies recover suffi- ciently to enable consumers to replace their vehicles with new, unproven autonomous ones, or would they resort to buying pre-owned vehicles that are cheaper and use more established technologies? Secondly, self-driving vehicles will impact different market players. Insurance companies might change their business models based on a lower rate of acci- dents. Driverless vehicles may allow some com- panies to save money on drivers (such as taxi or bus companies). Also at the national level, research from The University of Texas35 estimated that if just 10% of vehicles were self-driving, a country such as the U.S. could save about $37 billion a year on healthcare and environmental costs. For the same reason, the U.K. government has announced its commitment to spend £10 million on a test-bed for self-driving cars.36 Finally, the cost and purchasing power in different regions will weigh into the mar- ket economics in different ways, since self-driving cars will change the current production process and countries will facilitate autonomous automobile adoption among consumers in different ways and along different timelines.
■ Environmental: Pollution regulations will change, considering the new emissions generated by self-driving cars, which may be lower than the emissions generated by cars today. This assumption is based on two main factors: first, autonomous
vehicles will be able to optimize their consumption by themselves based on road conditions as well as acceleration and breaking behavior, and sec- ond, electric cars and smart charging infrastruc- ture may at some point converge on autonomous automobiles, such that gasoline could become obsolete.
■ Legal: Self-driving cars have to be explicitly legal and encouraged by regulators, not just be toler- ated as a dubious “gray area.” Bad or lagging leg- islation could slow down the investment required and therefore the development of the technol- ogy. Furthermore, authorities have to develop new liability frameworks to answer the following questions: who has what kind of influence over autonomous cars “misbehaving” and who will therefore bear the legal and financial responsibil- ity? Would it be the driver, the software or the IT hardware provider, the data processing companies, the telecom companies linking cars wirelessly, the application providers for different functionalities that may have little to do to with driving but could interfere with behavior in the car, the car manu- facturer, or the company responsible for the car’s maintenance?
■ Ethical: Two main aspects represent key uncertain- ties in this area. The first issue concerns privacy: what information will be collected by autonomous automobiles, and who has access to it? The second point regards safety. How can autonomous cars be prevented from being hacked, getting virus-infected, and being used for remote criminal activities such as terrorist attack or drug delivery? How does society address computer-savvy minors hacking into cars and sending them on remote joy rides? Will physi- cally or visually impaired passengers be at the mercy of malfunctioning autonomous driving intelligence?
To get more information about these and many other uncertainties and assumptions, both governments and private companies have started to experiment. In the U.S., California, Nevada, and Florida allow com- panies to use self-driving cars on the road for testing purposes.37 Meanwhile, BMW has tested its self-driving car in Europe, and recently also got permission from the Chinese government to test its cars in Shanghai and Beijing.
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Case 3: Future of the Autonomous Automobile: A Strategy for BMW C-51
But Riedheim knows time is critical: the Board will feel that BMW has to make the strategic investment, partnering, and positioning decisions now, even absent perfect information, if they are to be at the forefront. Questions he’ll need to be ready to answer:
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Introduction
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Technology Development Center in Novi Case Study |
Technology Development Center in Novi Case Study