The innovation imperative.

We have been talking a lot about innovation in this column--how it has been intensifying into a "solutions race" in some fields where there are multiple, alternative approaches, each with its own fans, and how innovation can be leveraged through some basic disciplines that characterize the suppliers whose margins are consequently higher. There is another side to the innovation bonanza, and that is the companies that fall prey to product obsolescence, as a result of the new ideas of other suppliers and OEMs.

In a well-known 1975 Harvard Business Review article titled "Marketing Myopia," Theodore Levitt bemoaned the narrow, near-sighted business definition that caused many industries to decline over the previous 100 years. The railroad companies' failure to view their business broadly as "transportation," for example, meant that they were unaware of either the necessity or the opportunity to fill passenger and freight transportation needs through a variety of means. In effect, they allowed themselves to be displaced to a large degree by other companies offering alternate modes of transportation.

Another example of the need for broader self-definition is when a product is made obsolete by new technology. Levitt used the buggy whip industry as an illustration of an industry with a death sentence that no amount of product improvement would have changed. Survival might have been achieved, however, if buggy whip makers had defined their business as "providing a stimulant or catalyst to an energy source." That would have led them to move into automotive products, like fan belts, with more of a future.

The auto industry yields a number of "buggy whip" situations, much to the dismay of the suppliers of those products. Regardless of how good they are at what they do, some companies will be potential losers because of what they make. The best carburetor manufacturer in the world, for example, could not make a persuasive case that would stave off the threat from fuel injection. Other products meeting a similar fate include:

Technological change is likely to continue to create more winners and losers. It appears that concern is appropriate for suppliers of hydraulic components for brake systems, as brake-by-wire inches forward. Growth in the use of alternative propulsion systems like hybrid systems and fuel cells could have an impact on some powertrain suppliers. New offerings like satellite radio reduce demand for basic equipment (the AM/FM receiver). And of course, competition among materials and processes is so prevalent that you need a scorecard to keep track of who is on top. Aluminum engine blocks are increasing their penetration at the expense of cast iron because of the weight savings. Nylon intake manifolds have overtaken steel and aluminum designs, for greater weight savings and other considerations. Powder metal exhaust flanges of stainless steel have seen growth at Ford and GM over stamped conventional flanges. The list could go on and on.

For a supplier, the first challenge is identifying the trend as early as possible. This can be difficult to do if the decisions are being made prior to its involvement, or on models that it is not supplying to. A supplier may not realize right away that new models or engines are moving forward without its type of component. For this reason, it is important to be aware of what is going on across the industry, both in systems of immediate relevance and beyond. Regular reading of the trade press and having a network of contacts to piece together the situation and get early warning are critical. Early identification of the trend is valuable because it gives a company time to try to influence the situation and preserve its product (although if you are a "buggy whip" maker, there is not much that you can do). More importantly, it gives one time to formulate a game plan for the future before a significant drop in revenue from loss of the business.

Theodore Levitt noted that some companies were so near-sighted about their business, not only did they miss early danger signals, they ignored the facts even when the evidence was clear. We do not know many automotive suppliers that are so enamored of their product or process that they will refuse to acknowledge the signals of adverse trends, fortunately. They are not myopic when it comes to figuring out how to survive.

As they say in football and in innovation, the best defense is a good offense. If you can obsolete yourself by being the first to introduce the next-generation component or system, more power to you. Alternatively, you might be able to get in on the replacement product--a natural move, given your knowledge of the component area and existing customer relationships. Just as creativity does not come naturally to all people, companies have varying degrees of comfort with pursuit of innovation. Fortunately, the methods of innovation and product development are becoming more systematic and are increasingly disseminated by practitioners and observers. Enterprising suppliers no longer have to depend solely on their endowment of great minds, but rather they can, and should, put systems in place to improve innovation productivity.

PRODUCT            THREAT

Hang-on Arm Rests  The trend toward flow-through design and
                   modularization has increased use of molded
                   integral arm rests.
Passive            The popularity of airbags overwhelmed the
Restraint Rails    motorized safety belts in the passive safety area.
Ash Trays          An increasingly non-smoking culture is affecting
                   the practice of equipping cars with multiple ash
                   trays. New approaches include inserts for coin
                   holders, notepads, etc.

By Melissa Anderson, Vice President, IRN, Inc. [e-mail]