PERF RMANCE 04 - The Performance Portal - Ernst & Young

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digital watches and other portable display applications before being considered for notebook and desktop computer monitors. Yet today, the demand for LCD monitors outstrips the demand for CRT monitors. Hence, the incumbent technology can be taken by surprise as the competitive technology improves at a faster rate than the incumbent technology and enters new markets. The three critical issues for managers to keep in mind are that a) new dimensions are constantly emerging, b) their importance is in a state of constant flux, and c) this state is driven primarily by technological evolution not innate consumer tastes. To understand the nature of competition on these dimensions, managers need to analyze the range of current and potential platforms, on current and emerging dimensions, over time, along the lines shown in Figure 1. They also need to monitor related markets that use the new technologies to identify progress and opportunities posed by the new technologies. Which technology should a company back? This discussion brings us back to the key question that managers face. Which technology to back? In GM’s case, it turned out to be a billion-dollar question. How can our framework help managers to identify the most promising technology to back? We argue that the multidimensional analysis of multi-technology dynamics provides a rich and insightful picture of a firm’s options. An example of how to use the new framework Let’s consider the automobile battery market shown in Figure 6. In this market, we can identify three platform technologies: galvanic cells, fuel cells and flow cells. An important dimension to evaluate the choice of a technology is its effectiveness in miles per kilowatt. Figure 6a shows the evolution of these Figure 6. An example of using the new framework technologies on this dimension. Within each of these platform technologies, there are numerous design and component technologies that were commercialized in the auto-battery market. For example, within galvanic cells, lead-acid, nickelmetal-hydride (NiMH) and lithium-ion technologies are all alternate component technologies. Similarly, the proton exchange membrane fuel cell (PEMFC) and zinc-air are alternate component technologies based on fuel cell and flow cell platforms respectively. Zinc-air was better in performance prior to 2005 and the other technologies had comparable performance to each other. Lithium-ion began showing a sharp increase in effectiveness soon after its introduction in 1997 (see Figure 6b). By 1999, lithium-ion crossed fuels cells and NiMH. In 2006, it crossed lead-acid and zinc-air as well. It has stayed on top ever since. 6a. Evolution of platform innovations in the auto-battery market Efficiency (miles/kW) Year Flow cell Galvanic cell Fuel cell
Choosing the right technology 6b. Component innovations in portable storage market Efficiency (miles/kW) Lead Acid PEMFC NiMH Zinc-air Many firms were taken by surprise by the sudden dominance of lithium-ion. Managers could have predicted the promise of success of lithium-ion in the auto-battery market much before 2006 by using our framework. Lithium-ion batteries were initially used in portable electronic products (e.g., laptop computers, cellular phones or cordless power tools). The demands of performance and power are less stringent in these markets than in the auto-battery Year 6c. Component innovations in auto-battery market Specific energy (w-hr/kg) Lead-acid NiMH Lithium Ion Ni-Cd NaS (ZEBRA) Lithium Ion Year market. The key dimension to evaluate performance in these markets is specific energy in watt-hr/kg. Figure 6c shows the dynamics of technological evolution of batteries on this dimension. Performance of lithium-ion batteries improved drastically in portable electronic markets even though similar improvements were not evident in auto-battery markets (see Figure 6b). Thus, as early as 1997 and certainly after 1999, firms should have considered lithium-ion as part of their portfolio of investment choice for the auto battery. Lithium-ion also performs well on other dimensions such as safety, availability and cost. Our framework can alert firms of such opportunities before rivals take advantage of them. GM invested heavily in the hydrogen fuel cell, probably at the cost of alternate technologies. Our analysis shows that such decisions need not be left to gut feelings or undefined creativity. Rather, they can emerge from a careful, scientific evaluation of technology dynamics on multiple dimensions. For years, GM argued that fuel cells were the only long-term alternative to the internal-combustion engine yet ignored improvements in lithium-ion technology. However, both fuel cells and flow cells have serious disadvantages to lithium-ion on other dimensions of safety, portability, cost and infrastructure. The following quote explains the firm’s focus on fuel cells while competitors were experimenting with alternate technologies using lead-acid, NiMH, and lithium-ion batteries. “GM had the technology to do hybrids back when Toyota was launching the first Prius, but we opted not to ask the board to approve a product program that’d be destined to lose hundreds of millions of dollars,” said GM Vice Chairman Mr. Bob Lutz, in a blog post 5 . “In the end, it cost us much more than that; it cost us our reputation for technology leadership and innovation.” Recently, GM seems to have belatedly reversed its strategy and adopted a more multi-technology approach. “We made that mistake once,” GM Vice Chairman Mr. Bob Lutz said. “We won't make it again.” However, he did not specify how or why he would avoid such mistakes. This paper offers a framework to do so. 5 Lutz, Bob, (2008), “Thank You, Citizens of Volt Nation,” retrieved 8 June 2008, http://fastlane.gmblogs.com/?s=Thank+You%2C+Citizens+of+Volt+Nation 19
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