Green fuels – has the tide already turned?

By Professor Jonatan Pinkse

The opportunity to advance the development and prevalence of alternatively-fuelled vehicles (AFVs) has never been greater than it is now. Though technologies such as electrically-powered vehicles are not necessarily new, this is the first time that AFVs have received such a great deal of support across the board.

In addition to positive incentives such as subsidies, a significant window of opportunity has opened due to the Government’s increasing focus on policies designed to gradually phase out vehicles with an internal combustion engine.

The future of diesel cars in particular is looking increasingly uncertain, with its toxicity put into sharp focus by the recent Volkswagen scandal, where the company cheated emissions tests and covered up dangerously high levels of pollution. Moves by the Government, such as its intention to ban the sale of petrol and diesel cars by 2040, have also dampened public opinion of the fuel.

It is not just the UK that is beginning to take action, either. France is mirroring the UK’s own target, with a ban to take effect from 2040 – except in Paris, which has brought its target forward to 2030. Similarly, Copenhagen plans to ban all diesel cars as early as 2019.

The bad press for traditional fuels underlines the tremendous opportunity for AFVs to rise in popularity, and their potential to overhaul existing car fleets.

There are drawbacks, such as lingering technological barriers, the limited range of electric vehicles or the current lack of charging infrastructure, for example.

However, the advantages even now far outweigh the disadvantages. My own research has demonstrated that providers of AFVs can begin to overcome many of the initial barriers to adoption by innovating their business models, and particularly their value proposition. Rather than just offering vehicles as a product, the introduction of AFVs allows firms to provide new solutions for mobility in a much broader sense, championing mobility as a service.

Recognising the potential of AFVs as a key component of business strategy, rather than just a method of greening fleets, will be crucial for businesses as we move towards the scrapping of internal combustion engines. With the emergence of innovations such as vehicle-to-everything (V2X) and other connecting technologies, AFVs should not be seen merely as a means of reducing pollution and mitigating climate change – important as this may be. In reality, they are helping in the journey towards making all vehicles smarter and safer.

The key here is that in doing so, businesses will be able to change consumer perceptions of such technol¬ogies, demonstrating their value as a green service and simultaneously overcoming the problems inherent with new, disruptive technologies.

This is an exciting moment for AFVs. We are only seeing the tip of the iceberg in terms of the innovation and benefits they are set to bring to businesses and consumers alike in the future.

Professor Jonatan Pinkse’s analysis of the rise of alternatively-fuelled vehicles is featured in the Hitachi Capital UK Future of Fuels report, found here.

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Bringing Disruptive Technologies to the Masses: Innovate Your Value Proposition!

Innovation is more important than ever for firms to be competitive. However, while in the past product and process innovations were seen as key ingredients, nowadays business model innovation is considered to be crucial as well. Research from IBM shows for example that firms investing in business model innovation have significantly higher growth in their operating margin than firms focusing on process or product innovation. While the importance of business model innovation is widely acknowledged and not new per se, it is not yet clear why this form of innovation seems to drive competitiveness so much. Leading management scholars have argued that one of the main reasons for business model innovation’s strong competitive impact is that it centres on the links a firm creates between what technologies can deliver and how customers use them. If a firm manages to build unique links between key technologies and the way customers see these technologies creating value for them, the more the firm will thrive in the market. But how do firms create such links?

The key element of a business model that builds this link between technologies and customers is the value proposition: a firm’s promise or offering to the customer. The value proposition forms the linking pin between what a firm can offer technologically and what a customer is looking to get done. But innovating a value proposition is not easy because customers tend to have clear expectations of what the firms that they like so much should offer. Customers don’t necessarily like surprises. What if a well-respected firm is changing course because it wants to launch a new and potentially disruptive technology. Will customers accept this? Making a disruptive technology’s value proposition attractive for mainstream customers is very challenging.

We – René Bohnsack from Catolica-Lisbon and Jonatan Pinkse from Alliance Manchester Business School –set out to study how firms innovate value propositions for disruptive technologies and how successful they are in doing so. We chose car firms that were offering the disruptive technology of electric vehicles in the US and the Netherlands as a context to study value proposition innovation. Customers are typically very conservative in their choice for cars, so making electric vehicles attractive has proven to be very difficult indeed. Our results, which have been published in the August issue of California Management Review, were revealing.

We found three different tactics car firms use to innovate their value proposition to make disruptive technologies attractive to mainstream customers. Firms either enhance a technology’s unique advantages, they try to compensate for the technology’s disadvantages, or they ‘couple’ the technology with previously unconnected markets to tap into new sources of value. Our findings suggest that many firms only focused on trying to overcome a disruptive technology’s disadvantages by compensating for these by offering additional services. It was quite surprising that most firms rather relied on compensating disadvantages than on stressing or enhancing the novel aspects of a technology. This was especially the case for traditional car firms such as General Motors and Volkswagen who not yet seemed to fully grasp the full value that electric vehicles could offer to customers. However, those firms focussing on enhancing the technology’s unique advantages were more successful in the commercialization of their product than firms that were only compensating. Only Tesla and BMW really focused on the novel aspects of electric vehicles and had much more successful value propositions as a result. Only very few firms tried to couple their technology to new markets but this might be due to the early stages of that electric vehicle industry finds itself in.

Based on our findings we developed a value proposition reconfiguration framework allowing managers to increase the attractiveness of disruptive technologies in a cost-efficient way and to increase sales. Firms can use the framework to change their value propositions so that disruptive technologies become more attractive. The method helps managers to disentangle all the different features of a technology to see how they should repackage each feature in a novel value proposition by using a combination of compensating, enhancing and coupling tactics.

For the full paper see the website of California Management Review or refer to ResearchGate.

Alliance Manchester Business School Spotlight on Jonatan Pinkse

Tell us a little bit about yourself and your professional background:

“I’m from the Netherlands and I attended the University of Amsterdam where I studied my undergraduate and postgraduate degrees in the field of economics. Whilst there I branched out into the topic of environmental sustainability and this is now the driver for my research.

“My PhD looked at the issues of climate change, green energy and renewable energy. This led me to Grenoble Ecole de Management where I was an associate professor looking at economics and management.  By working and researching in the innovation community, this led me to MIOIR here in Manchester. My research is about looking at different topics and perspectives on sustainability, such as technological and societal issues.”

The Academy of Management is the biggest organisation of its kind, with 20,000 members and 10,000 participants are expected to attend the Annual Meeting in Atlanta this summer. What is your role in this and how did you get involved?

“I have been active in the Academy’s ONE Division (Organisations and the Natural Environment) for some time and won the Best Dissertation Award in 2006 and the Emerging Scholar Award in 2011. This recognition brought me to the Program Team where I chaired the Doctoral Consortium and also the Professional Development Workshop.

“I was nominated to be the Program Chair for this year by fellow colleagues which is really pleasing but will not be easy. We are expecting more than 7,000 papers and symposia proposals to be submitted for possible presentation during the Annual Meeting as a whole.”

Lastly, what does the future hold both in terms of the Academy and your own research?

“I think we’re at an exciting yet challenging time in modern history where businesses can’t develop without considering their environmental footprint yet at the same time they still have shareholders to keep happy by making a profit. I’m currently looking at what the future of electric vehicles and mobility could look like but again, as this is so new, in two or five years’ time our research now may be completely incorrect – that is the challenge.

“There are emerging social issues around technology which are fascinating, such as the future of television and how we consume this industry. Others include how countries such as the UK are having issues because of obesity – how will food companies enter the debate about sugar? There is lots of uncertainty in all of these subjects but that is what makes it so interesting.”

Source: Greg Holmes for AMBS E-Bulletin

Embracing disruption to stimulate innovation in sustainable energy

A research project led by academics at the Manchester Institute of Innovation Research will provide insight into how firms in the European energy sector can transform their business by embracing disruptive innovations.

In recent years large electric utilities have been forced to rethink their business models in order to cope with the societal challenges of climate change, and also because of the backlash from the Fukushima nuclear disaster of 2011. For instance in the wake of the disaster Germany announced it would close all its nuclear plants by 2022.

Disruption

Professor Jonatan Pinkse from the Institute says because of the disruption caused by sustainable energy innovations in the area of renewables and smart grids utilities have been forced to embrace innovations they have so far resisted.

“Utilities face the dilemma that they know they have to change their business model, but do not know how. The ‘old’ model where utilities focus on electricity production and sell as much electricity as possible is now considered unsustainable. Instead there is an increasing need for utilities to design a ‘new’ model that goes beyond electricity production and moves towards service provision.”

He said there was a major challenge for electric utilities to redesign their business from the inside and that they were increasingly looking across their organisational boundaries for help. “This project creates insight into how European utilities change their collaborative behaviour to be able to tap into new sources of value creation built on sustainable energy innovations.”

Ecosystem

The project, which is funded by the Lord Alliance Foundation, takes a business ecosystem perspective by studying the change in dynamics of utilities’ strategic alliances with new partners active in the field of sustainable energy.

Adds Jonatan: “Focusing on the emergence of new business ecosystems the project aims to examine the questions of ‘who is doing what?’ and ‘who is profiting most?’ This ecosystem approach will not only reveal the actors involved, the inter-firm division of activities and resources, and the allocation of costs and revenues, but also why some actors capture a greater share of the value than others. The analysis will show under which conditions certain actors seem able to shape the business ecosystem to their advantage, while others fail to do this.”

The project, Sustainable Energy Innovation and Shifts in Value Creation and Capture in the Business Ecosystem, is being headed by Jonatan and Dr Eva Niesten.

Source: http://www.mbs.ac.uk/news/school-news/embracing-innovation/

Organizational Inaction on Climate Change – A Guest Lecture at the University of Hamburg

As part of the CGG Lecture Series of the University of Hamburg I gave a lecture on the lack of action on climate change by business. The lecture can be watched via this link: lecture.

The lecture is based on a paper that is forthcoming in Business & Society:

Slawinski, N., Pinkse, J., Busch, T., & Banerjee, S. B. (2016). The role of short-termism and uncertainty in organizational inaction on climate change: A multilevel framework. Business & Societydoi:10.1177/0007650315576136;ResearchGate

 

 

 

Dieselgate: a strategy perspective on the Volkswagen scandal

by René Bohnsack

It has almost been 6 months since Volkswagen has admitted using so-called cheat devices in a majority of their cars in order to fulfil increasingly stricter emission regulations. Volkswagen, in striving to become nothing less than the largest car manufacturer in the world, has thereby jeopardised its existence, damaged the German reputation and deceived millions of now distrustful customers.

One of our recently published studies allows a look behind the strategic scene of the scandal. Basically, the car industry is one of the, if not the most complex global industry. The international activities of car manufacturers are part of that. All of these different international markets have their own government policies with diverse agendas, often favouring local players. We found that globally there is an intricate interplay between local, national and international government policies and car manufacturers’ strategies (see the figure).

Analysing the case of Volkswagen with our “International Multi-Level Framework” (see figure) we find that VW got hammered on diesel engines in the US, a place where the government does not favour this technology. In fact there is a good chance that the scandal would never have developed the same way in Europe, as there is more political backing for diesel in Germany and France, for example.

In other words, VW’s presence in the US has made it vulnerable to the different attitude towards diesel, which now spreads across the globe. It also spreads to the home market where it was protected so far by more lenient policy of being able to do the testing in self-defined conditions.

From a strategic perspective, VW’s objective to become the No.1 car manufacturer requires operations in the U.S. as a major market. Toyota, its closest competitor for the first rank, had a strong position for years in the U.S., partially based on a competitive advantage they have gained due to strict emission regulation in their home market Japan. VW in the US on the other hand was then exposed to fulfil technological requirements that did not fit their capabilities and decided to engage in illegal actions. What we now see is that the U.S. reaction (e.g. more rigorous testing) has been spreading and haunting VW in other markets including their home market ever since.

Companies can learn from this. In a world in which many companies create large shares of their revenues in foreign markets and in which government regulation is increasing, companies are well advised to screen their international environment. Particularly they should test their strategy for fit with foreign policies before entering a market – because not every attractive market is a suitable market – and companies should follow the activities of competitors abroad closely since they might be subject to more demanding policies which could give them later on a competitive advantage in international markets. Not doing that, could lead to costly implications. In the case of VW – which at the moment seems to be pushed by the U.S. Environmental Protection Agency to make up for their mistake by producing electric cars in the U.S. — the coming month will be interesting to witness and see how the overall effect of their negligence will unfold.

TSFC

Figure: The International Multi-Level Framework

For further reading see: Bohnsack, R., Kolk, A., & Pinkse, J. (2015). Catching recurring waves: low-emission vehicles, international policy developments and firm innovation strategies. Technological Forecasting and Social Change, 98, 71-87. ResearchGate.

Published in Portuguese: https://www.dinheirovivo.pt/opiniao/510679/