We recently did some work with a company that is a maker of fluid level indicators for engine oil and transmission fluid – in other words, dipsticks. It got us thinking about the risks that innovation can present to tried and true automotive components.
A classic example
In a well-known 1975 Harvard Business Review article titled “Marketing Myopia,” Theodore Levitt observed that a narrow, near-sighted view causes some industries to decline.
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. As a result, they were displaced to a large degree by companies offering alternate modes of transportation.
The buggy whip industry, linked to horse-drawn transportation, was destined to decline in volume. Survival might have been achieved, Levitt suggested, if buggy whip makers had defined their business as “providing a stimulant or catalyst to an energy source.”
If they were more far-sighted, they might have moved into automotive products, like fan belts, with more of a future.
Progress leaves some suppliers behind
The auto industry yields a number of “buggy whip” situations, year after year. Regardless of how good they are at what they do, some companies will be potential losers because of what they produce.
The best carburetor manufacturer in the world could not make a persuasive case that would stave off the threat from fuel injection. Ash trays and cigarette lighters for cars have changed because of consumer trends. Motorized seatbelts came and went, along with the rails that guided them, in favor of less obtrusive passive restraints.
The jury is still out on many potential hazards but technological change is likely to create more winners and losers. It appears that concern is appropriate for suppliers of hydraulic components for brake systems, for example, as brake-by-wire moves forward.
Alternative propulsion systems like hybrid and electric vehicles will have an impact on some powertrain suppliers as those applications gradually grow.
Seeing the adverse trends
For a supplier, the first challenge is identifying the trend as early as possible. 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 is critical. Early identification of the trend is valuable because it gives a company time to try to influence the situation and preserve its product to whatever extent possible.
More importantly, it gives one time to formulate a game plan for the future before a significant drop in revenue from the 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 adverse trends that are staring them in the face, but it is possible that there are dynamics they simply do not notice.
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, that is an excellent route to take.
Alternatively, you might be able to get in on the replacement product. If you are a dipstick manufacturer, you have to wonder about the growth in electronic sensors, a threat that can already be seen on a number of European vehicles, and what to do about it.
The West Michigan area has a wealth of companies that have prospered for decades, or even centuries, through skill at remaking themselves and their product lines.
Bucher Hydraulics (formerly Monarch Hydraulics) of Grand Rapids was founded in 1856 by the Jackoboice family to produce sawmill machinery and steam engines. Over the years, the company maneuvered to serve emerging needs and today it has a depth of expertise in hydraulic power systems that it applies to a wide breadth of industries, many of which could never have been envisioned by the original J. Jackoboice.
This is just one example of companies in the region that have succeeded by taking a broad view of their capability and a creative approach to ensuring that their product line does not get left behind.