Will the ongoing transition from Internal Combustion Engine Vehicles to Battery Electric Vehicles (BEVs) disrupt the incumbent automaker manufacturers, and lead to a new, modular production structure with new players, including value migration towards battery makers? What about the rise of various Mobility-as-a-Service firms leveraging connectivity and software prowess?
While projections on the decline of automotive incumbents from pundits and analysts abound and the rhetoric of disruption is rife, a closer look reveals a subtler picture. Using the automotive sector and its adjacent mobility ecosystem, we critically consider the nature of technological disruption and how it affects the existing industrial order. We find that BEVs are not as modular as predicted, which is in turn reflected in both organizational structure (of assembly) and industry architecture in spite of efforts to modularize by some new entrants.
In the broader mobility ecosystem, we discuss how efforts of Big Tech firms and ride-hailing companies to advance the CASE (connected, autonomous, shared, electric) vehicles will impact the automakers and what they are doing to defend their value proposition. In so doing, we put forth a thesis to temper undue enthusiasm with disruption. Specifically, we propose a third way of looking at innovation in addition to the classic dichotomy of Schumpeterian Mark I and Mark II, which represent disruptions through innovative (de novo) entrants and persistence of leading firms’ dominance through their internalization of innovation, respectively.
This structure, which we dub “Mark III”, is characterized by a much tighter connection between incumbents and new entrants, with incumbents acquiring, allying with, and forming ecosystems around such agents of change. Mark III, prevalent in cases of blurring industry boundaries also sees an increasing role of incumbents in sectors powered by data, digital analytics and access to the customers (a.k.a. Big Tech) in the new industrial order, though here, too, this works through a collaboration with existing leading firms. This helps us contextualize and expand onto recent work on “disruption through complements”, and offer some bounds to the expectation of disruption, while raising concerns about the exercise of market power.
We argue that focusing on such Mark III dynamics will help us better understand the increasingly common morphing of physical goods with digital elements taking place in various contexts.
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