Assessing organisational capabilities of incumbent car manufacturers in light of current influencing factors

Publication Type:

Conference Paper

Authors:

Hoeft, Fabian

Source:

Gerpisa colloquium, Paris (2020)

Keywords:

Automotive industry, corporate strategy, Dynamic Capabilities, incumbent car manufacturers, Organisational capabilities, Resource-based theory

Abstract:

The interrelation of organisational resources, such as organisational capabilities, and competitive advantages as well as profits has triggered great efforts in the field of strategy research (Schilke, Hu & Helfat, 2018). Dynamic capabilities are a type of organisational capabilities that have been traditionally defined as "the firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments" (Teece, Pisano & Shuen, 1997). Recent scholars however argue that there is a lack of a common understanding of dynamic capabilities (Peteraf, Di Stefano & Verona, 2013). In fact, research concerned with the capability lens has been criticized for insufficient empirical underpinning and lack of operationalizability (Priem & Butler, 2001; Easterby-Smith, Lyles & Peteraf, 2009). Key in sharpening the capabilities perspective is to detach from the focus on conceptual development and to refine methodologies to improve empirical evidence. This idea led to several approaches to improve our understanding of how to assess organisational capabilities (Ulrich & Smallwood, 2004; Achtenhagen, Melin & Naldi, 2013) and further underlying factors of value creation (Argyres, Mahoney & Nickerson, 2019; Lieberman & Dhawan, 2005).
How can organizational capabilities be assessed holistically? A holistic approach to assessing organisational capabilities refers to the entire company as level of analysis and includes the aspects of capabilities, such as leadership and agility, to production technologies as unit of analysis relevant for determining the corporate strategy. Previous studies have either considered particular individual capabilities or within a specific capability deployment context (de Bakker & Nijhof, 2002; Lieberman & Dhawan, 2005; Wheeler, 2002; Trejo et al., 2002; Helfat & Raubitschek, 2018). It is a question of operationalising the capabilities concept in the resource-based view (RBV) context. The RBV is the view of firms as the sum of their resources for establishing and maintaining advantages over competitors (Penrose, 1959; Barney, 1991; Peteraf, 1993; Teece, Pisano & Shuen, 1990). Operationalisation of the RBV refers to how the view of a company's resources in form of all its assets, knowledge, organisational processes, technologies, information, firm attributes and capabilities (Barney, 1991) can be applied and utilised for problem-solving. Answering is a contribution to explaining the underlying argument of certain capabilities as sources of sustained competitive advantages and sustained profits (Peteraf, 1993; Teece, Pisano & Shuen, 1997; Barney, Ketchen & Wright, 2011; Barney, 1991) over longer periods of time in our nested system of individuals, organisations and industries on a tangible level.
Developing a holistic approach to assessing organisational capabilities has become increasingly pressing and important for academics and practitioners as environments have become more Volatile, Uncertain, Complex and Ambiguous (VUCA). VUCA refers respectively to the dynamics of change, lack of predictability, multiplicity of forces at play and haziness of reality (van Tulder, Jankowska & Verbeke, 2019; Buckley, 2019; Schoemaker, Heaton & Teece, 2018; Petricevic & Teece, 2019; Teece, Peteraf & Leih, 2016). The automotive industry today is an example of an industry with such a risky environment.
After a century of hardly any change in the business model of car manufacturers (also known as Original Equipment Manufacturers, hereafter OEMs), today's value chains of the automotive industry are being challenged. Experts are calling it the automotive industry at a crossroads, the second automotive revolution or mobility's second great inflexion point (Simoudis & Zoepf, 2019; Cornet et al., 2019; Hauptmeier, 2010). The industry at present is characterised by a high degree of dynamism and change in business models.
This dynamism is largely based around the four core themes of connectivity (C), autonomy (A), sharing (S) and electrification (E), referred to by the acronym CASE (Eisele et al., 2019). Connectivity is about connecting the car to the internet and its environment, such as other cars and transport infrastructure, to improve the car use experience. Autonomy describes the ever-growing support of drivers to ultimately replacing them by fully autonomous operating systems in cars without steering wheels. Sharing is the joint use of a passenger car, offering the end-user flexibility in a network of available vehicles. It mainly aims increasing vehicle utilisation. Electrification is the shift to an electrified drive, away from internal combustion engines (ICEs) used predominantly today. It is almost emission-free at the location of use. An overview of the traditional automotive value chain and new electric car value chain is attached as Appendix 1. A comparison of the two value chains highlights that the new value chain involves an increased number of stakeholders, such as new players, new value creation potentials for car manufacturers, for example related to electric vehicle infrastructure and battery recycling, as well as reduced value added related to the conventional ICE drive train.
CASE opens opportunities to end customers and providers of mobility (related) products and services. Each CASE factor itself offers advantages and benefits to end consumers. This includes productive travel time and cheaper rides, and also more reliable technology and potentially security. Moreover, it opens value creation and capturing potentials for businesses, such as automotive manufacturers and suppliers, for example, through business model transformation and digital service offerings. Most notably and promising for users and providers, synergies arise from innovations associated with combination of the four CASE dimensions, such as shared vehicles without human operators, connected autonomous vehicles (CAVs). Currently, automotive manufacturers are divided about promising strategies to participate in the CASE market participate and pursue different strategic approaches (Malnight, Buche & Dhanaraj, 2019).
This paper engages with research on capabilities in the RBV context (Barney, 1991; Teece & Pisano, 1994; Teece, Pisano & Shuen, 1997; Adner & Helfat, 2003; Peteraf & Barney, 2003). It draws in particular on existing literature on the assessment of capabilities and measurement of corporate performance indicators (Wheeler, 2002; Lieberman & Dhawan, 2005; Barreto, 2010; Ethiraj et al., 2005; Ozcan, 2018). Moreover, it participates in the ongoing debate in the Management and Organization Review (MOR) on Tesla and the automotive CASE topics (Perkins & Murmann, 2018; Macduffie, 2018; Teece, 2018, 2019; Jiang & Lu, 2018; Välikangas, 2018).
Three research gaps are addressed: The first one concerns the structured and holistic assessment of capabilities at firm level. Existing research either considers certain capability deployment contexts only (de Bakker & Nijhof, 2002; Lieberman & Dhawan, 2005), certain capability types (Wheeler, 2002; Trejo et al., 2002; Helfat & Raubitschek, 2018), or is narrow in terms of perspectives covered and data considered (Achtenhagen, Melin & Naldi, 2013; Ulrich & Smallwood, 2004) to assess capabilities. This study argues that the holistic assessment of organisational capabilities is a crucial link between the capability lens, its operationalisation and underpinning empirics. Second, current literature lacks a comprehensive and structured assessment and understanding of CASE at present, especially regarding implications for incumbent car manufacturers. Previous studies have either studied CASE in a more general fashion (Teece, 2018; Jacobides, 2018; Pütz et al., 2019; Modi, Spulber & Jin, 2018; Fard & Brugeman, 2019), or investigated only certain CASE factors or aspects (Teece, 2019; Jiang & Lu, 2018; Perkins & Murmann, 2018; Jacobides, Macduffie & Tae, 2013; Schulze, MacDuffie & Täube, 2015; Ajanovic & Haas, 2016; Zoepf & Riggs, 2019; Firnkorn & Müller, 2012; Wesseling et al., 2015; Bohnsack, Kolk & Pinkse, 2015; Faria & Andersen, 2017; Cohen & Hopkins, 2019). Third, the CASE capabilities matrix developed in the course of this MOR debate (Teece, 2018) has potential for being extended and therefore providing a more holistic view. This includes considering inter-firm differences, sharpening of the unit of analysis as well as creation of transparency regarding assessment process and argument structure and taking into account different contextual scenarios. The matrix is attached with Appendix 2. The paper aims to develop a holistic capabilities assessment approach applicable to incumbent car manufacturers.
The main research question guiding this paper is: How can organisational capabilities of incumbent car manufacturers be assessed holistically? Three sub-questions are considered: What are the characteristics of current influencing factors prevalent in the automotive industry? What do these imply for incumbent car manufacturers capabilities? How can organisational capabilities of incumbent car manufacturers be assessed as a basis for corporate strategy development and for analysing inter-firm differences in capabilities? The managerial practice is thus supported in strategy problem-solving in quest of finding answers to “What should I do?” or specifically “What should my strategy be?” (Brown, Bradley & McLean, 2019).
Secondary data from the 20 largest incumbent car manufacturers in terms of number of cars sold worldwide are compiled for the period past three years. These 20 car manufacturers produce about 88 per cent of vehicles sold worldwide (International Organization of Motor Vehicle Manufacturers, 2018), see Appendix 3 for details. The most recent annual reports, sustainability reports, industry reports, news based on officially confirmed data and further shareholder information from incumbent car manufacturers are considered in light of the research questions.
Apart from providing a holistic approach to assessing capabilities, the approach developed also informs managerial practice and provides application guidance through automotive examples. However, the approach has potential application to other industries. The operationalisation of assessing capabilities may be appreciated as operationalisation of the capability lens more broadly, providing key information for strategic and operative decisions. Finally, this paper provides a comprehensive CASE analysis considering implications for automakers.
This paper is organized in six sections. The first section introduces links to the previous debate on CASE capabilities of automakers. Subsequently, an analytical framework for managing car manufacturers in a risky VUCA environment is introduced, serving as structure for this paper. Next, the CASE factors, development trajectories and their implications for automobile manufacturers are analysed. The core of the paper is the development and application of a framework for assessing capabilities of incumbent car manufacturers. A conclusion and outlook close this paper.

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