Driving to the Future

 
 
By Faisal Hoque  |  Posted 2008-11-18
 
 
 

The stakes are enormous 

Even veteran, global corporations face demise in the maelstrom of change. General Motors, just months after celebrating its one-hundredth birthday, announced that it was burning through cash at the rate of $2 billion a month and could not keep it going much longer than 2008.

Whole economies are at stake. The Center for Automotive Research (CAR) estimates that should all of the Detroit Three's U.S. operations cease in 2009 some 3 million jobs would be lost in the first year. That includes 239,341 direct job losses at the three auto companies; 973,969 secondary jobs at auto supply companies; and more than 1.7 million jobs at other employers from the reduced spending by those jobless workers.

It’s political football.

There are very serious players in this game, among them labor unions and environmentalists, whose interests do not always coincide. Today, more than ever, political risk must be factored into management decision-making. And not just in the United States. What about the Chinese government’s efforts to promote its own auto industry around the globe? What does that mean for U.S. companies?

It involves technology.

What doesn’t these days? Think about it in these terms:

  • <li" />Meeting certain emissions mandates, yet another financial burden for the automakers, will require technology not yet invented, the industry says.

  • <li" />What is needed to rescue us from the oil cartel, some industry observers’ claim, is the global adoption of technology that allows cars to run on bio-fuels as well as gasoline.

  • <li" />An energy company controlled by Warren Buffett’s Berkshire Hathaway plans to pay about $231 million for a 10 percent stake in Chinese auto and battery maker BYD Co., which expects to roll out fully electric cars before the end of next year.

These are game changing.

Hail Mary bets on technology that can only be made within a holistic management process and system. Still, those of us who labor in the vineyard of business/technology convergence recognize that technology, however well managed, plays the secondary role of enabler. Life or death rides on the execution of the strategy.

We are witnessing a dizzying restructuring of a global industry, with new players popping up anywhere and everywhere, even given the high barriers to entry to the game of making automobiles. Lifan Group, a Chinese company, working with the Communist Party, is bidding to buy a sophisticated car engine plant in Brazil from DaimlerChrysler and BMW. It makes more sense to dismantle it and move it 8,300 miles, rather than develop its own technology.

Meantime, 14 different brands of Chinese cars, trucks, and commercial vehicles are on sale in Chile - with more expected. Not to mention America’s “second auto industry” -- Japanese, European and Korean factories in the South, with newer technology and non-union workers following different work practices. Some 113,000 workers are involved.

This is what it looks like -- the hyper, global competition proclaimed in the management literature. It’s real, and it ain’t pretty. It’s the realization of Joseph Schumpeter’s prophecy of  “creative destruction” – the death of established companies and industries and the birth of new ones.

We see it in the hard-hit Rust Belt, where First Solar is expanding its Ohio plant where thin-film solar panels are made. German company Flabeg is building a factory outside Pittsburgh to manufacture parabolic solar mirrors for large-scale solar power plants. Already, Energy Conversion Devices is operating three thin-film factories in Michigan. They are all looking at the workforce that has until now made gasoline-powered cars.

What to do? Each firm must follow its own path. Don’t trust the herd. Each must embrace creative destruction internally – a continuous refining of what works, elimination of what doesn’t, and investment in the new. All of this must be guided by the shifting needs of the customer and the customer’s customer. Risk must be seen as far broader than the possibility of a tornado or an audit by the feds. Imagination must be nurtured.

This is twenty-first century management. Some companies, those we’ll be working for and talking about 10 years from now, will figure it out.

 


Faisal Hoque is chairman and CEO of BTM Corporation and author of a forthcoming book, The Convergence Scorecard, to be published by the Harvard Business Press. BTM innovates business models and enhances financial performance by converging business and technology with its unique products and intellectual property. 

© Faisal Hoque 2008