Volkswagen Evergreen Beetle Car: Enduring Principles for Living Legacies

Volkswagen recently advertised in India the commercial launch of its iconic small car, Beetle. Sporting the almost similar exterior that made the car a folklore for decades from its first launch in 1938, the Beetle of today incorporates ultra-modern technologies. The author of this blog post is gratified that the launch coincides with the topic of retro-futurism which the author has discussed in his recent blog post titled “What Palm Holds, Eyes Behold: The Retro-Futurism of iPhone SE”, Strategy Musings, April 18, 2016. (http://cbrao2008.blogspot.in/2016/04/what-palm-holds-eyes-behold-retro.html). Without doubt, the arrival of Beetle in a new avatar is a striking example of retro-futurism, and reinforces the insights of the previous blog and offers additional perspectives.

Some comparisons and contrasts with Apple SE are also inevitable and quite necessary. 

Fundamentally, Apple SE being an electronic product and Beetle being an automotive product they are as different as chalk and cheese in design, manufacture and usage. Yet, they represent, in real time context, the relevance and practicality of retro-futurism as a concept. They also demonstrate that ‘retro’ can be as recent as four years (as is the case with Apple SE) and as distanced as eighty years (as is the case with Beetle). Given the thousands of products that have been designed, developed and used as well as rendered obsolete and phased out over all through the four hundred years of successive industrial revolutions, the impact of retro-futurism as a practical paradigm is self-evident.

Origins, growth and decline

The first Beetle was designed as an idea by Joseph Ganz, a Jewish Engineer in early 1930s. Adolf Hitler, however, grabbed the concept and ordered Porsche to develop a Volkswagen (literally, a “people’s car”). The design and manufacture of the Beetle including building of Volkswagen factory was completed in the late 1930s. Enduring the trials and tribulations of successive world wars, Beetle survived to grow as the most sustained small car design, and Volkswagen as the most dominant European automobile company. The Beetle was designed as a basic small family car at the cost of a motor cycle to transport two adults and three children (Is not Tata Nano a retro-futuristic concept?). It was one of the first to have air cooled rear engine and chassis mounted on torsion bars, and a roundish body looking like a bug!

In its long history, over 21 million Beetles were produced. Beetle’s most successful period was the decade of the 1960s, with it becoming a favourite all over the Americas and Europe. However, the emergence of new global designs, especially from Japan, brought its glory down. Volkswagen had to officially end the declining production run of Beetle in 2003, worldwide. There is no denying that Beetle was the most successful rear engine design and had little spec to spec competition in its class. Volkswagen itself had to go through several iterations before its successor Golf could be perfected and popularized.

Interestingly, Volkswagen attempted to update Beetle in 1995 itself with a redesigned vehicle based on its Polo platform. It had the same exterior but used a higher horsepower engine and multi-speed gearbox. The final edition of the New Beetle happened in 2010, marking the demise of the New Beetle as well. The phase-out of the New Beetle demonstrates that there is a difference between the ongoing requirement for annual updating of automobiles and retro-futurism as a distinctive repositioning. Typically, retro-futurism needs to deploy a few breakthrough approaches to breathe new life into the retro designs.

Upgrade versus reinvention

Over the first twenty years, Beetle had continuous upgrades which by today’s standards would look very marginal. For example, the engine capacity moved from 1 litre to 1.2 litre and engine power moved from 24 HP to 36 HP. Elimination of starter button, repositioning of ash trays, redesign of bumpers, windows, turn lights and fenders were all that to claim for upgrades. The first syncromesh gear box did not arrive till the 1960s. Such minor changes continued to propel Beetle until the fade-away years of the 1970s, which brought hot new competitive designs from Japan on one hand and stringent fuel economy and emission standards in US and Europe on the other. Yet, supported by improvements like electronic fuel injection internally and convertible body designs externally, Beetle moved on with a niche positioning until the complete phase-out in 2003.

Volkswagen realized that notwithstanding the decline in sales, there was a huge reservoir of goodwill for Beetle as a design concept and owner experience. The New Beetle which was designed in the late 1990s was aimed at making the car contemporary with 1.8 litre capacity engine developing 150 HP, transverse mounting of engine, nippier drive train, independent suspension, bright colours, ABS brakes, high intensity discharge headlights, traction control, and other stylistic changes. Yet, the combination of the largely untouched Beetle exterior profile and the more powerful Golf internals as the new Beetle was not enough to fuel a new rally for the new Beetle. This is ample proof that retro-futuristic designs must not only retain the best of the old but also integrate the best of the future.

Digital Beetle 2016

After decades of incremental mechanical engineering as above, the Beetle is now reinvented as Beetle for the millennials’ era incorporating digital technologies to make the much loved buggy car future-proof. It is a combination of classic style and contemporary engineering in a future-ready digital platform. It retains the iconic two-door design and rear wheel drive but has now a larger engine series capable of delivering up to around 200 HP of power and up to around 30 KgM of torque, previously unthinkable for such a compact car. It also sports a seven speed automatic transmission, large alloy wheels, keyless starter, light sensing Xenon headlamps, electronic braking distribution, anti-lock braking system, traction control, electronic stability programme, six air bags and digital multimedia. It features all the digital bells and whistles that make travel in a contemporary car a joyous ride of safety and pleasure.

With affordable pricing, the Digital Beetle could scale up to sell in millions again. With premium pricing it could just be an everlasting niche product, selling in just thousands. Either way, the product could continue to retain its iconic status even decades later. Beetle reflects the requirements of retro-futurism brought up in the earlier piece on Apple SE: (i) A product should be developed with a state of elegance that could enable it to qualify itself as a new product even years later, (ii) Recalling a retro design has to be more than for emotional or reminiscence reasons; it should bring the latest technologies within the restored contours, (iii) The higher the size of the industry market base (and its growth rate), the greater is the potential for retro-futuristic products, (iv) Retro-futurism is not about using old dies, moulds or chassis for cheap products but is more about creating superior products with re-optimized cost and technology balance, and (v) importantly, Retro-futurism should never be mere refurbishment; it must be on reinventing the ‘old’ as a contemporaneously relevant ‘new’. 

Living legacies

Additionally, however, there are a few important lessons from Beetle that supplement the above. It is not uncommon to have legends and legacies. What is relatively uncommon is for such legends and legacies to live on physically across generations, which is not impossible as Beetle demonstrates. The enduring living legacy principles are as follows.

Inspirational designs have no expiration risk. As demonstrated by Apple SE and Beetle, inspired, and inspiring, design have no shelf life. They can survive and succeed in perpetuity. Indian epics and Raja Ravi Varma paintings are irrefutable evidence on an entirely different level. This is because inspirational designs and products appeal to the spirit as much as to the eye.

Structured teams can continuously develop innovative themes to perpetuity. History has it that Beetle concept was the brainchild of one innovative designer, way back in 1930s. By virtue of the design getting passed to Porsche, the established car maker, the concept became a reality, with continuous updates by Volkswagen teams. Designers and Developers in harmony can embed lasting value in products.

What lasts in crisis outlasts competition. Beetle was a pre-World War car. Though essentially a civilian design, the product was hijacked for military purposes. Its manufacturing facility was ravaged in bombings. Lasting through the crises, Beetle proved its mettle as a product that is crisis-proof, and hence as a product of sustainable success over generations.

Global businesses can be built on single but marvellous products. Many companies and leaders believe that they require multiple products to scale up, more so globally. While such a strategy has its relevance, Beetle is one example (along with scores of others) that one great product can create, or at least lay a lasting foundation for, a global corporation. Sony, Intel, Microsoft, Facebook, Google, and several other global corporations, each founded on just one core product, are living examples.

Glorious past gives lasting legacies but unflinching faith shapes living legacies. Managements that are driven by numbers of margins and viability as well as phase-outs and fade-outs lose track of the evergreens they have in their midst. It requires more than ordinary managerial skill and leadership insights to identify, support and nurture designs and products of perpetual value.

It is an evolved human characteristic to be creative and innovative and to constantly invent or discover something new, and build new businesses around it. While there can be no two opinions that it is a natural path, it is equally important to retain the soul and spirit of the original innovation and creativity. The paradigm of living legacies, as discussed herein, inspires us to recognize that certain types of unique innovation and creativity are everlasting in nature.   

Posted by Dr CB Rao on April 28, 2016

The Mind of the Eternal Innovator: Imaginative, Re-imaginative or Disruptive?

Innovators are intellectually and attitudinally driven people who are essential for progress. Without their innovations, the world would not have been, and would not be, a better place to live in. Granted that some of the innovations have had negative consequences for the society (for example, explosives) and granted also that each positive innovation can be wrongly used for negative purposes (for example, cyber-hacking), the overall benefits of innovation far outweigh the negative consequences. We can also take heart from the fact that misuse of innovations can be moderated, if not controlled, by positive social alignment and family environment. The common purpose of innovation is to create devices, equipment and infrastructure that can improve human life. The ultimate purpose of innovation could be to extend life by eliminating diseases and enhancing wellness, and to even monitor, regenerate and recreate life.

Innovation is not for all; otherwise there would not be two distinct classes called innovators and copiers or leaders and followers in business, academia and society. Steve Jobs once said, “Innovation distinguishes between a leader and follower”. That said, the greater the divide between the two, the greater would be the power of monopoly built around innovation and the less would be the distributed social impact of innovation. In leadership and management theories, there is an embedded view that innovation at individual level is for people with rare endowments and at a firm level is for companies that are willing to bet huge investments and efforts on innovation. Evidentially, however, the contrary seems to be true. Innovation is as much about an innovative mind-set as it is about intelligence quotient or investment commitment. Innovation is also about a facilitative ecosystem that supports generation and acceptance of innovative ideas.

Imagination, re-imagination    

Innovators not only imagine but also re-imagine. Eric Schmidt, Chairman of Google, Inc said, “The characteristic of great innovators and great companies is they see a space that others do not. They don’t just listen to what people tell them; they actually invent something new, something you didn’t know you needed, but the moment you see it, you say, I must have it’’’. This implies that innovation is about having a vision for novel products and services and converting it into commercial reality. The ‘Pushpaka Vimanam’ of Hindu mythology and the aeroplane of industrial revolution are perfect examples of imagination bringing forth new products to fulfil intrinsic needs. Organized and structured research in academic and industrial laboratories follows the path of imagination to create synthetics that mimic or excel over the natural or the pre-existing synthetic.

That said, innovation is also re-imagination of what has been existing all along. For example, measurement of blood pressure has been there from the time medicine became organized, for centuries in fact. However, making measurement of blood pressure real-time and self-monitored through a wrist band or a wrist watch is the result of re-imagination of an existing activity. Driverless car is not a fundamental creation; rather it is re-imagining the process of human driving in terms of machine driving. In re-imagining, innovators consider several parallel developments in other technologies that could make re-imagination feasible. The important point to note is that imaginative innovators and re-imaginative innovators are significantly different in their approach to life, be it individual or corporate.

Visualization, re-visualization

Imaginative innovators set out to develop reality out of the abstract. They set and re-set innovation goals, conduct and re-conduct experiments to validate hypotheses and eventually succeed in bringing to life a new product or service. They look to bring novelty as the prime dimension of their innovation. Such inventions can be very purpose-oriented and goal-driven or quite accidental and serendipitous. Development of aeroplane by Wright Brothers, imagining the bird as the inspiration, was a very specific purpose driven invention. Discovery of stainless steel by Harry Brearley while experimenting with different proportions of metals, especially chromium, in steel was an accidental discovery. So was the discovery of Penicillin by Alexander Fleming or discovery of radium by Marie Curie, in a sense. That said, imaginative inventions are never by chance but are a result of serious application of knowledge and generation of experiments in which chance may also play a part in steering the course of discovery.

Re-imaginative innovators, in subtle contrast, are keen observers of what is available to create new realities that fulfill new needs or help perform current needs in a different way. Re-imaginative visualizers adopt convergent thinking (bringing together different functionalities and products in one product) in some cases and divergent thinking (deploying current products for different functionalities) in some cases. As products and technologies keep getting developed in an exponential manner, the potential canvas for re-imaginative innovators vastly expands. The projects by Google to deploy its Google Glass technology for diabetes management is one example. Re-imaginative innovation may deploy common technologies for multiple uses. It is interesting that while one purposive mind-set drives imaginative innovation the same mind-set could block re-imaginative innovation.

Disruption, transformation

The potential for innovation is, more often than not, never fully exploited. Companies and individuals may be known for consistent innovation but could have their blind spots in harnessing the full potential of innovation. Leading automobile companies of the world, including such innovation stalwarts as Toyota and Nissan of Japan, had decades ago deployed unmanned automated guided vehicles to move materials, components and products into and out of warehouses. However, it never occurred to such innovators that they should develop driverless automated cars. The companies had, for decades, used sensor technologies to govern movement of components and fool-proofing production and change-over cycles on the shop floors. Here again, it did not occur to such manufacturers that they should lead projects to elevate sensor technology and deploy it to improve navigation and safety in automobiles.

There can be several such examples from different industries where despite commitment to, and achievements in, innovation organizations fail to make the best use of their innovation potential. The reasons are not far to seek. Firms, typically, work in silos, focusing on maximization of efficiency within the existing business construct rather than disrupting a successfully operating business model. Reverting to our example of automobile industry, innovation focused on engine efficiency, transmission smoothness, chassis sturdiness, lighter but stronger materials and elegant aerodynamics to make the automobile better and safer for driving, travelling and owning rather than eliminating driving itself. That Google and Apple have taken this project is a classic reaffirmation of Eric Schmidt’s statement that the characteristic of great innovators and great companies is that they see a space that others do not.

Innovation horizons

Fundamentally, transformative Innovation can be disruptive, and hence many firms tend to delay disruptive innovation until it begins to take the form of a serious competitive threat, especially by new entrants. Rather than baulk at the prospect of disruptive innovation, competent and capable firms must find approaches integrate disruptive innovation into long term business models in a seamless way. The author of this blog post suggests charting the business in terms of three innovation horizons, the first one being the horizon of incremental innovation, the second one being the horizon of breakthrough innovation and the third one being the horizon of disruptive innovation.  Lasting businesses can be built only when a firm operates in all the three horizons of innovation.

The first horizon corresponds to imaginative innovation for performance and specification improvement, the second horizon corresponds to re-imaginative innovation where product-market interface is completely redefined through either convergence or divergence, and the third horizon corresponds to disruptive innovation that eliminates key product anchors in favour of new disruptively innovative ones. Firms may vary in approaches with regard to revenue-investment mix in each of the three horizons; some may follow a 50-30-20 mix while others may risk a 20-30-50 profile too. The extent to which the innovation horizon model is adopted depends on the innovation mindset of firms and individuals, and the innovation ecosystem they are able to nurture in their organizations.

Innovation mindset

There are certain characteristics of innovation oriented firms, their leaders and their team members that tend to be unique. Leadership for innovation is a separate competency-set by itself. Innovative leaders explicitly seek expressions of innovation, from simple ideas to complex prototypes. They embrace the idea of products doing things differently or doing things never done before. They take responsibility for incubating ideas, providing innovators with financial and people resources as well as equipment. They also understand that intellect and data powered debate is an essential component of bringing the best of innovation to the fore. They respect the short term improvements (to sustain current business) but without losing the aspiration for longer term transformations (to reinvent and transform business).

When businesses operate in terms of the three innovation horizons they move from a position of business sustainability to ‘future-shaping’ business. Rather than keep pace with innovations that come in from multiple sources as competing businesses they create their own innovation engines to influence the future. The acid test for such innovation leadership is a willingness and boldness to make its own current products obsolete. If Apple tried to protect its iPod as a music player without providing music-play capabilities in iPhone, the latter would never have been a blockbuster while the former would, in any case, been overshadowed by other smartphones. Disrupting one’s own product line-up and business strength by norm-defying innovative mindset is probably the best assurance of business perpetuity, besides being provider of global competitiveness.

Post-script

After the author has penned the post, the report of World Intellectual Property Organization (WIPO) on global innovation rankings has been published in the Press. Disturbingly, it says that India has slipped further down the Global Innovation Index, ranking 81, from 76 in 2014. In this survey of 141 countries, China retained its ranking at 29 while Switzerland had the top spot. India’s performance on innovation marks a sharp decline in the assessment of the state of innovation in India over the past few years; in 2008-09, the nation had ranked 41^st globally. India’s low performance on innovation is troublingly inconsistent with the aspiration and expectation of turning into a global economic and industrial powerhouse by 2030. The author hopes that the discussion in the blog post on the types and horizons of innovation would help policy makers and leaders to embed innovation as an essential part of India’s economic, industrial and social culture.  

Posted by Dr CB Rao on September 19, 2015      

Technological Power as a Marker for Competitive Analysis: A Conceptual and Analytical Framework

In the previous blog (http://cbrao2008.blogspot.in/2014/01/technology-fluidics-and-adaptive.html), I have postulated that competitor analysis is best carried out in terms of technological power of a firm, expressed through the fluidic ability and adaptive agility of new technology. Unlike the traditional strategy theory of the 1980s, which positioned technology as a core competence and collaborative factor, it would now be more relevant to view all technology that is outside of a firm’s intellectual ownership or commercial access as being a potentially competitive force against the firm. Technology, being an embedded invisible platform, is too abstract to identify a priori in terms of commercial potential and feasibility. While Porter’s Five Forces theory considers technology as a competitive force, it depends on a physical surrogate (ie., substitute products) for identification. A relevant approach in the new age would be to analyze competition in terms of technology share, ahead of substitute products coming up commercially. This blog post proposes a conceptual and analytical framework to understand and quantify technological competencies of a firm, in an industry context.

Technology, in the context of blog post, includes science. Technology represents both product and process technologies, and at every level of a product or service value chain. For example, in the case of processed foods such as corn flakes, technology represents the complete spectrum from corn cultivation, including soil and seed development, through flake manufacture, including packaging, to customer delivery, including logistics, distribution and retailing. The technologically optimal firm is the one that deploys the best of technologies across this full corn value chain. The highest technological power is derived when each part of the corn value chain deploys the leading edge technologies. Very often, internal strategists and external analysts miss this point and assess technology only from the end-product or consumer point perspective which leads to quite a high level of lag in holistic development of the total technological value chain. Many times, technological solutions are developed in parts to meet specific needs but probably more would be gained if each such challenge is leveraged to address the total value chain.

Parts are more than the whole

The much used saying of management is that the whole must always be greater than sum of the parts, reflecting the principle of synergy. In respect of technology the sum of parts can be more than the sum of the parts only if the full potential of each part is exploited at each challenge. Let us take the case of introduction of non-asbestos gasket in automobiles as a response to regulatory and environmental concerns on the use of asbestos. Most automobile companies took up the issue as an individual fix of replacing the asbestos gaskets by non-asbestos gaskets, mostly as an initiative of component manufacturers. Some manufacturers simply made gasket to gasket replacement while some considered the finer aspects of change in gasket thickness vis-à-vis cylinder block and cylinder head clearance, to redesign key components. However, a few wise automobile companies considered the total challenge of increasing the fuel efficiency and reducing the environmental impact, not merely through non-asbestos gaskets but essentially through a series of measures from micro-mixing of fuel to catalytic converters in exhausts.  

Another fine example of total technological value chain approach would be to reduce the cost of an automobile. The results of a cost reduction exercise can be astounding if the exercise is taken up in a larger format. Weight reduction of each component can reduce the overall material consumption and reduce costs. It also can reduce frictional losses of the engine and also lead to better power to weight ratios. It can also enhance the load carrying capacity for a similar form factor. There is, therefore, merit in approaching any particular technological problem through a broader technological spectrum. If breakfast cereal makers approach the challenge of healthy foods from a perspective broader than just reducing salt, sugar and preservative content across the board but customize them in terms of age needs and nutritional requirements product development would be more comprehensive. This requires defining the technology value chain in terms of agro-biology; aligning crops and food processing with human physiology and disease pathology. A broader definition of technological power in the manners described is easier said than achieved.

Refocus versus defocus

Whenever major shifts in strategic perspectives and technological platforms take place, rather than address the shifts appropriately, such shifts are addressed stylistically than substantively. The former would hypothesize that automobile industry will in future be redefined as global navigation industry or dairy product industry be redefined as probiotics industry. Dramatic though it may seem and worthy of publication in HBRs, such presumptive portrayals of industry shifts represents defocus rather than refocus. The reason is that the core objectives of products do not disappear merely because of convergence of other functionalities. An automobile will never cease to be an automobile just because of the integration of leading edge electronics and global navigation technologies. A dairy product manufacturer cannot afford to redefine itself a dairy company or as a probiotics company just because dairy biotechnology has developed to let dairy products work as gastro-intestinal medicines. Google may not cease to be an Internet company even if it masters the driverless or self-driving car technology.

Extension and deepening of product capabilities by firms based on new technological capabilities needs to be distinguished from deliberate moves by companies from one industry to another (as was the case with Nokia, for example). For every firm which desires to be competitive, the passion must be not in terms of reinventing its industry roots but in terms of vitalizing and expanding the spectrum of technologies that can be embedded in its core products. As the simultaneous efforts by Google at one end and Toyota at the other end show, one may utilize each other’s products or capabilities but driverless car as a technological concept transcends companies. The same was applicable to robots whether developed by Honda or Sony; a robot is robot. The key point to note is that while it is the power of technology that redefines product capabilities it is the access to technology across the total technological value chain that redefines a firm’s capabilities. It is important firms to appreciate that while technologies can be integrated in a variety of ways two are the most important ones; each affording different opportunity - challenge profiles and different risk - reward profiles for different firms.  

Assessing and accessing 

It is easy to overdo the technology angle as much as under-do. There is a significant difference between technology cycle and product cycle. The first payoff for technology is in terms of a product embedding the technology. The payoffs for technology and product thereafter occur in layers, first in terms of sales, then in terms of profits and finally in terms of payback on investments. Depending on the industry, the payoffs from the first investment in technology to the final back could take anywhere between five to twenty years. Clearly, the volume base of new technology products determine where the payback needle would settle. We discussed earlier that the total technological power of a product is a sum of the parts. However, a technological value chain tends to be only as strong as its weakest link. A high performance formula car, for example, cannot survive on normal on-road tyre technology. In terms of quantification, a more powerful expression would be a multiplication of the technological indices of the individual parts of the total technology value chain. A firm would do well to completely define the technological value chain of its product, objectively index each part’s technological power and multiply all the indices to arrive at the total technological power of the product. Such analysis also lets the firm analyze the vulnerabilities across parts and measure the sensitivity to enhancements.

Clearly, it is a strategic necessity to ensure the full complement of technologies. That said, it is neither commercially appropriate nor practically feasible for firms to develop technologies across the total chain organically. What must be done, however, is to develop a few core technologies organically and access the best of technologies for all the rest. Accessing technologies in strategic partnership with firms ensures total coverage of the technology value chain. This requires creation of competencies in the firm to constantly scan the intellectual property landscape and hone in on the best alliances and licensing arrangements. Such competencies should include ability to continuously phase in new technologies across the value chain. Three dimensions are proposed to quantify this capability. The first is the ability to commercially upscale or downscale new technologies across the value chain. The second is the ability to upscale or downscale technologies to other products in the same design family. The third is the ability to embed the technologies of one product into other significantly different products.

Posted by Dr CB Rao on January 26, 2014

The Beetle-Ambassador Paradox: The Essence of Product Perpetuity

Beetle subcompact car produced and sold by Volkswagen of Germany worldwide is an iconic product that came to be timeless in its acceptability to the young and old alike across generations. First designed and produced by Porsche in 1934 as a family car, Volkswagen sold over 20 million Beetle cars until the mid-1980s. It was probably the first car with an air cooled rear engine.  Its peak production was 1.3 million units a year but dipped to 30,000 units a year, prior to its production halt. It also became a car that signified multi-country production and was ‘reverse exported’ from an emerging country to the country of origin, Germany. Beetle is now back again, evolving for the last several years as an urban car from Volkswagen for a fun loving modern generation of the 21^st Century.   

Ambassador compact car produced and sold by Hindustan Motors (HM) of India is in its own humble way an iconic product in India that became synonymous as much with the inception and growth of the Indian automobile industry in the 1950s as the frustration of technological obsolescence in India. First made by Morris Motors Limited as Morris Oxford II model in 1956 in the United Kingdom, it began to be manufactured by HM in 1958 under a technical collaboration at its Uttarpara plant in India. From a dominant market share in a diminutive automotive market of India (30,000 cars per annum or so in the 1970s), Ambassador collapsed in output to just 2500 cars per year in a super grown contemporary automotive market in India (3.3 million cars per year presently).

Comparisons and contrasts

Beetle, doubtless, represents a product concept and a product profile that was timeless. Despite the plethora of manufacturers and car segmentations and designs that overwhelmed the world automobile scene from the 1960s, Beetle retained a niche. The car looked the same but continued to integrate internal changes. All said and done, the Ambassador also stayed on as a car mass-produced in India for the longest number of years on the same assembly line in the whole world. No other car made in the world has surpassed this record. In fact, as opposed to Beetle, there was never a long term break in the production of Ambassador. Strangely, Beetle and Ambassador share the rounded, curvy retro looks. The comparisons probably stop here.

Beetle evolved over the years, and reinvented in recent years, as a very modern design that integrated high end electronics with hi-precision mechanicals. In contrast, Ambassador continued to remain the same old car with minimal design changes, except the engines getting updated to newer emission norms progressively. Volkswagen, the producer of Beetle has been  marching on to become one of the world’s largest car manufacturer, with an output of       million vehicles, covering 10 global brands and 200 models, produced in nearly 100 factories and a global workforce of 500,000. HM, the producer of Ambassador has shrunk perilously down, with an output of only a few thousand vehicles of all types, and mounting losses, notwithstanding several product diversification moves based on further foreign collaboration arrangements.

The formula for product perpetuity can be gleaned from the positive profile of Beetle and Volkswagen as well as the negative profile of Ambassador and Hindustan Motors. Possibly, the history of both Beetle and Ambassador indicates that certain products can have a lasting presence, if the manufacturers set their heart on their retention, allied to or independent of product-specific viability, but mandatorily linked to technology, product lines can stay onto near perpetuity. Three critical aspects are discussed below.

Tradition with technology

Product functionalities may change or new ones may emerge but usage traditions remain. As far as automobiles are considered, while the basic functionality of movement or transportation does not change, several others have got added. However, the tradition of a family vehicle, an urban vehicle or urban vehicle remains. How an old basic design is updated to modernity retaining the tradition is the key to product perpetuity. While retaining the original “The Beetle”, new models such as GSR for sporty applications and Cabriolet in the 50s, 60s and 70s branding for lifestyle applications have been added. Power and safety options are offered at the level of a large sedan even though Beetle is a small car. As if it were an ultramodern car, both hard top and soft top variants are offered. All the trappings of a modern car, in terms of electronics and trim are offered. Even if the shell is of vintage design, elegant lines and accessories are used to add to provide a pleasingly modern but traditionally retro look to Beetle. Ambassador which got stuck with the design of the 1950s did nothing of that sort, and the negative results are obvious.

The concept of novel product development combining tradition with technology has wider applicability. The latest to emerge is the smart watch which redefines the traditional concept of wearing a wrist watch with cellular connectivity and communication. The traditional concept of handwriting has been restored with tablets and phablets that can accept writing and drawings while that of physical book reading has been revolutionized with electronic book reading, a few years ago. Many traditional practices like wrist bands and spiritual bands are modernized with healthful metals, elements and electronics, and made contemporary with designs. The concept of retrospective products with futuristic technologies has revolutionized food processing and lifestyle industries. There could be virtually no limits to this trend. Products and functionalities can remain in perpetuity so long as technology updates them to modern functionalities.  

Innovation with investment

Innovation cannot happen without investments – in people, assets and supportive infrastructure. However, investments need viability which in turn comes from a successful product portfolio. Volkswagen did not stop only with Beetle; it continued with aggressive additional product development for multiple segments in global markets. In contrast, HM did not, and could not, go beyond Ambassador for India. Though the company entered, from time to time, into collaborations with world class Japanese automotive giants such as Isuzu (for trucks) and Mitsubishi (for cars and SUVs), the company could not provide the requisite investments to support product diversity that could provide the scale and scope economics which could, in turn, support updating of an aged but popular niche product such as Ambassador. Probably, as a product that was for decades in a sub-scale automotive market of India which was no more than 30,000 cars per annum for 3 manufacturers, Ambassador probably lost the game of innovation from the start.

Innovation and investments, however, require a business sense. What Ambassador could not achieve in India, Maruti-Suzuki could achieve in the same Indian market with aggressive investments, innovative products and intensive marketing. Maruti 800 car was a path breaker. Though it was discontinued a few years ago it is slated for a comeback with more contemporary technological flourishes. Hyundai which blazed new trails, years later, with i10 car is set to keep up the product perpetuity with i10 Grand car. The ability to make timely investments and support product innovation is the essence of enabling product perpetuity. The task becomes complex as well as easy when a product has a number of outsourced components. There are several marquee products and brands in India which can be brought to contemporary standards (Leyland Comet truck, Tata Indica car, Bajaj Scooter, for example) while investing in new products. What Bajaj did not do for the perpetuity of its highly popular scooter (in fact, it killed the product), its originator Vespa has done.

Brands with brain and brawn

Products with perpetuity potential typically enjoy significant brand power, initially and for several years of growth. Ambassador had brand power in India as much as Beetle had in its global markets. Even when products go out of perpetuity, the brand pull remains. ‘s strategy of reinventing a new low cost car model, “Go”, for India and other emerging markets through the revival of Datsun brand is a classic example. Reliance brought out its clothing brand Vimal after several years of retirement. It goes without saying that if investments on popular products on the lines considered in earlier sections are accompanied by commensurate investments on brands, product perpetuity can be ensured. It implies that even when erstwhile popular products face temporary setbacks, it would be a futuristic move to keep the brands in public recall in gross or subtle ways.

For product perpetuity, brand building has to happen with both brain and brawn. The potentially perpetual brands get identified with native traditions in an intuitive yet refined way, oftentimes with emotionally identifiable icons. Air India’s Maharaja and Amul’s little girl are outstanding examples. However, for product perpetuity to occur there must be a one-to-one association between the product and the brand. When companies attempt to leverage popular brands across a product range it becomes difficult to support perpetuity of a product. The ideal conditions are that the product must have a distinctive, even if vintage, design and the brand must have a specific user association. Jeep, Land Rover, Innova and Sumo (all utility vehicles), Comet and Viking (truck and bus), and Lambretta and Vespa (two wheelers) are a few examples. Unfortunately, companies seem to be losing their interest and penchant to build correlated products and brands.

Product perpetuity could present an attractive fallback option for companies in a perpetual rush for product diversity in highly fragmented and intensely competitive markets. Products of vintage standing can be akin to family silver that could be worth a fortune when chips are down; such products need to be tended to technology, investments and branding in a manner exclusive to them, however. There is nothing to be bugged about dated models as long as they are cared for enough not to be outdated, as the classic example of Volkswagen Beetle (or “Bug” as it is also popularly called) demonstrates!

Posted by Dr CB Rao on October 12, 2013                            

     

 

 

 

 

 

 

 

 

Powering the Indian Automobiles: Diesel or Petrol and Euro 4 or Euro 6?

Traditionally, technological trends the world over had favored petrol engines for the lighter passenger cars and diesel engines for the heavier trucks and buses. Petrol engines are lighter and quieter, and capable of developing more power, making them an ideal choice for the lighter vehicles such as cars. They are high-revving and have better power to weight ratios and have nippy acceleration. Diesel engines are heavier and noisier, but capable of developing more torque, making them an ideal choice for the heavier vehicles such as trucks and buses. Diesel engines are low-revving and have better torque to weight ratios, and have greater moving force.  Modern developments in engine technologies, however, upgraded the diesel engine to greater efficiencies, suitable for lighter vehicles too. Europe has pioneered this light diesel engine technological revolution, as evidenced by France having 77 percent of cars as diesel driven, followed by Germany at 44 percent. Japan with its passion for clean and quiet environment has been a great respecter of petrol engines; Japan has only 2 percent as diesel driven cars. US has been at the other extreme, encouraging use of gasoline even for trucks and buses.

India has, surprisingly, already 49 percent of its cars as diesel driven cars. The equal share of diesel prime movers in India has not been due to contemporary diesel engines, until at least the recent years. The share of diesel engines in passenger cars has been driven almost entirely by the differential pricing of petrol and diesel, with the former being more or less market driven and the latter being administered, ostensibly to keep the truck and bus transportation costs low. The oil industry/the government loses roughly Rs 26 per liter of diesel, which is also approximately the cost saving per liter of diesel. Notwithstanding the noisy and dated technologies, diesel driven vehicles have started gaining popularity in India. Today, no utility vehicle (UV) in India comes with a petrol engine option while passenger cars, even smaller hatchbacks, also have taken to offering diesel engines predominantly. This has, not surprisingly, led to a public debate on the entire gamut of fuel pricing, vehicle taxation and use of diesel engines in automobiles.  

Public debate

Diesel engines emit darker smoke with higher particulate matter. As if this was not enough, diesel exhaust was classified by World Health Organization (WHO) in 2012 as a class 1 carcinogen, placing it in the same toxic bracket as tobacco smoke. A recent All India Institute of Medical Sciences (AIIMS) study found growing incidence of lung cancer in non-smokers in Delhi. The study hypothesized that exposure to diesel exhaust fumes could be one reason. The environmental voice against the dieselization of cars is forcefully heard from Centre for Science and Environment (CSE) chief Sunita Narain, who states “it is immoral of the auto industry to create demand for a fuel that makes oil refineries bleed and our lungs explode”. She argues that diesel has to be a confined as a fuel for public utilities. Some experts have proposed higher taxes for diesel cars, in terms of higher excise duty, annual tax on diesel cars and so on.  Others have proposed total decontrol of petrol and diesel prices. Diesel pricing, being a politically sensitive issue, no major change in differential pricing may be expected anytime soon.    

The public itself seems indifferent to the debate on the risks of diesel engines and continues to favor diesel engines. A diehard petrol car maker like Honda is now forced to introduce for India a diesel car named Amaze. The automobile industry says that passenger cars are a small contributor for the air pollution on the roads, laying the blame on the aged commercial vehicle population of the country. It also maintains that consequent to the change from Bharat Stage III (BS III) emission norms to BS IV emission norms, the permissible particulate matter discharge has been brought down from 0.5 grams per kilometer to 0.025 grams per kilometer in diesel cars. Non-introduction of BS IV norms across the country is frowned upon by the industry experts. Lack of smog in Europe, which runs predominantly on diesel engines is pointed out in defence of smoggy pollution of India being caused by factors other than diesel cars.

A recent Central Pollution Control Board (CPCB) study threw up important findings. According to the study, vehicles contribute only 6.6 percent to particulate emissions (PM) in Delhi. Road dust is the biggest contributor at 52.5 percent while industries contribute 22 percent and geography 19 percent. The contribution of road dust to PM pollution is a rampant concern across India. The sharp rise in PM10 (respiratory particulate matter) levels and the NOx (nitrogen oxide) levels are both attributable to public and industry apathy, it looks. Even with BS IV norms, the diesel emission levels are still far more than those of a petrol engine. Public and regulatory options must recognize the operating fuel price incentives available for preferring diesel cars and the lack of incentives for producing more efficient and environment-friendly diesel engines and cars . While the equalization of diesel and petrol pricing is a policy option with several undertones, the automobile industry and the oil industry must take the lead for technological solutions. 

Engine technologies 

The key to finding the right driving and emission options lies in the engine technologies. Diesel engines which are compression ignition engines have to be more rugged (bulkier, heavier and noisier), with the engines designed to meet the pressures needed to compress air to diesel ignition temperatures. This is compounded by the need for precise injection of diesel fuel in each of the cylinders. The introduction of common rail diesel system in diesel engines coupled with electronic injection of fuel has resulted in better combustion efficiency and better combustion balance across cylinders. These developments need to be pursued further to ensure more complete combustion of the diesel fuel. The injection technologies themselves need to be sharpened to ensure greater micro-mixing of fuels. The engine technologies, coupled with ultra-low sulfur diesel would help the efficiency cum emission cause. The choice of diesel engines currently available in India for passenger car applications is too small to evoke these competitive technological forces.  Indian manufacturers and the collaborators/parent corporations would need to bring in their best of diesel engine options to India to reposition the diesel engine technology based on performance and emission levels rather than on price and cost basis.

Ultra low-sulfur diesel 

Ultra-low sulfur diesel (ULSD) is diesel fuel with 15 parts per million or lower sulfur content. The US Environmental Protection Agency (EPA) requires 80% of the highway diesel fuel refined in or imported into the United States (100% in California) to be ultra-low sulfur diesel. One hundred percent was mandated to be ULSD nationwide by 2010 in USA. Ultra-low sulfur content in diesel fuel is beneficial because it enables use of advanced emission control technologies on light- and heavy-duty diesel vehicles. The combination of ULSD with advanced emission control technologies is sometimes called "clean diesel". Nitrogen oxides and particulate matter are the two most harmful diesel pollutant emissions. These emissions can be controlled with the use of catalytic converters and particulate traps. However, sulfur—in amounts that used to be allowable in diesel fuel—deactivates these devices and nullifies their emissions control benefits. Using ULSD enables these devices to work properly. In India, the national capital Delhi first introduced ULSD on April 1, 2010 as a step aimed at curbing vehicular pollution in the capital. However, the rollout of ULSD elsewhere as also modernization of the fleet on the roads or the use of pollution control equipment have been tardy, nullifying the potential benefit of ULSD.

Emission gap

India is on BS IV for emission norms, considered aligned with Euro IV emission regulations. The point to note is that while India is yet to achieve a nation-wide coverage of BS IV norms, Europe has already implemented Euro 5 norms and is committing to deploy Euro 6 standards by 2014.  Diesels have more stringent CO standards but are allowed higher NOx emissions. That is undergoing a significant squeeze. In respect of diesel engines, CO limits have been reduced to 0.5 gms per km in Euro 4 itself while NOx limits have been reduced from 0.25 gms per km in Euro 4 to 0.18 gms per km in Euro 5 and as low as 0.08 gms per km in Euro 6. In fact, NOx limits for diesel engines are now almost on par with those of petrol engines, indicating the huge strides diesel engine technologies would need to take meet the futuristic emission norms. In contrast, BS IV norms are yet to be rolled out beyond the National Capital Region and 13 major cities. If India takes the lead to leapfrog to Euro 6 norms, in respect of both diesel and petrol engines, clearly there would be a transformational change in the emission scenario of India.

Holistic approach

The increasing share of diesel engines in the Indian passenger car industry and the emission implications thereof can only be inadequately and somewhat improperly countered by manufacturer-driven price premiums on government driven additional taxation on diesel cars. The fuel pricing differential must be moderated and subsidies by the exchequer on fuel bills reduced. This would be a better option than keeping the subsidies on and seeking additional tax revenues. Manufacturers should be incentivized to invest in superior diesel and petrol engine technologies that meet first Euro 5 norms, and then Euro 6 norms, which should be introduced as early as possible with all-India applicability. The use of ultra low sulfur fuel must extend across the nation. And, most importantly, the nation as a whole, the governments as well as the society, must wake up to the urgent need to curb the menace of rampant atmospheric dust pollution.

Posted by Dr CB Rao on January 7, 2013

Tata Nano Technology Marvel: The Need for Marketing Muscle

When Ratan Tata set out on a mission to have Tata Motors design and manufacture the world’s smallest four door micro car with a capacity to seat comfortably a family of five adults at a price of INR 100,000 (USD 2000 approximately) which is less than half of the price of India’s ruling small car, Maruti Suzuki 800, there was disbelief. However, when Nano was finally unveiled in the 2008 AutoExpo, its successful development was welcomed with rapturous applause. And, when it could not be manufactured in the originally envisaged green-field plant at Singur there was disappointment all round  that one of the best indigenous industrial marvels of India was being stymied. Well-wishers followed Nano’s manufacturing journey from Singur in West Bengal to Sanand in Gujarat and appreciated Ratan Tata’s commitment and gumption to commercialize Nano despite the multitude of challenges.

Post launch, however, Nano car did not exactly set the Indian car market afire. It was received with a rather tepid response, and the initial glitches did not help the car either in its image. Given that the pricing was attractive and the car was cute and spacious the inability of Nano to translate the consumer and corporate expectations into robust market demand and sales is intriguing. Nano’s maximum monthly sales has not exceeded 10,000 units while the sales have languished below the 1,000 units per month for most months since its launch in 2008. This compares with market leading sales of Maruti Suzuki’s  Alto sub-compact car at over 35,000 units per month.  In fact, there would be no comparison of a new product that had, or probably would have, its performance-price equation so favorable for the consumer.  It is somewhat strange that management schools have not yet thought it fit to analyze Tata Nano from a management perspective. This blog post seeks to fill a vital gap in this respect, hoping also to throw some useful pointers to make Nano a mega success, a feat that the car, Tata Motors and Ratan Tata richly deserve.

‘Design to demand’ variance

The primary reason for Nano’s failure relative to its potential can be traced to the huge variance between the concept that triggered its design genesis and the platform on which it was eventually positioned in the marketplace. The genesis of Nano can be traced to Ratan’s desire to offer an affordable and safe car for the typical Indian small family of a couple and two or three children, which otherwise travels riskily on a two-seater two wheeler. Given that a high end two wheeler costs INR 70,000, Nano as a five seater, four door car at INR 100,000, with all its features, had an unbeatable value proposition. Given that India absorbs each year 20,000,000 two wheelers the demand potential for Nano even on the basis of conversion of only 10 percent of two wheeler buyers into Nano buyers would have been huge. Nano would have easily become the largest selling car in the Indian car market had events gone right for the car, several of them in the management’s own control.

This potential has not been realized mainly because the company fought shy of converting its design inspiration into a marketing value proposition. Either because of the Tatas’ corporate ethic of not directly attacking competitors or because of casual hope that Nano would have its own natural demand pull,  the company never had an aggressive marketing campaign that directly appealed to the Indian small family, especially the young family, on a platform of safety and security. The dilemma for the Tatas would have been whether such a campaign would imply that its co-industrialists market two-wheelers as unsafe family transportation vehicles or that the India traffic system turns a blind eye to the overloaded Indian two-wheelers on the road. Independent of such conundrums, the important lesson for corporations from the Nano experience is that the original design genesis and the ultimate marketing platform must have a clear nexus and alignment. The other lesson is that marketing must rise above the paradoxes to deliver a clear product proposition to the consumer, without fear or favor, and without prejudice or bias.

Gross and subtle, Mind and heart

Whenever the design inspiration for a new product is extraordinary and out of the box, even if it is seemingly explicit, the challenge for the marketer increases manifold. Successful companies have focused time, effort and cost to market and institutionalize new concepts in the consumer mind. A classic example is that of Samsung launching a massive campaign for its large smart phone Galaxy Note as a phone cum tablet, ‘phablet’, with the unique proposition of a stylus to write and sketch. The company did not think that it was distorting its own smart phone and tablet markets that were growing exceedingly well under the Galaxy umbrella brand, nor did it think that it was cannibalizing its own smart phones or tablets. The power of unique technological concepts needs to be demonstrated to the marketplace, also positioned in the minds of the consumers and instilled in in a gross manner. In respect of Nano, the technological innovation of the product should have been demonstrated with unceasing and high-force campaigns rather than sporadic and low profile advertisements. Mind space can be secured only through powerful, explicit and rational delineation in respect of technological factors.

Gross campaigns need to be reinforced with subtle messaging too, particularly when the product really needs to change the segment proportion within the overall market, and wrest the overall market share in competition with a different group of products made by competition. Nano was indeed faced with the dilemma of challenging the two wheeler segment with a superior value proposition of safety of a micro four wheeler. Gross messaging would have not served the purpose, apart from possibly being a strict no-no for the Tatas corporate competitive behavioral philosophy. Emotional subtlety that appeals to the heart is the key to such messaging. Here again, we have the example of Cadbury positioning its milk chocolates as a ‘sweet’ for homely and auspicious occasions in competition with traditional Indian sweets. For the Indian small family, the concept of caring for the life partner and protecting the kids through the small car as opposed to leaving them to the vagaries of environment and turbulence of road traffic in a two wheeler would have been highly effective, for example. Equally, in a society where owning a car is considered to be a symbol of having arrived to a noticeable stage in life, owning a Nano car at the very early start of the career, independent of the relative affluence, would be an impressive value proposition. Subtlety impacts heart positively, which in turns influences the mind share of the buyer.

Value qualifiers

All marketing literature talks about value for the consumer being a function of price and features of a product. In respect of Nano, technology speaks for itself in terms of compact exterior and spacious interior on one hand and the power to drive and fuel to conserve on the other. Any additional value drivers must appeal to both the mind and heart, if the above gross and subtle messaging is accepted. Electronic braking system and front and side air bags would reinforce the safety tag. Experimental evidence of crash test safety would reinforce the safety image even further. An ability to upgrade Nano to a Manza sedan as the family evolves in life, through Tata exchange and finance schemes, could be another value driver. It would be important for the company to first develop a list of various additional features that could add value as a comprehensive list of value qualifiers, and then select value drivers which are appropriate to different groups of customers. For example, a 2 DIN music system will be a stronger value add for a couple while a safety kit as outlined above will probably be a more welcome value add for a couple with babies or kids.

The fundamental value creation, however, starts at the dealer point. The low price of Nano means that the turnover on Nano sales and service would be the lowest for the typical dealership in the Tata family of vehicles. This problem is further compounded by the initial strategy of having a combined dealership covering all vehicles, from cars and utility vehicles to trucks and buses. The implication for Tata Motors as also to all other automobile manufacturers in India is that dealership can no longer be considered just a point of sale. The infrastructure and organization for automobile dealership would need to extend vertically along the product value chain as a continuum of design, development, manufacture, distribution, sales and service. Ideally, Tata Motors would need to have completely different dealerships for cars and utility vehicles on one hand and commercial vehicles (light, medium and heavy trucks and buses) on the other. In each case, the product should receive the same level of care; for example a Nano micro car should receive the same attention as a high end Aria crossover and an Ace mini-truck the same attention as a high end Prima luxury truck. Value qualification by dealership should be an important component of Nano resurgence strategy.

From breakeven to breakthrough

Tata Motors which has received acclaim for being the pioneer in indigenous development of passenger cars and utility vehicles has been losing ground in that segment in recent years. This has been admitted by Ratan Tata himself in the annual shareholders meeting of Tata Motors.  The appointment of Karl Slym, a GM veteran who had a successful stint in GM India, as the Managing Director of Tata Motors has been indicative of the resolve of Ratan Tata to turn around Tata Motors’ fortunes in the passenger car sector. Hopefully, Tata Nano will be a beneficiary of his attention, given that Tata Nano car initiative is at crossroads. The car has certainly seen a revving up of sales in recent months.  However, even with the recently achieved monthly high of 10,000 Nano cars, the production level is below the breakeven point of 150,000 Nanos per annum. Breakeven should not be a concern, however. To utilize the current capacity of 250,000 Nanos per annum and the potential capacity of 400,000 Nanos at the 75 acre site which also has an adjunct component park, Tata Motors requires breakthrough strategies.

Tata Nano is more than just one another passenger car model. It represents the passion and creativity of the Indian Business and the innovation and skill of the Indian engineers to develop and manufacture a passenger car with a feature and cost profile that no other automobile company, global or Indian could ever conceive of and commercialize. More than the success of Nano as a car model of Tatas, far more is at stake for the Tata Group as well as the Indian industry. The author of the blog post hopes that Tata Motors would persevere and make an enduring success of Tata Nano based on an effective strategic format. The announcement by Tata Motors that it would take Tata Nano to the US at an appropriate price tag is indicative of the resolve of the management to take up the challenge by scaling even higher bars. As this blog post brings out, an integrated techno-marketing strategy, customized to the marketplace, is required to reposition Nano car for accelerated growth in India and also position it for successful entry into advanced countries.   

Posted by Dr CB Rao on October 24, 2012