Technology has brought various worldwide changes and has influenced all industries. Technology-driven developments can revolutionize how players in every sector respond to these changes (Manyika, Chui, Bughin, Dobbs, Bisson, & Marrs, 2013). Technology contributes to changes in the behavior of customers and collaborations that contribute to growth and changes in every sector. Today’s economy is highly competitive and new innovations have accelerated in the emerging markets. The formulations of sustainable policies have contributed to shifts in customer preferences (Manyika, Chui, Bughin, Dobbs, Bisson, & Marrs, 2013). The adoption of digitization has increased automation and the development of new business models leading to the revolution of industries. The automotive industry has not been spared by the changes; several disruptive trends in the automobile industry have emerged.
Status Quo of the Organization of the Business in the Industry before Disruption
The onset of the twentieth century introduced the emergence of the automobile industry. The first prototypes of automobiles were introduced in the 19th century. Innovations were made from these prototypes leading to the competitive structure of the current automotive industry. Before the disruption, the industry was competitive; growth and evolution were driven by the organization of production inputs and the configuration of distribution channels (Bergek, Berggren, Magnusson, & Hobday, 2013).
Current State of the Industry
The global automobile industry is more challenged than it seems. The industry shows great performance in terms of sales and profit margins for suppliers and manufacturers (Bergek, Berggren, Magnusson, & Hobday, 2013). However, the industry proves to be a less attractive place to invest with the shareholder returns being as low as 5% (Gao, Hensley, & Zielke, 2014). This means that the auto industry will have fewer players in the near future. Only the companies that will have the ability to harness their limited resources in ways that are creative and manage to navigate the unfamiliar landscape in the industry will survive.
Disruptive Technologies and why they are Disruptive
Disruptive technologies refer to innovations that create new markets and value networks and disrupt those that are already in existence (Manyika, Chui, Bughin, Dobbs, Bisson, & Marrs, 2013). Disruptive technologies are disruptive since they make existing products and industries irrelevant. Measuring their impact is very challenging due to the rapid nature of the revolutions and innovations. The disruptions alter how the industry strives to deliver the best product in the market.
Impact to Existing Business Models and Approaches to Service or Product Delivery
The trends have led to diverse mobility, autonomous driving, electrification, and connectivity. The trends brought about by technology will reinforce one another, thereby accelerating their development and growth. The automotive industry is actually among the industries that will be greatly disrupted by the growth of technology. The disruption will introduce new players, regulators, consumers, markets and a new automobile value chain (Christensen, 2013).
The existing business models may not be very effective and thus players in the industry need to come up with new models that are more effective (Manyika, Chui, Bughin, Dobbs, Bisson, & Marrs, 2013). It is imperative for traditional manufacturers to come up with ways that will ensure they have a proper understanding of where future business opportunities lay, and thus granular view of the mobility markets is more important than before. Manufacturers need to segment the markets based on cities; that is population density, economic development, and prosperity. These segments will affect consumer preferences, regulations and policies, and the adoption of new business models.
The introduction of driverless cars has led to multiple high-profile attackers who are threatening to replace humans with a digital apparition (Bergek, Berggren, Magnusson, & Hobday, 2013). Further, combustion-fewer cars have introduced interest in electric and hybrid automobiles, which companies such as Apple and Tesla have produced. The tradition combustion engine has been blamed for causing high levels of pollution, pushing for better forms of engines. The rise of car sharing with companies such as Uber is another trend that impacts the industry through creating more employment opportunities in the industry.
Foreseeable and Long-Term Impact to the Industry
The adoption of new business models, which will be driven by the shared mobility and upgrades have the possibility of expanding revenue pools by about 30% (Gao, Hensley, & Zielke, 2014). The revenue gained by the industry is expected to increase, and the on-demand mobility services and data-driven services will be diversified. It is, therefore, expected that revenue will increase by over thirty percent by the year 2030 in comparison to the traditional car sales and the sale of support products and services for the conventional cars. The industry will rely more on models that rely on data-driven services and on-demand mobility services.
Increased connectivity and adoption of autonomous technology will allow drivers and percentages to free up their time and thus get time for other activities (Gao, Hensley, & Zielke, 2014). The consumers will, therefore, become more aware of advances in technology as mobility solutions will have shorter life cycles and consequently, demand for upgradability in automobiles will increase (Gao, Hensley, & Zielke, 2014). This means that those in the industry will need to ensure that they are at par with the growth of technology to manage to stay in the market.
The shift towards the shared mobility will, however, lead to a slower growth rate of the vehicle unit sales per year (Gao, Hensley, & Zielke, 2014). The car sales globally will continue to grow but at a lower rate because of macroeconomic factors and an increase in car mobility services. The new services will lead to a decline in sales that is likely to be offset by the sale of shared vehicles, which will need regular replacements based on their high utilization. Macroeconomic factors will also contribute to an increase in sales, such as an increase in the number of people in the middle-class levels globally (Gao, Hensley, & Zielke, 2014). The established markets will have a slow growth rate while emerging economies will fuel the growth (Bergek, Berggren, Magnusson, & Hobday, 2013). The players in the industry will have to come up with the right product mixes to ensure they acquire increased revenue.
Consumer preferences are changing concerning their mobility behavior due to technological breakthrough and regulations (Bergek, Berggren, Magnusson, & Hobday, 2013). People are making use of multiple methods of transportation before they get to their destination and most consumers now use delivery of goods rather than having to pick them up. Therefore, the business models of car sales applied traditionally will have to be complemented by diverse, on –demand mobility solutions, especially in the use of private cars. Today, individuals use their cars as all-purpose vehicles; however, in future, consumers would prefer flexible solutions (Gao, Hensley, & Zielke, 2014). This means that one will have the ability to choose the best solution on demand using their phones. The importance of private car ownership is declining and being replaced with car sharing in many countries. This demand for customized solutions for each purpose will lead to the production of specialized vehicles that will suit the specific needs. This means that in the near future, the number of shared cars will increase and the sale of private cars will decrease (Gao, Hensley, & Zielke, 2014).
Firm Negatively Impacted by the Disruption
Volkswagen is one of the companies that have been negatively affected by the disruption, thus being caught in various scandals due to the disruption. The company has been accused of equipping their diesel driven cars with a software, which fakes the emission data (Christensen, 2013). The company is known to use creative methods to bypass the regulations set. The occurrence of these incidences set the company back and draws focus away from innovation.
Advice to the Board of Directors of the Firm Based On the Analysis
The board of directors of Volkswagen should, therefore, ensure they follow the set regulations when it comes to manufacturing. Further, the company should adapt better and new technologies and embrace innovation to ensure they stay ahead of other companies in the industry. This will ensure they do not by-pass the regulations set and instead come up with better models that will deliver more value.
Bergek, A., Berggren, C., Magnusson, T., & Hobday, M. (2013). Technological discontinuities and the Challenge for Incumbent Films: Destruction, disruption or creative accumulation? Research Policy 42(6), 1210-1224.
Christensen, C., (2013). The Innovator’s Dilemma: When Technologies cause great firms to fail. Harvard Business Review Press.
Gao, P., Hensley, R., & Zielke, A. (2014). A Road Map to the Future for Auto Industry. McKinsey Quartely, Oct.
Manyika, J., Chui, M., Bughin, J., Dobbs, R., Bisson, P., & Marrs, A. (2013). Disruptive Technologies: Advances that will Transform life, Business and Global Economy (vol. 180). San Fransico, CA: McKinsey Global Institute.