Auto Bailouts and the Innovators Dilemna

All this talk of bailouts over the last few weeks, and now the talk of bailouts for the major U.S. automakers, makes me think of one of the lessons regarding Christensen’s Innovator’s dilemma.

One of the excellent points Christensen makes is that successful companies, so invested in the ideas that made them successful, invest in old ideas despite evidence they’re no longer viable. This explains why WordPerfect resisted making a Windows version of their best selling word processor, why Microsoft initially resisted investing in the Internet, and why dozens of once market leading companies fell off the map.

So when I hear talk of bailouts of failing organizations, particularly auto manufacturers, I can’t help but see it as an innovators dilemma type problem. By investing in an old idea, and the old guard of the U.S. auto industry, we slow the next wave of change from happening. We enable thousands of people to believe their old ways and skills are still viable, instead of motivating them to seek out new skills, products, or roles that have a chance at thriving in this decade and the next.

When you’ve been successful with an idea for years, an idea you’ve put your life into, its hard to recognize it’s time to pull the plug. Odds are high you’ll need someone else to pull the plug for you. Like in that cliched scene in a zillion medical shows when the heroic doctor refuses to stop giving CPR to a favorite patient, someone has to tap you on the shoulder and say “Hey. It’s over. Time to move on.”

If it were not for the larger financial crisis I doubt there would be much support for auto bailout plans. Chapter 11 can work quite well. It was the primary system used to resolve the collapse of the U.S. Steel industry in the 1970s. Pittsburgh survived, and with 15 years began to thrive, in much the same way Detroit might. It won’t be fun, but needed changes rarely are.

$25 billion to hold on to the past is guaranteed to return less on that investment than $25 billion spent to pave the way for the future.

8 Responses to “Auto Bailouts and the Innovators Dilemna”

  1. Steve

    I think some of it may be attributable to the Innovators dilemma, but some, and possible a larger portion, has to go to the fact that their labor costs are so much higher compared to the foreign companies.

    From what I’ve read, something on the order of $73/hr for the US companies vs. $43/hr for the foreign companies. How did it get this way? It seems to me the government forced it without regard to competitiveness.

    How many companies would survive if their costs were 60% higher than their competitors and the products were similar?

  2. Scott (admin)

    There are many issues wrapped up in why the auto companies are failing – no argument there. The cost of labor is high, but that doesn’t explain the lower quality of what goes out their door.

    But my point is less about the cause, than the remedy. I think these are failed companies and reflect a model of thinking about cars that’s broken, and we shouldn’t put more money into that model.

  3. Scott (admin)

    Another thought – I’d be more supportive of the bailouts if they demanded actions inside these companies that forced forward change, including changes in management, retraining options for auto industry employees, etc. I haven’t heard creative or progressive suggestions for how these bailouts would promote new ideas and progress.

  4. Meg Bear

    I like the connection you are drawing. I can say from personal experience taking the leap to do something new when a market shifts is something that takes a lot of courage.

    Working in high tech we see everyday companies that succeed and those that fail as a result of technical Darwinism.

  5. Gordon

    I spent over a decade in Asia and there is one oftebn-overlooked factor that has contributed to the demise of many of these once-glorious firms: for the past decade, Asia has been at school. At the same time, many in the West have been busy patting themselves on the back. Prehaps now we will really start to see innovation come to the fore.

  6. mattybinks

    Scott, as someone who has seen much of the inner workings of all Big 3 companies, I can tell you that they are not investing in the old guard ideas. I worked on Ford’s first electric vehicle program in teh 90s, seen firsthand GM’s amazing skateboard concepts that will truly revolutionize the auto industry, and personally viewed future product plans from Chrysler.

    They have been pouring billions of dollars into R&D on new technologies while trying to continue building products that people want and need today. A Civic will not work for the hundreds and thousands of people in our country who really need a truck every day. The financial crisis is beyond criminal, and their incompetence has dragged down the Big 3 to utter extinction.

    Trust me, there is massive innovation going on inside the Big 3. Thing is, they don’t have alot of rabid leakers like Apple fanboys (of which I am one) who will spill the beans on their work.

    They need this LOAN to finish retooling their highly cool and efficient european models to U.S. standards so we can enjoy them too. This is simply a perfect storm of crazy illegal price fixing by the oil industries and the total collapse of the financial credit sector.

    Both things heavily control the fate of the Big 3 and are the major factors in their request for a bridge loan.

  7. mattybinks

    To clarify, when I mentioned skateboard, I’m referring to a GM technology concept. If you had to visualize it, draw a horizontal line from the middle of the front tire across to the rear tire and remove everything above that line. That leaves you with something that looks like a deck of a skateboard. Now put every major functional component beneath that deck and you have a vehicle that can use any “top” it wants. For example, you could make that vehicle turn from a Chrysler 300 to a Dodge Challenger by replacing the top half.

  8. Scott

    Matty: if nothing else I appreciate your insider comments, as the closest I’ve ever been to the inner workings of Ford or GM is driving by the local dealership. So thx.


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