The Values of Innovation

The ability to add value and be compensated for it is critical to being able to fund the next big thing (or the next in a series of incremental little things). And after all, if you are not making money on the value you add, why do it?

U.S. Transportation Secretary Ray LaHood occasionally stirs things up with publicity about his ongoing campaign against the integration of infotainment features into new vehicles due to the risks of driver distraction. One tack his department is taking is addressing the behavioral side through public service announcements and ticketing to discourage use of cell phones and texting devices while driving. Another is developing guidelines for the design and operation of in-vehicle communications technology, based on safety research. This latter path is more concerning for the industry, since it would exert some control over what automakers and suppliers do on the supply side of equation.

The impulse of the automakers to load up features and create new selling opportunities is understandable. After all, that is how automakers support charging higher prices, although they would probably argue that they are just trying to satisfy what the customers want. Development of new features is also how innovative suppliers increase their value, by applying their core competencies to new applications. The benefits of this motivation have been huge—100 years ago, who would have imagined the level we have reached in comfort and convenience in vehicles today? But still, safety concerns must be considered, comfort and convenience notwithstanding. Just because you can surf the Web while driving down the road does not mean you should. So, in this particular arena, product developers do not have free rein over their destiny, and the value of their work is not left completely to the marketplace to determine.

For most automotive suppliers, however, Secretary LaHood is not the principal impediment to their ability to commercialize new products or technologies. The biggest hurdle is usually the cost, of course. Who will pay for the new feature: the OEM, or can it be passed on to the consumer? How much will they pay? This depends on a lot of factors, beginning with whether the advancement is considered “core” or “extra” in the eye of the buyer (a variation on the “must have”/“nice to have” framework that might be more common). The following are a few recent innovations. How would you rate them on the “core/extra” spectrum? What do you think the reaction of the automaker will be to the opportunities that these represent?

  • TRW ( recently introduced a roof airbag system to protect front-seat passengers, as an alternative to airbags mounted in the instrument panel. The company says that there is both an improvement in efficacy (i.e., less risk of passenger injuries) and benefits in the form of more interior design flexibility, and lower instrument panel development cost. The project has been in the works for a couple of years, most recently in collaboration with an unnamed European OEM, so TRW has a production contract in place already.
  • Gentex ( touts an “intelligent high-beam headlamp assist system” that it says makes nighttime driving safer by maximizing high-beam usage. Its research shows that drivers under-use their high beams, so having sensor technology that will control toggling between low and high beams would counteract that behavior and increase visibility.
  • Magna Steyr ( developed the first soft-top convertible system for an SUV, in a project for the Nissan Murano CrossCabriolet. The product integrates structural/kinematic components directly into the fabric headliner and uses glass areas for additional safety and design functions.

Innovation occurs in the automotive world in a wide variety of ways, from new products that will be meaningful to a consumer, such as those listed above, to the noise-reduction-enhanced fuel pump controller that recently earned Visteon ( a Technology & Development Award from Toyota but would not be on any driver’s radar screen, so to speak. To succeed, these products need to clear the hurdles of relevance, value, and, perhaps, reasonableness per the upcoming Department of Transportation standards. None of these would appear to have a negative impact on safety the way Secretary LaHood fears an OnStar Facebook-update feature would, but you can bet that rigorous and substantial work was done to ensure to make sure that they do not ever come to his attention!

All that is left now is for these companies to execute the commercialization process. Kim Korth, IRN president, has observed that most suppliers tend to over-price their commodity business and under-price their innovations. It is important to bear the product life cycle in mind and plan to maximize your profit during the growth phase before your product reaches maturity and/or the segment attracts competitive alternatives. The ability to add value and be compensated for it is critical to being able to fund the next big thing (or the next in a series of incremental little things). And after all, if you are not making money on the value you add, why do it?