MBA 580 Chief Technology Officer (CTO) Brief

Over the past three decades, sensors have been increasingly integrated into automobiles. Currently, a

typical car has 50–100 sensors (Tyler, 2016), and this is expected to grow to as many as 200 over the

next few years. These sensors measure everything from oil levels to the distance from the car in front.

These sensors currently connect (Computers in Your Car, 2018). These computer systems can warn of a

collision or an engine problem and communicate the condition to the driver (e.g., turn on the check

engine light).

Increasingly, these computers are connected wirelessly via the internet to other computers, like the

user’s phone for things like remote starting, and to the manufacturer to help generate predictive

maintenance recommendations. The commercial term currently used for this is connected cars.

Technically, this is part of the internet of things (IoT) concept—where devices from refrigerators to door

locks are connected via the internet for convenient access by the user from phones, computers, and

personal automobiles.

Currently, and in the immediate future, connected cars will help the driver navigate, find the cheapest

gas station, locate the nearest Starbucks or parking lot with open spaces, and allow friends on social

media to know when their friend will arrive. As more semi-autonomous driving features are added over

the next few years, these wireless computers will also talk to other cars to help predict their next move

and communicate to road sensors to monitor conditions (Gossett, 2019). Eventually, enough

information will be provided to and from the connected car that autonomous driving will become

commonplace.

It is estimated that the market for IoT-connected cars will grow from $54 billion in 2019 to over $510

billion by 2030 at a 25% compound annual growth rate (CAGR) (Meola, 2020). This compares with an

overall industry growth of 4.1% (The Global Automotive Motors Market Size Is Projected to Grow from

USD 20,321 Million in 2020 to USD 25,719 Million by 2025, at a CAGR of 4.8%, 2020).

Our company is marketing some connected car capability—but we are not the leader. We need to

innovate so that our products can be competitive in the rapidly growing market. Our cars have sensors

and computers, and our technology expertise is competitive. We have some connectivity—driver apps

for keyless start and OnStar (The Benefits of OnStar | Keeping You Safe and Secure, n.d.) connectivity to

detect accidents and alert first responders. Our growth and ultimate health as an enterprise depends on

us taking the leadership or, at least, keeping up with the leaders. Furthermore, there is significant

opportunity to improve our customer satisfaction and increase our repair and parts revenue streams by

alerting customers to needed maintenance before an expensive breakdown occurs on the road.

With our current technology implementation plan, however, we expect to grow at 3.1%, about 1% less

than the industry. Our growth projection for connected cars is 10.2%—less than the industry at large.

We must speed up our innovation or risk losing market share.

Here is what we estimate our competitors are doing and how fast they are adding technology. The

leader among existing auto manufacturers is BMW. BMW cars have significant connectivity to

information services now. Some driver-assist functions, such as auto-parking and lane-keeping, have

been in BMW models for several years. Market research suggests that BMW will have a full suite of

information connectivity in their cars within several years and that the company will begin producing

fully autonomous driving machines within 12 years. Toyota has fully integrated social media in Japan

and expects to implement it in European and U.S. markets, subject to 5G wireless availability.

Volkswagen is about where we are—but has partnered with Microsoft to jump ahead.

Competitors from outside the traditional automobile manufacturers are also indicating that they intend

to enter the connected car market with disruptive technologies. Apple, for example, is aiming for a fully

autonomous delivery vehicle by the mid-2020s and an autonomous passenger car within a decade.

Our goal is to launch an autonomous vehicle following quickly after BMW, our main luxury competitor.

However, we have a long way to go. We are considering two ways to get there: A) Introducing a radical

innovative design in several years or B) Introducing incremental improvements faster than we have in

the past and improving our current models each year. Option A does not prevent us from continuing to

introduce incremental improvements in the interim.

Our approach will depend on your analysis of our capabilities to innovate. How can we get the

technology being researched in our lab ready—how can we develop it, produce it, and take it to market?

What technology do we already have, and what will we need to acquire? What are our competitors

doing, and are there weaknesses we can exploit?

The two paths we can take are discontinuous or radical innovation, or incremental innovation.

What do I mean by this?

 Discontinuous or radical innovation. This would be more expensive—a completely new model is

expensive—as much as $6 billion (Viswanathan, 2013). A major redesign and recent technology

integration are also riskier to develop—we might fail—and it would take longer to get to market.

We might require enough of our existing resources that we could fall behind with our current

models, but it also might provide insight in incremental changes to current models while we

developed a major new product line. It is a lot to think about. That said, we could take the

leadership position ourselves in the growing market and better protect ourselves from

competitors. If we took this path, we would first introduce a new high-end model and, as we

brought costs down, rapidly deploy it across our whole product line, using this innovation

process to accelerate our ability to innovate.

 Incremental innovation. The automobile is a mature technology—the modern automobile is

over a century old and it has been changing and adapting over that time. Our company does

incremental innovation as well as our major competitors and the costs are built into our way of

doing business. Given how we build automobiles today, we can continue to add sensors,

computers, and IoT capabilities each model year just by upgrading modules. There are risks,

though: 1) Could changes in the market impact what customers demand? A faster competitor or

a new entrant could produce a breakthrough in automobiles that makes everything else

obsolete. It has happened in other mature industries—could it happen here? 2) Are we missing

significant new opportunities (e.g., market growth overall or opportunities in integrated

maintenance, service revenues and parts, or a high-margin business) that we do not control

now?

References:

Tyler, N. (2016, December 14). Demand for automotive sensors is booming. Newelectronics.Co.Uk. https://www.newelectronics.co.uk/electronics-technology/automotive-sensors-market-is-booming/149323/#:%7E:text=Currently%2C%20each%20vehicle%20has%20from,car%20based%20on%20current%20trends

Computers in your car. (2018, January 24). AAMCO Colorado. https://www.aamcocolorado.com/computers-in-your-car/#:%7E:text=Your%20Car’s%20Computer,controls%20to%20meet%20emissions%20standards

Gossett, S. (2019, August 13). IoT in vehicles: A brief overview. Built In. https://builtin.com/internet-things/iot-in-vehicles

Meola, A. (2020, March 10). How 5G & IoT technologies are driving the connected smart vehicle industry. Business Insider. https://www.businessinsider.com/iot-connected-smart-cars?international=true&r=US&IR=T

The global automotive motors market size is projected to grow from USD 20,321 million in 2020 to USD 25,719 million by 2025, at a CAGR of 4.8%. (2020, August 17). PR Newswire. https://www.prnewswire.com/news-releases/the-global-automotive-motors-market-size-is-projected-to-grow-from-usd-20-321-million-in-2020-to-usd-25-719-million-by-2025–at-a-cagr-of-4-8-301113089.html#:%7E:text=%2F%3Futm_source%3DPRN-,The%20global%20automotive%20motors%20market%20size%20is%20projected%20to%20grow,at%20a%20CAGR%20of%204.8%25.&text=The%20growing%20adoption%20of%20these,demand%20for%20safety%20and%20convenience

The benefits of OnStar | Keeping you safe and secure. (n.d.). OnStar. https://www.onstar.com/us/en/why-onstar/

Viswanathan, B. (2013, May 7). Why are cars not getting cheap even with better economies of scale? Forbes. https://www.forbes.com/sites/quora/2013/05/07/why-are-cars-not-getting-cheap-even-with-better-economies-of-scale/?sh=3ad2b1045ad9