Ford hedges to deal with disruption

[This post was first published in HBR Blogs]

The auto industry is facing a trio of disruptive technologies: electric batteries, autonomous vehicles, and the mobile phone. The first two have been long-standing threats, relatively speaking, and are embodied in one company, Tesla. Which is why the auto industry’s reaction to Tesla’s announcement on March 31 of its Model 3 is so strange. They feel a bit relieved, maybe even overjoyed. More than 325,000 people have made a $1,000 down payment to pre-order the Model 3, sight unseen, even though the excepted delivery date was two years away. CEOs of competing automakers are reassured to see a large group of consumers getting excited about purchasing cars again. Tesla may seem ahead in the electric car game, but that doesn’t take away from the fact that, this time around, they are playing a familiar game: find out what people want in a car and deliver it to them.

Traditional car companies need to play catch up, for sure, and it’s not clear that they can. But at least they have a clear target.

But the mobile phone, the third disruptor, is a different story. It poses a threat to carmakers’ business model of selling people cars. The mobile phone has enabled ride-sharing apps – like Uber and Lyft – to match drivers to riders. If these apps continue to grow, then people could have less of a need to but own their cars since they can hire them at will. That could potentially force carmakers into business-to-business sellers rather than business-to-consumer sellers. And the specifications of what one wants in a car would change, too.

Carmakers have been dealing with these disruptors in different ways. BMW, for instance, recently paired with a car sharing firm in Seattle. But Ford is taking the most interesting approach. It launched a spinoff company, Ford Smart Mobility, LLC, which will try to tackle these three potential disruptors at once. Ford claims this is part of their evolution to be both a car company and a mobility company. What precisely that means is hard to say. Ford says it plans to be a leader in “connectivity, mobility, autonomous vehicles, the customer experience and data and analytics.” That isn’t very specific but I think we can take it to mean that Ford is handling disruption by investing in a separate business unit.

This is a play straight out of Clay Christensen’s disruption playbook. As Ford CEO, Mark Fields, explained to The Verge: “Our approach is to first disrupt ourselves.”

[Ford Smart Mobility’s] role is to design, develop, build, invest, and grow these mobility services. That can not only become a business on its own, but also help support the core business. Because, guess what, a lot of these services, they need vehicles. Right?

You want it separate but connected. The reason we wanted to do it separate is because, you have to realize that we needed to give them the flexibility and the operating structure to be able to be competitive with other technology and mobility services companies that move really fast. We didn’t want to overlay them with the Ford bureaucracy.

Companies have traditionally gone the self-disruption route when they’ve wanted to develop products that their existing customers would value in the future. The idea is to create a new and separate division that meets competition while ensuring that new innovations are as minimally disruptive (in the old sense of the world) to the core business as possible.

Here is the problem: none of the three disruptors I have outlined here are traditional Christensen-style innovations. They are supply-side architectural innovations.

Not only may existing customers want them — certainly Tesla’s success suggests high-end customers do. But what these disruptions represent is a different way of putting cars and the car business together.

Ford seems to realize this in their rhetoric — the whole “mobility” notion — but the new company is not one designed to meet that challenge. Under these circumstances, as I outline at great length in The Disruption Dilemma, independence is exactly the wrong impulse. Instead, Ford should go in the other direction: toward integration. Fujifilm, for example, outlasted Kodak not only because it changed from being a film to an image company two decades ago but because it built its entire organization around its new approach.

If you have wondered how one company can have a separate car and mobility business you have already understood the problem. Cars are subservient to mobility, but Ford is treating them as distinct. Put simply, if disruption is coming from a new way of putting the parts of the system together, the solution cannot be to keep them separate. Yet that is what Ford, like so many before them, are doing.

Companies need to see these disruptors as supply-side disruptions, and make a difficult choice as to whether they can meet that challenge. As most new innovations are highly uncertain — and let’s face it there is uncertainty surrounding all three of these interrelated disruptors — it’s a potentially reasonable decision for a company to decide that it can’t meet the challenge. It will be tough, and will require software and hardware integration that will make it difficult for established companies to keep up with new entrants.

But, if they decide that they can meet the challenge, they should bet everything on that new world vision. They can’t hedge, like Ford is doing.