Hybrid-Electric Vehicle Opportunity Identification

electric carPrepared for: Dr Andrew Cardow, Massey University paper 152.334- Innovation Creativity and Entrepreneurship, August 2012

Introduction

This essay discusses the affect creativity, innovation and entrepreneurship has had on the history of the Hybrid-Electric Vehicle (HEV) sector. The dialogue continues with how HEV’s future might play out, especially with regard to possible rising fossil-fuel costs. A Hybrid-Electric Vehicle (HEV) appears to be a somewhat ambiguous term which different organizations all define slightly differently. Although put simply it “combines both a conventional internal combustion engine propulsion system and an electric propulsion system” to power vehicles (IAC Search & Media, 2012). The definition of creativity which most closely links to creativity within an organisaional context would be that it is an “imaginative activity [which] produce[s] outcomes that are both original and of value” (National Advisory Committee on Creative & Cultural Education, 1999). An innovation is the result of creative thinking. It’s what consumers view as new and different (Charbonneau, Hughes, & Stuart, 2009). It is entrepreneurs that are able to innovative creatively to find valued solutions in various situations. An entrepreneur is someone who utilizes ”knowledge structures … to make assessments, judgments, or decisions involving opportunity evaluation, venture creation, and growth” (Mitchell, Busenitz, Lant, McDougall, Morse, & Smith, 2002, p. 97). Entrepreneurs can practice in both start-up and existing businesses. An entrepreneur could be either “starting ‘new’ ventures [or] adopting success strategies within existing entities” (Bull & Willard, 1993, p. 184). The discussion closes with the revealing of how profitability is linked to the degree of creativity and innovation applied to identified opportunities and entrepreneurial activates activated in HEV organisaitons.

Assessing the Recent History of Hybrid-electric Vehicles

Firstly, the concept of vehicles not being powered by fossil fuels is not a new. In 1839 the first electric vehicle was created, with the first electric powered taxi cab hitting England’s streets in 1886 (Berman, 2011). Berman also said that Henry Ford’s innovation in 1904 of the gasoline-fueled cars, was actually created as he recognized the need to reduce the noise, vibration and weight that were characteristics of electric cars at the time (2011). Monitoring end user needs is one of the ways that opportunities can be recognized (Bessant & Tidd, 2011). Ford’s achievement is a good example of what Cravens and Piercy believe; when an organization can offer superior value for the opportunity identified the innovation is likely to be a success (2009).

It has only been recently (over the last ten years), that Hybrid-electric cars have really started to become ‘main-stream’ amongst American consumers. Currently “40% of individuals … would [even] consider purchasing an [HEV]” (Gourville, 2011). This interest among consumers and the actual diffusion rate is due to a combination of a variety of factors occurring simultaneously. Two key factors were; all- or part-electric vehicles and pricing.

The first factor was to do with consumers having the option of all- or part-electric vehicles. Creating multiple options to suit different customer segments means more customers are likely to be delighted with a vehicle which closely aligns to their perceived needs. This would have been key as Gourville says the number of manufacturers has increased. “Strategic analysis [of creative ways to add value, involves] figuring out alternative scenarios … assessing their probabilities, evaluating likely outcomes, and making recommendations” in order to remain competitive (Matthews, 2002). Entrepreneurial endeavours need to be encouraged and planned for within organisations in order to remain relevant.

Secondly, the pricing of HEB’s has changed. This is partly due to HEV’s now being a similar price to gas-only vehicles. This lowering of price was likely linked to entrepreneurial activity which resulted in processes being streamlined to remove muda. The strategic organization of waste management is important to long-term sustainability (Borza, 2011). The one-off tax credit of US$7,500.00 was an innovative incentive made by the government to attract customers to this more environmental friendly alternative. This was an important “Innovation [which was a] critical engine driving the change process” (Shane & Venkataraman, 2000, p. 220) It was creative in that it didn’t lower consumer perception of the value of the product after the offer had expired and the organizations selling the cars made profit while customers benefited from the ‘skim pricing’ which was supplemented by the government.

Future of Hybrid-electric Vehicles

According to Gourville there is a fluctuation in demand, less vehicles are being sold over-all. Continued innovation to develop opportunities in this environment is challenging. Some “students from … Middle Tennessee State University … have developed a plug-in hybrid retrofit kit” which transforms any car into a hybrid for approximately $3,000.00 (Chen, 2012). If a vehicle was adapted it promises to double a consumer’s mileage, with a battery the size of a ‘carry-on cabin bag’. This is an example of how by thinking creatively, an organization can be entrepreneurial to target profitable solutions for emerging trends.

The current turbulent economy means that organizations must not only identify but also create opportunities.   All “new products [need to be innovated to] provide significant cost reductions and/or performance improvements to overcome [consumer] resistance” (Spencer, Kirchhoff, & White, 2008). This means “that the benefits offered … should be greater for firms operating in a highly competitive sector” (Gaur & Vasudevan, 2008, p. 141). This would certainly appear to be true in the HEV sector of the vehicle industry – there is a need for entrepreneurs in the HEV sector to find creative ways to delight their customers, or risk losing them to competitors. This requires an “understanding of current sector-wide issues and trends” (Dove, 1996). As entrepreneurs innovate using fact based R&D they will be able to better provide solutions for consumers unmet needs and achieve competitive advantage. “It is the initiatives taken by visionary [and entrepreneurial] leaders [that will provide] the keys to economic growth” in the future (Reed, 2010, p. 41). Growth (physically and economically), is necessary or organisations will be putting themselves at risk of becoming obsolete.

Another aspect which will affect HEV’s diffusion amongst the general population is changing standards. Two standards mentioned by Gourville are; California Air Resource Board (CARB), which requires 2% cars sold be zero-emissions (delayed till 2015), and the Corporate Fuel Economy Standards (CAFÉ), increased regular cars to 37.8 MPG (an increase of 22.6%), by 2016. These innovations around standards will gently force consumers and organizations to have an incentive to participate in more environmentally friendly alternatives.

Another threat identified by Gourville to HEV’s is the government funded hydrogen fuel-cell vehicle innovation (2011). A billion dollars has been invested but currently a lack of infrastructure relating to refueling is holding back possible diffusion. Shane and Venkataraman say that “exploitation of opportunities is more common when … greater financial capital” has been invested in the idea’s success (Shane & Venkataraman, 2000, p. 223). This would mean the government is likely to continue to invest in the needed supporting infrastructure, even though it could take up to 15 years to implement and a further $55 billion.

The Internet will play a big part in the future of HEV’s. Not only official vehicle manufacturers or industry related websites either. Consumers are interested in what other customers think and refer to blogs, social media and customer reviews on official sites to form opinions. HRV organizations should exploit these changes in society to their advantage. This level of “creativity and connectivity [with consumers is now necessary] to remain competitive in today’s environment” is expected by consumers (Cook, 2008, p. 12). Already conversations are taking place between consumers about fossil-fueled verses environmentally friendly fueled cars.

facebook used by consumers to discuss hybrid-electric car purchaseFigure 1: Facebook being used by consumers to discuss possible hybrid-electric car purchase

twitter used to discuss hybrid carsFigure 2: Twitter being used by consumers to discuss hybrid cars

The challenge for organisations’ will not only be to keep up with all the conversations which are happening simultaneously on various mediums, but to be creative to make sure everyone is satisfied in the end. Cook says organizations must ensure “interests [the] of both the organisation and the end user” are met (2008, p. 87). This has two outcomes. Firstly, customers are satisfied because they feel their voice is being heard and secondly, it provides an ideal platform in which to gather research quickly.

Past success is of interest, but it is how it was achieved that is of real value, in order to be able to capitalize on future opportunities. Being able to recognize the success factors, gather the resources and manage the process to repeat the ‘trick’ will be what ensures HEV organizations remain sustainable in the long term (Bessant & Tidd, 2011). Evidence proves there is a “connection between organizational innovativeness and innovation capacity [to act as] a mechanism for organizations to adapt in dynamic environments” (Hurley & Hult, 1998, p. 51). To remain competitive organisations need to foster a culture whereby innovation and creativity are encouraged and ensure all ideas (internal and external) are captured to reveal opportunities worth pursuing. Hurley and Hutt also say that “entrepreneurial-oriented cultures outperform” other more traditionally structured organization (1998, p. 44). This would further re-enforce the necessity for all organisations to move towards more fluid structures that support creativity and innovation to ensure they remain relevant to their target consumers.

Effect of fossil fuel prices on Hybrid-electric Vehicles

According to Gourville since 2001’s the price of petrol has risen from of $1.13 has to $4.09 in 2008. Prices look set to continue increasing at an alarming rate (Viegas, 2006). This combined with the trend of falling car sales points toward another potential change in the market. Consumers are postponing purchasing a new car and instead investing into keeping their current vehicle on the road due to the uncertainty with the economy (Hassler, 2000). Changes create the perfect environment for innovation to take place (Bessant & Tidd, 2011). New opportunities must be recognized to serve emerging gaps in the market for HEV’s to remain competitive.

This rise in fossil fuel prices could positively affect consumers’ interest in HEV’s as a viable alternative to fossil fuels vehicles. However it will not only be HEV’s which will be of interest. Consumers will likely consider all other options. One of these is the hydrogen powered vehicle, as it continues to develop with government backing. Bessant and Tidd say “core strength[s] can sometimes become an obstacle to seeing the need for change” (2011, p. 13). Entrepreneurs within HEV organisaiton’s should be careful not to limit their creativity to current identified solutions, but rather focus on the core consumer need, transportation.

Conclusion

In conclusion it would be apparent that for HEV’s to have success in the future it will be critical that creativity, innovation and entrepreneurship are present and working together to ensure all opportunities are identified and exploited to maximum benefit. Just because there appears to be a general growing of interest in alternatives to fossil-fueled vehicles does not mean that a complacent approach can be taken. To attract customers superior value needs to be offered. The superior value will be found as HEV entrepreneurs innovate creatively in organisations that have supportive cultures. As superior value is delivered the level of HEV’s economic success will increase. Ongoing success will be linked to the level of entrepreneurial activities auctioned against viable opportunities.


 

References

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