Must-read: Joshua Gans: “Ford hedges to deal with disruption”

Must-Read: Joshua Gans: Ford hedges to deal with disruption: “The auto industry is facing a trio of disruptive technologies: electric batteries, autonomous vehicles, and the mobile phone…

…The first two have been long-standing threats, relatively speaking, and are embodied in one company, Tesla. Which is why the auto industry’s reaction to Tesla’s announcement on March 31 of its Model 3 is so strange. They feel a bit relieved, maybe even overjoyed. More than 325,000 people have made a $1,000 down payment to pre-order the Model 3, sight unseen, even though the excepted delivery date was two years away. CEOs of competing automakers are reassured to see a large group of consumers getting excited about purchasing cars again. Tesla may seem ahead in the electric car game, but that doesn’t take away from the fact that, this time around, they are playing a familiar game: find out what people want in a car and deliver it to them. Traditional car companies need to play catch up, for sure, and it’s not clear that they can. But at least they have a clear target.

But the mobile phone… has enabled ride-sharing apps…. If these apps continue to grow, then people could have less of a need to but own their cars since they can hire them at will. That could potentially force carmakers into business-to-business sellers rather than business-to-consumer sellers. And the specifications of what one wants in a car would change, too…. BMW… recently paired with a car sharing firm in Seattle. But Ford is taking the most interesting approach. It launched a spinoff company, Ford Smart Mobility, LLC, which will try to tackle these three potential disruptors at once…. Ford is handling disruption by investing in a separate business unit. This is a play straight out of Clay Christensen’s disruption playbook….

Here is the problem: none of the three disruptors I have outlined here are traditional Christensen-style innovations. They are supply-side architectural innovations…. Ford should go in the other direction: toward integration. Fujifilm, for example, outlasted Kodak not only because it changed from being a film to an image company two decades ago but because it built its entire organization around its new approach…. It’s a potentially reasonable decision for a company to decide that it can’t meet the challenge…. But, if they decide that they can meet the challenge, they should bet everything on that new world vision. They can’t hedge, like Ford is doing.

April 24, 2016


Brad DeLong
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